COB Conduct of Business

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COB 1

General
application

COB 1.1

Application and Purpose

  • 01/12/2004

Application

COB 1.1.1

handbook-guidance
COB applies to every firm (except an ICVC) as specified in the remainder of this chapter.
  • 01/12/2001

Purpose

COB 1.1.2

handbook-guidance
The purpose of this chapter is to set out to whom, for what activities, and within what territorial limits the rules, evidential provisions and guidance in COB apply.
  • 01/12/2001

COB 1.2

General application: who?

  • 01/12/2004

COB 1.2.1

handbook-rule

COB applies to every firm in respect of the activities set out in COB 1.3.1 R, except that:

  1. (1) [deleted]
  2. (2) for a UCITS qualifier and a service company that does not operate an ATS, only COB 1.9 (Application to electronic commerce activity providers), COB 3 (Financial promotion), COB 7.17 (Investment research recommendations: required disclosures) and any provision of COB incorporated into COB 1.9 or COB 3 by reference, apply;
  3. (2A) for a service company that operates an ATS, only COB 1.9 and COB 3, any provision of COB incorporated into COB 1.9 or COB 3 by reference, and COB 7.17 (Investment research recommendations: required disclosures) and, in relation to the operation of the ATS, COB 4.2 (Terms of business), apply;
  4. (3) COB does not apply to an ICVC;
  5. (4) COB does not apply to an authorised professional firm with respect to its non-mainstream regulated activities except for:
    1. (a) COB 2.1 (Clear, fair and not misleading communication);
    2. (b) COB 3 (Financial promotion); and
    3. (c) the following provisions of COB 4.2 (Terms of business and client agreements with customers): COB 4.2.1 R to COB 4.2.6 G, COB 4.2.12A E and COB 4 Ann 2E(25); and
    4. (d) the IMD minimum implementation provisions and COB 4.3.19 R to COB 4.3.25 R as if they also applied to a firm carrying out the activities in COB 4.3.19R (1)(a) with or on behalf of private customers, unless:
      1. (i) the designated professional body of the firm has made rules which implement some or all of the provisions of articles 12 and 13 of the IMD;
      2. (ii) those rules have been approved by the FSA under section 332(5) of the Act; and
      3. (iii) the firm is subject to the rules in the form in which they were approved;
  6. in which case they are disapplied to the extent that articles 12 and 13 of the IMD are implemented by the rules of the designated professional body.

COB 1.2.1A

handbook-guidance
If a firm engages in insurance mediation activities for non-investment insurance contracts, ICOB applies and COB does not apply.
  • 14/01/2005

COB 1.2.1B

handbook-guidance

The effect of COB 1.2.1 R (4)(d) is that if the relevant designated professional body of an authorised professional firm does not make rules implementing articles 12 and 13 of the IMD applicable to authorised professional firms, those firms will need to comply with:

  1. (a) the IMD minimum implementation provisions; and
  2. (b) COB 4.3.19 R to COB 4.3.25 R as if they also applied to a firm carrying out the activities in COB 4.3.19R (1)(a) with or on behalf of private customers.

COB 1.2.2

handbook-guidance
A UCITS qualifier should be aware of the requirements of CIS 17.4 (Facilities in the United Kingdom).
  • 01/12/2001

COB 1.2.3

handbook-guidance
COB 6.7 (Cancellation and withdrawal) confers rights on customers to rescind agreements with, or withdraw offers from, firms within a specified period.
  • 01/12/2001

COB 1.2.4

handbook-guidance
COB 3 (Financial promotion) is available for nationals of EEA States (other than the United Kingdom) wishing to take advantage of article 36 of the Financial Promotion Order.
  • 01/12/2001

COB 1.2.5

handbook-guidance

Authorised professional firms should be aware of the following:

  1. (1) PROF 5 (Non-mainstream regulated activities);
  2. (2) COB 3.1.5 R (Authorised professional firms) and the exemption in article 55 of the Financial Promotion Order (Communications by members of professions) which applies in relation to financial promotions of authorised professional firms under COB 3.5.5 R (2) (Exemptions);
  3. (3) COB 4.2.3 G which contains guidance for authorised professional firms on the provision of terms of business; and
  4. (4) COB 7.17 which relates to disclosures required to be made in relation to investment research recommendations as a result of the Market Abuse Directive.

Use of third party processors in life insurance mediation activities

COB 1.2.6

handbook-rule
  1. (1) Where a firm (or its appointed representative) outsources insurance mediation activities to a third party processor, it is responsible for the acts and omissions of that third party processor conducting those outsourced activities. In these circumstances, any COB rules requiring the third party processor to disclose identity to customers must be interpreted as a requirement to disclose the firm's identity.
  2. (2) If the third party processor is advising on investments, (1) does not apply.
  • 06/12/2006

COB 1.3

General application: what?

  • 01/12/2004

COB 1.3.1

handbook-rule

COB applies to firms with respect to the carrying on of:

  1. (1) all regulated activities except:
    1. (a) home finance activities; or
    2. (b) to the extent that a provision of COB provides for a narrower application; or;
    3. (c) insurance mediation activities in connection with non-investment insurance contracts; and
  2. (2) unregulated activities to the extent specified in any provision of COB.

COB 1.3.2

handbook-guidance
  1. (1) The approach in COB is to ensure that each rule, or, as appropriate, the rules in a section or part of a section, are applied to firms in respect of particular regulated activities or unregulated activities or, in the case of COB 3 (Financial promotion), in relation to particular kinds of promotion.
  2. (2) Most of COB applies in relation to regulated activities, conducted by firms, which fall within the definition of designated investment business. In relation to deposits, COB has limited application, as described in COB 1.11 (Application of COB in relation to deposits).
  3. (3) The scope of the regulated activities to which COB applies is determined by the description of the activity as it is set out in the Regulated Activities Order. Accordingly, a firm will not generally be subject to COB in relation to any aspect of its business activities which fall within an exclusion found in the Regulated Activities Order. The definition of designated investment business includes, however, activities within the exclusion from dealing in investments as principal in article 15 of the Regulated Activities Order (Absence of holding out etc).
  4. (4) COB has limited application to Lloyd's related activities as set out in Chapter XIII of Part II of the Regulated Activities Order. Firms are reminded of the provisions of COB 12 (Lloyd's).
  5. (5) COB 3 (Financial promotion) applies to a firm which communicates or approves a financial promotion, but see (6);
  6. (6) Firms are reminded that COB 3 (Financial promotion) has limited application to a firm carrying on a takeover or related operation. (See COB 3.2.3A R and COB 3.2.5 R)
  7. (7) MCOB applies to a firm that carries on home finance activity .
  8. (8) ICOB applies to a firm in relation to insurance mediation activities in connection with non-investment insurance contracts.

Application for private customers, intermediate customers, market counterparties and retail customers

COB 1.3.3

handbook-guidance
  1. (1) The application of many provisions in COB depends on the classification of the client with whom a firm is conducting business. A client must fall within one of three classifications: private customer, intermediate customer or market counterparty. In COB, the term "customer" refers to private customers and intermediate customers, but not market counterparties. The term "client" covers customers and market counterparties. Where relevant, each of the provisions of COB makes clear whether it applies to activities carried on with or for private customers, intermediate customers or both.
  2. (2) [deleted]
  3. (3) Some rules in COB (mainly those relating to distance contracts) use the term "retail customer" rather than "customer", "private customer" or "intermediate customer". A retail customer is an individual who is acting for purposes which are outside his trade, business or profession.
  • 01/01/2004

Inter-professional business

COB 1.3.4

handbook-rule

Only the following provisions of COB apply with respect to the carrying on of inter-professional business:

  1. (1) this chapter;
  2. (2) COB 2.4 (Chinese walls);
  3. (3) COB 4.1 (Client classification);
  4. (3A) COB 5.5 (Information about the firm), except COB 5.5.1 R - COB 5.5.8 G;
  5. (4) COB 7.13 (Personal account dealing).
  • 01/12/2004

COB 1.3.5

handbook-guidance

Firms are reminded that the definition of inter-professional business does not include:

  1. (1) the approval of a financial promotion - COB 3 (Financial promotion) has a limited application in this context (see COB 3.2.3A R and COB 3.2.5 R);
  2. (2) [deleted]
  3. (3) offering, giving, soliciting or accepting inducements for the purpose of or in connection with activities falling within the scope of COB 2.2 (Inducements) will apply in this context;
  4. (4) corporate finance business;
  5. (5) concluding a distance contract with a retail customer; or
  6. (6) regulated activities relating to life policies.

COB 1.4

General Application: where?

  • 01/12/2004

COB 1.4.1

handbook-guidance
The rules in COB 1.4 set out the maximum territorial scope of this sourcebook. Particular rules may have express territorial limitations.
  • 01/03/2003

UK establishments: general

COB 1.4.2

handbook-rule
Except as set out in this section, this sourcebook applies in relation to activities carried on from an establishment maintained by the firm (or its appointed representative) in the United Kingdom only.
  • 01/03/2003

Business with UK clients from non-UK offices

COB 1.4.3

handbook-rule

This sourcebook applies in relation to activities not within COB 1.4.2 R (UK establishments: general) carried on with or for a client in the United Kingdom, except in any of the following cases:

  1. (1) this sourcebook does not apply in relation to an activity carried on from an office outside the United Kingdom which, if that office were a separate person, would fall within the overseas persons exclusions in article 72 of the Regulated Activities Order or would not be regarded as carried on in the United Kingdom; or
  2. (2) COB 4.2 (Terms of business and client agreements with customers), COB 5 (Advising and selling) and COB 6 (Product disclosure and the customer's right to cancel or withdraw) do not apply to a firm with respect to an activity exclusively concerning a distance contract with a retail customer, if the following conditions are satisfied:
    1. (a) the firm carries on the activity from an establishment maintained by the firm in an EEA State other than the United Kingdom;
    2. (b) either that EEA State:
      1. (i) has implemented the DMD; or
      2. (ii) has obligations in its domestic law corresponding to those provided for by the DMD;
    3. and, in either case, with the result that the obligation provided for by the DMD (or corresponding obligations) are applied by that State when the firm carries on that activity; and
    4. (c) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty ; or
  3. (3) (except as set out in (2) and in COB 1.4.12 R (IMD passported activities)) when an incoming EEA firm is providing cross-border services in the United Kingdom under the IMD.

COB 1.4.4

handbook-rule
In addition to the situations in COB 1.4.2 R and COB 1.4.3 R, COB 5.5.7 R (Overseas business for UK private customers) applies wherever the activity is conducted.
  • 01/03/2003

Financial promotions

COB 1.4.5

handbook-rule
Notwithstanding COB 1.4.2 R and COB 1.4.3 R, the territorial scope of the financial promotion rules COB 3) is as set out in COB 3.3 (Application: where?).
  • 01/03/2003

ISD investment firms: compensation information

COB 1.4.6

handbook-rule
In addition to the situations in COB 1.4.2 R and COB 1.4.3 R, COB 5.5.9 R to COB 5.5.12 R apply to a UK firm which is an ISD investment firm in relation to passported activities carried on by it from a branch in another EEA State.
  • 01/03/2003

Life policies

COB 1.4.7

handbook-rule

In addition to the situations in COB 1.4.2 R and COB 1.4.3 R, COB 6 (Product disclosure and the customer's right to cancel or withdraw) applies in relation to life policies if the habitual residence of the client is in the United Kingdom, except:

  1. (1) COB 6.3 (Post-sale confirmation: life policies);
  2. (2) COB 6.9 (With-profits guides); and
  3. (3) (in relation to the conclusion of a distance contract with a retail customer and if the conditions in COB 1.4.3 R (2) are satisfied) COB 6.7 (Cancellation and withdrawal) and any provision of COB 6 which requires the provision of information prior to the conclusion of the contract.

Electronic commerce activities and communications

COB 1.4.10

handbook-rule
The territorial scope of this sourcebook is modified by ECO in relation to electronic commerce activities and electronic commerce communications.
  • 01/03/2003

COB 1.4.11

handbook-guidance
COB 1.9 contains guidance on how this sourcebook is modified by ECO.
  • 01/03/2003

IMD passported activities

COB 1.4.12

handbook-rule
  1. (1) Notwithstanding COB 1.4.2 R, the IMD minimum implementation provisions apply, on the basis outlined in (4), to the passported activities carried on by a UK firm under the IMD from a branch elsewhere in the EEA unless the Host State regulator imposes measures which implement articles 12 and 13 of the IMD for those activities.
  2. (2) Notwithstanding COB 1.4.2 R, the provisions in COB which implement articles 12 and 13 of the IMD (including COB 4.3.3R (1)(b)(i) (provision of initial disclosure document and fees and commission statement)) do not apply, on the basis outlined in (4), to a UK firm providing cross-border services in another EEA State under the IMD or the Consolidated Life Directive, except that the IMD minimum implementation provisions apply, on the basis outlined in (4), to a UK firm providing cross-border services in another EEA State under the IMD if the Host State regulator does not impose measures which implement the articles for those activities.
  3. (3) The IMD minimum implementation provisions apply, on the basis outlined in (4), to an incoming EEA firm providing cross-border services in the United Kingdom under the IMD unless the firm's Home State regulator imposes measures which implement the articles for these activities.
  4. (4) The IMD minimum implementation provisions apply to an activity pursuant to this rule as follows:
    1. (a) as outlined in the IMD minimum implementation provisions; and
    2. (b) as if COB 4.3.19 R to COB 4.3.25 R also applied to a firm carrying out the activities in COB 4.3.19R (1)(a)-(c) with or on behalf of private customers.
  5. (5) The only provisions in COB that apply to passported activities carried on by an EEA firm under the IMD from a branch in the UK are:
    1. (a) the IMD minimum implementation provisions, on the basis in (4), unless the firm's Home State regulator imposes measures which implement articles 12 and 13 of the IMD for these activities;
    2. (b) COB 1.4.5 R (Financial promotions), COB 1.4.4 R (Overseas business for UK private customers) and COB 1.4.10 R (Electronic commerce activities and communications);
    3. (c) the other provisions in COB relating to articles 12 and 13 of the IMD (beyond the minimum required to implement these articles), unless the firm's Home State regulator imposes measures of like effect for those activities; and
    4. (d) (if the activities are in connection with a distance contract with a retail customer) the provisions in COB which implement the DMD, unless the firm's Home State imposes measures which implement, or correspond to obligations provided for by, the DMD.

COB 1.4.13

handbook-guidance
  1. (1) The IMD minimum implementation provisions are the minimum provisions required for the implementation of articles 12 and 13 of the IMD.
  2. (2) The effect of COB 1.4.12 R is to apply these minimum provisions to firms in respect of their insurance mediation activities passported under the IMD if other EEA States have not implemented articles 12 and 13 of the IMD for those activities.
  3. (3) Firms are reminded that insurers have passporting rights under the Consolidated Life Directive but not under the IMD.
  • 01/12/2004

COB 1.5

Application to Occupational pension scheme firms ('OPS firms')

  • 01/12/2004

COB 1.5.1

handbook-rule

In the case of OPS activity undertaken by an OPS firm, COB applies with the following general modifications:

  1. (1) references to customer are to the OPS or welfare trust, whichever fits the case, in respect of which the OPS firm is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on; and
  2. (2) where an OPS firm is required by any rule in COB to provide information to, or obtain consent from, a customer, that firm must ensure that the information is provided to, or consent obtained from, each of the trustees of the OPS or welfare trust in respect of which that firm is acting, unless the context requires otherwise.
  • 01/12/2001

COB 1.6

Application to stock lending activity, corporate finance business, oil market activity and energy market activity

  • 01/12/2004

Stock lending activity

COB 1.6.1

handbook-rule
In respect of any stock lending activity undertaken with or for a customer by a firm, only those provisions of COB in COB 1.6.2 R apply.
  • 01/12/2001

COB 1.6.2

handbook-rule

Stock lending activity

This table belongs to COB 1.6.1 R

Corporate finance business

COB 1.6.3

handbook-rule
In respect of any corporate finance business undertaken by a firm, only those provisions of COB in COB 1.6.4 R apply.
  • 01/12/2001

COB 1.6.4

handbook-rule

Provisions of COB applied to corporate finance business

This table belongs to COB 1.6.3 R

COB 1.6.5A

handbook-guidance
COB 6.7 (Cancellation and withdrawal) has limited application for corporate finance business. Distance contracts concluded with retail customers in the course of corporate finance business are exempt from COB 6.7 if the price of the financial service is dependent on fluctuations in the financial market outside the firm's control (COB 6.7.17, row 2, case 15(a)).
  • 01/12/2004

Oil market activity and energy market activity

COB 1.6.6

handbook-rule

Only the provisions of COB listed in COB 1.6.7 R apply in respect of:

  1. (1) oil market activity; and
  2. (2) other energy market activity;
undertaken by any firm (but see COB 1.6.8 R).
  • 01/12/2001

COB 1.6.7

handbook-rule

Provisions applied to oil market activity and energy market activity

This table belongs to COB 1.6.6 R

COB 1.6.8

handbook-rule

Despite COB 1.6.6 R, only the provisions of COB listed in COB 1.6.9 R apply to:

  1. (1) oil market activity; or
  2. (2) other energy market activity; undertaken by any firm where, if the firm were not authorised, the activity would not be a regulated activity because of:
  3. (3) article 16 of the Regulated Activities Order (Dealing in contractually based investments); or
  4. (4) article 22 of the Regulated Activities Order (Deals with or through authorised persons etc.).
  • 20/09/2001

COB 1.6.9

handbook-rule

Oil market activity and energy market activity: provisions applied to certain dealings with or through authorised persons etc.

This table belongs to COB 1.6.8 R.

COB 1.6.10

handbook-guidance

Article 16 of the Regulated Activities Order (Dealing in contractually based investments) sets out an exclusion for unauthorised persons who deal in investments as principal in contractually based investments. The exclusion relates to dealings:

  1. (1) with or through an authorised person or, in certain cases, an exempt person; or
  2. (2) in certain cases, through an office outside the United Kingdom maintained by a party to the transaction.
  • 20/09/2001

COB 1.6.11

handbook-guidance

Article 22 of the Regulated Activities Order (Deals with or through authorised persons) sets out an exclusion for unauthorised persons who deal in investments as agent. The exclusion relates to dealings with or through an authorised person if:

  1. (1) the transaction is entered into on advice given to the client by an authorised person; or
  2. (2) it is clear, in all the circumstances, that the client, in his capacity as an investor, is not seeking and has not sought advice from the agent as to the merits of the client's entering into the transaction (or the agent has declined to give such advice but has recommended the client seek such advice from an authorised person); and in either case, the agent does not receive from any person other than the client any pecuniary reward or advantage for which he does not account to the client.
  • 20/09/2001

COB 1.6.12

handbook-rule
Despite COB 1.6.6 R to COB 1.6.11 G, if a firm that is undertaking oil market activity or other energy market activity operates an ATS, COB 4.2 (Terms of business) applies in relation to the operation of the ATS.
  • 01/04/2004

COB 1.7

Appointed representatives

  • 01/12/2004

COB 1.7.1

handbook-guidance
  1. (1) Although COB does not apply directly to a firm's appointed representatives, a firm will always be responsible for the acts and omissions of its appointed representatives in carrying on business for which the firm has accepted responsibility (section 39(3) of the Act). In determining whether a firm has complied with any provision of COB, anything done or omitted by a firm's appointed representative (when acting as such) will be treated as having been done or omitted by the firm (section 39(4) of the Act).
  2. (2) Firms should also refer to SUP 12 (Appointed representatives), which sets out requirements which apply to firms using appointed representatives.
  • 01/12/2001

COB 1.8

Application to electronic media

  • 01/12/2004

COB 1.8.1

handbook-guidance
GEN 2.2.14 R (References to writing) has the effect that electronic media may be used to make communications that are required by the Handbook to be 'in writing' unless a contrary intention appears.
  • 01/12/2001

Additional guidance in respect of electronic communication with or for customers

COB 1.8.2

handbook-guidance

For any electronic communication with a customer, a firm should:

  1. (1) have in place appropriate arrangements, including contingency plans, to ensure the secure transmission and receipt of the communication; it should also be able to verify the authenticity and integrity of the communication; the arrangements should be proportionate and take into account the different levels of risk in a firm's business;
  2. (2) be able to demonstrate that the customer wishes to communicate using this form of media; and
  3. (3) if entering into an agreement, make it clear to the customer that a contractual relationship is created that has legal consequences.
  • 01/12/2001

COB 1.8.3

handbook-guidance
Firms should note that GEN 2.2.14 R does not affect any other legal requirement that may apply in relation to the form or manner of executing a document or agreement.
  • 01/12/2001

COB 1.9

Application in relation to electronic commerce activities and communications

  • 01/12/2004

Application and purpose

COB 1.9.1

handbook-guidance
  1. (1) COB 1.9.1 G and COB 1.9.2 G apply to a firm:
    1. (a) which is an electronic commerce activity provider, that is, any firm which carries on an electronic commerce activity; and
    2. (b) in relation to a financial promotion which is an electronic commerce communication.
  2. (2) Paragraph (1) means that firms need to be aware of this section whenever they are providing a service which:
    1. (a) is normally provided for remuneration;
    2. (b) is provided at a distance;
    3. (c) is so provided by means of electronic equipment for the processing (including digital compression) and storage of data; and
    4. (d) is so provided at the individual request of a recipient of the service.
  3. (3) The purpose of this section is to indicate, for the benefit of such firms, the extent to which and the general manner in which the normal provisions of COB are modified by ECO.
  • 01/11/2002

Modification of COB resulting from the E-Commerce Directive

COB 1.9.2

handbook-guidance

The modifications made to COB resulting from the introduction of the E-Commerce Directive are of three kinds:

  1. (1) ECO 1.1.6 R modifies COB so that a firm providing an electronic commerce activity from an establishment elsewhere in the EEA to a recipient who is in the United Kingdom (an incoming ECA provider) is not required to comply with any provision of COB except to the extent required by ECO 1. These exceptions relate to the 'consumer contract derogation' (see ECO 1.2) and to the 'insurance derogation' (see ECO 1.3);
  2. (2) ECO 2:
    1. (a) modifies COB so that, in relation to a financial promotion which is an outgoing electronic commerce communication, COB 3 has an extended application to cover the whole of the EEA;
    2. (b) obliges such a firm, in providing an electronic commerce activity within the EEA, to comply with the minimum information and other requirements in the E-Commerce Directive; and
    3. (c) relieves such a firm of the obligations covered by the derogations in ECO 1.
  3. otherwise COB applies in the usual way to such a firm.
  4. (3) ECO 3 applies to a firm providing an electronic commerce activity from an establishment in the United Kingdom to a recipient who is in the United Kingdom or in a non-EEA State (a domestic ECA provider). Such a firm has to comply with COB in the usual way and so the requirements in ECO 3 are in addition to COB. ECO 3 sets out the minimum information and other requirements in the E-Commerce Directive.
  • 01/11/2002

The Distance Marketing Directive

COB 1.9.3

handbook-guidance
The Distance Marketing Directive is also relevant for electronic commerce activities and communications. The E-Commerce Directive applies in relation to any commercial transaction entered into over the Internet; the Distance Marketing Directive applies only in relation to contracts for financial services concluded exclusively by any means of distance communication such as telephone, fax or mail as well as electronic communications. COB 1.10.3G (2)(b) (Application of the Distance Marketing Directive and the Distance Marketing Regulations) provides guidance on the Distance Marketing Directive.
  • 09/10/2004

COB 1.10

Application of the Distance Marketing Directive and the Distance Marketing Regulations

  • 01/12/2004

COB 1.10.1

handbook-guidance
This section provides guidance on certain expressions used in COB that are derived from the Distance Marketing Directive and on the application of the Distance Marketing Regulations.
  • 09/10/2004

Initial service agreement and successive operations

COB 1.10.2

handbook-guidance

This sourcebook adopts the concepts of "initial service agreement" and "successive operations" from the DMD.

  1. (1) A firm's contract with a customer may take the form of an initial service agreement under which successive operations or a series of separate operations of the same nature are performed over time. Where this is the case, the DMD disclosure and cancellation requirements apply in relation to the initial service agreement only and not to the successive or separate operations. However, if new elements are added to the initial service agreement, the addition of those new elements is treated as a new contract to which the DMD disclosure and cancellation requirements apply. In accordance with recital 17 of the Distance Marketing Directive, examples are:
    1. (a) the opening of a bank account, which would be an initial service agreement, and the deposit or withdrawal of funds from that account which would be a successive or series of separate operations under that initial agreement; however, adding a debit card to the account would be the addition of a new element involving a separate contract; and
    2. (b) concluding an investment management agreement would be an initial service agreement, and carrying on discretionary or advisory transactions under that agreement would be a successive or a series of separate operations under it.
    3. Other examples are, in the FSA's view:
    4. (c) opening a brokerage account for the purposes of trading securities, and transactions under that account;
    5. (d) establishing a facility to enable a customer to subscribe to an ISA for the present and future tax years, and successive subscriptions under that agreement;
    6. (e) subscribing to an investment trust savings scheme, and successive purchases or sales of shares under that scheme; and
    7. (f) concluding a life policy, personal pension scheme or stakeholder pension scheme that includes a pre-selected option providing for future increases or decreases in regular premiums or payments, and subsequent index-linked changes to those premiums or increases or decreases to pension contributions following fluctuations in salary.
  2. (2) Even if a firm has not entered into an initial service agreement with a retail customer, but simply performs successive operations or a series of separate operations of the same nature for a retail customer over time, the DMD disclosure requirements will not apply to the successive or separate operations, provided there has been an operation of the same nature within the past year. But if it has been longer than a year, the next operation will be treated as the first in a new series of operations and the DMD disclosure requirements will apply. In accordance with recital 17 of the Distance Marketing Directive, an example of "successive operations" is the subscription to units of the same collective investment scheme.

Retail customer

COB 1.10.3

handbook-guidance
  1. (1) The Distance Marketing Directive provides protections for 'any natural person who, in distance contracts... is acting for purposes which are outside his trade, business or profession', for which the FSA uses the term 'retail customer'. In practice, private individuals may act in a number of capacities. In the FSA's view retail customer does not include an individual acting, for example:
    1. (a) as trustee of a trust such as a housing or NHS trust; or
    2. (b) as member of the governing body of a club or other unincorporated association such as a trade body or a student union; or
    3. (c) as a pension trustee (but see COB 6.4.19 and COB 6.7.8 regarding the information and cancellation rights of such trustees).
  2. (2) Examples of retail customers are:
    1. (a) personal representatives, including executors, unless they are acting in a professional capacity, for example, a solicitor acting as executor; or
    2. (b) private individuals acting in personal or other family circumstances for example, as trustee of a family trust.
  • 09/10/2004

Distance contract

COB 1.10.4

handbook-guidance
  1. (1) To be a distance contract, a contract must be concluded under an 'organised distance sales or service-provision scheme' run by the contractual provider of the service who, for the purpose of the contract, makes exclusive use (directly or through an intermediary) of one or more means of distance communication up to and including the time at which the contract is concluded. The expression 'organised distance sales or service-provision scheme' is not defined in the DMD, but:
    1. (a) recital 15 of the DMD states that contracts negotiated at a distance involve the use of means of distance communication which are used as part of such a scheme not involving the simultaneous physical presence of the supplier and the consumer; and
    2. (b) recital 18 of the DMD states that the expression is intended to exclude services provided on a strictly occasional basis and outside a commercial structure dedicated to the conclusion of distance contracts.
  2. (2) So, in the FSA's view, this means that:
    1. (a) the firm must have put in place facilities designed to enable a retail customer to deal with it exclusively at a distance, such as facilities for a retail customer to deal with it purely by post, telephone, fax or the Internet. If a firm normally operates face-to-face and has no facilities in place enabling a retail customer to deal with it customarily by distance means, the DMD will not apply. A one-off transaction effected exclusively by distance means to meet a particular contingency or emergency will not be a distance contract; and
    2. (b) there must have been no simultaneous physical presence of the firm and the other party to the contract throughout the offer, negotiation and conclusion of the contract. So, for example, contracts offered, negotiated and concluded over the Internet, through a telemarketing operation or by post will normally be distance contracts. A retail customer may visit the local office of the firm in the course of the offer, negotiation or conclusion of the contract with that firm. Wherever, in the literal sense, there has been "simultaneous physical presence" of the firm and the retail customer at the time of such a visit, any ensuing contract will not be a distance contract.
  • 09/10/2004

Use of intermediaries

COB 1.10.5

handbook-guidance
The mere fact that an intermediary (acting for the supplier or for the retail customer) is involved, does not make the sale of a financial product or service a distance contract. The same principles apply as in the case of contact between the supplier and a retail customer. For example, if the intermediary and retail customer are simultaneously physically present at some stage in the course of the offer, negotiation and conclusion of a contract, the contract will not be a distance contract.
  • 01/12/2004

Distance contracts for intermediation services

COB 1.10.6

handbook-guidance

Some of the services which some intermediaries provide will themselves fall within the scope of the DMD. The FSA expects this to apply in only a small minority of cases, for example where the intermediary agrees to provide continuing advisory, broking or portfolio management services for a retail customer. The DMD is only relevant if:

  1. (1) there is a contract between the intermediary and the retail customer in respect of the intermediary's mediation services; an intermediary may in its terms of business make clear that it does not, in providing its mediation services, act contractually on behalf of, or for, its retail customer and then proceed on the basis that no contract for its mediation services will arise;
  2. (2) the contract is a distance contract; and
  3. (3) the contract is concluded other than merely as a stage in the provision of another service by the intermediary or another person (see COB 4 Annex 1.1 R(13) and COB 6.7.17, Row 1, case D(a)).
  • 01/12/2004

Application of parts of the Distance Marketing Regulations

COB 1.10.7

handbook-guidance

COB implements most of the Distance Marketing Directive for distance contracts concluded by firms, the making or performance of which constitutes, or is part of, designated investment business or accepting deposits. However, certain aspects of the Distance Marketing Directive are implemented by provisions of the Distance Marketing Regulations, which apply in addition to COB, in particular:

  1. (1) regulation 12 (Automatic cancellation of an attached distance contract) on which there is guidance in COB 6.7.51A G; and
  2. (2) regulation 14 (Payment by card).
  • 09/10/2004

COB 1.11

Application of COB in relation to deposits

  • 01/12/2004

COB 1.11.1

handbook-guidance

Table: Application of rules in COB in relation to deposits

Export chapter as

COB 2

Rules
which apply to all firms conducting designated investment business

COB 2.1

Clear, fair and not misleading communication

  • 01/12/2004

Application

COB 2.1.1

handbook-rule
  1. (1) This section applies to a firm when it communicates information to a customer in the course of, or in connection with, its designated investment business.
  2. (2) This section does not apply to a firm when it communicates a financial promotion in circumstances in which COB 3 (Financial promotion) applies to the firm.
  • 01/12/2001

Purpose

COB 2.1.2

handbook-guidance
The purpose of this section is to restate, in slightly amended form, and as a separate rule, the part of Principle 7 (Communications with clients) that relates to communication of information. This enables a customer, who is a private person, to bring an action for damages under section 150 of the Act to recover loss resulting from a firm communicating information, in the course of designated investment business, in a way that is not clear or fair, or is misleading.
  • 01/12/2001

Clear, fair and not misleading communication

COB 2.1.3

handbook-rule
When a firm communicates information to a customer, the firm must take reasonable steps to communicate in a way which is clear, fair and not misleading.
  • 01/12/2001

COB 2.1.4

handbook-guidance
When considering the requirements of COB 2.1.3 R, a firm should have regard to the customer's knowledge of the designated investment business to which the information relates.
  • 01/12/2001

COB 2.1.5

handbook-guidance
COB 2.1 embraces all communications with customers, for example: client agreements, periodic statements, financial reports, telephone calls and any correspondence which is not a financial promotion to which COB 3 (Financial promotion) applies. Firms should note the requirements of COB 3.8.4 R relating to non-real time financial promotions and COB 3.8.22 R relating to real time financial promotions.
  • 01/12/2004

COB 2.2

Inducements

Application

COB 2.2.1

handbook-rule
This section applies to a firm that conducts designated investment business with or for a customer.
  • 01/12/2001

Purpose

COB 2.2.2

handbook-guidance
Principles 1 and 6 require a firm to conduct its business with integrity, to pay due regard to the interests of its customers and to treat them fairly. The purpose of this section is to ensure that a firm does not conduct business under arrangements that might give rise to a conflict with its duty to customers.
  • 01/12/2004

Prohibition of inducements

COB 2.2.3

handbook-rule

A firm must take reasonable steps to ensure that it, and any person acting on its behalf, does not:

  1. (1) offer, give, solicit or accept an inducement; or
  2. (2) direct or refer any actual or potential item of designated investment business to another person on its own initiative or on the instructions of an associate;

if it is likely to conflict to a material extent with any duty that the firm owes to its customers in connection with designated investment business or any duty which such a recipient firm owes to its customers.

  • 01/12/2001

COB 2.2.4

handbook-guidance
The purpose of COB 2.2.3 R (2) is to prevent the requirement in COB 2.2.3 R (1) being circumvented by an inducement being given or received by an unregulated associate. A firm may be able to demonstrate that it could not reasonably have knowledge of an associate giving or receiving an inducement. It should not, however, direct business to another person on the instruction of an associate if this is likely to conflict with the interests of its customers.
  • 01/12/2001

Investment research

COB 2.2.4A

handbook-guidance
An offer or agreement to publish investment research which is, or to change a published recommendation so that it becomes, favourable to its subject (even if the subject is a customer of the firm), is an example of offering or accepting an inducement which is likely to conflict to a material extent with the firm's duties to its other customers. (See also COB 5.10 in relation to inducements related to corporate finance and COB 7.16 in relation to investment research.)
  • 01/05/2004

Restriction in connection with packaged products

COB 2.2.5

handbook-evidential-provisions
  1. (1) A firm should not enter, and should take reasonable steps to ensure that no person acting on its behalf enters, into any of the following arrangements with another firm in relation to a packaged product if any commission is required to be disclosed to a customer:
    1. (a) volume overrides, if commission paid in respect of several transactions is more than a simple multiple of the commission payable in respect of one transaction of the same kind;
    2. (b) an arrangement to pay commission that is increased in excess of the amount disclosed to the customer, unless the increase is attributable to an increase in the premiums or contributions payable by that customer;
    3. (c) an agreement to indemnify the payment of commission on terms that would or might confer an additional financial benefit on the recipient in the event of the commission becoming repayable;
    4. (d) an arrangement to pay commission other than to the firm responsible for a sale, unless:
      1. (i) the firm responsible for the sale has passed on its right to receive the commission to the recipient; or
      2. (ii) another firm has given advice on investments to the same customer after the sale; or
      3. (iii) the commission is paid following the sale of a packaged product by the firm in response to a direct offer financial promotion communicated by that firm to a customer of the recipient firm.
  2. (1A) COB 2.2.5 E (1) does not apply to arrangements between firms that are in the same immediate group. In this situation COB 5.7.5 R will apply.
  3. (2) Contravention of (1) may be relied upon as tending to establish contravention of COB 2.2.3 R.
  • 01/12/2004

Financial assistance and product providers

COB 2.2.5A

handbook-evidential-provisions
  1. (1) This evidential provision applies in relation to a holding in, or the provision of credit to, a firm which holds itself out as giving advice on investments to private customers on packaged products except where the relevant transaction is between persons who are in the same immediate group.
  2. (2) A product provider should not take any step which would result in it:
    1. (a) having a direct or indirect holding in a firm in (1) of its capital or voting power ; or
    2. (b) providing credit to a firm in (1) (other than commission due from the firm to the product provider in accordance with an indemnity commission clawback arrangement);
    3. unless all the conditions in (4) are satisfied. A product provider should also take reasonable steps to ensure that its associates do not take any step which would result in it having a holding as in (a) or providing credit as in (b), having regard to (5).
  3. (3) A firm in (1) should not take any step which would result in a product provider having a holding as in (2)(a) or providing credit as in (2)(b), unless all the conditions in (4) are satisfied.
  4. (4) The conditions referred to in (2) and (3) are that:
    1. (a) the holding is acquired, or credit is provided, on commercial terms; that is terms objectively comparable to those on which an independent person unconnected to a product provider would, taking into account all relevant circumstances, be willing to acquire the holding or provide credit;
    2. (b) the firm (or, if applicable, each of the firms) taking the step has reliable written evidence that (a) is satisfied;
    3. (c) there are no arrangements, in connection with the holding or credit , relating to the channelling of business from the firm in (1) to the product provider; and
    4. (d) the product provider is not able, and none of its associates is able, because of the holding or credit, to exercise any influence over the advice on investments in relation to packaged products given by the firm.
  5. (5) In this evidential provision, in applying (2) and (3) any holding of, or credit provided by, a product provider's associate is to be regarded as held by, or provided by, that product provider.
  6. (6) In this evidential provision , in applying (3) references to a " product provider " are to be taken as including an unauthorised equivalent of a product provider ; that is, an unauthorised insurance undertaking or an unauthorised operator of a regulated collective investment scheme or of an investment trust savings scheme.
  7. (7) Contravention of (2) or (3) may be relied upon as tending to establish contravention of COB 2.2.3 R.
  • 01/12/2004

Packaged products - guidance on indirect benefits

COB 2.2.6

handbook-guidance
  1. (-2) To comply with COB 2.2.3 R, neither a product provider nor any of its associates should give, and a firm should not receive from such persons , any indirect benefit, if the benefit is likely to conflict to a material extent with any duty owed by the receiving firm when giving advice on investments to private customers on packaged products. Such conflicts may arise, for example, where the gift might induce material bias as regards:
    1. (a) the choice of product provider whose products are recommended; or
    2. (b) the type of product which is recommended.
  2. (-1) The guidance in COB 2.2.7 G is not relevant to indirect benefits which may be given by a product provider or its associate to its own representatives.
  3. (1) The FSA will not regard a firm as being in contravention of COB 2.2.3 R if it gives or receives gifts, hospitality and promotional competition prizes of a reasonable value, providing they do not conflict with the duties that the recipient owes to its customers.
  4. (2) A product provider may assist another firm to promote its packaged products so that the quality of its service to customers is enhanced. Such assistance should not be of a kind or value that is likely to impair the other firm's ability to pay due regard to the interests of its customers, and to give advice on, and recommend, packaged products available from the recipient firm's whole range or ranges of packaged products. The recipient firm should be mindful of the requirements of COB 5.3.5 R (Requirement for suitability generally).
  5. (3) In relation to the sale of packaged products, COB 2.2.7 G indicates the kind of benefits which, in the FSA's view, a firm can give and receive without contravening COB 2.2.3 R.
  6. (4) COB 2.2.6 G does not apply to indirect benefits provided by a firm to another firm that is in the same immediate group. In this situation COB 5.7.5 R will apply.
  • 01/12/2004

COB 2.2.7

handbook-guidance

Reasonable indirect benefits

This Table belongs to COB 2.2.6 G.

  • 01/12/2004

Requirements when using a soft commission agreement

Allowable benefits provided under a soft commission agreement

Prior disclosure

Periodic disclosure

Exceptions

Record keeping

COB 2.2.20

handbook-rule
  1. (1) [deleted]
  2. (2) A firm must make a record of each payment of disclosable commission, and must retain that record for a period of at least six years from the date of payment.
  3. (3) A firm must make a record of each benefit given to another firm in accordance with COB 2.2.6 G, and must keep that record for at least six years from the date on which it was given.

COB 2.3

Reliance on others

  • 01/12/2004

Application

COB 2.3.1

handbook-rule
This section applies to a firm when it is conducting designated investment business or activities in connection with designated investment business.
  • 01/12/2001

Purpose

COB 2.3.2

handbook-guidance
Principle 2 requires a firm to conduct its business with due skill, care and diligence. This section indicates the extent to which firms can meet this requirement by relying on others.
  • 01/12/2001

Reliance on others

COB 2.3.3

handbook-rule
A firm will be taken to be in compliance with any rule in COB that requires a firm to obtain information to the extent that the firm can show that it was reasonable for the firm to rely on information provided to it in writing by another person.
  • 01/12/2001

COB 2.3.4

handbook-evidential-provisions
  1. (1) In relying on COB 2.3.3 R, a firm should take reasonable steps to establish that the other person providing written information is:
    1. (a) not connected with the firm; and
    2. (b) competent to provide the information.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with COB 2.3.3 R.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of COB 2.3.3 R.
  • 01/12/2001

COB 2.3.5

handbook-guidance

A firm may generally rely on any information provided to the firm in writing by:

  1. (1) an unconnected authorised person; or
  2. (2) a professional firm;

unless the firm is aware, or ought reasonably to be aware, of any fact, or facts, that would give reasonable grounds to question the accuracy of any such information.

  • 01/12/2001

COB 2.3.6

handbook-rule
  1. (1) Any information which a rule in COB or in CASS requires to be sent to a customer may be sent to another person on the instruction of the customer, so long as the recipient is not connected with the firm.
  2. (2) There is no need for a firm to send information to a customer where it has taken reasonable steps to establish that this has been or will be supplied by another person.
  • 01/01/2004

COB 2.4

Chinese walls

  • 01/12/2004

Application

COB 2.4.1

handbook-rule
This section applies to a firm that conducts designated investment business.
  • 01/12/2001

COB 2.4.1A

handbook-rule
This section does not apply to a common platform firm if SYSC 10.2 (Chinese walls) applies to the firm.
  • 01/01/2007

Purpose

COB 2.4.2

handbook-guidance
Principle 8 (Conflicts of interest) requires a firm to manage a conflict of interest fairly, both between itself and its customers and between a customer and another client. One of the methods by which a firm may manage conflicts of interest is to establish and maintain internal arrangements restricting the movement of information within the firm - Chinese walls. The purpose of this section is to set out the circumstances when the FSA would consider it appropriate for a firm to withhold or not to use information that it would otherwise have to disclose to, or use for the benefit of a client.
  • 01/12/2001

COB 2.4.3

handbook-guidance
The purpose of COB 2.4.4 R (1) is also to exercise the FSA's power under section 147 of the Act to make control of information rules (see COB 2.4.5 G for an explanation of the effect of this).
  • 01/12/2001

Control of information

COB 2.4.4

handbook-rule
  1. (1) When a firm establishes and maintains a Chinese wall (that is, an arrangement that requires information held by a person in the course of carrying on one part of its business to be withheld from, or not to be used for, persons with or for whom it acts in the course of carrying on another part of its business), it may:
    1. (a) withhold or not use the information held; and
    2. (b) for that purpose, permit persons employed in the first part of its business to withhold the information held from those employed in that other part of the business;
  2. but only to the extent that the business of one of those parts involves the carrying on of designated investment business or related ancillary activities.
  3. (2) Information may also be withheld or not used by a firm when this is required by an established arrangement maintained between different parts of the business (of any kind) in the same group. This provision does not affect any requirement to transmit or use information that may arise apart from the rules in COB.
  4. (3) For the purpose of this rule, 'maintains' includes taking reasonable steps to ensure that the arrangements remain effective and are adequately monitored, and must be interpreted accordingly.
  5. (4) For the purposes of section 118A(5)(a) of the Act, behaviour conforming with COB 2.2.4R(1) does not amount to market abuse.

Effect of acting in conformity with COB 2.4.4 R

COB 2.4.5

handbook-guidance

Section 147 of the Act enables the FSA to make rules ("control of information rules") about the disclosure and use of information held by a firm. COB 2.4.4 R (1) is the only control of information rule made by the FSA. This means that:

  1. (1) acting or engaging in conduct in conformity with COB 2.4.4 R (1) provides a defence against proceedings brought under section 397(2) or (3) of the Act (Misleading statements and practices) - see sections 397(4) and (5)(c);
  2. (2) behaviour conforming with COB 2.4.4 R (1) does not amount to market abuse - see COB 2.4.4 R (4); and
  3. (3) acting in conformity with COB 2.4.4 R (1) provides a defence for a firm against FSA enforcement action, or an action for damages under section 150 of the Act, based on a breach of a relevant requirement to disclose or use information (this is likely to be relevant only for requirements in PRIN, COB and MAR 3 (Inter-professional conduct)). Acting in conformity with COB 2.4.4 R (2) has a similar effect but only in relation to such a requirement in COB.
  • 01/12/2001

Attribution of knowledge

COB 2.4.6

handbook-rule
When any of the COB rules or any of the CASS rules apply to a firm that acts with knowledge, the firm will not be taken to act with knowledge for the purposes of that rule if none of the relevant individuals involved on behalf of the firm acts with that knowledge as a result of arrangements established under COB 2.4.4 R.
  • 01/01/2004

COB 2.4.7

handbook-guidance
When a firm manages a conflict of interest using the arrangements in COB 2.4.4 R which take the form of a Chinese wall, individuals on the "other side of the wall" will not be regarded as being in possession of knowledge denied to them as a result of the Chinese wall.
  • 01/12/2001

COB 2.5

Exclusion of liability

  • 01/12/2004

Application

COB 2.5.1

handbook-rule
  1. (1) This section applies to a firm that conducts designated investment business.
  2. (2) This section also applies to a firm which enters into a distance contracts to accept deposit with a retail customer.
  • 09/10/2004

Purpose

COB 2.5.2

handbook-guidance
This section amplifies Principle 6 (Customers' interests) which requires a firm to pay due regard to the interests of its customers and treat them fairly.
  • 09/10/2004

Limits on the exclusion of liability: designated investment business

COB 2.5.3

handbook-rule
A firm must not, in any written or oral communication in connection with designated investment business, seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability it may have to a customer (which for these purposes includes a retail customer) under the regulatory system.
  • 09/10/2004

COB 2.5.4

handbook-rule
A firm must not, in any written or oral communication to a private customer in connection with designated investment business, seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability not referred to in COB 2.5.3 R unless it is reasonable for it to do so.
  • 09/10/2004

Limits on the exclusion of liability: distance contracts to accept deposits

COB 2.5.5

handbook-rule
A firm must not, in any written or oral communication to a retail customer in connection with a distance contract to accept deposits with a retail customer, seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability it may have to a retail customer under COB.
  • 09/10/2004

COB 2.6

General provisions related to distance marketing

  • 01/12/2004

Application

COB 2.6.1

handbook-rule

This section applies to a firm which:

  1. (1) conducts designated investment business with or for a retail customer;
  2. (2) accepts a deposit from a retail customer.
  • 09/10/2004

Pre-contract information about contractual obligations to be in conformity with contract

COB 2.6.2

handbook-rule
A firm must ensure that information provided to a retail customer before the conclusion of a distance contract about his contractual obligations under that contract conforms with the contractual obligations that would be imposed on him under the law applying if the contract were concluded.
  • 09/10/2004

Unsolicited services

COB 2.6.3

handbook-rule
  1. (1) Subject to COB 2.6.3R (2), a firm must not:
    1. (a) supply a service to a retail customer without a prior request on his part, when the supply of such service includes a request for immediate or deferred payment; or
    2. (b) enforce any obligations against a retail customer in the event of unsolicited supplies of such services, the absence of reply not constituting consent.
  2. (2) Paragraph (1) applies in relation to designated investment business, and accepting deposits, under an organised distance sales or service-provision scheme run by the firm or by an intermediary, who, for the purpose of that supply, makes exclusive use of one or more means of distance communication up to and including the time at which the services are supplied.
  • 09/10/2004

COB 2.6.4

handbook-rule
COB 2.6.3R (2) does not apply for a tacit renewal of a distance contract.
  • 09/10/2004

Paper copy of contractual terms and conditions

COB 2.6.5

handbook-rule
During the course of a distance contract with a firm, if a retail customer requests a paper copy of his contractual terms and conditions, the firm must provide it without additional charge and without delay.
  • 09/10/2004

Change in means of distance communication

COB 2.6.6

handbook-rule
During the course of a distance contract, a firm must comply with a retail customer's request to change the means of distance communication used, unless this is incompatible with the distance contract concluded or the service being provided by the firm.
  • 09/10/2004

Export chapter as

COB 3

Financial
promotion

COB 3.1

Application: who?

  • 01/12/2004

Firms

COB 3.1.1

handbook-rule
This chapter applies to every firm (other than an ICVC) which communicates or approves a financial promotion.
  • 01/12/2001

COB 3.1.2

handbook-guidance

This chapter applies generally to firms in relation to all financial promotions. This wide application is however cut back by COB 3.2 (Application: what?) and COB 3.3 (Application: where?) which limit the application of this chapter for:

  1. (1) financial promotions for deposits, general insurance contracts, pure protection contracts, reinsurance contracts, qualifying credit, home purchase plans and home reversion plans;
  2. (2) financial promotions which fall within the scope of the exemptions in the Financial Promotion Order or the additional exemptions set out in COB 3.2.5 R; and
  3. (3) financial promotions to persons outside the United Kingdom.

Appointed representatives

COB 3.1.3

handbook-guidance
Under section 39(3) of the Act, a firm is responsible for financial promotions communicated by its appointed representatives when acting as such (see COB 1.7 (Appointed representatives)).
  • 01/12/2001

Nationals of other EEA States

COB 3.1.4

handbook-guidance
A national of an EEA State (other than the United Kingdom) wishing to take advantage of the exemption in article 36 of the Financial Promotion Order in relation to any controlled activity lawfully carried on by him in that State, should act in conformity with the rules in this chapter.
  • 01/12/2001

Authorised professional firms

COB 3.1.5

handbook-rule
  1. (1) COB 3 does not apply to an authorised professional firm in relation to the communication of a financial promotion if the following conditions are satisfied:
    1. (a) the firm's main business must be the practice of its profession IPRU(INV) 2.1.2R (3));
    2. (b) the financial promotion must be made for the purposes of and incidental to the promotion or provision by the firm of:
      1. (i) its professional services; or
      2. (ii) its non-mainstream regulated activities (see PROF 5.2); and
    3. (c) the financial promotion must not be communicated on behalf of another person who would not be able lawfully to communicate the financial promotion if he were acting in the course of business.
  2. (2) In (1)(b)(i), "professional services" means services:
    1. (a) which do not constitute a regulated activity; and
    2. (b) the provision of which is supervised and regulated by a designated professional body.
  • 20/09/2001

COB 3.1.6

handbook-guidance
Authorised professional firms are reminded that in circumstances in which COB 3 does not apply to the firm COB 2.1 (Clear, fair and not misleading communication) may apply.
  • 01/12/2001

COB 3.2

Application: what?

  • 01/12/2004

What do "communicate", "approve" and "financial promotion" mean?

COB 3.2.1

handbook-guidance
  1. (1) The rules in this chapter adopt various concepts from the restriction on financial promotion by unauthorised persons in section 21(1) of the Act (Restrictions on financial promotion). Guidance on that restriction is contained in PERG 8 (Financial promotion and related activities) and that guidance will be relevant to interpreting these rules. In particular, guidance on the meaning of:
    1. (a) "communicate" is in PERG 8.6 (Communicate);
    2. (b) "invitation or inducement" and "engage in investment activity" (two elements which, with "communicate", make up the definition of "financial promotion") is in PERG 8.4 (Invitation and inducement) and PERG 8.7 (Engage in investment activity).
  2. (2) Guidance on the "approval" of a financial promotion is in COB 3.12.1 G (Approval of financial promotions).

Media of communication

COB 3.2.2

handbook-guidance
  1. (1) There is no restriction on the media of communication to which this chapter applies. It applies to a financial promotion communicated by any means, including by way of printed advertising, radio and television broadcast, a personal visit, a telephone call, an e-mail, the internet and electronic media such as digital and other forms of interactive television and media. Both solicited and unsolicited communications are covered.
  2. (2) Financial promotions may be communicated, for example, by means of:
    1. (a) product brochures;
    2. (b) general advertising in magazines, newspapers, radio and television programmes and websites;
    3. (c) mailshots (whether distributed by post, facsimile, e-mail or other media);
    4. (d) telemarketing activities, such as telephone calls made by call centres;
    5. (e) written correspondence, telephone calls and face to face discussions including by representatives;
    6. (f) sales aids which themselves constitute a financial promotion;
    7. (g) presentations to groups of individuals;
    8. (h) tip-sheets; and
    9. (i) other publications, which may contain non-personal recommendations as to the acquisition, retention or disposal of investments of any description.
  • 01/12/2004

Financial promotions for deposits, pure protection contracts which are long-term care insurance contracts and certain reinsurance contracts

COB 3.2.3

handbook-rule
  1. (1) To the extent that a financial promotion relates to:
    1. (a) a deposit; or
    2. (b) a pure protection contract which is a long-term care insurance contract or reinsurance contract covering a person against all or part of his loss in relation only to an obligation taken on by him under a long-term insurance contract which is not a non-investment insurance contract;
  2. only COB 3.1 to COB 3.5 and COB 3.8.4 R to COB 3.8.6 G and COB 3.14 apply, unless the financial promotion relates to a cash deposit ISA or cash deposit CTF in which case COB 3.9.6 R (1), COB 3.9.7A R, COB 3.9.8 R and COB 3.9.21 R also apply and, if the financial promotion relates to a cash deposit CTF, COB 3.9.30 R also applies; and
  3. (2) if the financial promotion relates to a structured deposit, the following will also apply: COB 3.8.8 R, COB 3.8.9 G, COB 3.8.11 R, COB 3.8.12 G, COB 3.8.15 R and COB 3.8.16 G.

Financial promotions for home finance transactions

COB 3.2.3A

handbook-rule
This chapter does not apply in relation to a financial promotion of a qualifying credit, home purchase plan or home reversion plan (but see the financial promotion rules in the Mortgage and Home Finance: Conduct of Business sourcebook).

Financial promotions for non-investment insurance contracts

COB 3.2.3B

handbook-rule
This chapter does not apply to a firm to the extent that a financial promotion is in respect of a non-investment insurance contract (but see ICOB 3 (Financial Promotion)).
  • 14/01/2005

Exemptions

COB 3.2.4

handbook-rule

This chapter does not apply to a firm in relation to a financial promotion of a kind listed in COB 3.2.5 R, except that:

  1. (1) if the financial promotion relates to an unregulated collective investment scheme, COB 3.11 (Unregulated collective investment schemes) applies;
  2. (2) (except where COB 3.2.3 R applies) if the firm approves the financial promotion, the following apply:
    1. (a) COB 3.1 to COB 3.5 (Application, General and Purpose).
    2. (b) COB 3.8.4 R (1) (Non-real time financial promotions: clear, fair, and not misleading) except if the financial promotion is exempt under COB 3.2.5 R;
    3. (c) COB 3.12.1 G to COB 3.12.5 G (Approval of financial promotions; No approval of real time financial promotions; Approval of financial promotions when not all the rules apply); and
  3. (3) (except where COB 3.2.3 R applies) if the firm:
    1. (a) approves a specific non-real time financial promotion relating to an investment or service of an overseas person; and
    2. (b) the financial promotion is exempt under any of COB 3.2.5 R;
  4. COB 3.12.6 R and COB 3.12.7 G (Specific non-real time financial promotions for overseas persons) apply.
  • 20/09/2001

COB 3.2.5

handbook-rule

Exemptions

This table belongs to COB 3.2.4 R

Combination of exemptions

COB 3.2.6

handbook-rule
A firm may rely on more than one exemption (and also on COB 3.3.1 R (Territorial limitation)) in relation to the same financial promotion.
  • 01/12/2001

Guidance on the exemptions

COB 3.2.7

handbook-guidance
  1. (1) Under COB 3.2.5 R(1) a financial promotion which is communicated only to market counterparties or intermediate customers is exempt. See COB 3.5.6 R and COB 3.5.7 R which amplify this exemption. A firm will need to take particular note of the conditions in COB 3.5.7 R when designing financial promotions for trade publications which may be available also to private customers.
  2. (2)
    1. (a) A table summarising some of the main exemptions contained in the Financial Promotion Order, and therefore relevant to COB 3.2.5 R (2), is in COB 3 Annex 1 G. Guidance on certain exemptions is contained in PERG 8 (Financial promotion and related activities).
    2. (b) A firm is required to comply with the rules in COB 3 in relation to a financial promotion communicated by its appointed representative even though the financial promotion does not require approval because of the exemption in article 16 of the Financial Promotion Order (Exempt persons).
  3. (3) In COB 3.2.5 R:
    1. (a) Item (4) reflects the exemption in article 28 of the Financial Promotion Order (One-off non-real time communications and solicited real time communications), but goes further, exempting such financial promotions which relate to deposits and all contracts of insurance. It exempts, amongst other things, correspondence which is written specifically for a recipient, whether hard copy or e-mail. A firm should note, however, that such correspondence will, if personal recommendations are made, be subject to other obligations such as know your customer and suitability requirements (see COB 5.2 and COB 5.3). It does not exempt financial promotions communicated in the form of mass mailshots, which may appear to be items of personalised correspondence but which in fact comprise the same or virtually the same material sent to a number of recipients, without tailoring the material to the circumstances of each recipient. Such mailshots must meet the requirements of this chapter. PERG 8.14.3G (One-off financial promotions (articles 28 and 28A)) provides further guidance on the scope of the exemption in article 28.
    2. (b) Items (5)(e), (f) and (g) exempt a financial promotion made by a firm which refers only to its activities in general terms in image advertising. Acceptable examples include 'life and pensions' and 'life assurance and pensions business'. In addition a firm or its appointed representative may include its name, address and telephone number in accordance with items 5(a) and (c). PERG 8.4.20G (Image advertising) provides guidance on when image advertising may involve a financial promotion.
    3. (c) Item (5)(h) exempts financial promotions which merely comprise lists of prices published in newspapers, or through the internet, or other electronic media. In addition a firm may include its name, address and telephone number in accordance with items (5)(a) and (c). PERG 8.4.13G (Publication or broadcast of prices of investments (historic or live)) provides guidance on when the display of prices may involve a financial promotion.
    4. (d) Item (8) exempts financial promotions that are decision trees if the decision tree satisfies the requirements of COB 6.5.8 R. A decision tree will not be a financial promotion if it is neither an invitation nor an inducement to engage in investment activity; for example, when it is prepared for training or educational purposes.
  4. (4) A company's annual report and accounts issued in accordance with a requirement of the Companies Act 1985 or Companies Act 2006 (as applicable) (or corresponding Northern Ireland or EEA provisions) are exempt under item (2) and article 59 of the Financial Promotion Order. But this exemption does not extend to the report and accounts of ICVCs, other types of OEIC, and unit trust schemes. PERG 8.21.11G (Article 59: Annual accounts and directors' report) provides further guidance on the scope of the exemption in article 59.
  5. (5) A financial promotion included in a newspaper, magazine or periodical which is printed and published overseas, but which may be brought into the United Kingdom and made available to persons in the United Kingdom, will be exempt provided that the financial promotion is not communicated to persons inside the United Kingdom (see COB 3.3 and PERG 8.12.2G (Financial promotions to overseas recipients (article 12))).
  6. (6) This chapter does not apply in relation to a financial promotion the communication of which by a firm would contravene section 238(1) of the Act (Restrictions on promotion of unregulated collective investment schemes) (see COB 3.11.4 R and PERG 8.20 (Additional restriction on the promotion of collective investment schemes)).

Other Handbook rules relevant to financial promotions

COB 3.2.8

handbook-guidance
  1. (1) Firms are reminded that financial promotions (including those which are exempt) may be subject to more general rules including Principle 7 (Communications with clients), SYSC 3 (Systems and controls) and COB 2.1.3 R (Clear, fair and not misleading communication).
  2. (2) Firms are reminded that if in the course of making a financial promotion of any kind a representative gives specific advice on investments to a private customer about the suitability of a product for that individual or provides basic advice on a stakeholder product, rules on advising and selling in COB 5 or, as the case may be, COB 5A, apply.
  3. (3) Firms are reminded that this chapter does not apply with respect to the carrying on of inter-professional business. This means that a financial promotion communicated to a market counterparty in connection with certain types of regulated activities is exempt from this chapter; instead, MAR 3 (Inter-professional conduct) may be relevant. But that exemption does not apply in relation to the approval of a financial promotion in the course of inter-professional business.

COB 3.3

Application: where?

  • 01/12/2004

Territorial scope

COB 3.3.1

handbook-rule

This chapter applies to a firm only in relation to:

  1. (1) the communication of a financial promotion to a person inside the United Kingdom;
  2. (2) the communication of an unsolicited real time financial promotion to a person outside the United Kingdom, unless:
    1. (a) it is made from a place outside the United Kingdom; and
    2. (b) it is made for the purposes of a business which is carried on outside the United Kingdom and which is not carried on in the United Kingdom; and
  3. (3) the approval of a non-real time financial promotion for communication to a person inside the United Kingdom;
subject to COB 3.3.3 R (Exceptions to territorial scope: rules without territorial limitation) and COB 3.3.4A R (Exceptions to territorial scope: distance contracts).
  • 09/10/2004

COB 3.3.2

handbook-guidance
  1. (1) The application under COB 3.3.1 R is relevant both when a firm communicates a financial promotion itself and when a firm approves a non-real time financial promotion for communication by others. But see also COB 3.3.3 R (2) regarding approvals.
  2. (2) The exemptions in COB 3.2.5 R (Application: what?; Exemptions) also incorporate some territorial elements. In particular, the exemption for financial promotions originating outside the United Kingdom (section 21(3) of the Act (Restrictions on financial promotion)) (see COB 3.2.5 R(2) and PERG 8.12.2G (Financial promotions to overseas recipients (article 12)), the exemptions for overseas communicators (see COB 3.2.5 R(3) and PERG 8.14.14G (Overseas communications (articles 30 to 33)) and the exemption for incoming electronic commerce communications (see PERG 8.12.38G (Incoming electronic commerce communications (article 20B))).
  3. (3) The scope of COB 3 is extended by ECO 2.2.3 R to cover financial promotions which are outgoing electronic commerce communications, subject to the lifting of rules in the derogations to the E-Commerce Directive as set out in ECO 2.

Exceptions to territorial scope: rules without territorial limitation

COB 3.3.3

handbook-rule

The following parts of this chapter apply without any territorial limitation, subject to COB 3.3.4A R:

  1. (1) COB 3.11 (Unregulated collective investment schemes);
  2. (2) if a firm approves a financial promotion:
    1. (a) COB 3.1 to COB 3.5 (Application, General and Purpose);
    2. (b) COB 3.8.4 R (1) (Non-real time financial promotions: clear, fair and not misleading);
    3. (c) COB 3.12.1 G to COB 3.12.5 G (Approval of financial promotions; No approval of real time financial promotions; Approval of financial promotions when not all the rules apply).
  • 09/10/2004

COB 3.3.4

handbook-guidance
There is no need for a financial promotion which is indicated in COB 3.3.1 R to be outside the territorial scope of the application of this chapter to be approved before being communicated by an unauthorised person (because the restriction in section 21 of the Act (Restrictions on financial promotion) does not apply). If a firm nevertheless approves such a financial promotion, it must comply with the rules indicated in COB 3.3.3 R (2). However, a firm must not approve a real time financial promotion (see COB 3.12.2 R).
  • 20/09/2001

Exceptions to territorial scope: distance contracts

COB 3.3.4A

handbook-rule
  1. (1) Notwithstanding COB 3.3.1 R and COB 3.3.3 R, this chapter, other than the rules in (3), does not apply to a firm when it communicates a financial promotion, if the conditions in (2) are satisfied:
  2. (2) The conditions are that:
    1. (a) the firm communicates the financial promotion from an establishment maintained by the firm in an EEA State other than the United Kingdom, and not from an establishment maintained by the firm in the United Kingdom or outside the EEA;
    2. (b) either that EEA State:
      1. (i) has implemented the DMD; or
      2. (ii) has obligations in its domestic law corresponding to those provided for by the DMD;
    3. (c) the financial promotion relates, exclusively, to a distance contract, for the conclusion of which the obligations provided for by the DMD (or corresponding obligations) are applied by that State; and
    4. (d) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.
  3. (3) The rules which continue to apply, notwithstanding this rule, are:
    1. (a) COB 3.8.4 R (Non-real time financial promotions: clear, fair and not misleading; comparisons; restriction of information on compensation);
    2. (b) COB 3.8.22 R (1) and (2) (Real time financial promotions);
    3. (c) COB 3.9.5 R (Prohibited types of direct offer financial promotion);
    4. (d) COB 3.10 (Unsolicited real time financial promotions);
    5. (e) COB 3.11 (Unregulated collective investment schemes and qualified investor schemes); and
    6. (f) COB 3.13.1 R (Additional requirements for financial promotions for an overseas long-term insurer).
  • 09/10/2004

Meaning of "communicated to a person inside or outside the United Kingdom"

COB 3.3.5

handbook-rule

For the purposes of this chapter:

  1. (1) a financial promotion is communicated to a person outside the United Kingdom if it is:
    1. (a) made to a person who receives it outside the United Kingdom; or
    2. (b) directed only at persons outside the United Kingdom; and
  2. (2) a financial promotion is communicated to a person inside the United Kingdom if it is communicated to a person other than as described in (1);

and see COB 3.5.6 R and COB 3.3.6 R which amplify this rule.

  • 01/12/2001

Meaning of "directed only at persons outside the United Kingdom"

COB 3.3.6

handbook-rule
  1. (1) If the conditions set out in 4(a), (b), (c) and (d) are met, a financial promotion directed from a place inside the United Kingdom will be regarded as directed only at persons outside the United Kingdom.
  2. (2) If the conditions set out in 4(c) and (d) are met a financial promotion directed from a place outside the United Kingdom will be regarded as directed only at persons outside the United Kingdom.
  3. (3) In any other case where one or more of the conditions in 4(a) to (e) is met, that fact will be taken into account in determining whether a financial promotion is directed only at persons outside the United Kingdom (but a financial promotion may still be regarded as directed only at persons outside the United Kingdom even if none of these conditions is met).
  4. (4) The conditions are that:
    1. (a) the financial promotion is accompanied by an indication that it is directed only at persons outside the United Kingdom;
    2. (b) the financial promotion is accompanied by an indication that it must not be acted upon by persons in the United Kingdom;
    3. (c) the financial promotion is not referred to in, or directly accessible from, any other financial promotion which is made to a person or directed at persons in the United Kingdom by the same person;
    4. (d) there are in place proper systems and procedures to prevent recipients in the United Kingdom (other than those to whom the financial promotion might otherwise lawfully have been made) engaging in the investment activity to which the financial promotion relates with the person directing the financial promotion, a close relative of his or a member of the same group;
    5. (e) the financial promotion is included in:
      1. (i) a website, newspaper, journal, magazine or periodical publication which is principally accessed in or intended for a market outside the United Kingdom;
      2. (ii) a radio or television broadcast or teletext service transmitted principally for reception outside the United Kingdom.

COB 3.4

Purpose

  • 01/12/2004

COB 3.4.1

handbook-guidance
  1. (1) Section 21(1) of the Act (Restrictions on financial promotion) imposes a restriction on the communication of financial promotions by unauthorised persons. A person must not, in the course of business, communicate an invitation or inducement to engage in investment activity (a financial promotion) unless:
    1. (a) he is an authorised person; or
    2. (b) the content of the financial promotion is approved by an authorised person.
  2. (2) However, the Financial Promotion Order exempts from the restriction created by section 21(1) of the Act certain types of financial promotion.
  3. (3) Sections 238 and 240 of the Act (Restrictions on promotion/approval) impose restrictions on the communication and approval by firms of financial promotions relating to unregulated collective investment schemes. See further COB 3.11 (Unregulated collective investment schemes) and PERG 8.20 (Additional restriction on the promotion of collective investment schemes).

COB 3.4.2

handbook-guidance
  1. (1) The purpose of this chapter is to provide rules and guidance for a firm which wishes to communicate or approve a financial promotion. COB 3.5.2 G provides a guide to the topics covered in this chapter. PERG 8 (Financial promotion and related activities) provides further detailed guidance on the financial promotion regime under section 21 of the Act (Financial promotion) which will be relevant in interpreting these rules.
  2. (2) This chapter amplifies, for activities within its scope:
    1. (a) Principle 6 (Customers' interests) which requires a firm to pay due regard to the interests of its customers and treat them fairly; and
    2. (b) Principle 7 (Communications with clients) which requires a firm to pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

COB 3.5

General

  • 01/12/2004

Topics covered in this chapter

COB 3.5.1

handbook-guidance
This chapter includes some provisions which are applicable to all types of financial promotion and others which apply only to specific types. COB 3.5.2 G has been provided to help locate the areas of particular relevance to types of financial promotion.
  • 01/12/2001

COB 3.5.2

handbook-guidance

Areas of particular relevance to types of financial promotion.

This table belongs to COB 3.5.1 G

  • 01/12/2001

Other regulations and guidelines

COB 3.5.3

handbook-guidance

A firm communicating a financial promotion may also be subject to other regulations and guidelines, outside the remit of the FSA, such as:

  1. (1) the codes adopted or issued from time to time by the Advertising Standards Authority and Office of Communications (OFCOM);
  2. (2) regulations from any overseas regulator (where relevant) if the firm intends to market from the United Kingdom into any other country;
  3. (3) [deleted] and;
  4. (4) the Privacy and Electronic Communications (EC Directive) Regulations (SI 2003/2426).

"Real time" and "non-real time" financial promotions

COB 3.5.4

handbook-guidance
This chapter draws a distinction between a real time and a non-real time financial promotion. Guidance on the meaning of those expressions, which are based on article 7 of the Financial Promotion Order, is contained in PERG 8.10 (Types of financial promotion).

COB 3.5.5

handbook-rule
  1. (1) A "real time financial promotion" is a financial promotion which is communicated in the course of a personal visit, telephone conversation or other interactive dialogue.
  2. (2) A "non-real time financial promotion" is a financial promotion that is not a real time financial promotion. It includes a financial promotion made by letter, e-mail or contained in a newspaper, journal, magazine, other periodical publication, website, television or radio programme, or teletext service.
  3. (3) The following are to be regarded as indications that a financial promotion is a non-real time financial promotion:
    1. (a) the financial promotion is communicated to more than one person in identical terms (save for details of the recipient's identity);
    2. (b) the financial promotion is communicated by way of a system which in the normal course constitutes or creates a record of the communication which is available to the recipient to refer to at a later time;
    3. (c) the financial promotion is communicated by way of a system which in the normal course does not enable or require the recipient to respond immediately to it.
  • 01/12/2001

Meaning of "made", "directed at" and "recipient" in this chapter

COB 3.5.6

handbook-rule

(In accordance with article 6 of the Financial Promotion Order (Interpretation: communications)) any reference in this chapter to:

  1. (1) a communication being made to another person is a reference to a communication being addressed, whether verbally or in legible form, to a particular person or persons (for example, where it is contained in a telephone call or letter);
  2. (2) a communication being directed at persons is a reference to a communication being addressed to persons generally (for example where it is contained in a television broadcast or website);
  3. (3) a "recipient" of a communication is the person to whom the communication is made or, in the case of a non-real time financial promotion which is directed at persons generally, any person who reads or hears the communication.
  • 20/09/2001

When is a financial promotion "directed only at" certain persons?

COB 3.5.7

handbook-rule
  1. (1) This rule applies for the purposes of determining whether a communication is directed:
    1. (a) only at market counterparties or intermediate customers under COB 3.2.5 R; or
    2. (b) in a way that complies with paragraph 2(b) in COB 3 Annex 5 R.
  2. (2) If all the conditions set out in (4) are met, a communication is to be regarded as directed as in (1).
  3. (3) In any other case in which one or more of those conditions are met, that fact is to be taken into account in determining whether the communication is directed as in (1) (but a communication may still be regarded as so directed even if none of the conditions in (4) are met).
  4. (4) The conditions are that:
    1. (a) the communication includes an indication of the description of persons to whom it is directed and an indication of the fact that the investment or service to which it relates is available only to such persons;
    2. (b) the communication includes an indication that persons of any other description should not rely upon it;
    3. (c) there are in place proper systems and procedures to prevent recipients other than persons to whom it is directed engaging in the investment activity, or participating in the collective investment scheme, to which the communication relates with the person directing the communication, a close relative of his or a member of the same group.
  • 01/12/2001

COB 3.6

Confirmation of compliance

  • 01/12/2004

Confirmation of compliance

COB 3.6.1

handbook-rule
  1. (1) Before a firm communicates or approves a non-real time financial promotion, it must confirm that the financial promotion complies with the rules in this chapter.
  2. (2) A firm must arrange for the confirmation exercise in (1) to be carried out by an individual or individuals with appropriate expertise.
  • 01/12/2001

COB 3.6.2

handbook-guidance
  1. (1) In COB 3.6.1 R (2) 'appropriate expertise' will vary depending on the complexity of the financial promotion and the investment or service to which it relates. The individuals engaged by a firm to confirm the compliance of its financial promotions with this chapter may themselves have different levels of expertise and therefore a different level of authority for confirmation depending on the type of financial promotion and the investment or service involved.
  2. (2) A firm may arrange for a third party with appropriate expertise to carry out the confirmation exercise on the firm's behalf, but the responsibility for the financial promotion remains with the firm.
  • 01/12/2001

Withdrawing confirmation

COB 3.6.3

handbook-rule

If, at any time after it has completed a confirmation exercise in COB 3.6.1 R (1), a firm becomes aware that a financial promotion no longer complies with the rules in this chapter, it must ensure that the financial promotion is withdrawn as soon as is reasonably practicable by:

  1. (1) ceasing to communicate it;
  2. (2) withdrawing its approval (if applicable); and
  3. (3) notifying any person that the firm knows to be relying on its approval (if applicable) or confirmation (under COB 3.6.5 R).
  • 01/12/2001

COB 3.6.4

handbook-guidance
  1. (1) COB 3.6.3 R is of particular importance to a financial promotion, such as a product brochure, that a firm uses over a period of time. It has little application to a financial promotion which is of its nature ephemeral, for example a mobile phone text message. Further, a financial promotion which clearly speaks as at a particular date will not cease to comply with the rules in this chapter merely because the passage of time has rendered it out-of-date; an example would be a dated analyst's report.
  2. (2) For compliance with COB 3.6.3 R, the FSA will expect a firm to monitor its relevant financial promotions as part of the firm's routine compliance monitoring procedures. A firm may find it helpful to designate a relevant financial promotion with a 'review date', a date at which the financial promotion should be checked once more against the rules of this chapter. If it is found no longer to meet these requirements it should be withdrawn as soon as is reasonably practicable.
  3. (3) If at any time a firm becomes aware that private customers may have been misled by a financial promotion it should consider whether private customers who have responded to the financial promotion should be contacted with a view to explaining the position and offering any appropriate form of redress to those who have suffered financial loss.
  • 01/12/2001

Communicating a financial promotion where another firm has confirmed compliance

COB 3.6.5

handbook-rule

A firm will not contravene any of the rules in this chapter in circumstances where it (firm 'A') communicates a non-real time financial promotion which has been produced by another person provided that:

  1. (1) A takes reasonable care to establish that another firm (firm 'B') has already confirmed the compliance of the financial promotion in accordance with COB 3.6.1 R;
  2. (2) A takes reasonable care to establish that A communicates the financial promotion only to recipients of the type for whom it was intended at the time B carried out the confirmation exercise; and
  3. (3) so far as A is, or ought reasonably to be, aware:
    1. (a) the financial promotion has not ceased to be clear, fair and not misleading since that time; and
    2. (b) B has not withdrawn the financial promotion.
  • 01/12/2001

COB 3.7

Records

  • 01/12/2004

Requirement to make and retain records

COB 3.7.1

handbook-rule
  1. (1) A firm must make an adequate record of each non-real time financial promotion which it has confirmed as complying with the rules in this chapter.
  2. (2) A record in (1) must be retained for the following periods:
    1. (a) indefinitely in the case of a financial promotion relating to a pension transfer, pension opt-out or FSAVC;
    2. (b) six years in the case of a financial promotion relating to a life policy, personal pension scheme or stakeholder pension scheme;
    3. (c) three years in any other case.

Content of records

COB 3.7.2

handbook-guidance

In deciding what is an adequate record under COB 3.7.1 R, a firm should consider including, or providing reference to, where appropriate matters such as:

  1. (1) the name of the individual or individuals who confirmed that the financial promotion complied with the rules in this chapter;
  2. (2) the date of confirmation and (where appropriate) approval;
  3. (3) details of the medium for which the financial promotion was authorised;
  4. (4) the evidence supporting any material factual statement about an investment matter in the financial promotion.
  • 01/12/2001

COB 3.7.3

handbook-guidance
  1. (1) A firm should also retain a copy of the financial promotion as finally published or, if this is not practicable, monitor the published version to verify that it is in substantially the same format as the version which the firm confirmed complied with the rules in this chapter.
  2. (2) Records which should be retained include:
    1. (a) any written financial promotion used by a representative;
    2. (b) any written material which is used in an organised marketing campaign (including, for example, written mailshots whether sent by e-mail, post, facsimile or other media).
  3. (3) see COB 3.14.5 G (6) for guidance on recording an electronic financial promotion containing market information which is updated continuously.
  • 01/12/2004

Form of records

COB 3.7.4

handbook-rule
A record in COB 3.7.1 R may be in any form, provided that it is readily accessible for inspection by the FSA.
  • 01/12/2001

COB 3.7.5

handbook-guidance
A firm may arrange for records to be kept in such form as it chooses, such as hard copy, disk or tape. If the financial promotion is not in a written form, the record should represent the actual financial promotion as accurately as possible. A record would be "readily accessible" if it were available for inspection within 48 hours of the request being made. SYSC 3.2.20 R (2) (Records to be capable of reproduction on paper) does not apply to records of real time financial promotions.
  • 01/09/2003

COB 3.8

Form and content of financial promotions

  • 01/12/2004

Application

COB 3.8.1

handbook-rule
This section applies as follows:
(1) COB 3.8.2 R to COB 3.8.20A R apply to a firm which communicates or approves a non-real time financial promotion;
(2) COB 3.8.21 G to COB 3.8.25 G apply to a firm which communicates a real time financial promotion.

Non-real time financial promotions: name and contact point

COB 3.8.2

handbook-rule
A non-real time financial promotion must contain the name of the firm or the name of its appointed representative and either an address of the firm or a contact point from which an address is available.
  • 01/11/2002

COB 3.8.3

handbook-guidance
  1. (1) For the purposes of COB 3.8.2 R, the name may be a trading name or shortened version of the legal name of the firm (although other legislation, for example, the Companies Act 1985, may require a firm to include information not required by this rule).
  2. (2) The type of contact point envisaged for a firm by COB 3.8.2 R is: an e-mail address, or telephone or facsimile number, where a person can contact the firm for its address.
  3. (3) Except for a direct offer financial promotion (see COB 3.9.6 R) a firm is not required in a financial promotion which it communicates or approves to name the FSA as its regulator. However, to comply with COB 3.8.4 R, if the firm chooses to name the FSA as its regulator and the financial promotion refers to matters not regulated by the FSA, it should also make clear that those matters are not regulated by the FSA.
  • 01/12/2001

Non-real time financial promotions: clear, fair and not misleading; comparisons; restriction of information on compensation

COB 3.8.4

handbook-rule
  1. (1) A firm must be able to show that it has taken reasonable steps to ensure that a non-real time financial promotion is clear, fair and not misleading.
  2. (2) A non-real time financial promotion which includes a comparison or contrast must:
    1. (a) compare investments or services meeting the same needs or which are intended for the same purpose;
    2. (b) objectively compare one or more material, relevant, verifiable and representative features of those investments or services, which may include price;
    3. (c) not create confusion in the market place between the firm itself (or the person whose financial promotion it approves) and a competitor or between the firm's trademarks, trade names, other distinguishing marks, investments or services (or those of the person whose financial promotion it approves) and those of a competitor;
    4. (d) not discredit or denigrate the trademarks, trade names, other distinguishing marks, investments, services, activities or circumstances of a competitor;
    5. (e) not take unfair advantage of the reputation of a trademark, trade name or other distinguishing marks of a competitor;
    6. (f) not present investments or services as imitations or replicas of investments or services bearing a protected trademark or trade name; and
    7. (g) indicate in a clear and unequivocal way in any comparison referring to a special offer the date on which the offer ends or, where appropriate, that the special offer is subject to the availability of the investments and services, and, where the special offer has not yet begun, the date of the start of the period during which the special price or other specific conditions shall apply.
  3. (3) If a non-real time financial promotion includes any information about the protection available under the compensation scheme or any other compensation scheme established in another EEA State or otherwise, it must restrict this to factual references to the scheme (an example of a factual reference is set out in COB 5.5.11 G).
  • 01/03/2003

COB 3.8.5

handbook-evidential-provisions
  1. (1) A firm should take reasonable steps to ensure that, for a non-real time financial promotion:
    1. (a) its promotional purpose is not in any way disguised or misrepresented;
    2. (b) any statement of fact, promise or prediction is clear, fair and not misleading and discloses any relevant assumptions;
    3. (c) any statement of opinion is honestly held and, unless consent is impracticable, given with the consent of the person concerned;
    4. (d) the facts on which any comparison or contrast is made are verified, or, alternatively, that relevant assumptions are disclosed and that the comparison or contrast is presented in a fair and balanced way, which is not misleading and includes all factors which are relevant to the comparison or contrast.
    5. (e) it does not contain any false indications, in particular as to:
      1. (i) the firm's independence;
      2. (ii) the firm's resources and scale of activities; or
      3. (iii) the scarcity of any investment or service;
    6. (f) the design, content or format does not disguise, obscure or diminish the significance of any statement, warning or other matter which the financial promotion is required by this chapter to contain;
    7. (g) it does not include any reference to approval by the FSA or any government body, unless such approval has been obtained in writing from the FSA or that body (see also GEN 1.2 (Referring to approval by the FSA));
    8. (h) it does not omit any matters the omission of which causes the financial promotion not to be clear, fair and not misleading; and
    9. (i) the accuracy of all material statements of fact in it can be substantiated.
  2. (2)
    1. (a) Compliance with COB 3.8.5 E (1) may be relied on as tending to show compliance with COB 3.8.4 R (1).
    2. (b) Contravention of COB 3.8.5 E (1) may be relied on as tending to show contravention of COB 3.8.4 R (1).
  • 01/12/2001

Non-real time financial promotions: guidance for deposits and pure protection policies which are long-term care insurance contracts

COB 3.8.6

handbook-guidance

When designing non-real time financial promotions relating to deposits or pure protection contracts which are long-term care insurance contracts with a view to complying with the general requirements of COB 3.8.4 R, firms may find it helpful to take account of:

  1. (1) (for deposits) the British Bankers' Association/Building Societies Association Code of Conduct for the Advertising of Interest Bearing Accounts;
  2. (2) [deleted]
  3. (3) (for pure protection contracts which are long-term care insurance contracts) the ABI Life Insurance (Non-Investment Business) Selling Code of Practice.

Non-real time financial promotions: guidance on clear, fair and not misleading

COB 3.8.7

handbook-guidance
  1. (1) It cannot be assumed that recipients necessarily have an understanding of the investment or service being promoted. The use of terms that are ambiguous, or the targeting of an audience which is unlikely to understand the promotion, are matters which are relevant to an assessment of whether the promotion is 'clear, fair and not misleading'. If a non-real time financial promotion is specially designed for a targeted collection of recipients who are reasonably believed to have particular knowledge of the investment or service being promoted, this fact should be made clear.
  2. (2)
    1. (a) Except in relation to life policies providing guaranteed benefits, or deposits, the description of an investment as 'guaranteed' should only be used where there is a legally enforceable arrangement with a third party to meet the claim in full. In such cases sufficient details about the guarantor and the guarantee should be provided before a person enters into a transaction relating to the investment to enable him to make a fair assessment of the value of the guarantee.
    2. (b) Where the investment is in units of an authorised fund the guarantee should be given by a third party other than the authorised fund manager or the depositary.
    3. (c) A guarantee to the directors of a company that issues an EIS share is not a guarantee to a person invested in the relevant Enterprise Investment Scheme.
  3. (3) The use of any of the following may mean that a non-real time financial promotion does not meet the general requirement of COB 3.8.4 R (1) of being clear, fair and not misleading:
    1. (a) a statement such as 'no initial charges' or 'no entry or redemption charges' where the bid price is not the same as the offer price (for example there is a spread), unless the statement is suitably qualified with information about the additional costs of investment;
    2. (b) the phrase 'frozen pensions', which implies that the pension fund will not remain invested and the pension benefits may not be subject to the possibility of an upward revaluation and will not be upgraded in circumstances where this is not the case (the phrase 'preserved pensions' is recommended as an alternative);
    3. (c) a statement of the amount of authorised share capital of a company without the amount of the issued share capital;
    4. (d) a statement of the amount of a company's total assets without the amount of its liabilities, or the amount of a company's total costs, or income or turnover, without making clear the period to which the statement relates;
    5. (e) an implication that the assets of a whole group can be drawn on by a subsidiary when this is not the case;
    6. (f) a comparison of the performance or the likely performance of an investment in units in a regulated collective investment scheme with an investment in units in an unregulated collective investment scheme.
  4. (4) In relation to quotations of opinion:
    1. (a) where only part of an opinion is quoted, it should nevertheless be a fair representation;
    2. (b) any connection between the holder of the opinion and the firm should be made clear.
  5. (5) Firms should note that the "return" on an investment is the gain or profit; it does not include the original capital invested.
  6. (6) A firm which offers general insurance contracts, providing benefits for the policyholder's care in the event of the policyholder's disability or incapacity, should avoid using terms which state expressly or imply that the policy will be available for the policyholder to claim on in the long-term, that is, for any period beyond the expiry of the policy. So a general insurance contract should not be promoted as being capable of providing long-term care insurance for the policyholder in the long-term, and expressions such as "long-term care" and "lifetime care" should generally be avoided in relation to general insurance contracts. If a general insurance contract provides benefits over the long-term in the event of a claim being made, a firm should make clear that the long-term aspect relates only to the availability of benefits in the event of a claim, not to the duration of the policy itself.

Specific non-real time financial promotions: general requirements

COB 3.8.8

handbook-rule

A specific non-real time financial promotion must;

  1. (1) include a fair and adequate description of:
    1. (a) the nature of the investment or service;
    2. (b) the commitment required;
    3. (c) the risks involved; and
  2. (2) if it relates to an investment or service of a person other than the firm, contain the name of that person, in addition to the name and address or contact point of the firm or its appointed representative (see COB 3.8.2 R).
  • 01/11/2002

COB 3.8.9

handbook-guidance
  1. (1) A specific non-real time financial promotion should give a fair and balanced indication of the requirements in COB 3.8.8 R (1)(a) to (c), to meet COB 3.8.4 R (1).
  2. (2) The details of the commitment which is required by COB 3.8.8 R (1)(b) will depend on the nature of the investment being promoted. This could be, for example, the minimum amount which can be invested, minimum or maximum period of investment or, where it is the case, the fact that it could be some time before a person may see a return on his investment. Where an investor's capital would be tied up for more than one month following the last fixed payment due to be made under the contract, this should be made clear in any financial promotion for that product.
  3. (3) In giving a fair and adequate explanation of the investment or service being promoted firms should avoid:
    1. (a) accentuating the potential benefits of an investment without also giving a fair indication of the risks;
    2. (b) failing to describe any benefits under a life policy which are not fixed;
    3. (c) drawing attention to favourable tax treatment without stating that this might not continue in the future; and
    4. (d) drawing attention to an investment or service's past performance, or placing emphasis on past performance, relative to other information given about the product in the financial promotion.
    5. (e) using prominent headline rates of return where these rates are unrealistic and unlikely to be obtained by most investors.
  4. (4) Guidance on the application of COB 3.8.4 R to the internet and other electronic media is provided in COB 3.14.
  5. (5) To assist firms' compliance with COB 3.8.4 R (1) and COB 3.8.8 R(1) in relation to a specific non-real time financial promotion further guidance is given in COB 3 Annex 4 G.
  6. (6) If the financial promotion relates to securities, or to an investment trust savings scheme for dealing in securities, in respect of which the conditions in (a), (b) and (c) are satisfied, then the firm should ensure that the risks associated with the relevant investment approaches in (b) are properly explained. The conditions are that:
    1. (a) the securities are
      1. (i) listed in the United Kingdom under LR 15; or
      2. (ii) issued by an investment trust and listed in an EEA State other than the United Kingdom;
    2. (b) the issuer of the securities in (a):
      1. (i) uses or proposes to use gearing as an investment strategy; or
      2. (ii) invests or proposes to invest in securities that satisfy the conditions in (a) and the issuer of such securities uses or proposes to use gearing as an investment strategy; and
    3. (c) the securities are likely to be subject to fluctuations in value which are significant compared with the likely fluctuations in value of the underlying investments.
  7. (7) In giving a fair and adequate explanation of the risk involved, firms should, where relevent:
    1. (a) have regard to the provisions in COB 5.4.12 E and COB 5.4.13 G; and
    2. (b) identify where there is a possibility of loss of initial capital invested and disclose this as one of the main points in the specific non-real time financial promotion.
  8. (8) Firms are reminded that, when communicating or approving a financial promotion relating to a structured capital-at-risk product, COB 8.2.1 R and COB 8.2.4 R(2) apply.

Specific non-real time financial promotions: non-packaged products

COB 3.8.10

handbook-rule

A specific non-real time financial promotion relating to a designated investment other than a packaged product must, when it is the case, and if it is known, disclose if the firm or its associate:

  1. (1) has or may have a position or holding in the investment concerned or in a related investment; or
  2. (2) has or may have a material interest in any investment concerned, and the nature and extent of that interest; or
  3. (3) is or may be the only market maker where the financial promotion is for a security (excluding units in a collective investment scheme); or
  4. (4) is or may be providing, or has or may have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment.
  • 01/12/2001

Specific non-real time financial promotions: past performance

COB 3.8.11

handbook-rule

A specific non-real time financial promotion which gives information about the past performance of a specified investment or of a firm must include:

  1. (1) suitable text which states unambiguously, and without reservation, that past performance should not be seen as an indication of future performance:
    1. (a) that is specifically designed for the type of financial promotion concerned and its target audience; and
    2. (b) which is presented legibly in the main text of the financial promotion; and
  2. (2) information relating to a relevant and sufficient period of past performance to provide a fair and balanced indication of the performance.
  • 01/06/2004

COB 3.8.12

handbook-guidance
  1. (1) The purpose of COB 3.8.11 R is to:
    1. (a) prevent an investment being promoted in such a way as to induce a person to believe that any previous periods of favourable performance will necessarily be repeated in the future; and
    2. (b) encourage firms to draft warnings which are tailored to fit the design of the financial promotion and the audience to which they are primarily directed; so, for example, text used in a warning included in a specialist magazine may not be appropriate in a financial promotion in the popular press.
  2. (2) Any of the following may mean that a specific non-real time financial promotion does not meet the requirement of COB 3.8.4 R (1) of being clear, fair and not misleading:
    1. (a) an unfair comparison with the performance of another type of investment;
    2. (b) the selection of an inappropriate or irrelevant investment period;
    3. (c) the selection of an unreasonably short time period;
    4. (d) the selection of inconsistent time periods for a range of funds;
    5. (e) a comparison with deposits without an indication in clear terms, and with equal prominence, that the investment does not include the security of capital which is characteristic of a deposit with a bank or building society.
  3. (3) Firms need to take special care when presenting euro-based information as new factors should be taken into account in the calculation or comparison of the performance of some products. There may be some techniques of presenting past performance data which can no longer be used if the factoring in of euro conversion produces a misleading result. Guidance cannot deal with all the circumstances in which performance data are used, and it is therefore important for firms to look at the end result and the context in which the information is presented to ensure it does not breach COB 3.8.4 R (1) (clear, fair and not misleading).
  4. (4) Information on the past performance of a conventional with-profits contract may be relevant to a unitised contract to give potential policyholders access to information relating to the performance of a contract within the with-profit fund of a product provider. Any differences between the two systems and any factors which reduce the relevance of the past performance of the conventional contract, including differences in bonus policy and the level of charges and expenses, should be clearly explained.
  5. (5) Firms are reminded of the guidance in COB 3.6.4 G (2) about ensuring that specific non-real time financial promotions remain compliant with COB 3. To meet COB 3.8.11 R (2), a specific non-real time financial promotion that contains past performance information and is intended for use over a period of time should make clear:
    1. (a) the period of time to which the past performance information relates;
    2. (b) where relevant, the fact that this information may not be current; and
    3. (c) if (b) applies, an explanation of where up-to-date past performance information may be found.
  6. (6) Where a specific non-real time financial promotion, such as a brochure or a promotion on the Internet, includes past performance information that is presented over a number of pages, the past performance warning required by COB 3.8.11 R (1) should be included on each page on which past performance information is presented.
  7. (7) Information about past performance should normally be based on the actual performance of a fund or funds for the entire period. Where past performance information for the actual fund does not exist, a firm may only include hypothetical past performance information in the promotion if the result will be clear, fair and not misleading. Past performance information that is based entirely on hypothetical past performance information will be acceptable only where it relates to a fund that is not and has not been actively managed, and where prices on the relevant markets are unlikely to have been influenced by the operation of the fund had it been in existence.
  8. (8) In (7), hypothetical past performance information means information that has been constructed about the performance of a fund during a period for which no actual performance information is available, using the terms of the product and historical financial information. This would not include past performance information that is based on the actual performance of a fund (for example, where the pricing structure or other terms surrounding a product change but the underlying fund remains the same; where an existing fund is merging with another; or where a fund is cloned.)
  • 01/06/2004

Standardised past performance information

COB 3.8.13

handbook-rule
  1. (1) If a firm includes in a specific non-real time financial promotion information referring to the past performance of a packaged product, it must also include:
    1. (a) in the case of a scheme, unit-linked life policy or unit-linked stakeholder pension scheme (other than a unitised with-profits life policy or stakeholder pension scheme) past performance information calculated and presented in accordance with COB 3.8.13A R; or
    2. (b) in the case of a packaged product which is not within (a) that:
      1. (i) does not have a fixed term, the performance over the previous five years (or the whole period if the product has been offered for less than this); or
      2. (ii) has a fixed term, the performance over the whole period of the product term;
  2. ending with the date on which the firm confirms compliance with the rules in this chapter under COB 3.6.1 R (or as near as is reasonably practicable).
  3. (2) The information included in accordance with COB 3.8.13 R (1) should be no less prominent than any other past performance information.
  4. (3) A specific non-real time financial promotion must not contain any past performance information, including hypothetical past performance information, unless past performance information exists for the previous twelve months (or where COB 3.8.13R(1)(a) applies, for the previous four full quarters).
  5. (4) For the purposes of COB 3.8.13 R (1)(a), firms should use single pricing, or (if this is not available) bid to bid prices, unless the firm has reasonable grounds to be satisfied that another basis would better reflect the past performance of the fund.
  6. (5) This rule does not apply to a prospectus drawn up in accordance with CIS 3.2.1 R (Drawing up of prospectus) or COLL 4.2.2 R (Publishing the prospectus) or a simplified prospectus drawn up in accordance with the requirements of COB 6.2 (Provision of key features or simplified prospectus).

COB 3.8.13A

handbook-rule

Specimen table of disclosure of discrete past performance.

This table belongs to COB 3.8.13 R.

  • 01/06/2004

COB 3.8.14

handbook-guidance
  1. (1) The information required by COB 3.8.13 R (1)(b) should be given on:
    1. (a) an offer to bid basis (which should be stated) where there is an actual return or comparison of performance with other investments; or
    2. (b) an offer to offer, bid to bid or offer to bid basis (which should be stated) where there is a comparison of performance with an index or with movements in the price of units; or
    3. (c) a single pricing basis with allowance for charges.
  2. (2) Where the pricing policy of the investment has changed, the prices used to comply with COB 3.8.13 R should include such adjustments as are necessary to remove any distortions resulting from the pricing method.
  3. (3) Where the performance relates to a different investment vehicle, any material differences should be stated in the financial promotion.
  • 01/06/2004

COB 3.8.15

handbook-rule

Information about past performance in a specific non-real time financial promotion must not be presented in such a manner as to suggest that:

  1. (1) it constitutes a projection illustrating the possible future value of an investment contract or fund; or
  2. (2) similar returns will be achieved in the future.
  • 01/06/2004

COB 3.8.16

handbook-guidance

In determining whether COB 3.8.15 R has been satisfied, the FSA will take into account:

  1. (1) the way in which the information about past performance has been presented;
  2. (2) how it is positioned in the financial promotion; and
  3. (3) the wording which accompanies it.

Paragraph headings, or the positioning of information about past performance and current yields next to each other, can sometimes contribute to an overall impression that past performance and future prospects are linked.

  • 01/06/2004

Specific non-real time financial promotions: projections for life policies or schemes

COB 3.8.17

handbook-rule
A specific non-real time financial promotion relating to a life policy, or a scheme, and which includes a projection must comply with the detailed projection rules in COB 6.6 (Projections).
  • 01/12/2001

Specific non-real time financial promotions: projections for EIS shares

COB 3.8.18

handbook-rule
A specific non-real time financial promotion must not contain a projection of the possible investment return on a direct or indirect investment in EIS shares.
  • 01/12/2001

Specific non-real time financial promotions: packaged products

COB 3.8.19

handbook-rule
  1. (1) A firm must not communicate or approve a specific non-real time financial promotion containing or offering advice on packaged products, or providing basic advice on a stakeholder product, unless the promotion discloses information to show whether the scope of the advice which is given or offered is or will be based upon a selection made from:
    1. (a) the whole market (or from the whole of a named sector of the market); or
    2. (b) a limited number of product providers; or
    3. (c) a single product provider.
  2. (2) A firm must not communicate or approve a specific non-real time financial promotion offering packaged products or stakeholder products produced by a person, A:
    1. (a) that holds out any person other than A as the packaged product producer; or
    2. (b) that does or says anything which might reasonably lead a private customer to be mistaken as to the identity of the product's producer; or
    3. (c) in which the prominence of A's brand is less than that of other brands included in the promotion.

COB 3.8.20

handbook-guidance
Firms are reminded that COB 3.8.19 R does not apply to image advertising (see COB 3.2.5 R (Exemptions) and COB 3.2.7 G (3)(b) (Guidance on the exemptions)).
  • 01/12/2001

Specific non-real time financial promotions: simplified prospectus schemes and equivalent recognised schemes

COB 3.8.20A

handbook-rule
A specific non-real time financial promotion relating to a simplified prospectus scheme or a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) must indicate that a simplified prospectus and prospectus exist for the scheme and the places where they may be obtained by the public or how the public may have access to them.
  • 01/10/2005

Real time financial promotions

COB 3.8.21

handbook-guidance
A firm should note that COB 3.10.3 R prevents a firm from communicating an unsolicited real time financial promotion other than an exempt financial promotion (which is outside the scope of this chapter) or where one of COB 3.10.3 R (1), COB 3.10.3 R (2) and COB 3.10.3 R (3) applies. Many solicited real time financial promotions will be exempt financial promotions (and, therefore, outside the scope of this chapter). Accordingly, COB 3.8.22 R applies only to solicited real time financial promotions which are not exempt financial promotions and to unsolicited real time financial promotions within COB 3.10.3 R (1).
  • 01/09/2002

COB 3.8.22

handbook-rule

A firm must take reasonable steps to ensure that an individual who makes a real time financial promotion on the firm's behalf:

  1. (1) does so in a way which is clear, fair and not misleading;
  2. (2) does not make any untrue claims;
  3. (3) makes clear the purpose (or purposes) of the financial promotion at the initial point of communication, and identifies himself and the firm which he represents;
  4. (4) if the time and method of communication were not previously agreed by the recipient:
    1. (a) checks that the recipient wishes him to proceed;
    2. (b) terminates the communication if the recipient does not wish him to proceed (but may ask for another appointment);
    3. (c) recognises and respects, promptly, the right of the recipient to:
      1. (i) end the communication at any time; and
      2. (ii) refuse any request for another appointment;
  5. (5) gives any recipient with whom he arranges an appointment a contact point;
  6. (6) does not communicate with a person:
    1. (a) at an unsocial hour, unless the person has previously agreed to such a communication;
    2. (b) on an unlisted telephone number, unless the person has previously agreed to such calls on that number;
  7. (7) if applicable, acts in conformity with the rules in COB 4.3 (Disclosing information about services, fees and commission - packaged products), COB 5A.1 (Providing basic advice on Stakeholder Products) and COB 5.1 (Advising on packaged products).

COB 3.8.23

handbook-guidance
In COB 3.8.22 R (6)(a) an unsocial hour usually means on a Sunday or before 9am or after 9pm on any other day. It could also mean other days of the week or other times if the firm knows that a particular recipient would not wish to be called on that day or at that time for reasons of, for example, religious faith or night shift working.
  • 01/12/2001

COB 3.8.24

handbook-guidance

The requirements of COB 3.8.22 R:

  1. (1) apply in respect of all individuals who initiate the communication, including representatives, call centre operators and introducers;
  2. (2) apply to all forms of real time financial promotion, including face to face and telephone financial promotion;
  3. (3) but do not prevent, for example, a telephone call centre which has received a call from a person at an hour generally regarded as unsocial, either responding to that call or asking during the call if the person would like details of other investment products.
  • 01/12/2004

COB 3.8.25

handbook-guidance
SYSC 3.2.20 R (Records) requires a firm to take reasonable care to make and retain certain records. For a telemarketing campaign to which COB 3.8.22 R applies, those records should include copies of any scripts used.
  • 01/12/2001

COB 3.9

Direct offer financial promotions

  • 01/12/2004

Application

COB 3.9.1

handbook-rule
This section applies to a firm which communicates or approves a direct offer financial promotion.
  • 01/12/2001

COB 3.9.2

handbook-guidance
  1. (1) This section includes provisions which apply to all direct offer financial promotions and other provisions which apply only to certain kinds of direct offer financial promotions. COB 3.9.3 G is intended to help firms locate the paragraphs which are relevant to them.
  2. (2) COB 3.8.2 R to COB 3.8.20 G also apply to direct offer financial promotions.
  3. (3) Material communicated as one package, such as by direct mail, may be regarded as one financial promotion for the purposes of this section.
  • 01/12/2001

COB 3.9.3

handbook-guidance

Location of the provisions applicable to direct offer financial promotions

This table belongs to COB 3.9.2 G

Exemptions

COB 3.9.4

handbook-guidance

Firms are reminded that under COB 3.2.3 R:

  1. (1) COB 3.9 does not apply to a direct offer financial promotion relating to:
    1. (a) a deposit (except a cash deposit ISA or cash deposit CTF); or
    2. (b) a pure protection contract which is a long-term care insurance contract or reinsurance contracts; and
  2. (2) a direct offer financial promotion relating to a cash deposit ISA must comply with COB 3.9.6 R (1) and COB 3.9.8 R.

Prohibited types of direct offer financial promotion

COB 3.9.5

handbook-rule
  1. (1) A direct offer financial promotion must not relate to a broker fund.
  2. (2) A direct offer financial promotion must not relate to:
    1. (a) a derivative; or
    2. (b) a warrant;
unless the firm itself has adequate evidence to suggest that the investment may be suitable for the person to whom the promotion is communicated.
  • 15/11/2001

Direct offer financial promotions: general requirements

COB 3.9.6

handbook-rule
  1. (1) A direct offer financial promotion must be in a durable medium and contain sufficient information to enable a person to make an informed assessment of the investment or service to which it relates.
  2. (2) In particular, a direct offer financial promotion must contain:
    1. (a) the information set out in COB App 1 (the information in and (4) must be provided in relation to the person offering the investment or service and, if different, the firm communicating or approving the financial promotion);
    2. (b) where it is the case that no advice on investments has been given, a prominent statement that:
      1. (i) no advice on investments has been given; and
      2. (ii) if a person has any doubt about the suitability of the agreement which is the subject of the financial promotion he should contact the firm for advice on investments (or another appropriate firm if the firm does not offer advice on investments).
    3. (c) if the financial promotion is communicated by a firm whose permission includes a requirement that it must not hold client money, the name of the person to whom payment (if any) should be made;
    4. (d) details of the basis or amount of any commission or remuneration which might be payable by the person who is offering the investment or service to another person.
  • 09/10/2004

Contractual terms and conditions for distance contracts

COB 3.9.7A

handbook-rule
  1. (1) A firm must ensure that a retail customer is provided with all the contractual terms and conditions on which its service will be provided in a durable medium in good time before the retail customer is bound to the firm by a distance contract or offer resulting from a direct offer financial promotion, unless an exemption in (2), (3) or (4) applies:
  2. (2) Exemption: means of distance communication
  3. This exemption applies if the contract is concluded at the retail customer's request using a means of distance communication which does not enable provision of the contractual terms and conditions in a durable medium in accordance with (1). In that case, the firm must provide the retail customer with the information in a durable medium immediately after conclusion of the distance contract.
  4. (3) Exemption: successive or separate operations under an initial service agreement
  5. This exemption applies if the firm has an initial service agreement with the retail customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.10.2 G (1)).
  6. (4) Exemption: other successive or separate operations
  7. This exemption applies if:
    1. (a) the firm has no initial service agreement with the retail customer;
    2. (b) the firm has performed an operation with the retail customer within the last year; and
    3. (c) the contract is in relation to a successive operation or separate operation of the same nature (see COB 1.10.2 G (2)).
  • 09/10/2004

Cash deposit ISAs and cash deposit CTFs

COB 3.9.8

handbook-rule
A direct offer financial promotion relating to a cash deposit ISA or cash deposit CTF must contain the information required by whichever of COB 6.5.42 (1) to COB 6.5.42 (8) or COB 6.5.42A applies to it and COB App 1.
  • 09/10/2004

Electronic media

COB 3.9.9

handbook-guidance
Guidance, including information on direct offer financial promotions on the internet and other electronic media, is provided in COB 3.14 (The internet and other electronic media).
  • 01/12/2001

Packaged products

COB 3.9.10

handbook-rule
  1. (1) A direct offer financial promotion relating to a packaged product other than a simplified prospectus scheme or a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) must contain the information required by COB 6.5.2 R (1), (3) and (5) as applicable (Contents of key features).
  2. (2) A direct offer financial promotion relating to a simplified prospectus scheme must contain the information required by COB 6.2.37 (Table: Contents of the simplified prospectus).
  3. (3) A direct offer financial promotion relating to a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) must contain the information which the competent authority of the recognised scheme's Home State requires a simplified prospectus to contain.
  4. (4) Where a direct offer financial promotion relates to a funds supermarket service, the promotion may, instead of meeting the requirements in (1), (2) and (3), take the form of a composite key features document that complies with the requirements of COB 6.5 (Content of key features) provided that it contains a clear statement that the simplified prospectus of each simplified prospectus scheme and simplified prospectus of each recognised scheme to which the service relates is available free of charge on request.

COB 3.9.11

handbook-guidance
  1. (1) The information should follow, where possible, the same order as key features or, as the case may be, the simplified prospectus. But adjustments may be made to the order, where this would assist design and understanding of the material.
  2. (2) Where the direct offer financial promotion relates to more than one key features scheme, simplified prospectus scheme or recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) or any combination of them, the information to be provided in the promotion may be presented on a composite basis.

Execution-only dealing services

COB 3.9.12

handbook-rule

A direct offer financial promotion relating to an execution-only dealing service must in particular, if it is the case, contain a clear statement that:

  1. (1) the firm's procedures are such that there may be a delay in the execution of a customer order, including the reason for and the normal maximum extent of any such delay;
  2. (2) customer orders may on occasion be aggregated (in which case the statement must comply with COB 7.7.4 R).
  • 01/12/2004

COB 3.9.13

handbook-guidance
The purpose of COB 3.9.12 R (1) is to ensure that explanations are given when firms' procedures might, for example, involve dealing every hour or at certain times of the day. Details of external factors over which the firm has no control are not required.
  • 01/12/2001

Potential problem areas for direct offer financial promotions.

COB 3.9.14

handbook-guidance
To assist firms' compliance with COB 3.8.4 R (1) and COB 3.8.8 R(1) in relation to a direct offer financial promotion, further guidance is given in COB 3 Annex 4 G.
  • 01/12/2001

Investments which can fluctuate in value

COB 3.9.15

handbook-rule
  1. (1) A direct offer financial promotion relating to an investment which can fluctuate in value, or which offers income distributions which may fluctuate, must make this clear in terms which are likely to be understood by the kind of recipient to whom the financial promotion is communicated.
  2. (2) The explanation given in conformity with (1) must be set out with due prominence and in a print size no smaller than that used in the main text of the financial promotion.
  • 01/12/2001

COB 3.9.16

handbook-guidance
The FSA will expect the explanation required by COB 3.9.15 R to be contained within the main body of the financial promotion, and not in small print at the very end. Firms which choose to include it in a separate stand-alone statement should satisfy themselves on reasonable grounds that this is likely to offer the best prospect of it being seen and read and should record such reasons for the purposes of COB 3.7 (Records).
  • 01/12/2001

COB 3.9.17

handbook-guidance

Examples of explanations which could meet COB 3.9.15 R are:

  1. (1) 'You are not certain to make a profit; you may lose money/make a loss';
  2. (2) 'You may not get back the full amount of your investment';
  3. (3) (for investment income): 'The income is not fixed - it can go up or down';
  4. (4) (for contingent liabilities): 'You could lose all the money you invested and you may have to pay more later';
  5. (5) (for higher volatility funds): 'This investment may be subject to sudden and large falls in value, you could get back nothing at all';
  6. (6) (for property funds):
    1. (a) 'This fund invests in property and land. This can be difficult to sell - so you may not be able to sell/cash in this investment when you want to. We may have to delay acting on your instructions to sell your investment';
    2. (b) 'The value of property is generally a matter of a valuer's opinion rather than fact';
  7. (7) (for an Enterprise Investment Scheme):
    1. (a) 'It may be difficult to sell your investment, or to get accurate information about how much it is worth or how risky it is';
    2. (b) 'These are unquoted securities which may have more risks than quoted securities or shares';
    3. (c) 'Investments in unquoted securities may be difficult to sell. Market makers may not be prepared to deal in them. This scheme may invest in private companies and restrictions may apply to the transfer of these private company securities';
    4. (d) 'Proper information for working out the current value of investments may not be available';
  8. (8) (for property enterprise trusts and Enterprise Zone Property Unit Trusts):
    1. (a) 'The value of the property in these schemes can go down as well as up. The initial price of Enterprise Zone property may be distorted as a result of the tax allowances and other benefits available - it may often be necessary to pay a higher price for this property compared with other property';
    2. (b) 'There is no established market in this investment';
    3. (c) 'This investment is designed to be held for a very long time (normally 25 years). You may have difficulty selling it. You should not invest in this if you may need to sell early';
    4. (d) 'Do not invest in this investment unless you have carefully thought about whether you can afford it and whether it is right for you';
  9. (9) (for non-readily realisable investments): You may have difficulty selling this investment at a reasonable price and, in some circumstances, it may be difficult to sell it at any price. Do not invest in this unless you have carefully thought about whether you can afford it and whether it is right for you;
  10. (10) (for front end loaded contracts): We take most of our charges in the early years of this investment. This means that if you withdraw during this time you may lose money/get back less than you invested;
  11. (11) (for with-profit life policies): The value of this policy depends on how much profit we make and how we may decide to distribute this profit;
  12. (12) (for penny shares): There is an extra risk of losing money when shares are bought in some smaller companies including penny shares. There is a big difference between the buying price and the selling price of these shares. If they have to be sold immediately, you may get back much less than you paid for them. The price may change quickly and it may go down as well as up;
  13. (13) (for foreign currency denominated investments): Changes in the rates of exchange between currencies may cause your investment/the income to go down or up;
  14. (14) (for investments where the market is restricted): There is only one market maker', and/or `the only market maker is the communicator of the financial promotion or an associate of the issuer;
  15. (15) (for a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6)): 'This investment may be subject to sudden and large falls in value and you could get back nothing at all'.
  • 01/01/2004

Life policies

COB 3.9.18

handbook-rule

A direct offer financial promotion which relates to a life policy must state:

  1. (1) which benefits (if any) are fixed amounts, and what those amounts are; and
  2. (2) which benefits are not fixed amounts.
  • 01/12/2001

COB 3.9.18A

handbook-guidance
Firms are reminded of the provisions in COB 4.3, COB 5.2 and COB 5.3 requiring particular disclosures to clients in relation to life policies.
  • 01/12/2004

Taxation

COB 3.9.19

handbook-rule
A direct offer financial promotion must include a summary of the taxation of any investment to which it relates and the taxation consequences for investors generally.
  • 01/12/2001

COB 3.9.20

handbook-rule

A firm must include in a direct offer financial promotion:

  1. (1) a warning that taxation levels, bases and (if relevant) reliefs can change;
  2. (2) the assumed rate of taxation;
  3. (3) (where taxation reliefs are mentioned) statements:
    1. (a) distinguishing between reliefs which apply directly to investors and anyone else;
    2. (b) that the reliefs are the ones which currently apply; and
    3. (c) that the value depends upon the circumstances of the investor; and
  4. (4) where the words 'free from tax liability', or similar are used and it is the case, a statement making clear that this describes the benefits when paid to the investor, and a statement with equal prominence that the income is payable out of a fund which has already paid income tax, corporation tax or capital gains tax (whichever applies).
  • 01/12/2001

EIS or non-packaged product, ISA, PEP or CTF with no right of withdrawal

COB 3.9.21

handbook-rule
A direct offer financial promotion which relates to an EIS or non-packaged product ISA, PEP or CTF for which no right to withdraw is given under case 8 of row 2, COB 6.7.17 R, must include the statement required by that provision.
  • 09/10/2004

Charges for regulated collective investment schemes

COB 3.9.23

handbook-rule

A direct offer financial promotion relating to a regulated collective investment scheme must give an adequate explanation of the charging structure and make clear:

  1. (1) whether all or part of the scheme expenses will be taken out of capital or income; and
  2. (2) the likely long-term effect on capital or income.
  • 01/12/2001

Penny shares

COB 3.9.24

handbook-rule
If an indication of the price of a particular penny share is included in a direct offer financial promotion, the bid-offer spread must also be included (based on the best price available in the relevant market at the time for transactions of the largest bid or offer price of that share).
  • 01/12/2001

Branded funds

COB 3.9.25

handbook-rule
A direct offer financial promotion relating to a branded fund must include a statement that the firm responsible for the promotion does not manage the investments in the branded fund, together with the name and address of the manager.
  • 01/12/2001

Enterprise Investment Schemes

COB 3.9.26

handbook-rule

A direct offer financial promotion relating to an Enterprise Investment Scheme must contain:

  1. (1) the information specified in COB 3 Annex 2 R;
  2. (2)
    1. (a) either a copy of the prospectus; or
    2. (b) if no prospectus is required under Part VI of the Act, the information specified in COB 3.9.27 G relating to each company in which the Enterprise Investment Scheme manager has a material interest and intends to acquire interests on behalf of the scheme;
  3. (3) a prominent statement that applications may only be made and accepted subject to the terms and conditions of the Enterprise Investment Scheme particulars and prospectus (if applicable); and
  4. (4) a prominent explanation of any right to withdraw (under COB 6.7) or, where it is the case, that such rights will not apply.

COB 3.9.27

handbook-guidance

To meet the requirements of COB 3.9.26 R, a direct offer financial promotion relating to an Enterprise Investment Scheme should include the following information about the company issuing the EIS shares:

  1. (1) assets and liabilities;
  2. (2) financial position;
  3. (3) profits and losses;
  4. (4) prospects; and
  5. (5) rights attaching to the EIS shares.
  • 01/09/2003

COB 3.9.28

handbook-rule
In addition to the requirements of COB 3.9.26 R, a direct offer financial promotion relating to a private offer of EIS shares must include the information specified in COB 3 Annex 3 R.
  • 01/12/2001

Income withdrawal and short-term annuity

COB 3.9.29

handbook-rule

A direct offer financial promotion relating to, or offering a facility for, income withdrawals or a short-term annuity must include the following explanations:

  1. (1) the value of the fund may be eroded, especially if investment returns are poor and a high level of income is taken; this could result in a lower income in the future;
  2. (2) the investment returns may be less than those shown in the illustrations;
  3. (3) annuity or scheme pension rates may be at a worse level in the future;
  4. (4) when maximum withdrawals are taken or the maximum short-term annuity is purchased, high levels of income may not be sustainable; and
  5. (5) the maximum income that can be withdrawn under an alternatively secured pension after age 75 is significantly less than the maximum that applies before age 75.

Child trust funds

COB 3.9.30

handbook-rule
A direct offer financial promotion relating to a CTF must contain the information referred to in COB 6.5.40 R (7).
  • 01/12/2004

Structured capital at risk products

COB 3.9.31

handbook-rule

When communicating or approving a direct offer financial promotion for a structured capital-at-risk product a firm must ensure that the following information is included in the mailing pack or included by a clearly visible electronic link if using email, the Internet or other electronic media:

  1. (1) an explanation of the types of capital-at-risk products generally available and how they would typically work;
  2. (2) an explanation of the risks associated with investing in these capital-at-risk products;
  3. (3) details of the key issues that consumers should consider before investing in a capital-at-risk product; and
  4. (4) information about how to complain to the firm and how complaints can subsequently be referred to the Financial Ombudsman Service.
  • 16/07/2004

COB 3.9.32

handbook-guidance
  1. (1) When a firm complies with its obligations under COB 3.9.31 R it should ensure that the information it provides includes in particular the following:
    1. (a) reference to the different risk profiles of generally available capital-at-risk products when compared with capital secure products such as deposits;
    2. (b) reference to the fact that, because of the risk to capital, capital-at-risk products should only form part of an investment portfolio;
    3. (c) reference to the fact that, before buying, investors should check they understand the way the product is priced, the charges involved, the length of time their money will be tied up and the consequences of cashing in the product early; and
    4. (d) contact details for the FSA's consumer helpline and website.
  2. (2) The FSA would regard a firm that provides a copy of the FSA's factsheet about capital-at-risk products entitiled 'Capital-at-risk products' as complying with its obligations under COB 3.9.31 R. Firms can obtain copies or buy the artwork by using the FSA's online order form at www.fsa.gov.uk/pubs, Consumer publications.
  3. (3) Where a firm provides a copy of the FSA's factsheet, it may wish to include the following wording in its covering literature: "The enclosed factsheet about capital-at-risk products is from the Financial Services Authority (FSA), the independent watchdog set up by Parliament. Please read this document carefully.".
  • 01/12/2004

COB 3.10

Unsolicited real time financial promotions

  • 01/12/2004

Meaning of "solicited" and "unsolicited" real time financial promotion

COB 3.10.1

handbook-rule
  1. (1) An unsolicited real time financial promotion is a real time financial promotion which is not solicited as described in (2).
  2. (2) A solicited real time financial promotion is a real time financial promotion which is solicited, that is, it is made in the course of a personal visit, telephone call or other interactive dialogue if that call, visit or dialogue:
    1. (a) was initiated by the recipient of the financial promotion; or
    2. (b) takes place in response to an express request from the recipient of the financial promotion;
  3. and it is clear from all the circumstances when the call, visit or dialogue is initiated or requested that during the course of the visit, call or dialogue financial promotions would be made concerning the kind of controlled activities or controlled investment to which the financial promotion relates.
  4. (3) In (2), a person is not to be treated as expressly requesting a call, visit or dialogue:
    1. (a) because he omits to indicate that he does not wish to receive any or any further visits or calls or to engage in any or any further dialogue;
    2. (b) because he agrees to standard terms that state that such visits, calls or dialogues will take place unless he has signified clearly that, in addition to agreeing to the terms, he is willing for them to take place.
  5. (4) If a real time communication is solicited by a person ("R") it is treated as also having been solicited by any other person to whom it is made at the same time as R if that other person is a close relative of R or is expected to engage in any investment activity jointly with R.
  • 01/03/2003

COB 3.10.2

handbook-guidance
COB 3.10.1 R is based on article 8 of the Financial Promotion Order. Guidance on whether a real time financial promotion is solicited is contained in PERG 8.10 (Types of financial promotion).

Restriction of unsolicited real time financial promotions

COB 3.10.3

handbook-rule

A firm must not make an unsolicited real time financial promotion unless:

  1. (1) the recipient has an established existing customer relationship with the firm and the relationship is such that the recipient envisages receiving unsolicited real time financial promotions; or
  2. (2) the financial promotion relates to a generally marketable packaged product which is not:
    1. (a) a higher volatility fund; or
    2. (b) a life policy with a link (including a potential link) to a higher volatility fund; or
  3. (3) the financial promotion:
    1. (a) relates to a controlled activity to be carried on by an authorised person or exempt person; and
    2. (b) the only controlled investments involved or which reasonably could be involved are:
      1. (i) readily realisable securities (other than warrants); and
      2. (ii) generally marketable non-geared packaged products.
  • 01/12/2001

COB 3.10.4

handbook-guidance
Firms are reminded of the exemptions in COB 3.2.5 R; COB 3.10.3 R does not prohibit an exempt unsolicited real time financial promotion.
  • 01/12/2001

COB 3.11

Unregulated collective investment schemes and qualified investor schemes

  • 01/12/2004

Unregulated collective investment schemes

COB 3.11.1

handbook-guidance
  1. (1) Under section 238 of the Act (Restrictions on promotion), an authorised person must not communicate an invitation or inducement to participate in an unregulated collective investment scheme ("the scheme promotion restriction"). This applies in the case of a communication originating outside the United Kingdom only if the communication is capable of having an effect in the United Kingdom.
  2. (2) However, the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060) exempts from the scheme promotion restriction certain types of communications relating to unregulated collective investment schemes.
  3. (3) In addition, section 238(5) of the Act gives the FSA power to make rules exempting from the scheme promotion restriction certain promotions relating to unregulated collective investment schemes, provided that they are not made to the general public. The purpose of COB 3.11.2 R is to make appropriate use of the power which the FSA has under section 238(5) of the Act.
  4. (4) Under section 240 of the Act (Restriction on approval of promotion), an authorised person cannot approve, for the purposes of section 21, the content of a communication relating to an unregulated collective investment scheme if he would not have been able, under section 238(1), to communicate it himself.
  5. (5) PERG 8.20 (Additional restriction on the promotion of collective investment schemes) provides further guidance on the restriction under section 238(1) of the Act (Restrictions on promotion).

Exemptions from the scheme promotion restriction

COB 3.11.2

handbook-rule
A firm may communicate an invitation or inducement to participate in an unregulated collective investment scheme if the communication falls within COB 3 Annex 5 R.
  • 01/12/2001

COB 3.11.3

handbook-guidance
  1. (1) A firm may communicate an invitation or inducement to participate in an unregulated collective investment scheme, which originates in the United Kingdom or is capable of having an effect in the United Kingdom, only if either:
    1. (a) the communication falls within COB 3 Annex 5 R; or
    2. (b) the communication is exempt from the scheme promotion restriction under the Financial Services and Market Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001.
  2. (2) Firms are reminded that, even if an invitation or inducement is within COB 3 Annex 5 R, other rules in this chapter may still apply.
  • 01/03/2003

Limited disapplication of this chapter

COB 3.11.4

handbook-rule

In relation to the communication by a firm of an invitation or inducement to participate in an unregulated collective investment scheme, this chapter applies only if:

  1. (1) the communication is permitted by COB 3.11.2 R;
  2. (2) in the case of a communication originating outside the United Kingdom, the communication is capable of having an effect in the United Kingdom; and
  3. (3) the communication is not exempted by the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001.
  • 01/03/2003

COB 3.11.5

handbook-guidance
The purpose of COB 3.11.4 R is to give effect to the limitation of the FSA's rule-making power in section 145(3)(b) of the Act (Financial promotion rules). It also ensures that this chapter does not apply to an invitation or inducement communicated by a firm under an exemption from the scheme promotion restriction in the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001.
  • 01/03/2003

Promotion of qualified investor schemes

COB 3.11.6

handbook-rule

A firm may communicate or approve an invitation or inducement to participate in a qualified investor scheme only if:

  1. (1) the communication falls within COB 3 Annex 5 R; or
  2. (2) the communication is exempt under the Financial Promotion Order (see COB 3 Annex 1 G).
  • 01/04/2004

COB 3.11.7

handbook-guidance
COLL 8 provides for a type of authorised fund (qualified investor scheme) which is intended for particular non-retail investors. COB 3.11.6 R restricts the promotion of such schemes.
  • 01/04/2004

COB 3.12

Communication and approval of financial promotions for an overseas person or an unauthorised person

  • 01/12/2004

Approval of financial promotions

COB 3.12.1

handbook-guidance
  1. (1) Section 21(1) of the Act (Restrictions on financial promotion) prohibits an unauthorised person from communicating a financial promotion, in the course of business, unless an exemption applies or the financial promotion is approved by a firm. An overview of the main exemptions in the Financial Promotion Order is in COB 3 Annex 1 G and further guidance is provided in PERG 8 (Financial promotion and related activities), in particular, PERG 8.9 (Circumstances where the restriction in section 21 does not apply).
  2. (2) Most of the rules in this chapter apply when a firm approves a financial promotion in the same way as when a firm communicates a financial promotion itself. A firm therefore has a similar responsibility for a financial promotion that it approves as for one that it communicates. For example, a firm which approves a non-real time financial promotion must:
    1. (a) if COB 3.6.1 R applies, confirm that the financial promotion complies with the rules in this chapter; and
    2. (b) if COB 3.8.4 R (1) applies, be able to show that it has taken reasonable steps to ensure that the financial promotion is clear, fair and not misleading.
  3. (3) A firm may also wish to approve a financial promotion that it communicates itself. This would ensure that an unauthorised person who then also communicates the financial promotion to another person will not contravene the restriction on financial promotion in section 21(1) of the Act (Restrictions on financial promotion).
  4. (4) A firm which approves a financial promotion that is exempt under COB 3.2.5 R (Exemptions) or COB 3.3.1 R (Application; where?) must still comply with certain rules in this chapter (see COB 3.2.4 R (2) and COB 3.3.3 R (2)).

No approval of real time financial promotions

COB 3.12.2

handbook-rule
  • 01/12/2001

Approval of financial promotions when not all the rules apply

COB 3.12.3

handbook-rule
If a firm approves a financial promotion in circumstances in which one or more of the rules in this chapter, or the prohibition in section 240(1) of the Act (Restriction on approval), are expressly disapplied, the approval must be given on terms that it is limited to those circumstances.
  • 01/12/2001

COB 3.12.4

handbook-guidance
For example, if a firm approves a financial promotion relating to an unregulated collective investment scheme under one or more of the exemptions in the table in COB 3 Annex 5 R, the approval must be limited to communication of the financial promotion to the relevant class of person in the left hand column of the table. Similarly, if a firm approves a financial promotion for communication to market counterparties and intermediate customers (see COB 3.2.5 R), the approval must be limited to communication to such persons.
  • 01/12/2001

COB 3.12.5

handbook-guidance
If an approval is limited in accordance with COB 3.12.3 R, and an unauthorised person communicates the financial promotion to persons not covered by the approval, the unauthorised person may commit an offence under section 21(1) of the Act (Restrictions on financial promotion). A firm giving a limited approval may wish to advise the unauthorised person accordingly.
  • 01/12/2001

Specific non-real time financial promotions for overseas persons

COB 3.12.6

handbook-rule

A firm must not communicate or approve a specific non-real time financial promotion which relates to an investment or service of an overseas person, unless:

  1. (1) the financial promotion makes clear which firm has approved or communicated it and, where relevant, explains:
    1. (a) that the rules made under the Act for the protection of private customers do not apply;
    2. (b) the extent and level to which the compensation scheme will be available, or if the scheme will not be available, a statement to that effect; and
    3. (c) if the communicator wishes, the protection or compensation available under another system of regulation; and
  2. (2) the firm has no reason to doubt that the overseas person will deal with private customers in the United Kingdom in an honest and reliable way.
  • 01/12/2001

COB 3.12.7

handbook-guidance
In considering which points are relevant for the purposes of COB 3.12.6 R (1), the activities, and the associated products or services of the overseas person will need to be separately considered.
  • 01/12/2001

COB 3.13

Additional requirements for financial promotions for an overseas long-term insurer

  • 01/12/2004

COB 3.13.1

handbook-rule
  1. (1) A firm must not communicate or approve a financial promotion to enter into a life policy with a person who is not:
    1. (a) an authorised person; or
    2. (b) an exempt person who is exempt in relation to effecting or carrying out contracts of insurance of the class to which the financial promotion relates; or
    3. (c) a company which has its head office in an EEA State other than the United Kingdom and which is entitled under the law of that State to carry on there insurance business of the class to which the financial promotion relates; or
    4. (d) a company which has a branch or agency in an EEA State other than the United Kingdom and is entitled under the law of that State to carry on there insurance business of the class to which the financial promotion relates; or
    5. (e) a company authorised to carry on insurance business of the class to which the financial promotion relates in any country or territory which is listed in (2).
  2. (2) The countries or territories referred to in (1)(e) are:
    1. (a) the Bailiwick of Guernsey;
    2. (b) the Isle of Man;
    3. (c) the Commonwealth of Pennsylvania;
    4. (d) the State of Iowa; and
    5. (e) the Bailiwick of Jersey.
  3. (3) For the purposes of (1), Gibraltar shall be regarded as if it were an EEA State.
  • 01/12/2001

COB 3.13.2

handbook-rule

A financial promotion for an overseas long-term insurer, which has no establishment in the United Kingdom, must include:

  1. (1) the full name of the overseas long-term insurer, the country where it is registered, and, if different, the country where its head office is situated;
  2. (2) a prominent statement that 'holders of policies issued by the company will not be protected by the Financial Services Compensation Scheme if the company becomes unable to meet its liabilities to them'; and,
  3. (3) where any trustee, investment manager or United Kingdom agent of the overseas long-term insurer is named which is not independent of the overseas long-term insurer, a prominent statement of that fact.
  • 01/12/2001

COB 3.13.3

handbook-rule

A financial promotion for an overseas long-term insurer which is authorised to carry on long-term insurance business in any country or territory listed in COB 3.13.1 R (2) must also include:

  1. (1) the full name of any trustee of property of any description which is retained by the overseas long-term insurer in respect of the promoted contracts;
  2. (2) an indication whether the investment of such property (or any part of it) is managed by the overseas long-term insurer or by another person and the full name of any investment manager;
  3. (3) the registered office of any such trustee and of any investment manager and of his principal office (if different); and
  4. (4) where any person in the United Kingdom takes, or may take, any steps on behalf of the overseas long-term insurer to enter into a promoted contract, the following details about that person:
    1. (a) the full name of the overseas long-term insurer;
    2. (b) the registered or head office in the United Kingdom; and,
    3. (c) if there is more than one such person, the principal or main person in the United Kingdom.
  • 01/12/2001

COB 3.13.4

handbook-rule

If a financial promotion relates to a life policy with an overseas long-term insurer but does not name the overseas long-term insurer by giving its full name or its business name:

  1. (1) it must include the following prominent statement: "This financial promotion relates to an insurance company which does not, and is not authorised to, carry on in any part of the United Kingdom the class of insurance business to which this promotion relates. This means that the management and solvency of the company are not supervised by the Financial Services Authority. Holders of policies issued by the company will not have the right to complain to the Financial Ombudsman Service if they have a complaint against the company and will not be protected by the Financial Services Compensation Scheme if the company should become unable to meet its liabilities to them"; and
  2. (2) if it also refers to other investments it must make this clear.
  • 01/03/2003

COB 3.13.5

handbook-guidance

For the purposes of COB 3.13.2 R (2) and COB 3.13.4 R (1) a prominent statement is one that is:

  1. (1) made immediately after the full name;
  2. (2) alongside the full name; or
  3. (3) where the name is stated more than once, the most prominent or the first if equally prominent.
  • 01/12/2001

COB 3.14

The internet and other electronic media

  • 01/12/2004

COB 3.14.1

handbook-guidance
This section contains guidance on the use of the internet and other electronic media to communicate financial promotions. Firms are also referred to the guidance in COB 1.8 (Application to electronic media).
  • 01/12/2001

Approach and general guidance

COB 3.14.2

handbook-guidance
Any material which meets the definition of a financial promotion, including any video or moving image material incorporated in any website containing a financial promotion, should comply with the rules in this chapter. See PERG 8.1.22G (The Internet) for further guidance on financial promotions on the internet, including the treatment of hyperlinks and banners.

COB 3.14.3

handbook-guidance

As indicated in COB 3.5.4 G for the purposes of the financial promotion rules, there are two types of approach to financial promotions communicated via the internet and other electronic media:

  1. (1) real time financial promotions where the communication is in the form, for example, of a telephone conversation or other form of interactive dialogue; and
  2. (2) non-real time financial promotions, where the recipient may, for example, choose from reading a description of an investment or service, through to the completion of a contract via a direct offer financial promotion in a similar way to browsing through a leaflet rack. The rules in this chapter relating to hard copy financial promotions such as advertisements in magazines or newspapers apply equally to such promotions.

E-mails, material displayed on a website and sound and television broadcasts are non-real time financial promotions (see COB 3.5.5 R).

  • 01/12/2001

COB 3.14.4

handbook-guidance
  1. (1) Before using the internet, digital or any other form of interactive television or other electronic media to promote its services a firm should refer to legislation such as the Data Protection Act 1998 and the Computer Misuse Act 1990, as well as to this chapter.
  2. (2) When designing websites and other electronic media, firms should be aware of the difficulties that can arise when reproducing certain colours and printing certain types of text. These difficulties could cause problems with the presentation and retrieval of required information. Any financial promotion communicated by the internet, digital or other forms of interactive television is subject to the requirements set out in COB 3.6 to COB 3.9 as applicable.
  • 01/12/2001

Specific guidance

COB 3.14.5

handbook-guidance
  1. (1) Key features, simplified prospectus, initial disclosure document and written contractual terms
    1. (a) To meet the requirements of COB 3.9.10 R, a firm should make it clear that the information is available to a recipient of the direct offer financial promotion, and easily obtainable, before any application is made.
    2. (b) It is important that recipients should have the opportunity to view the full text of the relevant key features, simplified prospectus, initial disclosure document, terms and conditions, customer agreement and any other applicable risk information required by the rules.
    3. (c) This can be achieved through the use of a hypertext link, as long as it is not hidden away in the body of the text where a recipient could miss it when browsing through the pages.
    4. (d) Local printing of information by the user should be allowed, where feasible. Firms should endeavour to provide hard copy on request.
  2. (2) Application forms
    1. (a) It is not necessary for access to an application form to be denied until the recipient has read key features or the simplified prospectus, and other contractual terms, but firms should ensure that on the application form, or in the preceding text, they draw attention to the existence of this material and the importance of reading it, as relevant business will be conducted on the basis of the key features or simplified prospectus, and written contractual terms.
    2. (b) A financial promotion may be a direct offer financial promotion even if the firm is unable to provide a copy of the application form electronically.
  3. (3) Exemptions COB 3.2.3A R (Application: what?: Exemptions) and COB 3.3.1 R (Territorial scope) contain exemptions from this chapter which depend on a particular financial promotion being made or directed only at certain persons. COB 3.5.6 R sets out the meaning of "made" and "directed at" in this context. COB 3.5.7 R and COB 3.3.6 R (respectively) set out various conditions relevant for determining whether a financial promotion will be regarded as directed only at such persons.
  4. (4) Unregulated collective investment schemes A firm which communicates an invitation or inducement to participate in an unregulated collective investment scheme by means of a website it may take advantage of the exemptions in COB 3 Annex 5 R. But if it does so, it must in accordance with that annex design the website to reduce, as far as possible, the risk of participation by persons to whom the invitation or inducement may not be promoted (as described in COB 3.11). COB 3.5.7 R sets out various conditions relevant for determining whether that test is satisfied.
  5. (5) The FSA website The FSA's website http://www.fsa.gov.uk contains a wide range of information including pages of specific relevance to customers. Firms may, if they wish, include a reference or hyperlink to the FSA's site; this will not however, replace any requirements of the financial promotion rules.
  6. (6) Record-keeping: continuously updated market information COB 3.7.1 R requires a firm to make and retain an adequate record of a non-real time financial promotion. If the non-real time financial promotion includes market information that is updated continuously in line with the relevant market, the record will be adequate without recording that information. But see COB 7.12.9 G and COB 7.12.10 G (Orders received over the Internet) regarding giving a customer access to such information in conjunction with the ability to place a customer order by relying on such information.

COB 3 Annex 1

An overview of some of the main exemptions contained in the Financial Promotion Order

  • 01/12/2004

handbook-guidance

COB 3 Annex 2

Contents of Enterprise Investment Scheme particulars (R)

  • 01/12/2004

handbook-rule
This annex forms part of COB 3.9.26 R (1) .
  • 01/12/2001

COB 3 Annex 3

Additional contents of Enterprise Investment Scheme particulars (Private Offer of Enterprise Investment Scheme Shares) (R)

  • 01/12/2004

handbook-rule
This annex forms part of COB 3.9.28 R.
  • 01/12/2001

COB 3 Annex 4

Additional guidance on particular types of financial promotion

  • 01/12/2004

handbook-guidance
This annex forms part of COB 3.8.9 G (5) and COB 3.9.14 G. More than one table may be relevant to any one financial promotion.

COB 3 Annex 5

Permitted promotion of unregulated collective investment schemes and qualified investor schemes. (R)

  • 01/12/2004

handbook-rule

Export chapter as

COB 4

Accepting
customers

COB 4.1

Client classification

  • 01/12/2004

Application

COB 4.1.1

handbook-rule
  1. (1) This section applies to a firm intending to conduct, or conducting designated investment business or ancillary business relating to designated investment business (but not to a firm which in relation to any customer intends only to provide basic advice on a stakeholder product).
  2. (2) For the purposes of COB only, the following provisions in COB 4.1 also apply to a firm intending to carry on, or carrying on, any other regulated activity to which COB applies:
    1. (a) COB 4.1.12 R and COB 4.1.13 G (Large intermediate customer classified as a market counterparty); and
    2. (b) COB 4.1.14 R (Client classified as a private customer).

COB 4.1.2

handbook-guidance
  • 01/12/2001

Purpose

COB 4.1.3

handbook-guidance
  1. (1) This section requires a firm to classify the persons with or for whom it intends to carry on designated investment business, to achieve appropriate application of the rules in COB and MAR 3 (Inter-professional conduct). Its purpose is to ensure that clients are appropriately categorised so that regulatory protections are focused on those classes of client that need them most, while allowing an appropriately "light-touch" approach for inter-professional business.
  2. (2) Some of the rules in COB relating to activities other than designated investment business are disapplied if the activity is carried on with or for a market counterparty rather than a customer, for example rules in COB 6.8 (Insurance contracts: life policies). For guidance on how a firm carrying on these other activities may approach client classification, see PRIN 1.2.4 G (Classification: other activities).

Requirement to classify

COB 4.1.4

handbook-rule
  1. (1) Before conducting designated investment business with or for any client, a firm must take reasonable steps to establish whether that client is a private customer, intermediate customer or market counterparty.
  2. (2) A firm which takes reasonable steps to classify its clients, as required by the rules in this section, and treats a client in accordance with the classification it has established for that purpose, does not breach any other rule in COB to the extent that the breach arises only from inappropriate classification of that client.
  • 01/12/2001

Agent as client

COB 4.1.5

handbook-rule
  1. (1) If a firm ("F") is aware that a person ("C1") with or for whom it is conducting designated investment business, or related ancillary activities, is acting as agent for another person ("C2") in relation to that business, C1, and not C2, is the client of F in respect of that business, if:
    1. (a) C1 is another firm or an overseas financial services institution; or
    2. (b) C1 is any other person, provided that avoidance of duties which F would otherwise owe to C2 is not the main purpose of the arrangements between the parties.
  2. (2) Paragraph (1) does not apply if F has agreed with C1 in writing to treat C2 as its client.
  3. (3) If there is an agreement under (2) in relation to more than one client (C2) represented by C1, F may discharge any requirement to notify, obtain instructions or consent from, or enter into an agreement with each C2 by sending to, or receiving from, C1, a single communication which is expressed to cover each C2, except that:
    1. (a) separate risk warnings under COB 5.4 (Customers' understanding of risk);
    2. (b) confirmations under COB 8.1 (Confirmation of transactions); and
    3. (c) periodic statements under COB 8.2 (Periodic statements) are required for each C2
  4. are required for each C2.
  5. (4) If paragraph (1) does not apply, because of the proviso in (1)(b) or an agreement under (2), C2, and not C1, is the client of F in respect of that business.
  • 15/11/2001

COB 4.1.6

handbook-guidance

Firms are reminded that COB 4.1.5 R:

  1. (1) [deleted]
  2. (2) is not relevant to the question of who is the firm's counterparty for the purposes of the Interim Prudential sourcebook; and
  3. (3) does not relieve them of any obligation the firm may owe to C2 under the general law relating to principals and agents; if a firm is in any doubt about such obligations, it is advised to take appropriate legal advice.

Classification of another firm or an overseas financial services institution

COB 4.1.7

handbook-rule
  1. (1) When a firm ("F") conducts designated investment business, or related ancillary activities, with or for:
    1. (a) another firm; or
    2. (b) an overseas financial services institution;
  2. ("C1"), C1 is a market counterparty of F, unless (2), (3) or (4) applies.
  3. (2) C1 is an intermediate customer of F when the activity carried on by F would be inter-professional business (if C1 were a market counterparty), and:
    1. (a) C1 is acting for an underlying customer ("C2"); and
    2. (b) [deleted]
    3. (c) F and C1 have agreed that F should classify C1 as an intermediate customer when C1 is acting for C2.
  4. (3) C1 is an intermediate customer of F when the activity carried on would not be inter-professional business (if C1 were a market counterparty) and:
    1. (a) C1 has not indicated that it is acting on its own behalf in relation to that activity; or
    2. (b) C1 is a long-term insurer acting on behalf of its life fund.
  5. (4) If C1 is a collective investment scheme, C1 is an intermediate customer of F.
  6. (5) [deleted]
  • 01/09/2003

Classification of a collective investment scheme

COB 4.1.7A

handbook-guidance
  1. (1) COB 4.1.7 R, paragraph (1)(b)(iii) of the definition of client and paragraph (1)(j) of the definition of intermediate customer together have the effect that a collective investment scheme, whether it has separate legal personality or not, will always be classified as an intermediate customer, unless classified as a private customer under COB 4.1.14 R or (if an unregulated collective investment scheme) as a market counterparty under COB 4.1.12 R. This means that, for a firm acting as the trustee of a unit trust, for example, the client for these purposes will be the scheme and therefore an intermediate customer.
  2. (2) The application of COB to an operator, trustee or depositary is governed by COB 10 (Operators of collective investment schemes) and COB 11 (Trustee and depositary activities).
  3. (3) In many cases, a firm such as an investment manager or custodian will carry on activities with or for an operator, trustee or depositary of the scheme rather than with or for a scheme.
  • 01/09/2003

COB 4.1.8

handbook-guidance
  1. (1) Any agreement under COB 4.1.7 R (2)(c) may be in relation to a particular underlying customer of C1's or in relation to all cases in which C1 acts on behalf of its customers.
  2. (2) When deciding whether it should be classified as an intermediate customer under COB 4.1.7 R (2), C1 should have regard to the fact that it will be responsible to C2 for delivering applicable protections under COB (or, if C1 is an overseas financial services institution, under any relevant overseas provisions). C1 should also remember that F is entitled to refuse to agree to classify C1 as an intermediate customer; and, in such a case, it may be appropriate for C1 to obtain services from a different firm.
  3. (3) C1 may be an intermediate customer under COB 4.1.7 R (2) or (3), but remains a market counterparty for other purposes. For example, for designated investment business which is not inter-professional business, C1 is a market counterparty for transactions for C1's own account.
  4. (4) In relation to activities other than designated investment business, and related ancillary activities, C1 is a market counterparty in accordance with the definition of "market counterparty".
  5. (5) When C1 is a market counterparty, then only limited parts of COB will apply to F's business with C1. The Principles (other than 6, 8 and 9 and most of 7) will also apply, as will MAR 3 (Inter-professional conduct) for inter-professional business. See MAR 3 Annex 1 for further guidance on the application of the Principles, COB and MAR 3 for inter-professional business.
  6. (6) COB 4.1.7 R does not preclude F from offering C1 protections over and above those that are owed to C1 as a market counterparty. However, any such protections would be a matter between F and C1 (for example, in contract) and would not confer the benefits owed to an intermediate or private customer under COB.
  • 01/09/2002

Classification of an exchange or clearing house

COB 4.1.8A

handbook-rule
  • 01/09/2002

Expert private customer classified as an intermediate customer

COB 4.1.9

handbook-rule
  1. (1) A firm may classify a client who would otherwise be a private customer as an intermediate customer if:
    1. (a) the firm has taken reasonable care to determine that the client has sufficient experience and understanding to be classified as an intermediate customer; and
    2. (b) the firm:
      1. (i) has given a written warning to the client of the protections under the regulatory system that he will lose;
      2. (ii) has given the client sufficient time to consider the implications of being classified as an intermediate customer; and
      3. (iii) has obtained the client's written consent, or is otherwise able to demonstrate that informed consent has been given.
  2. (2) For the purposes of (1), a client's consent to being classified as an intermediate customer may be limited to one or more types of:
    1. (a) designated investment; or
    2. (b) designated investment business.
  • 01/12/2001

COB 4.1.10

handbook-guidance
  1. (1) To take reasonable care to determine that a client has sufficient experience and understanding to be classified as an intermediate customer for the purposes of COB 4.1.9 R (1)(a), the firm should have regard to:
    1. (a) the client's knowledge and understanding of the relevant designated investments and markets, and of the risks involved;
    2. (b) the length of time the client has been active in these markets, the frequency of dealings and the extent to which he has relied on the advice on investments of the firm;
    3. (c) the size and nature of transactions that have been undertaken for the client in these markets;
    4. (d) the client's financial standing, which may include an assessment of his net worth or of the value of his portfolio.
  2. (2) It is likely that a firm will need to have regard to more than one of these criteria, or to other criteria, before it can be satisfied that a client, who would otherwise be a private customer, is eligible to be classified as an intermediate customer.
  • 01/12/2001

COB 4.1.11

handbook-evidential-provisions
  1. (1) In the written warning required by COB 4.1.9 R (1)(b)(i), a firm should, where relevant:
    1. (a) advise the client that he will lose the protection afforded by the following rules in COB applicable to private customers:
      1. (i) COB 3 (Financial promotion);
      2. (ii) COB 4.3 (Disclosing information about services, fees and commissions - packaged products);
      3. (iii) COB 5.1 (Advising on packaged products);
      4. (iv) COB 5.4 (Customers' understanding of risk);
      5. (v) COB 5.7 (Disclosure of charges, remuneration and commission);
      6. (vi) COB 6.1 (Packaged product and ISA disclosure);
      7. (vii) COB 7.9 (Lending to private customers);
      8. (viii) COB 7.10 (Margin requirements);
      9. (ix) COB 7.11 (Non-exchange traded securities);
    2. (b) explain any consequences to the client in respect of the following rules in COB which are limited or modified in their application to intermediate customers:
      1. (i) COB 8.1 (Confirmation of transactions);
      2. (ii) COB 8.2 (Periodic statements);
    3. (c) explain possible consequences to the client in respect of the following rules which are capable of modification in their application to intermediate customers:
      1. (i) COB 7.5 (Best execution);
      2. (ii) CASS 2 (Custody);
      3. (iii) CASS 4 (Client money);
    4. (d) warn the client that he will also lose the right of access to the Financial Ombudsman Service; and
    5. (e) warn the client that the firm may have regard to his expertise when complying with requirements under the regulatory system that communications must be clear, fair and not misleading.
  2. (2) Contravention of any part of COB 4.1.11 E (1) may be relied upon as tending to establish contravention of COB 4.1.9 R (1)(b)(i).
  • 01/04/2004

Large intermediate customer classified as a market counterparty

COB 4.1.12

handbook-rule

A firm may classify a client (other than another firm, regulated collective investment scheme, or an overseas financial services institution) who would otherwise be an intermediate customer as a market counterparty if:

  1. (1) the client at the time he is classified is one of the following:
    1. (a) a body corporate (including a limited liability partnership) which has (or any of whose holding companies or subsidiaries has) called up share capital of at least £10 million (or its equivalent in any other currency at the relevant time);
    2. (b) a body corporate that meets (or any of whose holding companies or subsidiaries meets) two of the following tests:
      1. (i) a balance sheet total of 12.5 million euros (or its equivalent in any other currency at the relevant time);
      2. (ii) a net turnover of 25 million euros (or its equivalent in any other currency at the relevant time);
      3. (iii) an average number of employees during the year of 250;
    3. (c) a local authority or public authority;
    4. (d) a partnership or unincorporated association which has net assets of at least £10 million (or its equivalent in any other currency at the relevant time) (and calculated, in the case of a limited partnership, without deducting loans owing to any of the partners);
    5. (e) a trustee of a trust (other than an occupational pension scheme, SSAS, personal pension scheme or stakeholder pension scheme) with assets of at least £10 million (or its equivalent in any other currency), calculated by aggregating the value of the cash and designated investments forming part of the trust's assets, but before deducting its liabilities;
    6. (f) a trustee of an occupational pension scheme or SSAS, or a trustee or operator of a personal pension scheme or stakeholder pension scheme where the scheme has (or has had at any time during the previous two years):
      1. (i) at least 50 members; and
      2. (ii) assets under management of not less than £10 million (or its equivalent in any other currency at the relevant time); and
  2. (2) the firm has, before commencing business with the client on a market counterparty basis:
    1. (a) advised the client in writing that he is being classified as a market counterparty;
    2. (b) given a written warning to the client that he will lose protections under the regulatory system;
    3. (c) for a client falling under (1)(a) or (b):
      1. (i) taken reasonable steps to ensure that the written notices required by (2)(a) and (b) have been delivered to a person authorised to take such a decision for the client; and
      2. (ii) not been notified by the client that the client objects to being classified as a market counterparty;
    4. (d) for a client falling under (1)(c), (d), (e) or (f):
      1. (i) taken reasonable steps to ensure that the written notices required by 2(a) and (b) have been delivered to a person authorised to take such a decision for the client; and
      2. (ii) obtained the client's written consent or is otherwise able to demonstrate that consent has been given.

COB 4.1.13

handbook-guidance
In the written warning required by COB 4.1.12 R (2)(b), a firm should advise a client who is classified as a market counterparty in accordance with COB 4.1.12 R that he will lose all protections applicable to customers afforded by the rules in COB and Principle 6 (Customers' interests), Principle 8 (Conflicts of interest) and Principle 9 (Customers: relationships of trust) and most of Principle 7 (Communications with clients). (The firm should also advise the client that, in respect of inter-professional business conducted between market counterparties, MAR 3 (Inter-professional conduct) applies.)
  • 01/12/2001

Client classified as a private customer

COB 4.1.14

handbook-rule
  1. (1) A firm may classify as a private customer any client (other than a firm, unless it is an ICVC, or an overseas financial services institution) who would otherwise be a market counterparty or an intermediate customer, and must notify any such client accordingly.
  2. (2) A notice under (1) must advise the client that he may not necessarily have rights under the Financial Ombudsman Service or the compensation scheme as a result of such classification.
  • 01/09/2003

Review of classification

COB 4.1.15

handbook-rule
  1. (1) If a firm classifies:
    1. (a) a client as an intermediate customer under COB 4.1.9 R (Expert private customer classified as an intermediate customer); or
    2. (b) a client as a market counterparty under COB 4.1.12 R (Large intermediate customer classified as a market counterparty);
  2. it must review that classification at least annually to ensure that it remains appropriate to the designated investment business which the firm carries on with or for that client, unless (2) applies.
  3. (2) If a firm has not conducted designated investment business with or for a client during the previous 12 month period, the firm may defer the review referred to in (1) until the firm next conducts designated investment business with or for the client.
  • 01/12/2001

Record keeping

COB 4.1.16

handbook-rule
  1. (1) A firm must make a record of the classification established for each client under this section, including sufficient information to support that classification.
  2. (2) A firm must retain the record referred to in (1) for a minimum period after the date on which the firm ceases to carry on business with or for that client, as follows:
    1. (a) indefinitely, if relevant to a pension transfer, pension opt-out or FSAVC;
    2. (b) for a period of at least six years, if relevant to a life policy or pension contract;
    3. (c) for a period of at least three years in any other case.
  • 01/09/2002

COB 4.2

Terms of business and client agreements with customers

  • 01/12/2004

Application

COB 4.2.1

handbook-rule
This section applies to a firm intending to conduct or conducting designated investment business with or for a specific customer.
  • 09/10/2004

Meaning of 'private customer'

COB 4.2.2

handbook-rule
In this section, COB 4.2, references to a 'private customer' include, in relation to the conclusion of a distance contract, a retail customer, and references to 'customer' are to be interpreted accordingly.
  • 09/10/2004

Authorised professional firms

COB 4.2.3

handbook-guidance

If an authorised professional firm conducts non-mainstream regulated activity for a customer (whether with or without any other regulated activity for the customer) then, subject to COB 4.2.8 G, the effect of COB 1.2.1 R (4) and PROF 5.4 is that:

  1. (1) terms of business must be provided in accordance with COB 4.2.5 R;
  2. (2) with respect to the non-mainstream regulated activity, the terms of business should satisfy COB 4.2 as to content if it contains the disclosure in COB 4 Ann 2E (25); and
  3. (3) the Distance Marketing Regulations may apply and require the provision of pre-contractual information in certain circumstances (see PROF 5.4).
  • 01/12/2004

Purpose

COB 4.2.4

handbook-guidance
COB 4.2 amplifies Principle 6 (Customers' interests) and Principle 7 (Communications with clients). These require a firm to pay due regard to the interests of its customers and to their information needs, to treat them fairly and to communicate information to them which is clear, fair and not misleading. A customer needs to know on what basis a firm intends to do business with him. Terms of business or a client agreement set this out.
  • 09/10/2004

Requirement to provide terms of business to a customer

COB 4.2.5

handbook-rule
Unless any of the exemptions in COB 4 Annex 1 applies, a customer must, in good time before designated investment business is conducted, be provided with a firm's terms of business, setting out the basis on which the designated investment business is to be conducted with or for the customer.
  • 09/10/2004

COB 4.2.6A

handbook-guidance
  1. (1) Terms of business will be provided in 'good time' for the purposes of COB 4.2.5 R if provided in sufficient time to enable the customer to consider properly the service or investment on offer before he is bound.
  2. (2) COB 4.2.5 R does not require the same information to be provided again if the customer already has it (for example through a direct offer financial promotion).
  • 01/12/2004

Requirement to enter into a client agreement with a private customer

COB 4.2.7

handbook-rule
  1. (1) If a firm intends to conduct any of the following designated investment business with or for a private customer:
    1. (a) managing investments on a discretionary basis;
    2. (b) designated investment business relating to a contingent liability investment;
    3. (c) stock lending activity; or
    4. (d) designated investment business involving underwriting (except in respect of a life policy);
  2. its terms of business for the customer must, unless (2) applies, take the form of a client agreement, and the firm must not enter into this client agreement unless it has taken reasonable care to ensure that the private customer has had a proper opportunity to consider the terms.
  3. (2) A firm need not enter into a client agreement with a private customer if the private customer is habitually resident outside the United Kingdom and the firm has taken reasonable steps to establish that the private customer does not wish to enter into a client agreement.
  • 01/12/2001

COB 4.2.8

handbook-guidance
Firms are reminded that, as well as complying with the requirements of COB 4.2.5 R and COB 4.2.7 R, they may also need to comply with the additional requirements relating to disclosure and client agreements set out in CASS (Client assets).
  • 01/12/2001

Content of terms of business

COB 4.2.10

handbook-rule

A firm must ensure that its terms of business (including a client agreement with a customer) provided in accordance with this section, COB 4.2:

  1. (1) set out in adequate detail the basis on which it will conduct designated investment business with the customer; and
  2. (2) (in respect of distance contracts with retail customers) include all contractual terms and conditions and the information set out in COB App 1.
  • 09/10/2004

COB 4.2.11

handbook-evidential-provisions
  1. (1) A firm should, in order to provide adequate detail, include in its terms of business provided to a customer:
    1. (a) a provision about each item set out in COB 4 Ann 2E and COB 4 Ann 3E; and
    2. (b) any further or alternative provisions that the customer has asked for and on his own initiative agreed with the firm;
  2. to the extent that each such provision is relevant in the circumstances and that it is practicable to provide it.
  3. (1A) [deleted]
  4. (2) Compliance with (1) may be relied on as tending to establish compliance with COB 4.2.10 R (1).
  5. (3) Contravention of (1) may be relied on as tending to establish contravention of COB 4.2.10 R (1).

Information not available at time of issue of terms of business

COB 4.2.11A

handbook-rule
A firm is not required to provide information under COB 4.2.10 R that, by its nature, is unavailable at the time the terms of business are issued. In such circumstances, the firm must notify the customer of any relevant information as soon as practicable after it becomes available and, in the case of a distance contract with a retail customer, in good time before the contract is concluded.
  • 09/10/2004

COB 4.2.11B

handbook-guidance
COB 4.2.11A R will apply, for example, where a firm does not know a private customer's investment objectives before providing terms of business, as it cannot determine the private customer's requirements without undertaking know-your-customer checks, as required by COB 5.2.
  • 09/10/2004

Terms of business provided in more than one document

COB 4.2.12

handbook-rule
A firm's terms of business provided to a customer may comprise more than one document, provided that it is clear that collectively they constitute the terms of business, and provided the use of several documents does not materially diminish the significance of any information the firm is required to give the customer, or the ease with which this can be understood.
  • 09/10/2004

Contents of terms of business: non-mainstream regulated activities of an authorised professional firm

COB 4.2.12A

handbook-evidential-provisions
  1. (1) An authorised professional firm should include, in its terms of business, the information in COB 4 Annex 2.
  2. (2) For an authorised professional firm, with respect to its non-mainstream regulated activities and as to the content only of its terms of business:
    1. (a) compliance with (1) may be relied on as tending to establish compliance with COB 4.2.5 R; and
    2. (b) contravention of (1) may be relied on as tending to establish contravention with COB 4.2.5 R.
  • 09/10/2004

Amendment of terms of business

COB 4.2.13

handbook-rule
If the terms of business provided to a customer allow a firm to amend its terms without the customer's consent, the firm must give at least ten business days' notice to a customer before conducting designated investment business with or for that customer on any amended terms, unless it is impracticable in the circumstances to do so.
  • 01/12/2001

Records

COB 4.2.14

handbook-rule
  1. (1) A firm must make a record of each terms of business it provides to a customer, and any amendment to them, as soon as the terms of business come into force.
  2. (2) A firm must retain each record referred to in (1):
    1. (a) indefinitely, where the terms of business relate to a pension transfer, pension opt-out or FSAVC;
    2. (b) for six years, where the terms of business relate to a life policy, personal pension scheme or stakeholder pension scheme; and
    3. (c) for three years in any other case.
  3. (3) For the purposes of (2), the appropriate time period runs in each case from the date on which the customer ceases to be a customer of the firm.

COB 4.2.17

handbook-evidential-provisions

Content of terms of business provided to a customer: Operating an ATS

COB 4.3

Disclosing information about services, fees and commission - packaged products

  • 01/12/2004

Application

COB 4.3.1

handbook-rule
  1. (1) COB 4.3 applies:
    1. (a) to a firm when carrying on with or for private customers any of the following in relation to packaged products:
      1. (i) advising; or
      2. (ii) dealing as agent; or
      3. (iii) arranging;
    2. (b) to a firm, other than an insurer, that carries on in relation to a life policy any of the activities in (1) with or for an intermediate customer or a market counterparty.
  2. (2) COB 4.3, other than COB 4.3.7R (1) and (2), does not apply to a firm when providing basic advice on a stakeholder product.

Purpose

COB 4.3.2

handbook-guidance
The rules in this section give further support to Principle 7 (Communication with clients). There is, in relation to packaged products, a particular need for private customers to have information at an early stage about the nature and scope of the services which a firm may offer and the basis on which it may be remunerated. The rules also implement the Insurance Mediation Directive.
  • 01/12/2004

Disclosure to private customers on first making contact

COB 4.3.3

handbook-rule
  1. (1)
    1. (a) A firm must take reasonable steps to ensure that its representatives on first making contact with a private customer with a view to:
      1. (i) advising on investments on packaged products; or
      2. (ii) dealing as agent in packaged products; or
      3. (iii) arranging (bringing about) deals in packaged product; or
      4. (iv) making arrangements with a view to transactions in life policies;
    2. provide the customer, in a durable medium, with information concerning:
    3. (b)
      1. (i) the firm and the scope of and nature of its services (an initial disclosure document); and
      2. (ii) where (a)(i) applies, the firm's arrangements for charging and receiving fees and commission (a fees and commission statement);
    4. in both cases being information which the firm reasonably considers will be, or is likely to be, appropriate for the customer having regard to the type of service which the firm may provide or business which the firm may conduct.
  2. (2) A firm must also provide a private customer with an initial disclosure document if, in relation to the amendment of a life policy for that private customer, it:
    1. (a) advises on investments on packaged products; or
    2. (b) deals as agent in packaged products; or
    3. (c) arranges.
  3. (3)
    1. (a) The requirements in (1) and (2) do not apply:
      1. (i) to the extent that the appropriate information has already been given to the customer on a previous occasion and that information is still likely to be accurate and appropriate for the customer; or
      2. (ii) if COB 4.3.16 G (initial contact by telephone) applies; or
      3. (iii) to a firm when it carries out an execution only transaction in non-life packaged products; or
      4. (iv) to an insurer for those customers in respect of which it is not advising on investments.
    2. (b) A firm that reasonably expects it will not be advising on investments in respect of products falling within any of the product groups set out in Note 14 to COB 4 Annex 6R does not have to comply with the requirements in (1)(b)(ii) but if it does advise on investments on these products the rules will apply to the firm in respect of the fees and commission statement as if it was required by (1)(b)(ii) to provide the statement.
  4. (4) The requirements in (1) and (2) will apply to:
    1. (a) a firm that is acting as a discretionary investment manager for private customers; or
    2. (b) a firm which is effecting execution-only transactions in packaged products for private customers;
  5. only if the firm is carrying on an insurance mediation activity in relation to life policies for those private customers, in which case the requirements in (1) and (2) will only apply to the extent of requiring the firm to provide those private customers with an initial disclosure document.
  6. (5) A firm which acts for a private customer under a non-discretionary management agreement need not comply with the requirements in (1) above to provide an initial disclosure document or a fees and commission statement if the following are satisfied:
    1. (a) the firm is remunerated by the customer by the payment of a fee; and
    2. (b) the agreement provides that the firm may recommend securities as well as packaged products for inclusion in the customer's portfolio and that in respect of packaged products the firm will make selections from the whole market;
  7. but such a firm must, if it is carrying on an insurance mediation activity for a private customer in relation to life policies, comply with the requirements in (1) as to the provision of an initial disclosure document to the private customer.
  8. (6) A firm which is required in accordance with this rule to provide an initial disclosure document to a private customer may instead provide the customer with a combined initial disclosure document if it has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will, in addition to packaged products, relate to one or more of the following:
    1. (a) regulated mortgage contracts other than lifetime mortgages;
    2. (aA) home purchase plans;
    3. (b) equity release transactions ;
    4. (c) non-investment insurance contracts.
  9. (7) The information contained in the initial disclosure document may be provided orally if a firm has not made a personal recommendation to a private customer, and:
    1. (a) the customer requests it; or
    2. (b) immediate cover is necessary;
  10. but in both cases the firm must provide the initial disclosure document immediately after the conclusion of the contract, in a durable medium.
  11. (8) A firm must take reasonable steps to ensure that its representatives on first making contact with a private customer with a view to advising on investments in SIPPs, personal pension deposits, or personal pension products, inform the customer of the amount and nature (i.e. fees and/or commission (or equivalent) and/or a combination of fees and commission (or equivalent)) of any payments that the customer will have to pay, directly or indirectly, for the advice on investments.

COB 4.3.4

handbook-guidance
For certain types of life policies, such as annuities, it is customary for a customer to contact various firms for quotations which he can then compare. In these circumstances, it is not necessary for the firm to give an initial disclosure document (COB 4.3.3R (1)(b)(i)) at the time that the quotation is provided, if the quotation cannot be accepted (and a contract cannot be formed) without the firm obtaining further information from the customer.
  • 01/12/2004

Provision of fees and commission statement on request

COB 4.3.5

handbook-rule
A firm must take reasonable steps to ensure that it provides a private customer with an appropriate fees and commission statement whenever requested to do so.
  • 01/12/2004

Firms which charge fees

COB 4.3.6

handbook-rule
  1. (1) A firm must before starting to act for a private customer on the basis of a fee charging arrangement:
    1. (a) secure the customer's agreement to the particular rate or amount which the firm will charge for its services; and
    2. (b) provide the customer with a record in a durable medium of the particular fee charging arrangement which will apply unless the firm starts to act for the private customer during a telephone call, in which case this record must be forwarded to the customer on conclusion of the call.
  2. (2) A firm which charges a private customer a fee must do so on the basis that it will, in respect of any commission which it receives in respect of transactions in packaged products for that customer (and to which the particular fee charging arrangement relates), ensure the value of that commission is transferred to the customer by one or more of the following:
    1. (a) reducing the amount of its fee;
    2. (b) arranging for the amount invested by the customer to be increased; or
    3. (c) refunding the amount of the commission to the customer;
  3. except that this does not prohibit such a firm from agreeing with the customer (in writing) that it will retain an amount or rate of trail or renewal commission up to an amount each year specified in the agreement and so small, relative to the overall amount of fees paid by the customer, that it would be manifestly disproportionate for the firm to be required to account to the customer in one of the ways outlined in (a) to (c).
  • 01/12/2004

Ongoing disclosure

COB 4.3.7

handbook-rule
  1. (1) A firm which has started to provide a private customer with services in relation to packaged products following the provision of a fees and commission statement or the original payment information must not (at least until the completion of those services):
    1. (a) increase the rate or amount of the fees it is charging the customer; or
    2. (b) subject to (4), arrange to retain any commission which exceeds the maximum amount or rate disclosed ;
  2. without first providing a further appropriate statement or further payment information and obtaining the customer's prior consent to the proposed alteration in a durable medium.
  3. (2) A firm which in accordance with (1) secures a private customer's agreement to retain an increased rate or amount of commission must ensure that, if it subsequently provides the customer with a suitability letter, it includes an explanation of why it was necessary for the principal to recommend a packaged product in respect of which the firm will retain such higher commission or fees.
  4. (3) If a firm decides to provide a private customer with advice on investments on a type of packaged product (which falls within a product group specified in Notes 14 or 18A to COB 4 Annex 6R) in relation to which the fees and commission statement previously given to the customer does not contain the information required in those Notes, it must issue a new and appropriate statement or payment information to that customer.
  5. (4)
    1. (a) Notwithstanding (1)(b) a firm is not required to provide a further fees and commission statement or further payment information for the purposes of (1) if:
      1. (i) the maximum amounts or rates already disclosed to the customer only apply to products of the example term or age of customer given, or to products with shorter terms; and
      2. (ii) the firm arranges a product for a term longer than the example term (or longer than the term deemed for the example age given) and the increase in the commission which the firm arranges to retain over the maximum already disclosed is not more than an amount that is directly proportional to the increase in the duration of the term of the product(or to the term deemed from the age of customer ).
    2. (b) If requested by a customer, a firm must explain the basis of the higher maximum commission or fees charged in accordance with (4)(a)(ii).

COB 4.3.8

handbook-guidance
  1. (1) COB 4.3.7R (4) is intended to allow firms to arrange policies for a longer term than that given as the example in the fees and commission statement without requiring any further disclosure but only if the commissions the firm arranges to retain are directly proportional to the maximum commissions disclosed in the statement having regard to the duration of the policy. For example, if the statement disclosed a maximum commission of 10% on a 10 year policy, then on a 20 year policy the maximum commission the firm could arrange to retain is 20% without further disclosure.
  2. (2) The maximum commissions that apply to policies of a particular term also apply as the relevant maxima for policies with a shorter duration. The rule is of no application in circumstances where a firm arranges to retain commission exceeding the maximum disclosed in the fees and commission statement if the policy arranged has a term shorter than the example given in the statement.
  3. (3) Long-term care and whole of life policies, for which the example given in the fees and commission statement refers to the age of the policyholder, are deemed to have a term equal to the difference between the age of the policyholder (at the time that the policy is taken out) and the age of 85.
  • 01/12/2004

Initial disclosure document

COB 4.3.9

handbook-rule
  1. (1) An initial disclosure document must contain the keyfacts logo, headings and text in the order shown in COB 4 Annex 4R and in accordance with the Notes.
  2. (2) A combined initial disclosure document must contain the keyfacts logo, headings and text in the order shown in COB 4 Annex 5R and in accordance with the Notes.
  3. (3) If a private customer so requests, a firm should be able to provide an explanation of the basis on which it has chosen to market the particular packaged products within the range from which advice on investments will be given to that customer including an explanation of why the firm has selected particular product providers.
  4. (4) Information given in the initial disclosure information about compensation arrangements made by an investment firm must:
    1. (a) (if it relates to the activities of an establishment in the United Kingdom) be in English; or
    2. (b) (if it relates to the activities of a branch in another EEA State) be in an official language of that EEA State.
  5. (5) Information given in the initial disclosure information about the insurance mediation activities of a firm must be in English, unless the customer requests it to be, and the firm agrees to it being, in another language.
  • 01/12/2004

COB 4.3.10

handbook-guidance
Further requirements regarding the use of the logo and the location of specimens are set out in GEN 5.1 and GEN 5 Annex 1 G. Subject to COB 4.3.9 R, a firm may produce its initial disclosure document by using its own house style and brand.

Fees and commission statement

COB 4.3.11

handbook-rule
  1. (1) A fees and commission statement must contain the keyfacts logo, heading and text in the order shown in COB 4 Annex 6R and in accordance with the Notes.
  2. (2) A firm must maintain as many versions of the fees and commission statement set out at COB 4 Annex 6R as are appropriate to the different bases on which it may conduct business with private customers:
    1. (a) fee only (version 1);
    2. (b) commission (or equivalent) only (version 2);
    3. (c) fee or commission (or equivalent) (version 3);
    4. (d) fee or commission (or equivalent); or combination of commission (or equivalent) and fee (version 4);
    5. (e) commission (or equivalent); or combination of commission (or equivalent) and fee(version 5);
    6. (f) fee; or combination of commission (or equivalent) and fee (version 6).
  3. (3) A firm must keep its fees and commission statements up to date and keep a record of each fees and commission statement for a period of six years from the date on which it was updated or replaced.
  4. (4) A firm must maintain a record of each particular fees and commission statement which it provides to a private customer (other than when given merely in response to a request).
  • 01/12/2004

COB 4.3.12

handbook-guidance
Where, as envisaged in COB 4.3.5 R, a firm is asked to provide a fees and commission statement by a person with whom the firm has had no prior contact it may provide the fees and commission statement which is appropriate for its typical or most prevalent customer type and the business it conducts with them.
  • 01/12/2004

COB 4.3.13

handbook-guidance
  1. (1) COB 4.3.11 R requires a firm to maintain statements showing the amount it may charge its customers by way of fees, or which it may receive from others by way of commission, in either case in respect of the services it provides in relation to the sale of certain packaged products. Consistent with COB 5.1 and COB 5.5 the basis on which a firm may provide such services may differ from customer to customer (for example as to whether the firm will select from the whole market, or a limited number of product providers).
  2. (2) A firm may maintain more than one version of the fees and commission statement but if it does, it must take reasonable steps to ensure that the statement provided to each customer in their initial contact is consistent with the description of the services given to the customer in the firm's initial disclosure document (as required by COB 4.3.3 R) and with the record of the range of packaged products which the firm has supplied to the customer or which it would supply on request to the customer in accordance with COB 4.3.15 R.
  3. (3) If a firm alters the nature of the services it provides for any customer then it may also change the basis or amount by which it will be remunerated whether by fees or commission. A firm proposing to make such a change should first provide the customer with a new fees and commission statement and explain its proposed altered basis for charging and receiving commission and seek the customer's consent to proceeding on that basis. A firm may when conducting further and separate services with a customer seek to do so on the basis of different arrangements for its remuneration.

Record for distribution of range of packaged products

COB 4.3.14

handbook-rule
A firm which operates with a range (or ranges) of packaged products must produce in a durable medium, and in a form which is appropriate for distribution to private customers, the record of its range (or ranges) of packaged products which it maintains for the purposes of COB 5.1.6ER (1).
  • 01/12/2004

COB 4.3.15

handbook-rule
A firm must take reasonable steps to ensure that its representatives provide a copy of the appropriate range of packaged products on the request of a private customer having regard to the services it is providing or may provide to the customer.
  • 01/12/2004

keyfacts information, terms of business and telephone sales

COB 4.3.16

handbook-guidance
  1. (1) COB 4.3.17 R and COB 4.3.18 R enable provision by a firm of an initial disclosure document to a private customer to be taken as compliance also with analogous information provision requirements contained in COB 4.2 (Terms of business and client agreements with customers).
  2. (2) In cases where firms make initial contact with a customer on the telephone a firm may, in addition, have to take into account and comply with the additional requirements applicable to the conclusion of distance contracts. COB 4.3.18 R expands on the items of information which a firm is required to give in accordance with COB 4 Annex 1 so that where the firm expects to conduct business relating to packaged products adequate information is given during the telephone call about the nature and scope of the services which the firm will or may provide.
  • 01/12/2004

COB 4.3.17

handbook-rule
  1. (1) A firm which complies with COB 4.3.3 R will, in respect of any requirement imposed by COB 4.2 as to the delivery or content of information to be included in its terms of business, be regarded as complying with any such analogous requirement.
  2. (2) Any information required by COB 4.2 which is not covered by (1) may be satisfied by it being included at the end of an initial disclosure document which is given to a private customer in accordance with COB 4.3.3 R or, if provided at the same time, by way of separate items of information.
  • 01/12/2004

COB 4.3.18

handbook-rule
  1. (1) Where a firm's initial contact with a private customer (for a purpose set out in COB 4.3.3R (1)) is by telephone then the following information must be provided and requirements satisfied before proceeding further:
    1. (a) the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;
    2. (b) whether the firm offers packaged product from the whole market or from a limited number of companies or from a single company or single group of companies;
    3. (c) whether the firm will provide the customer with advice on investments on packaged products;
    4. (d) if the firm does not offer products from the whole market, that the customer can request a copy of the appropriate range of packaged products;
    5. (e) whether the firm offers a fee based service, a commission based service, a service based on a combination of fee and commission, or a combination of these three types of services, and the consequences for the customer of proceeding with each type of service;
    6. (f) that the information given under (a) to (e) will subsequently be confirmed in writing.
  2. (2) A firm which complies with (1) will, subject to (3), satisfy the condition set out in item (1) of COB 4 Annex 1.
  3. (3) If during the course of a telephone call a firm is to conclude a contract (whether for the provision of a mediation services and/or for the purchase or sale of a packaged product), it must as well as complying with (1) and (2) above satisfy the requirement in COB 4.2.5 R and COB 4 Annex 1.
  4. (4) If a firm's initial contact with a private customer by telephone is such that COB 4.3.3 R (other than COB 4.3.3R (3)(a)(ii)) applies then, subject to any relevant exclusions, it must send the customer an initial disclosure document and a fees and commission statement as soon as is reasonably practicable following the conclusion of the call.

Intermediate customers and market counterparties (and private customers who are introduced): disclosure before conclusion of the contract or immediately after conclusion of the contract

  • 01/12/2004

COB 4.3.19

handbook-rule
  1. (1) COB 4.3.20 R to COB 4.3.25 R apply to a firm, other than an insurer, when it conducts any of the following in relation to life policies with or for an intermediate customer or a market counterparty:
    1. (a) advising on investments; or
    2. (b) dealing; or
    3. (c) arranging.
  2. (2) COB 4.3.26 R (disclosure by introducers) applies to a firm:
    1. (a) when it introduces a private customer to another firm;
    2. (b) other than an insurer when it introduces an intermediate customer or market counterparty to another firm.
  • 14/01/2005

COB 4.3.20

handbook-rule
  1. (1) The information in COB 4.3.21 R must be provided to the client in a durable medium at any time before conclusion of the contract, and if necessary upon amendment or renewal thereof, unless (2) or (4) applies.
  2. (2) The information in COB 4.3.21 R:
    1. (a) may be provided orally if:
      1. (i) the client requests this; or
      2. (ii) the client requires immediate cover;
    2. (b) need not be provided before conclusion of the contract if the contract is concluded by telephone, but if the client is a retail customer the requirements in COB 4.2.5 R and COB 4 Annex 1 must be satisfied.
  3. (3) If (2) applies, the client must be provided with the information in COB 4.3.21 R in a durable medium immediately after the conclusion of the contract.
  4. (4) The requirements in (1) do not apply to the extent that the information has already been given to the client on a previous occasion and that information is still likely to be accurate and up to date.
  • 14/01/2005

COB 4.3.21

handbook-rule

Information to be provided before conclusion of the contract or immediately after conclusion of the contract.

This table belongs to COB 4.3.20 R

  • 14/01/2005

COB 4.3.22

handbook-rule
  1. (1) A firm must provide the information specified in COB 4.3.21 R:
    1. (a) (if it relates to the activities of an establishment in the United Kingdom) in English; or
    2. (b) (if it relates to the activities of a branch in another EEA State) in an official language of that EEA State.
  2. (2) The information provided by a firm pursuant to COB 4.3.20 R and which relates to the firm's insurance mediation activities, must be in English, unless the customer requests it to be, and the firm agrees to it being, in another language.
  • 14/01/2005

COB 4.3.23

handbook-guidance
A firm can, subject to COB 4.3.24 G, comply with COB 4.3.20 R by providing the information specified in COB 4.3.21 R in an initial disclosure document or, if appropriate, a combined initial disclosure document.
  • 14/01/2005

COB 4.3.24

handbook-guidance

A firm that provides the information required by COB 4.3.20 R in an initial disclosure document or combined initial disclosure document may amend or delete sections of the document subject to the following:

  1. (a) the firm must not include the keyfacts logo and the heading and text in Section 1 unless it uses the document in full and without altering the text other than that in sections 5, 7 and 8, which may be amended or deleted; and
  2. (b) the firm must still provide the information covered by the amended or deleted sections if required to do so by COB 4.3.20 R
  • 14/01/2005

Information to be provided to clients on request

COB 4.3.25

handbook-rule
  1. (1) A firm that provides a service of a type described in COB 4.3.21 R must maintain, and keep up to date, for each type of life policy it deals with, a list of insurance undertakings it deals with.
  2. (2) The information in (1) must be maintained in a form which allows a copy to be provided to a client on request, in accordance with COB 4.3.21 R, in a durable medium.
  • 14/01/2005

Disclosure by introducers

COB 4.3.26

handbook-rule
  1. (1) A firm that only introduces a client to another firm with a view to a transaction in a life policy, must provide the information in COB 4.3.21 R (1) and (2) at the time it makes initial contact with the client. The information may be provided orally.
  2. (2) If the information required in (1) is provided orally, the information in COB 4.3.21 R (1) and (2) must be provided in a durable medium immediately after the initial contact between the firm and the client.
  • 14/01/2005

Group Personal Pensions

COB 4.3.27

handbook-rule

A firm must take reasonable steps to ensure that its representatives on first making contact with an employee with a view to advising on his employer's group personal pension scheme or stakeholder pension scheme, inform the employee:

  1. (1) that the firm will be providing advice on investments on group personal pension schemes and/or stakeholder pension schemes provided by the employer;
  2. (2) whether the employee will be provided with advice on investments:
    1. (a) that is restricted to the group personal pension scheme or stakeholder pension scheme provided the employer; or
    2. (b) the matters in (a) and other products;
  3. (3) the amount and nature (ie fees and/or commission (or equivalent) and/or a combination of fees and commission (or equivalent)) of any payments that the employee will have to pay, directly or indirectly, for the advice on investments.

COB 4 Annex 1

Exemptions from terms of business requirement

  • 01/12/2004

COB 4 Annex 1.1

handbook-rule

Circumstances in which the terms of business requirement in COB 4.2.5 R does not apply and conditions for using the exemption (R)

This table belongs to COB 4.2.5 R

COB 4 Annex 2

Terms of business content - general

  • 01/12/2004

COB 4 Annex 2.1

handbook-evidential-provisions

Content of terms of business provided to a customer: general requirements

This table belongs to COB 4.2.11 E

COB 4 Annex 3

Terms of business content - managing investments

  • 01/12/2004

COB 4 Annex 3.1

handbook-evidential-provisions

Content of terms of business provided to a customer: managing investments on a discretionary basis

This table belongs to COB 4.2.11 E.

COB 4 Annex 4

Initial disclosure document required by COB 4.3.9R(1) ("IDD")

  • 01/12/2004

COB 4 Annex 4.1

handbook-rule
This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

COB 4 Annex 5

Combined initial disclosure document required by COB 4.3.9R(2) ("CIDD")Combined initial disclosure document ("CIDD")

  • 01/12/2004

handbook-rule

COB 4 Annex 6

Fees and Commission Statement template and completion notes

  • 01/12/2004

COB 4 Annex 6.1

handbook-rule
This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

COB 4 Annex 7R

Identifying the maximum rate of commission (or equivalent), the market average and the example

  • 01/12/2004

COB 4 Annex 7.1

handbook-rule

COB 4 Annex 8

Worked example of commission disclosure in a fees and commission statement

  • 01/12/2004

COB 4 Annex 8.1

handbook-guidance
This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.
  • 01/12/2004

COB 4 Annex 9

Example of a completed fees and commission statement

  • 01/12/2004

COB 4 Annex 9.1

handbook-guidance
This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.
  • 01/12/2004

Export chapter as

COB 5

Advising
and selling

COB 5.1

Advising on packaged products

  • 01/12/2004

Application

COB 5.1.1

handbook-rule
This section applies to a firm which gives advice on investments to a private customer on packaged products but does not apply to a firm when providing basic advice on a stakeholder product.

Purpose

COB 5.1.2

handbook-guidance
This section gives support to Principle 6 (Customers' interests) and Principle 7 (Communications with clients) which require firms to have due regard to the information needs of their customers and treat them fairly. The purpose of this section is to ensure that private customers are adequately informed about the nature of the advice on investments which they may receive from a firm in relation to packaged products. In particular firms need to be clear to private customers about the scope and range of the products and product providers on which their advice on investments is based.
  • 01/12/2004

Scope and range of advice on packaged products: general

COB 5.1.6A

handbook-rule
  1. (1) A firm which gives advice on investments to private customers about packaged products must, subject to (2), take reasonable steps to ensure that the scope of the advice on investments given to a private customer is based upon a selection from one of the following:
    1. (a) the whole market (or the whole of a named sector of the market); or
    2. (b) a limited number of product providers; or
    3. (c) a single company or single group of companies.
  2. (2) A firm may change the scope of the advice on investments it gives to a particular private customer by widening the scope from that in (1)(c) through to that in (b) or (a) or from (b) to (a), but it must take reasonable steps to ensure that before doing so the customer is made aware of the proposed change by a communication in a durable medium.
  3. (3) If a firm:
    1. (a) extends the scope of the advice on investments it will give a private customer; or
    2. (b) extends the range of packaged products on which its advice on investments will be based;
and as a consequence the firm's arrangements for its remuneration are materially altered, the firm must provide the customer with a new and appropriate fees and commission statement.
  • 01/12/2004

COB 5.1.6B

handbook-guidance
  1. (1) COB 5.1.6A R requires a firm when giving advice on investments to a private customer to do so on the basis that the scope of its advice on investments will involve a selection from the whole market (or from the whole of a sector of the market), or from a limited number of product provider or from a single provider and to adhere to such a scope during the advisory process unless the firm decides, and if necessary secures the customer's agreement, to widen the scope for the customer and, if necessary, any changes in the arrangements by which the firm will be remunerated (see COB 4.3.7 R). A firm can choose to offer both whole of market and more limited advice on investments. The scope of the advice which the customer subsequently receives should always however be made clear and explained in a way which is likely to be understood.
  2. (2) The scope of advice on investments prescribed in each of COB 5.1.6AR (1)(a) will require different competencies on the part of a firm's representatives to enable the firm to discharge its advisory functions.
  3. (3) A firm selecting packaged products from a limited number of product providers or from a single provider may do so on the basis of a range of packaged products which comprises a selection of products available from those providers and accordingly a firm may have one or more such ranges. COB 4.3.3 R requires a firm to give each customer some initial disclosure information - an initial disclosure document - which must indicate the scope of the advice on investments which the customer can expect to receive. This initial information must also invite the customer to ask for a copy of the range of packaged products from which the firm will make a selection. A firm which has several ranges of packaged products will need to ensure that each customer who asks for it is given information about the range which is appropriate for that customer.
  4. (4) If a firm holds itself out as giving advice on investments to private customers on packaged products from the whole market (or the whole of any sector of that market; see (5)), the firm's selection for this purpose will need to be sufficiently large to enable the firm to satisfy the suitability requirement in COB 5.3.9 R (Requirement for suitability: whole-of-market advisers). One way in which such firm may wish to satisfy this requirement is by using "panels" of product providers which are sufficient for the purpose of giving advice from the whole market and which are reviewed on a regular basis. A firm which provides advice on investments from the whole market (or from the whole of a sector of the market) should ensure that its analysis of the market and the available packaged products is kept adequately up to date.
  5. (5) References to a firm advising on packaged products from the whole of a sector of the market are to a firm which, though holding itself out as giving advice on investments from the whole market, advise on investments in practice only on a relatively limited selection of packaged products which are available to meet the needs of a specialist sector or niche market (for example pension annuities). In such circumstances the quality of the firm's analysis of the sector or niche market should be commensurate with that which a firm would apply for the purposes of selecting products from the market as a whole.
  6. (6) IPRU(INS) 1.3 (Restriction of business to insurance) in practice restricts the range of packaged products that a long-term insurer may have and CIS 16.5.1 R (Managers of UCITS schemes) restricts the range of packaged products that a manager of a UCITS scheme may have.
  7. (7) If a firm gives advice on investments to a private customer on a packaged product produced by another person, the key features must be "appropriate" (see COB 6.2.7 (Provision of key features: life policies) COB 6.2.22R (1) (Provision of key features: schemes) and COB 6.4.15 (Stakeholder pension schemes)). Therefore, if the terms of the packaged product are different from the terms of the product for which the key features was originally prepared by the product provider, for example there are additional charges, then the key features will need to be amended.
  8. (8) There are restrictions on communicating and approving a financial promotion relating to a life policy produced by an unauthorised person (see COB 3.13.1 R (Additional requirements for financial promotions for an overseas long-term insurer)).
  9. (9) When a firm gives advice on investments relating to a packaged product which is not produced by the firm, it is responsible for the advice on investments given. The product provider is responsible for the relevant terms and conditions of the packaged product.
  10. (10) The rules in COB 5.1 are mainly concerned to ensure that firms can offer a wide range of advisory services in relation to packaged products. In the course of giving such advice a firm's representative may also need to consider the merits of whether a customer should give up, surrender or cease contributing to an existing packaged product and the rules in this section do not place a restriction on this (subject always to such advice on investments being suitable having regard to the customer's circumstances).
  11. (11) Advice on pensions as a sector or category of the market includes advice on all personal pension schemes including SIPPs.

Range of packaged products: appointed representatives

COB 5.1.6C

handbook-rule
  1. (1) A firm must maintain in writing and keep up to date a statement of:
    1. (a) the scope of advice on investments (within the meaning of COB 5.1.6AR (1)) which each of its appointed representatives is, through its contract with the firm, permitted to give; and including
    2. (b) the range (or ranges) of packaged products on which each appointed representative advises.
  2. (2) In applying the rules in COB to a firm in respect of its appointed representatives, references to a firm's scope or range of packaged products are to be taken as references to the scope (or scopes) and to the range (or ranges) of its appointed representatives.
  • 01/12/2004

COB 5.1.6D

handbook-guidance
An appointed representative's range of packaged products may be defined by a particular category of packaged product or by individual product, as long as it is clear (for example, "all pension products of ABC Co Limited"). It may be set out in a document separate from the appointed representative's contract of appointment and should, in any event, be separate from the main body of the contract for clarity.
  • 01/12/2004

Range of packaged products: records

COB 5.1.6E

handbook-rule
  1. (1) A firm must make, and keep up to date, a record of the scope (or scopes) of the advice (within the meaning of COB 5.1.6AR (1)) which it provides, its range (or ranges) of packaged products and the associate or ranges of each of its appointed representatives (if different from the firm's).
  2. (2) The record in (1) must be retained for six years from the date on which it was superseded by a more up-to-date record.
  3. (3) The record for distribution to a customer must be the particular range of packaged products which is appropriate for the services provided to that customer and include details of:
    1. (a) the identity of the product providers within the range whose packaged products the firm may sell; and
    2. (b) a list of the categories of their products the firm may sell.
  4. (4) In the case of a firm whose scope of advice on investments is the selection of packaged products from the whole of the market (or from the whole of a sector of the market) and which provides no other scope of advice on investments, it will be sufficient if the firm's record is restricted to confirming that the advice on investments it provides is given on this basis (and in the case of a firm which provides advice on investments on the whole of a sector of the market, confirms the nature and parameters of that sector).
  5. (5) For the purposes of the record in (1), (3) and (6), in relation to the packaged products within a particular category available from a product provider:
    1. (a) where a firm provides services to a particular customer in relation to all of the products within that category the record may refer simply to that category and the product provider and not each particular product within the category; and
    2. (b) notwithstanding (3)(b), where a firm does not provide services to a particular customer in relation to all of the products within that category the record must give details of each of the products in the category on which it does provide services.
  6. (6) A firm must maintain a record of the particular range of packaged products on which its advice on investments to each private customer is based and such a record must be kept for six years from the date on which the advice on investments is given.
  • 01/12/2004

Branding packaged products

COB 5.1.6F

handbook-rule

If a firm gives advice on investments to a private customer on a packaged product produced by another person, it must not:

  1. (1) hold itself out as the packaged product's producer; or
  2. (2) do or say anything which might reasonably lead a private customer to be mistaken as to the identity of the product's producer.
  • 01/12/2004

COB 5.1.6G

handbook-rule
A firm must display the brand of the product provider at least as prominently as any other brand in the documentation that it makes available to its customer's in relation to a packaged product.
  • 01/12/2004

Staying within the range of advice of packaged products

COB 5.1.7

handbook-rule
  1. (1) A firm must, subject to (2), take reasonable steps to ensure that neither it nor any of its representatives gives advice on investments to a private customer about the purchase of a packaged product unless the product is:
    1. (a) within the firm's range (or ranges) of packaged products; and
    2. (b) is within the particular range of packaged products on which advice on investments is given to that customer.
  2. (2) The restriction in (1) does not apply where COB 5.3.8A R (Suitability of packaged products: out-of-range recommendations) applies.
  • 01/12/2004

COB 5.1.9

handbook-guidance

COB 5.1.7 R (1) does not inhibit the sale by a firm:

  1. (1) where the sale does not involve the provision of advice on investments to a private customer; a firm may act as an intermediary for a transaction in a packaged product where that transaction is an execution-only transaction (long-term insurers are reminded of IPRU(INS) 1.3 (Restriction of business to insurance) and managers of UCITS schemes are reminded of CIS 16.5.1 R (Managers of UCITS schemes); or
  2. (2) when the firm acts a discretionary investment manager.
  • 01/12/2004

COB 5.1.10

handbook-guidance
COB 5.1.7 R (1) applies to advice on investments given to private customers about the components of an ISA which are packaged products.
  • 01/12/2001

Restriction on holding out

COB 5.1.11A

handbook-rule
  1. (1) A firm that, in relation to packaged products, provides advice on investments to a private customer, must not hold itself out as acting independently unless it intends to:
    1. (a) provide advice on investments to that customer that is on packaged products from the whole market (or the whole of a sector of the market); and
    2. (b) offers the customer the opportunity of paying fee for the provision of such advice.
  2. (2) A firm which in accordance with (1) holds itself out as independent must ensure that the advice on investments subsequently given to the private customer concerned is on packaged products from the whole market (or the whole of a sector of the market).
  3. (3) A firm will not contravene (2) and does not need to offer the option of fee based advice on investments in accordance with (1), if it acts in accordance with COB 4.3.27 R.
  • 01/12/2004

COB 5.1.11B

handbook-guidance
  1. (1) COB 5.1.11A R stipulates what a firm must do if it is to hold itself out to any particular client that it will act independently. Firms which wish to hold themselves out generally as acting independently should ensure that doing so (for example through a trading name or advertising) is consistent with the kind of service which private customers receive in relation to packaged products.
  2. (2) A firm that carries on business in relation to packaged products, regulated mortgage contracts and home reversion plans can do so in relation to the whole market and therefore be "independent" for one but offer only a limited service for the others. If this is the case the firm should explain the different nature of the services in a way which meets the requirement for clear, fair and not misleading communications in COB 2.1.3 R (Clear, fair and not misleading communications).
  3. (3) COB 5.1.11AR (1)(b) means that a firm wishing to hold itself out as independent will need to give customers a purely fee based option for paying for its services. Such a fee may be offered on a contingent basis so that it does not become payable if the customer does not acquire a product. A firm offering a fee-based service may, in addition, provide the customer with other payment options, such as by commission.

Representatives to have access to whole range

COB 5.1.12

handbook-rule
  1. (1) A firm must, subject to (2), take reasonable steps to ensure that those of its representatives who give advice on investments on packaged products are able to sell with advice on investments each packaged product within the particular range of packaged products from which products are selected for a customer.
  2. (2) A firm may restrict the packaged products it authorises a particular representative to sell, if:
    1. (a) that representative is not sufficiently competent to sell certain types of product; and
    2. (b) it requires that representative to identify instances when another packaged product within the relevant range packaged products ought to be recommended; the representative must then be required to refer the private customer to another representative of the firm who is authorised and competent to sell that product.
  • 01/12/2004

Remuneration structure and referrals

COB 5.1.13

handbook-rule

A firm must take reasonable steps to ensure that none of its representatives:

  1. (1) is likely to be influenced by the structure of his or her remuneration to give unsuitable advice on investments to a private customer; and
  2. (2) refers private customers to another firm in circumstances which would amount to the provision of an inducement under COB 2.2.3 R (Prohibition of inducements).
  • 01/12/2004

Excess charges on price-capped products

COB 5.1.14

handbook-rule
A firm must, if it gives advice on investments to a private customer on a stakeholder pensions scheme or other price capped product for which the firm is not the product provider, ensure that it does so only in accordance with arrangements under which the firm discloses any charges imposed by the firm in excess of those charged by the producer of the packaged product.
  • 01/12/2004

COB 5.1.14A

handbook-guidance
Products subject to price caps within COB 5.1.14 R would include ISAs marketed as "CAT standard".
  • 01/12/2004

COB 5.2

Know your customer

  • 01/12/2004

Application

COB 5.2.1

handbook-rule

This section applies to a firm that:

  1. (1) gives a personal recommendation concerning a designated investment to a private customer; or
  2. (2) acts as an investment manager for a private customer; or
  3. (3) arranges a pension opt-out or pension transfer from an occupational pension scheme for a private customer; or
  4. (4) is not an insurer and makes a personal recommendation to take out a life policy to an intermediate customer or a market counterparty; or
  5. (5) is not an insurer and is arranging (but not merely by introducing) a life policy;
  6. (6) is not an insurer and arranges (but not merely by introducing) a life policy for an intermediate customer or a market counterparty;

But this section does not apply to a firm when providing basic advice on a stakeholder product.

COB 5.2.2

handbook-guidance
A firm that arranges an execution-only transaction for a private customer is not generally required to obtain any personal or financial information about that customer. However, the Insurance Mediation Directive requires that a statement of the demands and needs of a client is provided to the client, whether advice is given or not. This is required whatever the status of the client. Accordingly the demands and needs provisions in COB 5.2.12 R to COB 5.2.17 G apply to all circumstances relating to life policies.

COB 5.2.3

handbook-guidance
When a firm provides limited advice on investments to a private customer, the firm should not treat any resulting transaction as an execution-only one.
  • 01/12/2001

Purpose

COB 5.2.4

handbook-guidance
Principle 9 (Customers: relationships of trust) requires a firm to take reasonable care to ensure the suitability of its advice and discretionary decisions. To comply with this, a firm should obtain sufficient information about its private customer to enable it to meet its responsibility to give suitable advice. A firm acting as a discretionary investment manager for a private customer should also ensure that before acting in the exercise of discretion it has sufficient information about its private customer to enable it to act in a way which is suitable for that private customer.
  • 01/12/2001

Requirement to know your customer

COB 5.2.5

handbook-rule
Before a firm gives a personal recommendation concerning a designated investment to a private customer, or acts as an investment manager for a private customer, it must take reasonable steps to ensure that it is in possession of sufficient personal and financial information about that customer relevant to the services that the firm has agreed to provide.
  • 01/12/2001

COB 5.2.6

handbook-guidance
A firm that advises a private customer, or exercises discretion for a private customer, on a continuing basis should keep its information about that customer under regular review. A firm that acts for a private customer on an occasional basis should undertake such a review whenever that customer seeks advice.
  • 01/12/2001

COB 5.2.7

handbook-guidance
If a private customer declines to provide relevant personal and financial information, a firm should not proceed to provide the services described in COB 5.2.5 R without promptly advising that customer that the lack of such information may affect adversely the quality of the services which it can provide. The firm should consider sending written confirmation of that advice.
  • 01/12/2001

COB 5.2.8

handbook-guidance
The information to be obtained and enquiries made to satisfy COB 5.2.5 R may vary significantly depending on the type of customer concerned. COB 5.2.11 G provides some guidance on the process of collecting personal and financial information.
  • 01/12/2001

Record keeping: personal and financial circumstances

COB 5.2.9

handbook-rule
  1. (1) Unless (2) applies, a firm must make and retain a record of a private customer's personal and financial circumstances that it has obtained in satisfying COB 5.2.5 R. The firm must retain the record for a minimum period after the information is obtained, as follows:
    1. (a) indefinitely for a record relating to a pension transfer, pension opt-out or free-standing additional voluntary contribution (FSAVC);
    2. (b) six years for a record relating to a life policy, personal pension scheme or stakeholder pension scheme; or
    3. (c) three years in any other case.
  2. (2) A firm need not retain the record where following a personal recommendation to a private customer in connection with a designated investment, the private customer does not proceed with the recommendation or any part of it.
  3. (3)

Record keeping: execution-only pension opt-outs and pension transfers

COB 5.2.10

handbook-rule
When a firm arranges a pension opt-out or pension transfer from an OPS for a private customer as an execution-only transaction, the firm must make and retain indefinitely a clear record to evidence that no advice on investments was supplied to the private customer.
  • 01/01/2003

COB 5.2.11

handbook-guidance

Guidance on the collection of information about a private customer.

This table belongs to COB 5.2.8 G.

Statement of demands and needs

COB 5.2.12

handbook-rule
  1. (1) Unless either COB 5.2.13 R or COB 5.2.14 R applies, a firm must provide the client with a statement of his demands and needs if:
    1. (a) it makes a personal recommendation of a life policy to a client; or
    2. (b) it arranges (whether through issuing a direct offer financial promotion or otherwise) for the client to enter into a life policy.
  2. (2) Unless (3) applies, the statement in (1) must be provided:
    1. (a) as soon as practicable, and in any event before the conclusion of the contract for the life policy; and
    2. (b) in a durable medium.
  3. (3) A firm may provide the statement in (1) orally if:
    1. (a) the client requests it; or
    2. (b) immediate cover is necessary;
  4. but in both cases the firm must provide the information in (1) immediately after the conclusion of the contract, in a durable medium.
  • 14/01/2005

COB 5.2.13

handbook-rule
If the only contact between the firm and the client before conclusion of the contract is by telephone, the statement of demands and needs must be provided immediately after the conclusion of the contract, in a durable medium.
  • 14/01/2005

COB 5.2.14

handbook-rule
A firm need not provide a statement of demands and needs if the required information is contained in a suitability letter, or explanation of a personal recommendation, provided under COB 5.3.
  • 14/01/2005

COB 5.2.15

handbook-guidance
  1. (1) A firm may provide the demands and needs statement as part of an application form so that the demands and needs statement is made dependent upon the customer providing personal information on the application form (including an application forming part of a direct offer financial promotion).
  2. (2) For quotations (see COB 4.3.3AG), there is no requirement for the firm to provide a demands and needs statement, but one must be provided before the conclusion of the contract, unless the only contact between the firm and the client is by telephone, in which case COB 5.2.13 R applies.
  3. (3) A key features document that complies with COB 6.1.4 (Requirement to produce key features) may be used as the statement of demands and needs required by COB 5.1.12R (1)(b).
  • 14/01/2005

COB 5.2.16

handbook-guidance
COB 5.2.17 G contains guidance on the contents of the statement required by COB 5.2.12R (1).
  • 14/01/2005

COB 5.2.17

handbook-guidance

Guidance on the contents of the statement required by COB 5.2.12R (1).

This table belongs to COB 5.2.16 G.

  • 14/01/2005

COB 5.2.18

handbook-guidance
Firms are reminded of the record keeping obligations under SYSC 3.2.20 R
  • 01/12/2004

COB 5.3

Suitability

  • 01/12/2004

Application

COB 5.3.1

handbook-rule

This section applies to a firm when it:

  1. (1) makes a personal recommendation concerning a designated investment to a private customer; or
  2. (2) acts as an investment manager for a private customer; or
  3. (3) manages the assets of an occupational pension scheme (OPS), personal pension scheme or stakeholder pension scheme; or
  4. (4) promotes a personal pension scheme by means of a direct offer financial promotion to a group of employees; or
  5. (5) if the firm is not an insurer, makes a personal recommendation to an intermediate customer or a market counterparty to take out a life policy;

but this section does not apply to a firm when providing basic advice on a stakeholder product.

COB 5.3.2

handbook-guidance
This section does not apply to a firm in respect of a direct offer financial promotion, except in respect of a promotion of a personal pension scheme under COB 5.3.28 R.
  • 01/12/2001

COB 5.3.3

handbook-guidance
Firms are reminded of the requirements of COB 3.9.6 R (Direct offer financial promotions: general requirements). A direct offer financial promotion must make it clear that, if a private customer is in any doubt about the suitability of the agreement which is the subject of the promotion, he should contact the firm, or another appropriate firm if the firm does not offer advice.
  • 09/10/2004

Purpose

COB 5.3.4

handbook-guidance
Principle 9 (Customers: relationships of trust) requires a firm to take reasonable care to ensure the suitability of its advice and discretionary decisions. The purpose of this section is to amplify this requirement. The nature of the steps firms need to take will vary greatly, depending on the needs and priorities of the private customer, the type of investment or service being offered, and the nature of the relationship between the firm and the private customer and, in particular, whether the firm is giving a personal recommendation or acting as a discretionary investment manager.
  • 01/12/2001

Requirement for suitability generally

COB 5.3.5

handbook-rule
  1. (1) A firm must take reasonable steps to ensure that, if in the course of designated investment business:
    1. (a) it makes any personal recommendation to a private customer to:
      1. (i) buy, sell, subscribe for or underwrite a designated investment (or to exercise any right conferred by such an investment to do so); or
      2. (ii) elect to make income withdrawals, or purchase a short-term annuity or not; or
      3. (iii) enter into a pension transfer or pension opt-out from an occupational pension scheme; or
    2. (b) it effects a discretionary transaction for a private customer (except as in (5)); or
    3. (c) it makes a personal recommendation to an intermediate customer or a market counterparty to take out a life policy;
  2. the advice on investments or transaction is suitable for the client.
  3. (2) If the recommendation or transaction in (1) relates to a packaged product:
    1. (a) it must, subject to COB 5.3.8 G - COB 5.3.10 R, be the most suitable from the range of packaged products, on which advice on investments is given to the client as determined by COB 5.1.7 R; and
    2. (b) if there is no packaged product in the firm's relevant range of packaged products which is suitable for the client, no recommendation must be made.
  4. (3) In making the recommendation or effecting the transaction in (1), the firm must have regard to:
    1. (a) the facts disclosed by the client; and
    2. (b) other relevant facts about the client of which the firm is, or reasonably should be, aware.
  5. (4) A firm which acts as an investment manager for a private customer must take reasonable steps to ensure that the private customer's portfolio or account remains suitable, having regard to the facts disclosed by the private customer and other relevant facts about the private customer of which the firm is or reasonably should be aware.
  6. (5) Where, with the agreement of the private customer, a firm has pooled his funds with those of others with a view to taking common discretionary management decisions, the firm must take reasonable steps to ensure that a discretionary transaction is suitable for the fund, having regard to the stated investment objectives of the fund.

COB 5.3.5A

handbook-guidance
  1. (1) If circumstances arise in which a firm reasonably concludes that there are several packaged products in the relevant range which would satisfy the test in COB 5.3.5 R (2), it will act in conformity with that rule if it recommends only one of those products.
  2. (2) If a client does not wish to proceed in accordance with a recommendation, a firm may nonetheless make further recommendations providing any such recommendation is suitable for the client in accordance with the obligation in COB 5.3.5 R.
  • 01/12/2004

Suitability of packaged products: out-of-range recommendations

COB 5.3.8A

handbook-rule
  1. (1) A firm when not selecting packaged products from the whole market (and notwithstanding COB 5.3.5 R (2)) may recommend a packaged product outside the range of packaged products on which it provides advice to a particular client if the recommended packaged product is suitable for the client and had it been included would have been at least as suitable as the most suitable packaged product in that range.
  2. (2) A firm must take reasonable steps to ensure that an appointed representative of a firm only acts as in (1) with its explicit written permission, either generally or in relation to the specific recommendation.
  • 01/12/2004

COB 5.3.8B

handbook-guidance
COB 5.3.8A R enables a firm to advise on packaged products from outside a particular range of packaged product. This will enable such advising on investments to be given on a one-off basis by firms which have only one range of packaged products and by other firms which may have more than one but without the firm needing to change the scope or range of the advice on investments which the client is expecting to receive.
  • 01/12/2004

Requirement for suitability: whole-of-market advisers

COB 5.3.10A

handbook-rule
  1. (1) A firm which holds itself out as giving personal recommendations to private customers on packaged products from the whole market (or the whole of a sector of that market) must not give any such personal recommendation unless it:
    1. (a) has carried out a reasonable analysis of a sufficiently large number of packaged products which are generally available from the market (or sector of the market); and
    2. (b) conducts the analysis in (a) on the basis of criteria which reflect adequate knowledge of the packaged products generally available from the market as a whole (or from a relevant sector).
  2. (2) A firm in (1) must satisfy the obligation in COB 5.3.5 R (2) by taking reasonable steps to ensure that a personal recommendation given to a private customer is:
    1. (a) in accordance with its analysis carried out under (1); and
    2. (b) is the packaged product which on the basis of that analysis is the most suitable to meet the customer's needs.
  • 01/12/2004

COB 5.3.10B

handbook-rule
  1. (1) A firm which holds itself out as giving personal recommendations to intermediate customers or market counterparties on life policies from the whole market (or from a relevant sector) must not give any such personal recommendation unless it:
    1. (a) has carried out an analysis of a sufficiently large number of life policies which are generally available from the market (or sector of the market); and
    2. (b) conducts the analysis in (a) on the basis of criteria which reflect adequate knowledge of the life policies generally available from the market as a whole (or from a relevant sector).
  2. (2) A firm in (1) must satisfy the obligation in COB 5.3.5 R (2) by taking reasonable steps to ensure that a personal recommendation given to a client is:
    1. (a) in accordance with its analysis carried out under (1); and
    2. (b) for a life policy which on the basis of that analysis is suitable to meet the client's needs.
  • 01/12/2004

Requirement for suitability: manager of OPS, personal pension scheme and stakeholder pension scheme

COB 5.3.12

handbook-rule
A firm that manages the assets of an occupational pension scheme, personal pension scheme or stakeholder pension scheme must take reasonable steps to ensure the suitability of specific transactions and of the investment portfolio under management with regard to the investment objectives specified in the portfolio mandate.

Requirements for suitability: other specific requirements

COB 5.3.13

handbook-guidance
  1. (1) COB 5.3.20 R contains specific rules applicable to the suitability of broker funds.
  2. (2) COB 5.3.21 R - COB 5.3.27 R contain specific rules applicable to the suitability of pension transfers and pension opt-outs.
  3. (3) COB 5.3.28 R contains specific rules applicable to the promotion of personal pension schemes, including group personal pension schemes by means of direct offer financial promotions.
  4. (4) COB 5.3.29 G contains guidance which is relevant for assessing the suitability of:
    1. (a) pension transfers and pension opt-outs;
    2. (b) personal pension schemes and free-standing additional voluntary contributions (FSAVCs) compared to stakeholder pension schemes;
    3. (c) hybrid products;
    4. (d) industrial assurance policies;
    5. (e) income withdrawals and short-term annuities;
    6. (f) ISA, PEP or CTF transfers; and
    7. (g) contracting out of SERPS; and
    8. (h) borrowing to invest.

Requirement for a suitability letter: other specific requirements

COB 5.3.14

handbook-rule
  1. (1) A firm that gives a personal recommendation, in relation to a life policy, to a person who is a policyholder or a prospective policyholder of a life policy, must provide the person with a suitability letter prior to the conclusion of the contract, unless one of the exceptions in COB 5.3.19 R applies.
  2. (2) If, following a personal recommendation by a firm that does not fall within (1), a private customer:
    1. (a) buys, sells, surrenders, converts, cancels, or suspends premiums for or contributions to, a personal pension scheme or a stakeholder pension scheme; or
    2. (b) elects to make income withdrawals or purchase a short-term annuity; or
    3. (c) acquires a holding in, or sells all or part of a holding in, a scheme; or
    4. (d) enters into a pension transfer or pension opt-out from an OPS;
  3. the firm must provide the customer with a suitability letter, within the time period stipulated by COB 5.3.18 R, unless one of the exceptions in COB 5.3.19 R applies.

COB 5.3.15

handbook-guidance
A suitability letter is not required in respect of a personal recommendation made by a firm to buy or sell shares or units in a regulated collective investment scheme when the firm is acting as an investment manager for a private customer (see COB 5.3.19 R (1)).
  • 01/12/2001

COB 5.3.16

handbook-rule

The suitability letter in COB 5.3.14 R must:

  1. (1) explain why the firm has concluded that the transaction is suitable for the customer, having regard to his personal and financial circumstances;
  2. (2) contain a summary of the main consequences and any possible disadvantages of the transaction;
  3. (3)
    1. (a) in the case of a personal pension scheme which is not a stakeholder pension scheme, explain the reasons why the firm considers the personal pension scheme to be at least as suitable as a stakeholder pension scheme;
    2. (b) in the case of an FSAVC:
      1. (i) if the customer has the alternative of a stakeholder pension scheme, explain the reasons why the firm considers the recommended contract to be at least as suitable as a stakeholder pension scheme or as any additional voluntary contribution (AVC) or the facility to make additional contributions to the occupational pension scheme which may be available; or
      2. (ii) if the customer does not have the alternative of a stakeholder pension scheme, explain the reasons why the firm considers the recommended contract to be at least as suitable as any AVC or the facility to make additional contributions to the occupational pension scheme which may be available;
  4. (4) identify the individual who is authorised by the firm to advise on the type of product that has been recommended;
  5. (5) if the recommended product is from a product provider (or if relevant, an undertaking in the immediate group of that provider) which is identified in section 6 of the firm's initial disclosure document given in accordance with COB 4.3.3R (1), include the information given in section 6 or in section 6 of the firm's combined initial disclosure document; and
  6. (6) in the case of a recommendation by a firm under COB 5.3.8A R (Suitability of packaged products: out-of-range recommendations) explain why it has recommended a packaged product outside the firm's range of packaged products, including why it is suitable for the customer.
  • 01/12/2004

COB 5.3.17

handbook-guidance
COB 5.3.30 G provides guidance on the contents of suitability letters.
  • 01/12/2001

COB 5.3.18

handbook-rule

The firm must provide the letter required by COB 5.3.14 R (2) to the customer:

  1. (1) in the case of a pension contract or stakeholder pension scheme, where the cancellation rules require notification of the right to cancel, no later than the fourteenth day after the contract is concluded; or
  2. (2) in any other case, when or as soon as possible after the transaction is effected.
  • 09/10/2004

COB 5.3.18A

handbook-rule

A firm may provide a statement of demands and needs to the client orally, instead of the suitability letter in COB 5.3.14 R, if:

  1. (1) the client requests it; or
  2. (2) immediate cover is necessary;

but in both cases the firm must provide the suitability letter immediately after the conclusion of the contract, on a durable medium.

  • 14/01/2005

COB 5.3.18B

handbook-rule
If the only contact between the firm and the client before conclusion of the contract is by telephone, the suitability letter must be provided immediately after the conclusion of the contract, on a durable medium.
  • 14/01/2005

Suitability: intermediate customers and market counterparties

COB 5.3.18C

handbook-rule
  1. (1) If a firm makes a personal recommendation to an intermediate customer or a market counterparty to take out a life policy, it must explain to the client the reasons for personally recommending that life policy.
  2. (2) The explanation required under (1) must:
    1. (a) take account of the complexity of the life policy proposed; and
    2. (b) be provided to the client before the contract is concluded.
  • 14/01/2005

COB 5.3.18D

handbook-guidance

A firm should take the following into account when explaining the reasons for a personal recommendation to an intermediate customer or a market counterparty in accordance with COB 5.3.18A R:

  1. (1) the firm should explain why the client's demands and needs combine to make the recommended contract suitable for the client;
  2. (2) the firm should not merely state what contract is being recommended with no link to the client's demands and needs;
  3. (3) a firm that offers contracts from more than one insurance undertaking should include a statement of why a particular insurance undertaking has been recommended; reasons may include contract features not available anywhere else, price, or service levels.
  • 14/01/2005

Exceptions from requirement to provide a suitability letter

COB 5.3.19

handbook-rule

COB 5.3.14 R does not apply:

  1. (1) if the firm is acting as an investment manager for a private customer and makes a personal recommendation relating to a regulated collective investment scheme;
  2. (2) if the firm is not acting as an outgoing ECA provider, and the customer is habitually resident in another EEA State at the time of acknowledging consent to the proposal form to which the personal recommendation relates;
  3. (3) if the customer is habitually resident outside the EEA and the customer is not present in the United Kingdom (or EEA in the case of a firm acting as an outgoing ECA provider) at the time of acknowledging consent to the proposal form to which the personal recommendation relates;
  4. (4) to any personal recommendation by a friendly society for a life policy sold by it with a premium not exceeding £50 a year or, if payable weekly, £1 a week;
  5. (5) to any personal recommendation to increase a regular premium to an existing contract; and
  6. (6) to any personal recommendation to invest additional single premiums or single contributions to an existing packaged product to which a single premium or single contribution has previously been paid.
  • 01/12/2004

Record keeping requirements

COB 5.3.19A

handbook-rule

A firm must make and retain a record of a private customer's suitability letter that it has provided in satisfying COB 5.3.14 R. The record must be retained for a minimum period after the letter is provided, as follows:

  1. (1) for a record relating to a pension transfer, pension opt-out or free-standing additional voluntary contribution (FSAVC), indefinitely;
  2. (2) for a record relating to a life policy, personal pension scheme or stakeholder pension scheme, six years;
  3. (3) in any other case, three years.

Suitability of broker funds

COB 5.3.20

handbook-rule

A firm acting as a broker fund adviser for a private customer must:

  1. (1) take account of the characteristics of the broker fund, including the charging arrangements, in total, when assessing the suitability of the arrangements;
  2. (2) review on a regular basis the customer's current investment objectives and strategies relative to those at the time of any previous periodic report to the customer in accordance with COB 8.2.4 R (Requirement for a periodic statement);
  3. (3) follow up the review with a recommendation in writing to the customer, to be provided at least annually, either to continue with the investment or to withdraw, and in either case to supply reasons for the recommendation;
  4. (4) provide the customer with an alternative recommendation if the broker fund arrangement is no longer suitable; and
  5. (5) ensure that any significant change in the investment strategy of the fund, where known to the firm, is notified to the customer in advance together with confirmation why the fund continues to be suitable for the customer's circumstances or an alternative recommendation.
  • 01/12/2001

Suitability of pension transfers and opt-outs

COB 5.3.21

handbook-rule

If a personal recommendation about a pension transfer or pension opt-out is to be made on a firm's behalf by an individual who is not one of its pension transfer specialists, the firm must have established procedures for checking:

  1. (1) the individual's compliance with the firm's procedures;
  2. (2) the correctness of the application of the transfer value analysis system, where applicable; and
  3. (3) the merits of the proposed transaction and the suitability of the recommendation;

and any such recommendation must be assessed by one of the firm's designated pension transfer specialists to ensure the procedures have been followed.

  • 01/12/2001

COB 5.3.22

handbook-rule
  1. (1) A firm must ensure that a transfer value analysis is carried out in accordance with COB 6.6.87 R - COB 6.6.93 R (Projections) before it makes any recommendation to a customer to transfer out of a defined benefits pension scheme.
  2. (2) A copy of the analysis must be delivered with the key features document or otherwise provided to the customer before he gives consent to the application to transfer.
  3. (3) The firm must take reasonable steps to ensure the customer understands the analysis, drawing attention to factors which do and do not support the recommendation to transfer.
  • 01/12/2001

COB 5.3.23

handbook-rule

A firm must provide a projection of the possible future benefits of the proposed individual pension contract before it makes any personal recommendation to a customer to opt out of, or transfer from, an occupational pension scheme.

  1. (1) The format and nature of the benefits given in the projection must, so far as possible, be the same as those which apply under the occupational pension scheme of which the customer is, or is eligible to become, a member.
  2. (2) If it is not possible for the benefits shown in the projection to replicate those of the occupational pension scheme, an explanation must be given.
  3. (3) If the customer has expressed an interest in changing the structure of his eventual benefits, an additional projection may also be prepared on that basis.
  • 01/12/2001

COB 5.3.24

handbook-rule

A suitability letter relating to a personal recommendation to opt out of or transfer from an occupational pension scheme must include:

  1. (1) a summary of the disadvantages as well as the advantages of opting out or transferring; and
  2. (2) in the case of a pension opt out, a financial analysis explaining the decision to opt-out.
  • 01/12/2001

COB 5.3.25

handbook-rule

If, contrary to the advice of the firm, a private customer instructs the firm to arrange a pension opt-out or pension transfer, the firm must:

  1. (1) make and retain a clear record of the firm's advice that the private customer should not proceed with the pension opt-out or pension transfer and the private customer's instructions to proceed with the transaction; and
  2. (2) provide a further confirmation and explanation, in writing, to the private customer that the firm's advice is that the private customer should not proceed with the pension opt-out or pension transfer.
  • 01/12/2001

COB 5.3.27

handbook-rule
A firm must keep separate records for each private customer of every pension transfer, pension opt-out or free-standing additional voluntary contribution (FSAVC) which it has arranged, whether advised or not, and retain these records indefinitely.
  • 01/12/2001

Suitability of personal pension schemes: promotions to employees

COB 5.3.28

handbook-rule

When a firm promotes a personal pension scheme including a group personal pension scheme, by means of a direct offer financial promotion to a group of employees, the firm must;

  1. (1) be satisfied on reasonable grounds that the pension scheme is likely to be at least as suitable for the majority of the employees as a stakeholder pension scheme;
  2. (2) record why it thinks the promotion is justified; and
  3. (3) retain the record for a minimum period of six years after the financial promotion is last communicated.
  • 01/01/2003

COB 5.3.29

handbook-guidance

Guidance on matters which should be taken into account when assessing the suitability of various personal recommendations. This table belongs to COB 5.3.13 G (4).

COB 5.3.30

handbook-guidance

Guidance on the contents of suitability letters.

This table belongs to COB 5.3.17 G.

  • 01/12/2004

COB 5.4

Customers' understanding of risk

  • 01/12/2004

Application

COB 5.4.1

handbook-rule
This section applies to a firm that conducts designated investment business with or for a private customer but does not apply to a firm when providing basic advice on a stakeholder product.

Purpose

COB 5.4.2

handbook-guidance
Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its clients and communicate information to them in a way that is clear, fair and not misleading. Principle 9 (Customers: relationships of trust) requires a firm to take reasonable care to ensure the suitability of its advice and discretionary decisions. The purpose of this section is to ensure that a firm takes reasonable steps to ensure that a private customer understands the nature of the risks inherent in certain transactions.
  • 01/12/2001

Requirement for risk warnings

COB 5.4.3

handbook-rule

A firm must not:

  1. (1) make a personal recommendation of a transaction; or
  2. (2) act as a discretionary investment manager; or
  3. (3) arrange (bring about) or execute a deal in a warrant or derivative; or
  4. (4) engage in stock lending activity;

with, to or for a private customer unless it has taken reasonable steps to ensure that the private customer understands the nature of the risks involved.

  • 15/11/2001

COB 5.4.3A

handbook-guidance
A securitised derivative (as defined in the Glossary) is a derivative, and COB rules relevant to derivatives therefore apply. An instrument listed under LR 19 which is not an option or contract for differences is not a securitised derivative for the purposes of COB.

COB 5.4.4

handbook-evidential-provisions
The reasonable steps in COB 5.4.3 R should include the steps set out in COB 5.4.6 E to COB 5.4.12 E as appropriate, in relation to transactions in the following types of investment or activity:
  1. (1) warrants and derivatives (see COB 5.4.6 E, COB 5.4.6A E or COB 5.4.6C E as appropriate);
  2. (2) non-readily realisable investments (see COB 5.4.7 E);
  3. (3) penny shares (see COB 5.4.8 E);
  4. (4) securities subject to stabilisation (see COB 5.4.9 E);
  5. (5) stock lending activity (see COB 5.4.10 E);
  6. (6) a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6) (see COB 5.4.11 E);
  7. (7) structured capital-at-risk products (see COB 5.4.12 E).
  • 01/01/2004

COB 5.4.5

handbook-evidential-provisions
Compliance with COB 5.4.4 E may be relied on as tending to establish compliance with COB 5.4.3 R.

Risk warnings in respect of warrants and derivatives (other than retail securitised derivatives and certain EEA listed derivatives)

COB 5.4.6

handbook-evidential-provisions
  1. (1) In relation to a transaction in a warrant or derivative (other than a retail securitised derivative or an option or contract for differences to which COB 5.4.6C E applies), the firm should:
    1. (a) provide the private customer with the notice in COB 5 Annex 1 E (Warrants and derivatives risk warning notice); and
    2. (b) require the private customer to acknowledge receipt of the notice and confirm acceptance of its contents, in writing.
  2. (2) A firm need not undertake steps COB 5.4.6 E (1) (a) and (b) in respect of a private customer who is ordinarily resident outside the United Kingdom, if it has taken reasonable steps to determine that the private customer does not wish to receive the notice.
  3. (3) The notice in COB 5 Annex 1 E (Warrants and derivatives risk warning notice) need not be sent in relation to the realisation of a warrant that is already held by the private customer, or of a warrant attached to another designated investment.
  4. (4) For a firm acting as an outgoing ECA provider, the exemption contained in COB 5.4.6 E (2) applies only if the private customer is ordinarily resident outside the EEA and if the outgoing ECA provider has taken reasonable steps to ensure that the private customer does not want to receive the notice.
  • 01/08/2002

Risk warnings in respect of retail securitised derivatives

COB 5.4.6A

handbook-evidential-provisions
  1. (1) In relation to a transaction in a retail securitised derivative, the firm should provide the private customer with:
    1. (a) the notice in COB 5 Annex 1 E (Warrants and derivatives risk warning notice); or
    2. (b) [deleted]
    3. (c) a clear, fair and adequate description of the securitised derivative which is to be the subject of the transaction, in a manner calculated to bring to the attention of the private customer the risks involved, and in particular (and if applicable):
      1. (i) that the securitised derivative gives rise to risks similar to those arising when an investor buys or sells an option;
      2. (ii) that the securitised derivative is 'geared' or 'leveraged', which means that a relatively small movement in the price of the underlying instrument, whether favourable or adverse, could result in a larger movement in the price of the securitised derivative;
      3. (iii) that the price of the securitised derivative may therefore be volatile;
      4. (iv) that the securitised derivative has a limited life, and may expire worthless if the underlying instrument (such as a share or index) does not perform as expected;
      5. (v) that, consequently, the private customer should not enter into the transaction unless he is prepared to lose all of the money he has invested, plus any commission or other charges;
      6. (vi) that the private customer should satisfy himself that the securitised derivative is suitable for him, in the light of his circumstances and financial position, and if the private customer is in any doubt he should seek professional advice; and
      7. (vii) a clear, fair and adequate description of any other relevant risks affecting the value, trading price, and realisation of the value of the securitised derivative.
  2. (2) A firm should either:
    1. (a) require the private customer to acknowledge receipt of the notice or description provided in accordance with (1)(a) or (c) and confirm acceptance of its contents, in writing; or
    2. (b) be otherwise able to demonstrate that the private customer has received the notice or description and had a proper opportunity to consider its terms.
  3. (3) A firm need not undertake steps (1) and (2) in respect of a private customer who is ordinarily resident outside the United Kingdom, if it has taken reasonable steps to determine that the private customer does not wish to receive the notice or description.

COB 5.4.6B

handbook-guidance
  1. (1) A description provided under COB 5.4.6A E (1)(b):
    1. (a) may be included in the prospectus or the listing particulars for the securitised derivative;
    2. (b) may explain, where applicable, the existence and extent of any factors that reduce the risks to which the private customer is exposed (for example, the fact that the securitised derivative is listed, or subject to some form of guarantee), but the firm should ensure that any such statement does not disguise, obscure or diminish the significance of the notice taken as a whole; and
    3. (c) may use another term (such as "covered warrant") to describe a securitised derivative, if it is generally accepted market practice to do so.
  2. (2) In relation to (1) (b) and (c) firms are also reminded of the requirements of COB 2.1 (Clear, fair and not misleading communication).

Risk warnings in respect of certain derivatives listed in other EEA States

COB 5.4.6C

handbook-evidential-provisions
In relation to an option or contract for differences which is included on the official list of an EEA State other than the United Kingdom, a firm should comply with COB 5.4.6A E if:
  1. (1) the investment is not a contingent liability investment; and
  2. (2) (if it provides a right of exercise) the investment would comply with LR 19.2.6 R of the listing rules (Method of exercising retail securitised derivatives) if it were listed on the UK official list.

Risk warnings in respect of non readily realisable investments

COB 5.4.7

handbook-evidential-provisions
In relation to a transaction in a designated investment that is not a readily realisable investment, a firm should:
  1. (1) warn the private customer that there is a restricted market for such designated investments, and that it may therefore be difficult to deal in the designated investment or to obtain reliable information about its value; and
  2. (2) disclose any position knowingly held by the firm or any of its associates in the designated investment or in a related designated investment.
  • 01/12/2001

Risk warnings in respect of penny shares

COB 5.4.8

handbook-evidential-provisions
In respect of penny shares, a firm should provide the risk warnings required by COB 3.9.17 G (12) (Investments that can fluctuate in value).
  • 01/12/2001

Risk warnings in respect of securities that may be subject to stabilisation

COB 5.4.9

handbook-evidential-provisions
In respect of securities that may be subject to stabilisation, a firm should send to the private customer the notice in COB 5 Annex 2 E (Dealing in securities which may be subject to stabilisation) unless it has taken reasonable steps to establish that the customer requires an oral explanation only.
  • 01/12/2004

Stock lending activity

COB 5.4.10

handbook-evidential-provisions
A firm should not engage in stock lending activity with or for a private customer unless it has notified him:
  1. (1) that this may affect his tax position and that he should consult a tax adviser before proceeding; and
  2. (2) of the consequences of the stock lending activity, including what impact it may have on the rights of the holder of the designated investments concerned.
  • 01/12/2001

Risk warnings in respect of listed securities where gearing is involved

COB 5.4.11

handbook-evidential-provisions
In relation to a transaction in a security or an investment trust savings scheme for dealing in securities which satisfies the conditions specified in COB 3.8.9 G (6) a firm should provide to the private customer a notice to warn the private customer that the strategy which the issuer of securities uses or proposes to use may result in:
  1. (1) movements in the price of the securities being more volatile than the movements in the price of underlying investments;
  2. (2) the investment being subject to sudden and large falls in value; and
  3. (3) the private customer getting back nothing at all if there is a sufficiently large fall in value in the investment.
  • 01/01/2004

COB 5.4.12

handbook-evidential-provisions
  1. (1) Unless (2) applies, in relation to a transaction in a structured capital-at-risk product, the firm should provide the private customer with a notice containing a clear, fair and adequate description of the structured capital-at-risk product which is to be the subject of the transaction, in a manner calculated to bring to the attention of the private customer the risks involved, in particular (and if applicable):
    1. (a) that the return of initial capital invested at the end of the investment period is not guaranteed and therefore the private customer may get back less then what was originally invested;
    2. (b) that the amount of initial capital repaid may be geared, which means that a small percentage fall in the related index may result in a larger reduction in the amount paid out to the private customer;
    3. (c) that any maximum benefit advertised to the private customer is only available after a set period, indicating how long that period is;
    4. (d) that redeeming a product early may result in redemption penalties and a poor return;
    5. (e) that the initial capital invested may be placed into high risk investments, such as non-investment grade bonds;
    6. (f) that the rate of income or growth advertised to private customers may depend on specified conditions being met, indicating what these conditions are;
    7. (g) that the private customer should not enter into the transaction unless he is prepared to lose some or all of the money he has invested;
    8. (h) that the private customer should satisfy himself that the structured capital-at-risk product is suitable for him, in the light of his circumstances and financial position, and if the private customer is in any doubt he should seek professional advice; and
    9. (i) a clear, fair and adequate description of any other relevant risks affecting the value, trading price, and realisation of the value of the structured capital-at-risk product.
  2. (2) If the firm is acting as an investment manager, it should provide the notice referred to in (1) as part of its terms of business, but need not provide a notice before each transaction in a structured capital-at-risk product, provided that the structured capital-at-risk product is within the range of structured capital-at-risk products described in the terms of business.
  • 15/07/2004

COB 5.4.13

handbook-guidance
In relation to a transaction in a structured capital-at-risk product, if it is relevant, firms should comply with COB 5.4.7 E.
  • 15/07/2004

COB 5.5

Information about the firm

  • 01/12/2004

Application

COB 5.5.1

handbook-rule
  1. (1) This section applies to a firm that conducts designated investment business with or for a private customer.
  2. (2) This section does not apply when a firm communicates or approves a financial promotion.
  • 01/12/2001

Purpose

COB 5.5.2

handbook-guidance
Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its clients and communicate information to them in a way that is clear, fair and not misleading. COB 5.5 aims to ensure that a firm provides its private customers with adequate information about the firm.
  • 01/12/2001

Information required to be disclosed

COB 5.5.3

handbook-rule

When it conducts designated investment business, a firm must take reasonable steps to ensure that a private customer is given adequate information about:

  1. (1) the identity and business address of the firm and any relevant agent of the firm;
  2. (2) the identity and status, or relationship with the firm, of employees and other agents with whom the customer may have contact; and
  3. (3) the firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory status disclosure));

unless the private customer has been given the information on a previous occasion and that information is still up to date.

  • 01/12/2004

COB 5.5.4

handbook-evidential-provisions
  1. (1) For the purposes of COB 5.5.3 R, the reasonable steps should include the relevant measures detailed in COB 5.5.5 E.
  2. (2) Compliance with (1) may be relied as tending to establish compliance with COB 5.5.3 R.
  3. (3) Contravention of (1) may be relied as tending to establish contravention of COB 5.5.3 R.
  • 01/12/2001

COB 5.5.5

handbook-evidential-provisions

Table of information to be disclosed in written communications.

This table belongs to COB 5.5.4 E

  • 01/12/2004

COB 5.5.5A

handbook-guidance
Firms are reminded of GEN 4.3 (Letter disclosure), which requires a disclosure in letters to private customers.
  • 01/03/2003

Overseas business for UK private customers

COB 5.5.7

handbook-rule
  1. (1) A firm must not conduct designated investment business:
    1. (a) from an office of its own (or of any appointed representative) outside the United Kingdom;
    2. (b) with or for a private customer who is in the United Kingdom;
  2. unless it has, where relevant, made a disclosure in accordance with (2) to the private customer.
  3. (2) The required disclosure in (1) means a written statement making it clear that in some or all respects the regulatory system applying, including any compensation arrangements, will be different from that of the United Kingdom. The statement may also indicate the protections or compensation available under another system of regulation.
  4. (3) A firm must not make an introduction or make arrangements or give advice on investments with a view to another person conducting designated investment business;
    1. (a) from an office outside the United Kingdom;
    2. (b) with or for a private customer (or a person who, if a client, would be a private customer), who is in the United Kingdom;
  5. unless the firm has, where relevant, made a disclosure in accordance with (2) and there are no reasonable grounds for the firm to doubt that the private customer will be dealt with in an honest and reliable way.
  • 01/12/2001

Business conducted from non-UK offices

COB 5.5.8

handbook-guidance
GEN 4.4 (Business for private customers from non-UK offices), requires a firm to give information, similar to that in COB 5.5.7 R, in certain circumstances in connection with business conducted from an office outside the United Kingdom with both UK and non-UK private customers.
  • 01/03/2003

ISD investment firms: compensation information

COB 5.5.9

handbook-rule
An ISD investment firm providing or offering to provide a core investment service or custody must make available to every client, who has used or intends to use those services, information on whether or not compensation may be available from the compensation scheme or a compensation scheme established in another EEA State in accordance with the Investor Compensation Directive should the firm be unable to meet its liabilities, and the extent and level of cover and how further information can be obtained.
  • 09/10/2004

COB 5.5.10

handbook-guidance
The obligation in COB 5.5.9 R is to "make information available". This does not require the firm to inform every client. A firm may make the information available in a number of ways, for example, by including it in explanatory literature or on the firm's website.
  • 01/03/2003

Example of compensation information for a UK domestic investment firm operating from the United Kingdom

COB 5.5.11

handbook-guidance
This is an example of how a UK domestic firm, carrying on a regulated activity from a UK establishment, could present the information required by COB 5.5.9 R:COMPENSATION We are covered by the Financial Services Compensation Scheme. You may be entitled to compensation from the scheme if we cannot meet our obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for 100% of the first £30,000 and 90% of the next £20,000, so the maximum compensation is £48,000. Further information about compensation arrangements is available from the Financial Services Compensation Scheme
  • 01/03/2003

ISD investment firms: language of compensation information

COB 5.5.12

handbook-rule

Information about compensation arrangements made available by an ISD investment firm under COB 5.5.9 R must:

  1. (1) (if it relates to the activities of an establishment in the United Kingdom) be in English; or
  2. (2) (if it relates to the activities of a branch in another EEA State) be in an official language of that EEA State.
  • 01/03/2003

COB 5.6

Excessive charges

  • 01/12/2004

Application

COB 5.6.1

handbook-rule
This section applies to a firm that makes a charge to a private customer in the course of, or in connection with its designated investment business.
  • 01/12/2001

Purpose

COB 5.6.2

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. The purpose of this section is to ensure that the charges a firm makes to its private customer are not excessive. The obligation to disclose to a private customer the charges that a firm intends to make are set out in COB 4.3 (Disclosing information about services, fees and commission - packaged products) and COB 5.7 (Disclosure of charges, remuneration and commission).
  • 01/12/2004

Charges to a private customer

COB 5.6.3

handbook-rule
A firm must ensure that its charges to a private customer made in connection with the conduct of designated investment business are not excessive.
  • 01/12/2001

COB 5.6.4

handbook-guidance

When determining whether a charge is excessive, a firm should consider:

  1. (1) the amount of its charges for the services or product in question compared with charges for similar services or products in the market;
  2. (2) the degree to which the charges are an abuse of the trust that the customer has placed in the firm; and
  3. (3) the nature and extent of the disclosure of the charges to the private customer.
  • 01/12/2001

Charges in respect of designated investments that are not readily realisable

COB 5.6.5

handbook-rule
When a firm's charges for advising on or managing a private customer's assets are dependent on the value of designated investments that are not readily realisable investments, the valuation of those designated investments must be based upon the price likely to be agreed between a willing buyer and a willing seller dealing at arm's length who are both in possession of all freely available information concerning those investments.
  • 01/12/2001

COB 5.6.6

handbook-guidance
In appropriate cases it may be necessary for the basis of a valuation referred to in COB 5.6.5 R to be confirmed or approved by an independent expert.
  • 01/12/2001

COB 5.7

Disclosure of charges, remuneration and commission

  • 01/12/2004

Application

COB 5.7.1

handbook-rule
This section applies to a firm that conducts designated investment business with or for a private customer.
  • 01/12/2001

Purpose

COB 5.7.2

handbook-guidance
Principle 7 (Communications with clients) requires a firm to pay due regard to the needs of its clients and communicate information to them in a way that is clear, fair and not misleading. The purpose of this section is to ensure that a private customer is made aware of the costs to him, directly or indirectly, of financial services, so that he is better able to make informed choices.
  • 01/12/2001

Disclosure of charges

COB 5.7.3

handbook-rule
  1. (1) Before a firm conducts designated investment business with or for a private customer, the firm must disclose in writing to that private customer the basis or amount of its charges for conducting that business and the nature or amount of any other income receivable by it or, to its knowledge, by its associate and attributable to that business.
  2. (2) If the designated investment business in (1) is in respect of an execution-only transaction:
    1. (a) which does not relate to a packaged product; and
    2. (b) where prior written disclosure would delay the transaction;
    3. the firm may instead:
    4. (c) make the disclosure required by (1) orally before the transaction is executed; and
    5. (d) provide written confirmation of the matters disclosed to the private customer within five business days of the execution.
  • 01/09/2002

COB 5.7.4

handbook-guidance
  1. (1) A firm may make the disclosures required by COB 5.7.3 R in its terms of business, in a client agreement, or in a separate written statement. Disclosure should indicate any product-related charges that are deducted from the private customer's investment. If the product is a packaged product, product-related charges and expenses will be disclosed in the key features document, simplified prospectus or in the minimum information that the firm is required to provide to the private customer in accordance with COB 6.2 (Provision of key features or simplified prospectus) and COB 6.4 (Product disclosure: special situations). When a firm is a broker fund adviser, disclosure should include any fees payable to the firm or its associate in connection with that activity by a provider firm. In the case of advice provided in connection with packaged products a firm should, in accordance with COB 4.3.3 R, have provided its customer with a fees and commission statement setting out the maximum rates of any fees which the customer will pay and/or with an indication of the maximum rates of commission (or equivalent) which it, or its representatives, may retain in connection with the sale of packaged products. COB 5.7.3 R does not require any further disclosure of a firm's fees if, in accordance with COB 4.3.5 R it has confirmed the exact amount or rate that it will charge.
  2. (2) In addition it is necessary that a private customer should, as soon as is practicable, be informed of the exact rate or the exact amount in cash terms of any commission (or equivalent) which the firm or its representatives will receive in respect of a specific transaction.
  3. (3) In the case of a packaged product, product related charges and expenses will be disclosed in the key features document, simplified prospectus or in the minimum information that the firm is required to provide to private customers in accordance with COB 6.2 (Provision of key features or simplified prospectus) and COB 6.4 (Product disclosure: special situations). When a firm is a broker fund adviser, disclosure should include any fees payable to the firm or its associate in connection with that activity by a product provider.

Disclosure of commission (or equivalent) for packaged products

COB 5.7.5

handbook-rule
  1. (1) When a firm sells, personally recommends or arranges the sale of a packaged product to a private customer, and subsequently on the request of a private customer, the firm must disclose to the private customer, in cash terms:
    1. (a) any commission equivalent payable by it to a representative or appointed representative; and
    2. (b) any commission or commission equivalent receivable by it, or by any of its associates in connection with the transaction
  2. unless COB 5.7.9 R or COB 5.7.10 R applies.
  3. (2) In (1)(b) a firm is, in respect of any transaction, to be regarded as receiving commission equivalent if:
    1. (a) it is received from a product provider ("P"), or an associate of P; and
    2. (b) either P or its associate is in the same immediate group as the firm; and
    3. (c) the value of the commission equivalent (as assessed in accordance with these rules) is greater than the amount of commission in cash terms.
  4. (3) In (1) and (2) "cash terms" in relation to commission does not include the value of any indirect benefits which the firm may receive in accordance with COB 2.2.
  • 01/12/2004

COB 5.7.6

handbook-rule
In determining the amount to be disclosed as commission equivalent in accordance with COB 5.7.5 R, a firm must put a proper value on the cash payments, benefits and services provided to its representatives in connection with the transaction.
  • 01/12/2004

COB 5.7.8

handbook-evidential-provisions
  1. (1) When determining the value of cash payments, benefits and services under COB 5.7.6 R, a firm should follow the provisions of COB 5.7.16 E.
  2. (2) Compliance with COB 5.7.8 E (1) may be relied on as tending to establish compliance with COB 5.7.6 R.
  3. (3) Contravention of COB 5.7.8 E (1) may be relied on as tending to establish contravention of COB 5.7.6 R.
  • 01/12/2004

Exceptions to the disclosure for packaged products

COB 5.7.9

handbook-rule

COB 5.7.5 R does not apply if:

  1. (1) the firm is acting as an investment manager; or
  2. (2) the firm is not acting as an outgoing ECA provider and the transaction is effected for a private customer who is habitually resident overseas; or
  3. (3) the firm is not acting as an outgoing ECA provider and the packaged product is a life policy and the private customer is not present in the United Kingdom at the time the application is made; or
  4. (4) the firm is acting as an outgoing ECA provider and the transaction is effected for a private customer who is habitually resident outside the EEA; or
  5. (5) the firm is acting as an outgoing ECA provider, the packaged product is a life policy and the private customer is not present in the EEA at the time the application is made.
  • 21/08/2002

COB 5.7.10

handbook-rule
The requirement in COB 5.7.5 R to disclose to a private customer the amount or value, in cash terms, of commission or equivalent does not apply if the firm provides the private customer with example key features or a simplified prospectus, in accordance with COB 6.2.7 R (Life policies), COB 6.2.22 R (Key features schemes) and COB 6.2.33 R (Obligation on a firm to provide a simplified prospectus) as applicable, provided that the firm discloses to the private customer the actual amount or value of commission or equivalent within five business days of effecting the transaction.

Guidance on disclosure requirements for packaged products

COB 5.7.11

handbook-guidance
The disclosures required by COB 5.7.5 R should be made in a manner that is clear, fair and not misleading, as required by COB 2.1.3 R (Clear, fair and not misleading communication), and that indicates the timing of any payment. For example, when a firm exchanges its right to future commission payments for a lump sum, whether by way of a loan or other commercial arrangement, it should disclose the amount of commission receivable by it that has been exchanged for the lump sum.
  • 01/12/2001

COB 5.7.12

handbook-guidance
If the precise rate or value of commission or equivalent is not known in advance, the firm should estimate the rate likely to apply to the representative in respect of the transaction.
  • 01/12/2004

COB 5.7.13

handbook-guidance
The disclosures required by COB 5.7.5 R should normally be made in writing. For example, if a specific key features document, simplified prospectus or projection is provided to a private customer, the required disclosures should either be contained in the projection or the key features document or simplified prospectus, or be given to the private customer in a separate written statement at the time these documents are given to the private customer. When a private customer does not make a written application to enter into a transaction contemplated by COB 5.7.5 R, for example, when the transaction is a telephone deal for units in a regulated collective investment scheme, the firm may disclose the amount or value of commission or equivalent orally. In these circumstances, the firm should give written confirmation as soon as possible after the date of the transaction, and in any event within five business days. In preparing its written disclosure statement, a firm may wish to follow the guidance on content and wording set out in COB 5.7.17 G.

COB 5.7.14

handbook-guidance
The collection of premiums payable under a life policy by introducers acting as the appointed collecting agents of a product provider will not be treated by the FSA as a transaction for the purposes of COB 5.7.5 R.
  • 01/12/2001

COB 5.7.15

handbook-rule
If the terms of a packaged product are varied in circumstances that require the issue of a cancellation notice, a firm must disclose to a private customer in writing any consequent increase in commission or equivalent receivable by it in relation to that transaction.
  • 01/12/2004

COB 5.7.16

handbook-evidential-provisions

Calculating commission equivalent

This table forms part of COB 5.7.8 E.

COB 5.7.17

handbook-guidance

Remuneration and commission disclosure statements: content and wording.

This table forms part of COB 5.7.13 G.

COB 5.8

Customers introduced to clearing firms by introducing brokers and overseas introducing brokers

  • 01/12/2004

Application

COB 5.8.1

handbook-guidance
This section should be considered by a firm that, in the course of carrying on designated investment business, acts as a clearing firm to which an introducing broker or an overseas introducing broker introduces a transaction for its customer.
  • 01/12/2001

Purpose

COB 5.8.2

handbook-guidance
Principle 1 (Integrity) requires a firm to conduct its business with integrity and Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section supports and clarifies these requirements in respect of the relationship that exists between a clearing firm and a customer for whom the clearing firm executes and clears business, when the business has been introduced by a third party.
  • 01/12/2001

Clearing firms and introducing brokers and overseas introducing brokers

COB 5.8.3

handbook-guidance
A clearing firm to which an overseas introducing broker has introduced a transaction on behalf of its customer should ensure that the customer is aware of the nature of the services that the clearing firm will be providing to that customer and that only these services, but not those of the overseas introducing broker, will be regulated under the Act.
  • 01/12/2001

COB 5.8.4

handbook-guidance
As a matter of good practice, and preferably before accepting orders, a clearing firm should enter into a written contract with the introducing broker or overseas introducing broker specifying that the clearing firm will be responsible for all dealing and settlement obligations to the customer. The contract should also specify that the introducing broker or overseas introducing broker will act as agent for the customer in introducing transactions and will be responsible for advising the customer or managing his assets (or both).
  • 01/12/2001

COB 5.8.5

handbook-guidance
A clearing firm should, by appropriate disclosures, ensure that the customer is aware of the nature of the services to be provided to him by the clearing firm.
  • 01/12/2001

COB 5.8.6

handbook-guidance
When a clearing firm knows or suspects that the activities of an introducing broker or an overseas introducing broker are or may be damaging to its customers, it should take reasonable steps to address the situation and, as far as possible, to protect its customers' interests.
  • 01/12/2001

COB 5.8.7

handbook-guidance

When a clearing firm operates an omnibus account for an overseas introducing broker (that is, an account operated in the name of the overseas introducing broker for more than one underlying client) a clearing firm should:

  1. (1) establish that the overseas introducing broker is authorised in his own country;
  2. (2) where there is no formal regulatory regime in the overseas introducing broker's own country, take reasonable steps to establish that the overseas introducing broker is legally empowered to undertake the proposed business to be transacted; and
  3. (3) have regard to the requirements of UK law on money laundering and financial crime.
  • 01/12/2001

COB 5.10

Corporate finance business issues

  • 01/12/2004

Application

COB 5.10.1

handbook-rule
This section applies to a firm that conducts corporate finance business.
  • 01/05/2004

COB 5.10.1A

handbook-rule
This section does not apply to a common platform firm if SYSC 10.1 (conflicts of interest) applies to the firm.
  • 01/01/2007

Purpose

COB 5.10.2

handbook-guidance
The purpose of this section is to provide guidance on the management of conflicts of interest in particular situations arising in the context of corporate finance business. The FSA expects that in most corporate finance business Principle 1 (Integrity), Principle 2 (Due skill, care and diligence), Principle 5 (High standards of market conduct), Principle 6 (Customers' interests) and Principle 8 (Conflicts of interest), will be particularly relevant. The guidance in this section is not intended to be exhaustive, and is in addition to other provisions which apply to the firm (see COB 1.6 which specifies these). It also supplements other provisions in the Handbook (see, in particular, COB 2.2 (Inducements), COB 7.1 (Conflict of interest and material interest) and COB 7.16 (Investment research)).

Securities offerings

COB 5.10.3

handbook-guidance
The Principles referred to in COB 5.10.2 G are highly relevant to the management of an offering of a security by a firm. They require a firm to manage conflicts of interest which may arise in a way which ensures that all its clients are treated fairly and which ensures that the firm is conducting its business with integrity and according to proper standards of business.
  • 01/05/2004

COB 5.10.4

handbook-guidance

The overriding responsibility of the firm is to have in place systems, controls and procedures to ensure that the duties which the firm owes to its clients are identified effectively and discharged appropriately. In particular, the firm's processes and procedures will need to take account of the following:

  1. (1) when carrying out a mandate to manage an offering of securities, the firm's duty for that business is to its corporate finance client (in many cases, the corporate issuer or seller of the relevant securities);
  2. (2) a firm's responsibilities to provide services to the firm's investment clients (that is, those on the investment client side of the Chinese wall (see COB 5.10.5 G)) are unchanged, even if they have an interest in acquiring securities in the offering. The firm will need to ensure that it complies with the relevant regulatory obligations to its investment clients, such as COB 5.3 (Suitability).
  • 01/05/2004

COB 5.10.5

handbook-guidance

Firms will need to have in place systems, controls and procedures, appropriate to its structure and business, and to the sorts of offerings in which they are involved, for identifying and managing conflicts of interest (and see SYSC 3 (Systems and controls)). Examples which the FSA considers that a firm should consider (not every example will be relevant or appropriate to every situation or firm) include:

  1. (1) at an early stage, for example before it accepts a mandate to manage the offering, discussing or agreeing with its corporate finance client relevant aspects of the offering process, such as:
    1. (a) the process the firm proposes to follow in order to determine what recommendations it will make about allocations for the offering;
    2. (b) details of how the target investor group, to whom it is planned to offer the securities, will be identified;
    3. (c) the process through which recommendations on allocation and pricing are prepared, and by whom; and
    4. (d) (if relevant) that it may recommend placing securities with an investment client of the firm for whom the firm provides other services, with the firm's own proprietary book, or with an associate, and that this represents a potential conflict of interest;
  2. (2) having internal arrangements designed to ensure that the firm will give unbiased and full advice to the corporate finance client about the valuation and pricing for an offering (the FSA accepts that valuation is a complex process and great precision may not always be possible in a security offering);
  3. (3) having internal arrangements under which individuals or business units in the firm, whose responsibilities are ordinarily to provide services to the firm's investment clients (that is, those on the investment client side of the Chinese wall), are not involved directly in decisions about recommendations to a corporate finance client on pricing (although they might, for example, be permitted to provide information about likely investor interest to those advising the corporate finance client);
  4. (4) ensuring that its systems, controls and procedures to identify and manage conflicts of interest also cover the allocation process for an offering of securities; for example:
    1. (a) having internal arrangements under which the allocation process and the development of recommendations on allocation (names and amounts proposed to be allocated) are made to the corporate finance client only by staff who do not have any responsibilities for servicing investment clients;
    2. (b) inviting the corporate finance client to participate actively in the allocation process so that its proper interests can be taken into account effectively, including making available to the corporate finance client appropriate information to support the proposed recommendations on allocation;
    3. (c) basing recommendations about allocation and pricing on objectives agreed with the corporate finance client;
    4. (d) making the initial recommendation for allocation to private customers of the firm as a single block and not on a named basis;
    5. (e) having internal arrangements under which senior personnel in the department (or equivalent business unit), who are responsible for providing services to private customers, make the individual allocation recommendations for allocation to private customers of the firm; and
    6. (f) disclosing to the issuer, after completion of the transaction, details of the allocations which were actually made; and
  5. (5) having internal arrangements under which allocation recommendations are not determined by the level of business which a firm does or hopes to do with any other client (see also COB 2.2 (Inducements)); for example:
    1. (a) any allocation to a private customer of the firm should be justifiable in terms of the process for developing allocation recommendations which was disclosed to the corporate finance client at the outset (as well as in terms of any other obligations which the firm may have - for example under COB 5.3 (Suitability) or COB 7.7 (Aggregation and allocation)); and
    2. (b) any recommendation for allocation to the proprietary trading desk of the firm or to an associate or affiliate of the firm should be justifiable in terms of the objectives of the allocation policy and should be consistent with the process for developing allocation recommendations disclosed by the firm at the outset.

COB 5.10.6

handbook-guidance
One control which a firm might use is a review by the compliance function after the event of how well the firm's conflicts of interest management processes worked in relation to an issue. This might be of particular use if there are significant differences between the recommendation on price and subsequent market behaviour. The review might examine how the recommendations of the firm on pricing were reflected in market dealings after the issue. If significant differences are observed, it may be appropriate to identify why, and what that discloses about the way in which the firm's systems and controls operated in relation to that offering. The frequency of any review is a matter for the firm, in the light of its business and structure.
  • 01/05/2004

Securities offerings: behaviour in breach of the Principles

COB 5.10.7

handbook-guidance
  1. (1) For the avoidance of doubt, the FSA considers that the following would each be a breach of the Principles referred to in COB 5.10.2 G, and a breach of COB 2.2.3 R:
    1. (a) an allocation made as an inducement for the payment of excessive compensation in respect of unrelated services provided by the firm; for example, very high rates of commissions paid to the firm by an investment client, or an investment client providing very high volumes of business at normal levels of commission (which may also be a breach of COB 7.2 (Churning and switching));
    2. (b) an allocation made to a senior executive or a corporate officer of an existing or potential corporate finance client, or of a listed company, in consideration for the future or past award of corporate finance business; and
    3. (c) an allocation which is expressly or implicitly conditional upon the receipt of orders or the purchase of any other service from the firm by the investor, or any body corporate of which the investor is a corporate officer.
  2. (2) A firm's systems, controls and procedures should, therefore, be designed to prevent these sorts of behaviour.
  • 01/05/2004

COB 5 Annex 1

Warrants and derivatives risk warning notice (E)

  • 01/12/2004

handbook-evidential-provisions
  • 01/08/2002

COB 5 Annex 2

Dealing in securities which may be subject to stabilisation (E)

  • 01/12/2004

handbook-evidential-provisions

Export chapter as

COB 5A

Providing
basic advice on stakeholder products

COB 5A.1

Providing basic advice on stakeholder products

  • 06/04/2005

Application and Purpose

COB 5A.1.1

handbook-guidance
This chapter sets out what firms must do when providing basic advice on a stakeholder product. The rules in the chapter are designed to enable firms to provide simple, quick and limited advice to persons who may be interested in buying a stakeholder product. The rules assume that firms will provide basic advice to persons who have no practical knowledge of investing in stakeholder products or investments.
  • 06/04/2005

COB 5A.2

Disclosure on making first contact: information about services

  • 06/04/2005

COB 5A.2.1

handbook-rule
  1. (1) A firm must take reasonable steps to ensure that its representatives, on first making contact with a customer with a view to providing basic advice on a stakeholder product, provide, in a durable medium, an initial disclosure document that complies with COB 4.3.9R (1).
  2. (2) A firm must take reasonable steps to ensure that its representatives explain the contents of the initial disclosure document at the time it is provided to the customer.
  3. (3) The requirements in (1) and (2) do not apply:
    1. (a) to the extent that the information has already been given to the customer on a previous occasion and it is still likely to be accurate and appropriate for the customer; or
    2. (b) if COB 5A.2.6 R (initial contact by telephone) applies.
  4. (4) A firm which is required by this rule to provide an initial disclosure document to a private customer may instead provide the customer with a combined initial disclosure document, that complies with COB 4.3.9R (2), if it has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will, in addition to stakeholder products, relate to one or more of the following:
    1. (a) regulated mortgage contracts other than lifetime mortgages;
    2. (aA) home purchase plans;
    3. (b) equity release transactions ;
    4. (c) non-investment insurance contracts.
  5. (5) A firm must, if requested to do by a customer, provide an explanation of the basis on which it has chosen to market the particular stakeholder products within the range on which basic advice will be given to a customer, including an explanation of why the firm has selected particular product providers.

Smoothed Products

COB 5A.2.2

handbook-rule
A firm must not provide basic advice on smoothed linked long term products.
  • 06/04/2005

COB 5A.2.3

handbook-guidance
COB 5A.2.2 R does not prevent a firm from including smoothed linked long term products in regulated activity that does not involve the provision of basic advice.
  • 06/04/2005

Providing a copy of the range of stakeholder products

COB 5A.2.4

handbook-rule
A firm must take reasonable steps to ensure that its representatives provide a copy of the appropriate range of stakeholder products on the request of a customer having regard to the services it is providing or may provide to the customer.
  • 06/04/2005

Terms of business and telephone sales

COB 5A.2.5

handbook-rule
  1. (1) A firm that, pursuant to COB 5A.2.1 R, provides a customer with an initial disclosure document containing information that a corresponding rule in COB 4.2 says must be included in terms of business, will satisfy the corresponding rule by providing that information in the initial disclosure document.
  2. (2) Any information required by COB 4.2 which is not included in an initial disclosure document provided to a customer in compliance with COB 5A.2.1 R can be included at the end of the initial disclosure document provided to the customer or, if provided at the same time, by way of separate items of information.
  • 06/04/2005

COB 5A.2.6

handbook-rule
  1. (1) Where a firm's initial contact with a customer (for a purpose set out in COB 5A.2.1 R) is by telephone, then the firm must provide the following information and satisfy the following requirements before proceeding further:
    1. (a) the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;
    2. (b) whether the firm will select from or deal with stakeholder products from a limited number of companies or from a single company;
    3. (c) that the firm will provide the customer with only basic advice on stakeholder products and without full assessment of his needs and circumstances;
    4. (d) that the information given under (a) to (c) will subsequently be confirmed in writing.
  2. (2) A firm which complies with (1) will, subject to (3), satisfy the condition set out in item (1) of COB 4 Annex 1 R.
  3. (3) If during the course of a telephone call a firm is to conclude a contract (for example for the provision of a mediation services or for the purchase or sale of a stakeholder product), it must satisfy the requirements in COB 4.2.5 R and COB 4 Annex 1 as well as comply with (1) and (2) above.
  • 06/04/2005

COB 5A.2.7

handbook-rule
If the first contact a firm has with a private customer with a view to providing basic advice on stakeholder products, is by telephone then the firm must send the customer an initial disclosure document as soon as is reasonably practicable following the conclusion of the call.
  • 06/04/2005

COB 5A.3

Scope and range of advice on stakeholder products: general

  • 06/04/2005

COB 5A.3.1

handbook-rule
  1. (1) A firm which provides a private customer with basic advice on a stakeholder product must take reasonable steps to ensure that the scope of the basic advice given to a private customer is based upon a selection of one of the following:
    1. (a) a limited number of providers of stakeholder products; or
    2. (b) a single provider of a stakeholder product.
  2. (2) A firm which provides a customer with basic advice on a stakeholder product must do so only on the basis of a range of stakeholder products which includes no more than one of each of:
    1. (a) a CIS stakeholder product or a linked-life stakeholder product; or
    2. (b) a stakeholder pension; or
    3. (c) a stakeholder CTF.
  3. (3) A firm must take reasonable steps to ensure that any of its representatives which give basic advice on stakeholder products that offer a choice of funds, do not give advice on, or recommend, a particular fund for the customer.
  4. (4) A firm must take reasonable steps to ensure that its representatives do not, while they are engaged in providing basic advice on stakeholder products, provide advice on products other than those within the range offered by the firm.
  5. (5) A firm which has commenced the sales process for stakeholder products in respect of a particular customer may only depart from that process if:
    1. (a) it has taken reasonable steps to ensure its representatives advise the customer that basic advice on stakeholder products within the range offered by the firm will not be provided during the period of departure; and
    2. (b) it has taken reasonable steps to ensure its representatives do not provide basic advice during the period of departure.
  6. (6) A firm must take reasonable steps to ensure that if its representatives return to the sales process for stakeholder products after the period of departure referred to in COB 5A.3.1R (5), they first advise the customer that the period of departure has ended and the sales process for stakeholder products has recommenced.
  • 06/04/2005

COB 5A.3.2

handbook-guidance
  1. (1) A firm can provide a customer with basic advice on a stakeholder product on the basis of a range of stakeholder products which includes more than one deposit-based stakeholder product.
  2. (2) A firm can provide advice on a deposit-based stakeholder product during the period of departure referred to in COB 5A.3.1R (5).
  • 06/04/2005

COB 5A.3.3

handbook-guidance
  1. (1) A firm which provides basic advice on stakeholder products is required by COB 5A.3.1R (2) to do so, in relation to any particular customer, by reference to a range of stakeholder products which should include no more than one of each type of stakeholder product specified in COB 5A.3.1R (2). A firm may however operate with more than one such range.
  2. (2) When a firm provides basic advice on a stakeholder product which is not produced by the firm, it is responsible for the advice given. By contrast, the producer is responsible for the relevant terms and conditions of the stakeholder product.
  • 06/04/2005

Range of stakeholder products: appointed representatives

COB 5A.3.4

handbook-rule
  1. (1) A firm must maintain in writing and keep up to date a statement of:
    1. (a) the scope of basic advice (within the meaning of COB 5A.3.1R (1)) which each of its appointed representatives is, through its contract with the firm, permitted to give; and including
    2. (b) the range (or ranges) of stakeholder products on which each appointed representative advises.
  2. (2) In applying the rules in COB to a firm in respect of its appointed representatives, references to a firm's scope or range of stakeholder products are to be taken as references to the scope (or scopes) and to the range (or ranges) of its appointed representatives.
  • 06/04/2005

COB 5A.3.5

handbook-guidance
An appointed representative's range of stakeholder products should be defined by means of a list of the names or titles of each of the stakeholder products which it is permitted to sell.
  • 06/04/2005

Range of stakeholder products: records

COB 5A.3.6

handbook-rule
  1. (1) A firm must make, and keep up to date, a record of its scope and range (or ranges) of stakeholder products.
  2. (2) The record in (1) must be retained for six years from the date on which it was superseded by a more up-to-date record.
  3. (3) The record for distribution to a customer must be the particular range of stakeholder products which is appropriate for the services provided to that customer and include details of:
    1. (a) the identity of the firms within the range whose stakeholder products the firm may sell; and
    2. (b) a list of the products the firm may sell.
  4. (4) A firm must maintain a record of the particular range of stakeholder products on which its basic advice to each private customer is based and such a record must be kept for six years from the date on which the basic advice is given.
  • 06/04/2005

Branding stakeholder products

COB 5A.3.7

handbook-rule

If a firm provides basic advice on a stakeholder product produced by another person, it must not:

  1. (1) hold itself out as the stakeholder product's producer;
  2. (2) do or say anything which might reasonably lead a customer to be mistaken as to the identity of the product's producer.
  • 06/04/2005

Staying within the range of advice of stakeholder products

COB 5A.3.8

handbook-rule
  1. (1) A firm must take reasonable steps to ensure that neither it nor any of its representatives provides basic advice on a stakeholder product unless the product is:
    1. (a) within the firm's range (or ranges) of stakeholder products; and
    2. (b) is within the particular range of stakeholder products on which the firm has indicated it will give basic advice to that customer.
  • 06/04/2005

"Independence" - restriction on holding out

COB 5A.3.9

handbook-rule
  1. (1) A firm must not in providing basic advice on stakeholder products hold itself out as giving such basic advice on an independent basis.
  2. (2) Notwithstanding (1) a firm may use its facilities and stationery which it may use for other business in respect of which it does hold itself out as acting or advising independently.
  • 06/04/2005

Remuneration structure and referrals

COB 5A.3.10

handbook-rule

A firm must take reasonable steps to ensure that none of its representatives:

  1. (1) is likely to be influenced by the structure of his or her remuneration to give unsuitable basic advice on stakeholder products to a customer; and
  2. (2) refers customers to another firm in circumstances which would amount to the provision of an inducement under COB 2.2.3 R (Prohibition of inducements).
  • 06/04/2005

COB 5A.4

Providing basic advice on stakeholder products through scripted questions

  • 06/04/2005

COB 5A.4.1

handbook-rule
  1. (1) A firm which provides basic advice on a stakeholder product must do so through a sales process which incorporates pre-scripted questions put to the customer.
  2. (2) Unless excluded at the preliminary stage, a customer must be sent or given, in a durable medium, a copy of the completed scripted questions and answers.
  • 06/04/2005

Suitability of stakeholder products

COB 5A.4.2

handbook-rule
  1. (1) A firm must only recommend that a customer acquire a stakeholder product if:
    1. (a) it has taken reasonable steps to assess:
      1. (i) the customer's answers to the scripted questions;
      2. (ii) any other facts, circumstances or information disclosed by the customer during the sales process.
    2. (b) it has, having due regard to the information in (a), reasonable grounds for believing that the stakeholder product is suitable for the customer:
    3. (c) the firm reasonably believes that the customer understands the advice he has been given and the basis on which it was provided.
  2. (2) The requirements in (1)(b) do not apply in the case of a deposit-based stakeholder product.
  • 06/04/2005

COB 5A.4.3

handbook-guidance
COB 5A Annex 1 G contains guidance on the steps a firm could take to ensure it complies with the requirements in COB 5A.4.2R (1); it also includes guidance on providing advice on stakeholder pensions that will comply with COB 5A.4.5 R.
  • 06/04/2005

COB 5A.4.4

handbook-rule
A firm must not recommend or agree that a customer make contributions to an ISA in excess of the Inland Revenue's ISA limits.
  • 06/04/2005

COB 5A.4.5

handbook-rule
A firm must not, in the course of providing basic advice, advise a customer on the contribution levels to a stakeholder pension needed to achieve a specific income in retirement.
  • 06/04/2005

Procedure on making a recommendation

COB 5A.4.6

handbook-rule

On making a recommendation to acquire a stakeholder product a firm must, subject to COB 5A.4.7 R, COB 5A.4.8 R and COB 5A.4.9 R, take reasonable steps to ensure that prior to the conclusion of a contract with the customer the representative:

  1. (1) explains to the customer, if necessary in summary form, the "aims", "risks" and "commitment" sections of the appropriate key features together with such other explanation of the product as will enable the customer to make an informed decision whether to accept the recommendation;
  2. (2) provides the customer with a summary sheet, in a durable medium, setting out for each product recommended:
    1. (a) the specific amounts that the customer wishes to pay into each product;
    2. (b) the reasons for the recommendation, including any information provided by the customer on which the recommendation is based, including the customer's attitude to risk;
  3. (3) informs the customer that in determining any subsequent complaint the Ombudsman may take into account the limited information on which the recommendation is based and that the recommendation is not tailored to take account of those aspects of a customer's financial needs and circumstances not covered by its sales process.
  • 06/04/2005

COB 5A.4.7

handbook-rule
COB 5A.4.6R (1) does not apply to a recommendation to acquire a deposit-based stakeholder product.
  • 06/04/2005

COB 5A.4.8

handbook-rule
A firm may provide the summary sheet required by COB 5A.4.6R (2) subsequent to the conclusion of the contract if requested to do so by the customer as long as it completes the steps in COB 5A.4.9R (1) and (2) prior to concluding a contract with the customer.
  • 06/04/2005

COB 5A.4.9

handbook-rule

A firm which concludes the sale of a stakeholder product by telephone must take reasonable steps to ensure that its representatives:

  1. (1) read through the summary sheet required by COB 5A.4.6R (2);
  2. (2) inform the customer that in determining any subsequent complaint the Ombudsman may take into account the limited information on which the recommendation is based and that the recommendation is not tailored to take account of those aspects of a customer's financial needs and circumstances not covered by its sales process;
  3. (3) send the customer as soon as possible after that a copy of the firm's summary sheet, and the completed answers and questions, in a durable medium.
  • 06/04/2005

Record of recommendations

COB 5A.4.10

handbook-rule
A firm must keep in a durable medium a record of each recommendation to acquire a stakeholder product and the customer's summary sheet and such a record must be kept for not less than six years from the date of the recommendation.
  • 06/04/2005

COB 5A Annex 1

Sales processes for stakeholder products

  • 06/04/2005

handbook-guidance
  • 06/04/2005

Export chapter as

COB 6

Product
disclosure and the customer's right to cancel or withdraw

COB 6.1

Product disclosure

  • 01/12/2004

Application

COB 6.1.1

handbook-rule

COB 6.1 to COB 6.5 apply to a firm:

  1. (1) which sells, personally recommends or arranges (brings about) for the sale of a packaged product (other than units in a simplified prospectus scheme) to a private customer or to the trustees of an occupational pension scheme or to the trustee or operator of a stakeholder pension scheme; or
  2. (1A) which is an operator of a simplified prospectus scheme or which sells, personally recommends or arranges (brings about) for the sale of units in such a scheme to a client, whether or not held within a PEP or an ISA; or
  3. (2) which manages, sells or personally recommends a cash deposit ISA or cash deposit CTF for or to a private customer; or
  4. (3) which effects, personally recommends or arranges for a variation of a life policy for or to a private customer; or
  5. (4) which effects, personally recommends or arranges income withdrawals or short-term annuities for a private customer; or
  6. (5) which is a long-term insurer and receives:
    1. (a) a request from a private customer for a quotation for the surrender value of a life policy; or
    2. (b) any other indication that a private customer wishes to surrender a life policy: or
  7. (6) which receives a request from a private customer for a retirement quotation in respect of any of the following contracts provided by it:
    1. (a) a personal pension scheme;
    2. (b) a stakeholder pension scheme;
    3. (c) a free-standing additional voluntary contribution contract;
    4. (d) (where an open-market option is available under the contract terms) a retirement annuity contract; or
    5. (e) (where an open-market option is available under the contract terms) a pension buy-out contract; or
  8. (7) which enters into a distance contract with a retail customer to accept deposits.

COB 6.1.1A

handbook-rule
In COB 6.1 to COB 6.5, references to a private customer include, in relation to the conclusion of a distance contract, a retail customer.
  • 09/10/2004

COB 6.1.2

handbook-guidance
  1. (1) COB 6.2.21 R (Exceptions from the requirement to provide key features for life policies) and COB 6.2.24 R (Exceptions from the requirement to provide key features for key features schemes) contain exemptions from the requirement to produce key features in relation to life policies and key features schemes For simplified prospectus schemes COB 6.2.35 R (Exceptions from the requirement to provide the simplified prospectus) and COB 6.2.36 R (Exception from the requirement to provide a simplified prospectus: firms offering a funds supermarket service) contain similar exemptions from the requirement to provide a simplified prospectus.
  2. (2) COB 6.4.3 G to COB 6.4.5 G and COB 6.4.19 R to COB 6.4.20 G set out how the rules apply where packaged products are sold to the trustees of certain occupational pension schemes or to the trustees or operators of stakeholder pension schemes.

Application of COB 6.2.46R and COB 6.2.47R

COB 6.1.2A

handbook-rule
COB 6.2.46 R (UCITS Directive: requirement to offer a simplified prospectus for section 264 schemes) and COB 6.2.47 R (Sale of a section 264 scheme by distance contract) apply to a firm when it sells, personally recommends or arranges for the sale of a UCITS scheme which is a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) to a client.

Purpose

COB 6.1.3

handbook-guidance
COB 6.1 to COB 6.5 amplify Principle 7 (Communications with clients), which requires a firm to pay due regard to the information needs of its customers. In the case of packaged products there is a special need to ensure that private customers are supplied with information which will highlight particular packaged product features. This also needs to be achieved in a way which will optimise the private customer's ability to make a comparative analysis of different packaged products. These rules also address a similar information need in relation to cash deposit ISAs, cash deposit CTFs and when a firm enters into a distance contract to accept deposits with a retail customer.
  • 09/10/2004

Requirement to produce key features

COB 6.1.4

handbook-rule
  1. (1) A product provider or stakeholder pension scheme operator must, for each packaged product which it offers produce key features which, as to design and content, comply with the requirements of COB 6.1, COB 6.2 and COB 6.5.
  2. (2) A firm to which COB 6.4.13 (1) applies must, for each cash deposit ISA or cash deposit CTF it offers, produce the information document required by COB 6.5.42 R or COB 6.5.42A instead of key features. That information document must comply with COB 6.1, COB 6.2 and COB 6.5 as to design and content.
  3. (3) (1) does not apply in relation to a simplified prospectus scheme.
  • 09/10/2004

Quality and production of key features

COB 6.1.5

handbook-rule

A firm must ensure that any key features or information document it produces in relation to a packaged product, cash deposit ISA or cash deposit CTF is in writing, whether in printed hard copy or in electronic format, and:

  1. (1) is produced and presented to at least the same quality and standard as the associated sales or marketing material being used by the firm to promote the packaged product, cash deposit ISA or cash deposit CTF to customers; and
  2. (2) is separate from any other material given to the customer, unless it is produced for a key features scheme , stakeholder pension scheme, or personal pension scheme other than a personal pension policy; in that case it may be included as part of another item of sales or marketing material, but only if the key features or information document appears with due prominence.

COB 6.1.6

handbook-guidance
Separate in COB 6.1.5 R (2) means stand-alone for these purposes. Where key features are produced in hard copy printed format, firms should, in complying with COB 6.1.5 R, have particular regard to the quality of paper, the type size and the use of colour printing. Where an electronic format is used, the firm should pay regard to the design and appearance of the key features screens, as compared to other screens being used to promote the product. Where key features are permitted to be included within another item, the need for due prominence is unlikely to be satisfied if they are hidden away at the end, or are produced in such small type that their impact on the reader is likely to be materially less than other parts of the document or series of screens.
  • 01/12/2001

COB 6.2

Provisions of key features or simplified prospectus

Application

COB 6.2.1

handbook-rule
COB 6.2 applies to a firm in accordance with COB 6.1.1 R.
  • 01/12/2001

Medium for provision of key features

COB 6.2.2

handbook-rule
The key features or information which the rules in COB 6.2, COB 6.2 and COB 6.4 require a firm to provide to a private customer in relation to a packaged product, cash deposit ISA or cash deposit CTF must be provided by the firm in a durable medium.
  • 09/10/2004

COB 6.2.3

handbook-guidance
For detailed guidance on electronic provision please refer to COB 1.8 (Application to electronic media) and COB 3.14 (The internet and other electronic media).
  • 01/12/2001

COB 6.2.4

handbook-guidance
Firms are reminded that any key features, simplified prospectus or other information required by COB 6.2 to COB 6.5 is a form of financial promotion and therefore the financial promotion rules contained in COB 3 apply (subject to the application provisions in COB 3.1 to COB 3.3).

COB 6.2.5

handbook-guidance
COB 3.7 requires a firm to keep records of non-real time financial promotions to private customers for certain periods of time. These periods are: indefinitely for a record relevant to a pension transfer or pension opt out; six years for a record relevant to a life policy, pension contract or stakeholder pension scheme; and three years in any other case.
  • 01/12/2001

COB 6.2.5A

handbook-guidance
Where this chapter requires key features, a simplified prospectus or other information to be given, it does not require the same information to be provided again if the private customer already has it.

Life policies

COB 6.2.6

handbook-guidance
COB 6.2.7 R - COB 6.2.18 R are disapplied by COB 6.2.21 R in relation to certain customers resident outside the United Kingdom.
  • 01/12/2001

COB 6.2.7

handbook-rule
When a firm sells, personally recommends or arranges the sale of a life policy to a private customer, the private customer must be provided with appropriate key features before the private customer completes an application for the policy, subject to COB 6.2.9 R (Sales through intermediaries) and COB 6.4.27 R to COB 6.4.31A R (telephone sales and other exemptions).

COB 6.2.8

handbook-guidance
Where a private customer has responded to a direct offer financial promotion, the mailing package or financial promotion will have included example-based key features - there is no requirement to provide a further set of key features to such a private customer in respect of the same transaction.
  • 01/12/2001

Exception for life policies: sales through intermediaries

COB 6.2.9

handbook-rule

COB 6.2.7 R does not apply to a product provider when its life policy is sold on the personal recommendation of, or arranged to be sold by, another person, provided that other person:

  1. (1) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
  2. (2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the life policy in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.
  • 09/10/2004

Life policies: pre-completion variations

COB 6.2.12

handbook-rule
  1. (1) Where key features have already been provided by a firm to a private customer in accordance with COB 6.2.7 and the terms for the proposed life policy are subsequently altered before the private customer completes an application form, the firm must ensure that the private customer is provided with revised key features, unless the alteration is one or more of the following:
    1. (a) the amount of the premium is changed;
    2. (b) the amount of any commission or remuneration payable is reduced;
    3. (c) a rider benefit is added, removed or amended.
  2. (2) If (1)(a) to (c) apply, then, subject to COB 6.4.27 to COB 6.4.31 (telephone sales and other exemptions), if the contract is to be a distance contract with a retail customer, the retail customer must be provided with details of such changes in a durable medium in good time before the contract is concluded.
  • 09/10/2004

COB 6.2.13

handbook-guidance
COB 6.2.12 R is intended to allow simple changes to be made before a private customer commits himself without further packaged product disclosure information being provided. Changes in the amount of premium alone, of whatever size, will not require revised key features if the underlying purpose of the proposed contract is unchanged. So, for example, an increase in the proposed regular premium for a personal pension policy, will not require revised key features; nor will a change in premium and sum assured under a mortgage policy if the loan has to be increased before the house sale is finalised. However, changes to the type of packaged product or the underlying purpose would require revised key features - examples being a change from regular to single premiums under a personal pension policy, or a change from maximum life cover to balanced or standard protection under a flexible whole-life policy, with or without a change in premium. Revised key features would be required where the rate or basis of commission or remuneration was increased, but not where the amount increased simply because of a change in premium.
  • 01/12/2001

COB 6.2.14

handbook-rule
Where key features have already been provided to a private customer by a firm, and the terms of the proposed life policy are materially altered after the private customer completes an application form, the private customer must be provided with details of the change in a durable medium as soon as practicable and offered revised key features.
  • 09/10/2004

COB 6.2.15

handbook-guidance
What constitutes 'materially altered' requires consideration of the facts in the circumstances of each case. Changes which lead to an increase in the proposed premium of 25 per cent or less can be regarded as not material and can be ignored, so long as the underlying policy terms and conditions are the same. Other changes to the terms of the proposed contract, such as an increase in the rate or basis of commission, a different charges structure or an extension of the policy term should be regarded as material.
  • 09/10/2004

Variations to existing life policies

COB 6.2.16

handbook-rule

When a policyholder applies to vary a life policy issued on or after 1 January 1995 (or is recommended to do so) and the variation of the policy gives rise to a right to cancel under COB 6.7.7 R, the policy holder must be provided with:

  1. (1) the information required by COB 6.5.15 R to COB 6.5.19 R, COB 6.5.23 R to COB 6.5.25 R, COB 6.5.27 R to COB 6.5.28 R and COB 6.5.38 R; and
  2. (2) in the case of a variation which results in a new distance contract, all the contractual terms and conditions and the information in COB App 1;

in a durable medium by the firm personally recommending, arranging or effecting the variation in good time before it is put into effect, unless COB 6.2.19 R (sales through intermediaries) or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.

  • 09/10/2004

COB 6.2.16A

handbook-rule
  1. (1) When a long-term care insurance contract which is
    1. (a) not a pure protection contract and which was issued on or after 1 January 1995; or
    2. (b) a pure protection contract and which was issued on or after 31 October 2004;
  2. is varied so as to bring into effect provisions for long-term care benefits, the firm must provide the private customer with appropriate key features in good time sufficient to enable the private customer to consider them before the variation takes effect.
  3. (2) If the circumstances of the variation, whether by the exercise of an option or otherwise, make it impossible to provide the key features before the variation takes effect, the firm must do so as soon as possible afterwards.
  • 31/10/2004

COB 6.2.17

handbook-guidance
Key features were introduced for new policies sold from 1 January 1995. One way of meeting the requirements of COB 6.2.16 R is by providing a complete set of new key features to the policyholder.
  • 09/10/2004

COB 6.2.18

handbook-rule
  1. (1) When a policyholder applies to vary:
    1. (a) a life policy issued before 1 January 1995; or
    2. (b) a pure protection contract issued before 31 October 2004 and which would after 30 October 2004 be a long-term care insurance contract;
  2. (or is personally recommended to do so) and the variation of the policy gives rise to a right to cancel under COB 6.7.7 R, information must be given to the policyholder by the firm that is personally recommending, arranging or effecting the variation before it is put into effect, unless COB 6.2.19 R or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.
  3. (2) When giving the information in (1), the firm must:
    1. (a) believe on reasonable grounds that the information given is sufficient to enable the policyholder to understand the consequences of the variation; and
    2. (b) in the case of a variation which results in a new distance contract, in good time before the variation is put into effect, provide all the contractual terms and conditions and the information in COB App 1.
  • 31/10/2004

COB 6.2.19

handbook-rule

COB 6.2.16 R and COB 6.2.18 R do not apply to a product provider when the variation to its life policy is effected on the personal recommendation of or arranged by another person, provided that other person:

  1. (1) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
  2. (2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the variation to the life policy in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.
  • 09/10/2004

Exception for life policies: non-UK customers

COB 6.2.21

handbook-rule

There is no requirement for key features to be provided for a new life policy or a variation to an existing policy if, at the time that the private customer signs the application, he is habitually resident:

  1. (1) (except for distance contracts with retail customers) in an EEA State other than the United Kingdom; or
  2. (2) outside the EEA and he is not present in the United Kingdom.
  • 09/10/2004

Exceptions for life policies: variations held within a CTF

COB 6.2.21A

handbook-rule

COB 6.2.7 does not apply to a CTF provider in relation to a variation to an existing policy held within a CTF, if:

  1. (1) the terms and conditions, including all charges, are the same as applied at the time of the purchase, or the most recent purchase or payment, of the existing policy; and
  2. (2) key features outlining those terms and conditions were issued to the customer in respect of that previous purchase.
  • 01/12/2001

Provision of key features: key features schemes

COB 6.2.22

handbook-rule
  1. (1) When a firm sells, personally recommends or arranges for the sale of a key features scheme to a private customer, unless COB 6.2.24 R (exceptions) or COB 6.4.27 R to COB 6.4.31A R (telephone sales and other exemptions) applies, the private customer must be provided with appropriate key features for the scheme before he completes an application for the scheme holding.
  2. (2) (1) does not apply where the operator of the scheme has elected that the scheme will comply with COB 6.2.26 R to COB 6.2.45A R instead of the provisions in COB 6 that relate to key features.
  3. (3) (2) does not apply to an investment trust.

COB 6.2.23

handbook-guidance
  1. (1) COB 6.2.22 R applies not just to new purchases but also to any recommendation or application to transfer the value of a particular fund holding within a key features scheme to a different fund within the same scheme.
  2. (2) Where a private customer has responded to a direct offer financial promotion, the mailing package or direct offer financial promotion should have included example-based key features - there is no requirement to provide a further set of key features to such a private customer in respect of the same transaction.

Exceptions from the requirement to provide key features for key features schemes

COB 6.2.24

handbook-rule

A firm need not provide key features to a private customer in respect of a key features scheme if:

  1. (1) the firm is a product provider and the scheme holding is sold on the personal recommendation of, or arranged to be sold by another person, provided that other person:
    1. (a) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
    2. (b) is operating from an establishment in an EEA State whose law imposes obligations on the person to provide information about the scheme holding in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive; or
  2. (2) at the time he signs the application, the private customer is habitually resident outside the EEA and is not present in the United Kingdom; or
  3. (3) (except for distance contracts with retail customers) the scheme holding is purchased by a private customer on an execution-only basis; or
  4. (4) the scheme holding is purchased on behalf of a private customer by an investment manager exercising discretion; or
  5. (5) the sale of the scheme holding is arranged or recommended by an investment manager who is not exercising discretion and the private customer has agreed, either in relation to that specific holding or generally, that key features need not be provided; or
  6. (6) a private customer is making a purchase of a scheme holding (whether or not held within a CTF) in a key features scheme in which he already has a scheme holding and has already been provided with appropriate key features covering the purchase; or
  7. (7) a private customer is transferring from accumulation units to income units of the same scheme (or vice versa) and has already been supplied with key features which cover the transfer.

Purpose of the COB 6 provisions on the simplified prospectus

COB 6.2.25A

handbook-guidance
The purpose of COB 6.2.26 R (Production and publication of simplified prospectus), COB 6.2.27 R (Revision of simplified prospectus) to COB 6.2.32 R (Offering a simplified prospectus), COB 6.2.37 R (Table: Contents of the simplified prospectus), COB 6 Annex 2 R (Total expenses ratio) and COB 6 Annex 3 R (Portfolio turnover rate) is to give effect to the provisions of the Management Company Directive (2001/107/EC) which amended the UCITS Directive, in so far so as it imposes a series of obligations on Member States in relation to the simplified prospectus. The simplified prospectus is a pre-sale marketing document which contains sufficient information about a simplified prospectus scheme to enable an investor to make an informed decision about whether to acquire units in the scheme to which it relates.
  • 01/05/2005

Production and publication of simplified prospectus

COB 6.2.26

handbook-rule
  1. (1) An operator of a simplified prospectus scheme must, for each simplified prospectus scheme in respect of which it is the operator, produce and publish a simplified prospectus in accordance with the rules in this section and ensure that it contains in summary form each of the matters referred to in COB 6.2.37 R.
  2. (2) A simplified prospectus must be incorporated in a written document or in any durable medium.
  3. (3) An operator of a simplified prospectus scheme must be satisfied on reasonable grounds that each simplified prospectus which it produces:
    1. (a) includes all such information as is necessary to enable an investor to make an informed decision about whether to acquire units in the scheme;
    2. (b) does not omit any key item of information;
    3. (c) wherever possible is written in plain language which avoids technical language and jargon; and
    4. (d) adopts a format and style of presentation which is clear and attractive to the average reader, so that it can be easily understood by him.
  4. (4) The simplified prospectus may be attached to the full prospectus as a removable part of it.
  5. (5) [deleted]
  6. (6) [deleted]

Revision of simplified prospectus

COB 6.2.27

handbook-rule
An operator of a simplified prospectus scheme must, for each simplified prospectus scheme of which it is the operator, keep its simplified prospectus up-to-date and must revise it immediately on the occurrence of any material change.
  • 01/05/2005

COB 6.2.28

handbook-guidance
It is the FSA's view that any change to a simplified prospectus scheme that would be likely to influence the average investor in deciding whether to invest in the scheme or realise his investment in it should be regarded as a material change for the purposes of COB 6.2.27 R. Examples would be changes to the scheme's objectives or investment policy. The FSA would expect a simplified prospectus to be updated at least annually.
  • 01/05/2005

Filing requirements

COB 6.2.29

handbook-rule

A UCITS management company must for each UCITS scheme it manages file the scheme's initial simplified prospectus, together with each revision to it, with:

  1. (1) the FSA; and
  2. (2) the competent authority of each EEA state in which its units are to be marketed in the exercise of an EEA right.
  • 01/05/2005

UK firms exercising passporting rights in respect of UCITS scheme

COB 6.2.30

handbook-rule
  1. (1) A UCITS management company must for each UCITS scheme it manages and in respect of which it is marketing units in another EEA State in the exercise of an EEA right, produce a simplified prospectus for the scheme drawn up in accordance with the requirements contained in this section.
  2. (2) The simplified prospectus must be drawn up in the, or one of the, official languages of the EEA State for which it was prepared or in a language approved by the competent authority of that State.
  3. (3) The simplified prospectus may, without alteration, be used for marketing purposes in the EEA State for which it was prepared and in which the units of the simplified prospectus scheme are to be sold.
  • 01/05/2005

COB 6.2.31

handbook-guidance
  1. (1) In translating the simplified prospectus from English into the or one or more of the official languages of the EEA State in which the simplified prospectus scheme is to be marketed, or into a language approved by the competent authority of that State, it is permissible under article 28.3 of the UCITS Directive, as amended, in the FSA's view, for figures expressed in pounds sterling to be converted into the appropriate local currency such as euros. It is not necessary, for example, for the simplified prospectus of a scheme that is to be marketed across the EEA in the exercise of an EEA right, to have to refer to each amount in pounds sterling, in euros and additionally in every other local currency of an EEA State in which units of the scheme are to be marketed that has not adopted the euro as its currency.
  2. (2) Operators considering marketing the units of their simplified prospectus schemes in another EEA State in the exercise of an EEA right should have regard to the local marketing legislation of such country.

Offering a simplified prospectus

COB 6.2.32

handbook-rule
  1. (1) When a firm sells, personally recommends or arranges (brings about) for the sale of a simplified prospectus scheme, it must offer the scheme's up-to-date simplified prospectus free of charge to any person who may become a subscriber to the scheme before a contract for the sale of units is concluded.
  2. (2) The requirement in (1) will be met by a firm in relation to a private customer if it or any other firm provides him with a copy of the simplified prospectus in accordance with COB 6.2.33 R (1).
  • 01/05/2005

Obligation on a firm to provide a simplified prospectus

COB 6.2.33

handbook-rule
  1. (1) When a firm sells, personally recommends or arranges (brings about) for the sale of a simplified prospectus scheme to a private customer in the United Kingdom, the firm must provide him with the up-to-date simplified prospectus for the scheme before he completes an application for the scheme holding unless COB 6.2.35 R or COB 6.2.36 R or COB 6.4.27 R to COB 6.4.31A R (telephone sales and other exemptions) apply.
  2. (2) (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.

COB 6.2.34

handbook-guidance
  1. (1) COB 6.2.33 R applies not just to new purchases but also to any recommendation or application to transfer the value of a particular fund holding within a scheme to a different sub-fund within the same scheme.
  2. (2) Where a private customer has responded to a direct offer financial promotion, the mailing package or direct offer financial promotion should have included the simplified prospectus for the scheme, in which case there is no requirement to provide a further simplified prospectus to such a private customer in respect of the same transaction.
  3. (3) COB 6.2.33 R may apply to either the operator or the distributor of a simplified prospectus scheme depending on how units in the scheme are to be sold.
  4. (4) Where one of the exceptions in COB 6.2.35 R or COB 6.2.36 R applies, firms should bear in mind that they must still comply with COB 6.2.32 R (Offering a simplified prospectus) which represents an absolute requirement of the UCITS Directive and as such, cannot be made subject to any exclusions. For example, a firm offering a funds supermarket service which is entitled to the benefit of the exception in COB 6.2.36 R must ensure that every private customer is offered the simplified prospectus of each relevant simplified prospectus scheme before a contract for the sale of units is concluded.
  • 01/05/2005

Exceptions from the requirement to provide the simplified prospectus

COB 6.2.35

handbook-rule

A firm need not, unless a private customer specifically requests it, provide a simplified prospectus to a private customer for a simplified prospectus scheme if:

  1. (1) the firm is a product provider and the scheme holding is sold on the personal recommendation of, or arranged to be sold on the personal recommendation of, or arranged to be sold by another person, provided that other person:
    1. (a) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
    2. (b) is operating from an establishment in an EEA State whose law imposes obligations on the person to provide information about the scheme holding in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive; or
  2. (2) at the time the private customer signs the application, the private customer is habitually resident outside the EEA and is not present in the United Kingdom; or
  3. (3) (except for distance contracts with retail customers) the scheme holding is purchased by the private customer in the course of an execution-only transaction; or
  4. (4) the scheme holding is purchased on behalf of the private customer by an investment manager exercising discretion; or
  5. (5) the sale of the scheme holding is arranged or recommended by an investment manager who is not exercising discretion and the private customer has agreed, either in relation to that specific holding or generally, that the simplified prospectus need not be provided; or
  6. (6) a private customer is making a purchase of a scheme holding (whether or not held within a CTF) in a scheme in which he already has a scheme holding and has already been provided with the up-to-date simplified prospectus which covers the purchase; or
  7. (7) a private customer is transferring from accumulation units to income units of the same scheme (or vice versa) and has already been supplied with the up-to-date simplified prospectus of the scheme which covers the transfer.
  • 01/05/2005

Exception from the requirement to provide a simplified prospectus: firms offering and intermediaries selling a funds supermarket service

COB 6.2.36

handbook-rule
  1. (1) A firm to which COB 6.2.33 R (Obligation on a firm to provide a simplified prospectus) applies when it:
    1. (a) offers a funds supermarket service; or
    2. (b) sells, personally recommends or arranges (brings about) the sale of a simplified prospectus scheme through a funds supermarket service;
  2. need not, unless a private customer requests it, provide a private customer with a simplified prospectus for any simplified prospectus scheme to which the funds supermarket service relates provided it complies with the condition in (2).
  3. (2) The condition is that the firm must instead provide the private customer with the abbreviated form of composite key features document that is permitted under COB 6.5 (Content of key features) and which covers each of the key features schemes and simplified prospectus schemes to which the funds supermarket service relates.

COB 6.2.37

handbook-rule

Contents of the simplified prospectus

This table belongs to COB 6.2.26 R (1)

Reduction in yield

COB 6.2.38

handbook-rule
  1. (1) In disclosing the information required by paragraph (14) of COB 6.2.37 R (Table: Contents of the simplified prospectus), a firm should set out the information in the format required by, and include the contents of, COB 6.5.30 R (Table for key features schemes) to COB 6.5.35 R (Calculation method for "effect of charges to date" for key features schemes) and COB 6.5.38 R (Commission and commission equivalent for life policies, key features schemes and stakeholder pension schemes), as if such provisions applied to simplified prospectus schemes, as modified by COB 6.2.39 R (Table).
  2. (2) Where the units of a simplified prospectus scheme are to be marketed and sold in another EEA State, or exclusively to persons who are not private customers, the operator of the scheme need not comply with the requirements in (1) for the simplified prospectus that is to be used to market the scheme in that EEA State.
  3. (3) Note 3 to paragraph (14) of COB 6.2.37 R (Table: Contents of the simplified prospectus) and COB 6.2.38 R to COB 6.2.40 G cease to have effect on 30 June 2009, unless re-made.

COB 6.2.39

handbook-rule

Application of COB 6.5.30R to COB 6.5.35R, and COB 6.5.38R

This table belongs to COB 6.2.38R

  • 01/05/2005

COB 6.2.40

handbook-guidance
The FSA intends to review the operation of COB 6.2.38 R and COB 6.2.39 R in 2008 and will re-examine these RIY requirements from first principles at that time. This will be done with a view to determining whether the retention of the RIY information and format, in addition to the disclosure of the European TER standard, remains appropriate in the light of the then prevailing circumstances, including consumer understanding of the issues. Should the result of that review indicate that these RIY requirements should be retained or otherwise changed, the FSA will consult publicly on its proposals in accordance with section 155(1) of the Act.
  • 01/05/2005

Distance contracts for the sale of simplified prospectus schemes

COB 6.2.41

handbook-rule
When a firm sells, personally recommends or arranges (brings about) for the sale of a simplified prospectus scheme to a retail customer in circumstances where a distance contract is being concluded, it must ensure that the retail customer is provided in good time with all the contractual terms and conditions and the information in COB App 1.1 before the contract for the scheme holding is concluded.
  • 01/05/2005

COB 6.2.42

handbook-guidance
Firms should bear in mind the guidance at COB 6.2.5A G. Where a simplified prospectus is provided to a retail customer in circumstances where a distance contract is being concluded, this chapter does not require the same information to be provided again to the customer as a result of COB 6.2.41 R. Firms should note, however, that while the contents of a simplified prospectus and the contractual terms and conditions and the information required by COB App 1.1 substantially overlap, there are differences between them. Consequently it is necessary for firms additionally to provide the contractual terms and conditions and the information required by COB App 1.1 to the extent that such information is not covered by the contents of the simplified prospectus.

Projection for simplified prospectus scheme

COB 6.2.43

handbook-rule
  1. (1) When a firm sells, personally recommends or arranges for the sale of a simplified prospectus scheme to a private customer and the proposed transaction is for a scheme:
    1. (a) which relates to an election to make income withdrawals or purchase of a short-term annuity; or
    2. (b) where the private customer's primary objective is to acquire:
      1. (i) a specified sum of money on a specified date; or
      2. (ii) a specified sum of money on death; or
      3. (iii) an annuity of a specified amount payable as from a specified date;
  2. the firm must provide the private customer with a projection, illustrating how the principal terms of the proposed transaction apply to him.
  3. (2) (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.
  4. (3) (1) does not apply to a direct offer financial promotion in relation to units in a simplified prospectus scheme.

COB 6.2.44

handbook-guidance
A projection may be provided by a firm for a simplified prospectus scheme where COB 6.2.43 R (1) does not require one, at a firm's discretion. Likewise it is at the firm's discretion to decide whether it is appropriate to include the projection, whether or not required by COB 6.2.43 R (1), as part of the simplified prospectus.
  • 01/05/2005

PEP and ISA investments

COB 6.2.45

handbook-rule
  1. (1) When a firm sells, personally recommends or arranges for the sale of a unit in a simplified prospectus scheme to a private customer which is to be held within a PEP or ISA, it must provide him with the following additional information:
    1. (a) a description of the nature of the services the firm will provide for the private customer in relation to the PEP or ISA;
    2. (b) [deleted]
    3. (c) [deleted]
    4. (d) a statement that the favourable tax treatment of ISAs may not be maintained;
    5. (e) how and when statements (if any) will be sent;
    6. (f) an explanation how the ISA or plan may be terminated or transferred to another ISA or PEP manager;
    7. (g) whether the ISA is a mini or maxi-ISA agreement and an explanation of the differences between the two; and
    8. (h) whether the private customer has a choice to reinvest income, where uninvested money will be held and whether interest is paid on such money.
  2. (2) (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.
  3. (3) (1) does not apply to the extent that a private customer is making a purchase of a scheme holding in a simplified prospectus scheme in which he already has a scheme holding and has already been provided with the information set out at (1)(a) to (h) which remains up-to-date.
  • 01/05/2005

Child trust fund investments

COB 6.2.45A

handbook-rule
When a firm sells, personally recommends or arranges for the sale of a unit in a simplified prospectus scheme to a private customer which is to be held within a CTF, it must provide him with the information required by COB 6.5.40 R (7) (Further information for life policies, key features schemes, stocks and shares ISAs, PEPs, CTFs and stakeholder pension schemes).
  • 01/10/2005

UCITS Directive: requirement to offer a simplified prospectus for section 264 schemes

COB 6.2.46

handbook-rule
  1. (1) When a firm sells, personally recommends or arranges (brings about) for the sale of a UCITS scheme which is a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) to a client, it must offer the client free of charge a copy of the scheme's most recent simplified prospectus before an application for the scheme holding is completed.
  2. (2) The simplified prospectus must meet the requirements of the UCITS Directive necessary for the scheme to enjoy the rights conferred by the Directive.
  3. (3) When the scheme holding is purchased on behalf of a client by an investment manager exercising discretion, the requirement in (1) will be satisfied by the investment manager being offered the simplified prospectus free of charge before the application form for a scheme holding is completed.
  4. (4) A firm must not carry on any of the activities referred to in (1) in relation to a UCITS scheme which is a recognised scheme under section 264 of the Act unless it is satisfied on reasonable grounds that:
    1. (a) the scheme's simplified prospectus has been sent to the FSA before any units in the scheme are marketed in the UK; and
    2. (b) the information contained in the simplified prospectus is up-to-date and is not in need of revision;
  5. and that any subsequent amendments thereto have been sent to the FSA.

Sale of a section 264 scheme by distance contract

COB 6.2.47

handbook-rule
If the sale in COB 6.2.46 R (1) is by way of a distance contract, to a retail customer, the firm must provide all the contractual terms and conditions and the information in COB App 1.1.
  • 01/05/2005

Composite documents for several schemes, sub-funds and classes

COB 6.2.48

handbook-guidance
In the FSA's view, a firm may, for the purposes of COB 6.2.22 R and COB 6.2.33 R (Obligation on a firm to provide a key features/simplified prospectus), combine the required information on several simplified prospectus schemes, key features schemes or recognised schemes under section 264 of the Act (Schemes constituted in other EEA States) or any combination of them into a composite document, provided the document continues to comply with the general requirements such as being clear. Similarly, the information on different sub-funds or classes within a scheme may be combined into a composite document or provided as separate documents. Where the latter approach is adopted, references in COB 6.2.26 R to COB 6.2.45 R to "scheme" or "simplified prospectus scheme" should be taken as referring to the relevant sub-fund or class, as applicable.
  • 01/10/2005

Multiclass schemes: use of representative class

COB 6.2.49

handbook-guidance
In the FSA's view, where a simplified prospectus scheme has more than one class of unit , the simplified prospectus may be prepared on a representative class basis, provided this is made clear and there is no material difference in the classes concerned. The same applies for an umbrella , as regards any sub-fund with more than one class of units.
  • 01/10/2005

COB 6.3

Post-sale confirmation: life policies

  • 01/12/2004

Application

COB 6.3.1

handbook-rule
COB 6.3 applies to a firm in accordance with COB 6.1.1 R, in respect of life policies.
  • 20/09/2001

COB 6.3.2

handbook-guidance
The requirement on long-term insurers to issue post-sale confirmation applies only to life policies which are packaged products. COB 6.3 does not require a long-term insurer to issue post-sale confirmation in respect of schemes, pure protection contracts or stakeholder pension schemes.
  • 01/12/2001

COB 6.3.3

handbook-rule
When a private customer buys a life policy which is a packaged product or varies such an existing life policy, and the variation gives rise to a right to cancel under COB 6.7.7 R, the long-term insurer must send to, or in the case of an industrial assurance policy must either give or send to, the private customer the information required in COB 6.5.46 R, unless COB 6.3.6 R applies.
  • 01/12/2001

COB 6.3.4

handbook-guidance
Post-sale confirmation can be provided in printed hard copy and sent through the post direct to the private customer. For industrial assurance policies, the post-sale confirmation may be delivered by the firm's representative rather than sent by post. When a private customer has approached the firm or has responded by submitting his application through an electronic medium (such as e-mail or through the Internet), the post-sale confirmation may be provided by the same means. But electronic methods should only be used where the private customer expects to communicate in this way (see COB 1.8 (Application to electronic media).
  • 01/12/2001

COB 6.3.5

handbook-rule
The post-sale confirmation required by COB 6.3.3 R must be sent or given to the private customer as soon as reasonably practicable after the contract is effected.
  • 09/10/2004

Exceptions to post-sale confirmation

COB 6.3.6

handbook-rule

A long-term insurer need not send or give the post-sale confirmation required by COB 6.3.3 R when:

  1. (1) the long-term insurer has taken reasonable steps to determine that the life policy or variation is purchased or effected on behalf of a private customer by an investment manager exercising discretion; or
  2. (2) the life policy is purchased by the trustees of an occupational pension scheme; or
  3. (3) the life policy is purchased by the trustees or manager of a stakeholder pension scheme or if the life policy is otherwise sold as a stakeholder product;
  4. (4) a life policy issued before 1 January 1995 is being varied; or
  5. (5) at the time the private customer signs the application for the new life policy or variation, he is habitually resident:
    1. (a) in an EEA State other than the United Kingdom; or
    2. (b) outside the EEA and he is not present in the United Kingdom.

COB 6.4

Product disclosure: special situations

  • 01/12/2004

Application

COB 6.4.1

handbook-rule

COB 6.4.2

handbook-guidance
Firms are reminded that, under COB 6.2.2 R, the key features required to be provided to a private customer under COB 6.4 must be provided by the firm in a durable medium. See also COB 6.2.3 G - COB 6.2.5 G. For simplified prospectus schemes, firms are referred to COB 6.2.26 R to COB 6.2.45 R for the applicable provisions in relation to simplified prospectuses.

Occupational pension schemes

COB 6.4.3

handbook-guidance
COB 6.1 (Packaged product and ISA disclosure) and COB 6.2 (Provision of key features or simplified prospectus) apply to a firm in respect of the purchase of packaged products, whether life policies or schemes, by the trustees of money-purchase occupational schemes. There is no requirement for a firm to provide key features for packaged products sold to trustees of defined benefit pension schemes.

COB 6.4.4

handbook-rule
  1. (1) When a firm sells, personally recommends or arranges the sale of a new group or master life policy, the first in a series of individual life policies or the first units in a particular key features scheme or simplified prospectus scheme to or for the trustees of a money-purchase occupational scheme, it must provide the trustees with key features, in accordance with COB 6.2.7 R to COB 6.2.25 R or for a simplified prospectus scheme, with a simplified prospectus, in accordance with COB 6.2.26 R to COB 6.2.45 R.
  2. (2) In COB 6.2 to COB 6.5, for the purposes of (1), the firm must treat the trustees as private customers.
  3. (3) In addition to the information to be provided to trustees under COB 6.4.4 R (1), the firm must ensure that key features or the simplified prospectus are made available to the trustees to distribute to all scheme members at the outset of the scheme and for subsequent new members.
  4. (4) The requirement in COB 6.4.4 R (3) applies to main scheme benefits and to additional voluntary contributions where members' benefits are linked to earmarked segments of life policies or schemes. It does not apply where trustees make pooled investments and make their own arrangements for allocation of investment returns to determine members' benefits, whether attached to defined benefit pension schemes or money purchase occupational scheme.

COB 6.4.5

handbook-guidance
  1. (1) The illustrative figures within the key features provided under COB 6.4.4 R (1) can be on an example basis, using a range of representative actual or hypothetical scheme members (covering, for example, different ages, sexes and salaries), so that the trustees can assess the effectiveness of the investment for their pension scheme members.
  2. (2) The definition of money-purchase occupational scheme includes executive pension plans (established for directors, executives and senior employees), small self-administered schemes that provide money-purchase benefits and additional voluntary contribution schemes.
  3. (3) Group personal pension schemes are not occupational pension schemes and COB 6.4.4 R does not apply to them. Firms should therefore provide each person who is offered membership of a group personal pension scheme with key features or a simplified prospectus in accordance with COB 6.1 and COB 6.2. This does not preclude generic key features being sent out as part of a financial promotion, provided that a post-sale confirmation is issued in accordance with COB 6.3.3 R.
  4. (4) The objective of COB 6.4.4 R (3) is to ensure that prospective scheme members have access to information about the occupational pension scheme that could enable comparison with alternative personal investments. Firms may decide for themselves the format (but not content) of this information. For example, individual sets of key features can be supplied or a schedule of details which the trustees or their advisers can assimilate into other pension scheme communications.

SIPPs, personal pension deposits and personal pension products

COB 6.4.5A

handbook-rule

When a firm sells, manages, personally recommends or arranges the sale of a SIPP, personal pension deposit or personal pension product (not the assets within them) to or for a private customer, the firm must, unless COB 6.4.27 R to COB 6.4.31A R apply, provide the private customer with:

  1. (1) sufficient information about the relevant scheme for the private customer to be able to make an informed decision before that customer completes an application for that scheme; and
  2. (2) (in respect of a distance contract with a retail customer) the relevant contractual terms and conditions and the information set out in COB App 1,

in a durable medium in good time before the customer is bound by the transaction.

  • 06/04/2007

COB 6.4.5B

handbook-guidance
The sufficient information provided should include the range and depth of information normally found in key features.
  • 06/04/2007

COB 6.4.5C

handbook-rule

COB 6.4.5A R does not apply to a scheme operator when its scheme is sold on the personal recommendation of, or arranged to be sold by, another person, provided that other person:

  1. (1) is a firm (or an appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
  2. (2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the scheme in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.
  • 06/04/2007

Assets to be held within a SIPP

COB 6.4.5D

handbook-rule

Where a firm makes a personal recommendation to a private customer about the purchase of an asset to be held within a SIPP, the firm must, unless COB 6.4.27 R to COB 6.4.31A R applies, provide the private customer with:

  1. (1) sufficient information about that asset, and the risks and advantages of the proposed asset purchase, for the customer to be able to make an informed decision about the asset purchase before it takes place; and
  2. (2) in respect of a distance contract with a retail customer) the relevant contractual terms and conditions and the information set out in COB App 1;

in a durable medium in good time before the customer is bound by the transaction.

  • 06/04/2007

COB 6.4.5E

handbook-guidance
If this chapter requires a particular type of product disclosure for a particular type of asset, the product disclosure provided in accordance with those rules is sufficient information for this purpose.
  • 06/04/2007

Sales of life policies (etc.) to operators of personal pension schemes

COB 6.4.6

handbook-rule
  1. (1) A firm which sells, personally recommends or arranges the sale of a new group or master life policy, the first in a series of individual life policies or the first units in a particular key features scheme or simplified prospectus scheme to the operator of a personal pension scheme, must provide the operator of that scheme with key features (in accordance with COB 6.2.7 R to COB 6.2.25 R) or a simplified prospectus (in accordance with COB 6.2.26 R to COB 6.2.45 R), as the case may be.
  2. (2) In COB 6.2 to COB 6.5, for the purposes of (1), members, prospective members and trustees must be treated by the firm as private customers.

COB 6.4.6A

handbook-guidance
The illustrative figures included in the key features or simplified prospectus can be on an example basis, using a range of representative actual or hypothetical scheme members (covering, for example, different ages, sexes and salaries), provided the illustrative figures and the range of representative scheme members are sufficient for the operator to be able to assess the effectiveness of the relevant investment for scheme members.
  • 06/04/2007

Income withdrawals and short-term annuities

COB 6.4.8

handbook-rule
Except in relation to a SIPP, personal pension deposit or personal pension product, when a firm personally recommends, arranges or effects income withdrawals or the purchase of a short-term annuity to or for a private customer, the customer must be provided with key features or a simplified prospectus in good time before he signs any form of application or authority electing to make those withdrawals or purchases, whether that election or purchase is made with advice on investments or on an execution-only basis, unless COB 6.4.10 R to COB 6.4.12 R or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.

COB 6.4.8A

handbook-rule

When a firm personally recommends, arranges or effects an income withdrawal from a SIPP, personal pension deposit or personal pension product to or for a private customer, it must provide that customer with:

  1. (1) sufficient information about the income withdrawal for the customer to be able to make an informed decision; and
  2. (2) (in respect of a distance contract with a retail customer), the relevant contractual terms and conditions and the information set out in COB App 1,

in a durable medium in good time before the customer is bound by the transaction.

  • 06/04/2007

COB 6.4.8B

handbook-guidance
The sufficient information provided should include the range and depth of information normally found in key features.
  • 06/04/2007

COB 6.4.9

handbook-rule

In relation to an election to make income withdrawals, or short-term annuities, the requirement for the provision of key features or a simplified prospectus in:

  1. (1) COB 6.2.7 R also applies when an existing life policy is to be endorsed;
  2. (2) COB 6.2.22 R or, for simplified prospectus schemes, COB 6.2.33 R also applies when an existing scheme holding is to be used.

COB 6.4.10

handbook-rule
In relation to an election to make income withdrawals, or purchase of short-term annuities, the requirements of COB 6.4.11 R and COB 6.4.12 R override the relevant requirement in COB 6.2 (Provision of key features or simplified prospectus), where there is conflict, but only where this would not contravene a requirement of the UCITS Directive.

COB 6.4.11

handbook-rule
When a private customer makes a series of elections within a period of 12 months to make income withdrawals, or purchase of short-term annuities, the firm that is personally recommending, arranging or effecting the elections may provide a combined set, or separate sets, of key features, simplified prospectuses or equivalent information for those elections (as appropriate).

COB 6.4.12

handbook-rule

Where income is being taken, no less than six weeks before the end of the annuity period for a short-term annuity or at intervals no longer than 12 months from the date of an election by a private customer to make income withdrawals the product provider of the unvested pension scheme must:

  1. (1) provide the private customer with such information required by COB 6.6.13 R as will enable the private customer to review the options available; and
  2. (2) inform the private customer how to obtain advice on investments in respect of his unsecured or alternatively secured pension, and that it would be in his best interests to do so.

Cash deposit ISAs and cash deposit CTFs

COB 6.4.13

handbook-rule
When a firm manages, personally recommends or sells a cash deposit ISA or cash deposit CTF to a private customer, that customer must be provided with the information specified in whichever of COB 6.5.42 R or COB 6.5.42A R applies to it in good time before the customer is bound by the transaction, unless COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.
  • 09/10/2004

Traded life policies

COB 6.4.14

handbook-rule
When a firm personally recommends that a private customer should purchase a traded life policy, the customer need not be provided with key features, if the firm instead supplies the information in COB 6.5.44 R in good time before the customer is asked to complete any form of application or authority giving effect to the purchase of the traded life policy.
  • 09/10/2004

Stakeholder pension schemes

COB 6.4.15

handbook-rule
When a firm sells, manages, personally recommends or arranges the sale of a stakeholder pension scheme to or for a private customer, the firm must, subject to COB 6.4.18 R and unless COB 6.4.27 R to COB 6.4.31A R (telephone sales and other exemptions) applies, provide the private customer with key features or a simplified prospectus before the private customer completes an application for the stakeholder pension scheme.

COB 6.4.16

handbook-rule
When a firm proposes to deal with a private customer on the telephone for the purposes of providing information through a decision tree about stakeholder pension schemes, the firm may do so only if it has adequate evidence to show that the private customer has access to a copy of a decision tree (as specified in COB 6.5.8 R) during the conversation.
  • 01/12/2001

COB 6.4.17

handbook-guidance
COB 6.4.16 R is intended to ensure that, where a firm takes a private customer through the decision tree process by telephone, it takes reasonable care to ensure that the private customer has a decision tree in front of him. For example, on first contact firms could enquire whether the private customer has a decision tree, and if not, send one to him before taking him through the decision tree process during a follow-up telephone call.
  • 01/12/2001

COB 6.4.18

handbook-rule

COB 6.4.15 R does not apply to a stakeholder pension scheme operator when its stakeholder pension scheme is sold on the personal recommendation of, or arranged to be sold by, another person, provided that other person:

  1. (1) is a firm (or an appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
  2. (2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the stakeholder pension scheme in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.
  • 09/10/2004

COB 6.4.19

handbook-rule
  1. (1) When a firm sells, personally recommends or arranges the sale of a new group or master life policy, the first in a series of individual life policies or the first units in a particular key features scheme or simplified prospectus scheme to the trustees or the operator of a stakeholder pension scheme, it must provide the trustees or operator with key features, in accordance with COB 6.2.7 R to COB 6.2.25 R or for a simplified prospectus scheme, with a simplified prospectus, in accordance with COB 6.2.26 R to COB 6.2.45 R.
  2. (2) In COB 6.2 to COB 6.5, for the purposes of (1), the firm must treat trustees and operators as private customers.

COB 6.4.20

handbook-guidance
The illustrative figures within the key features provided under COB 6.4.19 R can be on an example basis, using a range of representative actual or hypothetical scheme members (covering, for example, different ages, sexes and salaries), so that the trustees or operator can assess the effectiveness of the investment for scheme members.
  • 01/12/2001

COB 6.4.21

handbook-rule
When a firm provides a private customer with information through a decision tree concerning membership of a stakeholder pension scheme, but does not give advice on investments or make a personal recommendation, the firm must provide the private customer with a written notice in accordance with COB 6.4.22 R and COB 6.4.23 R.
  • 01/12/2001

COB 6.4.22

handbook-rule
A written notice required by COB 6.4.21 R must be provided by the firm no later than 8 business days after the cancellation period commences.
  • 09/10/2004

COB 6.4.23

handbook-rule

The notice in COB 6.4.22 R must:

  1. (1) confirm that no advice on investment has been given and that the private customer has decided that the stakeholder pension scheme is appropriate as a result of the answers he has given to the questions posed in the decision tree; and
  2. (2) include a copy of the decision tree indicating the answers which the private customer has given.
  • 01/12/2001

COB 6.4.24

handbook-guidance
After giving information through a decision tree in accordance with COB 6.4.16 R and before the customer completes the application, a firm could satisfy COB 6.4.15 R by providing an adequate oral explanation (for example over the telephone in the case of a call-centre) about the main features of the stakeholder pension scheme (as outlined in COB 6.2.11 G). Written key features must then be given or sent along with the copy decision tree in accordance with COB 6.4.21 R -COB 6.4.23 R within five business days.
  • 01/12/2001

Entering into a distance contract for accepting deposits (other than a cash deposit ISA or a personal pension deposit)

COB 6.4.25

handbook-rule
(1) A retail customer must be provided with all the contractual terms and conditions and the information in COB App 1 in a durable medium in good time before he is bound by a distance contract or offer under which the firm will accept deposits (other than a cash deposit ISA (for which see COB 6.5.42 R) or a personal pension deposit (for which see COB 6.4.5A R)), unless an exemption in COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.

Exemption: telephone sales

COB 6.4.27

handbook-rule
  1. (1) Where this chapter requires key features, a simplified prospectus or other information to be provided, in the case of voice telephony communications, a firm:
    1. (a) must provide the customer at the beginning of the telephone conversation with the name of the firm and (if the call is initiated by the firm) the commercial purpose of the call;
    2. (b) provided the customer gives his explicit consent to receiving only limited information, may proceed on the basis of at least the following information:
      1. (i) the name of the person in contact with the customer and his link with the firm;
      2. (ii) a description of the main characteristics of the service;
      3. (iii) the total price to be paid by the customer to the firm for the service, including all related fees, charges and expenses, and all taxes paid through the firm together with a statement, where relevant, that commission or remuneration will be paid to the adviser or representative, or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the customer to verify it;
      4. (iv) where relevant, notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it;
      5. (v) the existence or absence of a right to cancel the service under COB 6.7 and, where there is such a right, its duration and the conditions for exercising it, including information on the amount which the customer may be required to pay if the contract is terminated early or unilaterally under its terms, as well as the consequences of not exercising it; and
      6. (vi) that other information is available on request, and the nature of that information, and
      7. (vii) in addition to (a) and (b) above, where the product is a CTF, provided the customer gives his explicit consent to receiving only limited information, may proceed on the basis of the information referred to in COB 6.5.40 R (7) given orally.
  2. (2) If the customer does not give his explicit consent to receiving limited information, and the parties wish to proceed by telephone, the firm must prior to the conclusion of the contract provide all of the information required by COB App 1 orally to the customer.
  3. (3) In the case of either (1) or (2), the firm must send the private customer immediately after the contract is concluded, the required key features, simplified prospectus or other information (as applicable) in a durable medium.

COB 6.4.28

handbook-guidance
Firms are reminded of the requirements in COB 3.8.21 G (Real time financial promotions) and COB 3.10 (Unsolicited real time financial promotions) in relation to telephone calls that may fall within the definition of a financial promotion. Firms are also reminded that in relation to a stakeholder pension scheme COB 6.4.16 R continues to apply.
  • 09/10/2004

Exemption: certain other means of distance communication

COB 6.4.29

handbook-rule
This exemption applies where this chapter requires a key features, simplified prospectus or other information to be provided in relation to a distance contract, if the distance contract is concluded at the customer's request using a means of distance communication (other than telephone) which does not enable provision of the information in a durable medium before the customer is bound by the contract or offer. In that case, the firm must provide key features, simplified prospectus or other information to the customer in a durable medium immediately after the conclusion of the contract.

Exemption: successive or separate operations under an initial service agreement

COB 6.4.30

handbook-rule
This exemption applies where this chapter requires a key features, simplified prospectus or other information to be provided in relation to a distance contract, if the firm has an initial service agreement with the customer and the contract is in relation to a successive operation or a separate operation of the same nature under that agreement (see COB 1.10.2 G (1)).

Exemption: other successive and separate operations

COB 6.4.31

handbook-rule

This exemption applies where this chapter requires a key features, simplified prospectus or other information to be provided in relation to a distance contract, if:

  1. (1) the firm has no initial service agreement with the customer:
  2. (2) the firm has performed an operation for the customer within the last year: and
  3. (3) the contract is in relation to a successive operation or separate operation of the same nature (see COB 1.10.2 G (2)).

Exemption: automatic enrolment of employees in pension schemes

COB 6.4.31A

handbook-rule
This exemption applies where a private customer is automatically enrolled by his employer in a stakeholder pension scheme or personal pension scheme provided through the workplace. In that case, in good time before the private customer is bound by the contract or offer, he must be provided with the appropriate key features or other information.

COB 6.4.32

handbook-rule

At each anniversary of the date on which a long-term care insurance contract which is based on single premium investment bonds was entered into, the insurer must:

  1. (1) provide the private customer with a table based on the format of COB 6.5.24 containing at least the current fund value and projected future policy values (as in column "What you might get back");
  2. (2) where it is the case, inform the private customer of the possibility that future policy values may be insufficient to fulfil the original purpose of the contract; and
  3. (3) inform the private customer how to obtain advice on investments in respect of long-term care insurance contracts, and that it is in his best interest to do so.
  • 01/12/2001

COB 6.4.33

handbook-guidance

In the case of a long-term care insurance contract in which:

  1. (1) long-term care benefits are available after commencement of the policy at the option of the policyholder; and
  2. (2) as a result of the exercise of that option a new contract of insurance is offered to the policyholder;

provision is made in TC 2.5.5A R so that, in respect of the contract containing the option, an employee, although engaged in advising on long-term care insurance contracts need not be required to pass an appropriate examination for long-term care insurance contracts to do so.

  • 01/12/2001

Exemption: Revenue allocated accounts

COB 6.4.34

handbook-rule
When a firm opens a Revenue allocated CTF, the firm must send the private customer on the first available opportunity after the account has been opened, whichever of the key features or other information is required in a durable medium.
  • 01/12/2001

COB 6.4.35

handbook-guidance
In considering what the first available opportunity mentioned in COB 6.4.34 R is, firms may take into account that there may generally be a delay between a Revenue allocated CTF being opened and the customer being informed that it had been opened.
  • 01/12/2001

COB 6.5

Content of key features and important information: life policies, key features schemes, ISA and CTF cash deposit components and stakeholder pension schemes

Application

COB 6.5.1

handbook-rule
COB 6.5 applies in accordance with COB 6.1.1 R.
  • 01/12/2001

General

COB 6.5.2

handbook-rule

A firm must ensure, unless COB 6.5.3 R applies, that:

  1. (1) the key features it produces for a life policy or a key features scheme other than a stakeholder pension scheme (whether or not held within a PEP or an ISA) includes the information required by COB 6.5.11 R, set out in the order shown divided by appropriate and prominent sub-headings, some of which are prescribed in the rules;
  2. (2) the information it produces under COB 6.4.13R (1) for a cash deposit ISA or cash deposit CTF complies with whichever of COB 6.5.42 R or COB 6.5.42A applies to it;
  3. (3) the information document or abbreviated form of key features it produces:
    1. (a) relating to friendly society tax exempt policies or traded life policies contains the applicable information specified in COB 6.5.43 R- COB 6.5.44;
    2. (b) relating to broker funds contains the applicable information in COB 6.5.45;
  4. (4) the post-sale confirmation document it produces contains the applicable information specified in COB 6.5.46 R;
  5. (5) the key features it produces or issues for a stakeholder pension scheme:
    1. (a) includes the relevant sub-headings set out at COB 6.5.11 R, the applicable information specified in COB 6.5.12 R - COB 6.5.40 R appropriate to those sub-headings; and
    2. (b) is, subject to COB 6.5.6 R, accompanied by or includes the decision trees specified in COB 6.5.8 R, unless the stakeholder pension scheme is being purchased as a result of a personal recommendation; and
  6. (6) all:
    1. (a) key features; and
    2. (b) abbreviated key features mentioned at COB 6.5.2 (3)(a) above,
  7. it produces in relation to a distance contract with a retail customer include or are accompanied by all the contractual terms and conditions and the information in COB App 1 except to the extent that they are separately provided to the retail customer in a durable medium in good time before the retail customer is bound by the contract or offer.

COB 6.5.3

handbook-rule
A firm may adapt the prescribed content and format requirements in COB 6.5 only when it can demonstrate that this is necessary to reflect the terms and nature of a particular product and that, in relation to a distance contract with a retail customer, in doing so it does not omit the contractual terms and conditions and information in COB App 1.
  • 09/10/2004

COB 6.5.4

handbook-guidance
  1. (1) Where the rules in COB 6.5 do not require the use of prescribed text, firms may give the relevant information using their own words and style.
  2. (2) For the purposes of COB 6.5.2 R (1):
    1. (a) a firm which offers more than one key features scheme may choose whether to produce separate key features for each scheme (including a fund or sub-fund or share class), or to produce a single key features to cover a range of funds (provided the differences between those funds are made clear);
    2. (b) where a publication covers more than one key features scheme (for example, in the case of a year book comprising information on all the funds offered by a unit trust manager), it might consist of a key features section at the beginning giving details common to all the relevant funds (whether unit trusts, ICVCs, sub-funds of an umbrella scheme or share classes within an ICVC), followed by separate pages setting out, for each fund, those items which are specific to it, for example 'Aims', 'Risk Factors' and 'Charges and their Effect'.

Stakeholder pension schemes: decision trees

COB 6.5.5

handbook-guidance
There is no obligation to supply a decision tree as specified in COB 6.5.8 R where a firm has personally recommended a stakeholder pension scheme to a private customer. Firms may wish to supply a copy of any decision tree used as part of the advice process along with the mandatory suitability letter.

COB 6.5.6

handbook-rule
Where a firm knows that a certain decision tree or trees will not be relevant to a private customer to whom key features are to be given, the firm can omit them and include only the relevant decision tree or trees.
  • 01/12/2001

COB 6.5.7

handbook-guidance
There are three versions of the decision trees for employed persons, the self-employed and those not in employment. The specified introductory text is a required part of each decision tree. Firms are permitted to issue one decision tree, consisting of the introductory text and the relevant version of the flowcharts, where the employment status of the customer is known. In other circumstances, the introductory text and all three versions of the flowcharts should be included. This guidance applies whether decision trees are within the key features or are used separately.
  • 01/12/2001

COB 6.5.8

handbook-rule
  1. (1) Whether a firm produces decision trees within or separate from key features, it must (unless COB 6.5.9 R applies and subject to COB 6.5.8A R) reproduce the text, content and format set out in COB 6 Annex 1.
  2. (2) If COB 6 Annex 1 is subsequently amended:
    1. (a) the firm must amend its decision trees as soon as reasonably practicable and, in any case, within three months of the date when the amendments to COB 6 Annex 1 come into force; and
    2. (b) the firm may continue to use decision trees that complied with the previous version of COB 6 Annex 1 until it has done so.

COB 6.5.8A

handbook-rule

A firm must ensure that its decision trees include:

  1. (1) (in the place in the relevant table in the Further information text at COB 6 Annex 1 where the square brackets appear):
    1. (a) in the heading of the table, the current tax year; and
    2. (b) the Basic State Pension rates and Pension Credit minimum income rates for the current tax year;
  2. (2) (where the square brackets appear) at the bottom of the cover page and at the bottom of each page of the flow charts, the current tax year; and
  3. (3) (where the square brackets appear) in the introductory text where additional explanatory text within Further information is signposted, the appropriate page number.

COB 6.5.8B

handbook-rule
  1. (1) A firm must, subject to (2), make the changes required by COB 6.5.8A R as soon as reasonably practicable and, in any case, within three months of the start of the tax year.
  2. (2) Where, in any year, a firm is required to make changes to the trees under COB 6.5.8 R and COB 6.5.8A R, it may make both sets of changes at the same time, provided that it does so within the time limits in COB 6.5.8 R (2)(a).

COB 6.5.8C

handbook-guidance
  1. (1) The FSA expects to review the decision trees once each year and will amend them as necessary as near as possible to the start of the new tax year. The amended version of the decision trees will be published on the FSA's web-site and available in printed form when the rules are amended each year. Firms must bring their trees into line with the amended rules within three months, but may continue to use their "old" trees until they have done so.
  2. (2) Firms are required, by COB 6.5.8A R, to insert the Basic State Pension rates and Minimum Income Guarantee rates for the current tax year into the relevant table in the introductory text to their decision trees each year and to identify the relevant year in the heading of the table and also at the bottom of the pages specified in COB 6.5.8A R (2). The rules require firms to do this within three months of the start of the tax year if no other changes to the trees are required. However, COB 6.5.8B R (2) allows them to delay updating the Basic State Pension and Minimum Income Guarantee rates until the same time as they make any other amendments to their trees which they are required to make under COB 6.5.8 R, provided that they do so within no more than three months of the date when those amendments come into force.
  3. (3) The appropriate rates will be those announced by the Government (usually, but not necessarily, in the Chancellor of the Exchequer's annual Budget) as applying to the tax year in question. The relevant Basic State Pension and Minimum Income Guarantee rates for the current tax year will be included in the version of the trees published by the FSA.

COB 6.5.8D

handbook-rule
A firm must ensure, subject to COB 6.5.8 R (2), that it uses only the most recent version of its decision trees.

COB 6.5.8E

handbook-rule
Where a firm makes use of both electronic and hard copy versions of the decision trees specified in COB 6.5.8 R, it must synchronise the timing of any changes to those trees as far as reasonably practicable.

COB 6.5.8F

handbook-guidance
Firms are expected to ensure that they make the necessary changes to all of their trees at the same time (or as close to the same time as possible), including those used by other organisations for which they are responsible, in order to minimise the risk of consumer confusion. This may mean delaying changes to the trees in some instances until the firm is able to make all of the required changes, but all of a firm's trees must be amended within the time period allowed.

COB 6.5.9

handbook-rule
The only adaptations, other than those in COB 6.5.8A R - COB 6.5.8E R, that a firm may make to the decision trees specified in COB 6.5.8 R are those suitable to brand the decision tree with the corporate image of the firm, to reflect the design of its stakeholder pension scheme promotional material or to reflect the use of interactive delivery.

COB 6.5.10

handbook-guidance
  1. (1) There is a limited scope within COB 6.5.9 R to depart from the prescribed decision tree format and content in order to blend in the trees with other promotional materials such as key features or internet financial promotions. However, the text and general design should follow the prescribed content and format. Firms will be aware that the FSA publishes its own version of the decision trees for public use: firms may consider them as examples of acceptable design.
  2. (2) Examples of items and formatting where no adaptations should be made include:
    1. (a) the text - both content and order, whether in the introduction, the boxes within the flowcharts, or any other sections of the decision trees;
    2. (b) the use of boxed items within the introductory text;
    3. (c) the use of emphasis (firms can choose the method of giving emphasis, such as size, bold or italic text);
    4. (d) the vertical flow and pagination of the flowcharts within the decision trees;
    5. (e) the boxes within the flowchart pages, these should be rectangular and filled with one consistent colour, except that two tints of the base colour may be used to highlight tick boxes and to differentiate columns of figures;
    6. (f) the directional arrows linking the boxes within flowchart pages, these should be of one design and the same colour as fills the flowchart boxes.
  3. (3) Examples of items where adaptations can be made include:
    1. (a) the typeface and font size of the text;
    2. (b) the pagination of the introductory text and the use of columns;
    3. (c) the edging of boxes (for example, use of shadow or rounded corners);
    4. (d) the use of background colours, for example, to match corporate colours or product brochures (see (2)(e));
    5. (e) separate colour schemes to differentiate between sets of decision trees, for example between employed and self-employed versions;
    6. (f) the use of an extra colour to highlight headings within flowchart pages and to identify separate versions of the decision trees;
    7. (g) the size of paper used (A4 is recommended, but other sizes are possible, provided that the flowchart pages are clear and legible);
    8. (h) where delivery is through an interactive computer-based system, the wording of the introductory text that explains how to use the decision trees.
  • 01/12/2001

COB 6.5.11

handbook-rule

Table of Information/Applicable provisions

This table belongs to COB 6.5.2 R (1)

Title

COB 6.5.12

handbook-rule
A firm must include this heading: 'key features of the [name of life policy/ key features scheme /stakeholder pension scheme]'.

Nature of life policy or key features scheme or stakeholder pension scheme

COB 6.5.13

handbook-rule
  1. (1) A firm must describe the nature of the life policy or key features scheme or stakeholder pension scheme under the following headings: 'its aims', 'your commitment', or, 'your investment' (whichever is more appropriate) and 'risk factors'.
  2. (2) Under 'risk factors' a firm must give a brief description of the factors which may have an adverse effect on performance or are otherwise material to the decision to invest.

COB 6.5.14

handbook-guidance

The description which a firm is required to provide under 6.5.13R(2) might include information on the matters set out in the following non-exhaustive list:

  1. (1) whether the value of the capital and any income from it might fluctuate;
  2. (2) cancellation issues, including the fact that, if the value of the investment falls before notice of cancellation is given, a full refund of the original investment may not be provided but rather the original amount less the fall in value;
  3. (3) particular risks, if any, associated with the underlying assets in which the packaged product is invested;
  4. (4) risks associated with the markets in which investments will be made, with particular reference to emerging markets; such risks might include dealing difficulties, settlement and custody practices;
  5. (5) special risks such as capital erosion or constraints on capital growth in the case of funds where charges are deducted from capital, or where buying income or dividend stripping forms part of the investment strategy;
  6. (6) volatility, in particular with regard to higher volatility funds such as geared futures and options schemes and warrant schemes and the fact that the loss on realisation of the investment could be very high, even equalling the amount originally invested;
  7. (7) the inclusion of a 'market value adjustment' in respect of with-profits funds, and the risk that, in adverse circumstances, benefits could be reduced;
  8. (8) potential problems with investment in property in respect of liquidity, and the fact that repurchase or surrender might be delayed during a period when the property is not readily saleable, and that property valuation is a matter of judgement by a valuer;
  9. (9) in the case of a broker fund, whether the private customer has the right, or may be required, to transfer out of that fund to any other fund or scheme of a firm; if so, the name of the fund or scheme, the transfer terms and the circumstances in which, and by whom, such a transfer may be required or made;
  10. (10) the risk that a current favourable situation may not be maintained in future, for example the tax treatment of ISAs;
  11. (11) the fact that if the private customer does not maintain contributions he may not meet any target benefit which has been projected and may lose the benefits of any life protection;
  12. (12) in the case of a new fund, the risk that, if its assumed size is not achieved, the proportion of charges and expenses allocated to the investment may be higher and the value of the investment consequently reduced;
  13. (13) the fact that there is no guarantee that a life policy such as an endowment assurance used to repay an interest-only mortgage will produce sufficient funds at the end of the mortgage term and that the amount the investor will have to continue to pay may need to increase to achieve repayment of the loan;
  14. (14) the fact that with personal pensions there may be penalties if the private customer takes the benefits before the stated retirement date;
  15. (15) in the case of a guaranteed packaged product, where it is a possibility, the fact that there may be a capital shortfall at the end of the contract; where there is a fixed regular payment of income, it should be drawn to the attention of the private customer that such payments often involve a risk to capital;
  16. (16) for a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6), the fact that the investment may be subject to sudden and large falls in value and that the private customer may get back nothing at all if the fall in value is sufficiently large;
  17. (17) guarantees or other actual or potential liabilities, and their effect or potential effect, whether they are attributable to:
    1. (a) the contractual terms and benefits of the packaged product which the private customer is or may be acquiring; or
    2. (b) the contractual terms and benefits of any of the product provider's other products; or
    3. (c) the business activities of the product provider or its associates;
  18. if they have or may have a material adverse effect on the returns to the private customer or are otherwise material to his decision to invest; and
  19. (18) in the case of a long-term care insurance contract which is based on single premium investment bonds, the fact that the income produced by the bonds may be insufficient to continue to meet the premiums of the underlying contract of insurance. The description could also explain the consequences of this, including, if it is the case, that capital may be eroded, further single premium may be payable, or the cover reduced.
  • 01/01/2004

An example

COB 6.5.15

handbook-rule

A firm must include a projection, illustrating how the principal terms of the proposed transaction apply to the private customer:

  1. (1) where the proposed transaction is for a life policy other than:
    1. (a) a long-term care insurance contract which is a pure protection contract;
    2. (b) a linked life stakeholder product.
    3. (c) one that relates to a CTF or a stakeholder product sold through basic advice,
  2. (2) where the proposed transaction does not relate to a CTF or a stakeholder product sold through basic advice and is for a key features scheme or a linked life stakeholder product:
    1. (a) and relates to an election to make income withdrawals or purchase of a short-term annuity; or
    2. (b) where the private customer's primary objective is to acquire;
      1. (i) a specified sum of money on a specified date; or
      2. (ii) a specified sum of money on death; or
      3. (iii) an annuity of a specified amount payable as from a specified date.

COB 6.5.16

handbook-guidance
A projection may be included for key features schemes where COB 6.5.15 R (2) does not require one, at a firm's discretion.

COB 6.5.16A

handbook-guidance
A projection is not appropriate for a long-term care insurance contract which is a pure protection contract. Policy benefits and premiums must be illustrated in accordance with the relevant provisions of COB 6.5.49 R.
  • 31/10/2004

COB 6.5.16B

handbook-guidance
Although there is no requirement to provide a projection for a SIPP, personal pension deposit or personal pension product, a firm may still produce one if it wishes. A firm that chooses to produce such a projection should do so in a way which is consistent with COB 6.6 (Projections).
  • 06/04/2007

COB 6.5.17

handbook-guidance
Where the proposed transaction is for a stakeholder pension scheme, a specimen projection will have been included in the decision tree. There is no requirement in these rules for a personalised projection in the key features for a stakeholder pension scheme. Where projections are given for stakeholder pension schemes in other circumstances, for example where a scheme member requests a personalised projection, they should follow the standard projection rules in COB 6.6 (Projections).
  • 01/11/2002

COB 6.5.18

handbook-rule
  1. (1) All projections included in key features, except a specimen projection in a decision tree for a stakeholder pension scheme, must be calculated in accordance with COB 6.6 (Projections), using the lower, intermediate and higher rates of return in COB 6.6.50 R, and followed by the appropriate statements form COB 6.6.15 R.
  2. (2) In addition, if the projection in (1) is for a pension scheme or a stakeholder pension scheme, a firm may also include a type P projection in the key features (see COB 6.6.34 R (5)). The pension must assume increases linked to the retail prices index using the appropriate intermediate rate in COB 6.6.51 R.
  • 01/12/2001

COB 6.5.19

handbook-rule
  1. (1) A life policy projection in key features must be specific to the private customer, calculated on the basis of the private customer's age and sex, the sum assured, the premium and other principal factors of the proposed life policy unless:
    1. (a) the life policy is a single premium life policy; or
    2. (b) the total premiums payable do not exceed £120 a year (or £130 a year if the premiums are paid every four weeks); or
    3. (c) the total premiums are less than £1,000; or
    4. (d) the key features are part of a direct offer financial promotion; or
    5. (e) the projection is in respect of a stakeholder product (which is not a stakeholder pension).
  2. (2) If (1)(a), (b), (c) or (d) applies and no customer specific projection is included, a projection must be provided which typically represents the type of business which the firm conducts (or proposes to conduct) in relation to the life policy in question.
  3. (3) A scheme projection in key features must be based on either:
    1. (a) the actual amount which the private customer is proposing to invest; or
    2. (b) an amount which typically represents the type of business which the firm conducts (or proposes to conduct) in relation to the scheme in question;
  4. unless it is for income withdrawals or purchase of a short-term annuity, when it must be on the basis of (a).

Description of the life policy or key features scheme or stakeholder pension scheme

COB 6.5.20

handbook-rule
In addition to COB 6.5.13 R and COB 6.5.18 R, a firm must set out in the form of questions and answers a description of the principal terms of the life policy, key features scheme, or stakeholder pension scheme, and any other information necessary to enable the private customer to make an informed decision.

COB 6.5.21

handbook-guidance

The information required by COB 6.5.20 R should include:

  1. (1) for a life policy such as an endowment which is being used to repay an interest-only mortgage loan, details of how and when the private customer will be notified whether the life policy is on target to provide sufficient funds to repay the loan and, if it is not, what options the private customer has;
  2. (2) for a life policy, the consequences of making the life policy paid up or taking a contribution holiday;
  3. (3) for an FSAVC, a prominent warning that, as an alternative, a scheme AVC exists which may offer better terms, details of which can be obtained from the occupational pension scheme administrator;
  4. (3A) for a long-term care insurance contract, information to make policyholders aware of the importance of:
    1. (a) regularly reviewing their circumstances and the likely costs of long-term care with a view to ensuring that their long-term care needs continue to be appropriately covered; and
    2. (b) seeking advice in the event of change affecting the policyholder's long-term care needs, or in the event of a variation of the contract terms so as to provide long-term care benefits;
  5. (3B) for a long-term care insurance contract in which the insurer has the right to review the premium:
    1. (a) a statement of that fact, the frequency of any right to vary the premium payable and a description of the circumstances which would give rise to a variation of the premium, for example, a change in claims experience;
    2. (b) a statement of the consequences of not paying any increased or extra premium resulting from any review, such as a reduction in policy benefits;
    3. (c) a statement of the rate of investment return assumed in the premium calculation together with a note of each other main assumption subject to variation;
    4. (d) a statement that the higher the assumed rate of investment return, the greater the chances of being asked to pay increased or extra premiums following a premium review;
    5. (e) if the rate of investment growth assumed in the premium calculation is more than the intermediate rate shown in COB 6.6.50 R, an illustration of the potential increased regular premium or additional single premium that may be payable following the first premium review, assuming that the rate of investment return achieved up to the review and assumed thereafter was at the intermediate rate shown in COB 6.6.50 R;
  6. (3C) for a long-term care insurance contract in which long-term care benefits are available after commencement of the policy at the option of the policyholder, a statement of the amount of premium payable for that option. Where any change to the level of cover requires further underwriting this should, where possible, be made clear at the outset.
  7. (4) for a long-term care insurance contract which is based on single premium investment bonds -
    1. (a) a statement drawing attention to the possible effect on the capital invested where withdrawals are taken to pay for care; this can be communicated by including a standard, non-client-specific, example comparing the effect of claim payments on the value of the life policy, first assuming no claims and then assuming a claim beginning at age 80 and lasting for five years; the standard mid rate of return should be used assuming claim payments at the highest benefit level payable under the life policy; and
    2. (b) information to make the private customer aware that he can use key features to compare the investment potential of different product providers' packaged products, for example surrender values at various times and the effect of deductions;
  8. (5) for a personal pension scheme, including a group personal pension scheme, a clear and prominent indication of the general availability of stakeholder pension schemes and the fact that these might meet the consumer's needs at least as well as the personal pension scheme on offer;
  9. (6) for a stakeholder pension scheme, a description of the default investment option offered under regulation 3(5) of the Stakeholder Pension Schemes Regulations 2000;
  10. (7) for an individual pension account:
    1. (a) where the key features relate to a stakeholder pension scheme or personal pension scheme and the firm chooses to highlight, within key features or elsewhere, that the investment will be made through an IPA, a statement:
      1. (i) identifying by name any IPA eligible investments which are to be or may be held as assets of the stakeholder pension scheme or personal pension scheme; and
      2. (ii) indicating which of those assets will benefit from the Stamp Duty Reserve Tax exemption available to IPA's;
    2. (b) where the firm is acting as an operator or distributor of a regulated collective investment scheme or investment trust savings scheme and elects to include within key features a statement that some or all of the investments are IPA eligible investments, an indication in respect of each such investment whether pension scheme members will benefit from the Stamp Duty Reserve Tax exemption available to IPA's;
  11. (8) for a life policy or a key features scheme which is to be held within a CTF the information referred to in COB 6.5.40 R (7); and
  12. (9) for a with-profits policy, a cross-reference to the CFPPFM (see COB 6.10.9G G (8)).

Tables and deductions summaries for life policies, key features schemes and stakeholder pension schemes

COB 6.5.22

handbook-guidance
  1. (1) COB 6.5.23 R - COB 6.5.29 R set out the Tables, Deductions Summary and method of calculating the 'Effect of deductions to date' for life policies.
  2. (2) COB 6.5.30 R to COB 6.5.36 G set out the Tables, Deductions Summary and method of calculating 'Effect of deductions to date' for key features schemes.
  3. (3) COB 6.5.37 R outlines a simplified illustration of charges for stakeholder pension schemes. There is no requirement for the tables of figures or the reduction in yield summary required for life policies or schemes.

COB 6.5.22A

handbook-guidance
There is no requirement for a tabular illustration of charges under a SIPP, personal pension deposit or personal pension product. Instead, a firm should ensure that the information provided contains a full and fair description of all of the charges that apply or may apply to the private customer in respect of the scheme, including asset transactions under a SIPP.
  • 06/04/2007

Tables for life policies

COB 6.5.23

handbook-rule
For life policies which can have a surrender value, a firm must include the contents of COB 6.5.24 R unless COB 6.5.28 R applies.
  • 01/12/2001

COB 6.5.24

handbook-rule

The early years

This table belongs to COB 6.5.23 R

  • 01/12/2001

COB 6.5.25

handbook-rule

When completing COB 6.5.24 R, a firm must:

  1. (1) under the heading 'the early years' include figures for the first five years of the life policy or, if the life policy has a fixed term of less than five years, as many of them as fall before the maturity date;
  2. (2) under the heading 'the later years' include figures for the tenth and every subsequent fifth year of the term of the life policy (or of the contract period as defined in COB 6.6.25 R if that is shorter) and for the final year, except in the following cases:
    1. (a) for a whole-life policy, figures must be included for every tenth year and:
      1. (i) the final year, assuming that the life policy will continue (unless and until converted to a fixed term) until the insured life (or the youngest insured life) attains the age of 75 years or to a term of ten years if that is later; or
      2. (ii) the year in which the projected fund reaches zero if earlier than (i); the consequences of this must be drawn to the private customer's attention;
    2. (b) in the case of a single premium life policy with no fixed term, a term of ten years should be assumed, but figures for a longer term may be shown in addition;
    3. (c) for a ten-year life policy, the figures for the final year may be included in the 'early years' table;
    4. (d) for an alternatively secured pension, figures must be included for each year for a term of ten years, but figures for a longer term can be shown in addition; and
    5. (e) where there is any significant discontinuity in the trend of surrender or transfer values, figures should be given for all the intervening years.
  3. (3) in the 'Total paid in to date' column, include cumulative totals of premiums paid (making adjustment as necessary to take account of any automatic premium changes);
  4. (4) in the 'Total actual deductions to date' and 'Effect of deductions to date' columns, include the cumulative sum of the charges and expenses (as defined in COB 6.6.23 R) and the cost of any protection benefits expected to be levied against the life policy; they must be calculated in accordance with COB 6.5.29 R;
  5. (5) in the 'What you might get back' column, include projections of surrender values for the life policy:
    1. (a) these must be calculated in accordance with COB 6.6.38 R (projections of surrender values) assuming the premium and any other relevant matters given for the purposes of COB 6.5.13 R (Nature of policy) and COB 6.5.15 R (An Example);
    2. (b) the surrender value of a premium on a particular date must be calculated by assuming that any premium payable on that date is payable on the following day; and
    3. (c) where any surrender values are guaranteed they must be provided with a suitably adjusted heading and introductory text;
  6. (6) where the life policy is a personal pension, replace 'What you might get back' with 'What the transfer value might be' and make suitable amendments to the explanatory text; for a personal pension policy with income withdrawals or short-term annuity it must be replaced with 'Open market value';
  7. (7) where the private customer is entitled to exercise and has chosen, or expressed the intention, to exercise the right to make partial surrenders, include a column headed 'Withdrawals' or, in the case of a personal pension with income withdrawals or short-term annuity, 'Total income taken'; the sum of withdrawals must be shown;
  8. (8) for a personal pension with income withdrawals or short-term annuity, include a table headed 'What effect will the deductions have?' instead of 'The early years' and 'The later years'; where there is any charge or penalty in calculating the open market value, all the years to which this applies should be given; and
  9. (9) in the case of a long-term care insurance contract based on single premium investment bonds, where the standard ten-year table does not illustrate adequately how the charges taken from a policy can increase considerably with age:
    1. (a) the table must be extended to show figures at ten-year intervals and the year in which the private customer attains 100 years or the year the fund is exhausted if earlier; but
    2. (b) the standard ten-year figure must be used for the reduction in yield and the accompanying words amended accordingly;
  10. (10) in the case of a stakeholder product (which is not a stakeholder pension) the table may be given on the basis of generic figures and values.

COB 6.5.26

handbook-rule
COB 6.5.23 R - COB 6.5.25 R do not apply to a life policy which will never have a surrender value; the following warning must be given instead of the tables: 'WARNING - this policy has no cash-in value at any time'.
  • 01/12/2001

Deductions summary for life policies

COB 6.5.27

handbook-rule

The following statements must appear beneath the information required by COB 6.5.23 R, unless COB 6.5.28 R applies:

  1. (1) 'What are the deductions for?'
  2. (2) 'The deductions include [the cost of life cover, sickness benefits,] [commissions/remuneration,] expenses, charges, any surrender penalties and other adjustments.'
  3. (3) 'The last line in the table shows that over the full term of the policy the effect of the total deductions could amount to £x.'
  4. and then either:
  5. (4) 'Putting it another way, leaving out the cost of life cover [and sickness benefits] this would have the same effect as bringing investment growth from x% a year down to y% a year.' or
  6. (5) 'Putting it another way, if the growth rate were to be x%, which is in no way guaranteed, this would have the effect of reducing it to y% a year.'
  • 01/12/2001

COB 6.5.28

handbook-rule

The information relating to 'Total actual deductions to date' and 'Effect of deductions to date' in COB 6.5.23 R, and the information relating to reduction in yield required by COB 6.5.27 R, do not need to be given for the following categories of life policy:

  1. (1) a without-profits life policy of which the benefits, except on surrender or variation, are guaranteed benefits;
  2. (2) a life policy for a term not exceeding five years; and
  3. (3) a life policy held within a CTF.
  • 01/12/2001

Calculation method for 'effect of deductions to date' for life policies

COB 6.5.29

handbook-rule

In COB 6.5.24 R the 'Total actual deductions to date' and the 'Effect of deductions to date' must be calculated for each of the years detailed in COB 6.5.25 R. These are the amounts of all deductions that are expected to be levied against the assets and premiums in respect of charges and expenses (as defined in COB 6.6.23 R), and surrender penalties, as well as allowance for the cost of risk benefits (defined in COB 6.6.28 R) to the end of the year. They must be calculated as follows.

  1. (1) The premiums must be accumulated at the intermediate rate prescribed in COB 6.6.49 R for the category of life policy to which the key features relates (the 'prescribed rate'), making no allowance for charges and expenses and other deductions.
  2. (2) 'Effect of deductions to date' must be derived by subtracting the amount shown in the column 'What you might get back' from premiums accumulated in accordance with (1).
  3. (3) The figures in the column 'Effect of deductions to date' must reflect the charges and expenses accumulated at the prescribed rate. The column headed 'Total actual deductions to date' must show the sum of actual deductions.
  4. (4) The deductions for each year must be calculated by subtracting from the 'Effect of deductions to date' for that year the 'Effect of deductions to date' for the previous year (if any), increased by the amount of interest for the year calculated at the prescribed rate.
  5. (5) 'Total actual deductions to date' is the sum of the figures derived in accordance with (4) for the year in question and all previous years; where it is negative, nil must be shown for that year.
  • 01/12/2001

Table for key features schemes

COB 6.5.30

handbook-rule
For key features schemes, a firm must include the contents of COB 6.5.31 R unless the key features scheme is to be held within a stakeholder CTF.

COB 6.5.31

handbook-rule

This table belongs to COB 6.5.30 R

  • 01/12/2001

COB 6.5.32

handbook-rule

When including the contents of COB 6.5.31 R, a firm must replace the wording in brackets as directed by the instructions in those brackets and:

  1. (1) when the inclusion of a scheme projection within key features is compulsory in accordance with COB 6.5.15 R (2), include figures calculated in accordance with COB 6.6 (Projections):
    1. (a) at the end of years 1, 3, 5 and 10 and (optionally) for years 2 and 4;
    2. (b) then for each fifth year following the tenth year which falls within the period of the projection; and
    3. (c) the final year of the projection;
  2. (2) when a scheme projection is not required by COB 6.5.15 R (2) but is included at a firm's discretion, include figures at the end of years 5 and 10 and (optionally) for years 1 and 3 or for years 1 to 4, all calculated in accordance with COB 6.6 (Projections);
  3. (3) in the 'Investment to date' column, include:
    1. (a) the actual amount which the private customer is proposing to invest; or
    2. (b) an amount which is representative of the type of business which the firm conducts (or proposes to conduct) in relation to the contract in question;
  4. but where, under COB 6.5.15 R (2), a projection is included in the key features, the amount shown as the 'Investment' must be the same as the amount used as the basis for the projection;
  5. (4) in the 'Effect of deductions to date' column, include the cumulative sum of charges and expenses (as defined in COB 6.6.23 R) for each of the years shown, these figures must be calculated in accordance with COB 6.5.35 R- Calculation Method for Effect of charges to date;
  6. (5) in the 'What you might get back' column, include figures taking account of charges and expenses showing what the value might be if the scheme were cashed in;
  7. (6) where the contract is a personal pension, replace 'What you might get back' with 'What the transfer value might be', and make suitable amendments to the explanatory text; for a personal pension contract with income withdrawals or short-term annuity the replacement must be 'Open market value';
  8. (7) include extra columns in the Table in the following cases:
    1. (a) where the private customer is entitled to exercise and has chosen, or expressed the intention, to exercise the right to make partial withdrawals, an extra column must be included headed 'Withdrawals' or, in the case of a personal pension contract with income withdrawals or short-term annuity, 'Total income taken'; 'Withdrawals' must include distributions of income;
    2. (b) where the investment involves periodic redemptions at pre-determined intervals to make payments to the private customer, a column headed 'Redemptions' is needed;
    3. (c) where the investment distributes income and does not involve the automatic reinvestment of this income, a column headed 'Income' must be included;
  9. in (a), (b) and (c) the arithmetic sum of the withdrawals or redemptions or income payments must be stated, on the assumption that these are made throughout on the same basis as contemplated at the time the projection was prepared; the method set out in COB 6.6.36 R must be used to calculate distributions of income;
  10. (8) for a personal pension contract with income withdrawals or short-term annuity, include in a table under the heading 'What effect will deductions have?' figures for every fifth year; where there is any charge or penalty in calculating the open market value, all the years to which this applies must be given;
  11. (9) include a statement that allowance for tax relief has been made in the calculation where any tax relief available to the scheme has been taken into account in the calculation of charges and expenses.
  12. (10) in the case of a stakeholder product (which is not a stakeholder pension) the table may be given on the basis of generic figures and values.

Deductions summary for key features schemes

COB 6.5.33

handbook-rule

The statements in (1) and (2), or in (1) and (3) must appear beneath the information required by COB 6.5.31 R:

  1. (1) 'The last line in the table shows that over [n] years the effect of the total charges and expenses could amount to £x';
  2. (2) 'Putting it another way, if the growth rate were to be (x)%, which is in no way guaranteed, this would have the effect of reducing it to (y)% a year';
  3. (3) 'Putting it another way, this would have the same effect as bringing investment growth from (x)% a year down to (y)% a year'.
  • 01/12/2001

COB 6.5.34

handbook-rule
  1. (1) The figure [n] in the prescribed wording in COB 6.5.33 R is the number of years in figures given at the bottom of the table, as appropriate for each transaction.
  2. (2) The 'Investment to date' must be accumulated to the end of [n] years at the relevant rate of return (x)% making full allowance for the charges and expenses (as specified in COB 6.6.23 R).
  3. (3) The rate of return (y)% must be found which, if applied (on a compound basis) to the amounts included in the 'Investment to date' column over the [n] years, without making any allowance for the charges and expenses, would produce the same sum as that calculated in (2).
  • 01/12/2001

Calculation method for 'effect of charges to date' for key features schemes

COB 6.5.35

handbook-rule

For each year, figures must be given for the effect of deductions assuming the fund grows in accordance with a relevant rate of return (as defined in COB 6.6.33 R). These calculations must reflect all deductions (charges and expenses as defined in COB 6.6.23 R) expected to be levied against the fund and against the private customer's investment. The calculations must be made on the basis of the following principles:

  1. (1) for each year the 'Investment' must be accumulated, at the relevant rate of return (as specified in COB 6.6.33 R), to the end of each year, making due allowance for the charges and expenses;
  2. (2) for each year the 'Investment' must be accumulated, at the relevant rate of return, to the end of each year, but making no allowance for the charges and expenses;
  3. (3) the 'Effect of deductions to date' is the amount calculated in (1) subtracted from the amount calculated in (2);
  4. (4) a rate of return which is lower than the relevant rate of return must be used where the firm expects that rate would imply an overstatement of the investment potential; and
  5. (5) the calculations specified in (1) and (2) must allow for any partial encashment of units or shares or distributions of income where under the terms of the scheme the private customer has exercised, or has expressed the intention of exercising, an option to make such encashments or to receive such income or where such encashments or distributions will automatically apply. The allowance must be assumed in accordance with the estimated rate or amount, unless to do so would be inappropriate for that scheme.
  • 01/12/2001

COB 6.5.36

handbook-guidance
COB 6.5.35 R (5) applies, for example, to money market schemes and bond funds.
  • 01/12/2001

Stakeholder pension schemes

COB 6.5.37

handbook-rule
  1. (1) The statement in (2) must appear beneath or within the information required by COB 6.5.20 R.
  2. (2) "There is an annual charge of [y]% of the value of the funds you accumulate. If your fund is valued at £500 throughout the year, this means we deduct [£500 x y/100] that year. If your fund is valued at £7500 throughout the year, we will deduct [£7500 x y/100 that year."
  • 01/12/2001

CTFs and stakeholder products: annual charges

COB 6.5.37A

handbook-rule
  1. (1) If a firm imposes one annual charge including expenses, it need not make the detailed disclosures required by COB 6.5.24 and COB 6.5.30; but if it does not make those disclosures, it must instead include either:
    1. (a) the following statement (the last sentence must be included if and only if it is clear at the time of acquisition that the annual charge will reduce to r% after a fixed period):
  2. "There is an annual charge of [y]% of the value of the funds you accumulate. If your fund is valued at £250 throughout the year, this means we deduct [£250 x y/100] that year. If your fund is valued at £500 throughout the year, this means we deduct [£500 x y/100] that year. After ten years these deductions would reduce to [£250 x r/100] and [£500 x r/100] respectively."
  3. or;
    1. (b) the information required by COB 6.5.20.
  • 01/12/2004

Commission and commission equivalent for life policies, key features schemes and stakeholder pension schemes

COB 6.5.38

handbook-rule

A firm must include under the heading 'How much will the advice cost?' either the statement prescribed in (1), (1A) or (1B), as applicable, or the information required by (2):

  1. (1) for life policies (other than long-term care insurance contracts which are pure protection contracts) or stakeholder pension schemes: 'Your adviser will give you details about the cost. The amount will depend on the size of the premium and the length of the policy term. It will be paid for out of the deductions'; or
  2. (1A) for key features schemes : 'Your adviser will give you details about the cost. The amount will depend on the size of your [use: 'investment' or 'contribution'] [add if appropriate: 'and in the case of regular savings the period for which you make them']. It will be paid for out of the charges'; or
  3. (1B) for long-term care insurance contracts which are pure protection contracts: 'Your adviser will give you details about the cost. The amount will depend on the size of the premium and the length of the policy term.'
  4. (2)
    1. (a) the amount or value in cash terms of the commission or remuneration, and an indication of the timing of these payments; and
    2. (b) a statement that commission or equivalent is paid for out of 'the deductions or charges, if more appropriate' and, if applicable, that the amount will depend on the size of the premium or contribution and the length of the life policy, scheme or stakeholder pension scheme term.

COB 6.5.39

handbook-guidance
The information given under COB 6.5.38 R (2) may include the name of the representative to whom the commission or equivalent is to be paid.
  • 01/12/2001

Further information for life policies, key features schemes, stocks and shares ISAs, PEPs, CTFs and stakeholder pension schemes

COB 6.5.40

handbook-rule

A firm must include the following information in the key features, separately or as part of the information required by COB 6.5.2 R:

  1. (1) for life policies:
    1. (a) a clear indication, in one place, of the nature and amount or rate of any charges or expenses which the private customer will or may bear; if charges or expenses are levied in the form of reduced investment, both the method and effect must be clearly explained; in the case of a single premium charge for mortality or morbidity under linked benefit policies, it is sufficient to describe its nature and basis;
    2. (b) the information that Annex III to the Consolidated Life Directive requires to be communicated to policyholders, which is specified in COB 6.5.49 R; and
    3. (c) an explanation how the private customer may obtain further information about compensation arrangements and other matters relating to the life policy;
  2. (2) for all key features schemes , an explanation that other information about the scheme is available on request and how it may be obtained;
  3. (3) for regulated collective investment schemes that constitute key features schemes and for such investments held within a PEP or an ISA:
    1. (a) a statement where details of the latest estimated distribution yield and buying and selling prices can be found;
    2. (b) in the case of any purchase, how and when the price to be allocated in respect of each payment will be determined;
    3. (c) whether certificates will be issued and, if so, when they will be sent;
    4. (d) how units or shares may be redeemed and when payment on redemption will be made;
    5. (e) the names and addresses of the scheme manager or authorised corporate director, and the names of the trustees, or depositary (if any);
    6. (f) where and how copies of scheme particulars, annual and half-yearly reports and accounts and prospectuses can be obtained;
    7. (g) an explanation of any relevant right to cancel or withdraw, or, where it is the case, that such rights do not apply;
    8. (h) how complaints and queries are dealt with and how further details of compensation arrangements (if any) can be obtained;
    9. (i) a summary of the private customer's potential liability (if any) to income tax and capital gains tax;
    10. (j) whether the private customer has a choice to reinvest income, where uninvested money will be held and whether interest is paid on such money;
    11. (k) for single-priced schemes:
      1. (i) how the scheme may suffer dealing costs as a result of transactions in units; and
      2. (ii) whether it is the authorised fund manager's policy that investors who carry out such transactions may be liable to contribute towards those dealing costs by means of a dilution levy or dilution adjustment, and, if not, an explanation of how this may affect the future growth of the scheme;
    12. (l) in relation to SDRT provision:
      1. (i) how the scheme may suffer stamp duty reserve tax as a result of transactions in units; and
      2. (ii) whether the authorised fund manager's policy is such that an SDRT provision may be imposed;
    13. (m) if there is any arrangement intended to result in a particular capital or income return from the units or shares or any investment objective of giving protection to their capital value or income return:
      1. (i) details of that arrangement or protection;
      2. (ii) for any related guarantee, sufficient details about the guarantor and the guarantee to enable a fair assessment of the guarantee; and
      3. (iii) a description of the risks that could affect achievement of that return or protection including details of what happens when an investment is encashed before the expiry of any related guarantee or protection;
    14. (n) if there is a class of limited issue shares or limited issue units, a summary of the restrictions on the issue and sale of those shares or units.
  4. (4) for investment trust savings schemes and for such investments held within a PEP or an ISA:
    1. (a) when shares will be purchased for the scheme, where uninvested money will be held and whether interest is paid;
    2. (b) where information about the investment trust share price, yield, and premium and discount information can be obtained;
    3. (c) where information about the net asset value and latest dividend can be found;
    4. (d) whether the private customer has a choice to reinvest income, how it is reinvested, or how it is paid to the private customer;
    5. (e) details of any nominees with which shares are registered;
    6. (f) how shares can be sold and how the sale proceeds are determined;
    7. (g) whether applications and payments will be acknowledged and whether contract notes or certificates are issued;
    8. (h) whether there will be a statement of account showing details such as number and cost of shares and balance of cash;
    9. (i) an explanation of any right to withdraw or cancel (as specified in COB 6.7) or, where it is the case, that such rights do not apply;
    10. (j) where the investment trust report and accounts may be obtained;
    11. (k) information about the manager and administrator of the scheme;
    12. (l) the private customer's options in the case of items such as rights issues;
    13. (m) how to stop investing in or how to leave a scheme and the position in respect of the shares held;
    14. (n) terminations or alterations by the scheme manager;
    15. (o) taxation details in respect of the private customer's investment; and
    16. (p) how complaints are dealt with and how further details of compensation arrangements (if any) can be obtained;
  5. (5) for ISAs with a stocks and shares (equity and insurance) component and PEPs, in addition to (1), (2), (3) or (4):
    1. (a) a description of the nature of the services which will be provided for the private customer;
    2. (b) [deleted]
    3. (c) [deleted]
    4. (d) a statement that the favourable tax treatment of ISAs may not be maintained;
    5. (e) how and when statements (if any) will be sent;
    6. (f) an explanation how the ISA or plan may be terminated or transferred to another ISA or PEP manager; and
    7. (g) whether the ISA is a mini-or maxi-ISA agreement and an explanation of the differences between the two.
  6. (6) For stakeholder pension schemes, an explanation how complaints are dealt with and how further details of compensation arrangements (if any) can be obtained.
  7. (7) For investments held within a CTF:
    1. (a) a prominent statement that after money is paid into a CTF it is locked in, and that this means that it can only be accessed by the child when he is 18, except as permitted by the CTF Regulations, and any contributions made to the CTF cannot be returned to the donor;
    2. (b) if the CTF is a stakeholder CTF, an explanation of the minimum standards (as described in paragraph 2 of the Schedule to the CTF Regulations) and CTF lifestyling approach (as described in paragraph 2 of the Schedule to the CTF Regulations), together with a statement that satisfying these minimum standards does not mean that the investment is suitable for a customer or that there is any guarantee of performance;
    3. (c) if the CTF is a non-stakeholder CTF, a prominent statement that it is not a stakeholder CTF and that a stakeholder CTF is available from a named alternative CTF provider, together with a detailed description of that stakeholder CTF;
    4. (d) a statement that the CTF will not be opened until any cancellation period has expired; and
    5. (e) a balanced comparison between stakeholder CTFs and non-stakeholder CTFs.

COB 6.5.42

handbook-rule

If COB 6.4.13 R applies, for a cash deposit ISA, the private customer must be given the following information (in accordance with COB 6.4.13 R) and, in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1 in place of key features:

  1. (1) [deleted]
  2. (2) a statement making it clear whether the ISA is a mini or a maxi-ISA agreement and explaining the differences between the two;
  3. (3) the minimum amount needed to open an account;
  4. (4) the maximum yearly deposit;
  5. (5) the interest rate earned, and if and how it may vary;
  6. (6) the calculation of interest;
  7. (7) how to make withdrawals and any limits;
  8. (8) details of the arrangements for the application of the right to cancel, including the following:
    1. (a) the options available on cancellation (a firm must either assist the private customer in switching accounts or refund all monies deposited together with interest);
    2. (b) information about how cancellation will operate in circumstances where the account forms part of a maxi-ISA which contains other components;
    3. (c) a statement that the effect of cancelling the last component has the effect of cancelling the entire ISA agreement and may also (where it is the case) delay the customer from entering into another ISA agreement until the next tax year; and
    4. (d) a statement that a private customer who exercises a right to cancel will not incur any additional charges or be affected by any notice period;
  9. (9) the arrangements for handling complaints;
  10. (10) that the favourable tax treatment may not be maintained;
  11. (11) that compensation may be available from the Financial Services Compensation Scheme;
  12. (12) where applicable, that the firm cannot accept money directly and acts only as agent in arranging the cash deposit ISA, identifying the principal to whom such monies should be made payable, and explaining that the principal has accepted responsibility for the activities of the firm in relation to the cash deposit ISA;
  13. (13) where a private customer can obtain further information about ISAs and, if applicable, other products within the firm's range; and
  14. (14) a warning that a mini- and maxi-ISA may not be opened in the same tax year and that, by opening a mini cash ISA, the customer will be limiting the amount of investment in equities that he can make through ISAs, if he does not already have a mini stocks and shares or insurance ISA (not applicable for a TESSA-only ISA).

COB 6.5.42A

handbook-rule

If COB 6.4.13 applies, for a cash deposit CTF, the private customer must be given in place of key features:

  1. (1) the information contained in COB 6.5.42 (4) and COB 6.5.42 (8) and in COB 6.5.40 (7);
  2. (2) details of the arrangements for exercising any right to cancel;
  3. (3) a statement explaining where a private customer can obtain further information about CTFs
  4. (4) in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1.
  • 01/12/2001

Friendly Society tax exempt policies

COB 6.5.43

handbook-rule

Where a private customer buys a tax-exempt policy issued by a friendly society, or agrees to make additional contributions to such a policy, the firm may, where there is a right to cancel under COB 6.7 (Cancellation and withdrawal), issue an abbreviated form of key features containing the following details:

  1. (1) the amount of the contribution;
  2. (2) the term over which the contribution will be paid;
  3. (3) material differences between the terms of any increase and those of the existing policy;
  4. (4) the amount or value in cash terms of the commission or remuneration; and
  5. (5) in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1.

Traded life policies

COB 6.5.44

handbook-rule
When personally recommending the purchase of a traded life policy, a firm may provide a private customer with the information in COB 6.5.49 R and, in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1 in place of key features (in accordance with COB 6.4.14 R).

Broker funds

COB 6.5.45

handbook-rule

In relation to any fund or scheme of which the firm is a broker fund adviser, at the same time as providing a private customer with a suitability letter (in accordance with COB 5.3 (Suitability)) or before any change in investment objectives or strategies, the firm must inform the private customer in writing of:

  1. (1) the investment objectives, and the policies and strategies which are proposed to be followed to achieve those objectives;
  2. (2) the relevant published index or other indicator with which comparison of the performance of the fund or scheme may fairly be made, which is, in the case of:
    1. (a) life policies or pension funds:
      1. (i) where the long-term insurer has its own managed unit-linked life or pension fund, the average performance of that managed fund; or
      2. (ii) the average performance of one or more other funds, which are not broker funds, into which under the terms of the policy the private customer may switch, the objectives of which do not conflict with those of the broker fund; or
      3. (iii) where there is no such fund, the sector average of general managed life or pension funds;
    2. (b) broker unit trusts, the sector average of unit trusts appropriate to the objectives and strategy of the broker unit trust;
  3. (3) a published index or sector average which the firm must identify as appropriate to the investment objectives and strategy of the fund or scheme under comparison; and
  4. (4) the name of any person providing advice under the arrangement.
  • 01/12/2001

Other information: post-sale confirmation: life policies

COB 6.5.46

handbook-rule
The post-sale confirmation to be given to private customers in accordance with COB 6.3.3 R must include the information required by COB 6.5.15 R - COB 6.5.19 R(an Example), COB 6.5.23 R to COB 6.5.28 R (Tables and Deductions Summary) and COB 6.5.38 R (Commission and commission equivalent).
  • 01/12/2001

Consolidated Life Directive annex III: 'information for policyholders'

COB 6.5.47

handbook-rule
  1. (1) A firm to which COB 6.5.40 R (1)(b) applies must communicate in writing the information prescribed in COB 6.5.49 R to the policyholder, before the policy is concluded, in an official language of the EEA State of the commitment.
  2. (2) This information may be in another language if the policyholder so requests, and the law of the EEA State so permits or the policyholder is free to choose the law applicable.
  • 01/12/2001

COB 6.5.48

handbook-guidance
The headings and other wordings within COB 6.5.49 R follow those used in the European Directives.
  • 01/12/2001

COB 6.5.49

handbook-rule

Consolidated Life Directive annex III table of 'information for policyholders'

This table belongs to COB 6.5.47 R

Life policies: requests for quotations for surrender values

COB 6.5.50

handbook-rule

When a long-term insurer receives:

  1. (1) a request from a private customer for a quotation for the surrender value of a life policy; or
  2. (2) any other indication that a private customer wishes to surrender a life policy;
  3. which is of a type which may be traded on an existing secondary market for life policies, it must, before or when providing the quotation (or, if no quotation is provided, before accepting a surrender), make the policyholder aware in writing of:
  4. (3) the fact that, as an alternative to surrendering to the long-term insurer, the life policy may be traded on that secondary market;
  5. (4) the fact that there may be financial benefits in trading the life policy when compared to surrendering it to the long-term insurer;
  6. (5) how the policyholder may trade the life policy on the secondary market should he decide to do so; and
  7. (6) other relevant options available to the policyholder.

COB 6.5.51

handbook-guidance
  1. (1) When complying with COB 6.5.50 R, a long term insurer may identify whether the policy is of a type which may be traded by obtaining information from a trade association or other body which holds information on the relevant secondary market.
  2. (2) COB 6.5.50 R (5) requires a firm to ensure that the policyholder is made aware of the existence of the secondary market and how he might access it. A firm may, if it wishes, go further than this (for example, by telling the policyholder more about the market and the procedures) but it is not obliged to do so.
  3. (3) The other relevant options referred to in COB 6.5.50 R(6) may, for example, include informing the policyholder about making the policy paid-up or taking a loan against the policy, and about the desirability of obtaining professional advice before surrendering.

COB 6.5.52

handbook-rule
Where a long-term insurer believes that COB 6.5.50 R does not apply because its own policies are of a type which are not tradable, it must review the position every six months and make and retain records indefinitely to support its view.

Open market option: "Wake-up letter"

COB 6.5.53

handbook-rule
  1. (1) A firm must provide a scheme member or policyholder described in (2) with the information set out in (3) in writing:
    1. (a) when there is a request for a retirement quotation more than four months before the scheme member's or policyholder's intended retirement date; and
    2. (b) at least four months before the scheme member's or policyholder's intended retirement date.
  2. (2) A person in relation to whom (1) applies is a private customer who:
    1. (a) is a member of a personal pension scheme; or
    2. (b) is a member of a stakeholder pension scheme; or
    3. (c) is the holder of a free-standing additional voluntary contribution contract; or
    4. (d) (where an open market option is available under the contract terms) is the holder of a retirement annuity contract; or
    5. (e) (where an open market option is available under the contract terms) is the holder of a pension buy-out contract.
  3. (3) The information which a firm must provide in writing under (1) is an explanation of:
    1. (a) the open market option (including the fact that companies offer different annuity rates and different types of annuity, and that these include:
      1. (i) annuities which provide level or increasing benefits;
      2. (ii) annuities which cover either a single life or make provision for a spouse or a partner; and
      3. (iii) annuities which may be with or without guarantee on the early death of the scheme member or policyholder;
    2. and that the scheme member or policyholder may get a better deal by shopping around);
    3. (b) the financial advantages and disadvantages in general terms of making use of this option when compared with taking a pension annuity with that firm;
    4. (c) how the scheme member or policyholder may make use of the open market option should he decide to do so; and
    5. (d) the advisability of taking professional advice.

COB 6.5.53A

handbook-rule
A firm to which COB 6.5.53 R (3)(a) applies must also provide general information explaining characteristic features of the types of annuity mentioned.
  • 21/04/2005

COB 6.5.54

handbook-guidance
Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading. In the FSA's view, a firm would not normally be able to satisfy its obligations under Principle 7 if it sent the information required under COB 6.5.53 R (1)(b) more than six months before the scheme member's or policyholder's intended retirement date.

COB 6.5.55

handbook-guidance
  1. (1) A firm may comply with its obligations under COB 6.5.53 R (3)(a) (b) (c) and (d) and COB 6.5.53A R by providing a copy of the FSA's factsheet about annuities entitled "Your pension 'it's time to choose'". However, if a firm is aware that its pension scheme or contract offers particular features which are likely to be relevant to customers' decisions (for example, an option to acquire an annuity at a guaranteed rate of interest) then the firm would also be expected to draw attention to those features. Firms can obtain copies of this factsheet by contacting the FSA's Consumer Helpline on 0845 606 1234.
  2. (2) Where a firm provides the FSA 's factsheet about annuities ("Your pension "it's time to choose?") under COB 6.5.53 R, it may wish to include the following wording in its covering letter: "The enclosed factsheet about your options is from the Financial Services Authority (FSA), the independent watchdog set up by Parliament. Please read this document carefully".

Open market option: "Reminder letter?"

COB 6.5.56

handbook-rule
A firm which has provided information under COB 6.5.53 R must, at least six weeks before his intended retirement date, remind the scheme member or policyholder of that communication, and must provide him with an estimated final transfer value.

Pension income withdrawals and phased retirement

COB 6.5.57

handbook-rule

When a scheme member or policyholder described in COB 6.5.53 R (2) indicates to the provider of that scheme or policy that he is considering or has decided:

  1. (1) to discontinue an income withdrawal arrangement; or
  2. (2) to take out a further sum of money from his pension fund to buy an annuity as part of a phased retirement arrangement;

the provider of that scheme or policy must send the scheme member or policyholder the information required by COB 6.5.53 R, unless the scheme member or policyholder has already been sent the information by the provider in the previous 12 months.

COB 6.5.58

handbook-guidance
COB 6.5.57 R is intended to ensure that, when a scheme member or policyholder is considering or has decided to discontinue an income withdrawal arrangement and buy an annuity, he receives a further reminder from his current provider of the information required by COB 6.5.53 R (3). Similarly, where a scheme member or policyholder has opted for phased retirement, COB 6.5.57 R requires his pension plan provider to send him this information when he is about to buy a further annuity. This may be several years after the information on the open market option was previously sent to the scheme member or policyholder and will ensure that he is made aware, at the time he decides to buy an annuity, of the advantages and disadvantages of using the open market option. However, it is not necessary to send the information to scheme members or policyholders described in COB 6.5.57 R (1) or (2) if the provider has already done so in the previous 12 months.

COB 6.6

Projections

  • 01/12/2004

Application

COB 6.6.1

handbook-rule

Purpose

COB 6.6.2

handbook-guidance
COB 6.6 amplifies Principle 7 (Communications with clients), which requires a firm to pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. A projection needs to be carried out on a basis of uniform and consistent rates of investment return so that firms do not seek to compete on the basis of wholly speculative forecasts as to the potential value of future benefits. This should ensure that private customers purchasing a life policy, key features scheme, simplified prospectus scheme, or stakeholder pension scheme receive information about possible future returns from their investment in a way which is fair and not misleading.

Content

COB 6.6.3

handbook-guidance

COB 6.6 sets out:

  1. (1) when these rules apply COB 6.6.4 R - COB 6.6.7 R);
  2. (2) the information and statements to accompany projections COB 6.6.8 R - COB 6.6.18 R);
  3. (3) what records must be kept of projections issued to customers COB 6.6.19 R);
  4. (4) the method of calculating a projection COB 6.6.20 G - COB 6.6.53 G);
  5. (5) the method of calculating the effect of deductions (the reduction in yield) which must be included within key features COB 6.6.54 G - COB 6.6.62 R);
  6. (6) the method of calculating charges and expenses relating to key features schemes or simplified prospectus schemes. COB 6.6.63 G - COB 6.6.79 G);
  7. (7) assumptions to be used when converting a retirement fund into an annuity COB 6.6.80 R - COB 6.6.85 R); and
  8. (8) how to produce a pension transfer value analysis COB 6.6.86 G - COB 6.6.93 R).

General

COB 6.6.4

handbook-rule
A firm must not provide a projection for a life policy, key features scheme, simplified prospectus scheme, or stakeholder pension scheme unless the projection is calculated and presented in accordance with the rules in COB 6.6.

COB 6.6.4A

handbook-guidance
If a firm produces a projection for a SIPP, it should do so in a way which is consistent with the principles in COB 6.6 (Projections).
  • 06/04/2007

Exceptions

COB 6.6.5

handbook-rule

COB 6.6.4 R does not apply to a firm when it provides a projection:

  1. (1) of the benefits payable under a defined benefit occupational pension scheme, unless they are money-purchase benefits;
  2. (2) issued with a view to determining a maximum contribution allowed by HM Revenue and Customs, provided the assumptions used in calculating such a contribution are disclosed;
  3. (3) if the benefits are fixed and do not depend on an assumption of a future investment return;
  4. (4) of a benefit under an existing contract where the date to which the benefit is being projected is not more than six months after the date on which the projection is given;
  5. (5) contained in a decision tree as specified in COB 6.5.8 R;
  6. (6) of the benefits payable under pension scheme or a stakeholder pension scheme if they were:
    1. (a) calculated and issued in accordance with regulations made under section 113 of the Pensions Schemes Act 1993; or
    2. (b) calculated and issued as in (a) and, in addition, includes one or more of the following benefits:
      1. (i) the projected fund at the projection date; or
      2. (ii) the cash sum and the residual pension in real terms; or
      3. (iii) the pension in real terms calculated assuming a rate of return 1% per annum less than that prescribed in the regulations; or
    3. (c) calculated as in (a) or (b) but where the illustration of benefits is not required to be issued under the regulations by reference to proximity to the projection date or the small size of the fund.
  7. (7) provided in accordance with COB 8.2.4 R and COB 8.2.17 E where the life policy, key features scheme, simplified prospectus scheme, or stakeholder pension scheme is a structured capital-at-risk product.

COB 6.6.5A

handbook-guidance
  1. (1) A revised projection to take account of a different marital or civil partnership status or projection date will fall within the exception in COB 6.6.5 R (6) as long as it meets the conditions of that rule.
  2. (2) Where the exception in COB 6.6.5 R (6) does not apply and a firm provides a real value projection for a pension scheme or a stakeholder pension scheme, then normally it would be a type P projection if in terms of prices or a type Q projection if in terms of earnings. The calculation method is set out in COB 6.6.34 R (5).

Higher volatility funds

COB 6.6.6

handbook-rule
A firm must not provide a projection of possible investment returns or realisable values, or figures or statements which would enable the calculation of such a projection, for an investment in a higher volatility fund.
  • 01/12/2001

Projections issued by independent intermediaries

COB 6.6.7

handbook-rule
A firm must, in addition to complying with other rules in this section, ensure that a projection given to a particular customer is relevant to that customer's circumstances.
  • 01/12/2001

Information to accompany projections

COB 6.6.8

handbook-rule
  1. (1) A document containing a projection must include the information detailed in COB 6.5 (Key Features) under the headings 'An Example', 'Tables', 'Deductions Summary' and 'Commission and Remuneration', unless (2) applies.
  2. (2) The information under the headings 'Tables', 'Deductions Summary' and 'Commission and Remuneration' need not be included in a projection issued in respect of:
    1. (a) an existing contract; or
    2. (b) a financial promotion (other than a direct offer financial promotion); or
    3. (c) an execution-only transaction relating to a key features scheme or a simplified prospectus scheme.
  3. (3) If the projection relates to a contract to which regular premiums or contributions can be made, the total amount or number of premiums or contributions payable over the projection term must be made clear.
  4. (3A) If the projection is a type P projection or a type Q projection, the basis used for increases in premiums or contributions must be disclosed.
  5. (4) Other than a type P projection or a type Q projection, where a projection is given which makes allowance for increases in premiums or contributions, the premium or contribution in the final year must be shown (or, where the rate of possible future increments is based upon rates of growth in a salary or index, details of that salary or index).

Generic and stochastic projections

COB 6.6.9

handbook-rule
  1. (1) A firm may provide a generic projection for illustrative purposes based on a single rate of investment return only in the following circumstances:
    1. (a) in a financial promotion (other than a direct offer financial promotion) which comprises a table (or extracts from a table) published by a newspaper, magazine or other periodical publication, or by the firm itself, which compares illustrative projections from at least five product providers; or
    2. (b) where the purpose is to indicate the likely cost of a proposed transaction; or
    3. (c) to provide an estimate of the additional premium or contribution required to achieve a specified target; or
    4. (d) when providing a type P projection or a type Q projection.
  2. (2) A firm which provides a generic projection must ensure that:
    1. (a) it does not relate solely to an existing contract;
    2. (b) the rate of return used does not exceed the higher projection rate for its class of business;
    3. (c) where the rate used exceeds the middle rate by more than 0.5 percentage point, a statement is included advising why it is believed reasonable to project at such a high rate of return;
    4. (d) where the charges and expenses (as described in COB 6.6.23 R) of the product provider are available, they are used, or an estimate is given based on the firm's knowledge of the charges and expenses applicable to similar contracts;
    5. (e) it is accompanied by the written statements contained in COB 6.6.17 R; and
    6. (f) key features or a simplified prospectus are supplied in accordance with COB 6.1 to COB 6.5 (Key Features) if a recommendation is subsequently made.
  3. (3) A firm may issue a stochastic projection only where:
    1. (a) the purpose is to indicate a range of possible outcomes; and
    2. (b) either:
      1. (i) it is provided for the purpose of a proposed transaction; or
      2. (ii) it is provided in addition to a projection which: (A) is not a stochastic projection but which complies with COB 6.6.4 R; or (B) is a projection excepted under COB 6.6.5 R(6).
  4. (4) A firm which issues a stochastic projection must ensure that:
    1. (a) it is based on a reasonable number of simulations and is consistent with the economic assumptions underlying the rates of inflation in COB 6.6.48A R and the intermediate rates of return in COB 6.6.50 R and COB 6.6.51 R;
    2. (b) its presentation does not reduce the impact of non-stochastic projections; and
    3. (c) it is issued only in circumstances in which the firm has taken reasonable steps to ascertain that the customer will be able to understand the stochastic projection.

COB 6.6.9A

handbook-evidential-provisions
  1. (1) For the purposes of COB 6.6.9 R (3)(a) and (4)(a) and (b):
    1. (a) to indicate a range of expected outcomes, a firm should present the results:
      1. (i) as amounts showing the median (50%) figure and, in addition, at least the amounts at 10% and 90%, or at least the amounts at 20% and 80%; or
      2. (ii) graphically showing the frequency of results from at least 10% to 90%; or
      3. (iii) in a diagrammatic form which indicates both the range and frequency of results;
    2. (b) to base the stochastic projection on a reasonable number of simulations, a firm should incorporate the results of at least 500 simulations; to enable consistent projections to be issued and to facilitate recreating previously issued projections, a firm should use the same set of simulations until the investment model or the underlying assumptions are revised; and
    3. (c) to be consistent with the economic assumptions, a firm should ensure that:
      1. (i) the parameters of each asset class are consistent with each other and the median (50%) result for a fund invested 70% in UK equities and 30% in UK government fixed interest stocks does not exceed a projection calculated using the intermediate rate of return from COB 6.6.50 R or COB 6.6.51 R; and
      2. (ii) the investment model is tested and adjusted so that the results are consistent with COB 6.6.9 R(4)(a).
  2. (2) Compliance with (1) may be relied upon as tending to establish compliance with COB 6.6.9 R(3)(a) and (4)(a) and (b).
  • 01/05/2003

Pension projections

COB 6.6.10

handbook-rule
For pension targeting, a firm's own assumptions as to future rates of return (but not exceeding the higher rate of return as specified in COB 6.6.49 R), salary increases and inflation must be used to determine the level of contributions. Any allowance for salary increases used in pension targeting must not be less than the rate of return assumed before retirement less 3% per annum.
  • 01/12/2001

COB 6.6.11

handbook-rule

A projection in respect of the protected rights for an appropriate personal pension must, for the purpose of comparison, include a projection which:

  1. (1) is calculated to the customer's State retirement age, using the lower and higher real rates of return specified in COB 6.6.52 R, together with a statement of the benefits which the minimum contributions would secure if the customer did not take out an appropriate personal pension;
  2. (2) [deleted]
  3. (3) aggregates contributions in respect of the current and the next two tax years;
  4. (4) is followed by the appropriate personal pension projection and a description of any differences in:
    1. (a) presentation, for example, real or monetary rates of return, joint or single life;
    2. (b) the dates from which the benefits are assumed to be payable;
    3. (c) the nature of the benefits, for example, index-linked or limited price indexation ('LPI') increases.

COB 6.6.12

handbook-guidance
COB 6.6.11 R (1) to (3) require that, where the contract is in respect of contracting-out of the State Second Pension, there should be a comparison using real rates of return of the benefits being given up and the relevant contract. COB 6.6.11 R (4) permits additional projections provided that the differences are described.

COB 6.6.13

handbook-rule

A projection for an unsecured or alternatively secured pension from a personal pension or stakeholder pension scheme:

  1. (1) must include:
    1. (a) a statement of the initial amount of maximum income as specified in the current tables published by the Government Actuary for an unsecured or alternatively secured pension;
    2. (b) a statement of the assumed initial level of income and the assumed basis for future years and in particular where there is a short-term annuity, if subsequent short-term annuities are assumed;
    3. (c) a schedule showing under the heading 'WHAT THE BENEFITS MIGHT BE' the amount of income and the fund at each, or every fifth, anniversary for each of the rates of return specified in COB 6.6.49 R;
    4. (d) a statement of the projected open market values and the amounts of annuity at age 75 or the date at which it is reasonably assumed an annuity will be purchased; and which for an alternatively secured pension will be after ten years; and
    5. (e) a statement of the amount of annuity that could be secured using an immediate annuity rate available in the market; and
  2. (2) must assume that the current rate of gilt-index yield will continue to apply in projecting amounts of minimum and maximum income throughout the term of the projection.

Statements to accompany projections

COB 6.6.14

handbook-rule
  1. (1) A document containing a projection must include the appropriate statements set out in COB 6.6.16 R - COB 6.6.18 R.
  2. (2) A statement may be altered if a firm believes on reasonable grounds that it is not wholly appropriate to the contract in question. But the alteration must not reduce the significance or impact of the statement.
  3. (3) Any statement required to accompany a projection must appear adjacent to the projected values and be in a type size no smaller or less prominent than that used for the projected values.
  • 01/11/2002

COB 6.6.15

handbook-rule
  1. (1) The statements in COB 6.6.16 R must accompany each projection for a life policy, key features scheme or simplified prospectus scheme as indicated, except a generic projection given in accordance with COB 6.6.9 R (see COB 6.6.17 R), or a protected rights annuity projection calculated in accordance with COB 6.6.11 R (see COB 6.6.18 R).
  2. (2) For a pension scheme or stakeholder pension scheme, the appropriate statement from item 4 of COB 6.6.16 R must appear immediately after the projection.
  3. (3) Where a pension scheme or stakeholder pension scheme projection, using monetary rates of return in COB 6.6.51 R, is provided at the same time as a type P projection or a type Q projection, the appropriate statement from COB 6.6.16 4 must appear immediately after the projection. The remainder of the appropriate statements in COB 6.6.16 R need only be included once, as long as the firm makes it clear that these statements apply to both types of projection.

COB 6.6.16

handbook-rule

Statements to accompany projections of life policies, key features schemes, simplified prospectus schemes, or stakeholder pension schemes (excluding generic projections and protected rights annuity projections)

This table belongs to COB 6.6.15 R

COB 6.6.17

handbook-rule

Statements to accompany generic projections

This table belongs to COB 6.6.15 R

COB 6.6.18

handbook-rule

Statements to accompany projections for protected rights contracts

This table belongs to COB 6.6.15 R

  • 01/11/2002

Records

COB 6.6.19

handbook-rule

A firm must ensure that a record of a projection provided to a customer is made and retained, unless it relates to a proposal which does not proceed. The record must be retained for a minimum period of:

  1. (1) six years in the case of a record relevant to a life policy, pension contract or stakeholder pension scheme;
  2. (2) indefinitely in the case of a record relevant to a pension transfer or pension opt-out;
  3. (3) three years in any other case.
  • 01/12/2001

The calculation of a projection

COB 6.6.20

handbook-guidance

COB 6.6.21 R - COB 6.6.53 G set out:

  1. (1) definitions of key terms used in the calculation of a projection (COB 6.6.21 R);
  2. (2) the basic approach to be used when calculating a projection for life policies (COB 6.6.34 R), Holloway sickness policies( COB 6.6.35 R), key features schemes or simplified prospectus schemes (COB 6.6.36 R) and stakeholder pension schemes (COB 6.6.34 R);
  3. (3) principles which must be taken into account when calculating a projection including general principles which may apply to all life policies, key features schemes, simplified prospectus schemes and stakeholder pension schemes (COB 6.6.37 R - COB 6.6.38 R) and specific principles applicable to certain types of product or features within a product (COB 6.6.39 R - COB 6.6.46 R);
  4. (4) tables containing the rates of return to be used when calculating a projection depending on the type of contract being projected COB 6.6.47 R - COB 6.6.53 G).

Key terms used in the calculation of a projection

COB 6.6.21

handbook-rule
The descriptions of defined terms in COB 6.6.22 R to COB 6.6.33 R apply to all references to those terms in COB 6.6.34 R - COB 6.6.78 G which detail the method of calculating projections and of calculating charges and expenses and the recommended method of calculating scheme expenses.
  • 01/12/2001

Adjusted premium

COB 6.6.22

handbook-rule
  1. (1) The adjusted premium is the premium or contribution payable under the contract during the contract period (defined in COB 6.6.25 R), disregarding any increases that cannot be quantified at the commencement of the contract (but allowing for any increases which are assumed and disclosed in the key features or projection).
  2. (2) When calculating the amount of premium or contribution, a firm may deduct:
    1. (a) the cost of any rider benefits;
    2. (b) any part of a premium or contribution which is payable in respect of an exceptional mortality risk.

Charges and expenses

COB 6.6.23

handbook-rule
  1. (1) For a key features scheme, simplified prospectus scheme or unit-linked life policy, charges and expenses are all explicit charges and expenses the customer will or may bear:
    1. (a) including:
      1. (i) all other deductions and expenses which will or may bear upon the fund (including charges in respect of any collective investment scheme or insurance fund in which any funds of the contract in question are invested but excluding dealing costs of the underlying portfolio); and
      2. (ii) all deductions from the premium or contribution payable which do not accrue to the benefit of the customer by way of contribution to the value of the benefit;
    2. (b) having regard to:
      1. (i) the principal terms of the contract; and
      2. (ii) any tax relief which will be available to the fund or key features scheme or simplified prospectus scheme in respect of so much of the fund's or scheme's gross expenses as can be properly attributed to the contract.
  2. (2) For a with-profits contract, or a unit-linked life policy where not all charges and expenses are determined in accordance with (1), charges and expenses are such expenses as the firm reasonably determines to be appropriate to the contract having regard to:
    1. (a) the principal terms of the contract;
    2. (b) any tax relief which will be available to the firm in respect of so much of the firm's gross expenses as can properly be attributed to the contract;
    3. (c) any transfers to shareholders' funds, or equivalent retentions from established surplus offset by any sustainable rate of transfer of surplus from non-profit business;
    4. (d) dealing costs of the underlying portfolio which should be excluded; and
    5. (e) any guidance published by the Institute of Actuaries or the Faculty of Actuaries (or by both jointly).
  3. (3) If a contract has explicit charges, it should be assumed that they continue at a rate no less than that at which similar charges are being made at the time when the projection or calculation of the effect of the charges is made.

COB 6.6.24

handbook-guidance
For the calculation of the effect of deductions in projections, charges are all explicit charges adjusted for tax as in COB 6.6.23 R (1)(b) and expenses are all other deductions. For stakeholder pension schemes, charges are all explicit charges and expenses for the underlying policy or contract, including any charges levied by the manager or trustees of the stakeholder pension scheme.
  • 01/12/2001

Contract period

COB 6.6.25

handbook-rule

The contract period of a life policy, key features scheme, simplified prospectus scheme or stakeholder pension scheme is the period beginning with the commencement of the contract and ending as follows:

  1. (1) for a contract which contains an option under which benefits may be:
    1. (a) payable earlier than the date on which they would be payable if the option were not exercised; and
    2. (b) the marketing of which seeks to draw to the attention of customers the existence of an option or surrender value, so that it is reasonable to infer that the firm expects some customers to purchase the contract with the intention of exercising the option or surrendering the contract in whole or in part;
  2. on the earliest date on which an option may be exercised or the contract may be surrendered (in whole or in part);
  3. (2) for a contract which is a whole life assurance the premiums under which are regular premiums:
    1. (a) the anniversary of the commencement of the contract which first falls after the seventy-fifth birthday of the person whose life is assured under the contract, taking, if there are two or more such persons:
      1. (i) the older or oldest if the benefits under the contract are payable on the death of the first of them to die; and
      2. (ii) the younger or youngest in any other case; or
    2. (b) the tenth anniversary of the commencement of the contract;
  4. whichever is the later;
  5. (3) in the case of an endowment assurance or a non-pension deferred annuity, the premiums under which are regular premiums, on the maturity date;
  6. (4) in the case of an endowment assurance or a non-pension deferred annuity under which the only premium payable is a single premium and the term of which does not exceed ten years, on the maturity date;
  7. (5) in the case of a Holloway sickness policy, on the latest date on which the sickness benefit will cease to be payable;
  8. (6) in the case of a pension contract other than an immediate annuity, on the maturity date or, if the contract provides for annuities at various dates, the latest date at which an annuity may be purchased, except for an alternatively secured pension, where this is at the tenth anniversary of the contract;
  9. (7) in the case of an immediate annuity, on the date to which the customer is expected to live, calculating the expectancy of life for this purpose by reference to an appropriate mortality basis; and
  10. (8) for the purpose of this section 'maturity date' means:
    1. (a) in relation to an endowment type assurance, the date specified in the contract as the maturity date;
    2. (b) in relation to a pension contract or stakeholder pension scheme, the vesting date of the annuity payable under the contract or, if no vesting date for the annuity is specified in the contract, the date specified in relation to the annuity as the retirement date by the firm in the projection in question, being a date not earlier than the earliest date on which the annuity could vest and not later than the latest such date.

COB 6.6.26

handbook-rule
In the case of any contract which falls within both COB 6.6.25 R (1) and one or more of COB 6.6.25 R (2)- (7), the contract period must be determined by reference to COB 6.6.25 R (1).
  • 01/12/2001

COB 6.6.27

handbook-rule

In the case of any contract not falling within COB 6.6.25 R, then:

  1. (1) for key features schemes and simplified prospectus schemes, the contract period will end on the tenth anniversary of the commencement date of the contract; and
  2. (2) for all other contracts there will be two contract periods, the first ending on the fifth anniversary of the commencement date of the contract, and the second ending on the tenth anniversary of the commencement date.

Cost of risk benefits

COB 6.6.28

handbook-rule

Cost of risk benefits means:

  1. (1) explicit mortality or morbidity charges (at a level no lower than the current level); or
  2. (2) the implicit cost or effect of mortality or morbidity appropriate to the class of customers;

and risk benefits means all forms of mortality and sickness benefits under a contract.

  • 01/12/2001

Relevant contribution

COB 6.6.29

handbook-rule
The relevant contribution is the actual payment or payments to be made by the customer, or a sum which reasonably reflects the amounts which the customer is proposing to invest, into a key features scheme or simplified prospectus scheme, except in the case of a protected rights annuity (see COB 6.6.31 R).

Relevant premium

COB 6.6.30

handbook-rule
The relevant premium is the actual premium payable under a life policy less an amount equal to the cost of any rider benefit, except in the case of a protected rights annuity (see COB 6.6.31 R).
  • 01/12/2001

Relevant premium or contribution for protected rights annuities

COB 6.6.31

handbook-rule
The relevant premium or contribution in relation to a protected rights annuity is an amount that may reasonably be estimated to be paid by the Secretary of State or the Department of Social Services for Northern Ireland by way of minimum contributions in respect of the customer involved.
  • 01/12/2001

COB 6.6.32

handbook-guidance
The relevant premium or contribution may include amounts in respect of minimum contributions expected to be paid in future years. This applies if the estimate for those years makes allowance for the most recent assumptions published by the Government Actuary in respect of the future years, and these assumptions and the period of any projection are made clear.
  • 01/12/2001

Relevant rate of return

COB 6.6.33

handbook-rule
The relevant rate of return is the intermediate projection rate appropriate to the category of business as set out in COB 6.6.50 R - COB 6.6.52 R, or the lower rate if COB 6.6.38 R (1) (Projections of surrender values and transfer values) applies.
  • 01/12/2001

Basic calculation method life policy or stakeholder pension scheme calculation

COB 6.6.34

handbook-rule
  1. (1) A projection of any future benefit payable under a life policy or stakeholder pension scheme must be calculated by reference to the relevant premium for the policy or stakeholder pension scheme.
  2. (2) The relevant premium must be accumulated to the projection date at the rate of return for its class of business as detailed in COB 6.6.50 R to COB 6.6.52 R, subject to charges and expenses (as described in COB 6.6.23 R) and the cost of risk benefits. The intermediate projection rate need not be used for an existing contract.
  3. (3) An allowance must be made where a customer has exercised or has expressed the intention to exercise an option to effect a partial surrender of a policy.
  4. (4) Allowance must not be made for income withdrawals, surrenders, lapses or early discontinuance, except as in (3).
  5. (5) A type P projection or a type Q projection must be calculated as follows:
    1. (a) the relevant premium for the pension scheme or stakeholder pension scheme must be used;
    2. (b) the relevant premium, with allowance for premium increases as specified in COB 6.6.48A R, must be accumulated to the projection date at the intermediate monetary rate of return detailed in COB 6.6.51 R subject to charges and expenses (as described in COB 6.6.23 R) and the cost of risk benefits;
    3. (c) the retirement fund from (b) must then be converted to a real retirement fund by discounting from the projection date using the rate of increase in the retail prices index (for type P projection) or the rate of increase in earnings (for type Q projection) in COB 6.6.48A R;
    4. (d) the pension must be calculated from the real retirement fund using the appropriate intermediate rate in COB 6.6.51 R, using the mortality tables in COB 6.6.84 R, the format in COB 6.6.82 R (7) and expenses in COB 6.6.83 R.
  • 01/11/2002

Holloway sickness policy calculation

COB 6.6.35

handbook-rule
For a Holloway sickness policy issued by a friendly society, a rate of bonus no greater than that last declared by the friendly society must be accumulated, with allowance for applicable charges and expenses (as described in COB 6.6.23 R) at the rates of return set out in COB 6.6.50 R until the projection date.
  • 01/12/2001

Key features scheme and simplified prospectus scheme calculation

COB 6.6.36

handbook-rule
  1. (1) A projection of any future benefit payable under a key features scheme or simplified prospectus scheme must be calculated by reference to the relevant contribution for the scheme.
  2. (2) The relevant contribution must be accumulated to the projection date at the rates of return for the relevant class of business as detailed in COB 6.6.50 R, subject to charges and expenses (as described in COB 6.6.23 R). The intermediate rate of return need not be used for an existing contract.
  3. (3) An allowance must be made where a customer has exercised or expressed the intention to exercise an option under the key features scheme or simplified prospectus scheme to make withdrawals, either by:
    1. (a) encashment of units; or
    2. (b) distribution of income, which must be calculated using an estimated gross distribution yield, reduced by the rate of tax relevant to the contract; the distribution yield must be rounded to the higher 0.1%.
  4. (4) No allowance must be made for the distribution of income except as in (3).
  5. (5) A type P projection or, a type Q projection must be calculated in accordance with COB 6.6.34 R (5) but substituting "contribution" for "premium" throughout.

General rules applicable to the calculation of projections

COB 6.6.37

handbook-rule
  1. (1) A projection must be rounded down to not more than three significant figures.
  2. (2) Where the projection, other than a projection in real terms of a pension contract or stakeholder pension scheme, is less than the amount guaranteed under the life policy, key features scheme or simplified prospectus scheme, the projection must be increased to that guaranteed amount.
  3. (3) Where a customer is entitled, and has expressed the intention, to increase the premium or contribution by an amount linked to future salary or other index increases, the relevant premium or contribution may be calculated:
    1. (a) for a type P projection or a type Q projection, making allowance for increases at the relevant rate set out in COB 6.6.48A R; and
    2. (b) for all other cases, by making allowance for such increases on the same basis as that used for administration charges in COB 6.6.47 R.

Projections of surrender values and transfer values

COB 6.6.38

handbook-rule

A projection of a surrender or transfer value:

  1. (1) must be given using the intermediate rate of return appropriate to its category of business, unless:
    1. (a) the firm reasonably expects the rate to overstate the potential of the contract, in which case a lower rate of return must be used and disclosed; or
    2. (b) the customer so requests, in which case a lower rate of return may be used, and the fact that it has been used must be disclosed;
  2. (2) must make allowance for partial surrenders of a contract where the contract terms permit this and the customer has exercised this option or expressed the intention to do so;
  3. (3) must allow for the firm's surrender value basis and reflect the current approach of the firm towards applying penalties on surrender, including less than full credit for accrued terminal bonus, specific penalties or exit charges; and
  4. (4) for a with-profits contract where bonus rates apply, must ensure that the bonus rates supported by the relevant premium are assumed to apply throughout the term of the contract.
  • 01/12/2001

Rules specific to products or features of products: annuities

COB 6.6.39

handbook-rule
  1. (1) Any projection of an annuity with one or more years to maturity must show an annuity value based on the higher and lower rates of return as set out in COB 6.6.50 R to COB 6.6.52 R, and make allowance for:
    1. (a) mortality (as set out in COB 6.6.84 R) and also, in the case of life policies, morbidity appropriate to the class of customers; and
    2. (b) charges and expenses (as described in COB 6.6.23 R).
  2. (2) Any projection of an annuity with less than one year to maturity must be calculated using annuity rates no more favourable than the firm's current immediate annuity rates.
  3. (3) Where a firm which does not offer annuities issues a projection for a contract the proceeds of which are to be applied to the purchase of an annuity, the firm must use annuity rates no more favourable than those currently being used in the open market for such a projection.
  • 01/11/2002

COB 6.6.40

handbook-rule

In the case of a contract for an immediate annuity:

  1. (1) the uniform rate of continuous change in annuity supported by the actual premium to be paid must be determined for each rate of return with allowance for:
    1. (a) mortality appropriate to the class of customer; and
    2. (b) charges and expenses (as described in COB 6.6.23 R) on the assumptions used when calculating the firm's own annuity rates;
  2. (2) the rate of continuous change in annuity calculated must then be:
    1. (a) applied to the initial annuity under the contract which is the subject of the projection; and
    2. (b) assumed to be maintained throughout the term of the contract.
  • 01/12/2001

Appropriate personal pensions and protected rights annuities

COB 6.6.41

handbook-rule
  1. (1) The retirement fund for a protected rights annuity under an appropriate personal pension scheme or stakeholder pension scheme must be calculated by accumulating the relevant contribution less charges and expenses (as described in COB 6.6.23 R) at the relevant rates of return for the period.
    1. (a) The relevant period is either:
      1. (i) where the relevant contribution is a minimum contribution, from the 1st September following the end of the tax year to which the minimum contribution relates up to the maturity date; or
      2. (ii) where the relevant contribution is a transfer value, from the commencement of the contract up to the maturity date.
    2. (b) The relevant rates of return are:
      1. (i) in the case of a protected rights annuity projection issued in accordance with COB 6.6.11 R (1), the real rate of return in COB 6.6.52 R;
      2. (ii) in the case of any other protected rights annuity projection, the monetary rates of return in COB 6.6.51 R.
  2. (2) The annuity must be calculated by reference to the retirement fund using the relevant rates of return set out in COB 6.6.51 R, with allowance for mortality (as set out in COB 6.6.84 R) charges and expenses and the relevant rate of increase in payment.
  • 01/12/2001

Pension schemes or stakeholder pension schemes

COB 6.6.42

handbook-rule
  1. (1) An additional projection may be given for a pension scheme or stakeholder pension scheme where the period to maturity is five years or less. This:
    1. (a) may be calculated using the intermediate rates of return specified in COB 6.6.51 R or COB 6.6.52 R;
    2. (b) may use a current annuity rate calculated using a rate of return no higher than the higher rate specified in COB 6.6.51 R or COB 6.6.52 R.
  2. (2) If the firm providing the projection offers annuities, it must use its own annuity rates.
  • 01/11/2002

Single premium contracts

COB 6.6.43

handbook-rule

A projection relating to a series of single premiums (other than a protected rights annuity) may be a calculation set out as if those premiums were regular premiums, provided:

  1. (1) it is not otherwise given on a misleading basis;
  2. (2) the firm is bound unconditionally, and by express terms of the contract, to accept all single premiums which may be paid by the customer under the contract.
  • 01/12/2001

With-profits endowment business

COB 6.6.44

handbook-rule

For with-profit endowment assurance where the amount of any guaranteed benefit payable on death is not calculated by reference to the total value of the premiums paid under the contract before that event:

  1. (1) the cost of risk benefits must allow for the bonus rate or rates supported by the relevant premium (given the basic sum assured for such a policy with an appropriate office premium) calculated for each rate of return; and
  2. (2) the rate or rates of bonus must then be applied under the policy which is the subject of the projection and be assumed to be maintained throughout the term of the policy.
  • 01/12/2001

With-profits whole life assurance business

COB 6.6.45

handbook-rule

For with-profit whole life assurance other than a policy the bonuses under which are added to the surrender value:

  1. (1) the cost of risk benefits must allow for the bonus rate or rates supported by the premium (given the basic sum assured for such a policy with an appropriate office premium) calculated for each rate of return; and
  2. (2) the rate or rates of bonus must then be applied under the policy which is the subject of the projection and be assumed to be maintained throughout the term of the policy.
  • 01/12/2001

Contracts with reviewable administration charges

COB 6.6.46

handbook-rule

In respect of policies with reviewable administration charges:

  1. (1) a firm must make allowance for increases in administration charges which are reviewable at the firm's discretion, on a basis which:
    1. (a) is fair and reasonable; and
    2. (b) takes into account the firm's pricing policy as regards future levels of administration charges;
  2. (2) increases must be assumed at the appropriate rates of increase in COB 6.6.48A R for type P projections and type Q projections and the rates in COB 6.6.47 R for other projections, for any contracts where:
    1. (a) an administration charge is reviewable by the firm (whether or not any increases are contractually linked to an external index); or
    2. (b) expenses in respect of future renewal or claims costs are expressed as monetary amounts.
  • 01/11/2002

COB 6.6.47

handbook-rule

Table of assumed rates of increase for policies with reviewable administration charges

This table belongs to COB 6.6.46 R

  • 01/12/2001

Contracts with rider benefits or extra premiums for underwriting risks

COB 6.6.48

handbook-rule

In respect of a contract with rider benefits, or where an extra premium is being charged for an increased underwriting risk:

  1. (1) the rider benefit or extra premium charged for an impaired life, hazardous pursuit, or on the grounds of occupation, must be taken into account when determining a projection;
  2. (2) if a deduction is made from the actual premium for a rider benefit or increased underwriting risk (or both), the sum of the amounts of the relevant premium must be quoted with the projection; and
  3. (3) for policies with rider benefits, a firm may apply the following procedure:
    1. (a) if the policy is also available without the rider benefit, then the same values must be projected as would be projected for such a policy with the premium appropriately reduced; and
    2. (b) if the contract is available only with one or more rider benefits, the firm must deduct a fair estimate of the cost of the extra benefits from the premium when determining the projection; if a fair estimate cannot be made, a rough estimate (rounded to the next higher 10% of the total premium payable by the policyholder) must be deducted.
  • 01/12/2001

Rate of inflation assumptions

COB 6.6.48A

handbook-rule

For pension schemes and stakeholder pension schemes, the following rates of inflation must be used when calculating type P projections or type Q projections:

  1. (1) rate of increase in the Retail Prices Index (for type P projections): 2.5%;
  2. (2) rate of increase in earnings (for type Q projections): not less than 1.5% in excess of the rate of increase in the Retail Prices Index in (1).
  • 01/11/2002

Rate of return assumptions

COB 6.6.49

handbook-rule
  1. (1) The appropriate rates of return for the type of contract being projected, taken from COB 6.6.50 R - COB 6.6.52 R, must be used when calculating a projection;
  2. (2) reduced rates of return must be used if the firm expects the rates in the tables to overstate the investment potential of a contract;
  3. (3) reduced rates of return may be used if requested by a customer; and
  4. (4) whenever reduced rates are used, they must be disclosed in the document containing the projection.
  • 01/12/2001

COB 6.6.50

handbook-rule

Rate of return assumptions for all key features schemes, simplified prospectus schemes, ordinary branch non-pensions, industrial branch, friendly society, immediate annuity and Holloway sickness policies (all monetary rates of return)

This table belongs to COB 6.6.49 R

COB 6.6.51

handbook-rule

Rate of return assumptions for pension contracts and stakeholder pension schemes excluding contracts for immediate annuities and protected rights annuities issued in accordance with COB 6.6.11 R (1)

This table belongs to COB 6.6.49 R

COB 6.6.52

handbook-rule

Rate of return assumptions for protected rights annuity projections given in accordance with COB 6.6.11 R (1)

This table belongs to COB 6.6.49 R

COB 6.6.53

handbook-guidance
The rates of return in COB 6.6.50 R - COB 6.6.52 R are assumed to compound annually and allow for inflation.
  • 01/12/2001

Calculation of the reduction in yield due to the effect of charges and expenses content

COB 6.6.54

handbook-guidance
COB 6.6.55 R - COB 6.6.62 R set out the rules to be used when calculating the effect of deductions (the 'reduction in yield') to be provided within key features (COB 6.5) or in a projection accompanying a simplified prospectus (COB 6.2.43 R) for all types of life policies, key features schemes and simplified prospectus schemes. COB 6.6.63 G - COB 6.6.79 G provide guidance in assessing the expenses and charges relating to key features schemes and simplified prospectus schemes.

Basic calculation method of the reduction in yield

COB 6.6.55

handbook-rule
  1. (1) A firm must accumulate the adjusted premium to the end of the contract period at the relevant rate of return, making:
    1. (a) full allowance for the charges and expenses (as described in COB 6.6.23 R); and
    2. (b) no allowance for charges and expenses.
  2. (2) A firm must then calculate the rate of return which, if applied (on an annual compound basis) to the adjusted premium over the contract period, without making any allowance for the charges and expenses, will produce the same sum as that calculated under (1)(a).
  3. (3) The reduction in yield is the difference between the relevant rate of return and the rate of return found in (2).
  • 01/12/2001

COB 6.6.56

handbook-rule
  1. (1) When a firm is calculating a projection, charges which relate to benefits for any mortality or morbidity risks, or a proportion of them, must be assumed not to be made:
    1. (a) providing the assumption does not produce figures for the effect of charges deductions which suggest that the charges under the contract are lower than they actually are; and
    2. (b) only in so far as they are attributable solely to benefits for mortality or morbidity risks, a proper apportionment being made of any composite charges.
  2. (2) When a charge cannot be apportioned, (1) will not apply, but the firm may include in the information required to be given within a projection a statement to the effect that the reductions have been calculated without disregarding charges relating to benefits for any mortality or morbidity risks.
  • 01/12/2001

Alternative calculation method of the reduction in yield for a life policy

COB 6.6.57

handbook-rule

The following alternative method of calculation of the reduction in yield may be used at a firm's discretion for a life policy:

  1. (1) The adjusted premium must be accumulated to the end of the contract period at the relevant rate of return, making full allowance for the charges and expenses (as described in COB 6.6.23 R).
  2. (2) If the accumulated value will reach zero before the end of the contract period, the accumulation must cease at that stage; subsequent references in this rule to the contract period are to be taken where relevant as referring to that shorter calculation period.
  3. (3) In making this calculation, the total of all charges and expenses not solely attributable to the risk benefits must be assessed separately and accumulated to the end of the contract period at the relevant rate of return.
  4. (4) The adjusted premium must be accumulated to the end of the contract period at the relevant rate of return, making no allowance for charges and expenses.
  5. (5) The reduction in yield must be calculated in accordance with, COB 6.6.55 R, but using the shorter calculation period specified in (2), if applicable.
  • 01/12/2001

Other provisions

COB 6.6.58

handbook-rule
In the case of a protected rights annuity, the effect of charges and expenses (as described in COB 6.6.23 R) may be calculated on the assumption that premiums will continue to be paid after the first year.
  • 01/12/2001

COB 6.6.59

handbook-rule
The reduction in yield or the effect of charges and expenses must be expressed to the nearest tenth of 1%.
  • 01/12/2001

Unit-linked contracts with more than one fund

COB 6.6.60

handbook-rule
  1. (1) Where there is more than one fund into which the premiums under a unit-linked contract are expected to be paid initially (disregarding any option of the customer to require the funds to be changed):
    1. (a) the effect of charges and expenses must be calculated separately in relation to each such fund;
    2. (b) unless a representative figure is shown in accordance with (3), each of those reductions in yield must be shown in the information required within key features; and
    3. (c) a brief explanation of the difference between them may be included.
  2. (2) If any of the funds referred to in (1) is a unitised with-profits fund, the calculation relating to that fund must be made on the with-profits expenses basis as described in COB 6.6.23 R (2).
  3. (3) If, in the case of any contract, two or more of the calculations of the effect of charges and expenses would produce results which are so similar that one may fairly be regarded as representative of the other or others, only one figure for the effect of charges and expenses need be shown, accompanied by an indication that it is a representative figure.
  • 01/12/2001

Regular and single premium contracts

COB 6.6.61

handbook-rule

In the case of any contract where the premiums include both a regular and a single premium:

  1. (1) the reduction in yield should be calculated separately for the regular premiums and for the single premium; and
  2. (2) each of those reductions in yield should be shown in the information required in COB 6.5 (Contents of key features) with a brief indication of the difference between them.
  • 01/12/2001

Table of specimen values of the reduction in yield

COB 6.6.62

handbook-rule

Where COB 6.6.60 R or COB 6.6.61 R applies in relation to the calculation of the reduction in yield, either:

  1. (1) different tables must be shown with the values calculated separately for each fund or for the regular premiums and the single premiums (as the case may require); or
  2. (2) one table may be used, but it must contain those values calculated separately as required by (1), and it must make clear to the customer (or any potential customer in the case of a financial promotion) what the different values refer to.
  • 01/12/2001

Charges and expenses disclosure for key features schemes and simplified prospectus schemes

COB 6.6.63

handbook-guidance
COB 6.6.65 G - COB 6.6.79 G set out rules and guidance on how to calculate charges and expenses (as described in COB 6.6.23 R) for key features schemes and simplified prospectus schemes.

COB 6.6.64

handbook-guidance
  • 01/12/2001

Charges and expenses disclosure for authorised unit trusts

COB 6.6.65

handbook-guidance
  1. (1) Charges and expenses as described in COB 6.6.23 R means "all explicit charges and expenses, and includes all other deductions and expenses which will or may bear upon the fund". The following paragraphs give guidance on the assessment and apportionment of expenses.
  2. (2) Those expenses that were, or would be, reported in the Annual report and Financial Statement of authorised unit trust schemes in accordance with the Statement of Recommended Practice ("SORP") issued by the FSA, will normally provide a suitable starting point for any assessment of the level of charges and expenses. The same principles apply to funds and schemes which are not within the scope of the SORP.
  3. (3) Where expenses are charged directly against the assets of the fund, it will normally be appropriate to express such expenses as an annual percentage charge against the fund, which is then added to other such charges. An example is a manager's periodic charge to form an aggregate percentage charge. It is reasonable to round this charge to the nearest 0.05%.
  4. (4) Where a key features scheme or simplified prospectus scheme invests in other packaged products, it will be necessary to look through to ensure that all charges and expenses which the customer will or may bear are included. Appropriate allowance may be made for any abatement to avoid double charging. If the product provider is not required to make expense disclosure in respect of such packaged products, the charges and expenses of an equivalent product from another provider should be used. In the case of investment trusts, the method in COB 6.6.70 G (4) should be used.
  5. (5) Where the unit trust invests in other unit trusts, charges and expenses will be based on a reasonable distribution of assets that takes account of the investment philosophy of the unit trust.

Representative unit trust

COB 6.6.66

handbook-guidance
  1. (1) Where a document refers to investment in a number of trusts, charges and expenses (as described in COB 6.6.23 R) applicable to the trusts selected by the customer should be used. Where this is not practicable, it is permissible to use the charges and expenses of a representative unit trust.
  2. (2) The representative unit trust will normally be the one that is most likely to be selected by the customers to whom the material is issued. Where advantage is taken of this option, the document should include information which shows the differences if other trusts are selected. The normal presentation will be to show the differences as a reduction of investment return, or as an adjustment to the Table in key features or in the projection accompanying the simplified prospectus. Where the reduction of investment return is used, it will not be necessary to show differences unless the rounded difference is at least 0.1% and the unrounded difference is at least 0.05%.

Types of expenses

COB 6.6.67

handbook-guidance
  1. (1) The following are those expenses and costs of investment that firms should take into account when making their calculations. The list is not comprehensive. These are in addition to explicit charges.
  2. (2) Examples of expenses are:
    1. (a) registration fees;
    2. (b) safe custody fees;
    3. (c) trustees' fees;
    4. (d) handling charges;
    5. (e) audit fees;
    6. (f) regulatory fees and subscriptions;
    7. (g) costs of investment management, but excluding dealing costs of the underlying portfolio, and costs associated with routine management and servicing of existing property investments;
    8. (h) bid/offer spread in the pricing of units.
  3. (3) The spread in (h) should be on a basis that fairly represents the expected levy of such spread in the firm's experience of normal trading conditions.
  4. (4) The expenses should include allowance for any value added tax which is not recoverable.
  • 01/12/2001

Translation to fund level

COB 6.6.68

handbook-guidance
  1. (1) The expenses and explicit charges need to be adjusted for any expected variation in costs from the period of the report to the period relevant to the disclosure expenses if such variation is believed to make a material difference.
  2. (2) The adjusted expenses should be expressed as a proportion of the relevant fund. For established funds, the relevant fund is the average size of the fund for the period of the report.
  3. (3) Where the use of the figure calculated as in (2) would be misleading, a fair estimate of the size of the relevant fund which is consistent with the adjusted expenses should be used. The same method should be used in the case of new funds. In determining the reasonable levels of expense to be assumed, account should be taken of the expense attributable to the existing fund which most closely corresponds to it, with proper regard to material differences in cost.
  • 01/12/2001

Review of expenses

COB 6.6.69

handbook-rule
The expenses used in calculations must be reviewed whenever material changes in the levels are identified which would mean that the disclosed amounts are misleading. In any event the expenses must be reviewed at least once a year.
  • 01/12/2001

Charges and expenses disclosure for investment trust savings schemes charges and expenses

COB 6.6.70

handbook-guidance
  1. (1) Charges and expenses as described in COB 6.6.23 R should be taken to include all explicit charges and, in addition, all other deductions and expenses which are not financed from explicit charges. These include deductions and expenses within the trust.
  2. (2) The method is to identify all expenses that will be borne by the customer, and these will include not only the cost of acquiring a holding but also the cost of disposing of the investment.
  3. (3) Where expenses are charged directly against the assets of the investment trust, it will normally be appropriate to express the expenses as an annual percentage charge against the trust, which is then added to such charges, for example, a periodic management fee, to form an aggregate percentage charge. It will be reasonable to round to the nearest 0.05%.
  4. (4) Where an investment trust company (A) invests in another investment trust company (B), it will be necessary to look through to ensure that all charges or expenses which the customer will or may bear are included. Appropriate allowance may be made for any abatement to avoid double charging. Charges and expenses will be based on a reasonable distribution of assets that takes account of the investment philosophy of the investment trust company (A). If the investment trust company (B) is not required to make expense disclosure in respect of such assets, the charges and expenses of a similar company should be used.
  • 01/12/2001

Representative investment trust company

COB 6.6.71

handbook-guidance
  1. (1) Where a document refers to investment in a number of investment trusts, charges and expenses (as described in COB 6.6.23 R) applicable to the trusts selected by the customer must be used. Where this is not practical, it is permissible to use the charges and expenses of a representative investment trust company.
  2. (2) The representative investment trust company will normally be the one that is most likely to be selected by the customers to whom the material is issued. Where advantage is taken of this option, the document must include information which shows the differences if other trusts are selected. The normal presentation will be to show the differences in the other reduction of investment return, or as an adjustment to the Table in key features. Where the reduction of investment return is used, it will not be necessary to show differences unless the rounded difference is at least 0.1% and the unrounded difference is at least 0.05%.
  • 01/12/2001

Types of expense

COB 6.6.72

handbook-guidance
  1. (1) Expenses may be incurred either in acquiring or in holding an investment in an investment trust company. The list in (2) is not comprehensive and, in respect of other expenses, the list sets out the type of expense that should be included. The report and accounts of the investment trust company will normally provide a starting point in assessing the expenses that are charged against the assets of the investment trust company. These are in addition to disclosable charges.
  2. (2) Expenses to be included will be of four main types:
    1. (a) deductions levied against the assets of the investment trust company;
    2. (b) management expenses levied against the assets of the investment trust company; these expenses include management fees plus any management costs financed from commission received, directors' fees, pension contributions, non-recurring expenses, all other professional and regulator's fees and subscriptions, rents paid, depreciations, custody fees, audit fees and all other pre-tax expenses (except for interest paid); management expenses include marketing costs, if any;
    3. (c) expenses borne by the customer in acquiring or disposing of investment trust shares; these include adviser's commission (if any), stockbroker dealing commission on purchases and sales, stamp duty and withdrawal charges;
    4. (d) investment spread in the pricing of the investment trust shares.
  3. (3) Expenses should include allowance for any value added tax which is not recoverable.
  4. (4) Expenses in (2)(c) and the spread in (2)(d) should be on bases that fairly represent the expected level of such expenses and spread. Where appropriate, a representative level of expenses and the spread should be used.
  • 01/12/2001

Translation to trust level

COB 6.6.73

handbook-guidance
  1. (1) Having identified all the expenses in COB 6.6.72 G (2), a firm needs to express them as rates of charges and expenses (as described in COB 6.6.23 R) that can be used in projections and key features.
  2. (2) The process is as follows.
    1. (a) The expenses in COB 6.6.72 G (2)(a) and (b) should be expressed as a proportion of the overall fund using net asset value: For established companies, the relevant fund is taken to be based on the average size of the investment trust company for the period of assessment.
    2. (b) The expenses in COB 6.6.72 G (2)(c) and (d) will usually be expressed as a proportion of the fund based on share price or the amount of the investment, as appropriate. Some expenses will be a one-off expense or spread and some will be in the form of an annual charge.
    3. (c) The rates of charges and expenses calculated under (a) and (b) should be added together. The fact that the calculation at (a) used net asset value can be ignored as it is assumed that the level of discount or premium remains unaltered.
  3. (3) The charges and expenses will normally be historic and need to be adjusted for any expected variation in the level of costs from the period used in the assessment to the period relevant to the disclosure of the expenses if such variation is believed to make a material difference.
  4. (4) Where the use of the figure calculated in (3) would be misleading, a fair estimate of the size of the company which is consistent with the adjusted expenses should be used. The same method should be used in the case of new investment trusts. In determining the reasonable levels of expense to be assumed, account may be taken of the expenses attributable to the existing investment trust which most closely corresponds to it, but with proper regard to any material differences in cost.
  5. (5) Set-up costs may be amortised over a limited period not normally exceeding five years.
  • 01/12/2001

Review of expenses

COB 6.6.74

handbook-rule
The expenses used in calculations must be reviewed whenever material changes in the levels are identified which would mean that the disclosed amounts are misleading. In any event the expenses must be reviewed at least once a year.
  • 01/12/2001

Example of the calculation of reduction in investment return

COB 6.6.75

handbook-guidance
COB 6.6.76 G - COB 6.6.78 G contain an example which has been prepared to assist understanding of the method of calculating the reduction in investment return. However, the figures should not be regarded as representative or indicative of likely levels of charges and expenses to be expected.
  • 01/12/2001

General

COB 6.6.76

handbook-guidance
  1. (1) The reduction in investment return shows the effect of all charges and expenses to the customer.
  2. (2) The rates of investment return allow for all tax and withholding tax for which the product provider is responsible. The current rate of tax may be used to calculate the net distribution of income. Where appropriate, the net distributions are offset from the rate of investment return.
  3. (3) It is not necessary to allow for daily changes so that monthly steps are acceptable.
  4. (4) The rates of return are assumed to compound annually. The twelfth root is used to calculate the monthly rate. This is different from the fund management charge, where normally one twelfth of the annual rate is deducted monthly.
  5. (5) The bid/offer spread should be allowed as an initial charge so that subsequent figures are on the basis of the bid price, except where the context requires allowance to be made for the spread.
  • 01/12/2001

The parameters

COB 6.6.77

handbook-guidance
  1. (1) Contract details: unit trust for a term of 10 years with a single investment of £6,000 (SP).
  2. (2) Distributions: at the rate of 2.4% per annum, distributed as 1.2% of the offer value at the end of each half year.
  3. (3) Charges:
    1. (a) initial charge of 3% of investment (IC);
    2. (b) fund management charge of 1/12 of 1.25% per month (FMC) on distribution units;
    3. (c) attributable expenses of 1/12 of 0.25% per month (AE);
    4. (d) investment spread of 3% (IS) making total bid/offer spread of 6%.
  4. (4) Calculation:
    1. (a) investment of £6,000 (SP) less (IC+IS) giving an initial bid value of £5,640
    2. (b) interest of 6% pa or 0.4868% per month less (FMC + AE) = 1.004868 x (1- 0.015/12) 1 = 0.3612% per month
    3. (c) the value after 10 years as shown in COB 6.6.79 G is £6,720
    4. (d) the internal rate of return necessary to generate £6,720 plus distributions over 120 months from an initial investment of £6,000 is 0.3030% per month or 3.7% per annum
    5. (e) one method of creating the table is to use 20 periods of six months, each of which end with the payment of a distribution.
    6. (f) after 6 months:
      1. (i) the bid value of the fund before the distribution is 6000 x 0.94 x (1.003612)^6 = £5,763
      2. (ii) the distribution is 0.012 x 5763/0.94 = £73
      3. (iii) the fund carried forward is 5763 - 73 = £5,690
      4. (iv) after the end of Year 1, that is, after the second 6 months
      5. (v) the bid value of the fund before the distribution is 5690 x (1.003612)^6 = £5,814
      6. (vi) the distribution is 0.012 x 5814/0.94 = £74
      7. (vii) the fund carried forward is 5814 - 74 = £5,740
      8. (viii) this bid value is disclosed as there is no exit penalty as what you might get back.
    7. (g) the "effect of deductions" is calculated from the accumulation of the investment with no allowance for charges and expenses but with allowance for income:
      1. (i) the accumulated fund after 1 year with no allowance for charges is [6000 x (1.004868)^6 - 73] x (1.004868)^6 - 74 = £6,210
      2. (ii) the "effect of deductions" is this figure less "what you might get back", that is, £6,210 - £5,740 = £470
    8. (h) this process is continued throughout the term of the table; after 10 years, the accumulated investment at 0.4868% per month with no allowance for charges and expenses but with allowance for the same distributions of income is £8,621; "What you might get back" is £6,723 so the "effect of deductions" is the difference or £1,898;
    9. (i) the deduction in investment return is determined by calculating the rate of interest which accumulates the investment with no allowance for charges and expenses but with allowance for income to £6,723; this is 0.3030% per month (0.4868% per month gives £8,621); the yearly rate is (1.00303)^12 - 1 or 3.7%.
  • 01/12/2001

COB 6.6.78

handbook-guidance
In COB 6.6.79 G projected amounts are rounded down to three significant figures.
  • 01/12/2001

COB 6.6.79

handbook-guidance

Specimen table of presentation of the effect of charges and expenses

This table belongs to COB 6.6.75 G

  • 01/12/2001

Assumptions for pension annuities

COB 6.6.80

handbook-rule

The formulae shown must be used for calculating the factors for converting a retirement fund into an annuity. The formulae in COB 6.6.81 R assume that the annuity will be payable monthly in advance for a term certain of n years (typically five):

  1. (1) for an RPI-linked and LPI-linked annuity (excluding a protected rights annuity): use Factor (1);
  2. (2) for an annuity which is static or has fixed rates of escalation: use Factor (2);
  3. (3) for a spouse's reversionary annuity (excluding a protected rights annuity, and whether or not there is overlap with any guaranteed period under the associated single life annuity): use Factor (3);
  4. (4) [deleted]
  5. (5) for a protected rights annuity: use Factor (5).
  • 01/11/2002

COB 6.6.81

handbook-rule

Table of formulae for pension annuity factors

This table belongs to COB 6.6.80 R and COB 6.6.82 R

COB 6.6.82

handbook-rule
  1. (1) All factors must be rounded to three decimal places before being applied to the retirement fund.
  2. (2) In the formulae the letters a and D have their normal actuarial notation meanings. In formulae for two lives, x is the member and y is the spouse or civil partner, and for the protected rights formulae, f indicates the use of female mortality and m that for males. In addition, a monthly annuity is either Factor (6) or (7).
  3. (3) For retirement other than on a birthday, the factors must be obtained by linear interpolation on complete months. Where a member is not able (for practical reasons or otherwise) to determine the exact age at retirement, it must be assumed that the exact age at retirement is then the age at the last birthday.
  4. (4) Where the projection is of an annuity after taking a tax-free lump sum, the table must be used with the retirement fund reduced by the projected tax-free lump sum before rounding. Any tax-free lump sum illustrated should be rounded to three significant figures, unless the lump sum is equal to the amount of a loan.
  5. (5) Where a retirement fund includes both protected rights and non-protected rights benefits, the appropriate factors are to be used for each relevant part of the total fund.
  6. (6) Where there are protected rights funds and the person is not expected to be married or registered as a civil partner at retirement, an illustration of single life pensions may be provided. The factor must be calculated using the same assumptions as formula (5) in COB 6.6.81 R but ignoring the reversionary annuity part of the formula.
  7. (7) For type P projections, the annuity should assume 50% spouse's reversionary pension unless the firm has evidence that a different assumption would be more appropriate.

COB 6.6.83

handbook-rule
In the formulae in COB 6.6.81 R, the allowance for expenses (E) is 4% for all annuities.
  • 01/11/2002

COB 6.6.84

handbook-rule

In the formulae in COB 6.6.81 R, mortality rates must be calculated as follows:

  1. (1) the mortality tables to be used are PMA92 (for males) and PFA92 (for females) appropriate to the individual's year of birth with the medium cohort projection improvements; these tables are published by the Faculty of Actuaries and Institute of Actuaries;
  2. (2) where there are two lives concerned, for reversionary and for protected rights annuities, the husband is normally to be taken as being three years older than his wife; where the firm is aware that the wife is more that six years younger than her husband, an exact calculation must be performed using actual ages;
  3. (3) protected rights annuities must be calculated for both sexes on the basis that the member experiences female mortality and the spouse experiences male mortality.

COB 6.6.85

handbook-rule

In the formulae in COB 6.6.81 R, the mortality functions must be calculated at a rate of interest J, where:

  1. (1) J = (1 + I)/(1 + R) - 1;
  2. (2) R is the rate of escalation increase appropriate for the customer in formulae (2) and (3) in COB 6.6.80 R; it is 3% for pre-April 1997 protected rights benefits in formula (4), and zero otherwise;
  3. (3) the rate of return assumptions (1) are as set out in the tables in COB 6.6.50 R - COB 6.6.52 R with real rates of return being used for formulae (1) and (5) in COB 6.6.81 R and monetary rates otherwise; and
  4. (4) different factors will need to be calculated where a projection is being prepared on lower and higher rates of return, and where appropriate also the intermediate rate.
  • 01/12/2001

Pension transfer value analysis requirements content

COB 6.6.86

handbook-guidance
COB 6.6.87 R - COB 6.6.93 R outline how a pension transfer value analysis should be prepared. A pension transfer value analysis should provide a comparison between the potential benefits available to the customer from an occupational pension scheme of which he is a member and the potential benefits that would be available to him under a personal pension or buy-out contract.
  • 01/12/2001

Basis of a pension transfer value analysis

COB 6.6.87

handbook-rule
  1. (1) The basis for the pension transfer value analysis must be clear, fair and not misleading.
  2. (2) The information analysed must include details relevant to the customer's circumstances:
    1. (a) spouse's, dependants' and children's pensions;
    2. (b) early retirement provision, including provision for retirement in ill-health;
    3. (c) a transfer value quotation detailing:
      1. (i) guarantee period;
      2. (ii) pre- and post-April 1988 Guaranteed Minimum Pension and excesses;
      3. (iii) revaluation rates both in deferment and payment, and whether they are guaranteed or discretionary;
      4. (iv) tax-free cash arrangements;
    4. (d) lump sum death benefits;
    5. (e) transfer club arrangements, if applicable;
    6. (f) relevant earnings;
    7. (g) period of service;
    8. (h) scheme details (for example, benefits, bridging pensions, guarantee periods, position before and after normal retirement date, history of discretionary increases);
    9. (i) whether members' benefits have been equalised for service from 17 May 1990;
    10. (j) ill-health benefits.
  • 01/12/2001

Required comparisons

COB 6.6.88

handbook-rule

The analysis must contain the following:

  1. (1) where the period before benefits are assumed to commence is one year or more:
    1. (a) a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the same level of benefits as those which would be afforded by the occupational pension scheme if the customer were to retire at normal retirement date ("the Target Benefits");
    2. (b) if in the firm's opinion early retirement would be materially more favourable to the customer than retirement at normal retirement date, a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the same pension as that afforded by the occupational pension scheme, assuming early retirement at a date on which the customer may be expected, or will have the option, to retire;
    3. (c) a statement of the value of the benefits payable on the death of the customer, under the transfer contract and under the occupational scheme, on the assumption that the customer were to die on the day after the date on which the transfer contract is assumed to have commenced; comparisons assuming other dates of death may be included if they are likely to enhance understanding of the differences between the benefits payable under the transfer contract and the occupational pension scheme;
  2. (2) where the period before benefits are assumed to commence is less than one year:
    1. (a) a statement of the annuity payable under the transfer contract and of the comparable Target Benefits;
    2. (b) where the normal retirement date under the occupational pension scheme is not within a year, a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the Target Benefits.
  • 01/12/2001

COB 6.6.89

handbook-rule
  1. (1) In all cases (except in a case within COB 6.6.88 R (2) in respect of the annuity) a statement of the assumptions must be provided which complies with the requirements of COB 6.6.90 R.
  • 01/12/2001

Required assumptions

COB 6.6.90

handbook-rule
  1. (1) The assumptions in COB 6.6.91 R must be made for the purposes of the required calculations, except as envisaged by this rule.
  2. (2) The assumptions may be varied only to incorporate more cautious assumptions.
  3. (3) If an annuity interest rate different from the Annuity Interest Rate (as specified in COB 6.6.91 R) is used, it must be the interest rate for annuities in payment provided that it is a multiple of 0.5% per annum and must not exceed the Annuity Interest Rate.
  4. (4) Where the occupational pension scheme has a record of discretionary increases in pension, the assumptions must be consistent with the published practice of the trustees, if any, or based on a comparison of the increases granted over the last five years with a published index. It must be assumed that increases will continue, and allowance must be made for continuation by:
    1. (a) relying on any statement by the trustees of their practice;
    2. (b) comparing recent experience with the increase in the retail price index and restricting the future allowance to a maximum of the increase in the retail price index;
    3. (c) making a default assumption of limited pension indexation;
    4. (d) assessing the likelihood whether such increases will continue to be paid.
Figures may be provided showing the effect of applying a factor representing the likelihood of such continuation.
  • 01/11/2002

COB 6.6.91

handbook-rule

Assumptions to be made

This table belongs to COB 6.6.90 R

  • 01/11/2002

Method of calculation

COB 6.6.92

handbook-rule
  1. (1) In calculating the Target Benefits for the purposes of the comparisons required by COB 6.6.88 R, regard must be had to benefits which commence at different times.
    1. (a) Where a benefit becomes payable at a different age from the age at which the Guaranteed Minimum Pension becomes payable, the benefit must be valued from its appropriate commencement date.
    2. (b) In the case of pensions payable only for a limited period, an allowance must be made.
  2. (2) The method of calculating the rate to be used for the purpose of the comparisons required by COB 6.6.88 R is:
    1. (a) make the assumptions required by COB 6.6.91 R;
    2. (b) on those assumptions, calculate the Target Benefits;
    3. (c) calculate, in accordance with COB 6.6.34 R- COB 6.6.62 R which relate to the calculation of projections, the interest rate in deferment necessary to attain a transfer value sufficient to provide benefits equal to the Target Benefits.
  • 01/12/2001

Required disclosures

COB 6.6.93

handbook-rule

The analysis must also contain:

  1. (1) a list of all the main assumptions made for the purposes of the analysis, set out consecutively and with equal prominence;
  2. (2) a warning as to the differences between the amounts of benefit under the occupational pension scheme and the level of benefits under the proposed transfer contract which depends on future investment performance and on interest rates at the time of retirement;
  3. (3) a description of any differences in the dates on which the pensions become payable, for example in the case of a protected rights pension under a personal pension scheme which will not become payable until the customer attains the State retirement age;
  4. (4) a warning of any shortfall in the value of the death benefits provided by the transfer contract and, where there is such a shortfall, if appropriate, a quotation for provision to make good the shortfall.
  • 01/12/2001

COB 6.7

Cancellation and withdrawal

  • 01/12/2004

Application

COB 6.7.1

handbook-rule

COB 6.7 applies to:

  1. (1) a product provider except when providing a non-investment insurance contract;
  2. (1A) a CTF provider;
  3. (2) an insurer which provides pure protection contracts which are long-term care insurance contracts;
  4. (3) a firm when acting as an EIS manager, ISA manager, CTF provider or plan manager, or when selling on to a customer units which the firm has bought or redeemed as principal for that purpose;
  5. (4) a deposit-taking firm, when acting as ISA manager, CTF provider or as the firm responsible for holding deposits in respect of another firm's cash deposit ISA or cash deposit CTF;
  6. (5) the operator of a personal pension scheme or a stakeholder pension scheme;
  7. (6) a firm which enters into distance contracts with retail customers, the making or performance of which constitutes, or is part of:
    1. (a) dealing as agent, advising or arranging in relation to designated investments, unless the distance contract is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.10.6 G);
    2. (b) any other designated investment business; or
    3. (c) accepting deposits;
but not including a distance contract entered into by an appointed representative as principal.

COB 6.7.2

handbook-guidance
COB 6.7 (Cancellation and withdrawal) does not act to cancel distance contracts entered into by an appointed representative as principal to provide intermediation services to a retail customer. Regulations 9 (Right to cancel) to 13 (Payment for services provided before cancellation) of the Distance Marketing Regulations may apply instead (see regulation 4(3)).

COB 6.7.4

handbook-guidance
COB 6.7.5 G summarises the applicable cancellation and withdrawal rights and the maximum period of reflection. Firms should have regard to the detailed rules and guidance in all cases, particularly for the detailed exemptions.

COB 6.7.5

handbook-guidance

Cancellable investment agreements.

This table belongs to COB 6.7.4 G

Purpose

COB 6.7.6

handbook-guidance
COB 6.7 reinforces Principle 6 (Customers' interests), which requires a firm to pay due regard to the interests of its customers and treat them fairly. In certain circumstances, customers who are entering into an investment agreement will be entitled to a period of reflection during which they can decide whether to proceed with their purchase.

Post-sale right to cancel

COB 6.7.7

handbook-rule

A retail customer has a right to cancel:

  1. (1) a contract specified in row 1 of COB 6.7.15 R or COB 6.7.17 R, unless the right to cancel is disapplied or replaced by anything in row 2 of COB 6.7.15 R or COB 6.7.17 R;
  2. (2) a contract to join a stakeholder pension scheme, a personal pension deposit, a personal pension product or a SIPP for which a right to cancel applies under COB 6.7.12 R; or COB 6.7.13A R;
  3. (3) a contract for a cash deposit ISA, unless the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R, or a cash deposit CTF if the cash deposit CTF is sold by distance contract;
  4. (4) a variation of a life policy, personal pension scheme or stakeholder pension scheme for which a right to cancel applies under COB 6.7.23 R, COB 6.7.23A R and COB 6.7.26A R.

COB 6.7.8

handbook-rule
The trustees of an occupational pension scheme, the operator of a personal pension scheme or the trustees and managers of a stakeholder pension scheme must be treated so far as necessary as a retail customer for the purposes of the cancellation rules , and acquire the same right to cancel as a retail customer.

COB 6.7.9

handbook-guidance
  1. (1) COB 6.7.8 R applies, for example, when trustees or operators of a personal pension scheme purchase life policies or schemes as investments of their pension schemes. Individual members of a personal pension scheme or a stakeholder pension scheme have a right to cancel initial membership of the scheme and, in some circumstances, a subsequent variation of their contributions.
  2. (2) A product provider or operator of a stakeholder pension scheme may be unsure whether any of the situations in row 2 of COB 6.7.17 R applies to the contract in question. In such circumstances the product provider or operator of a stakeholder pension scheme may find it convenient to contract with an intermediary for the provision of documentary evidence needed to confirm the status of customers. However, the responsibility for ensuring compliance with the cancellation rules remains with the product provider or operator of a stakeholder pension scheme.

Cancellation period

COB 6.7.10

handbook-rule

When a retail customer has a right to cancel under COB 6.7.7 R, that right must (unless COB 6.7.11 R applies) be exercised:

  1. (1) (in the case of a life policy, personal pension scheme or stakeholder pension scheme) within 30 days; or
  2. (2) (in any other case) within 14 days.

COB 6.7.10A

handbook-rule

The cancellation period begins on:

  1. (1) (other than for distance contracts, cash deposit ISAs and CTFs) the date the customer receives the reminder notice of his right to cancel in accordance with COB 6.7.30;
  2. (2) (for distance contracts , cash deposit ISAs and CTFs) the later of:
    1. (a) (for a life policy ) the day the retail customer is informed that the contract has been concluded; or
    2. (b) (for any other contract) the day of the conclusion of the contract; or
    3. (c) the day on which the retail customer receives the contractual terms and conditions and other information required by COB 3.9, COB 4.2 or COB 6, as applicable.
  • 09/10/2004

COB 6.7.11

handbook-rule
Where the terms of the firm's contract give the retail customer a longer period to cancel (that is, in excess of the 14 or 30 days specified), the firm must disclose in the information about the right to cancel the differences between the retail customer's rights under COB 6.7.10 R and the terms of the contract, which operate independently.

Right to cancel a stakeholder pension scheme

COB 6.7.12

handbook-rule
  1. (1) A retail customer who has entered into a contract for a stakeholder pension scheme has a right to cancel, unless:
    1. (a) the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R; or
    2. (b) the relevant transaction is funded (wholly or partly) by a pension transfer, but only if and to the extent that the right to cancel has been replaced by a right to withdraw (see COB 6.7.17 R (Cancellable contracts and exceptions - non-life)).
  2. (2) When the retail customer has entered into a contract for a stakeholder pension scheme involving recurring contributions to that stakeholder pension scheme, only the first contribution will attract a right to cancel provided that:
    1. (a) the intention or option to make regular contributions has been disclosed in advance of the retail customer entering into the investment agreement; and
    2. (b) the retail customer's intention to make regular contributions is evidenced.

COB 6.7.13

handbook-guidance
For the purposes of COB 6.7.12 R (2)(a), disclosure of the option to make regular contributions may, for example, take place in key features. For the purposes of COB 6.7.12 R (2)(b), a retail customer's intention to make regular contributions could, for example, be demonstrated by the establishment of a direct debit mandate or instructions to an employer to deduct regular contributions from salary.

Right to cancel a personal pension deposit, a personal pension product or a SIPP

COB 6.7.13A

handbook-rule

A retail customer who has entered into a contract to join a personal pension deposit, personal pension product or a SIPP has a right to cancel, unless:

  1. (1) the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R (Cancellable contracts and exceptions - non-life);
  2. (2) the relevant transaction is funded (wholly or partly) by a pension transfer, but only if and to the extent that the right to cancel has been replaced by a right to withdraw (see COB 6.7.19 R (Cancellation substitute)); or
  3. (3) (in the case of a SIPP) the performance of the contract (to join the SIPP) has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel.
  • 06/04/2007

COB 6.7.13B

handbook-guidance
If a customer requests that a firm complete a transaction to join a SIPP before the expiry of the cancellation period, the firm should, in having regard to the information needs of the customer, make the customer aware that he will lose his right to cancel and satisfy itself on reasonable grounds that the customer understands the cost and other implications.
  • 06/04/2007

Pre-sale right to withdraw

COB 6.7.14

handbook-rule

A retail customer has a right to withdraw an offer to enter into:

  1. (1) an EIS, ISA or PEP:
    1. (a) following advice on investments;
    2. (b) which is not a distance contract;
    3. (c) unless a right to cancel is offered under COB 6.7.7 R (3), COB 6.7.15 R or COB 6.7.17 R; and
    4. (d) subject to cases 8 and 9 of row 2 COB 6.7.17 R;
  2. the right to withdraw procedures are that the offer made by the customer to enter into the contract cannot be accepted by the firm until at least seven days after the offer is made; or
  3. (2) a pension annuity or a pension transfer (or a relevant variation), to the extent that the right to cancel is provided through a right to withdraw under the procedures set out in COB 6.7.19 R.
  • 09/10/2004

COB 6.7.15

handbook-rule

Cancellable contracts and exceptions - life

This table belongs to COB 6.7.7 R (1).

COB 6.7.16

handbook-rule

Notes to cancellable contracts and exceptions - life

This table belongs to COB 6.7.15 R

COB 6.7.17

handbook-rule

Cancellable contracts and exceptions - non-life

This table belongs to COB 6.7.7 R (1) and COB 6.7.14 R (1)

COB 6.7.18

handbook-rule

Notes to cancellable contracts and exceptions - non-life

This table belongs to COB 6.7.17 R

  • 09/10/2004

COB 6.7.19

handbook-rule

Cancellation substitute

This table belongs to COB 6.7.12 R, COB 6.7.13A R (2), COB 6.7.14 R (2), cases 4(a) and 7(a) of row 2 to COB 6.7.15 R, case 12 of row 2 to COB 6.7.17 R, COB 6.7.23 (3) and COB 6.7.26A (2).

Voluntary provisions

COB 6.7.21

handbook-rule
If anything in row 2 of either COB 6.7.15 R or COB 6.7.17 R removes the right to cancel a contract, but a firm voluntarily gives the retail customer a right to cancel in any event, the firm must treat the contract as if it were cancellable under COB 6.7.7 R (1).

COB 6.7.22

handbook-guidance
  1. (1) If the firm has any doubt whether a contract or the circumstances of its purchase bring the case within any part of COB 6.7.7 R (1), it should treat the contract as if it were cancellable.
  2. (2) A firm that informs a retail customer that he has a right to cancel where it is not obliged to give a right to cancel will be taken to have voluntarily granted the retail customer a right to cancel (unless, for the purposes of COB 6.7.17 R, there is a relevant client agreement between the firm and the retail customer).

Variations

COB 6.7.23

handbook-rule
  1. (1) After an increase in regular or single premiums or payments (including a pension transfer) to a life policy, personal pension scheme or stakeholder pension scheme, a retail customer has a right to cancel (see COB 6.7.7 R (4)) in the following circumstances, unless (2) or (2A) apply:
    1. (a) any variation, other than a 'pre-selected option' (see COB 6.7.26 G), providing for substantial increases in premium or payment where the increase:
      1. (i) is being paid by way of varying the existing contract; or
      2. (ii) will result in a new contract established on the same terms as the original contract;
    2. and, in each case, represents an increase on the original premium or payments (or the previous highest agreed premium or payment) of more than 25% (see COB 6.7.25 G); or
    3. (b) any variation, other than a 'pre-selected option' (see COB 6.7.26 G), that results in a new contract which involves fresh contract terms or imposes additional obligations on the retail customer due to a change in the terms of the original contract; or
    4. (c) any variation where the increase represents the proceeds of a pension transfer; or
    5. (d) the variation of a long-term care insurance contract to provide long-term care benefits.
  2. (2) Paragraph (1) does not apply if:
    1. (a) there would have been no right to cancel the original contract under COB 6.7.7 R (1) had that agreement been entered into on the date of the variation; or
    2. (b) the variation arises out of the settlement of a claim for damages or compensation connected with a previous contract; or
    3. (c) the variation is in respect of a life policy held within a CTF.
  3. (2A) Paragraphs (1)(a), (b) and (d) do not apply if the variation is in respect of a SIPP.
  4. (3) A firm may use the cancellation substitute in COB 6.7.19 R in relation to a variation of a contract in any case where that substitute would have been available to it had the contract been entered into on the date of the variation.

COB 6.7.23A

handbook-rule
When under a long-term care insurance contract, a new contract is issued to provide for long-term care benefits, a policyholder who is an individual has a right to cancel unless COB 6.7.23 (2) applies.

COB 6.7.24

handbook-guidance
For the avoidance of doubt, a right to cancel in relation to COB 6.7.23 R (1) applies to the variation and not the original contract.
  • 01/12/2001

COB 6.7.25

handbook-guidance
In the case of COB 6.7.23 R (1)(a) and (b), there is no right to cancel where the variation results in an increase in premium or payment of 25% or less. For example, if the first premium paid by the customer (to the same policy) was £1,000, the second was £500, and the third was £900, the customer would have no right to cancel in relation to the third premium. Although £900 is more than 25% greater than £500, it is still below the original premium of £1,000. In this case, therefore, the right to cancel would only arise in circumstances where the premium was increased to over £1,250 (this being more than 25% of the original premium).
  • 01/12/2001

COB 6.7.26

handbook-guidance
COB 6.7.23 R (1)(a) and (b) do not apply where the increase results from a pre-selected option. Increases of this type (for example, index-linked premiums or pension contributions that increase or decrease as salary fluctuates) will have been previously disclosed (for example, in the key features or terms and conditions) and agreed with the customer at the outset. Any subsequent increases of 25% or more resulting from a pre-selected option will not, therefore, attract fresh disclosure or cancellation rights.
  • 01/12/2001

COB 6.7.26A

handbook-rule
  1. (1) If a customer who is an individual varies an existing personal pension scheme or stakeholder pension scheme by exercising an option to make income withdrawals, he has a right to cancel that first variation.
  2. (2) A firm may use the cancellation substitute in COB 6.7.19 in relation to the right to cancel in (1).

Electronic communication relating to cancellation and withdrawal

COB 6.7.27

handbook-guidance
For electronic transactions (for example, facsimile, e-mail or Internet) firms are referred to the guidance in COB 1.8. The rules in COB 6.7 permit the firm to issue information about a right to cancel and other communications, and to accept notice from customers who are exercising the right to cancel or withdraw, by electronic means. However, a firm should be able to demonstrate that the customer wishes to communicate electronically.

Reminding the customer of the right to cancel - contracts other than distance contracts and cash deposit ISAs

COB 6.7.30

handbook-rule

Other than for distance contracts , cash deposit ISAs and CTFs that are not distance contracts, where there is a right to cancel, the firm which enters into the contract with the customer must send the customer, in writing, a clear and prominent reminder notice of this right:

  1. (1) (for any contract specified in Part II of COB 6.7.57 to which shortfall applies), no later than the end of the eighth day; and
  2. (2) (in any other case) no later than the end of the fourteenth day;

after the contract is concluded.

  • 09/10/2004

COB 6.7.31

handbook-rule

When the customer is a trustee or an operator of a personal pension scheme who is reasonably believed by the firm to be expected to act on the instructions of the individual beneficiary, scheme member or purchaser of the policy or contract, the firm must send the notice of the right to cancel in COB 6.7.30 R to:

  1. (1) the trustee or operator, as appropriate; and
  2. (2) the beneficiary, scheme member or purchaser;

and must inform the beneficiary, scheme member or purchaser of the need to give instructions, within the specified cancellation period, to the trustee or operator where the right to cancel is to be exercised.

Failure to give information on cancellation rights

COB 6.7.41

handbook-guidance
If a firm does not give a retail customer information about his cancellation rights in accordance with COB App 1.1.1 R (17), the contract remains cancellable and the retail customer will not be liable for any shortfall (see COB 6.7.56 R (1)).

Exercising the right to cancel

COB 6.7.42

handbook-rule

A retail customer who has a right to cancel under COB 6.7.7 R may, without giving any reason, cancel the contract by serving notice upon the firm, before expiry of the relevant cancellation period either:

  1. (1) by post to the firm's last known address; or
  2. (2) in accordance with any other practical instructions for exercising that right provided to the customer in accordance with COB App 1.1.1 R (17)(b).

COB 6.7.44

handbook-rule
Where the notice of cancellation is in a durable medium and served in accordance with COB 6.7.42, it must be treated as being served on the firm on the date it is despatched by the retail customer.
  • 01/12/2001

COB 6.7.45

handbook-guidance
The purpose of COB 6.7.44 R is to identify the relevant day for determining whether the right to cancel was exercised within the relevant period in COB 6.7.10 R.
  • 01/12/2001

COB 6.7.46

handbook-guidance
In the event of any dispute, unless there is clear written evidence to the contrary, the firm should treat the date cited by the customer as being the date when the notice was given, posted or otherwise sent.
  • 01/12/2001

Record keeping

COB 6.7.47

handbook-rule

Where notice of cancellation or withdrawal has been served on a firm (or its appointed representative or agent), the firm must make and retain records (which include a copy of any receipt of notice issued to the customer and the customer's original notice instructions):

  1. (1) indefinitely in the case of a record relevant to a pension transfer, pension opt-out or FSAVC;
  2. (2) for a minimum period of:
    1. (a) six years in the case of a record relevant to a life policy, personal pension scheme or stakeholder pension scheme; and
    2. (b) three years in any other case;

and, in each case, the minimum time period runs from the date when the firm first became aware that notice of cancellation had been served.

Cancellation notices served out of time

COB 6.7.48

handbook-rule
If a firm has provided information on cancellation rights in accordance with COB App 1.1.1 R (17), it need not (unless COB 6.7.11 R applies) accept a notice of cancellation if it is served later than the period specified for that contract in COB 6.7.10 R.
  • 01/12/2001

Death of the life assured: cancellation of a pension annuity

COB 6.7.49

handbook-rule
A firm need not accept notice of cancellation of a pension annuity contract if the life (or any of the lives) assured under it has died before notice is given.
  • 01/12/2001

Joint policyholders: effecting cancellation of a life policy

COB 6.7.50

handbook-rule
In the case of a life policy, cancellation by one of several policyholders is valid if that policyholder has the right to cancel, irrespective of whether the policyholder is exercising that right alone or jointly on behalf of all of the policyholders.
  • 01/12/2001

Effects of cancellation

COB 6.7.51

handbook-rule

By exercising a right to cancel under COB 6.7.7 R (1), (2), (4), (5) or (6), the customer withdraws from the contract and:

  1. (1) the entire contract; or
  2. (2) the particular ISA component; or
  3. (3) the variation alone (see COB 6.7.23 R (1));

is terminated.

Automatic cancellation of an attached distance contract

COB 6.7.51A

handbook-guidance
Regulation 12 (Automatic cancellation of an attached distance contract) of the Distance Marketing Regulations, has the effect that when notice of cancellation is given in relation to a contract, that notice also operates to cancel any attached distance financial services contract which does not fall within one of the exceptions to the right to cancel in regulation 11, unless the retail customer gives notice that cancellation of the main contract is not to operate to cancel the attached contract. So, for example, the attached contract will not be cancelled if the price of the service depends on fluctuations in the financial market outside the firm's control or if performance of the contract has been fully completed by both parties at the consumer's express request.

Obligations on cancellation

COB 6.7.52

handbook-rule

Unless the agreement relates to a CTF, when a retail customer exercises a right to cancel under COB 6.7.7 R:

  1. (1) the firm must:
    1. (a) pay to the retail customer (or, in the case of a pension transfer or pension annuity , for the benefit of the retail customer) without delay, and no later than 30 days after the date on which the firm received notice of cancellation from the retail customer, any sums which the customer has paid to or for the benefit of the firm in connection with the contract (including sums paid by the retail customer to agents of the firm) except for the amount referred to in (b);
    2. (b) subject to (c), the firm is permitted to require the retail customer to pay for the services it has actually provided in connection with the contract; the amount payable, however, must be in accordance with the sums which the retail customer agreed to pay and must not:
      1. (i) exceed an amount which is in proportion to the extent of the service already provided to the retail customer by the firm; and
      2. (ii) be such that it could be construed as a penalty;
    3. (c) sub-paragraph (b) applies only if:
      1. (i) the contract is a distance contract within COB 6.7.17 R, Row 1, case D (Distance contracts for certain designated investment business or accepting deposits);
      2. (ii) where performance of the contract has commenced before expiry of the cancellation period, this was requested by the retail customer; and
      3. (iii) the firm can demonstrate that the retail customer was provided with details of the amount which he may be required to pay if exercising his right to cancel in accordance with COB App 1.1.1 R (17)(a).
  2. (2) The firm is entitled to receive without delay, and no later than 30 days after the date on which the customer posted or otherwise sent notice of cancellation to the firm:
    1. (a) any sums or property or both that became the customer's under the contract; and
    2. (b) payment of any shortfall due under COB 6.7.54 R.

COB 6.7.52A

handbook-rule
  1. (1) When a person exercises a right to cancel a contract in connection with a CTF that has been opened, the CTF provider must ensure that:
    1. (a) where the CTF provider and the firm that provides the underlying investment are different persons , any money that was held by the firm that provides the underlying investment in connection with the CTF is returned to the CTF provider as soon as reasonably practicable;
    2. (b) any sums which any person has paid to or for the benefit of any firm in connection with the CTF continue to be held in a CTF bank account until the CTF provider receives further instructions regarding the investment of those sums in accordance with the CTF Regulations
    3. (c) where a CTF provider holds sums in accordance with COB 6.7.52A, the CTF provider notifies the private customer in writing as soon as reasonably practicable, stating that the money is held awaiting re-investment instructions; and
    4. (d) if the CTF bank account is non-interest bearing, the registered contact is informed of that fact as soon as possible after the money has been deposited in the account.
  1. (2) When a person exercises the right to cancel a contract in connection with a CTF that has not been opened and the CTF provider holds money awaiting instructions, the CTF provider must comply with the requirements of COB 6.7.52A(1)(b), (c), and (d).
  • 01/12/2001

COB 6.7.52B

handbook-guidance
Where cancellation rights are exercisable by a customer in relation to a CTF , the CTF provider will need permission to hold client money to be able to deal with the money from the cancelled contract unless they can take advantage from any exemption from the client money rules.
  • 01/12/2001

COB 6.7.53

handbook-rule
Any sum payable under COB 6.7.52 R is owed as a simple contract debt, and any sums payable in respect of the same cancellation may where relevant be set off against each other.
  • 01/12/2001

Shortfall

COB 6.7.54

handbook-rule
Subject to COB 6.7.56 R, the firm is entitled under COB 6.7.52 (3) to charge the retail customer for the market loss (that is, shortfall), calculated in accordance with COB 6.7.58 R, which the firm would incur in cancelling any contract specified in COB 6.7.57 R.
  • 01/12/2001

Shortfall: worked example

COB 6.7.55

handbook-guidance
COB 6.7.58 R illustrates the process that firms need to undertake in order to discover the amount (that is, shortfall) by which the purchase price paid by the retail customer is greater than the purchase price prevailing when the firm becomes aware that the retail customer has cancelled. EXAMPLE: In the case of dual-priced investments , the shortfall on cancellation is calculated on an offer-to-offer basis; for example, 1,000 units are purchased at an offer price of 209.1p and the offer price is (or, in the case of a forward price , is subsequently ascertained to be) 196.2p as at the time when the firm became aware that notice of cancellation had been served by the retail customer. The shortfall on cancellation, therefore, is (209.1 - 196.2) = (12.9p x 1,000) = £129.
  • 01/12/2001

Exceptions to shortfall

COB 6.7.56

handbook-rule

A firm will have no right to charge a retail customer for any shortfall which results from the customer having exercised a right to cancel in any of the following circumstances:

  1. (1) if the firm does not give the customer notice of his cancellation rights as required by COB 6.7 (17);
  2. (2) if the firm fails to make any prominent mention of shortfall in the information about cancellation;
  3. (3) if the firm has failed to send a reminder notice as required by COB 6.7.30 R (2);
  4. (4) if the customer has served the cancellation notice before the contract is concluded.
  • 01/12/2001

COB 6.7.57

handbook-rule

Table: Contracts which are subject to shortfall.

This table belongs to COB 6.7.54 R

COB 6.7.58

handbook-rule

Table: Calculation of shortfall.

This table belongs to COB 6.7.54 R

  • 01/12/2001

COB 6.8

Insurance contracts: life policies

Application

COB 6.8.1

handbook-rule
COB 6.8 applies to a firm which effects or carries out life policies.

Purpose

COB 6.8.2

handbook-guidance
(1) Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its clients. This section reinforces Principle 7 by requiring certain information to be provided on a continuing basis to a client with a life policy. (COB 6.1 to COB 6.5 deal with pre-sale information for life policies).
(2) This section implements certain requirements of the Third Life Directive.
(3) For non-investment insurance contracts, firms should refer to ICOB.

Life policies: Information to be provided during the term of the contract

COB 6.8.6

handbook-rule

COB 6.8.7 R and COB 6.8.8 R apply to a long-term insurer, unless, at the time of application, the client, other than an EEA ECA recipient, was habitually resident:

  1. (1) in an EEA State other than the United Kingdom; or
  2. (2) outside the EEA and he was not present in the United Kingdom.
  • 01/03/2003

COB 6.8.7

handbook-rule
If during the term of a life policy entered into on or after 1 July 1994 there is any proposed change in the information referred to in COB 6.5.49 R items (1) to (12), the long-term insurer must inform the policyholder of the effect of the change before the change is made.

COB 6.8.8

handbook-rule

If a life policy entered into on or after 1 July 1994 provides for the payment of bonuses and the amounts of bonuses are unspecified, the long-term insurer must, in every calendar year except the first, either:

  1. (1) notify the policyholder in writing of the amount of any bonus which has become payable under the contract, and which has not previously been notified under this rule; or
  2. (2) give the policyholder in writing sufficient information to enable him to determine the amount of any such bonus.

COB 6.8.9

handbook-guidance
The information under COB 6.8.8 R (2) could include the total value of the benefits (including bonuses) which have accrued under the contract, the rates of bonus which have been declared since the previous notification or provision of information and a note of the benefits to which those new rates should be applied.
  • 01/12/2001

COB 6.8.10

handbook-guidance
Although COB 6.8.8 R does not apply to a bonus if the amount is specified in the contract, long-term insurers are free to provide the information if they wish.
  • 01/12/2001

Provision of information: general

COB 6.8.15

handbook-rule
  1. (1) When a firm provides information in accordance with COB 6.8.3 R, COB 6.8.7 R, COB 6.8.8 R or COB 6.8.12 R, it must provide the information in writing, unless (2) applies.
  2. (2) If the contract is being made by telephone, the firm may give the information orally to the customer. If the customer enters into the contract, a written version of the required information must be sent to the customer within five business days of the contract being entered into.
  • 01/12/2001

COB 6.8.16

handbook-guidance
In relation to electronic notification, firms are referred to the guidance in COB 1.8 (Application to electronic media).
  • 01/12/2001

COB 6.8.17

handbook-rule
Where a life policy is effected jointly, the information required by COB 6.8.7 R or COB 6.8.8 R may be sent to the first named customer.

Record keeping

COB 6.8.18

handbook-rule
A firm must make an adequate record of information provided to a customer under COB 6.8 and retain that record for a minimum period after the information is provided of six years.

COB 6.10

Principles and Practices of Financial Management (PPFM)

  • 01/12/2004

Application and purpose Application

COB 6.10.1

handbook-rule
  1. (1) The whole of this section, except COB 6.10.4A G and COB 6.10.21A R to COB 6.10.21K R , applies to a firm that:
    1. (a) carries on with-profits business;
    2. (b) is not an EEA insurer; and
    3. (c) is not a non-directive friendly society.
  2. (2) COB 6.10.4A G and COB 6.10.21A R to COB 6.10.21K R apply only to an EEA insurer that carries on with-profits business.
  3. (3) This section does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.

Purpose

COB 6.10.2

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly.
  • 30/04/2004

COB 6.10.3

handbook-guidance
The rules and guidance in this section are intended to secure an appropriate degree of protection for policyholders, and potential policyholders, of firms carrying on with-profits business by requiring them to define and make available their Principles and Practices of Financial Management and to produce, for their with-profits policyholders, and potential with-profits policyholders, a consumer-friendly version of them. The rules and guidance in this section are also intended to enable policyholders, and potential policyholders, of firms carrying on with-profits business better to understand the way in which firms carry on their with-profits business.

COB 6.10.4

handbook-guidance
A firm's Principles and Practices of Financial Management also play an important role in promoting confidence among with-profits policyholders and in the governance arrangements for with-profits business set out in COB 6.11 (Reporting to with-profits policyholders on compliance with PPFM).
  • 30/04/2004

COB 6.10.4A

handbook-guidance
In relation to EEA insurers, the rules and guidance in this section are intended to enable UK policyholders properly to understand the essential elements of the EEA insurer's commitment under the relevant with-profits policy. The effect of COB 6.10.21A R to COB 6.10.21K R is that an EEA insurer that carries on with-profits business must provide its UK with-profits policyholders with information equivalent in scope and content to the information that a UK insurer must provide in its Principles and Practices of Financial Management and in its consumer-friendly version of them.

Principles and Practices of Financial Management

COB 6.10.5

handbook-rule
  1. (1) A firm must establish and maintain the Principles and Practices of Financial Management according to which the business of its with-profits funds is conducted.
  2. (2) A firm must make a record of its Principles and Practices of Financial Management in (1), and retain that record for six years from the date on which it was superseded by a more up-to-date record.
  • 30/04/2004

COB 6.10.6

handbook-guidance
Whether a separate PPFM is needed for each with-profits fund is a matter for the firm in the light of its circumstances, including previous management of those funds and any relevant representations made by the firm to with-profits policyholders.
  • 30/04/2004

COB 6.10.7

handbook-guidance

In order to comply with COB 6.10.5 R a firm should:

  1. (1) establish and maintain a document approved by its governing body, setting out its PPFM; and
  2. (2) keep a record of each version of the PPFM as it changes over time.
  • 30/04/2004

Obligation to provide copies

COB 6.10.8

handbook-rule

A firm must provide a copy of its PPFM, or the PPFM applicable to specified with-profits funds:

  1. (1) free of charge at the request of any with-profits policyholder of the firm; and
  2. (2) at the request of any person who is not a with-profits policyholder of the firm if that person pays any reasonable charge the firm may make for providing that copy.
  • 30/04/2004

COB 6.10.9

handbook-guidance
In addition to providing copies of its PPFM, pursuant to COB 6.10.8 R, a firm may also wish to publish its PPFM on its website.

Obligation to produce a consumer-friendly version of the PPFM

COB 6.10.9A

handbook-rule
A firm must produce a consumer-friendly version of its PPFM for its with-profits policyholders and its potential with-profits policyholders.
  • 31/12/2005

COB 6.10.9B

handbook-rule

A firm's CFPPFM must:

  1. (1) describe the most important information set out under each of the headings in its PPFM (see COB 6.10.22 R);
  2. (2) be expressed in clear and plain language that can be easily understood by a with-profits policyholder, or potential with-profits policyholder, who does not possess any specialist or technical knowledge;
  3. (3) be provided:
    1. (a) with any:
      1. (i) written notice, sent to the firm's with-profits policyholders, which sets out the firm's proposed changes to its with-profits principles (see COB 6.10.12 R and COB 6.10.13 R);
      2. (ii) annual statements sent to the firm's with-profits policyholders; and
      3. (iii) key features for a with-profits policy; and
    2. (b) free of charge at the point of delivery; and
  4. (4) the information set out in the CFPPFM may be included in another document, including those referred to in (3).
  • 31/12/2005

COB 6.10.9C

handbook-guidance
A firm may also provide a copy of its CFPPFM with, or as part of, any other document.
  • 31/12/2005

COB 6.10.9D

handbook-rule
COB 6.10.9B R (3)(a)(ii) does not apply if, and to the extent that, there has been no material change in the firm's CFPPFM since it was last supplied.
  • 31/12/2005

COB 6.10.9E

handbook-rule
A firm must ensure that its CFPPFM is kept up to date with its PPFM, in all material respects, as the PPFM changes over time.
  • 31/12/2005

COB 6.10.9F

handbook-rule

A firm must:

  1. (1) make its CFPPFM publicly available; and
  2. (2) prominently signpost the availability of its CFPPFM on its website.
  • 31/12/2005

COB 6.10.9G

handbook-guidance

In complying with COB 6.10.9B R (1) and COB 6.10.9BR (2), a firm should:

  1. (1) have regard to Principle 7 (Communications with clients);
  2. (2) give its CFPPFM a consumer-friendly title (for example, 'How we manage our with-profits business - a guide');
  3. (3) include a short and clear statement at the beginning of its CFPPFM (for example, on a front cover) explaining its purpose and the importance of the information in it;
  4. (4) use a contents page, bold headings, bullet points and colours, whenever that will help to make the CFPPFM more accessible and more easily understood;
  5. (5) provide information in context, whenever that is necessary or appropriate (for example, by explaining what a with-profits policy is, and how it works, before describing the most important information set out under each of the headings in the firm's PPFM);
  6. (6) use, short and concise paragraphs and, whenever reasonably possible, active verbs and personal pronouns rather than passive verbs and indirect pronouns (for example, a question could be: 'How do we make our bonus decisions?');
  7. (7) avoid using technical, or industry specific, terms whenever that is reasonably possible (if a firm cannot reasonably avoid using such terms, it should explain, in plain language, what those terms mean);
  8. (8) refer to its CFPPFM in:
    1. (a) any annual statements sent to its with-profits policyholders;
    2. (b) its key features for with-profits policies; and
    3. (c) any other material document produced by the firm, where such a reference would be useful or appropriate;
  9. (9) explain in the CFPPFM that:
    1. (a) readers should refer to the firm's PPFM for a fuller description of the ways in which the firm manages its with-profits business; and
    2. (b) copies of the firm's PPFM, or its relevant PPFM, are available on request (see COB 6.10.8 R) and how copies can be obtained.
  • 31/12/2005

Principles of Financial Management

COB 6.10.10

handbook-guidance

The with-profits principles within the PPFM must:

  1. (1) be enduring statements of the overarching standards the firm adopts in managing with-profits funds; and
  2. (2) describe the business model used by the firm in meeting its duties to with-profits policyholders and in responding to longer-term changes in the business and economic environment.
  • 30/04/2004

COB 6.10.11

handbook-guidance
The with-profits principles are not expected to change often. However, they should be informative enough to enable the directors, any actuary appointed under SUP 4 (Actuaries) and any With-profits Committee, amongst others, to judge whether existing or potential with-profits practices are appropriate for the firm.
  • 30/04/2004

COB 6.10.12

handbook-rule
A firm must send its with-profits policyholders written notice, setting out any proposed changes to the with-profits principles of the firm, three months in advance of the effective date of the proposed changes.
  • 30/04/2004

COB 6.10.13

handbook-rule
If a firm maintains more than one PPFM, the notice in COB 6.10.12 R need only be sent to those policyholders affected by the PPFM being changed.
  • 30/04/2004

COB 6.10.14

handbook-guidance
A firm may give the notice required under COB 6.10.12 R by including the required information in any annual statements sent to with-profits policyholders if this is at least three months in advance of the effective date of the proposed changes.
  • 30/04/2004

COB 6.10.15

handbook-guidance
Changes to the with-profits principles of a firm are likely to trigger one or more of the firm's obligations to notify the FSA under SUP 15.3 (General notification requirements).
  • 30/04/2004

Practices of Financial Management

COB 6.10.16

handbook-rule

The with-profits practices within the PPFM must:

  1. (1) describe the firm's approach to managing with-profits funds and to responding to changes in the business and economic environment in the shorter-term; and
  2. (2) contain sufficient detail to enable a knowledgeable observer to understand the material risks and rewards from effecting or maintaining a with-profits policy with the firm.
  • 30/04/2004

COB 6.10.17

handbook-guidance
Subject to the with-profits principles, a firm's with-profits practices are expected to change as the firm's circumstances and the business environment change, with some alteration, for example, every few years.
  • 30/04/2004

COB 6.10.18

handbook-rule
A firm must send its with-profits policyholders written notice, setting out any changes to the with-profits practices of the firm.
  • 30/04/2004

COB 6.10.19

handbook-rule
If a firm maintains more than one PPFM, the notice in COB 6.10.18 R need only be sent to those policyholders affected by the PPFM being changed.
  • 30/04/2004

COB 6.10.20

handbook-guidance
A firm may give the notice required under COB 6.10.18 R by including the required information in any annual statements sent to with-profits policyholders. The notice can be in arrears but should be within a reasonable time period from the effective date of the change.
  • 30/04/2004

COB 6.10.21

handbook-guidance
Changes to the with-profits practices of a firm may trigger one or more of the firm's obligations to notify the FSA under SUP 15.3 (General notification requirements).
  • 30/04/2004

Requirements on EEA insurers

COB 6.10.21A

handbook-rule
An EEA insurer must, on the request of any with-profits policyholder who is habitually resident in the United Kingdom, provide the information necessary to enable that policyholder properly to understand the essential elements of the insurer's commitment under the policy.
  • 30/04/2004

COB 6.10.21B

handbook-rule
The information provided under COB 6.10.21A R must not be narrower in scope or less detailed in content than the equivalent PPFM under COB 6.10.22 R to COB 6.10.62.
  • 30/04/2004

COB 6.10.21C

handbook-guidance
An EEA insurer may wish to publish the information provided pursuant to COB 6.10.21A R on its website.

COB 6.10.21D

handbook-rule
An EEA insurer must send its with-profits policyholders who are habitually resident in the United Kingdom, written notice, setting out any proposed changes to that part of the information provided under COB 6.10.21A R that is equivalent in substance to the with-profits principles of a firm to which COB 6.10.1 R(1) applies.
  • 30/04/2004

COB 6.10.21E

handbook-rule
An EEA insurer must send the notice provided under COB 6.10.21D R three months in advance of the effective date of the proposed changes.
  • 30/04/2004

COB 6.10.21F

handbook-rule
An EEA insurer may send the notice provided under COB 6.10.21D R only to those policyholders affected by the information being changed.
  • 30/04/2004

COB 6.10.21G

handbook-guidance
An EEA insurer may give the notice provided under COB 6.10.21D R by including the required information in any annual statements sent to with-profits policyholders if this is at least three months in advance of the effective date of the proposed changes.
  • 30/04/2004

COB 6.10.21H

handbook-rule
An EEA insurer must send its with-profits policyholders who are habitually resident in the United Kingdom, written notice, setting out any changes to that part of the information provided under COB 6.10.21A R that is equivalent in substance to the with-profits practices of a firm to which COB 6.10.1 R(1) applies.
  • 30/04/2004

COB 6.10.21I

handbook-rule
An EEA insurer may send the notice provided under COB 6.10.21H R only to those policyholders affected by the information being changed.
  • 30/04/2004

COB 6.10.21J

handbook-guidance
An EEA insurer may give the notice provided under COB 6.10.21H R by including the required information in any annual statements sent to with-profits policyholders. The notice can be arrears but should be within a reasonable time period from the effective date of the change.
  • 30/04/2004

COB 6.10.21K

handbook-rule

COB 6.10.9A R, COB 6.10.9B R, COB 6.10.9D R, COB 6.10.9E R and COB 6.10.9F R apply to an EEA insurer, as if:

  1. (1) a reference to a firm was a reference to an EEA insurer; and
  2. (2) a reference to a with-profits policyholder, or a potential with-profits policyholder, was a reference to a with-profits policyholder, or a potential with-profits policyholder, who is habitually resident in the United Kingdom.
  • 31/12/2005

Scope and content of the Principles and Practices of Financial Management

COB 6.10.22

handbook-rule
  1. (1) The PPFM of a firm must cover any issues that has, or it is reasonably foreseeable may have, a significant impact on the firm's management of with-profits funds.
  2. (2) The issues in (1) include: the amount payable under a with-profits policy, the investment strategy, business risk, charges and expenses, management of the inherited estate, volumes of new business and arrangements on stopping new business and arrangements on stopping taking new business, and equity between the with-profits fund and any shareholders.
  • 30/04/2004

COB 6.10.23

handbook-guidance
In addition to the issues in COB 6.10.22 R(2), a firm's PPFM should also cover any other areas that are important to the management of its with-profits funds and that may affect the amounts payable under with-profits policies.
  • 30/04/2004

COB 6.10.24

handbook-guidance
A firm's PPFM should reflect any requirements or constraints relevant to the management of with-profits funds that apply to the firm as a result of previous dealings: for example, previous business transfer schemes. The PPFM should also set out the extent to which the firm's freedom to alter its PPFM is constrained, including by such previous dealings.
  • 30/04/2004

COB 6.10.24A

handbook-guidance
A firm's PPFM should describe the nature and extent of any shareholder commitment to support the with-profits fund. It should also describe when and how that commitment will take effect.
  • 30/06/2005

COB 6.10.25

handbook-guidance
The rest of this section includes rules on each of the issues that a firm's PPFM must cover, followed in each case by guidance on how various information relevant to that issue might be split between with-profits principles and with-profit practices.
  • 30/04/2004

The amount payable under a with-profits policy

COB 6.10.26

handbook-rule

The PPFM of a firm must cover the methods that the firm uses to guide its determination of the amount that it is appropriate to pay individual with-profits policyholders, including:

  1. (1) the aims of the methods used, and the approximations used;
  2. (2) how the current methods, including any relevant historical assumptions used and any systems maintained to deliver results of particular methods, are documented within the firm; and
  3. (3) the procedures for changing either the current method or any assumptions or parameters relevant to a particular method.
  • 30/04/2004

COB 6.10.27

handbook-guidance
A firm may use a number of methods to determine the amount payable to a with-profits policyholder and may use more than one method to determine the amount payable to a particular with-profits policyholder.
  • 30/04/2004

COB 6.10.28

handbook-guidance

The firm's with-profits principles should describe:

  1. (1) the aims of the methods the firm uses to determine the amount payable to with-profits policyholders;
  2. (2) the degree of approximation that the firm is prepared to allow in the application of those methods and in the application of its with-profits principles;
  3. (3) how the firm controls changes to those methods; and
  4. (4) the circumstances under which the firm might change any historical assumptions or parameters relevant to those methods: for example, previously applied investment returns, charges, or allocations of miscellaneous surplus, that have been derived from the historical experience and actions of the firm.
  • 30/04/2004

COB 6.10.29

handbook-guidance

The firm's with-profits practices should describe, for each major class of with-profits policy:

  1. (1) the methods that the firm currently uses to determine the amount payable to with-profits policyholders;
  2. (2) the methods that the firm currently uses to determine the main assumptions or parameters that determine the output of those methods;
  3. (3) the degree of approximation that the firm allows when it applies assumptions or parameters across generations of with-profits policyholders or across different types or classes of with-profits policies;
  4. (4) the formality with which the firm documents the methods, parameters or assumptions that it uses to determine the amount payable to with-profits policyholders; and
  5. (5) the firm's internal procedures for changing either the current methods or the current parameters or assumptions relevant to a particular method; and
  6. (6) the firm's target range, or target ranges, that have been set and specified pursuant to COB 6.12.17 R; and
  7. (7) the factors that the firm is likely to regard as relevant under COB 6.12.59 R.

COB 6.10.30

handbook-guidance

The firm's with-profits practices should describe how the firm brings investment return, expenses or charges and tax into account and how the firm determines the impact of those items on the amount payable under a with-profits policy. In particular, the firm's with-profits practices should describe:

  1. (1) any distinctions that the firm makes in recognising the investment return from a subset of the total assets of a with-profits fund;
  2. (2) whether the firm apportions expenses fully between all the policies in a with-profits fund or apportions expenses in some other way, for example, by meeting some expenses from the firm's inherited estate;
  3. (3) the relationship between the actual liability to tax of a with-profits fund and the tax that the firm imputes to determine the amount payable under a with-profits policy;
  4. (4) the impact on the amount payable under a with-profits policy of any liability to tax of a with-profits fund as a result of the firm making a transfer to shareholders; and
  5. (5) how the firm brings any other items into account, including, for example, charges made for the costs of guarantees, charges for the use of capital and charges for other risks.
  • 30/04/2004

COB 6.10.31

handbook-rule
The PPFM of a firm must cover the firm's approach to setting annual bonus rates applicable to with-profits policies.
  • 30/04/2004

COB 6.10.32

handbook-guidance

The firm's with-profits principles should:

  1. (1) describe the firm's general aims in setting annual bonus rates and the constraints to which the firm may be subject in changing economic circumstances; and
  2. (2) indicate how the firm would determine the range of with-profits policies or generations of with-profits policies over which the firm believes a single bonus rate would be appropriate and the circumstances under which the firm believes a new bonus series would be necessary.
  • 30/04/2004

COB 6.10.33

handbook-guidance

The firm's with-profits practices should:

  1. (1) describe the firm's current approach to setting annual bonus rates, including the weight given to recent economic experience;
  2. (2) indicate the frequency at which the firm re-sets or expects to re-set annual bonus rates;
  3. (3) indicate the maximum amount (if any) by which annual bonuses would alter if the firm were to re-set annual bonus rates; and
  4. (4) describe the firm's approach to setting any interim bonus rates before the next declaration of annual bonus rates.
  • 30/04/2004

COB 6.10.34

handbook-rule
The PPFM of a firm must cover the firm's approach to setting final bonus rates applicable to with-profits policies.
  • 30/04/2004

COB 6.10.35

handbook-guidance
The firm's with-profits principles should describe the firm's approach to setting final bonus rates, in the context of the firm's general aims in determining the total amount payable under with-profits policies, and by reference to the constraints to which the firm may be subject in changing economic circumstances.
  • 30/04/2004

COB 6.10.36

handbook-guidance

The firm's with-profits practices should:

  1. (1) describe the firm's current approach to setting final bonus rates, including the weight given to recent economic experience. The description should include any distinctions that the firm makes between with-profits policies that remain in force until contractual dates, or dates on which no market value reduction applies (for example, maturity or retirement dates) and policies that are surrendered or transferred at other dates;
  2. (2) describe the relationship or interaction between final bonus rates and any market value reductions, if both can apply at the same time;
  3. (3) describe how final bonuses influence the value of with-profits policies that have formulaic surrender or transfer bases (for example, older conventional policies rather than unitised policies); and
  4. (4) indicate the frequency at which the firm sets or expects to set final bonus rates and the circumstances under which changes in the economic environment would cause the firm to change the time between re-setting.
  • 30/04/2004

COB 6.10.37

handbook-guidance
The PPFM should describe the firm's approach to smoothing the value of with-profits policies, including those matters required under COB 6.12.47 R.

COB 6.10.38

handbook-guidance

The firm with-profits principles should:

  1. (1) indicate whether and in what respect the firm takes a significantly different approach to smoothing depending on the type of claim arising from with-profits policies;
  2. (2) indicate whether the firm intends smoothing to be neutral over time;
  3. (3) indicate whether there is any total scale or cost of smoothing to the firm over the shorter-term that the firm believes should not be exceeded. The FSA takes the cost of smoothing to mean the extent to which the amount actually payable under a with-profits policy diverges from the theoretical determinant of policy value under COB 6.10.26 R, except where due to applicable guarantees; and
  4. (4) indicate whether the firm's applies market value reductions, or changes the surrender bases for with-profits policy that are not unitised, only to reflect changes in underlying asset values.
  • 30/04/2004

COB 6.10.39

handbook-guidance

The firm's with-profits practices should:

  1. (1) indicate how rapidly the firm might need to adjust the value of with-profits policies, by specifying any period over which the firm expects smoothing to be neutral;
  2. (2) indicate whether there is any overall limit to the accumulated cost of, or excess from, smoothing that the firm is prepared to tolerate;
  3. (3) indicate whether the firm applies a single smoothing strategy to all generations and types of with-profits policy, or applies different smoothing strategies to subsets of the with-profits fund, in particular whether (and in what respect) the firm applies a different smoothing strategy to new entrants to a with-profits fund when the accumulated cost or excess from smoothing is large;
  4. (4) describe the firm's current approach to smoothing: for example, the acceptable degree of change in the value of similar with-profits policies from one year to the next, or the formula the firm uses to recognise recent investment performance as a determinant of the value of a with-profits policy;
  5. (5) describe how the firm applies smoothing to classes of with-profits policies that participate in final bonuses indirectly: for example, older policies with formulaic surrender or transfer bases;
  6. (6) describe how accurately the firm applies market value reductions or surrender and transfer bases to give effect to smoothing; and
  7. (7) describe how the firm accounts for partial payments under with-profits policies to which no penalty (for example, by market value reductions) is applied, in determining the eventual total value of a with-profits policy.
  • 30/04/2004

Investment strategy

COB 6.10.40

handbook-rule

The PPFM of a firm must cover the significant aspects of the firm's investment strategy for its with-profits business or, if different, any with-profits fund, including:

  1. (1) the degree of matching to be maintained between assets relevant to with-profits business and liabilities to with-profits policyholders and other creditors;
  2. (2) the firm's approach to assets of different credit or liquidity quality and different volatility of market values;
  3. (3) the presence among the assets relevant to with-profits business of any assets that would not normally be traded because of their importance to the firm, and the justification for holding such assets; and
  4. (4) the firm's controls on using new asset or liability instruments and the nature of any approval required before new instruments are used.
  • 30/04/2004

COB 6.10.41

handbook-guidance

The firm's with-profits principles should:

  1. (1) set out the firm's investment strategy in terms that allow alternative with-profits practices to be judged and where necessary rejected. The firm's with-profits principles should therefore specify the specific factors that drive the firm's investment strategy, in more detail than, for example, simply achieving the best return within the framework of the likely volatility of asset values;
  2. (2) if the firm relies on assets outside a with-profits fund to maintain the firm's investment strategy, state on which assets and to what degree the firm relies;
  3. (3) set out how the firm views the use, as part of its investment strategy, of derivatives and other instruments that may alter the economic out-turn from assets;
  4. (4) set out any constraints on the firm's investment strategy either with respect to parts of a with-profits fund (for example, classes of with-profits policy or bonus series) or between different generations of with-profits policyholders; and
  5. (5) set out any overarching constraints on the firm's exposure to any one counterparty including derivative exposures.
  • 30/04/2004

COB 6.10.42

handbook-guidance

The firm's with-profits practices should:

  1. (1) describe what procedures the firm follows to transfer assets to the with-profits fund under COB 6.10.41 G(2) and at what point such transfers would be recognised as irretrievable by the provider of outside assets;
  2. (2) set out the period between formal reviews of the firm's investment strategy;
  3. (3) describe the degree of matching the firm maintains between the assets of a with-profits fund and liabilities to with-profits policyholders and other creditors, and the basis of the liabilities assessed for such purposes;
  4. (4) explain the firm's approach to investment in different asset classes, and assets of different credit or liquidity quality. This may include, for example, the firm's guidelines as to the overall limit on the amount of a with-profits fund that may be invested in particular asset classes and the overall crediting rating of parts of the portfolio, the minimum credit quality of new and existing investments as well as the overall liquidity constraints on the with-profits fund; and
  5. (5) explain the approval process that the firm operates before investing in new or novel investment instruments.
  • 30/04/2004

COB 6.10.43

handbook-guidance
A with-profits fund may include assets that would not normally be traded because of their importance to the firm. These might be physical assets: for example, the firm's head office building, but may include contingent support or guarantee arrangements to or from other entities.
  • 30/04/2004

COB 6.10.44

handbook-guidance

In relation to assets that would not normally be traded because of their importance to the firm, the with-profits principles of the firm should:

  1. (1) describe why such assets are of use to a with-profits fund;
  2. (2) describe what reviews the firm carries out to ensure those assets still remain of use;
  3. (3) set out any limits that the firm imposes on the scale of investment in those assets;
  4. (4) indicate whether the out-turn from investment in those assets will impact on the amounts payable under with-profits policies; and
  5. (5) indicate what credit or liquidity requirements the firm applies to investments in those assets.
  • 30/04/2004

COB 6.10.45

handbook-guidance
In relation to assets that would normally be trade, the with-profits practices of the firm should describe those assets, their current application in determining claim values and any constraints imposed on the firm's investment freedom as a result of its investment in those assets.
  • 30/04/2004

Business risk

COB 6.10.46

handbook-rule

The PPFM of a firm must cover the exposure of the firm's with-profits business to business risk, including the firm's:

  1. (1) procedures for deciding if the with-profits business may undertake a particular business risk;
  2. (2) arrangements for reviewing and setting a limit on the scale of such risks; and
  3. (3) procedures for reflecting the profits or losses of such business risks in the amounts payable under with-profits policies.
  • 30/04/2004

COB 6.10.47

handbook-guidance

Business risk for a with-profits fund can include a number of exposures, for example:

  1. (1) exposure to maintaining and acquiring with-profits policies;
  2. (2) exposure to maintaining and acquiring non-profit policies;
  3. (3) exposure to risks from other investments: for example, in investment management companies, service companies or overseas subsidiary insurance companies.
  • 30/04/2004

COB 6.10.48

handbook-guidance
The PPFM of a firm should make clear how the firm considers such exposures before they are taken up or entered into, and how the firm intends to deal with rewards or risks going forward. In particular, the PPFM should make clear what alternatives the firm sets as a benchmark when reviewing existing business risk and new business risks to determine whether the rewards are reasonable given the risks undertaken.
  • 30/04/2004

COB 6.10.49

handbook-guidance
Where the firm explicitly excludes business risk from a class of with-profits policies there may often be residual risks from the class that are natural to with-profits policies such as guarantee and smoothing costs. The PPFM should make clear where such costs are borne.
  • 30/04/2004

COB 6.10.50

handbook-guidance
The firm's with-profits principles should set out the general limits that the firm applies to the taking on of business risk and the control that the firm exercises over existing business risk. In particular, the with-profits principles should define where compensation costs from a business risk would be borne.
  • 30/04/2004

COB 6.10.51

handbook-guidance

The firm's with-profits practices should:

  1. (1) describe the current limits that the firm applies to the taking on of business risk;
  2. (2) describe the firm's approach to the application of the rewards and losses from business risks as a determinant of the amount payable under a with-profits policy;
  3. (3) describe the degree to which the firm smoothes any profits or losses from business risks before applying them to determine the amount payable under a with-profits policy;
  4. (4) indicate whether profits or losses from business risks must exceed a minimum value or scale before the firm will treat them as a determinant of the amount payable under a with-profits policy; and
  5. (5) indicate whether and to what extent particular generations of with-profits policyholders or classes of with-profits policy bear or might bear particular business risks, including, for example, crystallised or contingent guarantees to other classes of policyholder or whether the out-turn from all business risk is pooled across all with-profits policies.
  • 30/04/2004

Charges and expenses

COB 6.10.52

handbook-rule
The PPFM must cover the way in which the firm applies charges and apportions expenses to its with-profits business, including, if material, any interaction with connected firms.
  • 30/04/2004

COB 6.10.53

handbook-guidance

The firm's with-profits principles should:

  1. (1) describe the overall aim of the firm's approach to applying charges and apportioning expenses to with-profits policies, covering all types of charges and expenses including investment costs, commissions and charges borne from investment through collective investment schemes; and
  2. (2) set out the factors that would drive any change to the basis on which the firm applies charges to or apportions its actual expenses amongst with-profits policies, or exercises any discretion to apply charges to particular with-profits policies.
  • 30/04/2004

COB 6.10.54

handbook-guidance

The firm's with-profits practices should:

  1. (1) give a general description of the charges that the firm currently applies and the expenses that it currently apportions to major classes of with-profits policies;
  2. (2) describe the relationship between the firm's actual charges and expenses, as applied to determine the amounts payable under with-profits policies, and the charges and expenses borne by the with-profits fund;
  3. (3) state the circumstances under which the firm will charge expenses to the with-profits fund at an amount other than cost, and the reasons why the firm will do so; and
  4. (4) state the interval at which the firm will review any arrangements under which it obtains out-sourced services, included those provided by connected parties, and give a broad indication of the terms on which the firm would be able to terminate the agreements to provide those services.
  • 30/04/2004

COB 6.10.55

handbook-guidance
The PPFM of a firm should make clear the criteria that the firm will apply when it has to make judgements about how to apply charges and apportion expenses between with-profits funds or between a with-profits fund and shareholder owned funds, firms or service companies.
  • 30/04/2004

Management of the inherited estate

COB 6.10.56

handbook-rule
The PPFM of a firm must cover the firm's management of any inherited estate and the uses to which the firm may put that inherited estate.
  • 30/04/2004

COB 6.10.57

handbook-guidance

The firm's with-profits principles should:

  1. (1) describe how the firm will manage its inherited estate;
  2. (2) describe the purposes for which the firm will apply the inherited estate;
  3. (3) indicate the size or scale of inherited estate for which the firm is aiming, for example, by reference to the volume of the firm's existing business or the risks borne by the firm's existing business;
  4. (4) explain the implications of the firm's preferred size or scale of inherited estate for the value of the firm's with-profits policies;
  5. (5) describe any existing division of the firm's inherited estate between with-profits funds within the firm; and
  6. (6) describe any constraints on the firm's freedom to deal with the inherited estate as a result of previous dealings: for example, a transfer of business scheme or attribution or re-attribution of a previous inherited estate.
  • 30/04/2004

COB 6.10.58

handbook-guidance

The firm's with-profits practices should:

  1. (1) describe how the firm uses the inherited estate by, for example, reference to the costs the inherited estate is meeting;
  2. (2) state whether the firm's investment strategy for the firm's inherited estate is different to the firm's investment strategy for the rest of the with-profits fund; and
  3. (3) describe any current guidelines that the firm has in place as to the size or scale of the inherited estate or as to how the firm would mange the inherited estate and over what time period, if it became too large or too small.
  • 30/04/2004

Volumes of new business and arrangements on stopping taking new business

COB 6.10.59

handbook-rule
The PPFM of a firm whose with-profit fund is accepting new business must cover the firm's practice for review of the limits on the quantity and type of new with-profits business and the actions that the firm would take if it ceased to take on new with-profits business of any significant amount.
  • 30/04/2004

COB 6.10.60

handbook-guidance

The firm's with-profits principles should:

  1. (1) set out the firm's approach to setting the volume of new business, both new with-profits business and non-profit business written in the with-profits fund; and
  2. (2) set out the firm's anticipated reaction to closure to significant amounts of new business and, in particular, what action it would take in that event as regards the distribution of any inherited estate.
  • 30/04/2004

20040430

handbook-guidance

The firm's with-profits practices should:

  1. (1) describe the approach the firm takes to setting any maximum volume of new business each year and any particular limits on classes of business, including non-profit business within the with-profits fund; and
  2. (2) describe what the firm considers should be the minimum proportion and scale of new business of a with-profits type to justify the with-profits fund staying open to new business.

Equity between the with-profits fund and any shareholders

COB 6.10.62

handbook-rule
The PPFM of a firm must cover the firm's approach to achieving a balance between the interests of with-profits policyholders and the interests of any shareholders of the firm.
  • 30/04/2004

COB 6.10.63

handbook-guidance

The firm's with-profits principles should:

  1. (1) describe the firm's arrangements for profit sharing between shareholders and with-profits policyholders and the scope for changes in the share of profits allotted to each; and
  2. (2) indicate the approach that the firm will take before any changes to the profit sharing arrangements are implemented.
  • 30/04/2004

COB 6.10.64

handbook-guidance

The firm's with-profits practices should:

  1. (1) indicate the current basis on which the firm divides profit between with-profits policyholders and shareholders, including the method of calculating the profit to be divided;
  2. (2) indicate whether the division of profit between with-profits policyholders and shareholders would change if there was a change in the underlying basis on which the shareholder share is computed (normally the valuation basis of the mathematical reserves);
  3. (3) indicate other factors that would have a significant impact on the balance between the shareholder share and the with-profits fund, for example:
    1. (a) tax or other imposts; or
    2. (b) distributions in anticipation of a surplus; or
    3. (c) the firm's approach to with-profits policies with both an entitlement to final bonus and an exposure to a market value reduction; or
    4. (d) the impact of guaranteed bonuses; and
  4. (4) state whether the pricing of any policies that the firm is writing, and particular policies open to new business, appear to be significantly and systematically reducing the firm's inherited estate if the shareholder transfer is taken into account.
  • 30/04/2004

COB 6.11

Reporting to with-profits policyholders on compliance with PPFM

  • 01/12/2004

Application

COB 6.11.1

handbook-rule

This section applies to a firm carrying on with-profits business other than:

  1. (1) a non-directive friendly society; or
  2. (2) an EEA insurer.
  • 30/04/2004

COB 6.11.2

handbook-rule
This section does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.
  • 30/04/2004

Purpose

COB 6.11.3

handbook-guidance

The rules and guidance in this section are intended to secure an appropriate degree of protection for with-profits policyholders and potential with-profits policyholders and to promote confidence among such policyholders by:

  1. (1) giving guidance on governance arrangements relevant to the way in which with-profits firms comply with SYSC in the conduct of with-profits business; and
  2. (2) requiring firms to make an annual report available to with-profits policyholders.
  • 30/04/2004

Governance arrangements for with-profits business

COB 6.11.4

handbook-guidance
In complying with SYSC 3.2.6, a firm should maintain governance arrangements designed to ensure that in the conduct of with-profits business it complies with, maintains and records any applicable PPFM.
  • 30/04/2004

COB 6.11.5

handbook-guidance

The governance arrangements referred to in COB 6.11.4 G should:

  1. (1) be appropriate to the scale and complexity of a firm's with-profits business; and
  2. (2) involve some independent judgement in the assessment of compliance with PPFM and how any competing or conflicting rights and interests of policyholders and, if applicable, shareholders have been addressed.
  • 30/04/2004

COB 6.11.6

handbook-guidance

The independent judgement in COB 6.11.5 G(2) can be provided in different ways. These may include but are not confined to:

  1. (1) establishing a committee of the governing body (a With-profits Committee), including non-executive members of the governing body and possibly some external non-directors with appropriate skills and experience;
  2. (2) asking an independent person with appropriate skills and experience to report on these matters to the governing body or to any With-Profits Committee; or
  3. (3) for small firms in particular, asking a non-executive member (or members) of the governing body to report to the governing body on these matters.
  • 30/04/2004

COB 6.11.7

handbook-guidance
For the purposes of COB 6.11.6 G(2), appropriate skills and experience could have been gained in, for example, consumer protection, the life insurance industry, regulation or as a member of the accountancy, actuarial or legal professions.
  • 30/04/2004

COB 6.11.8

handbook-guidance
If a person or committee who provides the independent judgement under COB 6.11.5 G(2) wishes to make a statement or report to with-profits policyholders, in addition to that made by a firm under COB 6.11.9 R, a firm should facilitate this. COB 6.11.12 G is also relevant to such a report.
  • 30/04/2004

Annual report to with-profits policyholders

COB 6.11.9

handbook-rule
A firm must produce an annual report to its with-profits policyholders stating whether, throughout the financial year to which the report relates, the firm believes it has complied with the obligations relating to PPFM referred to in COB 6.11.4 G and setting out the firm's reasons for that belief.
  • 30/04/2004

COB 6.11.10

handbook-rule

The annual report in COB 6.11.9 R must address all significant relevant issues, including the way in which the firm has:

  1. (1) exercised, or failed to exercise, any discretion that it has in the conduct of its with-profits business; and
  2. (2) addressed any competing or conflicting rights, interests or expectations of its policyholders (or groups of policyholders) and, if applicable, shareholders (or groups of shareholders).
  • 30/04/2004

COB 6.11.11

handbook-rule
The report to with-profits policyholders made under SUP 4.3.16AR (4) by a with-profits actuary must be annexed to the annual report in COB 6.11.9 R.

COB 6.11.12

handbook-guidance
Any statement or report made under COB 6.11.8 G should be annexed to the annual report in COB 6.11.9 R.
  • 30/04/2004

COB 6.11.13

handbook-guidance
The competing rights, interests or expectations in COB 6.11.10 R(2) include the competing interests of different classes and generations of with-profits policyholders, and, if applicable, shareholders.
  • 30/04/2004

COB 6.11.14

handbook-guidance
In preparing the report to with-profits policyholders in COB 6.11.9 R, a firm should take advice from a with-profits actuary.

COB 6.11.15

handbook-guidance
A firm should make the report in COB 6.11.9 R available to with-profits policyholders within six months of the end of the financial year to which it relates. A firm may choose how it makes the report available. Methods of delivery might include publishing the report on the firm's website, providing copies on request, or including it in the firm's annual financial statements. A firm should notify its with-profits policyholders in any annual statements how copies of the report can be obtained.
  • 30/04/2004

COB 6.11.16

handbook-guidance
IPRU(INS) rule 9.6(6) requires an insurer to deposit with the FSA any statement or report made to its with-profits policyholders under COB 6.11.8 G, COB 6.11.9 R or SUP 4.3.16A R (4) when it deposits its return. If a statement or report has not been made when the return is deposited, IPRU(INS)rule 9.6(6A) requires the insurer to deposit it as soon as possible thereafter.
  • 31/12/2005

COB 6.12

Treating with-profits policyholders fairly

  • 30/06/2005

Application

COB 6.12.1

handbook-rule
This section applies to a firm carrying on with-profits business.
  • 30/06/2005

COB 6.12.2

handbook-rule
This section applies to an EEA insurer, but only in so far as responsibility for the matter in question has not been reserved to the firm's Home State regulator by a European Community instrument.
  • 30/06/2005

COB 6.12.3

handbook-rule
This section does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.
  • 30/06/2005

COB 6.12.4

handbook-rule
This section does not apply if, and to the extent that, it would affect a with-profits policyholder's contractual rights under, or in respect of, a with-profits policy.
  • 30/06/2005

COB 6.12.5

handbook-guidance

COB 6.12.4 R means, for example, that this section does not affect a with-profits policyholder's right to a minimum amount guaranteed on death, retirement or maturity. Nor does it affect a firm's practice of making deductions in the calculation of surrender values for the purpose of enhancing maturity payments, if:

  1. (1) the firm has reasonably exercised its discretion to make those deductions;
  2. (2) those deductions have been made in a clear, fair, lawful and consistent way, over a period of time;
  3. (3) those deductions have been made in accordance with the firm's previous statements to policyholders (if any); and
  4. (4) (as a result of (1) to (3)), the fact of those deductions, and the firm's right to make them, now form part of the implied terms of the with-profits policies affected.
  • 30/06/2005

COB 6.12.6

handbook-guidance
Some of this section may not be relevant to a non-directive friendly society. Such a firm is, for example, not required by COB 6.10 to produce a PPFM.
  • 30/06/2005

Purpose

COB 6.12.7

handbook-guidance
The rules and guidance in this section are intended to secure an appropriate degree of protection for actual and potential with-profits policyholders and to promote confidence among them.
  • 30/06/2005

Introduction

COB 6.12.8

handbook-guidance
This section is directed only towards the protection of actual and potential with-profits policyholders and does not affect a firm's obligations to its other actual and potential policyholders.
  • 30/06/2005

COB 6.12.9

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and to treat them fairly. Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its clients and to communicate information to them in a way that is clear, fair and not misleading. Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interest fairly.
  • 30/06/2005

COB 6.12.10

handbook-guidance
The rules and guidance in this section supplement the Principles in their application to with-profits business and in their application to the relationship between a firm and its actual and potential with-profits policyholders. However, compliance with the rules and guidance in this section will not necessarily ensure compliance with the Principles.
  • 30/06/2005

COB 6.12.11

handbook-guidance

For example, if a firm proposes to act in a particular way, when it considers whether its proposals will be consistent with Principle 6 (Customers' interests), it should also consider:

  1. (1) whether its proposals are consistent with its contractual obligations to its with-profits policyholders and its wider bargain with them;
  2. (2) whether its proposals would undermine, or materially reduce the value of, a with-profits policyholder's contractual rights;
  3. (3) whether its proposals are consistent with its previous disclosures to its with-profits policyholders and its previous approach to the same issue;
  4. (4) whether it will be acting entirely within the scope of any discretion that it may exercise and whether it will be exercising that discretion for the purpose for which it was granted or reserved; and
  5. (5) any other material factor that may be relevant to the fair treatment of its with-profits policyholders.
  • 30/06/2005

COB 6.12.12

handbook-guidance

Other parts of the Handbook are also relevant to the fair treatment of with-profits policyholders, including:

  1. (1) PRIN and SYSC;
  2. (2) GENPRU 2 (Capital), INSPRU 3 (Market risk) and INSPRU 1 (Insurance risk);
  3. (3) Part I of IPRU(INS) 3 (Long-term insurance business) (Identification and application of assets and liabilities);
  4. (4) Part V of IPRU(FSOC) 4 (Financial prudence) (Separation between long-term insurance business assets and other assets);
  5. (5) COB 6.5 (Content of key features and important information: life policies, schemes, ISA and CTF cash deposit components and stakeholder pension schemes) and COB 8 (Reporting to customers); and
  6. (6) DISP 1 (Complaint handling procedures for firms) and DISP 3.8 (Determination by the Ombudsman); and
  7. (7) [deleted]
  8. The following Regulatory Guides are also relevant:
  9. (8) UNFCOG (Unfair Contract Terms Regulatory Guide).
  10. (9) [intentionally blank]

General approach to operating a with-profits fund

COB 6.12.13

handbook-rule

Subject to COB 6.12.15 R, a firm must not change its PPFM unless that change is justified, in the reasonable opinion of the firm's governing body, by the need to:

  1. (1) respond to changes in the business or economic environment;
  2. (2) protect the interests of policyholders; or
  3. (3) change the firm's with-profits practices better to achieve its with-profits principles.
  • 30/06/2005

COB 6.12.14

handbook-guidance

A firm should:

  1. (1) monitor the business and economic environment continuously; and
  2. (2) maintain procedures that will enable it to identify promptly, and bring to the attention of its senior managers or its governing body, all material legal, regulatory, tax and other developments that are relevant to the conduct of its with-profits business.
  • 30/06/2005

COB 6.12.15

handbook-rule

Notwithstanding COB 6.12.13 R, a firm may change its PPFM if that change:

  1. (1) is necessary to correct an error or omission in the PPFM; or
  2. (2) would improve the clarity or presentation of the PPFM without materially affecting its substance; or
  3. (3) is immaterial.
  • 30/06/2005

Amounts payable under with-profits policies: Maturity payments

COB 6.12.16

handbook-guidance
For the purposes of this section, maturity payments include all payments made on a date when the terms of a with-profits policy provide for a minimum guaranteed amount to be paid. A firm may calculate its maturity payments in a number of different ways. COB 6.12.17 R to COB 6.12.37 G do not require a firm to use a particular methodology. However, they do require a firm to manage its with-profits business with the aim that, however it calculates its maturity payments, the overwhelming majority of them fall within a target range that has been set and specified in accordance with COB 6.12.17 R and calculated using the methodology required by, or described in, COB 6.12.24 R to COB 6.12.37 G.
  • 31/12/2005

COB 6.12.17

handbook-rule

Except where a contractual right would require a firm to make a higher maturity payment, and subject to COB 6.12.22 R, a firm must:

  1. (1) set a target range for the maturity payments that it will make on:
    1. (a) all of its with-profits policies; or
    2. (b) each group of its with-profits policies;
  2. (2) ensure that each target range:
    1. (a) is expressed as a percentage of unsmoothed asset share; and
    2. (b) includes 100% of unsmoothed asset share;
  3. (3) specify each target range in its PPFM;
  4. (4) manage its with-profits business, and the business of each with-profits fund, with the aim of making a maturity payment on each with-profits policy that falls within the relevant target range;
  5. (5) subject to COB 6.12.35 R, make a maturity payment on each with-profits policy that falls within the relevant target range, whenever that is possible in the reasonable opinion of the firm's governing body; and
  6. (6) manage its with-profits business, and each with-profits fund, with the longer term aim that it will make aggregate maturity payments, on its with-profits policies, of 100% of unsmoothed asset share.
  • 31/12/2005

COB 6.12.18

handbook-guidance
A firm may choose how its target range, or target ranges, are distributed around 100% of unsmoothed asset share.
  • 31/12/2005

COB 6.12.19

handbook-guidance

If a firm uses the definition of unsmoothed asset share in COB 6.12.24 R (1)(b), it will comply with COB 6.12.17 R (5) if it:

  1. (1) makes a maturity payment on the specimen with-profits policy, which falls within the relevant target range; and
  2. (2) makes a maturity payment on each of the with-profits policy represented by the specimen with-profits policy, which, if adjusted:
    1. (a) in the same proportion as the level of premium on that policy to the level of premium on the specimen policy; or
    2. (b) (if it would be more appropriate) in some other proportion,
  3. would fall within the target range established in respect of the specimen policy.
  • 31/12/2005

COB 6.12.20

handbook-guidance
The FSA accepts that it may not be possible (for the purposes of COB 6.12.17 R (5)) to make a payment that falls within the relevant target range in a number of circumstances, including where the firm's regulatory, or realistic, solvency position is strained, or it would be strained, if the firm made a payment within the relevant target range, and further support arrangements are not in place, for example, under an insurance business transfer scheme or a shareholder commitment described in the firm's PPFM.
  • 31/12/2005

COB 6.12.21

handbook-guidance
To ensure compliance with COB 6.12.17 R (6), a firm should avoid favouring one group of policies over another. The FSA recognises, however, that the operation of smoothing and the payment of more, or less, than 100% of asset share at particular points in the economic cycle may mean that groups whose maturity payments are especially concentrated in a few years will see an outcome that may diverge from the 100% longer term target.
  • 31/12/2005

COB 6.12.22

handbook-rule
COB 6.12.17 R does not apply to a maturity payment that cannot reasonably be compared with a calculated asset share.
  • 31/12/2005

COB 6.12.23

handbook-guidance
In some circumstances, it may not be fair or reasonable to calculate or assess a maturity payment using an asset share methodology. For example, a firm may use a different methodology, which delivers fair value, but is inconsistent with asset shares, or it may use bonus reserve or North American distribution methods, which deliver more uniform bonus rates than an asset share methodology would produce. Similarly, some with-profits policies (for example, annual premium whole life assurance policies) may have asset shares that are very variable. In other cases, the relevant policies may have been materially altered, or the firm may lack the historical data required to make an asset share calculation. In those cases, a firm may use a more approximate methodology to set bonus rates, provided that that methodology is consistently applied and properly reflects its representations to with-profits policyholders.
  • 31/12/2005

COB 6.12.24

handbook-rule

For the purposes of COB 6.12.17 R:

  1. (1) unsmoothed asset share means:
    1. (a) the unsmoothed asset share of the relevant with-profits policy; or
    2. (b) the unsmoothed asset share of one or more specimen with-profits policies, which a firm has selected to represent a group, or all, of the with-profits policies effected in the same with-profits fund.
  2. (2) a firm must calculate unsmoothed asset share by:
    1. (a) applying the methods in INSPRU 1.3.119 R to INSPRU 1.3.123 R ;
    2. (b) including any amounts that have been added to the policy as the result of a distribution from an inherited estate; and
    3. (c) subject to (d), and where the terms of the policy so provide, adding or subtracting an amount that reflects the experience of the insurance business in the relevant with-profits fund; but
    4. (d) if a with-profits fund has suffered adverse experience, which results from a firm's failure to comply with the rules in this section, that adverse experience may only be taken into account if, and to the extent that, in the reasonable opinion of the firm's governing body, the amount referred to in (c) cannot be met from:
      1. (i) the firm's inherited estate (if any); or
      2. (ii) any assets attributable to shareholders, whether or not they are held in the relevant with-profits fund.

COB 6.12.25

handbook-guidance
COB 6.12.24 R (2)(b) does not require the inclusion of amounts that have been used from an inherited estate to support the year-on-year smoothing of bonus declarations.
  • 31/12/2005

COB 6.12.26

handbook-guidance

A firm may choose to use the definition of unsmoothed asset share in:

  1. (1) COB 6.12.24 R (1)(a) for some groups of with-profits policies; and
  2. (2) COB 6.12.24 R (1)(b) for other groups of with-profits policies.
  • 31/12/2005

COB 6.12.27

handbook-guidance

If a firm chooses to use:

  1. (1) both definitions of unsmoothed asset share, it should specify, in its PPFM, which method it will use for each group of with-profits policies;
  2. (2) the definition of unsmoothed asset share in COB 6.12.24 R (1)(b) for some or all of its with-profits policies, it should also:
    1. (a) ensure that the specimen with-profits policy, or with-profits policies, selected have the same material characteristics as the with-profits policies they will represent, taking into account, for example, their duration and their terms and conditions; and
    2. (b) explain, in its PPFM, that it has chosen the definition of unsmoothed asset share in COB 6.12.24 R (1)(b) for the relevant group of with-profits policies, and then describe in general terms what effect that decision might have on the relevant maturity payments (if any).
  • 31/12/2005

COB 6.12.28

handbook-guidance
When a firm calculates unsmoothed asset share, for the purposes of COB 6.12.17 R and COB 6.12.24 R (2), its methodology should be consistent with the with-profits principles and with-profits practices described in its PPFM.
  • 31/12/2005

COB 6.12.29

handbook-guidance
The unsmoothed asset share, calculated for the purposes of COB 6.12.17 R and COB 6.12.24 R (2), may include any deductions that are made from asset share for the cost of guarantees or the use of capital, where that is consistent with the with-profits principles and with-profits practices described in the firm's PPFM.
  • 31/12/2005

COB 6.12.30

handbook-rule
A firm may make a deduction from asset share for the cost of guarantees, or the use of capital, only if that is permitted by, and consistent with, a plan that has been approved by its governing body and described in its PPFM. If a firm makes such a deduction, it must ensure that that deduction is proportionate to, and consistent with, the costs that it is intended to meet or offset.
  • 31/12/2005

COB 6.12.31

handbook-rule

If a firm has a plan, for the purposes of COB 6.12.30 R, and it makes, or expects to make, deductions from asset share in reliance on that plan, it must also ensure that:

  1. (1) all actual and expected deductions are described, or allowed for, in its key features and the projections that it sends, or makes available, to actual and potential with-profits policyholders; and
  2. (2) its deductions do not change unless they are justified by a review that has been carried out in response to changes in the business or economic environment or changes in the nature of the firm's liabilities as a result of policyholders exercising options in their policies.
  • 31/12/2005

COB 6.12.32

handbook-guidance

Deductions for the cost of guarantees or the use of capital could materially alter asset share, circumventing the requirements of COB 6.12.17 R (6). Therefore COB 6.12.30 R and COB 6.12.31 R require that any such deductions are part of a well-formulated plan that is altered only after due consideration. The firm should therefore consider, and set out in its plan:

  1. (1) who will bear the risks associated with any guarantees given to with-profits policyholders; and
  2. (2) the level or type of any charges that may be made to asset shares to cover the cost of bearing those risks.
  • 31/12/2005

COB 6.12.33

handbook-guidance
Deductions should only be changed in response to changes in the business or economic environment and not in an arbitrary way. Retrospective changes in the form of an immediate reduction in current asset shares, however so described, would not normally be consistent with a well developed plan.
  • 31/12/2005

COB 6.12.34

handbook-guidance
A firm should ensure that any charges made under the plan described in COB 6.12.30 R and COB 6.12.31 R are consistent with its actual investment policy and its intended investment policy.
  • 31/12/2005

COB 6.12.35

handbook-rule
Notwithstanding COB 6.12.17 R (5), a firm may make a maturity payment which falls outside the target range for the specimen with-profits policy, or with-profits policies, provided that it has good reason to believe that at least 90% of the maturity payments made on the with-profits policies in that group have fallen, or will fall, within the relevant target range.
  • 31/12/2005

COB 6.12.36

handbook-guidance
In COB 6.12.35 R, maturity payment includes a proportionately adjusted amount as described in COB 6.12.19 G (2).
  • 31/12/2005

COB 6.12.37

handbook-guidance
The FSA accepts that, in some cases, the target range established by reference to a specimen with-profits policy may be inappropriate for all of the with-profits policies in that group. That may be the case, for example, if the premiums paid on an individual with-profits policy are significantly greater than, or less than, those paid on the specimen with-profits policy. In those cases, the FSA also accepts that it might be fair, or fairer, to make a maturity payment that falls outside the specified target range. If a firm proposes to make a maturity payment that falls outside that target range, it should be satisfied, on reasonable grounds, that that is fair from the perspective of the particular policyholder, and the firm's other with-profits policyholders.
  • 31/12/2005

Amounts payable under with-profits policies : Surrender payments

COB 6.12.38

handbook-guidance
A firm may calculate its surrender payments (including transfers) in a number of different ways. COB 6.12.39 R to COB 6.12.45 R do not require a firm to use a particular methodology. However, they do require a firm to ensure that, however it calculates its surrender payments, the amount actually paid is, in aggregate across all similar policies, not less than that which would have been paid if the firm had calculated the surrender payment using the methodology in COB 6.12.39 R to COB 6.12.45 R.
  • 31/12/2005

COB 6.12.39

handbook-rule
COB 6.12.17 R to COB 6.12.35 R apply to surrender payments as if a reference to maturity payment was a reference to surrender payment, except that COB 6.12.17 R (6) applies, in the case of surrender payments, to the unsmoothed asset share before any deductions made in accordance with COB 6.12.40 R.
  • 31/12/2005

COB 6.12.40

handbook-rule
When a firm calculates a surrender payment using the methodology in COB 6.12.39 R to COB 6.12.45 R, it must not make a deduction from the appropriate percentage of unsmoothed asset share unless that deduction is necessary, in the reasonable opinion of the firm's governing body, to protect the interests of the firm's remaining with-profits policyholders.
  • 31/12/2005

COB 6.12.41

handbook-guidance
If a firm uses its own methodology to calculate surrender payments, it should take appropriate steps to check that that methodology produces a result which, in aggregate across all similar policies, is not less than the result that would be achieved if the firm used the methodology prescribed by COB 6.12.39 R and COB 6.12.40 R. The firm should decide what steps would best secure this outcome in its particular circumstances. It might, for example, ensure consistency by testing the surrender payments on a suitable range of specimen with-profits policies.
  • 31/12/2005

COB 6.12.42

handbook-guidance

For the purposes of COB 6.12.40 R, appropriate factors that might be included in any deduction include:

  1. (1) the firm's unrecovered costs, including any financing costs incurred in effecting or carrying out the surrendered with-profits policy to the date of surrender, including the costs that might have been recovered if the policy had remained in force;
  2. (2) costs that would fall on the with-profits fund, if the surrender value is calculated by reference to an assumed market value of assets which exceeds the true market value of those assets;
  3. (3) the firm's costs incurred in administering the surrender; and
  4. (4) a fair contribution towards the cost of any contractual benefits due on the whole, or an appropriate part, of the continuing policies in the with-profits fund which would otherwise result in higher costs falling on the continuing with-profits policies.
  • 31/12/2005

COB 6.12.43

handbook-guidance
For the purposes of COB 6.12.39 R, a firm may set a target range for surrender payments where the top-end of the range is lower than the top-end of the relevant target range for maturity payments.
  • 31/12/2005

COB 6.12.44

handbook-guidance
If a firm has ceased to effect new contracts of insurance in a with-profits fund, or it expects to cease to effect new contracts of insurance in the near future (see COB 6.12.95 R), and, in the reasonable opinion of the firm's governing body, the firm's circumstances require, or are then likely to require, amendments to the deductions made in reliance on COB 6.12.40 R, the firm should include the changes it proposes to make in its run-off plan (see COB 6.12.98 R).
  • 31/12/2005

COB 6.12.45

handbook-rule

A firm must not make a market value reduction to the face value of the units of an accumulating with-profits policy unless:

  1. (1) the market value of the with-profits assets in the relevant with-profits fund is, or is expected to be, significantly less than the assumed value of the assets on which the face value of the units of the policy has been based; or
  2. (2) there has been, or there is expected to be, a high volume of surrenders, relative to the liquidity of the relevant with-profits fund; and

the market value reduction is no greater than is necessary to reflect the impact of (1) or (2) on the relevant surrender payment.

  • 30/06/2005

COB 6.12.46

handbook-guidance
For the purposes of COB 6.12.45 R, a firm might reasonably expect a significant change in market values if, for example, that particular market has been moving in one direction and there is reason to believe that it will continue to do so. A firm might expect a high volume of surrenders if surrender volumes have been increasing, and there is reason to think that that will continue or if some unexpected and adverse event has occurred, which is relevant to the firm or the wider business or economic environment, which is likely to prompt a material number of surrenders.
  • 30/06/2005

Approach to smoothing

COB 6.12.47

handbook-rule

A firm must specify, in its PPFM, the with-profits principles and with-profits practices that it will use to smooth maturity payments and surrender payments. That specification must reflect the requirements of COB 6.12.17 R (6) and include:

  1. (1) the smoothing policy applied to each of the different types of with-profits policy effected by the firm, including any specimen with-profits policies used for the purposes of COB 6.12.24 R (1)(b);
  2. (2) the limits (if any) applied to the total cost of, or excess from, smoothing; and
  3. (3) any limits applied to any changes in the level of maturity payments between one period and another.
  • 30/06/2005

Conditions relevant to distributions

COB 6.12.48

handbook-rule

A firm must:

  1. (1) not make a distribution from a with-profits fund, unless the whole of the cost of that distribution can be met without eliminating the regulatory surplus in that with-profits fund;
  2. (2) ensure that the amount distributed to policyholders from a with-profits fund is not less than the required percentage of the total amount distributed (see COB 6.12.56 R); and
  3. (3) if it adjusts the amounts distributed to policyholders, apply a proportionate adjustment to amounts distributed to shareholders so that the distribution to policyholders will not be less than the required percentage.

COB 6.12.49

handbook-rule
A realistic basis life firm must not make a distribution from a with-profits fund to any person who is not a with-profits policyholder, unless the whole of the cost of that distribution (including the cost of any obligations that will or may arise from the decision to make a distribution) can be met from the excess of the realistic value of assets over the realistic value of liabilities in that with-profits fund.
  • 30/06/2005

COB 6.12.50

handbook-rule
In COB 6.12.49 R, a distribution to a person who is not a with-profits policyholder includes a transfer of assets out of a with-profits fund that is not made to satisfy a liability of that fund.
  • 30/06/2005

COB 6.12.54

handbook-rule
If, on a distribution, a firm incurs a tax liability on a transfer to shareholders, it must not attribute that tax liability to a with-profits fund.
  • 30/06/2005

COB 6.12.55

handbook-rule

Notwithstanding COB 6.12.54 R, a firm may attribute a tax liability to a with-profits fund if:

  1. (1) the tax liability was incurred on a transfer to shareholders;
  2. (2) the firm can show that attributing the tax liability to that with-profits fund is consistent with its established practice;
  3. (3) that established practice is explained in the firm's PPFM; and
  4. (4) that liability is not charged to asset shares.
  • 30/06/2005

Distribution ratios

COB 6.12.56

handbook-rule

The required percentage referred to in COB 6.12.48 R is, for each with-profits fund:

  1. (1) the percentage (if any) required in respect of that fund by:
    1. (a) the firm's articles of association, registered rules or other equivalent instrument; or
    2. (b) a relevant order made by a court of competent jurisdiction;
  2. (2) if (1) does not apply, the percentage specified in the firm's PPFM, if that percentage reflects the firm's established practice;
  3. (3) if (1) and (2) do not apply, not less than 90 per cent.

Requirement relating to distribution of an excess surplus

COB 6.12.57

handbook-rule
At least once a year (or, in the case of a non-directive friendly society, at least once in every three years), a firm's governing body must determine, whether the firm's with-profits fund, or any of the firm's with-profits funds, has an excess surplus.
  • 30/06/2005

COB 6.12.58

handbook-rule

A firm will have an excess surplus in a with-profits fund if, and to the extent that:

  1. (1) the regulatory surplus in that with-profits fund;
  2. (2) the other financial resources of the firm that are applied to that with-profits fund; and
  3. (3) any other financial resources that are expected to be made available for the benefit of that with-profits fund in the event of reasonably foreseeable adverse experience;
  4. exceed:
  5. (4) the amount required to meet the higher of any relevant enhanced capital requirement or individual capital assessment; and
  6. (5) the amount necessary, in the reasonable opinion of the firm's governing body, to:
    1. (a) support the current and future insurance business of the firm or the relevant with-profits fund;
    2. (b) maintain the financial strength of the firm or the relevant with-profits fund; or
    3. (c) address any other matters relevant to policyholders' interests or security.
  • 30/06/2005

COB 6.12.59

handbook-rule
A firm must specify, in its PPFM, the matters, or types of matter, that it may regard as relevant for the purposes of COB 6.12.58 R (5)(c).
  • 30/06/2005

COB 6.12.60

handbook-evidential-provisions
  1. (1) If a with-profits fund has an excess surplus, and to retain that surplus would be a breach of Principle 6 (Customers' interests), the firm should:
    1. (a) make a distribution from that with-profits fund (unless the conditions in COB 6.12.48 R and COB 6.12.49 R cannot be met); or
    2. (b) carry out a reattribution.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with Principle 6 (Customers' interests).
  3. (3) Contravention of (1) may be relied on as tending to establish a contravention of Principle 6 (Customers' interests).
  • 30/06/2005

Charges to a with-profits fund

COB 6.12.61

handbook-rule
A firm must not charge a cost to a with-profits fund unless, in the reasonable opinion of the firm's senior management, the firm has incurred, or it will incur, that cost in the operation of that with-profits fund.
  • 30/06/2005

COB 6.12.62

handbook-guidance
COB 6.12.61 R does not prevent a firm from charging a fair proportion of its overheads (including executive remuneration) to a with-profits fund.
  • 30/06/2005

COB 6.12.63

handbook-rule
To ensure that costs are fairly and consistently apportioned between with-profits funds, and between with-profits policyholders and shareholders, a firm must establish, maintain and disclose in its PPFM, cost apportionment principles that will enable it to determine which costs are, or may be, charged to a with-profits fund and which costs are, or may be, charged to the other parts of its business or its shareholders.
  • 30/06/2005

COB 6.12.64

handbook-rule
If a firm makes charges to a with-profits fund for the cost of guarantees or the use of capital, it must review those charges regularly to ensure that they are adequate, fair and lawful.
  • 30/06/2005

COB 6.12.65

handbook-guidance
It is for a firm to decide when, and how often, to review its guarantee charges, taking into account its circumstances and the wider business or economic environment.
  • 30/06/2005

COB 6.12.66

handbook-rule
  1. (1) A firm must not pay compensation or redress from a with-profits fund.
  2. (2) In (1), and for the purposes of COB 6.12.67 R, compensation and redress include the costs of assessing the extent of any compensation or redress due, and the costs of considering or defending compensation or redress claims.
  • 30/06/2005

COB 6.12.67

handbook-rule

Notwithstanding COB 6.12.66 R, a firm may pay compensation or redress due to a with-profits policyholder, or former with-profits policyholder:

  1. (1) from its inherited estate (if any); or
  2. (2) from assets attributable to shareholders, whether or not they are held within a long-term insurance fund; or
  3. (3) from assets that would otherwise be attributable to asset shares, if, in the reasonable opinion of the firm's governing body, that compensation or redress cannot be paid from the assets in (1) or (2), or from any other source.
  • 30/06/2005

COB 6.12.68

handbook-guidance
COB 6.12.66 R does not apply to ex gratia or rectification payments. A firm may, therefore, correct an erroneous underpayment to a with-profits policyholder, or former with-profits policyholder, using assets in a with-profits fund.
  • 30/06/2005

COB 6.12.69

handbook-guidance

For the purposes of COB 6.12.67 R (3), a firm's governing body should assess whether compensation or redress can be paid from the firm's inherited estate, assets attributable to shareholders or any other source by reference to:

  1. (1) its ability to continue to meet the higher of any relevant enhanced capital requirement or individual capital assessment; and
  2. (2) any other factors relevant to policyholders' interests.
  • 30/06/2005

COB 6.12.70

handbook-rule

A firm that is not a mutual must not charge to a with-profits fund any amounts paid or payable to a skilled person in connection with a report under section 166 of the Act (Reports by skilled persons) if:

  1. (1) the need for the report derives wholly or partly from a material failure to keep adequate records;
  2. (2) the principal purpose of the report is to identify what action, if any, may be necessary as a result of the firm's non-compliance with its obligations under the regulatory system;
  3. (3) the report indicates that the firm has, or may have, materially failed to satisfy its obligations under the regulatory system; or
  4. (4) it is reasonable to assume that the report may be relied upon by the FSA in connection with its enforcement functions.
  • 30/06/2005

COB 6.12.71

handbook-guidance
If a report under section 166 of the Act (Reports by skilled persons) does not relate entirely to insurance business being carried on in a with-profits fund, a firm should charge a fair proportion of the overall cost of the report to the fund, but only if that would be consistent with COB 6.12.70 R.
  • 30/06/2005

COB 6.12.72

handbook-guidance
If a firm has properly charged an amount to a with-profits fund, but circumstances later show that the charge should not have been made (see COB 6.12.70 R and COB 6.12.71 G), the firm should fully reimburse the with-profits fund.
  • 30/06/2005

Tax charge to a with-profits fund

COB 6.12.72A

handbook-rule
A firm must not charge a contribution to corporation tax to a with-profits fund, if that contribution exceeds the notional corporation tax liability that would be charged to that with-profits fund if it were assessed to tax as a separate body corporate.
  • 31/12/2005

COB 6.12.72B

handbook-guidance
If a firm carries on insurance business outside its with-profits fund, it should assess the extent to which the corporation tax liability arising in respect of that business has been affected by the insurance business within the with-profits fund. If the insurance business within the with-profits fund has reduced the corporation tax liability that would have otherwise arisen in respect of that other business, the firm's governing body should consider whether any unfairness results. In particular, if the firm has taken an action, or a series of actions, that were intended to cause a material part of the tax charged to the with-profits fund to emerge as a contribution to the profit of the firm, it may be unfair if no reduction is made to the amount so charged.
  • 31/12/2005

New business

COB 6.12.73

handbook-rule
If a firm proposes to effect new contracts of insurance in an existing with-profits fund, it must only do so on terms that are, in the reasonable opinion of the firm's governing body, unlikely to have a material adverse affect on the interests of its existing with-profits policyholders.
  • 30/06/2005

COB 6.12.74

handbook-guidance

In some circumstances, it may be difficult or impossible for a firm to mitigate the risk of a material adverse affect on its existing, or new, with-profits policyholders, unless it establishes a new bonus series or with-profits fund. The factors that might cause a firm to establish a new bonus series or with-profits fund include:

  1. (1) that the current investment outlook is not adequately reflected in existing premium rates. For example, a new high, or low, inflation environment, greater volatility of investment returns or a materially altered investment mix, might mean that the bonus potential for new and existing with-profits policies are materially different;
  2. (2) high acquisition costs on the new with-profits policies, which would place an undue burden on the financial resources of the relevant with-profits fund or be detrimental to existing with-profits policyholders;
  3. (3) that the firm has a high level of guarantees or options in its existing with-profits policies, which might place an excessive burden on new with-profits policies, or vice versa;
  4. (4) the level of charges on the new with-profits policies, or the pattern of their emergence, if that might create a material risk of noncompliance with COB 6.12.76 G; or
  5. (5) that existing policyholders might be disadvantaged by an adjustment to the balance of the investments held within the particular with-profits fund, which would result from the decision to materially increase the number of new with-profits policies effected by the firm.
  • 30/06/2005

COB 6.12.75

handbook-guidance
Circumstances, in which it may be appropriate to establish a new with-profits fund, are likely to arise when the potential risks to new or existing with-profits policyholders are likely to be too great for the same with-profits fund to provide, adequately, for the interests of the two groups of policyholders, even after allowing for the beneficial effects of diversification (if any). Such potential risks are likely to arise from significant differences in the terms and conditions of the new and existing with-profits policies, including the basis on which charges are levied and reviewed.
  • 30/06/2005

COB 6.12.76

handbook-guidance
When a firm prices the new insurance business that it proposes to effect in an existing with-profits fund, it should estimate the volume of new insurance business that it is likely to effect and then build in adequate margins that will allow it to recover any acquisition costs to be charged to the with-profits fund.
  • 30/06/2005

COB 6.12.77

handbook-guidance
When a firm sets a target volume for new insurance business in an existing with-profits fund, it should pay particular attention to the risk of disadvantage to existing with-profits policyholders. Those policyholders might be disadvantaged, for example, by the need to retain additional capital to support a rapid growth in new business, when that capital might have been distributed in the ordinary course of the firm's existing business.
  • 30/06/2005

COB 6.12.78

handbook-guidance

When a firm determines its strategy for new insurance business in an existing with-profits fund, it should take particular account of:

  1. (1) the capital support available; and
  2. (2) any benefits that may arise if, for example, the different types of new insurance business complement each other, for example, in direct financial terms or by the reduction of risk.
  • 30/06/2005

COB 6.12.79

handbook-guidance
A firm's underwriting policy should remain reasonably consistent over time. Existing with-profits policyholders should not be exposed to the risk that a significant change in underwriting standards for new insurance business in the same with-profits fund will cause deterioration in experience that was not allowed for in the premium rates for that new business.
  • 30/06/2005

Relationship of a with-profits fund with the firm and any connected persons

COB 6.12.80

handbook-guidance
If a firm, or a connected person, provides support to a with-profits fund (for example, by a contingent loan), the fund might take on more risk, for example, by investing in volatile assets. However, that would not be appropriate if the support will be repaid, leaving policyholders to bear all of the risks they have been exposed to. Therefore, no reliance should be placed on that support when the firm assesses the with-profits fund's financial position unless there are clear and unambiguous criteria governing any repayment obligations to the support provider. The degree of reliance placed on that support should depend on the subordination of the support to the fair treatment of with-profits policyholders and clarification of what fair treatment means in various circumstances. For a realistic basis life firm this would normally be evidenced by the liability for such support being capable, under stress, of a progressively lower valuation in the future policy-related liabilities.
  • 30/06/2005

COB 6.12.81

handbook-guidance
Subject to COB 6.12.80 G, if assets from outside a with-profits fund are made available to support that fund, a firm should manage the fund disregarding the liability to repay those assets, at least in so far as that is necessary for its policyholders to be treated fairly.
  • 30/06/2005

COB 6.12.82

handbook-guidance
A parent undertaking should avoid creating an expectation that it will support a subsidiary unless formal arrangements are in place to ensure that that support will be provided, if it is required.
  • 30/06/2005

COB 6.12.83

handbook-rule

A firm carrying on with-profits business must not:

  1. (1) make a loan to a connected person using assets in a with-profits fund; or
  2. (2) give a guarantee to, or for the benefit of, a connected person, where the guarantee will be backed using assets in a with-profits fund;
  3. unless that loan or guarantee:
  4. (3) will be on commercial terms;
  5. (4) will, in the reasonable opinion of the firm's senior management, be beneficial to the with-profits policyholders in the relevant with-profits fund; and
  6. (5) will not, in the reasonable opinion of the firm's senior management, expose those policyholders to undue credit or group risk.
  • 30/06/2005

Other guidance on the conduct of with-profits business

COB 6.12.84

handbook-guidance

When a firm determines its investment strategy, and the acceptable level of risk within that strategy, it should take into account:

  1. (1) the extent of the guarantees in its with-profits policies;
  2. (2) any representations that it has made to its with-profits policyholders;
  3. (3) its established practice; and
  4. (4) the amount of capital support available.
  • 30/06/2005

COB 6.12.85

handbook-guidance
A firm should only change its investment strategy when that is necessary or appropriate to take account of material changes in its economic circumstances or the wider economic environment, changes in policyholder utilisation of policy options or changes in the level of capital support available to the with-profits fund where further support arrangements are not in place under an insurance business transfer scheme or a shareholder commitment described in the firm's PPFM.
  • 30/06/2005

COB 6.12.86

handbook-guidance

If a firm is considering using with-profits assets to finance the purchase of another business, directly, or by or through a connected person, or if a firm is considering whether it should retain such an investment, it should consider whether the purchase or retention would be, or will remain, fair to its with-profits policyholders. When a firm makes that assessment, it should consider:

  1. (1) the size of the investment in relation to the with-profits fund;
  2. (2) the expected rate of return on the investment;
  3. (3) the risks associated with the investment, including liquidity risk, the capital needs of the acquired business and the difficulty of establishing fair value (if any);
  4. (4) any costs that would result from divestment;
  5. (5) whether an actuary, appointed by the firm under SUP 4 (Actuaries), would regard the investment as suitable for the with-profits fund;
  6. (6) whether the investment has been, or will be, disclosed to with-profits policyholders;
  7. (7) notwithstanding (6), whether a knowledgeable existing with-profits policyholder in that with-profits fund would regard it as an appropriate investment;
  8. (8) in the case of a proprietary firm, whether it would be more appropriate for the investment to be made using assets other than those in a with-profits fund; and
  9. (9) any other material factors.
  • 30/06/2005

COB 6.12.87

handbook-guidance
If the firm carries out non-profit insurance business in a with-profits fund, it should review the profitability of the non-profit insurance business regularly. When it does so, the firm should consider whether, for example, its charges for that business should be adjusted, if adjustment is permitted, to maintain fairness to non-profit and with-profits policyholders. If the firm's review suggests that a change should be made, but the difference between the existing arrangements and the new arrangements is not material, the firm may choose whether or not to make it.
  • 30/06/2005

COB 6.12.88

handbook-guidance
If a firm has reinsured its with-profits insurance business into another insurance undertaking, it should take reasonable steps to discharge its responsibilities to its with-profits policyholders, in respect of the reinsured business. Those steps should include maintaining adequate controls.
  • 30/06/2005

Major changes in with-profits funds

COB 6.12.89

handbook-rule
A firm must not enter into a material transaction relating to a with-profits fund unless, in the reasonable opinion of the firm's governing body, the transaction is unlikely to have a material adverse effect on the interests of that fund's existing with-profits policyholders.
  • 30/06/2005

COB 6.12.90

handbook-rule
For the purposes of COB 6.12.89 R, a material transaction includes a series of related non-material transactions which, if taken together, are material.
  • 30/06/2005

COB 6.12.91

handbook-guidance

For the purposes of COB 6.12.89 R and COB 6.12.90 R, material transactions include:

  1. (1) a significant bulk outwards reinsurance contract;
  2. (2) inwards reinsurance of with-profits business from another insurance undertaking;
  3. (3) a financial engineering transaction that would materially change the profile of any surplus expected to emerge on the with-profits fund's existing insurance business; and
  4. (4) a significant restructuring of the with-profits fund, especially if it involves the creation of new sub-funds.
  • 30/06/2005

COB 6.12.92

handbook-guidance
So that it can consider whether a proposed material transaction might adversely affect the interests of its with-profits policyholders, a firm should obtain a report from an actuary appointed under SUP 4 (Actuaries) or another appropriate professional adviser.
  • 30/06/2005

COB 6.12.93

handbook-guidance
A firm should also consider whether a knowledgeable existing with-profits policyholder in that with-profits fund would conclude that the proposed material transaction would materially affect his interests, whether or not the transaction will be disclosed to policyholders.
  • 30/06/2005

Ceasing to effect new contracts of insurance in a with-profits fund

COB 6.12.94

handbook-rule

A firm must:

  1. (1) inform the FSA and its with-profits policyholders within 28 days; and
  2. (2) submit a run-off plan to the FSA as soon as reasonably practicable and, in any event, within three months,

of first ceasing to effect new contracts of insurance in a with-profits fund.

  • 30/06/2005

COB 6.12.95

handbook-rule

For the purposes of COB 6.12.94 R, a firm will be taken to have ceased to effect new contracts of insurance in a with-profits fund:

  1. (1) when any decision by the governing body to cease to effect new contracts of insurance takes effect; or
  2. (2) where no such decision is made, when the firm is no longer:
    1. (a) actively seeking to effect new contracts of insurance in that fund, or
    2. (b) effecting new contracts of insurance in that fund, except by increment.
  • 30/06/2005

COB 6.12.96

handbook-guidance
A firm should not avoid taking a formal decision to cease to effect new contracts of insurance in a with-profits fund in an attempt to avoid the requirements of COB 6.12.94 R.
  • 30/06/2005

COB 6.12.97

handbook-guidance

A firm should contact the FSA to discuss whether it has, or it should be taken to have, ceased to effect new contracts of insurance, for the purposes of COB 6.12.94 R if:

  1. (1) COB 6.12.95 R (2) may apply;
  2. (2) it is no longer effecting a material volume of new with-profits policies in a particular with-profits fund, other than by reinsurance;
  3. (3) it is effecting only new reinsurance business in a particular with-profits fund; or
  4. (4) it cedes by way of reinsurance most of the new with-profits policies it continues to effect.
  • 30/06/2005

COB 6.12.98

handbook-rule

The run-off plan required by COB 6.12.94 R (2) must:

  1. (1) demonstrate how the firm will ensure a full and fair distribution of the closed with-profits fund, and its inherited estate (if any); and
  2. (2) be approved by the firm's governing body.
  • 30/06/2005

COB 6.12.98A

handbook-guidance
A firm should also include the information described in SUP App 2.15 in its run-off plan.
  • 30/06/2005

COB 6.12.99

handbook-guidance

When a firm tells its with-profits policyholders that it has ceased to effect new contracts of insurance in a with-profits fund, it should also explain:

  1. (1) why it has done so;
  2. (2) what changes it has made, or proposes to make, to the fund's investment strategy (if any);
  3. (3) how closure may affect with-profits policyholders (including any reasonably foreseeable effect on future bonus prospects);
  4. (4) the options available to with-profits policyholders and an indication of the potential costs associated with the exercise of each of those options; and
  5. (5) any other material factors that a policyholder may reasonably need to be aware of before deciding how to respond to this information.
  • 30/06/2005

COB 6.12.100

handbook-guidance

A firm may not be able to provide its with-profits policyholders with all of the information described in COB 6.12.99 G until it has prepared the run-off plan required by COB 6.12.94 R (2). In those circumstances, the firm should:

  1. (1) tell its with-profits policyholders that that is the case;
  2. (2) explain what is missing and give a time estimate for its supply; and
  3. (3) provide the missing information as soon as possible, and within the time estimate given.
  • 30/06/2005

COB 6.12.103

handbook-guidance
To ensure a fair distribution, in compliance with COB 6.12.98 R (1), a firm will normally have to distribute that part of the with-profits fund that is not required to support any continuing business, including a fair proportion of any inherited estate attributable to it.
  • 30/06/2005

COB 6.12.104

handbook-guidance
To ensure a fair and prudent distribution, a firm may have to distribute a lower proportion of any inherited estate attributable to a closed with-profits fund to policyholders whose with-profits policies mature in the shorter term as compared to those whose with-profits policies mature in the longer term.
  • 30/06/2005

COB 6.12.105

handbook-guidance
If non-profit insurance business is written in a with-profits fund, a firm should take reasonable steps to ensure that the economic value of any future profits expected to emerge on the non-profit insurance business is available for distribution during the lifetime of the with-profits business.
  • 30/06/2005

COB 6.12.106

handbook-guidance
For the purposes of COB 6.12.105 G, where it is agreed by its with-profits policyholders, and subject to meeting the requirements of COB 6.12.73 R, a mutual may make alternative arrangements for continuing to carry on non-profit insurance business; and a non-directive friendly society may make alternative arrangements for continuing to carry on non-insurance related business.
  • 30/06/2005

COB 6.12.107

handbook-guidance
A firm should discuss with the FSA at an early stage any significant issues it identifies relating to its proposed distribution of a closed with-profits fund.
  • 30/06/2005

Provision of information to with-profits policyholders and communicating with them fairly

COB 6.12.108

handbook-guidance
When a firm communicates information to a customer, COB 2.1.3 R requires it to take reasonable steps to do so in a way that is clear, fair and not misleading. The guidance in the rest of this section is relevant to the application of COB 2.1.3 R to the provision of information to with-profits policyholders.
  • 30/06/2005

With-profits policyholders' understanding of the investment

COB 6.12.109

handbook-guidance
When a firm communicates information to its with-profits policyholders, it should not assume that those policyholders have a good understanding of their investment or the purpose, scope and operation of the firm's discretion. To achieve fairness, clearer explanations may be required than for some other long-term investments, especially when the firm refers to any unusual aspects of a with-profits policy.
  • 30/06/2005

COB 6.12.110

handbook-rule
It will usually be reasonable for a firm to assume that its with-profits policyholders have made reasonable efforts to understand the information that has already been given to them. However, if there is evidence that an individual policyholder has misunderstood the information that he has been given, or that he has misunderstood the investment or any of its material characteristics, a firm should not assume that that with-profits policyholder now understands the information that he has been given.
  • 30/06/2005

Communications to with-profits policyholders

COB 6.12.111

handbook-guidance
When a firm communicates information to its with-profits policyholders, that information should properly reflect the long-term nature of the investment and the long-term nature of the firm's relationship with its with-profits policyholders. The firm's communications should also be consistent with the information that it has already given to with-profits policyholders.
  • 30/06/2005

COB 6.12.112

handbook-guidance

To promote fairness in communications with its with-profits policyholders, a firm should:

  1. (1) write clearly in plain language;
  2. (2) use personal language (for example, 'we' and 'you') to make documents easier to understand; and
  3. (3) use presentation and terminology that is consistent with the information that it has already provided.
  • 30/06/2005

COB 6.12.113

handbook-guidance
A firm should highlight the importance of key documents, including the CFPPFM, indicating why it is important that with-profits policyholders should read and understand them.

COB 6.12.114

handbook-guidance
A firm should give a with-profits policyholder the opportunity, and reasonable time, to act on information provided to him in accordance with his circumstances, provided that that would not adversely affect the interests of other with-profits policyholders.
  • 30/06/2005

Information needs of a with-profits policyholder

COB 6.12.115

handbook-guidance
A firm should give a with-profits policyholder the information he might reasonably need to take a considered decision about (or get advice on) his investment, whenever that is necessary or appropriate. The information should include, where appropriate, information about any options that are available to him, and the costs or other material factors attributable to the exercise of any or all of those options.
  • 30/06/2005

COB 6.12.116

handbook-guidance

The information referred to in COB 6.12.115 G includes:

  1. (1) information about the performance of the with-profits policy;
  2. (2) a projection of the future value of the with-profits policy;
  3. (3) information about material changes in the circumstances of the with-profits fund, or the firm's approach to managing it, which might affect the with-profits policy and future bonus prospects;
  4. (4) information about any material changes in the firm's charges which might affect the with-profits policy; and
  5. (5) information about any material changes in the information already provided, for example, at the point of sale.
  • 30/06/2005

COB 6.13

Process for reattribution of inherited estates

  • 30/06/2005

Application

COB 6.13.1

handbook-rule
  1. (1) This section applies to a firm that carries on with-profits business and is proposing to make a reattribution of its inherited estate.
  2. (2) Notwithstanding (1), this section does not apply to a firm if, and to the extent that, it would require the firm to breach, or would prevent the firm from complying with, an order made by a court of competent jurisdiction.
  3. (3) If a firm proposes to seek an order, from a court of competent jurisdiction, that would allow or require it to act in a way that is contrary to the rules in this section (through, or because of, the exception in (2)), the firm must:
    1. (a) tell the FSA that that is what it proposes to do; and
    2. (b) seek the order at the earliest opportunity.
  4. (4) If a firm wishes to take a step that would be contrary to the rules in this section, in anticipation of such an order, it must secure a waiver before it does so.
  • 30/06/2005

Purpose

COB 6.13.2

handbook-guidance

The rules and guidance in this section are intended to:

  1. (1) help firms to understand the arrangements, or the types of arrangement, that the FSA regards as appropriate when a firm makes a reattribution of its inherited estate; and
  2. (2) ensure that policyholders are treated fairly during the reattribution process.
  • 30/06/2005

COB 6.13.3

handbook-guidance
The FSA accepts that the interests of policyholders may be protected in a number of ways, depending on the circumstances of the firm and the type of reattribution that it proposes to make. In many cases, this will involve the sanctioning of an insurance business transfer scheme under Part VII of the Act, but that will not always be the case. The rules and guidance in this section are therefore intended to be sufficiently flexible to be capable of delivering the objective of ensuring that policyholders are treated fairly, regardless of the particular type of reattribution and whichever legal process is used. COB 6.13.1 R (2) also recognises that in some cases, for example, in connection with an insurance business transfer, the courts have the power to make procedural and other orders that may affect the application of the rules and guidance in this section.
  • 30/06/2005

COB 6.13.4

handbook-guidance
A firm may propose alternative arrangements to those set out in this section by applying for a waiver under section 148(4) of the Act (Modification or waiver of rules).
  • 30/06/2005

COB 6.13.5

handbook-guidance
Whether or not a waiver is required, a firm should consult the FSA about its intentions, before it begins a reattribution process, if it wishes the FSA to consider whether the firm's detailed proposals are consistent with the Principles for Businesses and, in particular, Principle 6 (Customers' interests). The FSA will endeavour to respond to a firm's proposals, including by giving guidance (if appropriate), within a reasonable time.
  • 30/06/2005

COB 6.13.6

handbook-guidance
Although the FSA's approval is not required before a firm can make a reattribution , the FSA has the power, under section 45 of the Act (Variation etc. on the Authority's own initiative), to impose a requirement on a firm's permission if it appears to the FSA that it would be desirable to do so in order to protect the interests of consumers. If the FSA considers that some, or all, of a firm's reattribution is inconsistent with the Principles for Businesses, the FSA may use that power to require a firm to modify, or to refrain from carrying out, some or all of its reattribution.
  • 30/06/2005

COB 6.13.7

handbook-guidance
The way in which the FSA may use its power to vary a permission on its own initiative is explained in SUP 7 (Individual requirements). One ground for using the power is that the FSA considers it desirable to do so in order to protect the interests of consumers. In assessing whether there are grounds for exercising such powers in connection with a reattribution, the FSA will have regard to whether or not a firm has acted in accordance with the guidance in this section and, if a firm has not done so, whether it has been able to demonstrate that compliance with that guidance would have been inappropriate or impracticable in its particular circumstances.
  • 30/06/2005

Policyholder advocate: appointment and function

COB 6.13.8

handbook-rule
A firm that is seeking to make a reattribution of its inherited estate must appoint a policyholder advocate to negotiate with the firm on behalf of relevant with-profits policyholders.
  • 30/06/2005

COB 6.13.9

handbook-rule
The policyholder advocate must be nominated or approved by the FSA before he is appointed.
  • 30/06/2005

COB 6.13.10

handbook-guidance
The FSA is likely to nominate a policyholder advocate if it considers that the reattribution, or any part of it, is likely to be complex or controversial. If the FSA does not nominate a person to be the policyholder advocate, the firm should nominate a suitable candidate for FSA approval.
  • 30/06/2005

COB 6.13.11

handbook-guidance

The FSA expects the policyholder advocate to be a natural person who:

  1. (1) is free from any conflict of interest that might be, or might appear to be, detrimental to the interests of policyholders; and
  2. (2) has the skills and knowledge necessary to act as the policyholder advocate on the proposed reattribution.
  • 30/06/2005

COB 6.13.12

handbook-guidance
The FSA may wish to have preliminary discussions with the policyholder advocate nominated by the firm to help the FSA to determine whether he is suitably qualified and experienced to act as the policyholder advocate for the proposed reattribution. The FSA will consider the suitability of the nominee and inform the firm that nominated him whether it approves him. Since the nature of the proposed reattribution is a factor in determining the suitability of the nominee, the FSA cannot approve a nominee before a broad outline of the reattribution has been determined. If the FSA rejects a nominee it will normally tell him why it has done so and, if the nominee agrees, the FSA will also tell the firm.
  • 30/06/2005

COB 6.13.13

handbook-guidance
The FSA considers that it is desirable for a firm to include an independent element in the policyholder advocate selection process. That might include consulting representative groups of policyholders or using the services of a recruitment consultant. When considering an application for approval of a nominee to perform the policyholder advocate role, the FSA will have regard to the extent to which the firm has involved others in the selection process.
  • 30/06/2005

COB 6.13.14

handbook-guidance

The precise role of the policyholder advocate in any particular case will depend on the nature of the firm and the reattribution proposed. A firm will need to discuss with the FSA the precise role of the policyholder advocate in a particular case. However, the role of the policyholder advocate should include:

  1. (1) negotiating with the firm, on behalf of the relevant with-profits policyholders, the aggregate value of the benefits to be offered to them in exchange for the rights or interests they will be asked to give up;
  2. (2) commenting, to with-profits policyholders, on:
    1. (a) the methodology used for the allocation of benefits amongst the relevant with-profits policyholders, or groups of with-profits policyholders, and the form of those benefits;
    2. (b) the criteria used for determining the eligibility of the firm's various with-profits policyholders;
    3. (c) the terms and conditions of the proposals (to the extent that they have a material effect on the value of the benefits to be offered, or on the bonuses that may be added to with-profits policies); and
    4. (d) the views expressed by the independent expert or the reattribution expert (as the case may be), and the actuary appointed by the firm to perform the with-profits actuary function on the allocation of any benefits amongst the relevant with-profits policyholders; and
  3. (3) telling with-profits policyholders, or each group of with-profits policyholders, with reasons, whether the firm's proposals are in their interests.
  • 30/06/2005

Policyholder advocate: terms of appointment

COB 6.13.15

handbook-rule
A firm must notify the FSA of the terms on which it proposes to appoint a policyholder advocate, whether or not the candidate was nominated by the FSA.
  • 30/06/2005

COB 6.13.16

handbook-guidance

A firm should include with its notification:

  1. (1) a copy of its proposed contract with the policyholder advocate;
  2. (2) a copy of its proposed terms of reference for the policyholder advocate;
  3. (3) details of the proposed negotiation timetable and the policyholder advocate's budget;
  4. (4) the policyholder advocate's confirmation that he is content with the proposed contract, terms of reference, plan and budget, if he is, or with a summary of his reservations, if he is not; and
  5. (5) any other information that the FSA may reasonably require when it considers the proposed terms of appointment for the policyholder advocate.
  • 30/06/2005

COB 6.13.17

handbook-guidance
The FSA will respond to the firm, including by giving guidance (if appropriate), as soon as it has reached a view on the proposed terms of appointment.
  • 30/06/2005

COB 6.13.18

handbook-rule

A firm must ensure that the terms of appointment for the policyholder advocate:

  1. (1) stress the independent nature of the policyholder advocate's appointment and function, and are consistent with it;
  2. (2) define the relationship of the policyholder advocate to the firm and its policyholders respectively;
  3. (3) set out the arrangements under which the policyholder advocate is to communicate with policyholders;
  4. (4) make provision for the resolution of any disputes between the firm and the policyholder advocate; and
  5. (5) specify when and how the policyholder advocate's appointment may be terminated.
  • 30/06/2005

COB 6.13.19

handbook-rule
A firm must ensure that the policyholder advocate's terms of appointment allow him to communicate freely and, at his discretion, in confidence with the FSA.
  • 30/06/2005

COB 6.13.20

handbook-guidance
It may be necessary, or desirable, for the policyholder advocate to discuss the terms of the proposed reattribution directly with the FSA, or for him to be able to participate in the FSA's meetings with the firm. COB 6.13.19 R is intended to ensure that the policyholder advocate is free to do that whenever he, or the FSA, regards that as necessary or appropriate.
  • 30/06/2005

COB 6.13.21

handbook-guidance
A firm may agree to include, within the terms of appointment for the policyholder advocate , arrangements for the policyholder advocate to be indemnified in respect of certain claims that may be made against him in connection with the performance of his functions. If such indemnity is given, it should not include protection against any liability arising from acts of bad faith.
  • 30/06/2005

Reattribution expert

COB 6.13.22

handbook-rule

Where a firm is not otherwise required to appoint an independent expert to assess its reattribution proposals, it must appoint an expert (referred to as the 'reattribution expert') to undertake an objective assessment of them, taking into account:

  1. (1) the nature and extent of any restructuring of the firm's with-profits fund;
  2. (2) the benefits that will be allocated to relevant with-profits policyholders in exchange for the rights and interests they are being asked to give up; and
  3. (3) any other factors that may be regarded as material by the FSA or the expert.
  • 30/06/2005

COB 6.13.23

handbook-guidance
Many transactions involving a reattribution will involve an insurance business transfer scheme that requires court approval under Part VII of the Act . In those cases, the firm will be required to appoint an independent expert who has the responsibilities set out in the Act and SUP 18. The independent expert's function is to assess objectively, and then prepare a report on, the relevant insurance business transfer scheme for the benefit of the court, although the firm with-profits policyholders , others affected by the scheme and the FSA will, or may, also rely on it. The reattribution expert's function is broadly the same and it contrasts with the role of the policyholder advocate, who is appointed primarily to negotiate the benefits to be given to with-profits policyholders in exchange for the rights and interests they are being asked to give up.
  • 30/06/2005

COB 6.13.24

handbook-rule
A firm must not appoint a reattribution expert who has not been nominated or approved by the FSA to act as an expert in relation to the firm's proposed reattribution.
  • 30/06/2005

COB 6.13.25

handbook-rule
If a firm appoints a reattribution expert, it must ensure that the expert's terms of appointment allow him to communicate freely and, at his discretion, in confidence with the FSA.
  • 30/06/2005

COB 6.13.26

handbook-guidance

The FSA expects a reattribution expert to be a natural person who:

  1. (1) is free from any conflict of interest that might, or might appear to, undermine his independence or the quality of his report;
  2. (2) has relevant knowledge, both practical and theoretical, and experience of the types of insurance business transacted by the firm; and
  3. (3) is an actuary familiar with the role and responsibilities of an actuary appointed under SUP 4 (Actuaries).
  • 30/06/2005

COB 6.13.27

handbook-guidance
The general principles in SUP 5.4.8 G, regarding the suitability of a skilled person, also apply to the appointment of a reattribution expert.
  • 30/06/2005

COB 6.13.28

handbook-guidance
A firm should co-operate fully with a reattribution expert and provide him with access to all relevant information and appropriate staff.
  • 30/06/2005

COB 6.13.29

handbook-rule
  1. (1) A firm that appoints a reattribution expert must require him to prepare a report.
  2. (2) The report required by COB 6.13.29 R (1) must be made available to the FSA, the policyholder advocate and the court (if it is relevant to any court proceedings).
  3. (3) An adequate summary of the report required by COB 6.13.29 R (1) must also be made available to the firm with-profits and other policyholders.
  • 30/06/2005

COB 6.13.30

handbook-guidance

A reattribution expert's report, required by COB 6.13.29 R (1), should comply with the applicable rules on expert evidence and contain the following information:

  1. (1) the information detailed in SUP 18.2.33 G (1) to (10), (12) and (13), and SUP 18.2.39 G; and
  2. (2) his opinion of the likely effect of the proposals on with-profits policyholders or, where relevant, each relevant group of with-profits policyholders, having particular regard, where relevant, to the matters set out in SUP 18.2.36 G, as if in each case, a reference to:
    1. (a) the 'scheme report' was a reference to the 'reattribution expert's report';
    2. (b) the 'independent expert' was a reference to the 'reattribution expert'; and
    3. (c) the 'scheme' was a reference to the proposal for a 'reattribution'.
  • 30/06/2005

COB 6.13.31

handbook-guidance
The amount of detail that it is appropriate to include in the report required by COB 6.13.29 R (1) will depend on the complexity of the proposals, the materiality of the details themselves and the circumstances.
  • 30/06/2005

COB 6.13.32

handbook-guidance
Where the proposal for a reattribution forms part of a wider proposal for restructuring, it may not be appropriate to consider the reattribution in isolation. In those cases, the reattribution expert should seek a sufficient explanation of the firm's plans to enable him to understand, and report on, the wider picture.
  • 30/06/2005

Negotiation timetable

COB 6.13.33

handbook-guidance
When a firm decides, in principle, to appoint a policyholder advocate , it should give him sufficient time to select the professional advisers he regards as necessary to enable him to perform his functions. It should also give him an opportunity to make preliminary enquiries about the firm, its long-term insurance fund, the nature of its proposals and the factual background to them.
  • 30/06/2005

COB 6.13.34

handbook-guidance
At an appropriate time, a firm should announce the appointment of the policyholder advocate , marking the formal start of the negotiations. In the first instance, the arrangements under which a policyholder advocate is appointed should require him to take such steps as he considers necessary to communicate with, and receive views from, relevant with-profits policyholders about the proposed reattribution. Only when he is satisfied that he has had adequate time to communicate with relevant with-profits policyholders should a policyholder advocate expect, or be expected, to begin negotiations with a firm.
  • 30/06/2005

COB 6.13.35

handbook-guidance
The FSA would not normally expect the period from the announcement of the appointment of a policyholder advocate to the conclusion of a prospective deal to be less than three months.
  • 30/06/2005

Information to policyholders: the policyholder advocate and the negotiations

COB 6.13.36

handbook-rule
A firm must make arrangements so that every policyholder that might be affected by the proposed reattribution will receive appropriate information about the reattribution process, and any offer that will be made to him, in a timely way.
  • 30/06/2005

COB 6.13.37

handbook-guidance
Relevant with-profits policyholders should be given clear information about the proposals, including an explanation of the wider picture, for example if the reattribution is linked to the restructuring of a firm.
  • 30/06/2005

COB 6.13.38

handbook-guidance
When a firm makes information available to its policyholders, it should have regard to Principle 7 (Communications with customers). It should also explain the benefits and disbenefits of its proposals, for each relevant group of policyholders and for the firm if, and to the extent that, that is appropriate in the context of the information that it will be providing at any particular time.
  • 30/06/2005

COB 6.13.39

handbook-guidance
The information given to policyholders should explain the role and background of the individuals who have been appointed to perform particular functions, including those of the policyholder advocate and the independent expert or the reattribution expert, as the case may be.
  • 30/06/2005

COB 6.13.40

handbook-guidance
The information should also explain the steps in the reattribution process, the timetable for the proposed reattribution and any interdependencies. A firm should also consider the information needs of policyholders who will not be directly affected by the firm's proposals.
  • 30/06/2005

COB 6.13.41

handbook-guidance
A firm should ensure that appropriate arrangements are put in place for policyholders of the firm to have access to further information, including over the internet and through helplines. These should remain operational throughout the reattribution process and be able to provide policyholders with information on demand. A firm should take reasonable steps to ensure that the information provided to policyholders is kept up-to-date.
  • 30/06/2005

COB 6.13.42

handbook-guidance
The FSA does not consider it necessary for policyholders to receive regular updates on the progress of negotiations between the firm and the policyholder advocate if they are completed within a relatively short timescale. However, in the case of protracted negotiations, policyholders should receive an update at least every six months , commencing with the announcement of the appointment of the policyholder advocate (see COB 6.13.34 G).
  • 30/06/2005

Notification to policyholders: conclusion of negotiations and consent

COB 6.13.43

handbook-rule

When a firm and a policyholder advocate complete their negotiations about the benefits that will be offered to relevant with-profits policyholders, in exchange for the rights and interests they will be asked to give up, the firm must:

  1. (1) tell relevant policyholders that the firm and the policyholder advocate have completed their negotiations;
  2. (2) explain the outcome of the negotiations and, if appropriate, the firm's final proposals for the reattribution; and
  3. (3) give relevant with-profits policyholders the chance to:
    1. (a) individually accept or reject those proposals; or
    2. (b) (if the legal process to be followed allows the majority of policyholders to bind the minority) vote on whether the firm should go ahead with those proposals.
  • 30/06/2005

COB 6.13.44

handbook-guidance

A firm should also:

  1. (1) explain the essence of its proposals, including details of:
    1. (a) the context or background to the proposals and how the final version has been arrived at; and
    2. (b) any material changes or departures from the information that it has already supplied;
  2. (2) explain the effect of the negotiations on policyholders, including a description of any benefits they are likely to receive and the rights and interests that they are likely to be asked to give up;
  3. (3) include a report from the policyholder advocate, which explains the basis of his negotiations with the firm, whether he considers that the firm proposals are in the interests of relevant with-profits policyholders, or groups of with-profits policyholders, and gives reasons for the conclusions that he has reached; and
  4. (4) include information about the report by the independent expert or the reattribution expert, as the case may be, including a summary of the report and details of how policyholders can obtain a copy of the full report, if they wish to do so (see COB 6.13.29 R).
  • 30/06/2005

COB 6.13.45

handbook-guidance
The reattribution process may redefine the rights of certain parties. There are established legal processes that enable such rights to be redefined by majority vote. If a firm proposes a reattribution that follows some other process, the FSA considers that, for that reattribution to be fair, policyholders should be given the chance to decide whether or not to accept the firm's proposals and, if they decide not to accept, their existing rights should be protected. The FSA therefore expects firms to offer individual choice, or to follow an established legal process where the majority can bind the minority (with the sanction of the court, if applicable).
  • 30/06/2005

COB 6.13.46

handbook-rule
If a firm chooses to make an offer to its policyholders, when the firm and the policyholder advocate have not been able to agree the value of the benefits to be offered to with-profits policyholders in return for the rights and interests they are being asked to give up, it must also explain the fact of, and reasons for, the policyholder advocate's disagreement.
  • 30/06/2005

COB 6.13.47

handbook-guidance
Where a firm proposes an elective process under COB 6.13.43 R (3)(a), and a minority do not accept the proposals in the first instance, the FSA would expect the firm to make arrangements to allow those policyholders a further opportunity to elect to be a party to the reattribution at a later date.
  • 30/06/2005

COB 6.13.48

handbook-guidance

Where a proposal is put to the vote of policyholders in accordance with COB 6.13.43 R (3)(b):

  1. (1) the voting arrangements should allow relevant with-profits policyholders the opportunity to vote by post or, if the vote is to take place at a meeting, for those policyholder to be able to appoint proxies to represent their views; and
  2. (2) the notice period, the closing date for votes submitted by post or, as the case may be, the time for appointing proxies should normally be at least eight weeks after the prospective deal has been announced.
  • 30/06/2005

COB 6.13.49

handbook-rule
Before, or at the same time as giving notice to relevant with-profits policyholders of an invitation to accept the offer under COB 6.13.43 R (3)(a) or an invitation to vote under COB 6.13.43 R (3)(b), a firm must send out details of the individual benefits to be received by each relevant with-profits policyholder in exchange for the rights or interests they are being asked to give up.
  • 30/06/2005

Notification to policyholders: final outcome

COB 6.13.50

handbook-guidance
A firm should, within a reasonable time, notify policyholders of the final outcome of the reattribution process. This should normally be done after the court has considered the proposed reattribution, if court sanction is required.
  • 30/06/2005

COB 6.13.51

handbook-guidance
Provided that any court hearing is due to take place within a reasonable time once the outcome of the vote is known (see COB 6.13.43 R (3)(b)), the FSA does not consider it necessary for a firm to write individually to policyholders to explain the outcome of that vote. However, a firm should make the information publicly available, for example by putting a notice on its website, by giving details through its helpline, or by placing an advertisement in the national or regional press.
  • 30/06/2005

Limits on the need to provide information

COB 6.13.52

handbook-rule
COB 6.13.36 R, COB 6.13.43 R, COB 6.13.46 R and COB 6.13.49 R do not require a firm to disclose confidential, or commercially sensitive, information nor do they require a firm to disclose information that relates to a third party or is irrelevant to its reattribution proposals or arrangements.
  • 30/06/2005

COB 6.13.53

handbook-guidance
A firm will not be treated as having failed to comply with any obligation in this section to provide information if the information has been provided to relevant with-profits policyholders by another person, such as the policyholder advocate, the independent expert or the reattribution expert.
  • 30/06/2005

General costs

COB 6.13.54

handbook-guidance
Subject to COB 6.13.55 G to COB 6.16.58G, reattribution and insurance business transfer costs (excluding policyholder advocate costs) should be met from shareholder funds. A firm may present alternative arrangements if it can show good reasons for doing so.
  • 30/06/2005

Policyholder advocate costs

COB 6.13.55

handbook-guidance
The policyholder advocate's budget, and the policyholder advocate's costs, should be agreed between the firm and the policyholder advocate. For these purposes, the policyholder advocate's costs include ancillary costs, such as the costs of professional advice and administrative and publicity costs.
  • 30/06/2005

COB 6.13.56

handbook-guidance

The FSA recognises that the treatment of costs will almost certainly affect the value of the benefits offered. The FSA will not normally seek to restrict the way in which policyholder advocate costs are divided between shareholders and policyholders, provided that:

  1. (1) the shareholder pays a reasonable proportion of them;
  2. (2) the arrangements are fair; and
  3. (3) the policyholder advocate confirms that he is satisfied with them.
  • 30/06/2005

COB 6.13.57

handbook-guidance
A firm may therefore agree an arrangement with the policyholder advocate by which relevant with-profits policyholders contribute to the policyholder advocate's costs, for example by a deduction from the aggregate value of the benefits that will become available to those policyholders.
  • 30/06/2005

COB 6.13.58

handbook-guidance
A firm might also propose a budget that it will fund entirely, or in part, from shareholder funds with any additional expenditure being met from funds attributable to relevant with-profits policyholders. Another approach would be cost sharing, so that a firm and relevant with-profits policyholders will benefit if savings are made, compared to the budget, and costs are shared if the budget is exceeded.
  • 30/06/2005

COB 6.13.59

handbook-guidance
If a reattribution proposal is not successful, the FSA would expect the costs of the policyholder advocate to be met by the person initiating the proposal. That will usually be the shareholders of the firm.
  • 30/06/2005

COB 6.14

Permitted Links

  • 06/10/2007

Application

COB 6.14.1

handbook-rule

The rules in this section apply on an ongoing basis to linked long-term contracts that are effected by:

  1. (1) insurers other than EEA insurers; and
  2. (2) EEA insurers in the United Kingdom.
  • 06/10/2007

COB 6.14.2

handbook-rule

The rules in this section do not apply to:

  1. (1) contracts that were effected before 1 July 1994, and under which linked benefits were permitted to be determined before that date;
  2. (2) contracts effected by an insurer that are linked long-term contracts only because the policyholder is eligible to participate in any established surplus;
  3. (3) contracts effected by an EEA insurer that are linked long-term contracts only because the policyholder is eligible to participate in an excess of assets representing the whole or a particular part of the long-term insurance fund over the liabilities, or a particular part of the liabilities, of the insurer as determined by the law of the EEA state in which the head office of the insurer is situated;
  4. (4) contracts to manage the investments of pension funds that are not combined with contracts of insurance covering either conservation of capital or payment of a minimum interest, provided that benefits under those contracts must not be determined wholly or partly by reference to the value of, or income from, or fluctuations in the value of, derivative contracts other than permitted derivatives contracts;
  5. (5) contracts effected before 30 June 1995, to the extent that they provide for benefits to be determined by reference to a collective investment scheme that was a listed security immediately before 1 July 1994; and
  6. (6) contracts linked to permitted units that were effected before 1 February 1992, except to the extent that they relate to acts or omissions on or after that date.
  • 06/10/2007

Principles for firms engaged in linked long-term insurance business

COB 6.14.3

handbook-rule
A firm must ensure that the values of its permitted links are determined fairly and accurately.
  • 06/10/2007

COB 6.14.4

handbook-rule

A firm must ensure that its linked assets:

  1. (1) are capable of being realised in time for it to meet its obligations to linked policyholders; and
  2. (2) are matched with its linked liabilities as required by the close matching rules.
  • 06/10/2007

COB 6.14.5

handbook-rule
A firm must ensure that there is no reasonably foreseeable risk that the aggregate value of any of its linked funds will become negative.
  • 06/10/2007

COB 6.14.6

handbook-rule

A firm must notify its linked policyholders of the risk profile and investment strategy for the linked fund:

  1. (1) at inception; and
  2. (2) before making any material changes.
  • 06/10/2007

COB 6.14.7

handbook-rule
A firm must ensure that its systems and controls and other resources are appropriate for the risks associated with its linked assets and linked liabilities.
  • 06/10/2007

COB 6.14.8

handbook-rule
  1. (1) A firm must ensure when selecting linked assets that there is no reasonably foreseeable risk of a conflict of interest between it and its linked policyholders.
  2. (2) If a conflict does arise, the firm must take reasonable steps to ensure that the interests of the linked policyholders are safeguarded.
  • 06/10/2007

COB 6.14.9

handbook-rule
In applying the rules in this section, a firm must consider the economic effect of its permitted links and linked assets ahead of their legal form.
  • 06/10/2007

COB 6.14.10

handbook-rule
A firm must notify the FSA in writing as soon as it becomes aware of any failure to meet the requirements of this section.
  • 06/10/2007

COB 6.14.11

handbook-guidance
In considering what action to take in response to written notification of a failure to meet the requirements of this section, the FSA will have regard to the extent to which the relevant circumstances are exceptional and temporary and to any other reasons for the failure.
  • 06/10/2007

Rules for firms engaged in linked long-term insurance business

COB 6.14.12

handbook-rule

An insurer must not contract to provide benefits under linked long-term contracts of insurance that are determined:

  1. (1) wholly or partly, or directly or indirectly, by reference to fluctuations in any index other than an approved index;
  2. (2) wholly or partly by reference to the value of, or the income from, or fluctuations in the value of, property other than any of the following:
    1. (a) approved securities;
    2. (b) listed securities;
    3. (c) permitted unlisted securities;
    4. (d) permitted land and property;
    5. (e) permitted loans;
    6. (f) permitted deposits;
    7. (g) permitted scheme interests;
    8. (h) income from (a) to (g) above;
    9. (i) cash;
    10. (j) permitted units;
    11. (k) permitted stock lending; and
    12. (l) permitted derivatives contracts.
  • 06/10/2007

COB 6.14.13

handbook-guidance
Nothing in these rules prevents a firm making allowance in the value of any permitted link for any notional tax loss associated with the relevant linked assets for the purposes of fair pricing.
  • 06/10/2007

COB 6.14.14

handbook-rule
A firm that has entered into a reinsurance contract in respect of its linked long-term insurance business must nevertheless discharge its responsibilities under its linked long-term contracts as if no reinsurance contract had been effected.
  • 06/10/2007

COB 6.14.15

handbook-guidance

In order to comply with the requirements of COB 6.14.14 R a firm should:

  1. (1) disclose to policyholders the implications of any credit risk exposure they may face in relation to the solvency of the reinsurer; and
  2. (2) suitably monitor the way the reinsurer manages the business in order to discharge its continuing responsibilities to policyholders.
  • 06/10/2007

COB 6 Annex 1

Decision trees for stakeholder pension schemes (as required in COB 6.5.8R): text, content and format (R)

  • 01/12/2004

handbook-rule

COB 6 Annex 2

Total expense ratio calculation

  • 01/05/2005

handbook-rule
  • 01/05/2005

handbook-rule
  • 01/05/2005

COB 6 Annex 3

Portfolio turnover calculation

  • 01/05/2005

handbook-rule
  • 01/05/2005

handbook-rule
  • 01/05/2005

Export chapter as

COB 7

Dealing
and managing

COB 7.1

Conflict of interest and material interest

  • 01/12/2004

Application

COB 7.1.1

handbook-rule
  1. (1) This section applies to a firm when it is conducting designated investment business with or for a customer.
  2. (2) COB 7.1.4 E (1) do not apply in relation to investment research (see COB 7.3 (Dealing ahead of investment research)).
  3. (3) This section does not apply to a common platform firm if SYSC 10.1 (conflicts of interest) applies to the firm.

Purpose

COB 7.1.2

handbook-guidance
Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interest fairly. This section aims to ensure that when a firm has, or may have, a conflict of interest between itself and its customer, or between one customer and another customer, the firm pays due regard to the interests of each customer and manages the conflict of interest fairly.
  • 01/12/2004

Fair treatment

COB 7.1.3

handbook-rule

If a firm has or may have:

  1. (1) a material interest in a transaction to be entered into with or for a customer; or
  2. (2) a relationship that gives or may give rise to a conflict of interest in relation to a transaction in (1); or
  3. (3) an interest in a transaction that is, or may be, in conflict with the interest of any of the firm's customers; or
  4. (4) customers with conflicting interests in relation to a transaction;

the firm must not knowingly advise, or deal in the exercise of discretion, in relation to that transaction unless it takes reasonable steps to ensure fair treatment for the customer (see COB 2.4.7 G (Attribution of knowledge)).

  • 01/12/2004

COB 7.1.4

handbook-evidential-provisions
  1. (1) For the purposes of COB 7.1.3 R, a firm should manage a conflict of interest by taking reasonable steps in one or more of the following ways:
    1. (a) disclosing an interest to a customer; or
    2. (b) relying on a policy of independence; or
    3. (c) establishing internal arrangements (Chinese walls); or
    4. (d) declining to act for a customer.
  2. (2) Contravention of (1) may be relied on as tending to establish contravention of COB 7.1.3 R.
  3. (3) Compliance of (1) may be relied on as tending to establish compliance with COB 7.1.3 R.
  • 01/12/2004

Disclosing an interest to a customer

COB 7.1.5

handbook-guidance

The following are examples of material interest or conflicts of interest that a firm should disclose under COB 7.1.4 E (1):

  1. (1) dealing in investments as principal (unless the firm is acting as a market maker);
  2. (2) dealing in investments as agent for more than one party;
  3. (3) a recommendation to buy or sell a designated investment in which one of the firm's customers has given instructions to buy or sell;
  4. (4) a recommendation to buy or sell a designated investment in which the firm has respectively a long or short position;
  5. (5) acting as a broker fund adviser.
  • 01/12/2004

COB 7.1.6

handbook-evidential-provisions
  1. (1) In disclosing an interest to a customer, a firm should:
    1. (a) disclose to the customer, either orally or in writing, any material interest or conflict of interest it has, or may have, whether generally or in relation to a specific transaction, before it advises the customer about the transaction or before it deals on behalf of the customer in the exercise of discretion in relation to the transaction; and
    2. (b) be able to demonstrate that it has taken reasonable steps to ensure that the customer does not object to that material interest or conflict of interest.
  2. (2) Contravention of (1) may be relied on as tending to establish contravention of COB 7.1.3 R.
  3. (3) Compliance of (1) may be relied on as tending to establish compliance with COB 7.1.3 R.
  • 01/12/2004

Relying on a policy of independence

COB 7.1.7

handbook-guidance

COB 7.1.4 E (1)(b) recognises that a firm may demonstrate that it has taken reasonable steps to ensure fair treatment for its customers by relying on a policy of independence. If a firm relies on a policy of independence, that policy should:

  1. (1) require the relevant employee to disregard any material interest or conflict of interest when advising a customer or dealing for a customer in the exercise of discretion;
  2. (2) be recorded in writing by the firm and made known to the relevant employee;
  3. (3) be disclosed to a private customer stating that the firm may have a material interest or conflict of interest relating to the transaction or service concerned.
  • 01/12/2004

Establishing internal arrangements

COB 7.1.8

handbook-guidance
A firm may manage a conflict of interest by establishing and maintaining the arrangements set out in COB 2.4 (Chinese walls).
  • 01/12/2001

Declining to act for a customer

COB 7.1.9

handbook-guidance
If a firm determines that it is unable to manage a conflict of interest using one of the methods described above, it should decline to act on behalf of the customer.
  • 01/12/2001

Broker fund advisers

COB 7.1.10

handbook-rule
In addition to COB 7.1.3 R, a broker fund adviser, acting for a private customer, must obtain an acknowledgement from the private customer stating that he understands the nature of the firm's dual role as adviser to the private customer and adviser to the long-term insurer, overseas long-term insurer or operator of the broker fund in question.
  • 01/12/2004

COB 7.1.11

handbook-guidance
COB 7.1.10 R is particularly relevant when any remuneration receivable by the firm or its associate, for acting in that dual capacity, would be greater than it would otherwise be when the firm is recommending to the customer a life policy or units in a regulated collective investment scheme.
  • 01/12/2004

COB 7.1.12

handbook-rule
  1. (1) A broker fund adviser must ensure that it does not effect, personally recommend or arrange (bring about) the issue to a customer of a life policy by a relevant insurance undertaking, under which contributions will be made to the adviser's broker fund, unless the relevant insurance undertaking is contractually responsible to that customer in writing for the acts and omissions of the broker fund adviser or its associate in its role as an adviser to that fund as if they were the acts or omissions of the relevant insurance undertaking and will remain responsible until the earlier of:
    1. (a) the broker fund adviser or its associate ceasing to be the adviser to the fund; and
    2. (b) the termination of the policy.
  2. (2) In (1), a relevant insurance undertaking is an insurance undertaking which does not have permission to effect or carry on long-term insurance business but which is authorised to carry on long-term insurance business in the Bailiwick of Guernsey, the Isle of Man, the Commonwealth of Pennsylvania, the State of Iowa or the Bailiwick of Jersey.
  3. (3) In (1), associate has the extended meaning given to it in the definition of broker fund adviser.
  4. (4) A firm must comply with the requirements in (1) where it effects, personally recommends or arranges (brings about) switching in relation to a broker fund for the customer.
  • 01/12/2004

Product providers with broker funds

COB 7.1.13

handbook-rule
A product provider with a broker fund must not enter into a transaction with a customer in respect of a broker fund, unless there is a written agreement in force between it, the broker fund adviser and any other person having responsibility for the management of the broker fund to which the agreement relates, clearly establishing the responsibilities of each party to the agreement, the investment objectives of the broker fund and the policies and strategies that are to be followed to achieve those objectives.
  • 01/03/2003

UCITS management company

COB 7.1.14

handbook-rule
In addition to COB 7.1.3 R, a UCITS management company which also manages investments (other than of collective investment schemes) must obtain prior general approval from the client before it invests all or part of the client's portfolio in the units of a UCITS it manages.
  • 13/02/2004

COB 7.2

Churning and switching

  • 01/12/2004

Application

COB 7.2.1

handbook-rule
This section applies to a firm that conducts designated investment business with or for a customer.
  • 01/12/2001

Purpose

COB 7.2.2

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. A firm should therefore not "churn" a customer's account, that is, enter into transactions with unnecessary frequency having regard to the customer's agreed investment strategy. A firm should also not switch a private customer within or between packaged products unnecessarily, having regard to what is suitable for that customer. Firms are reminded that a customer's interests are paramount.
  • 01/12/2001

Restrictions on dealing and switching

COB 7.2.3

handbook-rule

A firm must not:

  1. (1) deal, or arrange a deal, in the exercise of discretion for any customer; or
  2. (2) make a personal recommendation to a private customer to deal, or arrange a deal that gives effect to such a recommendation; or
  3. (3) make or arrange a switch within a packaged product or between packaged products, in the exercise of discretion for a private customer; or
  4. (4) make a personal recommendation to a private customer to switch within a packaged product or between packaged products, or make or arrange a switch that gives effect to such a recommendation;

unless the firm has taken reasonable steps to ensure that the deal or switch is in the customer's best interests, both when viewed in isolation and when viewed in the context of earlier transactions.

  • 01/12/2001

COB 7.3

Dealing ahead of investment research

  • 01/12/2004

Application

COB 7.3.1

handbook-rule
This section applies to a firm if it, or any of its associates, prepares investment research for publication or distribution to its clients, or intends to publish or distribute investment research to its clients.
  • 01/05/2004

Purpose

COB 7.3.2

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interests fairly, both between itself and its customers and between a customer and another client. In conjunction with Principle 1 (Integrity), Principle 2 (Due skill, care and diligence) and Principle 5 (High standards of market conduct), they require a firm to manage conflicts of interest which may arise in a way which ensures that all its clients are treated fairly and which ensures that the firm is conducting its business with integrity and according to proper standards of business. This section aims to ensure that a firm pays due regard to the interests of its clients by not undertaking an own account transaction when the firm or its associate publishes investment research, except in very limited circumstances.
  • 01/05/2004

COB 7.3.2A

handbook-guidance
The FSA regards circumstances in which a firm deals in designated investments that are the subject of investment research which it publishes to clients as a significant potential source of conflicts of interest. The conflicts involved are such that the FSA does not consider that they can be managed adequately by disclosure of their existence.
  • 01/05/2004

COB 7.3.2B

handbook-guidance
The FSA considers that these conflicts of interest do not arise if equity analysts or others prepare research papers or analyses relating to designated investments solely for a firm's own internal use, for example, in order to inform its decisions about managing its proprietary trading or its strategic direction. The FSA considers that it is inappropriate for an analyst to prepare research papers or analyses which are intended, first for internal use by the firm, and then for later publication to clients.
  • 01/05/2004

Requirement not to undertake own account transactions

COB 7.3.3

handbook-rule

If a firm or its associate intends to publish or distribute investment research to clients or prepares investment research for publication or distribution to its clients, unless COB 7.3.4 R applies, the firm must:

  1. (1) not knowingly undertake an own account transaction in the designated investment concerned or any related designated investment; and
  2. (2) (when the intention to publish is that of, or is known to, the firm) take all reasonable steps to ensure that its associates do not knowingly undertake any own account transaction in that designated investment, or any related designated investment;

until the clients for whom the publication was principally intended have had (or are likely to have had) a reasonable opportunity to act upon it.

  • 01/05/2004

COB 7.3.3A

handbook-guidance
Firms are reminded of the Chinese wall provisions in COB 2.4.6 R (Attribution of knowledge)).
  • 01/09/2002

Exceptions

COB 7.3.4

handbook-rule

COB 7.3.3 R does not apply if:

  1. (1) [deleted]
  2. (2) the firm or its associate is a market maker in the designated investment concerned or in a related designated investment and it undertakes the transaction in good faith and in the normal course of market making; or
  3. (3) the firm or its associate deals in order to fulfil an unsolicited customer order.
  4. (4) [deleted]
  5. (5) [deleted]
  • 01/05/2004

COB 7.3.5

handbook-guidance
The exceptions in COB 7.3.4 R (2) allow a firm to continue to provide key services to the market and to its customers even if the firm would be considered to have knowledge of the timing and content of the investment research which is intended for publication to clients when, for example, it is impracticable for the firm to put in place a Chinese wall because the firm has few employees or cannot otherwise separate its functions.
  • 01/05/2004

COB 7.4

Customer order priority

  • 01/12/2004

Application

COB 7.4.1

handbook-rule
This section applies to a firm when executing customer orders in designated investments.
  • 01/12/2001

Purpose

COB 7.4.2

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and to treat them fairly. Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interest fairly. This section is therefore designed to ensure that a firm acts fairly in executing both own account orders and customer orders and manages any conflict of interest accordingly.
  • 01/12/2001

Dealing fairly and in due turn

COB 7.4.3

handbook-rule
A firm must execute customer orders and own account orders in designated investments fairly and in due turn.
  • 01/12/2001

COB 7.4.4

handbook-guidance

COB 7.4.3 R does not preclude a firm from, for example:

  1. (1) executing:
    1. (a) a prior own account order ahead of a subsequent current customer order in the same designated investment or a related designated investment; or
    2. (b) a current customer order when the person dealing for the customer neither knew nor ought reasonably to have known of an earlier unexecuted current customer order;
  2. (2) postponing execution of a current customer order when the firm has taken reasonable steps to ensure that execution of another customer order ahead of that customer order is likely to improve the terms on which the current customer order is executed (in which case the firm should ensure that the customer whose customer order is being executed ahead of that other customer order is also being treated fairly);
  3. (3) treating the life fund as if it were a customer to the extent that the firm is an insurance company dealing for the account of its life fund;
  4. (4) treating the investment trust or scheme as if it were a customer to the extent that the firm is dealing for the account of an investment trust or a collective investment scheme that is a body corporate, which in either case is in the same group as the firm;
  5. (5) treating an employee (or close relative) of the firm or of its associate, or a trustee acting on his behalf, as if he were a customer; or
  6. (6) treating the firm's occupational pension scheme as a customer to the extent that the firm is dealing for the account of its occupational pension scheme.
  • 01/12/2001

COB 7.4.5

handbook-guidance
MAR 1.4.26 C (Trading information) clarifies that behaviour based solely on information about another person's intention to deal will not constitute market abuse. Firms are reminded, however, that it may constitute a breach of COB 7.4.3 R.
  • 01/12/2001

COB 7.5

Best execution

  • 01/12/2004

Application

COB 7.5.1

handbook-rule
This section applies to a firm when executing a customer order in a designated investment.
  • 01/12/2001

Purpose

COB 7.5.2

handbook-guidance
Principle 2 (Skill, care and diligence) and Principle 6 (Customers' interests) require a firm to act with due skill, care and diligence and to pay due regard to its customer's interests. This section sets standards for firms when executing current customer orders in designated investments, particularly in the securities and derivatives markets, to obtain for customers the best price available to the firm, given the kind and size of such transactions.
  • 01/12/2001

When best execution is owed

COB 7.5.3

handbook-rule
A firm that executes a customer order in a designated investment must provide best execution, unless COB 7.5.4 R applies.
  • 01/12/2001

Exceptions

COB 7.5.4

handbook-rule

COB 7.5.3 R does not apply in any of the following circumstances:

  1. (1) the customer order is for:
    1. (a) the purchase of a life policy;
    2. (b) the purchase of or sale of units in a regulated collective investment scheme from or to the operator of that scheme; or
    3. (c) an asset to be held within a personal pension scheme, unless that asset is itself a designated investment;
  2. (2) the firm has agreed with an intermediate customer that it need not owe a duty of best execution to him, unless that customer is:
    1. (a) the trustee of an occupational pension scheme or an OPS collective investment scheme; or
    2. (b) the trustee of any other trust for whom, and to the extent that, the firm acts as a permitted third party under COB 11.6 (Delegation to a permitted third party); or
  3. (3) the firm relies on another person to whom it passes a customer order for execution to provide best execution, but only if it has taken reasonable care to ensure that he will do so.

Providing best execution

COB 7.5.5

handbook-rule

To provide best execution, a firm must:

  1. (1) take reasonable care to ascertain the price which is the best available for the customer order in the relevant market at the time for transactions of the kind and size concerned; and
  2. (2) execute the customer order at a price which is no less advantageous to the customer, unless the firm has taken reasonable steps to ensure that it would be in the customer's best interests not to do so.
  • 01/12/2001

COB 7.5.6

handbook-evidential-provisions
  1. (1) In order to take reasonable care under COB 7.5.5 R (1) , a firm:
    1. (a) should disregard any charges and commission made by it or its agents that are disclosed to the customer under COB 5.7 (Disclosure of charges, remuneration and commission);
    2. (b) need not have access to competing exchanges, or to all, or a minimum number of, available price sources; but if a firm can access prices displayed by different exchanges and trading platforms and make a direct and immediate comparison, it should execute the customer order at the best price available to the firm on such exchanges or trading platforms, if this is in the best interests of the customer;
    3. (c) should pass on to the customer the price at which it executes the transaction to meet the customer order;
    4. (d) should not take a mark-up or mark-down from the price at which it executes the customer order; and
    5. (e) that is engaged in programme trading should ensure that it applies the duty of care in COB 7.5.5 R to each individual transaction.
  2. (2) In relation to a customer order for euro priced securities traded on the London Stock Exchange, if the firm has decided to execute in sterling, the firm should take reasonable care to ascertain the best price available in sterling and to deal at a price no less advantageous to the customer.
  3. (3) In relation to a customer order for shares that are traded on SETS, a firm's obligations under COB 7.5.5 R will be satisfied if, subject to COB 7.5.6 E (1)(b), a firm executes the customer order through SETS.
  4. (4) If, in relation to a customer order for securities that are traded on SETS, a firm does not execute the customer order through SETS, the firm should ensure that:
    1. (a) when a customer order is for normal settlement and is within the size currently displayed on SETS, the price obtained at least matches the best bid or offer price available on SETS;
    2. (b) when a customer order is larger than the total of limit orders displayed on the best bid or offer on SETS, but there is sufficient depth overall, the price obtained at least matches the weighted average price of all orders for that security displayed on SETS;
    3. (c) when a customer order is larger than the totality of orders currently displayed on the best bid or offer on SETS, and execution at the weighted average price would be impracticable, it uses due skill and care to ascertain the best available price, having regard to the price of recently executed transactions of a similar size, any prices or quotes available to it, and to prevailing market conditions;
    4. (d) when there are no current bid or offer prices displayed on SETS, it refers to the previous best bid or offer prices, and to the latest published trades in the relevant security, and uses due skill and care to determine the best price in the light of the information available; and
    5. (e) when a customer order is subject to a special condition (for example, non-standard settlement), the price should at least match the price available on SETS, and that any charge and commission in respect of the non-standard element is separately and appropriately disclosed to the customer.
  5. (5) Compliance with (1), (2) and (3) may be relied on as tending to establish compliance with COB 7.5.5 R (1).
  6. (6) Contravention of (1) or (2) may be relied on as tending to establish contravention of COB 7.5.5 R (1).
  7. (7) Compliance with (3) or (4) may be relied upon as tending to establish compliance with COB 7.5.5 R (2).
  8. (8) Contravention of (4) may be relied upon as tending to establish contravention of COB 7.5.5 R (2).
  • 01/12/2001

COB 7.5.7

handbook-guidance
Disclosure of charges and commission in relation to non-standard settlement under COB 7.5.6 E (4)(e) may be made on a contract or confirmation note, or in a separate written statement to the customer before the transaction is executed. If the issue of a written statement in advance of the transaction is impracticable, the firm may make an oral disclosure to the customer provided it discloses the charges and commission promptly in writing after the transaction is executed.
  • 01/12/2001

COB 7.5.8

handbook-guidance
An example of a circumstance in which a firm may, under COB 7.5.5 R, execute a customer order at a price which is less advantageous than the best available price is when a firm has a continuing relationship with a customer, and reasonably expects that it will be able to secure compensating advantages for the customer in other transactions that should provide best execution for the customer over a period or a series of transactions. In such cases, the decision would need to be taken and justified in respect of each separate transaction as it arose.
  • 01/12/2001

COB 7.5.9

handbook-guidance
The evidential provision relating to mark-ups and mark-downs in COB 7.5.6 E (1)(d) does not prevent firms from being remunerated by means of mark-ups or mark-downs provided that such remuneration is disclosed to the customer as required by COB 8.1.15 E (Content of a confirmation of transaction: general requirements).
  • 01/09/2002

COB 7.5.10

handbook-guidance
Where a customer order is subject to a special condition as envisaged in COB 7.5.6 E (4)(e), the firm should disclose any additional cost involved in satisfying the special condition or in respect of the non-standard element. If, however, it is not possible for the charge to be "unbundled" from the price itself, firms are permitted to deal on a bundled basis subject to the overriding obligation to provide best execution.
  • 01/09/2002

COB 7.6

Timely execution

  • 01/12/2004

Application

COB 7.6.1

handbook-rule
This section applies to a firm when it agrees or decides in the exercise of its discretion to execute a current customer order in a designated investment.
  • 01/12/2001

Purpose

COB 7.6.2

handbook-guidance
In accordance with Principle 2 (Skill, care and diligence) and Principle 6 (Customers' interests), this section requires a firm when it agrees or decides in its discretion to execute a current customer order to do so with due skill, care and diligence and to act in the best interests of customers in selecting the most opportune time to execute the current customer order.
  • 01/12/2001

COB 7.6.3

handbook-guidance
This section applies only to current customer orders, as opposed to customer orders. A customer order that can be executed immediately is a current customer order. A customer order that is to be executed on fulfilment of a condition, only becomes a current customer order once that condition is satisfied.
  • 01/12/2001

Achieving timely execution

COB 7.6.4

handbook-rule
Once a firm has agreed or decided in its discretion to execute a current customer order in a designated investment, it must do so as soon as reasonably practicable unless COB 7.6.5 R applies.
  • 01/12/2001

COB 7.6.5

handbook-rule
COB 7.6.4 R does not apply if a firm has taken reasonable steps to ensure that postponing the execution of a current customer order in a designated investment is in the best interests of the customer.
  • 01/12/2001

COB 7.6.6

handbook-guidance

Examples of situations in which a firm should take particular care to assess the timing of execution of all or part of a current customer order include when:

  1. (1) a firm receives a customer order outside the normal trading hours of the relevant market or trading platform and intends executing that customer order on that market or other trading platform;
  2. (2) a foreseeable improvement in the level of liquidity in the relevant designated investment is likely to enhance the terms on which the firm executes the customer order;
  3. (3) executing the customer order as a series of partial executions over a period of time is likely to improve the terms on which the customer order as a whole is executed.
  • 01/12/2001

COB 7.6.7

handbook-guidance

A firm may have reasonable grounds for postponing execution of a current customer order in the best interests of the customer. Examples of this may include when the deal is part of an aggregated transaction (see COB 7.7 (Aggregation and allocation)) for:

  1. (1) one or more customers; or
  2. (2) for the firm and one or more customers (including all those who would otherwise have priority over any other person for whom the deal is done);

and the firm has taken reasonable steps to ensure that the deal will not operate to the disadvantage of any of the customers concerned.

  • 01/12/2001

COB 7.6.8

handbook-guidance
COB 7.12 (Customer order and execution records) contains the requirements for recording customer order and execution details.
  • 01/12/2001

COB 7.7

Aggregation and allocation

  • 01/12/2004

Application

COB 7.7.1

handbook-rule
This section applies to a firm when it aggregates a customer order with an own account order, or with an order from a market counterparty, or with another customer order, while conducting designated investment business.
  • 01/12/2001

Purpose

COB 7.7.2

handbook-guidance
Principle 1 (Integrity) requires a firm to conduct its business with integrity while Principle 6 (Customers' interests) requires that customers are treated fairly. When a firm aggregates and subsequently executes an order for customer, market counterparty and own account transactions collectively, or any combination of them, it should allocate the designated investments concerned fairly to all clients.
  • 01/12/2001

Requirement for recorded standards and procedures

COB 7.7.3

handbook-rule
When a firm aggregates a customer order with an own account order, or with an order from a market counterparty, or with another customer order, and subsequently allocates the designated investments concerned, it must do so in accordance with a written policy on allocation that is consistently applied and that fulfils the requirements of this section.
  • 01/12/2001

Aggregation

COB 7.7.4

handbook-rule

A firm may not aggregate a customer order with an own account order, or with an order from a market counterparty, or with another customer order, unless:

  1. (1) it is likely that the aggregation will not work to the disadvantage of each of the customers concerned; and
  2. (2) it has disclosed either orally or in writing to each customer concerned, either specifically or in the terms of business, that the effect of aggregation may work on some occasions to its disadvantage.
  • 01/12/2001

Requirement for timely allocation

COB 7.7.5

handbook-rule
When a firm has aggregated a customer order with an own account order, or with an order from a market counterparty, or with another customer order, and part or all of the aggregated order has been filled, it must promptly allocate the designated investments concerned.
  • 01/12/2001

COB 7.7.6

handbook-evidential-provisions
  1. (1) To allocate promptly, a firm that has aggregated an order under COB 7.7.4 R should complete the allocation of the designated investments concerned within one business day of the transaction, subject to (2), (3), (4) and (5).
  2. (2) The period in (1) is within five business days if:
    1. (a) only intermediate customers are concerned; and
    2. (b) each of them has agreed to such an extension.
  3. (3) The period in (1) is within three business days if:
    1. (a) the aggregated order relates to one or more ISAs or PEPs; and
    2. (b) the firm can show that it is necessary to execute those transactions in that way in order to serve its customer's best interests.
  4. (4) All transactions in a series of transactions, all of which are executed within the one business day, may be treated as having been executed at the time of the last transaction, so long as a record of the time that each individual transaction was executed is made, such as by means of a time stamp.
  5. (5) If transactions in a series of transactions occur over more than one business day, then the requirement for timely allocation in COB 7.7.5 R (and (1), (2) or (3) as appropriate) will apply separately in relation to each business day in which any such transaction is executed.
  6. (6) Compliance with (1) may be relied on as tending to establish compliance with COB 7.7.5 R.
  7. (7) Contravention of (1) may be relied on as tending to establish contravention of COB 7.7.5 R.
  • 01/12/2001

COB 7.7.7

handbook-guidance
COB 8.1.3 R (Requirement to confirm transactions) and COB 8.1.5 E (Essential details and prompt despatch) allow for a single confirmation to be sent to each intermediate customer for a series of transactions over a period up to and including five business days.
  • 01/12/2001

COB 7.7.8

handbook-guidance
If, for any reason, a firm is not able to allocate the designated investments concerned promptly, the reason for the delay should be fully documented and recorded by the firm.
  • 01/12/2001

Requirement for fair allocation

COB 7.7.9

handbook-rule

When a firm executes an aggregated order that combines:

  1. (1) a customer order and an own account order; or
  2. (2) a customer order and an order from a market counterparty (other than an associate of the firm); or
  3. (3) a customer order and another customer order;
in the subsequent allocation it must:
  1. (4) not give unfair preference to the firm or to any of those for whom it dealt; and
  2. (5) where (1) applies, give priority to satisfying customer orders, if the aggregate total of all orders cannot be satisfied, unless it can demonstrate on reasonable grounds that without its own participation it would not have been able to execute those orders on such favourable terms, or at all.
  • 01/12/2001

COB 7.7.10

handbook-rule

A firm may treat the following as a customer order:

  1. (1) a transaction on the account of the life fund of an insurance company, when the insurance company is in the same group as the firm (or is the firm);
  2. (2) a transaction for the account of an investment trust or a collective investment scheme that is a body corporate in the same group as the firm;
  3. (3) a transaction for the account of an employee (or a close relative) of the firm or of its associate, or a trustee acting on his behalf, but only when the transaction is undertaken on a pre-established and recorded basis;
  4. (4) a transaction for the firm's occupational pension scheme.
  • 01/12/2001

Re-allocation

COB 7.7.11

handbook-rule

A firm may undertake a revised allocation of an aggregated order if:

  1. (1) an error is identified in either the intended basis of allocation or the actual allocation, provided that the firm makes a record of the reason for the re-allocation and completes it within one business day of the error being identified; or
  2. (2) the order is only partially executed resulting in an uneconomic allocation to some customers; in such a case the firm must take reasonable steps to ensure that a re-allocation is in the best interests of the customers for whom it has dealt; and
  3. (3) the revised allocation is carried out in accordance with COB 7.7.12 R.
  • 01/12/2001

Price of allocation

COB 7.7.12

handbook-rule

When a firm has executed an aggregated order or is undertaking a revised allocation as described in COB 7.7.11 R, then it must allocate that order either at:

  1. (1) the price paid for each designated investment concerned (net of all relevant fees and commissions); or
  2. (2) a volume-weighted average of the prices of a series of transactions.
  • 01/12/2001

COB 7.7.13

handbook-guidance
The method of calculating the volume-weighted average price of two transactions in the same shares is illustrated as follows: Transaction 1 - 100 shares at 1.00 each Transaction 2 - 400 shares at 2.00 each Volume-weighted average price = [(100x1.00) + (400x2.00)] / 500 = 1.80
  • 01/12/2001

Record keeping requirements

COB 7.7.14

handbook-rule
  1. (1) A firm must, on executing an aggregated transaction that includes one or more customer orders, make a record of:
    1. (a) the identity of each client concerned;
    2. (b) whether the transaction is to be transacted in whole or in part for a discretionary managed investment portfolio and, if in part, the relevant proportions.
  2. (2) If a firm aggregates a number of client orders that include one or more customer orders, the firm must make a record of the intended basis of allocation as soon as is practicable.
  3. (3) If a firm aggregates an order for one or more customers and itself, the firm must make a record of the intended basis of allocation before the transaction is executed.
  • 01/12/2001

COB 7.7.15

handbook-guidance
A firm may choose to show the relevant proportions as the number of shares (or units) for each client together with the aggregate number of shares (or units).
  • 01/12/2001

COB 7.7.16

handbook-rule

When allocating an aggregated transaction that includes the execution of one or more customer orders, a firm must make a record of:

  1. (1) the date and time of the allocation;
  2. (2) the relevant designated investment;
  3. (3) the identity of each customer and market counterparty concerned;
  4. (4) the amount allocated to each respective customer, market counterparty and to the firm; and
  5. (5) the agreement with each intermediate customer to extend the allocation period under COB 7.7.6 E (2)(b).
  • 01/12/2001

COB 7.7.17

handbook-rule
A firm must make a record of the basis of and reason for any re-allocation made in accordance with COB 7.7.11 R at the time of the re-allocation.
  • 01/12/2001

COB 7.7.18

handbook-rule
A firm must retain the records required by COB 7.7 for a period of at least three years from the date on which the order is allocated or re-allocated.
  • 01/12/2001

COB 7.8

Realisation of a private customer's assets

  • 01/12/2004

Application

COB 7.8.1

handbook-rule

This section applies to a firm when it:

  1. (1) seeks a right; or
  2. (2) seeks to exercise a right;

to realise a private customer's assets in order to discharge an obligation of that private customer which arises from designated investment business conducted by the firm.

  • 01/12/2001

Purpose

COB 7.8.2

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section therefore aims to ensure that a firm, where relevant, discloses to a private customer, in the terms of business, that it may exercise remedies involving the realisation of assets.
  • 01/12/2001

Contractual rights to realise a private customer's assets

COB 7.8.3

handbook-rule

A firm must not realise a private customer's assets unless it is legally entitled to do so, and it has either:

  1. (1) set out in the terms of business provided to the private customer in accordance with COB 4.2.5 R (Requirement to provide terms of business to a customer) (or a client agreement entered into in accordance with COB 4.2.7 R (Requirement to enter into a client agreement with a private customer)):
    1. (a) the action it may take to realise any assets of the private customer;
    2. (b) the circumstances in which it may do so; and
    3. (c) each asset (if relevant) or type or class of asset over which it may exercise the right; or
  2. (2) given the private customer notice (oral or written) of its intention to exercise its rights at least three business days before it does so.
  • 01/12/2001

COB 7.9

Lending to private customers

  • 01/12/2004

Application

COB 7.9.1

handbook-rule
This section applies to a firm when it lends money or grants credit to a private customer or arranges for any other person to do so, in the course of, or in connection with, its designated investment business.
  • 01/12/2001

Purpose

COB 7.9.2

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section seeks to ensure that a firm lends money or grants credit to a private customer only in appropriate circumstances, and only if the customer has given prior consent in full knowledge of any resulting interest and fees.
  • 01/12/2001

Restrictions on lending to private customers

COB 7.9.3

handbook-rule

A firm, subject to the exceptions in COB 7.9.5 R, must not lend money or grant credit to a private customer (or arrange for any other person to do so) in the course of, or in connection with, its designated investment business unless:

  1. (1) the firm has made and recorded an assessment of the private customer's financial standing, based on information disclosed by the private customer;
  2. (2) the firm has taken reasonable steps to ensure that the arrangements for the loan or credit and the amount concerned are suitable, based on the information disclosed by the private customer, for the type of investment agreement proposed or which the private customer is likely to enter into; and
  3. (3) the private customer has given his prior written consent to both the maximum amount of the loan or credit and the amount or basis of any interest or fees to be levied in connection with the loan or credit.
  • 01/12/2001

COB 7.9.4

handbook-guidance
When the provisions of the Consumer Credit Act 1974 apply, the firm should ensure that it has an appropriate licence under that Act and that it complies with all that Act's requirements (details are available from the Office of Fair Trading).
  • 01/12/2001

Exceptions

COB 7.9.5

handbook-rule

COB 7.9.3 R does not apply when:

  1. (1) a firm settles a securities transaction of the private customer because he has failed to pay or has paid late; or
  2. (2) a firm covers a margin call made on a private customer for a period of no longer than five business days; or
  3. (3) a long-term insurer lends money or grants credit to a private customer, or arranges for any other person to do so, in connection with a life policy.
  • 20/09/2001

COB 7.9.6

handbook-guidance
A firm should consider whether the circumstances mentioned in COB 7.9.5 R give rise to any obligations under the client money rules to maintain adequate client money resources.
  • 01/12/2001

Record keeping requirements

COB 7.9.7

handbook-rule
A firm must make a record of the information about the private customer's financial standing upon which the assessment required by COB 7.9.3 R (1) was made, including the date on which the information was last updated or checked, and retain the record for three years from the date on which the credit arrangements ceased.
  • 01/12/2001

COB 7.10

Margin requirements

  • 01/12/2004

Application

COB 7.10.1

handbook-rule
This section applies to a firm which executes a transaction in a contingent liability investment with or for a private customer, in the course of, or in connection with, its designated investment business.
  • 01/12/2001

Purpose

COB 7.10.2

handbook-guidance
Principle 3 (Management and control) requires a firm to have adequate risk management systems, while Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section aims to ensure that a firm does not expose itself to unacceptable levels of credit risk while managing its margin requirements. It also aims to ensure that a firm manages a private customer's exposure to contingent liabilities by diligently monitoring the firm's relevant provision of credit.
  • 01/12/2001

Provision of margin by a private customer

COB 7.10.3

handbook-rule
  1. (1) A firm must obtain from a private customer any margin payable, whether at the outset or subsequently, by or to the firm, for a transaction in a contingent liability investment.
  2. (2) The minimum margin to be obtained from a private customer in accordance with (1) for an on-exchange transaction in a contingent liability investment is an amount or value equal to the margin requirements of the relevant exchange or clearing house.
  • 01/12/2001

COB 7.10.4

handbook-guidance

Before conducting a transaction with or for a private customer, a firm should notify the customer of:

  1. (1) the circumstances in which the customer may be required to provide any margin;
  2. (2) the form in which the margin may be provided;
  3. (3) the steps the firm may be required or entitled to take if the customer fails to provide the required margin, in accordance with COB 7.10.5 R, including:
    1. (a) the fact that the customer's failure to provide margin may lead to the firm closing out his position after a time limit specified by the firm;
    2. (b) the circumstances in which the firm will have the right or duty to close out the customer's position; and
  4. (4) the circumstances, other than failure to provide the required margin, that may lead to the firm closing out the customer's position without prior reference to him.
  • 01/12/2001

Failure to meet a margin call

COB 7.10.5

handbook-rule

A firm must close out a private customer's open position if that customer fails to meet a margin call made for that position for five business days following the date on which the obligation to meet the call accrues, unless:

  1. (1)
    1. (a) the firm has received confirmation from a relevant third party that the private customer has given instructions to pay in full; and
    2. (b) the firm has taken reasonable care to establish that the delay in its receipt is owing to circumstances beyond the private customer's control; or
  2. (2) the firm makes a loan or grants credit to the private customer to enable that customer to pay the full amount of the margin call in accordance with the requirements of COB 7.9.3 R (Restrictions on lending to private customers).
  • 01/12/2001

COB 7.10.6

handbook-guidance
In COB 7.10.5 R (1)(a) a relevant? third party includes a party connected with the transaction such as a clearing firm.
  • 01/12/2001

COB 7.11

Non-exchange traded securities

  • 01/12/2004

Application

COB 7.11.1

handbook-rule

This section applies to a firm that conducts designated investment business with or for a private customer and:

  1. (1) sells to the customer any security that is not traded on a recognised investment exchange, a designated investment exchange or any regulated market; and
  2. (2) holds itself out as a market maker in that security.
  • 01/12/2001

Purpose

COB 7.11.2

handbook-guidance
This section aims to ensure that a firm deals fairly with a private customer in relation to the sale and subsequent purchase of a non-exchange traded security.
  • 01/12/2001

Requirement for selling non-exchange traded securities to private customers

COB 7.11.3

handbook-rule

A firm must:

  1. (1) give written notice to a private customer, no later than the time of sale, that:
    1. (a) a reasonable price for repurchase of the security will be available to the private customer for a period, specified in that notice, that must not be less than three months from the date the notice is given; and
    2. (b) sale by the private customer of the security after the end of that period may be difficult due to the nature and possible illiquidity of the security; and
  2. (2) ensure that a reasonable price is available to the private customer for the duration of the period specified in the notice.
  • 01/12/2001

COB 7.11.4

handbook-guidance
In establishing a reasonable price a firm should consider factors that are of direct relevance to the particular security, for example that a company has announced (unanticipated) substantially increased profits.
  • 01/12/2001

COB 7.11.5

handbook-guidance
Factors that the firm took into account when the original sale was done should, if these remain unchanged, be taken into account in the same way when the price is established for the purchase of the security back from the private customer. Firms should take care to ensure that fluctuations in price are not solely or mainly justified by reference to an absence of liquidity, unless this reflects factors that are directly relevant to the particular security.
  • 01/12/2001

COB 7.12

Customer order and execution records

  • 01/12/2004

Application

COB 7.12.1

handbook-rule

This section applies to a firm that:

  1. (1) receives (or, in the exercise of its discretion, decides upon) a customer order;
  2. (2) executes a customer order;
  3. (3) passes a customer order to another person for execution; or
  4. (4) in addition to (1), (2) or (3), also executes own account transactions;

in any designated investment other than a life policy.

  • 01/12/2001

Purpose

COB 7.12.2

handbook-guidance
Principle 3 (Management and control) requires a firm to take reasonable care to organise and control its affairs responsibly and effectively. This section aims to ensure that a firm makes and retains records of customer orders and other transactions in the course of adhering to the customer order execution requirements in COB 7.4 (Customer order priority), COB 7.5 (Best execution) and COB 7.6 (Timely execution).
  • 01/12/2001

Record keeping requirement

COB 7.12.3

handbook-rule
A firm must ensure by the establishment and maintenance of appropriate procedures that it promptly records adequate information in relation to the events in COB 7.12.1 R, including any own account transactions.
  • 01/12/2001

COB 7.12.4

handbook-evidential-provisions
  1. (1) When an event in the left-hand column of COB 7.12.6 E occurs, a firm should make a record of the matters set out in the right-hand column that relate to that event.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with COB 7.12.3 R.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of COB 7.12.3 R.
  • 01/12/2001

COB 7.12.5

handbook-guidance
In addition to the information referred to in COB 7.12.4 E, other information that the firm considers prudent should be recorded.
  • 01/09/2002

COB 7.12.6

handbook-evidential-provisions

Minimum contents of customer order and execution records

This table belongs to COB 7.12.3 R

  • 01/09/2002

COB 7.12.7

handbook-guidance
When a firm aggregates and subsequently allocates a customer order with an own account transaction or with another customer order, the time and price required to be recorded by COB 7.12.6 E and (f) will be determined in accordance with the provisions in COB 7.7.5 R (Requirement for timely allocation) and COB 7.7.12 R (Price of allocation) respectively.
  • 01/12/2001

COB 7.12.8

handbook-guidance
For the purposes of COB 7.12.3 R, if information is recorded as soon as practicable following receipt or execution, then the FSA will regard it as having been recorded promptly. When information required to be recorded is supplied to the firm by someone else, it should be recorded upon receipt.
  • 01/12/2001

Orders received over the Internet

COB 7.12.9

handbook-guidance
When a firm gives a customer access to market information, that is updated continuously in line with the relevant market, in conjunction with the ability to place a customer order by relying on such market information, and the customer order is executed automatically upon receipt, the firm should record the price, even if only indicative, which the customer relied on when placing the customer order, as part of the information required to be recorded in accordance with COB 7.12.3 R.
  • 01/12/2001

COB 7.12.10

handbook-guidance
When a firm provides market information as described in COB 7.12.9 G, and the customer order is submitted over the Internet but is not executed automatically upon receipt, the firm should record the price displayed on the screen at the time the customer order is placed, as part of the information required to be recorded in accordance with COB 7.12.3 R.
  • 01/12/2001

Period of retention

COB 7.12.11

handbook-rule
A firm must retain the records referred to in COB 7.12.3 R for a period of at least three years after the date of the event in the left-hand column of COB 7.12.6 E.
  • 01/12/2001

COB 7.13

Personal account dealing

  • 01/12/2004

Application

COB 7.13.1

handbook-rule
This section applies to a firm that conducts designated investment business.
  • 01/12/2001

COB 7.13.2

handbook-guidance
This section has been written in accordance with the FSA's responsibilities under articles 10 and 11 of the Investment Services Directive. These rules also form part of the conditions applied to EEA firms with a UK branch office in the interest of the general good under article 17 of the Investment Services Directive.
  • 01/12/2001

Purpose

COB 7.13.3

handbook-guidance
Principle 3 (Management and control) requires a firm to take reasonable care to organise and control its affairs responsibly and effectively. Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interest fairly between itself and its customers. This section is designed to ensure that a firm's customers are not disadvantaged by the personal dealings of the firm's employees. Firms will, therefore, need to ensure that appropriate controls and monitoring arrangements are implemented and maintained.
  • 01/12/2001

Restrictions on personal account dealing

COB 7.13.4

handbook-rule

A firm must take reasonable steps to ensure that:

  1. (1) a personal account transaction in a designated investment undertaken by any of its employees does not conflict with the firm's duties to its customers under the regulatory system, unless COB 7.13.6 R applies; and
  2. (2) when it permits an employee to undertake a personal account transaction in a designated investment in relation to which the firm conducts designated investment business, or in any related investment, it receives prompt notification of, or is otherwise able to identify, that transaction.
  • 01/03/2003

COB 7.13.5

handbook-guidance

Firms should note that an employee is defined in the Glossary (for the purposes of this section) as meaning not just an individual who is employed or appointed by a firm but also an individual who is:

  1. (1) an appointed representative of a firm; or
  2. (2) employed or appointed by an appointed representative of a firm, whether under a contract of service or services or otherwise.

So, where a firm has one or more appointed representatives, COB 7.13.4 R will apply to the firm in relation to, for example, employees of its appointed representative in exactly the same way as it would were those individuals employed by the firm itself.

  • 01/12/2001

Exceptions

COB 7.13.6

handbook-rule

COB 7.13.4 R does not apply to:

  1. (1) an employee who is a sole trader whose regulated activities consist only of own account transactions; or
  2. (2) an employee, if the firm has taken reasonable steps to determine that the employee will not be involved to any material extent in, or have access to information about, the firm's designated investment business. Firms are reminded that there are further provisions relating to the management and activities of investment analysts in COB 7.16.
  • 01/12/2001

COB 7.13.6A

handbook-guidance
For the purposes of COB 7.13.6 R (2), the FSA considers that an investment analyst is likely to be involved to a material extent in the firm's designated investment business. Firms are reminded that there are further provisions relating to the management and activities of investment analysts in COB 7.16.
  • 01/05/2004

Reasonable steps

COB 7.13.7

handbook-evidential-provisions
  1. (1) For the purposes of COB 7.13.4 R, a firm's "reasonable steps" should ensure that:
    1. (a) the restrictions, and the basis, if any, upon which its employees may undertake personal account transactions, are set out in a written notice drawn explicitly to the attention of each employee, and that the contents of such a notice are made a term of his contract of employment or contract for services;
    2. (a)A an investment analyst may not undertake a personal account transaction in a designated investment if the investment analyst prepares investment research which is published or distributed to clients:
      1. (i) on that designated investment or its issuer; or
      2. (ii) on a related investment, or its issuer; unless the personal account transaction is:
      3. (iii) not contrary to any published or distributed recommendation for which he is responsible as an employee of the firm, which has not been withdrawn; or
      4. (iv) to realise the cash value of a holding or position, is undertaken in order to meet an obligation of the investment analyst which is not related to any designated investment within (i) or (ii), and is one to which the firm has given its permission in writing;
    3. (b) the written notice in (1)(a) states that, if an employee is precluded from entering into a transaction for his own account, he must not (except in the proper course of his employment):
      1. (i) procure any other person to enter into such a transaction; or
      2. (ii) communicate any information or opinion to any other person if he knows, or ought to know, that the person will, as a result, enter into such a transaction, or counsel or procure some other person to do so; and
    4. (c) procedures are established and maintained by the firm that are appropriate to its business, and that are designed with a view to ensuring that:
      1. (i) each of its employees does not undertake a personal account transaction in a designated investment in relation to which the firm conducts designated investment business, or in any related investment, unless the firm has given its permission in writing to that transaction, or to transactions generally in designated investments of that kind;
      2. (ii) when the firm gives such permission, the requirements in COB 7.13.4 R (1) are complied with.
  2. (2) Compliance with (1) may be relied upon as tending to establish compliance with COB 7.13.4 R.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of COB 7.13.4 R.
  • 01/05/2004

COB 7.13.8

handbook-guidance
A firm will be able to identify its employees' personal account transactions under COB 7.13.4 R (2) if it designates its employees' own accounts in a way that enables them to be distinguished from other customers' accounts.
  • 01/12/2001

COB 7.13.9

handbook-guidance
When an employee undertakes a personal account transaction through a person other than the firm or its associate, a copy of the note confirming details of the transaction issued by that person will be sufficient notification for the purposes of COB 7.13.4 R (1).
  • 01/12/2001

COB 7.13.10

handbook-guidance
Firms should note that for the purposes of COB 7.13.7 E (1), while they may look to a third party to make the appropriate arrangements to ensure that the "reasonable steps" referred to in that provision are taken, ultimate responsibility for ensuring that such steps are in fact carried out rests with the firm. Therefore a firm, which has entered into arrangements with its appointed representative under which that appointed representative agrees to carry out the steps in COB 7.13.7 E (1)(a) in relation to individuals employed by the appointed representative, remains responsible should the appointed representative fail, for any reason, to carry out the necessary steps. In relation to COB 7.13.7 E (1)(c)(i), it should be noted that all permissions have to be given by the firm itself.
  • 01/05/2004

COB 7.13.10A

handbook-guidance
  1. (1) Because of the nature of the conflicts of interest that arise, a firm may decide:
    1. (a) that an investment analyst should be prohibited from carrying out any personal account transactions at all; or
    2. (b) that an investment analyst should be prohibited from undertaking a personal account transaction in a designated investment if the investment analyst prepares investment research:
      1. (i) on that designated investment or its issuer; or
      2. (ii) on a related investment, or its issuer; or
      3. (iii) on a designated investment or an issuer which belongs to the same industry or business sector as that designated investment; or
    3. (c) that there should be a prohibition on personal account transactions by investment analysts for a limited time covering a period before and after the intended publication date for investment research.
  2. (2) If a firm does impose a prohibition, it may wish to make clear to the employee whether or not the prohibition extends to the sorts of transaction which the Glossary excludes from the definition of personal account transaction (for example, transactions in units in regulated collective investment schemes, and certain discretionary transactions).
  • 01/12/2004

Record keeping requirements

COB 7.13.11

handbook-rule
  1. (1) A firm must make a record of:
    1. (a) the restrictions upon personal account dealing and the basis upon which any permission to deal is made;
    2. (b) each permission given by it under COB 7.13.4 R (2) ;
    3. (c) each notification made to it under COB 7.13.4 R (2) ;
    4. (d) in respect of COB 7.13.6 R (2), the basis upon which the firm has determined that an employee will not be involved in, or have access to information about, the firm's designated investment business; and
  2. retain these records for the minimum period specified in (2), (3) or (4), as the case may be.
  3. (2) In relation to a record under (1)(a), the period is three years from the date that the restrictions or basis were communicated to the employee.
  4. (3) In relation to each permission and notification in (1)(b) and (c), the period is three years from the date that the permission or notification was made.
  5. (4) In relation to a record under (1)(d), the period is three years after the date on which the individual ceases to be an employee.
  • 01/12/2001

COB 7.13.12

handbook-guidance
A firm's records under COB 7.13.11 R (1) should be sufficiently detailed to identify the position in relation to (1)(a) to (d) for each of its employees. So where the firm gives permission under (1)(b) to a particular employee, as opposed to employees generally, an individual record of that permission is required to be made and retained. However, where the firm's restrictions on personal account dealing are set out in, for example, a standard booklet which is issued to all its employees, it is sufficient for the purposes of (1)(a) for the firm's records to show what global restrictions were in place at any given moment in time and it is not necessary for there to be a record of each booklet that was issued to each employee.
  • 01/12/2001

COB 7.14

Programme trading

  • 01/12/2004

Application

COB 7.14.1

handbook-guidance
This section applies to a firm when it executes a programme trade that includes one or more designated investments. The term 'programme trade' is used in this section to describe a single transaction or series of transactions executed for the purpose of acquiring or disposing, for a customer, of all or part of a portfolio or a large basket of securities.
  • 01/12/2001

Purpose

COB 7.14.2

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section provides guidance on the steps a firm should take when executing a programme trade, either as principal or agent, whenever a customer is involved.
  • 01/12/2001

Programme trading

COB 7.14.3

handbook-guidance
Before a firm executes a programme trade, it should disclose to its customer whether it will be acting as a principal or agent, unless the customer has given prior notification that no such notice is required. A firm should not subsequently act in a different capacity from that which is disclosed without the prior consent of the customer.
  • 01/12/2001

COB 7.14.4

handbook-guidance
A firm should ensure that neither it, nor an associate, executes an own account transaction in any designated investment included in a programme trade, unless the firm has notified the customer in advance that it may do this, or can otherwise demonstrate that it has provided fair treatment to the customer concerned.
  • 01/12/2001

COB 7.14.5

handbook-guidance
COB 7.5.6 E (1)(e) (Providing best execution) provides that a firm should ensure that it applies the duty of care in COB 7.5.5 R (1) (Providing best execution) to each individual transaction executed as part of a programme trade, subject to the exceptions in COB 7.5.4 R (Exceptions).
  • 01/12/2001

COB 7.15

Non-market-price transactions

  • 01/12/2004

Application

COB 7.15.1

handbook-rule
This section applies to a firm when it conducts designated investment business with or for a customer.
  • 01/12/2001

Purpose

COB 7.15.2

handbook-guidance
Principle 1 (Integrity) requires a firm to conduct its business with integrity, whilst Principle 5 (Market conduct) requires a firm to observe proper standards of market conduct. In general, firms should undertake transactions at the prevailing market price. Failure to do this may result in a firm participating, whether deliberately or unknowingly, in the concealment of a profit or loss, or in the perpetration of a fraud. A firm should therefore not enter into a non-market-price transaction unless it has taken reasonable steps to ensure that the transaction is not illegal or otherwise for an improper purpose.
  • 01/12/2001

Non-market-price transactions

COB 7.15.3

handbook-rule
Subject to COB 7.15.4 R, a firm must not, as agent or principal, enter into a non-market-price transaction under which it deals in a designated investment with or for a customer, unless it has taken reasonable steps to ensure that the transaction is not being entered into by the customer for an improper purpose.
  • 01/12/2001

COB 7.15.4

handbook-rule

COB 7.15.3 R does not apply to:

  1. (1) a transaction in an asset in a personal pension scheme, unless that asset is itself a designated investment; or
  2. (2) a non-market-price transaction if it is subject to the rules of a recognised investment exchange.

COB 7.15.5

handbook-guidance
For further guidance, firms are referred to the corresponding provisions on non-market-price transactions set out in MAR 3 (Inter-professional conduct), in particular MAR 3.5.7 E (Non-market-price transactions). Although these provisions apply to a firm's bilateral dealings with a market counterparty, they are also relevant to business conducted with or for customers.
  • 01/12/2001

COB 7.16

Investment research

  • 01/12/2004

Application

COB 7.16.1

handbook-rule
This section applies to a firm that prepares investment research for publication or distribution to its clients, or that publishes or distributes investment research to its clients.
  • 01/07/2004

Purpose

COB 7.16.2

handbook-guidance
The purpose of this section is to amplify relevant Principles, and set out particular steps a firm should take, in relation to investment analysts and investment research. The FSA considers that in this context Principle 1 (Integrity), Principle 2 (Skill, care and diligence), Principle 3 (Management and control), Principle 5 (Market Conduct), Principle 6 (Customers' interests), Principle 7 (Communication with clients) and Principle 8 (Conflicts of interest) are particularly relevant.
  • 01/07/2004

Conflicts of interest in investment research: general

COB 7.16.3

handbook-guidance
The FSA considers that conflicts of interest are much less likely to arise if investment research is solely for a firm's own internal use, for example to inform its decisions about managing its proprietary trading or its strategic direction. The FSA considers that it is inappropriate for an analyst to prepare research papers or analyses which are intended firstly for internal use for the firm's own advantage, and then for later publication to clients (in circumstances in which it might reasonably be expected to have a material influence on the clients' investment decisions).
  • 01/07/2004

COB 7.16.4

handbook-guidance
The obligations referred to in COB 7.16.2 G apply to all types of investment research. A firm's senior management is responsible for ensuring that its systems, controls and procedures are robust and adequate to identify and manage the conflicts of interest which arise in relation to investment research or similar publications, and to ensure, as far as practicable, that those arrangements operate effectively. The FSA does not consider that these conflicts of interest can be adequately managed by disclosure alone.
  • 01/07/2004

Policies for managing conflicts of interest: impartial investment research

COB 7.16.5

handbook-rule
  1. (1) This rule applies to a firm that publishes or distributes investment research and where either:
    1. (a) the firm holds it out (in whatever terms) as being an impartial assessment of the value or prospects of its subject matter; or
    2. (b) it is reasonable for those to whom the firm has published or distributed it to rely on it as an impartial assessment of the value or the prospects of its subject matter.
  2. (2) If this rule applies, a firm must:
    1. (a) establish and implement a policy, appropriate to the firm, for managing effectively the conflicts of interest which might affect the impartiality of investment research of the type described in (1);
    2. (b) make a record of the policy and retain it until at least three years after it ceases to have effect;
    3. (c) take reasonable steps to ensure that it and its employees comply with the policy;
    4. (d) make available to any person in writing, on request, a copy of the policy (for example, by including it on an appropriate website); and
    5. (e) take reasonable steps to ensure that the policy remains appropriate and effective.
  3. (3) The policy must identify the types of investment research to which it applies, and must make provision for systems, controls and procedures (making clear the extent to which the firm's policy relies on Chinese walls or other information barriers within the firm):
    1. (a) to identify conflicts of interest which might affect the impartiality of the investment research to which the policy relates; and
    2. (b) to manage effectively conflicts of interest, to the extent that they arise or might arise within the firm, in relation to at least the following:
      1. (i) the supervision and management of investment analysts;
      2. (ii) the remuneration structure for investment analysts;
      3. (iii) the extent to which investment analysts may become involved in activities other than the preparation of the investment research;
      4. (iv) the extent to which (if at all) inducements offered by issuers, or others with material interest in the subject matter of investment research, may be accepted by investment analysts or senior employees of the firm;
      5. (v) who may comment on draft investment research before publication, and the process for taking account of their comments;
      6. (vi) the timing and manner of publication and distribution of investment research and of the communication of its substance; and
      7. (vii) what information or disclosures are appropriate to include in the investment research (taking due account of matters required by law).
  • 01/07/2004

COB 7.16.6

handbook-guidance
  1. (1) Investment research may be held out as impartial in various ways, for example if it is labelled with that term or similar terms like 'independent' or 'objective'. Even without this kind of labelling on the investment research itself, it may still be held out as impartial if, for example, the firm's representatives state that it is so (in writing or orally), or behave in a way that reasonably gives that impression.
  2. (2) The policy a firm makes available under COB 7.16.5 R(2) is likely to be implemented by detailed procedures and operational arrangements. Those detailed procedures and operational arrangements need not be published.
  • 01/07/2004

Policy content: general

COB 7.16.7

handbook-guidance
Firms should organise the investment research function (including the way in which their investment analysts are supervised and remunerated) in a way which minimises the potential influence of the commercial interests of the firm, its employees, its associates, or its clients, on the impartiality of its investment research.
  • 01/07/2004

COB 7.16.8

handbook-guidance

A firm's policy under COB 7.16.5 R should be appropriate for its own structure and business. The policy will therefore need to take account of the following factors (further guidance on what an appropriate policy might cover is set out in COB 7.16.9 G to COB 7.16.15 G, not all of which will be relevant to every firm):

  1. (1) the firm's size and organisational structure;
  2. (2) the classification under COB 4.1 of its clients, to whom the investment research is published or distributed, and their experience and expertise;
  3. (3) the nature of the investments in relation to which (or in relation to the issuers of which) the firm publishes or distributes investment research; and
  4. (4) the nature of the business which it conducts with or for its clients and on its own account.

Policy content: supervision and remuneration of analysts

COB 7.16.9

handbook-guidance

If an individual (such as someone involved in raising capital for a corporate client) has responsibilities that might reasonably be considered to conflict with the interests of the clients to whom the investment research is published or distributed, it will not usually be appropriate for him to be responsible for:

  1. (1) the day to day supervision or control of an investment analyst;
  2. (2) decisions on the subject matter or content of investment research or the timing of its publication (though it may be appropriate for him to have an opportunity to check the accuracy of the facts relied on in the investment research);
  3. (3) determining the remuneration of an investment analyst.
  • 01/07/2004

COB 7.16.10

handbook-guidance
  1. (1) An investment analyst's remuneration should be structured so as not to create (or reasonably suggest the creation of) an incentive which is inconsistent with the provision of an impartial assessment of the subject matter of investment research by the analyst.
  2. (2) An investment analyst's remuneration should not be linked to a specific transaction, or to recommendations contained in investment research, but it may be linked to the general profits of the firm.
  • 01/07/2004

Policy content: involvement of analysts in other activities

COB 7.16.11

handbook-guidance
  1. (1) An investment analyst should not be involved in activities in a way which suggests that he is representing the interests of the firm or a client if this is likely reasonably to appear to be inconsistent with providing an impartial assessment of the value or prospects of the relevant investments.
  2. (2) A firm's policy may allow it to use an investment analyst's knowledge and information to assist it to research corporate finance business opportunities, to provide ideas to sales or trading staff, or to provide information and advice to the firm's investment clients.
  3. (3) It is likely to be inappropriate for the policy to allow the firm to:
    1. (a) use an investment analyst in a marketing capacity (for example in pitches to solicit or obtain corporate finance business from the issuer of a relevant investment), if this would give a reasonable perception of lack of impartiality in his investment research; or
    2. (b) allow an investment analyst to act in a way which reasonably appears to be representing the issuer of a relevant investment, for example, in roadshows relating to issues or allocations of relevant investments.
  • 01/07/2004

Policy content: avoiding inappropriate influences

COB 7.16.12

handbook-guidance

Firms should put in place arrangements so that investment research sets out impartial views about the value or prospects of the relevant investment or the relevant issuer of the investment analyst or analysts responsible for its content. For example:

  1. (1) the firm should prohibit any of its investment analysts or other employees, from offering or accepting an inducement to provide favourable investment research (COB 2.2.3 R requires the firm itself to take reasonable steps to ensure that such inducements are not offered, given, solicited or accepted);
  2. (2) the firm should not give effective editorial control to someone whose role or commercial interests might reasonably be considered to conflict with the interests of the clients to whom the investment research is to be published or distributed; accordingly, a firm should:
    1. (a) not allow anyone other than an investment analyst (such as a relevant issuer) to approve the content of investment research before publication; and
    2. (b) only allow a person outside the firm (such as a relevant issuer), or any employee other than the investment analyst, to view it before its publication for verification of factual information in the investment research.
  • 01/07/2004

Policy content: means and timing of publication

COB 7.16.13

handbook-guidance

A firm's policy and procedures should provide for investment research to be published or distributed to its clients in an appropriate manner. For example it will be:

  1. (1) appropriate for a firm to take reasonable steps to ensure that its investment research is published or distributed only through its usual channels, as set out in the policy;
  2. (2) inappropriate for an employee (whether or not an investment analyst) to communicate the substance of any investment research, except as set out in the policy.
  • 01/07/2004

COB 7.16.14

handbook-guidance
A firm should also consider whether or not other business activities of the firm could create the reasonable perception that its investment research may not be an impartial analysis of the market in or the value or prospects of a relevant investment. Consequently a firm should consider whether its policy should contain any restrictions on the timing of the publication of investment research. For example, a firm might consider whether it should restrict publication of relevant investment research around the time of an investment offering.
  • 01/07/2004

Policy content: disclosures

COB 7.16.15

handbook-guidance
A firm should consider what information by way of disclosures should accompany the investment research it publishes or distributes.
  • 01/07/2004

COB 7.17

Investment research recommendations: required disclosures

  • 01/07/2005

Application

COB 7.17.1

handbook-rule
  1. (1) This section applies to a firm that prepares or disseminates research recommendations.
  2. (2) This section does not apply to the extent that the Investment Recommendation (Media) Regulations 2005 apply to a firm.
  3. (3) If a firm is a media firm subject to equivalent appropriate regulation only COB 7.17.2 G, COB 7.17.3 G, COB 7.17.5 R, COB 7.17.16 R and COB 7.17.17 R apply.

[Note: Articles 2(4), 3(4), 5(5) 2003/125/EC]

  • 01/07/2005

COB 7.17.2

handbook-guidance
Appropriate regulatory or self-regulatory arrangements are sufficient to meet the condition in COB 7.17.1 R (2). Examples include those listed in regulation 3(5) of the Investment Recommendation (Media) Regulations 2005, that is the Code of Practice issued by the Press Complaints Commission, the Producers' Guidelines issued by the British Broadcasting Corporation, and any code published by the Office of Communications pursuant to section 324 of the Communications Act 2003.
  • 01/07/2005

Purpose

COB 7.17.3

handbook-guidance
The purpose of this section is to implement the provisions of the Market Abuse Directive about the disclosures to be made in and about research recommendations.
  • 01/07/2005

Use of Chinese walls

COB 7.17.4

handbook-guidance
The following obligations to disclose information do not require those producing research recommendations to breach effective information barriers put in place to prevent and avoid conflicts of interest.

[Note: Recital 7 2003/125/EC]

  • 01/07/2005

Fair presentation and disclosure

COB 7.17.5

handbook-rule

A firm must take reasonable care:

  1. (1) to ensure that a research recommendation produced or disseminated by it is fairly presented; and
  2. (2) to disclose its interests or indicate conflicts of interest concerning relevant investments.

[Note: Article 6(5) Market Abuse Directive]

  • 01/07/2005

Identity of producers of recommendations

COB 7.17.6

handbook-rule
  1. (1) A firm must, in a research recommendation produced by it:
    1. (a) disclose clearly and prominently the identity of the person responsible for its production, and in particular:
      1. (i) the name and job title of the individual who prepared the research recommendation; and
      2. (ii) the name of the firm; and
    2. (b) include the relevant status disclosure specified in GEN 4 Annex 1 RR.
  2. (2) The requirements in (1) may be met for non-written research recommendations by referring to a place where the disclosures can be directly and easily accessed by the public, such as an appropriate internet site of the firm.

[Note: Article 2 2003/125/EC]

  • 01/07/2005

General standard for fair presentation of recommendations

COB 7.17.7

handbook-rule
  1. (1) A firm must take reasonable care to ensure that:
    1. (a) facts in a research recommendation are clearly distinguished from interpretations, estimates, opinions and other types of non-factual information;
    2. (b) its sources for a research recommendation are reliable or if there is any doubt as to whether a source is reliable, this is clearly indicated;
    3. (c) all projections, forecasts and price targets in a research recommendation are clearly labelled as such and the material assumptions made in producing or using them are indicated; and
    4. (d) the substance of its research recommendations can be substantiated as reasonable, upon request by the FSA.
  2. (2) The requirements in (1) do not apply, in the case of non-written research recommendations, to the extent that they would be disproportionate.
  3. (3) A firm must make and retain sufficient records to disclose the basis of the substantiation required in (1)(d).

[Note: Article 3 2003/125/EC]

  • 01/07/2005

Additional obligations in relation to fair presentation of recommendations

COB 7.17.8

handbook-rule
  1. (1) In addition a firm must take reasonable care to ensure that, in a research recommendation, at least:
    1. (a) all substantially material sources are indicated, including, if appropriate, the issuer, and in particular the research recommendation indicates whether the research recommendation has been disclosed to that issuer and amended following this disclosure before its dissemination;
    2. (b) any basis of valuation or methodology used to evaluate a security, a derivative or an issuer, or to set a price target for a security or a derivative, is adequately summarised;
    3. (c) the meaning of any recommendation made, such as "buy", "sell" or "hold", which may include the time horizon of the security or derivative to which the research recommendation relates, is adequately explained and any appropriate risk warning, including a sensitivity analysis of the relevant assumptions, indicated;
    4. (d) reference is made to the planned frequency, if any, of updates of the research recommendation and to any major changes in the coverage policy previously announced;
    5. (e) the date at which the research recommendation was first released for distribution is indicated clearly and prominently, as well as the relevant date and time for any security or derivative price mentioned; and
    6. (f) if the substance of a research recommendation differs from the substance of an earlier research recommendation, concerning the same security, derivative or issuer issued during the 12-month period immediately preceding its release, this change and the date of the earlier research recommendation are indicated clearly and prominently.
  2. (2) If the requirements in (1)(a), (b) or (c) would be disproportionate in relation to the length of the research recommendation, a firm may, instead, make clear and prominent reference in the research recommendation to the place where the required information can be directly and easily accessed by the public (such as a hyperlink to that information on an appropriate internet site of the firm) provided that there has been no change in the methodology or basis of valuation used.
  3. (3) In the case of a non-written research recommendation, the requirements of (1) do not apply to the extent that they would be disproportionate.

[Note: Article 4 2003/125/EC]

  • 01/07/2005

COB 7.17.9

handbook-guidance
The disclosures required under (1)(e) and (f) may, if the firm so chooses, be made by graphical means (for example by use of a line graph).
  • 01/07/2005

General standard for disclosure of interests and conflicts of interest

COB 7.17.10

handbook-rule
  1. (1) A firm must disclose, in a research recommendation:
    1. (a) all of its relationships and circumstances that may reasonably be expected to impair the objectivity of the research recommendation, in particular a significant financial interest in any relevant investment which is the subject of the research recommendation, or a significant conflict of interest with respect to a relevant issuer; and
    2. (b) relationships and circumstances, of the sort referred to in (a), of each legal or natural person working for the firm who was involved in preparing the substance of the research recommendation, including, in particular, for a firm which is an investment firm, disclosure of whether his remuneration is tied to investment banking transactions performed by the firm or any affiliated company.
  2. (2) If the firm is a legal person, the information to be disclosed in accordance with (1) must at least include the following:
    1. (a) any interests or conflicts of interest of the firm or of an affiliated company that are accessible, or reasonably expected to be accessible, to the persons involved in the preparation of the substance of the research recommendation; and
    2. (b) any interests or conflicts of interest of the firm or of affiliated companies known to persons who, although not involved in the preparation of the substance of the research recommendation, had or could reasonably be expected to have access to the substance of the research recommendation prior to its dissemination, other than persons whose only access to the research recommendation is to ensure compliance with relevant regulatory or statutory obligations, including the disclosures required under COB 7.17.
  3. (3) If the disclosures required under (1) and (2) would be disproportionate in relation to the length of the research recommendation distributed, a firm may, instead, make clear and prominent reference in the research recommendation to the place where such disclosures can be directly and easily accessed by the public (such as a hyperlink to the disclosure on an appropriate internet site of the firm).
  4. (4) The requirements in (1) do not apply, in the case of non-written research recommendations, to the extent that they are disproportionate.

[Note: Article 5 2003/125/EC]

  • 01/07/2005

Additional obligations for producers of research recommendations in relation to disclosure of interests or conflicts of interest

COB 7.17.11

handbook-rule
  1. (1) A research recommendation produced by a firm must disclose clearly and prominently the following information on its interests and conflicts of interest:
    1. (a) major shareholdings that exist between it or any affiliated company on the one hand and the relevant issuer on the other hand, including at least:
      1. (i) shareholdings exceeding 5 % of the total issued share capital in the relevant issuer held by the firm or any affiliated company, or
      2. (ii) shareholdings exceeding 5 % of the total issued share capital of the firm or any affiliated company held by the relevant issuer;
    2. (b) any other financial interests held by the firm or any affiliated company in relation to the relevant issuer which are significant in relation to the research recommendation;
    3. (c) if applicable, a statement that the firm or any affiliated company is a market maker or liquidity provider in the securities of the relevant issuer or in any related derivatives;
    4. (d) if applicable, a statement that the firm or any affiliated company has been lead manager or co-lead manager over the previous 12 months of any publicly disclosed offer of securities of the relevant issuer or in any related derivatives;
    5. (e) if applicable, a statement that the firm or any affiliated company is party to any other agreement with the relevant issuer relating to the provision of investment banking services, provided that:
      1. (i) this would not entail the disclosure of any confidential commercial information; and
      2. (ii) the agreement has been in effect over the previous 12 months or has given rise during the same period to a payment or to the promise of payment; and
    6. (f) if applicable, a statement that the firm or any affiliated company is party to an agreement with the relevant issuer relating to the production of the research recommendation.
  2. (2) A firm must disclose, in general terms, in the research recommendation the effective organisational and administrative arrangements set up within the firm for the prevention and avoidance of conflicts of interest with respect to research recommendations, including information barriers.
  3. (3) In the case of an investment firm or a credit institution, if a legal or natural person working for the firm who is involved in the preparation of a research recommendation, receives or purchases shares of the relevant issuer prior to a public offering of those shares, the price at which the shares were acquired and the date of acquisition must also be disclosed in the research recommendation.
  4. (4) A firm, which is an investment firm or a credit institution, must publish the following information on a quarterly basis, and must disclose it in its research recommendations:
    1. (a) the proportion of all research recommendations published during the relevant quarter that are "buy", "hold", "sell" or equivalent terms; and
    2. (b) the proportion of relevant investments in each of these categories, issued by issuers to which the firm supplied material investment banking services during the previous 12 months.
  5. (5) If the requirements under (1) to (4) would be disproportionate in relation to the length of the research recommendation, a firm may, instead, make clear and prominent reference in the research recommendation to the place where such disclosure can be directly and easily accessed by the public (such as a hyperlink to the disclosure on an appropriate internet site of the firm, or, if relevant, to the document published under COB 7.16.5 R (2)).
  6. (6) In the case of non-written research recommendations, the requirements of (1) do not apply to the extent that they are disproportionate.

[Note: Article 6 2003/125/EC]

  • 01/07/2005

COB 7.17.12

handbook-guidance
Nothing in COB 7.17.11 R (1)(a) prevents a firm from choosing to disclose significant shareholdings above a lower threshold (for example, 1%) than is required by COB 7.17.11 R (1)(a).
  • 01/07/2005

COB 7.17.13

handbook-guidance
COB 7.17.11 R (1)(a) and (b) only requires a firm to aggregate its shareholdings with those of affiliated companies if they act in concert in relation to those shareholdings.
  • 01/07/2005

COB 7.17.14

handbook-guidance
In relation to companies limited by shares and incorporated in Great Britain, the most meaningful measure of "total issued share capital" is likely to be the concept of "paid up and issued share capital" under the Companies Act 1985 or Companies Act 2006 (as applicable).

COB 7.17.15

handbook-guidance
The FSA considers that it is important for the proportions published in compliance with COB 7.17.11 R (4) to be consistent and meaningful to the recipients of the research recommendations. Accordingly for non-equity material, the relevant categories should be meaningful to the recipients in terms of the course of action being recommended.
  • 01/07/2005

Identity of disseminators of recommendations

COB 7.17.16

handbook-rule
If a firm disseminates a research recommendation produced by a third party, the research recommendation must identify the firm clearly and prominently.

[Note: Article 7 2003/125/EC]

  • 01/07/2005

General standard for dissemination of third party recommendations

COB 7.17.17

handbook-rule
  1. (1) If a research recommendation produced by a third party is substantially altered before dissemination by a firm:
    1. (a) the disseminated material must clearly describe that alteration in detail; and
    2. (b) if the substantial alteration consists of a change of the direction of the recommendation (such as changing a "buy" recommendation into a "hold" or "sell" recommendation or vice versa), the requirements laid down in COB 7.17.6 R to COB 7.17.12 G on producers must be met by the firm, to the extent of the substantial alteration.
  2. (2) A firm which disseminates a substantially altered research recommendation must have a formal written policy so that the persons receiving the information may be directed to where they can have access to the identity of the producer of the research recommendation, the research recommendation itself and the disclosure of the producer's interests or conflicts of interest, provided that these elements are publicly available.
  3. (3) If a firm disseminates a summary of a research recommendation produced by a third party, it must:
    1. (a) ensure that the summary is fair, clear and not misleading;
    2. (b) identify the source research recommendation; and
    3. (c) identify where (to the extent that they are publicly available) the third party's disclosures relating to the source research recommendation can be directly and easily accessed by the public.
  4. (4) Paragraphs (1) and (2) do not apply to news reporting on research recommendations produced by a third party where the substance of the research recommendation is not altered.

[Note: Article 8 2003/125/EC]

  • 01/07/2005

Additional obligations for investment firms and credit institutions disseminating third party recommendations

COB 7.17.18

handbook-rule

If a firm, which is an investment firm or a credit institution, disseminates a research recommendation produced by a third party:

  1. (1) the relevant status disclosure specified in GEN 4 Annex 1 R for the firm must be clearly and prominently indicated on the disseminated material;
  2. (2) if the producer of the research recommendation has not already disseminated it, the requirements in COB 7.17.11 R must be met by the firm as if it had produced the research recommendation itself; and
  3. (3) if the firm has substantially altered the research recommendation, the requirements laid down in COB 7.17.5 R to COB 7.17.11 R must be met by the firm as if it had produced the research recommendation itself.

[Note: Article 9 2003/125/EC]

  • 01/07/2005

COB 7.18

Use of dealing commission

  • 01/01/2006

Application

COB 7.18.1

handbook-rule
  1. (1) This section applies to a firm that acts as an investment manager when it executes customer orders that relate to the designated investments specified in (2).
  2. (2) The designated investments for the purposes of (1) are:
    1. (a) shares; and
    2. (b)
      1. (i) warrants;
      2. (ii) certificates representing certain securities;
      3. (iii) options; and
      4. (iv) rights to or interests in investments of the nature referred to in (i) to (iii);
  3. to the extent that they relate to shares.
  • 01/01/2006

Purpose

COB 7.18.2

handbook-guidance
Principle 1 (Integrity) requires a firm to conduct its business with integrity. Principle 6 (Customers interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. The purpose of this section is to ensure that an investment manager's arrangements in relation to dealing commissions are transparent and demonstrate accountability to customers where commissions are spent in acquiring services in addition to execution, and consequently that customers are treated fairly.
  • 01/01/2006

Use of dealing commission to purchase goods or services

COB 7.18.3

handbook-rule
  1. (1) An investment manager must not execute customer orders under arrangements coming within (2), unless the conditions in (3) are satisfied.
  2. (2) The arrangements referred to in (1) are that the investment manager:
    1. (a) executes its customer orders through a broker or another person;
    2. (b) passes on the brokers or other person's charges (whether commission or otherwise) to its customers; and
    3. (c) in return for the charges referred to in (b), receives goods or services in addition to the execution of its customer orders.
  3. (3) The conditions referred to in (1) are that the investment manager has reasonable grounds to be satisfied that the goods or services in (2)(c):
    1. (a)
      1. (i) are related to the execution of trades on behalf of the investment manager's customers; or
      2. (ii) comprise the provision of research; and
    2. (b) will reasonably assist the investment manager in the provision of its services to its customers on whose behalf the orders are being executed and do not, and are not likely to, impair compliance with the duty of the investment manager to act in the best interests of its customers.
  • 01/01/2006

COB 7.18.4

handbook-evidential-provisions
  1. (1) Where the goods or services relate to the execution of trades, an investment manager should have reasonable grounds to be satisfied that the requirements of COB 7.18.3 R are met if the goods or services are:
    1. (a) linked to the arranging and conclusion of a specific investment transaction (or series of related transactions); and
    2. (b) provided between the point at which the investment manager makes an investment or trading decision and the point at which the investment transaction (or series of related transactions) is concluded.
  2. (2) Compliance with (1) may be relied upon as tending to establish compliance with COB 7.18.3 R.
  • 01/01/2006

COB 7.18.5

handbook-evidential-provisions
  1. (1) Where the goods or services relate to the provision of research, an investment manager will have reasonable grounds to be satisfied that the requirements of COB 7.18.3 R are met if the research:
    1. (a) is capable of adding value to the investment or trading decisions by providing new insights that inform the investment manager when making such decisions about its customers' portfolios;
    2. (b) whatever form its output takes, represents original thought, in the critical and careful consideration and assessment of new and existing facts, and does not merely repeat or repackage what has been presented before;
    3. (c) has intellectual rigour and does not merely state what is commonplace or self-evident; and
    4. (d) involves analysis or manipulation of data to reach meaningful conclusions.
  2. (2) Compliance with (1) may be relied upon as tending to establish compliance with COB 7.18.3 R.
  • 01/01/2006

COB 7.18.6

handbook-guidance
An example of goods or services relating to the execution of trades that the FSA does not regard as meeting the requirements of COB 7.18.4 E (1) is post-trade analytics.
  • 01/01/2006

COB 7.18.7

handbook-guidance
Examples of goods or services that relate to the provision of research that the FSA do not regard as meeting the requirements of COB 7.18.5 E (1) include price feeds or historical price data that have not been analysed or manipulated to reach meaningful conclusions.
  • 01/01/2006

COB 7.18.8

handbook-guidance
Examples of goods or services that relate to the execution of trades or the provision of research that the FSA does not regard as meeting the requirements of either COB 7.18.4 E (1) or COB 7.18.5 E (1) include:

COB 7.18.9

handbook-guidance
The reference to research in COB 7.18.3 R (3)(a)(ii) is not confined to investment research as defined in the Glossary. The FSA's view is that research can include, for example, the goods or services encompassed by investment research, provided that they are directly relevant to and are used to assist in the management of investments on behalf of customers. In addition, any goods or services that relate to the provision of research that the FSA regards as not acceptable under COB 7.18.7 G or COB 7.18.8 G should be viewed as not meeting the requirements of COB 7.18.3 R (3), notwithstanding that their content might qualify as investment research.
  • 01/01/2006

COB 7.18.10

handbook-guidance
This section applies only to arrangements under which an investment manager receives from brokers or other persons goods or services that relate to the execution of trades or the provision of research. It has no application in relation to execution and research generated internally by an investment manager itself.
  • 01/01/2006

COB 7.18.11

handbook-guidance
An investment manager should not enter into any arrangements that could compromise its ability to comply with its best execution obligations under COB 7.5 (Best execution).
  • 01/01/2006

Prior and periodic disclosure

COB 7.18.12

handbook-rule
  1. (1) If an investment manager enters into arrangements for the receipt of goods or services that relate to the execution of trades or the provision of research in accordance with COB 7.18.3 R (Use of dealing commission to purchase goods or services), it must in a timely manner make adequate:
    1. (a) prior disclosure; and
    2. (b) periodic disclosure;
  2. to its customers of the arrangements entered into.
  3. (2) The adequate disclosure in (1) must include details of the goods or services that relate to the execution of trades and, wherever appropriate, separately identify the details of the goods or services that are attributable to the provision of research.
  • 01/01/2006

Making prior and periodic disclosure in a timely manner

COB 7.18.13

handbook-evidential-provisions
  1. (1) For the purposes of COB 7.18.12 R, a firm should make prior and periodic disclosure to its customers in accordance with the requirements of this rule.
  2. (2) For a new customer, the firm should make the prior disclosure before it conducts any designated investment business for him.
  3. (3) For an existing customer, the firm should make the prior disclosure by the earlier of:
    1. (a) 1 July 2006; and
    2. (b) the date that the firm makes its first periodic disclosure to its customers in accordance with COB 7.18.12 R.
  4. (4) A firm will make periodic disclosure to its customers in a timely manner if it is made at least once a year.
  5. (5) Compliance with (1) to (4) may be relied upon as tending to establish compliance with COB 7.18.12 R (1).
  • 01/01/2006

COB 7.18.14

handbook-guidance
  1. (1) The prior disclosure required by COB 7.18.12 R (1) should include an adequate disclosure of the firm's policy relating to the receipt of goods or services that relate to the execution of trades or the provision of research in accordance with COB 7.18.3 R (Use of dealing commission to purchase goods or services). The prior disclosure should explain generally why the firm might find it necessary or desirable to use dealing commission to purchase goods or services, bearing in mind the practices in the markets in which it does business on behalf of its customers. While the appropriate method of making such a disclosure is for the firm to decide, this could, for example, be achieved by a change to its terms of business.
  2. (2) In assessing the adequacy of disclosures made by an investment manager under COB 7.18.12 R, the FSA will have regard to the extent to which investment managers adopt disclosure standards developed by industry associations such as the Investment Management Association, the National Association of Pension Funds and the London Investment Banking Association.
  • 01/01/2006

Prohibition of inducements

COB 7.18.15

handbook-rule
COB 2.2.3 R (Prohibition of inducements) does not apply to an investment manager that complies with the requirements of this section in receiving goods or services in accordance with COB 7.18.3 R (Use of dealing commission to purchase goods or services).
  • 01/01/2006

Record keeping

COB 7.18.16

handbook-rule
An investment manager must make a record of each periodic disclosure it makes to its customers in accordance with COB 7.18.12 R and must maintain each such record for at least five years from the date on which it is provided.
  • 01/01/2006

Export chapter as

COB 8

Reporting
to customers

COB 8.1

Confirmation of transactions

  • 01/12/2004

Application

COB 8.1.1

handbook-rule
This section applies to a firm when it executes a sale or purchase of a designated investment with or for a customer.
  • 01/12/2001

Purpose

COB 8.1.2

handbook-guidance
Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its customers. The provisions in COB 8.1 are designed to ensure that customers are promptly advised of the essential details of a transaction. Firms are obliged to despatch these details, except in certain circumstances when they are supplied by someone else, or at a later date, or if the customer waives the right to receive the information.
  • 01/12/2001

Requirement to confirm a transaction

COB 8.1.3

handbook-rule
  1. (1) A firm must, subject to COB 8.1.6 R, despatch to the customer a written confirmation recording the essential details of the transaction, and must do so promptly.
  2. (2) For the purposes of (1), a firm may despatch a confirmation to an agent, other than the firm or an associate of the firm, nominated by the customer in writing.
  • 01/12/2001

COB 8.1.4

handbook-guidance
  1. (1) Regarding the electronic provision of a confirmation, see COB 1.8 (Application to electronic media).
  2. (2) A firm may comply with COB 8.1.3 R (1) by posting a confirmation on its website, provided that the confirmation is only accessible to the party that placed the order. If the firm does this for a private customer, it should regularly review the website to ensure that the customer has reviewed his confirmations. If the private customer has not accessed his confirmation within five days of it being posted on the website, the firm should send the confirmation to him either in hard copy or electronically.
  • 01/12/2001

Essential details and prompt despatch

COB 8.1.5

handbook-evidential-provisions
  1. (1) A firm should provide the following essential details of a transaction, to the extent they are relevant:
    1. (a) the information specified in:
      1. (i) COB 8.1.15 E for all transactions;
      2. (ii) COB 8.1.16 E in particular circumstances;
      3. (iii) COB 8.1.17 E for transactions in units in a regulated collective investment scheme;
      4. (iv) COB 8.1.18 E for transactions in derivatives;
      5. (v) COB 8.1.19 E upon the exercise of an option; or
    2. (b) such information as the customer has agreed with the firm (in the case of a private customer, agreed in writing with his informed consent), or is in accordance with the custom of a non-UK market in which the transaction was arranged; or
    3. (c) a copy of a confirmation received by the firm from a third party together with any other information provided by the firm which, when taken together, satisfies (1)(a).
  2. (2) To despatch a confirmation promptly, a firm should:
    1. (a) despatch it no later than the business day following the day the transaction was executed (as specified in COB 8.1.12 R) or within any period agreed with the customer (in the case of a private customer, agreed in writing with his informed consent); or
    2. (b) despatch a copy of a confirmation received from a third party together with additional information, if any, to the customer as soon as practicable, but in any event no later than the business day following receipt; or
    3. (c) when the firm has issued or redeemed units in a regulated collective investment scheme, despatch it at the latest on the business day following the day the issue or redemption price was determined, unless (b) applies; or
    4. (d) when a firm executes a transaction in:
      1. (i) an OTC derivative; or
      2. (ii) stock lending or borrowing; or
      3. (iii) a repo; or
      4. (iv) rights to or interests in OTC derivatives;
    5. despatch a confirmation as soon as practicable in accordance with proper standards of market practice for the investment concerned.
  3. (3) Compliance with (1) and (2) may be relied upon as tending to establish compliance with COB 8.1.3 R.
  4. (4) Contravention of (1) or (2) may be relied upon as tending to establish contravention of COB 8.1.3 R.
  • 01/01/2003

Exceptions to the requirement to despatch a confirmation

COB 8.1.6

handbook-rule

A firm need not despatch a confirmation when:

  1. (1) the designated investment is a life policy or a personal pension contract; or
  2. (1A) the designated investment is held within a CTF and the annual statement provided under the CTF Regulations includes the information that would have been contained in a confirmation despatched in accordance with COB 8.1.3 relating to the transactions executed during the relevant period (but information which has since become irrelevant may be excluded); or
  3. (2) an arrangement is in place for the customer to make a series of payments for the purchase of units in a regulated collective investment scheme or of shares in an investment trust (including one-off payments made in addition to those in the series); or
  4. (3) the firm has agreed with the customer (or, in the case of a private customer, agreed in writing with his informed consent) that confirmations need not be supplied, either generally or in specified circumstances (but see COB 8.1.7 R and COB 8.1.8 R); or
  5. (4) the firm is acting as an investment manager, or as an ISA manager or plan manager, and:
    1. (a) the designated investment is not a contingent liability investment;
    2. (b) the firm has taken reasonable steps to determine that the customer does not wish to receive confirmations, either generally or in specified circumstances; and
    3. (c) the firm complies with COB 8.1.7 R or COB 8.1.8 R; or
  6. (5) it would duplicate a confirmation containing the essential details of the transaction (other than those that are firm-specific) which is to be promptly despatched by someone else.
  • 01/12/2004

COB 8.1.7

handbook-rule
A firm which is not an OPS firm referred to in COB 8.1.8 R may rely upon the exceptions in COB 8.1.6 R (3) or COB 8.1.6 R (4) only if any periodic statement which the firm provides to the customer in accordance with COB 8.2 ( Periodic Statement) (and subject to the exceptions in COB 8.2.6 R) contains the information that would have been contained in a confirmation despatched in accordance with COB 8.1.3 R (other than information which has since become irrelevant) relating to the transactions executed during the relevant period.
  • 01/01/2003

COB 8.1.8

handbook-rule
An OPS firm conducting OPS activity for an OPS trustee which is an intermediate customer of the OPS firm, and is habitually resident in the United Kingdom, may rely upon the exceptions in COB 8.1.6 (3) or COB 8.1.6 R (4) only if it provides a periodic statement containing the information required by COB 8.2.10.
  • 01/12/2001

COB 8.1.9

handbook-guidance
The request in COB 8.1.6 R (3) includes a general request as well as a request made on any specific occasion.
  • 01/12/2001

COB 8.1.10

handbook-guidance
If the firm executes a series of transactions, or aggregates orders, it should modify the information to be provided as necessary, to ensure that the confirmation is clear, fair and not misleading, as required by COB 2.1.3 R.
  • 01/12/2001

When a confirmation may omit certain information

COB 8.1.11

handbook-rule

If:

  1. (1) anyone fails to supply information which the firm requires for inclusion in a confirmation; or
  2. (2) the transaction involves a conversion of one currency into another and that conversion has not been made by the firm;

the firm may omit this information from the confirmation, provided the fact of its omission is stated with an indication that it is to be supplied later (or that it cannot be supplied at all if that is the case). The relevant information must then be supplied to the customer promptly after receipt.

  • 01/12/2001

When a transaction is treated as executed

COB 8.1.12

handbook-rule
  1. (1) When a firm executes a transaction outside normal market hours, the transaction must be treated as executed on the following business day.
  2. (2) When a firm executes a series of transactions, all the transactions may be treated as executed at the time of the last transaction so long as a record of the time that each individual transaction was executed is made, for example, by means of a time stamp.
  3. (3) When a firm aggregates and then subsequently allocates a customer order with an own account order or with another customer order, the transaction must be treated as executed at the time of allocation under COB 7.7.5 R (Requirement for timely allocation).
  • 01/12/2001

COB 8.1.13

handbook-guidance
Any right of the customer to cancel the designated investment does not affect the time when the transaction is treated as executed.
  • 01/12/2001

Record keeping requirements

COB 8.1.14

handbook-rule
A firm must make a copy of the confirmation information despatched to a customer under COB 8.1.3 R and retain it for three years from the date of despatch.
  • 01/12/2001

COB 8.1.15

handbook-evidential-provisions

Content of a confirmation of transaction - general requirements

This table belongs to COB 8.1.5 E

COB 8.1.16

handbook-evidential-provisions

Content of a confirmation of transaction - additional content in particular circumstances

This table belongs to COB 8.1.5 E

COB 8.1.17

handbook-evidential-provisions

Content of a confirmation of a transaction - additional content relating to transactions in units in a regulated collective investment scheme

This table belongs to COB 8.1.5 E

COB 8.1.18

handbook-evidential-provisions

Content of a confirmation of a transaction - additional content relating to transactions in derivatives

This table belongs to COB 8.1.5 E

COB 8.1.19

handbook-evidential-provisions

Content of a confirmation of transaction - additional content on exercise of an option

This table belongs to COB 8.1.5 E

COB 8.2

Periodic statements

  • 01/12/2004

Application

COB 8.2.1

handbook-rule

This section applies to a firm when it:

  1. (1) acts as an investment manager, or administers any other account or portfolio which includes designated investments, for a customer; or
  2. (2) operates a customer's account containing uncovered open positions in a contingent liability investment.
  3. (3)
    1. (a) sells a structured capital-at-risk product to a private customer; or
    2. (b) advises a private customer on a structured capital-at-risk product; or
    3. (c) communicates or approves a financial promotion relating to a structured capital-at-risk product to a person who is a private customer; or
    4. (d) manages the relevant assets of the issuer of a structured capital-at-risk product.
  • 01/12/2001

COB 8.2.2

handbook-guidance

Examples of uncovered open positions include:

  1. (1) selling a call option on an investment not held in the portfolio;
  2. (2) unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable securities denominated in that currency; and
  3. (3) transactions having the effect of "selling" an index to an amount greater than the portfolio's holdings of designated investments included in that index.
  • 01/12/2001

Purpose

COB 8.2.3

handbook-guidance
Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its customers. A firm should therefore supply the customer with a regular statement, on a timely basis, providing information on the customer's investment portfolio.
  • 01/12/2001

Requirement for a periodic statement

COB 8.2.4

handbook-rule
  1. (1) A firm to which COB 8.2.1 R or (2)(2) applies must, promptly and at suitable intervals, provide the customer with a written statement containing adequate information on the value and composition of the customer's account or portfolio with the firm, as at the end of the period covered by the statement, unless COB 8.2.6 R applies.
  2. (2) A firm must not carry out any activity in COB 8.2.1 R (3) unless it:
    1. (a) provides; or
    2. (b) takes reasonable steps to ensure that there are arrangements for providing;
  3. promptly, and at suitable intervals, investors in a structured capital-at-risk product with a written statement containing adequate information on the value and composition of the investor's structured capital-at-risk product, as at the end of the period covered by the statement.
  4. (3) A firm need not comply with (2) if COB 8.2.6 R (Exceptions from the requirement to provide a periodic statement) applies.
  • 01/12/2001

COB 8.2.5

handbook-guidance
For periodic statements provided electronically, firms are referred to the guidance in COB 1.8 (Application to electronic media).
  • 01/12/2001

Exceptions from the requirement to provide a periodic statement

COB 8.2.6

handbook-rule

A firm need not:

  1. (1) provide a periodic statement:
    1. (a) to a private customer habitually resident outside the United Kingdom;
    2. (b) to an intermediate customer, if the firm is not an OPS firm;
    3. (c) to an intermediate customer habitually resident outside the United Kingdom, if the firm is an OPS firm;
  2. if the customer concerned has so requested or the firm has taken reasonable steps to establish that he does not wish to receive it; or
  3. (2) provide a periodic statement if it would duplicate a statement to be provided by someone else; or
  4. (3) provide a periodic statement in respect of a CTF if the annual statement provided under the CTF Regulations contains the information that would be required to comply with COB 8.2.4 R.
  • 01/12/2004

COB 8.2.6A

handbook-guidance
If COB 8.2.6 R (3) applies, COB 8.2.10 E provides an indication of how the requirement in COB 8.2.4 R may be satisfied. Further guidance that is relevant if the CTF includes a discretionary managed portfolio or a structured capital-at-risk product is contained in COB 8.2.12 E and COB 8.2.17 E.
  • 01/12/2004

Promptness, suitable intervals and adequate information

COB 8.2.7

handbook-evidential-provisions
  1. (1) In order to comply with COB 8.2.4 R, a firm, other than an OPS firm conducting OPS activity, should take the steps set out in COB 8.2.10 E.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with COB 8.2.4 R.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of COB 8.2.4 R.
  • 01/12/2001

OPS firms

COB 8.2.8

handbook-evidential-provisions
  1. (1) In order to comply with COB 8.2.4 R, an OPS firm conducting OPS activity should:
    1. (a) comply with COB 8.2.10 E (1) and (2)and COB 8.2.15 E in all circumstances;
    2. (b) comply with COB 8.2.10 E and (b) if the customer is a private customer; and
    3. (c) comply with COB 8.2.10 E if the customer is an intermediate customer and the firm relies on the exception in COB 8.1.6 R (3) or COB 8.1.6 R (4) from the requirement to provide confirmations.
  2. (2) Compliance with (1)(a) and, where applicable, (b) and (c) may be relied on as tending to establish compliance with COB 8.2.4 R.
  3. (3) Contravention of (1)(a) or, where applicable, (b) or (c) may be relied on as tending to establish contravention of COB 8.2.4 R.
  • 01/12/2001

Record keeping requirements

COB 8.2.9

handbook-rule
A firm must make a copy of any periodic statement, and retain it for three years from the date on which it was provided.
  • 01/12/2001

COB 8.2.10

handbook-evidential-provisions

Periodic statements - timing and content

This table belongs to COB 8.2.7 E

COB 8.2.11

handbook-evidential-provisions

Periodic statements - general information

This table belongs to COB 8.2.10 E

COB 8.2.12

handbook-evidential-provisions

Periodic statements - additional information required for a discretionary managed portfolio

This table belongs to COB 8.2.10 E

  • 01/11/2002

COB 8.2.13

handbook-evidential-provisions

Periodic statements - additional information required for a contingent liability investment

This table belongs to COB 8.2.10 E

COB 8.2.14

handbook-evidential-provisions

Periodic statements - additional information required for a broker fund

This table belongs to COB 8.2.10 E

COB 8.2.15

handbook-evidential-provisions

Periodic statements - minimum content required where an OPS firm conducts OPS activity

This table belongs to COB 8.2.10 E

COB 8.2.16

handbook-guidance
  1. (1) The items in COB 8.2.15 should contain sufficient information about the relevant transactions to enable an OPS trustee to determine whether it will be necessary to obtain more detailed information about the relevant transactions.
  2. (2) A firm may wish to provide more information than is required by COB 8.2.15, by distinguishing capital and income. If the statement includes some measure of performance, the basis of measurement should be stated.
  • 01/12/2001

COB 8.2.17

handbook-evidential-provisions

Periodic statements - additional information required for a structured capital-at-risk product

This table belongs to COB 8.2.10 E

Export chapter as

COB 8A

Claims
handling

COB 8A.1

Application and purpose

  • 01/12/2004

Who and what ?

COB 8A.1.1

handbook-rule

This chapter applies in respect of claims handling under long-term care insurance contracts to:

  1. (1) an insurer;
  2. (2) a firm acting on behalf of a policyholder; and
  3. (3) a managing agent.
  • 01/12/2004

COB 8A.1.2

handbook-rule
Throughout this chapter, references to an insurer apply equally to a managing agent.
  • 01/12/2004

COB 8A.1.3

handbook-guidance
An insurer is responsible for claims handling. A managing agent is responsible for claims handling for policies underwritten at Lloyd's. An insurer or a managing agent remains responsible for claims handling if it outsources any of its claims-related activities, including where it gives an intermediary authority to handle claims on its behalf. An insurer or a managing agent is not responsible for the administration and performance activities that a firm carries out on behalf of a policyholder in connection with a claim. In relation to these activities, a firm which acts on behalf of policyholders should refer to COB 8A.3.
  • 01/12/2004

COB 8A.1.4

handbook-guidance
An insurer should refer to the rules and guidance set out in SUP 2.3.5 R to SUP 2.3.10 G in respect of any person to whom it outsources its claims handling functions.
  • 01/12/2004

COB 8A.1.5

handbook-guidance
This chapter applies to claims made by or on behalf of policyholders.
  • 01/12/2004

Purpose

COB 8A.1.6

handbook-guidance
  1. (1) The purpose of this chapter is to ensure that:
    1. (a) claims are handled fairly;
    2. (b) claims are settled promptly;
    3. (c) policyholders are provided with information on the claims handling process and with an explanation of why a claim is rejected or not settled in full, where relevant; and
    4. (d) firms acting on behalf of policyholders disclose and manage any conflicts of interest that may exist.
  2. (2) This chapter reinforces:
    1. (a) Principle 3 (Management and control), which requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems;
    2. (b) Principle 6 (Customers' interests), which requires a firm to pay due regard to the interests of its policyholders and treat them fairly; and
    3. (c) Principle 8 (Conflicts of interest), which requires a firm to manage conflicts of interest fairly, both between itself and its policyholders and between a policyholder and another client.
  • 01/12/2004

COB 8A.2

Claims handling: general

  • 01/12/2004

Requirements to handle claims promptly and fairly

COB 8A.2.1

handbook-rule
An insurer must carry out claims handling promptly and fairly.
  • 01/12/2004

COB 8A.2.2

handbook-guidance
When handling the claim of a policyholder, an insurer should comply with the rules and guidance in COB 8A.4.
  • 01/12/2004

COB 8A.2.3

handbook-guidance
An insurer should refer to the guidance in SYSC 3.2 (Areas covered by systems and controls) in its procedures for claims handling. For example, an insurer should have in place systems and controls which take account of reasonably foreseeable peaks in demand, to allow it to deal with claims promptly in such circumstances.
  • 01/12/2004

COB 8A.2.4

handbook-guidance
An insurer should refer to the guidance set out in TC 1 (Commitments) in respect of the competence of any person who carries out claims handling on its behalf.
  • 01/12/2004

Giving policyholders guidance on claiming

COB 8A.2.5

handbook-rule
When an insurer is informed that a policyholder wishes to claim under his policy it must give the policyholder reasonable guidance to help him make a claim under his policy.
  • 01/12/2004

Rejecting or refusing claims

COB 8A.2.6

handbook-rule

An insurer must not:

  1. (1) unreasonably reject a claim made by a policyholder;
  2. (2) except where there is evidence of fraud, refuse to meet a claim made by a policyholder on the grounds:
    1. (a) of non-disclosure of a fact material to the risk which the policyholder could not reasonably be expected to have disclosed;
    2. (b) of misrepresentation of a fact material to the risk unless the misrepresentation is negligent; or
    3. (c) of breach of warranty, unless the circumstances of the claim are connected with the breach and unless:
      1. (i) under a 'life of another' contract, the warranty relates to a statement of fact concerning the life to be assured and that statement would have constituted grounds for rejection of a claim by the insurer under COB 8A.2.6R (2)(a) or COB 8A.2.6R (2)(b) if it had been made by the life to be assured under an 'own life' contract; or
      2. (ii) the warranty is material to the risk and was drawn to the attention of the policyholder before the conclusion of the contract.
  • 01/12/2004

COB 8A.3

Duties of firms acting on behalf of policyholders

  • 01/12/2004

COB 8A.3.1

handbook-rule
COB 8A.3 applies to a firm.
  • 01/12/2004

COB 8A.3.2

handbook-guidance
COB 8A.3 will usually apply to a firm that is not an insurer, but it may also apply to an insurer, for example, if it were dealing with a claim on a policy insured by another insurer.
  • 01/12/2004

A firm's duty of care, skill and diligence

COB 8A.3.3

handbook-rule
A firm when acting for a policyholder in relation to a claim must act with due care, skill and diligence.
  • 01/12/2004

COB 8A.3.4

handbook-guidance
The rules and guidance in COB 8A.3 do not seek to set out the full extent of the duties owed by firms to any person for whom they act, nor do they displace the general law on the duties of agents.
  • 01/12/2004

A firm's duty to avoid conflicts of interest

COB 8A.3.5

handbook-rule
  1. (1) A firm must not, in connection with any claim, put itself in a position where its own interest, or its duty to any person for whom it acts, conflicts with its duty to any policyholder for whom it acts, unless:
    1. (a) it made proper disclosure to that policyholder of all information needed to put the policyholder in a position where he can give informed consent to the arrangement; and
    2. (b) it has obtained the prior informed consent of the policyholder.
  2. (2) A firm must decline to act for the person or policyholder referred to in (1), or any of them, unless in the particular circumstances of the case disclosure and informed consent are sufficient to enable it to reconcile the conflict.
  • 01/12/2004

COB 8A.3.6

handbook-guidance
COB 8A.3.5 R imposes a requirement on a firm to avoid conflicts of interest in relation to claims where it acts on behalf of a policyholder unless it can manage them by disclosure to, and the obtaining of consent from, the policyholder.
  • 01/12/2004

COB 8A.3.7

handbook-guidance
A firm should consider whether it is possible to manage the conflict by disclosing the conflict to the policyholder and obtaining his consent. Where a firm acts for a policyholder in arranging a policy, it is likely to be the agent for the policyholder in connection with the preparation and handling of any claim against the insurer. If the firm intends to be the agent of an insurer in relation to claims under that policy, it will need to consider whether it is at risk of putting itself in the position where it cannot act without some breach of duty either to the insurer or the policyholder. The firm should consider whether disclosure and consent are sufficient to reconcile the conflicting obligations. An example of a circumstance in which disclosure and consent are unlikely to be sufficient and when a firm may well consider it should not act for the insurer or the policyholder or either, is where the firm knows that the policyholder will, to obtain a quick payment, accept a low amount in settlement of a claim and also knows the insurer is willing to settle for a higher amount.
  • 01/12/2004

COB 8A.3.8

handbook-rule
If a firm acts for an insurer and not for a policyholder in relation to a claim on a contract which it arranged for that policyholder, the firm must inform the policyholder that, in relation to that claim, it is acting on behalf of the insurer and not the policyholder.
  • 01/12/2004

COB 8A.3.9

handbook-guidance
COB 8A.3.8 R would apply, for example, where a firm has delegated authority for claims handling and deals with a claim in relation to a contract that is sold to a policyholder, if the firm is not acting on behalf of that policyholder in relation to the claim.
  • 01/12/2004

COB 8A.3.10

handbook-rule

If a firm is notified of a claim in relation to a policy which it has arranged, and the insurer has not given it the authority to deal with that claim, it must:

  1. (1) forward the notification to the insurer promptly; or
  2. (2) inform the policyholder immediately that it cannot deal with the notification.
  • 01/12/2004

COB 8A.4

Policyholders: performance standards for handling claims

  • 01/12/2004

Responding to notification of the claim

COB 8A.4.1

handbook-rule
An insurer must respond promptly to a notification by a policyholder of a claim.
  • 01/12/2004

COB 8A.4.2

handbook-guidance
Notification of a claim is a demand of the insurer to pay or provide a benefit insured under the policy, for example, by submitting a claim form or giving the equivalent information orally, where permitted by the policy. An enquiry that precedes such a demand, for example, as to whether a particular loss is covered, and therefore whether a claim could be made under the terms of the policy, is not notification of a claim.
  • 01/12/2004

COB 8A.4.3

handbook-guidance
COB 8A.4.1 R requires an insurer to respond promptly once it has received notification of a claim. Generally a prompt response would be one within five business days of a policyholder making a claim, although in some circumstances a prompt response could be less than five business days, such as where the policyholder would expect a swifter response because of the nature of the claim or the terms of the policy.
  • 01/12/2004

COB 8A.4.4

handbook-rule

The response referred to in COB 8A.4.1 R must:

  1. (1) provide the information set out in COB 8A.4.5 R;
  2. (2) be in a durable medium, unless the notification by the policyholder is made orally and the insurer does not require the policyholder to complete a claim form; and
  3. (3) provide the policyholder with a claim form, if the insurer requires one to be completed.
  • 01/12/2004

COB 8A.4.5

handbook-rule

The information referred to in COB 8A.4.4R (1) is:

  1. (1) that the claim relates to a risk that is clearly outside the scope of the policy, if that is the case (in which case no further information need be provided);
  2. (2) the action that will be taken by the insurer and when that action will be taken;
  3. (3) if the insurer is appointing any other parties to contact the policyholder on the insurer's behalf, in respect of each other party appointed the following information, if known (but, if the purpose of the appointment is to investigate the validity of a claim, the information need not be given if it would limit or prevent the effective investigation of the claim or any part of it):
    1. (a) its name (unless the other party trades under the name of the insurer);
    2. (b) its function; and
    3. (c) the work it will carry out in relation to the claim.
  • 01/12/2004

COB 8A.4.6

handbook-guidance
The purpose of the rules and guidance in COB 8A.4.1 R to COB 8A.4.5 R is to provide the policyholder at an early stage with information in relation to the processing and settlement of his claim by the insurer. COB 8A.4.5R (1) is intended to prevent a policyholder pursuing a claim for which he is clearly not covered. It is not intended to pre-empt the outcome of an investigation of a claim.
  • 01/12/2004

COB 8A.4.7

handbook-guidance
The purpose of COB 8A.4.5R (3) is to ensure that a policyholder knows the name and function of any party who will contact him in relation to a claim as a representative of the insurer, for example, an outsourced claims handling company. An insurer would not be expected to notify the policyholder of other parties who are appointed to investigate the validity of a claim if this would limit or prevent an effective investigation. However, if a third party is appointed to liaise with the policyholder on the insurer's behalf, as well as assess the validity of the claim, the insurer would be expected to disclose the information in COB 8A.4.5R (3) unless it would limit or prevent an effective investigation.
  • 01/12/2004

Investigation and processing of the claim

COB 8A.4.8

handbook-rule
An insurer must keep the policyholder reasonably informed about the progress of his claim.
  • 01/12/2004

COB 8A.4.9

handbook-guidance
Where the investigation of a claim is likely to be protracted, an insurer should provide periodic progress or status reports, when appropriate, to a policyholder, including providing the policyholder with any relevant update in relation to the information provided under COB 8A.4.4 R. The insurer should also respond without undue delay to any reasonable request by the credit union for information.
  • 01/12/2004

Determining the claim

COB 8A.4.10

handbook-rule

An insurer must notify the policyholder as soon as practicable whether it:

  1. (1) rejects all of his claim;
  2. (2) rejects his claim but without prejudice to the rejection makes an offer in compromise; or
  3. (3) accepts all or part of his claim.
  • 01/12/2004

COB 8A.4.11

handbook-rule
If the insurer rejects the claim but without prejudice to the rejection makes an offer in compromise, it must notify the policyholder of the terms of that offer as soon as practicable.
  • 01/12/2004

COB 8A.4.12

handbook-rule

If the insurer accepts all or part of the policyholder's claim, it must notify the policyholder as soon as practicable whether:

  1. (1) as to the parts it accepts, it agrees to provide the money, property or service claimed by the policyholder in full; or
  2. (2) it makes some other offer in compromise. In that event, it must notify the policyholder of the terms of its offer.
  • 01/12/2004

COB 8A.4.13

handbook-rule
  1. (1) Unless the insurer accepts the policyholder's claim in full, the insurer must explain why it rejects all or part of the policyholder's claim or accepts his claim or makes a compromise offer, specifying any relevant term of the policy.
  2. (2) The insurer must offer the policyholder the choice of receiving the information at COB 8A.4.13R (1) in a durable medium.
  • 01/12/2004

COB 8A.4.14

handbook-rule
The insurer must, in respect of each part of the claim which it accepts, inform the policyholder whether the claim will be settled by paying him, or by paying another person to provide goods or services, or by providing those goods or services.
  • 01/12/2004

Settling a claim

COB 8A.4.15

handbook-rule
An insurer must settle a claim by a policyholder promptly.
  • 01/12/2004

COB 8A.4.16

handbook-guidance
  1. (1) Settlement terms are agreed when:
    1. (a) the insurer accepts the policyholder's claim; and
    2. (b) the policyholder accepts the insurer's offer of settlement.
  2. (2) When the insurer settles the claim by paying the policyholder, the insurer should aim to make payment within five business days after the insurer and the policyholder have agreed settlement terms, subject to any pre-conditions laid down by the insurer or in law being met by the policyholder. This does not prevent the insurer paying a claim before the policyholder has finally agreed settlement terms.
  3. (3) The guidance in (2) will not apply if the insurer settles the claim by:
    1. (a) payment against a liability due on a future date;
    2. (b) the provision of goods or services;
    3. (c) making payments on a date specified by the policyholder;
    4. (d) payment of the claim through another party (eg a care home) on a monthly or some other basis;
  4. and in the case of (a) or (b) the insurer should make prompt payment or arrange for prompt provision of the goods or services after the insurer and the policyholder have agreed settlement terms.
  • 01/12/2004

COB 8A.4.17

handbook-guidance
The arrangements for settlement set out in COB 8A.4.16G (3)(b) apply to arrangements to supply goods or services to the policyholder. In such situations, the goods or services should be provided promptly but where they cannot be, the insurer should inform the policyholder when to expect them.
  • 01/12/2004

COB 8A.4.18

handbook-guidance
An insurer should note that unless it has previously informed a policyholder that a claim will not be met in full or in part until premiums have been paid, the insurer may not delay the payment of a claim on the grounds that premiums are outstanding.
  • 01/12/2004

Pre-Action Protocols

COB 8A.4.19

handbook-guidance
A policyholder who does not accept an insurer's rejection of his claim (or part of it) may challenge that rejection. If he chooses to do so through the courts, firms should be aware that, in England and Wales, there are pre-action protocols which lay down certain requirements as to the steps to be taken before proceedings are issued. This chapter does not displace these requirements, to which firms should have regard in the event that a rejection of a claim moves towards litigation.
  • 01/12/2004

COB 8A.5

Record keeping

  • 01/12/2004

COB 8A.5.1

handbook-rule

An insurer must make and retain, for the duration of the claim and for a minimum of six years after the insurer's obligations to the policyholder under the long-term care insurance contract have ceased, the following information in relation to each claim made against a policy issued by it or handled by it:

  1. (1) details of the claim;
  2. (2) a record of each communication with the policyholder including the date on which it was made; and
  3. (3) the date the claim was settled or rejected and details of settlement or rejection including information relevant to the basis for the settlement or rejection.
  • 01/12/2004

Export chapter as

COB 9

Client assets

COB 9.1

These provisions have been moved to the Client Assets sourcebook (CASS)

  • 01/12/2004

COB 9.1.1

handbook-rule
..
  • 01/12/2001

COB 9.2

These provisions have been moved to the Client Assets sourcebook (CASS)

  • 01/12/2004

COB 9.2.1

handbook-rule
..
  • 01/12/2001

COB 9.3

These provisions have been moved to the Client Assets sourcebook (CASS)

  • 01/12/2004

COB 9.3.1

handbook-rule
..
  • 01/12/2001

COB 9.4

These provisions have been moved to the Client Assets sourcebook (CASS)

  • 01/12/2004

COB 9.4.1

handbook-rule
..
  • 20/09/2001

COB 9.5

These provisions have been moved to the Client Assets sourcebook (CASS)

  • 01/12/2004

COB 9.5.1

handbook-rule
..
  • 01/12/2001

Export chapter as

COB 10

Operators of collective investment schemes

COB 10.1

Application

  • 01/12/2004

COB 10.1.1

handbook-rule
  1. (1) COB 10 applies to a firm which is an operator of a collective investment scheme in accordance with COB 10.1.2 R.
  2. (2) The right hand column of the table in COB 10.1.2 R specifies the sections in COB 10 which apply to the operator specified in the left hand column of the table.
  • 01/12/2001

COB 10.1.2

handbook-rule
  • 01/12/2001

COB 10.1.3

handbook-guidance
The term operator includes an authorised corporate director of an ICVC.
  • 01/12/2001

COB 10.1.4

handbook-guidance

Operators are also required to comply with the other relevant provisions of the Handbook. For example:

  1. (1) The Principles for Business (PRIN);
  2. (2) Senior Management Arrangements, Systems and Controls (SYSC);
  3. (3) an operator that communicates or approves a financial promotion relating to a scheme is also required to comply with COB 3;
  4. (4) an operator that holds clients' money otherwise than as trustee of an unregulated collective investment scheme is also required to comply with CASS 4;
  5. (5) an operator that is also the trustee of an unregulated collective investment scheme is also required to comply with COB 11 in relation to its activity as a trustee firm;
  6. (6) an operator of an authorised unit trust scheme is also required to comply with the Collective Investment Schemes sourcebook (CIS); and
  7. (7) an operator of an ICVC is also required to comply with the Collective Investment Schemes sourcebook (CIS).
  8. (8) [deleted]

Purpose

COB 10.1.5

handbook-guidance

The purpose of this chapter is:

  1. (1) to take into account the existence of other legislation and rules that may apply to operators (for example, the Collective Investment Schemes sourcebook); to adopt or disapply rules from other chapters in COB; in this way, conflicts between rules and duplication of rules are avoided;
  2. (2) to make a number of general modifications to the operation of the applied rules in COB in the operator context; in general, the ordinary definition of a customer is modified to mean the scheme; however, in certain circumstances, such as an obligation to provide certain kinds of information about the scheme and its investments, the ordinary definition of a customer is modified to mean a participant in the scheme; and
  3. (3) to apply a number of rules that have been specifically designed to apply to operators when undertaking scheme management activity.
  • 01/12/2001

COB 10.2

Application of general COB rules

  • 01/12/2004

Application or modification of general COB rules for operators

COB 10.2.1

handbook-rule

An operator when it is undertaking scheme management activity:

  1. (1) must comply with the rules specified in COB 10.2.5 R as modified by COB 10.2.3 R and in COB 10.2.5 R; and
  2. (2) need not comply with any other rule in COB.
  • 20/09/2001

COB 10.2.2

handbook-guidance

[deleted]

  1. (1) [deleted]
  2. (2) [deleted]
  • 01/09/2003

General modifications

COB 10.2.3

handbook-rule

The rules specified in COB 10.2.5 R apply to an operator when it is undertaking scheme management activity (unless otherwise expressly provided in this chapter) with the following modifications:

  1. (1) subject to (3), references to customer are to be construed as references to any scheme in respect of which the operator is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on;
  2. (2) In the case of an unregulated collective investment scheme, references to terms of business or a client agreement are to be construed as references to the scheme documents of an unregulated collective investment scheme required by COB 10.6.2 R; and
  3. (3) in the case of an unregulated collective investment scheme, when an operator is required by the rules in COB to provide information to, or obtain consent from, a customer, the operator must ensure that the information is provided to, or consent obtained from, a participant or a potential participant in the scheme as the case may be.
  • 01/12/2001

COB 10.2.4

handbook-guidance
Terms including the word customer such as customer order and current customer order are to be construed in accordance with COB 10.2.3 R.
  • 01/12/2001

COB 10.2.5

handbook-rule

Application of conduct of business rules

This table belongs to COB 10.2.1 R

COB 10.3

Modification of the allocation rule

  • 01/12/2004

COB 10.3.1

handbook-rule
COB 10.3 applies to an operator only when undertaking scheme management activity.
  • 01/12/2001

COB 10.3.2

handbook-guidance
COB 10.3.3 E replaces COB 7.7.6 E. COB 10.3.3 E modifies the general rule on the timing of allocation (that is, COB 7.7.5 R) to take into account the kind of scheme in which no participant is a private customer.
  • 20/09/2001

COB 10.3.3

handbook-evidential-provisions
  1. (1) To allocate promptly, an operator which has aggregated an order under COB 7.7.4 R should complete the allocation of the designated investments concerned within one business day of the transaction, subject to (2), (3) and (4).
  2. (2) The period in (1) is within five business days if:
    1. (a) the scheme is one in which no participant is a private customer; or
    2. (b) the scheme is an unregulated collective investment scheme and no current participant in the scheme was a private customer on joining the scheme as a participant.
  3. (3) For the purposes of COB 10.3.3 E, all transactions in a series of transactions all of which are executed within one business day, may be treated as having been executed at the time of the last transaction, so long as a record of the time that each individual transaction was executed is made, such as by means of a time stamp.
  4. (4) If transactions in a series of transactions occur over more than one business day, then the requirement in COB 7.7.5 R (and (1) or (2) as appropriate) will apply separately in relation to each business day in which any transaction is executed.
  5. (5) Compliance with (1) may be relied on as tending to establish compliance with COB 7.7.5 R.
  6. (6) Contravention of (1) may be relied on as tending to establish contravention of COB 7.7.5 R.
  • 01/12/2001

COB 10.3.4

handbook-guidance
COB 10.3.5 R replaces COB 7.7.14 R. COB 10.3.5 R modifies the general rule on the record keeping of aggregated transactions (that is, COB 7.7.14 R) to take into account the fact that an operator may act on a proportional basis or otherwise and may also act for all schemes under its management or for some of the schemes under its management.
  • 01/12/2001

COB 10.3.5

handbook-rule
  1. (1) An operator must, on executing an aggregated transaction on behalf of a number of schemes under its management, make a record of:
    1. (a) the identity of the schemes concerned; and
    2. (b) whether the transaction was executed proportionally for these schemes under its management generally or that a stated proportion was executed for some schemes under its management.
  2. (2) If an operator aggregates a number of customer orders on behalf of a number of schemes under its management, the operator must make a record of the intended basis of allocation as soon as is practicable.
  3. (3) If an operator aggregates an order for one or more schemes under its management and itself, the operator must make a record of the intended basis of allocation before the transaction is executed.
  • 01/12/2001

COB 10.4

Suitability of the portfolio of an unregulated collective investment scheme

  • 01/12/2004

COB 10.4.1

handbook-rule
  • 01/12/2001

COB 10.4.2

handbook-guidance
COB 10.4 adapts COB 5.3 (Suitability) for an operator of an unregulated collective investment scheme. It requires the operator to ensure that its management of the portfolio of the scheme is suitable taking into account its investment management objectives. The Collective Investment Schemes sourcebook deals separately with the basis upon which an operator of a regulated collective investment scheme manages its portfolio.
  • 01/12/2001

COB 10.4.3

handbook-rule

An operator of an unregulated collective investment scheme when it is undertaking scheme management activity must take reasonable steps to ensure that:

  1. (1) each transaction undertaken with or for an unregulated collective investment scheme under its management; and
  2. (2) the portfolio for an unregulated collective investment scheme under its management;

is suitable for the scheme.

  • 01/12/2001

COB 10.4.4

handbook-guidance
For the purposes of COB 10.4.3 R, an operator of an unregulated collective investment scheme should have regard to the stated investment objectives of the scheme.
  • 01/12/2001

COB 10.5

Modification of the best execution rule

  • 01/12/2004

COB 10.5.1

handbook-rule
  • 01/12/2001

COB 10.5.2

handbook-guidance
COB 10.5.3 R modifies the effect of COB 7.5.4 R. COB 10.5.3 R modifies the general rule (that is, COB 7.5.4 R) on the exceptions to the best execution rule (that is, COB 7.5.3 R) to take into account the existence of unregulated collective investment schemes in which no participant is a private customer.
  • 01/12/2001

COB 10.5.3

handbook-rule

COB 7.5.3 R does not apply:

  1. (1) in any of the circumstances specified in COB 7.5.4 R; or
  2. (2) in relation to an unregulated collective investment scheme whose scheme documents include a statement that best execution does not apply in relation to the scheme and in which:
    1. (a) no participant is a private customer; or
    2. (b) no current participant in the scheme was a private customer on joining the scheme as a participant.
  • 01/12/2001

COB 10.6

Scheme documents for an unregulated collective investment scheme

  • 01/12/2004

COB 10.6.1

handbook-guidance
Except in relation to a distance contract with a retail customer for the sale or purchase as principal of units in a scheme (for which see COB 4.2.5 R and COB 4 Annex 1.1 R), COB 10.6.2 R fulfils the purpose of the terms of business (including the client agreement) requirements (see COB 4.2) in the context of an unregulated collective investment scheme by application of content requirements in scheme documents. In this way, the scheme documents record the basis on which the operator provides investment management services to a participant in the scheme. The Collective Investment Schemes sourcebook deals separately with the basis upon which an operator of a regulated collective investment scheme provides investment management services to a participant of the scheme.
  • 01/12/2001

Provision of scheme documents to private customers

COB 10.6.2

handbook-rule
An operator of an unregulated collective investment scheme must not accept a private customer as a participant in the scheme unless it has taken reasonable steps to offer and, if requested, provide to the potential participant scheme documents which adequately describe how the operation of the scheme is governed.
  • 01/12/2001

Format and content of scheme documents

COB 10.6.3

handbook-guidance
An operator's scheme documents may consist of any number of documents provided that it is clear that collectively they constitute the scheme documents and provided the use of several documents in no way diminishes the significance of any of the statements which are required to be given to the potential participant.
  • 01/12/2001

COB 10.6.4

handbook-guidance
COB 10.6.4 G is intended to ensure that the scheme documents of an unregulated collective investment scheme (if they exist) make it clear that if a participant is reclassified as a private customer, this reclassification will not affect certain scheme management activities of the operator of the scheme. In particular, despite such a reclassification, the operator will not be required to comply with COB 7.5.3 R (that is, the best execution rule) and the requirement in COB 10.3.3 E (1) to complete the allocation of an aggregated transaction order within one business day of the transaction. It should be noted that COB 10.6.5 R does not require that scheme documents must be produced for an unregulated collective investment scheme.
  • 01/12/2001

COB 10.6.5

handbook-rule

Where the scheme is an unregulated collective investment scheme where no current participant in the scheme was a private customer on joining the scheme as a participant, the scheme documents must include a statement that:

  1. (1) explains that if a participant is reclassified as a private customer subsequent to joining the scheme as a participant, then the operator may continue to treat all participants in the scheme as though they were not private customers; and
  2. (2) explains that, in respect of an order aggregated under COB 7.7.4 R, the operator may allocate the designated investments concerned within five business days of the transaction;
  3. (3) explains that if a participant is reclassified as a private customer subsequent to joining the scheme as a participant, then COB 10.5.3 R will continue to apply to that scheme; and
  4. (4) explains that, in the event of a reclassification described in (3), the operator will not be required to provide best execution under COB 7.5.3 R in relation to the scheme.
  • 01/12/2001

COB 10.6.6

handbook-guidance
It should be noted that the operator will still have to comply with other COB provisions as a result of the reclassification of a participant as a private customer: for example, the requirement under COB 10.7.2 R to provide periodic statements to participants who are private customers in an unregulated collective investment scheme.
  • 01/12/2001

Adequate Information

COB 10.6.7

handbook-evidential-provisions
  1. (1) In order to provide adequate information in scheme documents under COB 10.6.2 R, an operator should include in the scheme documents required by COB 10.6.2 R a provision about each of the items of relevant information set out in COB 10.6.8 E.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with COB 10.6.2 R.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of COB 10.6.2 R.
  • 01/12/2001

COB 10.6.8

handbook-evidential-provisions

Content of scheme documents

This table belongs to COB 10.6.7 E

COB 10.7

Periodic statements for an unregulated collective investment scheme

  • 01/12/2004

COB 10.7.1

handbook-guidance
COB 10.7 applies in the case of an operator of an unregulated collective investment scheme. COB 10.7 modifies the general section on periodic statements (that is, COB 8.2) to take into account the operation of an unregulated collective investment scheme. In this way, an operator should send to a participant of the scheme, on a timely basis, a regular statement providing a valuation of the portfolio of the scheme and other details.
  • 01/12/2001

The requirement to prepare and issue periodic statements

COB 10.7.2

handbook-rule
An operator of an unregulated collective investment scheme must, subject to COB 10.7.5 R, provide to participants in the scheme, promptly and at suitable intervals, a written statement which contains adequate information on the value and composition of the portfolio of the scheme at the beginning and end of the period of the statement.
  • 01/12/2001

Promptness, suitable intervals and adequate information

COB 10.7.3

handbook-evidential-provisions
  1. (1) An operator should act in accordance with the provisions in the right hand column of COB 10.7.7 E to fulfil the requirement of COB 10.7.2 R indicated in the left hand column against these provisions.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with COB 10.7.2 R.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of COB 10.7.2 R.
  • 01/12/2001

COB 10.7.4

handbook-guidance
Regarding the electronic provision of a periodic statement, see COB 1.8.
  • 01/12/2001

Exceptions from the requirement to provide a periodic statement

COB 10.7.5

handbook-rule
  1. (1) An operator of an unregulated collective investment scheme need not provide a periodic statement:
    1. (a)
      1. (i) to a participant in the scheme who is a private customer ordinarily resident outside the United Kingdom; or
      2. (ii) to a participant in the scheme who is an intermediate customer;
    2. if the participant has so requested or the operator has taken reasonable steps to establish that the participant does not wish to receive it; or
    3. (b) if it would duplicate a statement to be provided by someone else.
  2. (2) For a firm acting as an outgoing ECA provider, the exemption in (1)(a)(i) applies only to a participant in the scheme who is a private customer ordinarily resident outside the EEA.
  • 21/08/2002

Record keeping requirements

COB 10.7.6

handbook-rule
An operator of an unregulated collective investment scheme must make a copy of any periodic statement it has provided in accordance with COB 10.7.2 R to participants in the scheme. The record must be retained for a minimum period of three years.
  • 01/12/2001

COB 10.7.7

handbook-evidential-provisions

Periodic statements

This table belongs to COB 10.7.3 E

  • 21/08/2002

COB 10.7.8

handbook-guidance

Examples of uncovered open positions include:

  1. (1) selling a call option on an investment not held in the portfolio;
  2. (2) unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable investments denominated in that currency; and
  3. (3) transactions having the effect of selling an index to an amount greater than the portfolio's holdings of investments included in that index.
  • 01/12/2001

COB 10.7.9

handbook-evidential-provisions

General contents of a periodic statement

This table belongs to COB 10.7.7 E

  • 01/12/2001

COB 10.7.10

handbook-evidential-provisions

Contents of a periodic statement in respect of contingent liability investments

This table belongs to COB 10.7.7 E

  • 01/12/2001

Export chapter as

COB 11

Trustee and depositary activities

COB 11.1

Application

  • 01/12/2004

COB 11.1.1

handbook-rule

This chapter:

  1. (1) applies to depositaries and trustee firms when acting as such;
  2. (2) does not apply to trustee firms when acting as the trustee of a personal pension scheme or stakeholder pension scheme.

COB 11.1.2

handbook-guidance
The definition of depositary includes trustees of authorised and unauthorised unit trust schemes as well as depositaries of ICVCs. The definition of trustee firm includes any firm carrying on activity as a trustee but not an OPS firm. There is overlap between these definitions. A trustee of an authorised unit trust scheme is both a trustee firm and a depositary.
  • 01/12/2001

COB 11.1.3

handbook-guidance
The definition of trustee firm includes a firm acting as personal representative.
  • 01/12/2001

COB 11.1.4

handbook-guidance
Firms are reminded that trustee firm may include individuals who require authorisation and who are within the definition of trustee firm. It also includes partnerships where the partnership requires authorisation.
  • 01/12/2001

COB 11.1.5

handbook-guidance
Article 66 of the Regulated Activities Order provides exclusions for some trustees, nominees and personal representatives from certain regulated activities. This chapter does not apply to a trustee firm in respect of an activity which is excluded from being a regulated activity carried on by the trustee firm under any paragraph in article 66.
  • 01/12/2001

COB 11.1.6

handbook-guidance
In COB only the rules in COB 1, COB 11 and the rules applied by this chapter apply to a trustee firm or depositary.
  • 01/12/2001

COB 11.1.7

handbook-guidance
This chapter does not apply with respect to any regulated activities carried on by a trustee with a trust beneficiary where the trustee firm is not acting as trustee. Such activities would be subject to the rules in COB applied otherwise than through this chapter.
  • 01/12/2001

COB 11.1.8

handbook-guidance

In respect of trustee firms, the rules:

  1. (1) apply in addition to any duties or powers imposed or conferred upon a trustee by the general law;
  2. (2) do not qualify or restrict the duties or powers that the general law imposes or confers upon a trustee; trustee firms will be under a duty to observe the provisions of their trust instrument; if its provisions conflict with any applicable rule, trustees will need to take advice in resolving the conflict.
  • 01/12/2001

COB 11.1.9

handbook-guidance
A depositary of a regulated collective investment scheme is also required to comply with the Collective Investment Schemes sourcebook (CIS).
  • 01/12/2001

COB 11.1.10

handbook-guidance
A depositary of an ICVC is also required to comply with the OEIC Regulations.
  • 01/12/2001

COB 11.1.11

handbook-guidance
All depositaries and trustee firms are also required to comply in particular with the Principles for Businesses (PRIN) and Senior Management Arrangements, Systems and Controls (SYSC).

Purpose

COB 11.1.12

handbook-guidance

The purpose of this chapter is to select rules to apply to the activities of trustee firms and depositaries. COB is modified by this chapter for that purpose. The rules in this chapter:

  1. (1) redefine customer so that it applies meaningfully in the trustee firm/depositary context. A trustee firm, for example, may be both the customer and the firm. A requirement to make a disclosure to a customer may therefore not be clear when applied to a trustee firm - the requirement may be taken to apply to the trustees as a body, or to the trust beneficiaries. In the context of collective investment schemes disclosure may appropriately be effected through reports and documentation sent to the participants;
  2. (2) recognise that some trustee firms may not be experts in investment; in consequence they should be allowed to delegate regulatory responsibility for compliance with COB to other suitable firms.
  3. (3) apply appropriate rules to different types of trustee; for example the rules in COB 11.5.3 R are not applied to personal representatives because this would amongst other things require such a firm to send out periodic statements.
  4. (4) apply rules specifically devised for trustee firms or depositaries; for example, COB 11.8 (Proper advice) applies only to trustee firms.
  • 01/12/2001

COB 11.2

Relationship with the scheme

  • 01/12/2004

COB 11.2.1

handbook-guidance

[deleted]

  1. (1) [deleted]
  2. (2) [deleted]
  • 01/09/2003

COB 11.2.2

handbook-rule
Where a trustee firm is required by any applicable rule in COB to provide information to, or obtain consent from, a customer, the trustee firm must ensure the information is provided to, or consent obtained from all the trustees, or as many trustees as are required by the trust instrument.
  • 01/12/2001

COB 11.3

Packaged products

  • 01/12/2004

COB 11.3.1

handbook-rule
A trustee firm must not arrange the purchase, or recommend the purchase of a packaged product unless the trustee firm has taken reasonable steps to ensure that that packaged product will secure the investment objectives of the trust of which it is trustee at least as well as any other generally available packaged product of which it is or reasonably should be aware.
  • 01/12/2004

COB 11.4

Depositaries

  • 01/12/2004

COB 11.4.1

handbook-rule

A depositary when acting as such:

  1. (1) must comply with the rules in COB specified in COB 11.4.3 R, as modified;
  2. (2) need not comply with any other rule in COB.
  • 01/12/2001

COB 11.4.2

handbook-guidance
COB 11.4.1 R applies to a trustee firm which is also a depositary. If a trustee firm is not a depositary then COB 11.5 applies instead.
  • 01/12/2001

COB 11.4.3

handbook-rule

Rules applicable to depositaries

This table belongs to COB 11.4.1 R

COB 11.5

Trustee firms which are not depositaries

  • 01/12/2004

COB 11.5.1

handbook-rule

The only rules in COB which apply to a trustee firm which is not a depositary and when acting as such are as follows:

  1. (1) where the firm is:
    1. (a) a bare trustee (or, in Scotland, a nominee) holding investments for another person and acting on that person's instructions;
    2. (b) a personal representative;
    3. (c) a trustee acting as trustee of an issue of debentures or government and public securities:
      1. (i) where the issue is made by a company listed on a recognised investment exchange or on a designated investment exchange (or by a wholly-owned subsidiary of such a company); or
      2. (ii) where the issue is made by a government, local authority or public authority; or
      3. (iii) where the aggregate amounts issued (under the trust deed or any deed supplemental to it and ignoring any amounts redeemed, repurchased or converted) exceed the sum of £10,000,000, or its equivalent in a foreign currency;
  2. the rules in COB 11.5.2 R, as modified
  3. (2) where the firm does not fall within (1), the rules in COB 11.5.3 R as modified.
  • 01/12/2001

COB 11.5.2

handbook-rule

Rules applicable to trustee firms which are not depositaries and to which COB 11.5.1R (1) applies

This table belongs to COB 11.5.1 R (1).

COB 11.5.3

handbook-rule

Rules applicable to trustee firms which are not depositaries and to which COB 11.5.1R (2) applies

This table belongs to COB 11.5.1 R (2).

COB 11.6

Delegation to a permitted third party.

  • 01/12/2004

COB 11.6.1

handbook-rule

A trustee firm may not appoint a permitted third party ("PTP") under this rule unless:

  1. (1) the trustee firm could not reasonably be expected to discharge the responsibility itself.
  2. (2) the delegation is made in writing which:
    1. (a) describes in adequate detail the regulated activities to be carried on by the PTP; and
    2. (b) states that the arrangement is to be regarded as a PTP arrangement for the purposes of this rule;
  3. (3) the PTP undertakes in writing to the trustee firm to comply with all rules relevant to the regulated activity in question; and
  4. (4) the PTP is an appropriate person to perform the regulated activity.
  • 01/12/2001

COB 11.6.2

handbook-guidance
For the purposes of COB 11.6.1 R (1) a trustee firm may reasonably be expected to accept responsibility for the PTP's compliance where the trustee firm undertakes substantial trustee business. The PTP rules are intended to be of assistance to smaller trustee firms who are inexperienced in regulated business.
  • 01/12/2001

COB 11.6.3

handbook-guidance
For the purposes of COB 11.6.1 R (4), where the PTP has appropriate permission enabling him to carry on the regulated activity in question, that fact may be taken to indicate that the PTP is an appropriate person to perform the regulated activity.
  • 01/12/2001

COB 11.6.4

handbook-rule
When a trustee firm has appointed a PTP under COB 11.6.1 R, the trustee firm will not be responsible for compliance by the PTP with any rules relating to any regulated activity which the PTP carries on for the trustee firm.
  • 01/12/2001

COB 11.6.5

handbook-guidance
The effect of COB 11.6.4 R is that the trustee firm is not liable for the acts or defaults of the PTP in respect of the regulated activities concerned.
  • 01/12/2001

COB 11.6.6

handbook-rule
The trustee firm must notify the FSA within 14 days of it delegating any regulated activity to a PTP and the notification must include the identity of the PTP.
  • 01/12/2001

COB 11.6.7

handbook-guidance
Trustee firms are reminded that permitted third party is defined as being either: (a) an authorised person; (b) an exempt person for whom an authorised person is accepting responsibility; or (c) a person lawfully carrying on a regulated activity in another EEA State.
  • 01/12/2001

COB 11.6.8

handbook-guidance
Trustee firms may delegate to persons other than permitted third parties under general principles of law and subject to the FSA's rules.
  • 01/12/2001

COB 11.6.9

handbook-guidance
The rules permitting use of a PTP do not absolve the trustee firm from the need to comply with any restrictions on delegation or the manner of delegation derived from trust law or from the trust instrument. The rules do not affect the trustee firm's position under the general law, including the law of agency.
  • 01/12/2001

COB 11.7

Record Keeping

  • 01/12/2004

COB 11.7.1

handbook-rule
  1. (1) A firm must make a record of any written delegation to a PTP under COB 11.6.1 R (1) and of the PTP's undertaking under COB 11.6.1 R (2) and of any variation of those documents.
  2. (2) A record in (1) must be retained for a period ending three years after the date on which the PTP's appointment ceases.
  • 01/12/2001

COB 11.7.2

handbook-guidance
COB 11.7.1 R obliges a trustee firm to keep records of any variations in the terms of the agreement occurring during the period of the PTP's appointment for three years from the date at which the appointment ends.
  • 01/12/2001

COB 11.8

Proper advice

  • 01/12/2004

COB 11.8.1

handbook-rule
A trustee firm must obtain and consider proper advice whenever it intends to exercise its power of investment, except where there are reasonable grounds for not doing so.
  • 01/12/2001

COB 11.8.2

handbook-guidance
Proper advice is advice from a person who is able to give it competently.
  • 01/12/2001

COB 11.8.3

handbook-guidance
There is no need to obtain proper advice where there are reasonable grounds not to do so, for example if the trustee firm is itself appropriately qualified to make the particular investment decision concerned or if the investment decision could be reasonably considered not to merit obtaining proper advice.
  • 01/12/2001

COB 11.8.4

handbook-guidance
COB 11.8 amplifies the requirements of section 6(2) of the Trustee Investments Act 1961 (or section 5 of the Trustee Act 2000 from the date on which that Act enters into force) and trustees' duties at common law.
  • 01/12/2001

COB 11.8.5

handbook-rule
A trustee firm must follow the proper advice received unless it is reasonable not to do so.
  • 01/12/2001

COB 11.8.6

handbook-guidance
A trustee firm which finds it necessary to seek proper advice would normally be expected to follow the advice received. However, there may be reasonable grounds to disregard the advice. For example, a trustee firm may be unable to follow proper advice because of restrictions arising from the trust instrument.
  • 01/12/2001

COB 11.8.7

handbook-rule
The trustee firm must make records to show compliance with COB 11.8.5 R and retain them for three years from the date on which the proper advice is received.
  • 01/12/2001

Export chapter as

COB 12

Lloyd's

COB 12.1

Application

  • 01/12/2004

COB 12.1.1

handbook-rule

This chapter applies to a firm when it carries on any of the following activities:

  1. (1) advising on syndicate participation at Lloyd's or agreeing to carry on that regulated activity;
  2. (2) managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's or agreeing to carry on that regulated activity;
  3. (3) carrying on designated investment business in relation to funds at Lloyd's;
  4. (4) communicating or approving a financial promotion in relation to:
    1. (a) the underwriting capacity of a Lloyd's syndicate; or
    2. (b) membership of a Lloyd's syndicate; or
    3. (c) effecting or carrying out life policies written at Lloyd's; or
    4. (d) any of the activities specified in (1) or (3).

COB 12.1.2

handbook-guidance
Underwriting agents should be aware that the Society's regulatory requirements remain applicable to them even if these requirements cover similar matters to the applicable COB provisions.
  • 01/12/2001

COB 12.1.3

handbook-guidance
This chapter does not affect the application of COB to a firm when carrying on activities other than those specified in COB 12.1.1 R.
  • 01/12/2001

COB 12.1.4

handbook-guidance
The Society is itself also required to comply with the requirements of INSPRU which contains rules and guidance in respect of areas where COB provisions also have relevance. In particular INSPRU 8.4.3 R places a requirement on the Society to make appropriate byelaws governing conduct in the capacity transfer market.

Purpose

COB 12.1.5

handbook-guidance
The purpose of this chapter is to protect the interests of members or potential members and policyholders or potential policyholders.
  • 01/12/2001

COB 12.1.6

handbook-guidance
This chapter provides rules that apply to firms when carrying on the activities in COB 12.1.1 R. Rules from other chapters are modified for this purpose. These COB provisions will apply to the activities of members' agents, members' advisers, the Society, managing agents (in some circumstances) and to any other authorised person undertaking any of the activities specified in COB 12.1.1 R.
  • 01/12/2001

Rules of general application

COB 12.1.7

handbook-rule
  1. (1) When a firm is carrying on any of the activities specified in COB 12.1.1 R (1), COB applies in full, except to the extent disapplied under COB 12.1.14 R.
  2. (2) COB does not apply to a firm when carrying on the activity specified in COB 12.1.1 R (2), except as specified in COB 12.1.15 R.
  3. (3) COB 3 applies to a firm when carrying on the activity specified in COB 12.1.1 R (4).
  • 01/12/2001

COB 12.1.8

handbook-guidance
Firms subject to the financial promotion rules under COB 12 are also reminded that syndicate business plans may be used in ways that bring them within the definition of a financial promotion. In such cases the financial promotion rules will apply, in particular COB 3.6 (Confirmation of compliance), COB 3.7 (Records) and COB 3.8 (Form and content of financial promotions).
  • 01/12/2001

COB 12.1.9

handbook-guidance
A firm which provides advice to a person on a transaction in the capacity transfer market will be carrying on the activity specified in COB 12.1.1 R (1) and will be subject to COB, as specified in COB 12.1.7 R (1) in respect of that activity.
  • 01/12/2001

COB 12.1.10

handbook-guidance
COB does not apply to a firm when carrying on the regulated activity of arranging (bringing about) deals in investments that relate to the underwriting capacity of a Lloyd's syndicate or membership of a Lloyd's syndicate.
  • 01/12/2001

COB 12.1.11

handbook-rule
A firm carrying on the activity specified at COB 12.1.1 R (1) must, in addition to meeting the requirements of COB 5, take reasonable steps to ensure that it does not advise a potential member who is a private customer to become a member of a syndicate unless membership of the Society itself is suitable for the private customer having regard to the facts disclosed by him and other relevant facts about the private customer of which the firm is or reasonably should be aware.
  • 01/12/2001

Definitions and modifications

COB 12.1.12

handbook-rule

When a firm is carrying on activities to which this chapter applies, any reference in COB to the term:

  1. (1) "designated investment" is to be taken to include the following specified investments:
    1. (a) the underwriting capacity of a Lloyd's syndicate;
    2. (b) membership of a Lloyd's syndicate; and
    3. (c) rights to or interests in the specified investments in (a) or (b);
  2. (2) "designated investment business" is to be taken to include the following regulated activities:
    1. (a) advising on syndicate participation at Lloyd's;
    2. (b) managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's; and
    3. (c) agreeing to carry on the regulated activities in (a) or (b).
  • 01/12/2001

COB 12.1.13

handbook-rule
When a firm is carrying on activities to which this chapter applies, any reference in COB to the term customer is to be taken to refer to a member or potential member except in the case of COB 6.7 (Cancellation and withdrawal) to COB 6.8 (Insurance Contracts: life and general) where it refers to a policyholder or potential policyholder.
  • 01/12/2001

COB 12.1.14

handbook-rule

This table disapplies parts of COB to a firm when carrying on the activities to which COB 12.1.7 R (1) relates.

  • 01/01/2004

COB 12.1.15

handbook-rule

This table applies COB to firms when carrying on the activity to which COB 12.1.7 R (2) relates except where ICOB applies in relation to non-investment insurance contracts.

COB 12.1.16

handbook-guidance
The tables at COB 12.1.17 G to COB 12.1.21 G are provided to help firms when carrying on those activities to which this chapter applies locate those rules that are particularly relevant to their activities. Firms should be aware that these tables may not include all rules which apply to an individual firm as these will vary depending on the firm's particular circumstances and that there may be other rules that apply.

COB 12.1.17

handbook-guidance

Location of rules of general application to firms when carrying on activities to which this chapter applies.

This table forms part of COB 12.1.16 G.

  • 01/12/2001

COB 12.1.18

handbook-guidance

Location of rules of particular relevance to a firm when advising on syndicate participation at Lloyd's.

This table forms part of COB 12.1.16 G.

  • 01/12/2001

COB 12.1.19

handbook-guidance

Location of rules of particular relevance to a firm when carrying on designated investment business in relation to funds at Lloyd's.

This table forms part of COB 12.1.16 G.

  • 01/12/2001

COB 12.1.20

handbook-guidance

Location of rules of particular relevance to a firm managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's.

This table forms part of COB 12.1.16 G.

COB 12.1.21

handbook-guidance

Location of rules of particular relevance to a firm when communicating or approving financial promotions in relation to the investments and activities specified at COB 12.1.1 R (4).

This table forms part of COB 12.1.16 G.

  • 01/12/2001

Export chapter as

COB App 1

Appendix 1

COB App 1.1

Required information for certain terms of business, key features, simplified prospectuses and direct offer financial promotions

COB App 1.1.1

handbook-rule

Required information

This table belongs to COB 3.9.6 R, COB 4.2.10 R, COB 6.2.16 R, COB 6.2.18R, COB 6.2.41R, COB 6.2.47R, COB 6.4.13R, COB 6.4.25R, COB 6.4.27R, COB 6.5.2R(6), COB 6.5.42R to COB 6.5.44R.

Export chapter as

Transitional Provisions and Schedules

COB TP 1

Transitional Rules for pre-N2 and ex-Section 43 firms at N2

COB TP 1.1
COB TP 1.2

COB TR 1

COB TP 1.3

COB TR 2: Rules benefiting from transitional relief (pre-N2 and ex-section 43 firms) G

This Table belongs to COB TP 1.2

COB TP2

Client classification transitional provisions at N2

COB TP 2.1

COB TR 3: Client Classification Provisions

  • 01/04/2005

COB TP3

Transitional Rules for ex-RPB firms

COB TP 3.1
COB TP 3.2

COB TR 4: COB Transitional Provisions (for ex-RPB firms)

COB TP 3.3

COB TR 5: COB rules benefiting from transitional relief for ex-RPB firms

This Table belongs to COB TR 4

  • 01/04/2005

COB TP 4

Miscellaneous transitional provisions applying to all firms

COB TP 4.4

COB TP5

Distance Marketing Directive transitional rules (applicable to all firms)

COB TP 5.1
  • 01/04/2005

COB TP6

Transitional rules for depolarisation (applicable to all firms)

COB TP 6.1

COB TP7

Transitional rules for carrying on with-profits business

COB TP 7.1
  • 01/04/2005

COB Sch 1

Record keeping requirements

  • 01/12/2004

COB Sch 1.1

handbook-guidance
  • 31/10/2004

COB Sch 1.2

handbook-guidance
  • 31/10/2004

COB Sch 1.3

handbook-guidance

COB Sch 2

Notification requirements

  • 01/12/2004

COB Sch 2.1

handbook-guidance

COB Sch 3

Fees and other required payments

  • 01/12/2004

COB Sch 3.1

handbook-guidance
  • 01/12/2004

COB Sch 4

Powers Exercised

  • 01/12/2004

COB Sch 4.1

handbook-guidance

COB Sch 5

Rights of actions for damages

  • 01/12/2004

COB Sch 5.1

handbook-guidance
  • 19/01/2003

COB Sch 5.2

handbook-guidance
  • 19/01/2003

COB Sch 5.3

handbook-guidance
  • 19/01/2003

COB Sch 5.4

handbook-guidance

COB Sch 6

Rules that can be waived

  • 01/12/2004

COB Sch 6.1

handbook-guidance
  • 01/09/2002

Export chapter as

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