Part

COB Conduct of Business

Chapter

General application

Printed on: 13/12/2024

Rulebook at: 31/12/2006

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.
  • 01/07/2005

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.
  • 01/12/2004

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.
  • 01/07/2005

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) regulated mortgage 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.
  • 05/04/2006

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 regulated mortgage activity.
  8. (8) ICOB applies to a firm in relation to insurance mediation activities in connection with non-investment insurance contracts.
  • 14/01/2005

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.
  • 01/07/2006

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.
  • 06/10/2006

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.
  • 14/01/2005

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.
  • 06/10/2006

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

  • 01/07/2006

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

  • 01/07/2006

COB 1.6.5

handbook-guidance
Firms should, when relevant, make reference to MAR 4 (Endorsement of the Takeover Code). The effect of this endorsement in MAR 4, is that, should a firm to whom the endorsement applies fail to comply with the City Code on Takeovers and Mergers ('Takeover Code'), the Rules Governing Substantial Acquisition of Shares ('SARs') or rulings or requirements made by the Takeover Panel, the Takeover Panel can request the FSA to take enforcement action against that firm.
  • 01/12/2001

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

  • 01/07/2005

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.

  • 01/12/2004

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, pension contract 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.
  • 09/10/2004

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

  • 01/12/2004