Financial promotion

Part

COB Conduct of Business

Chapter

Financial promotion

Printed on: 22/12/2024

Rulebook at: 30/06/2005

COB 3

Financial
promotion

COB 3.1

Application: who?

01/12/2004

Firms

COB 3.1.1

This chapter applies to every firm (other than an ICVC) which communicates or approves a financial promotion.

01/12/2001

COB 3.1.2

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) financial promotions for deposits, general insurance contracts, pure protection contracts, reinsurance contracts and regulated mortgage contracts;
(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) financial promotions to persons outside the United Kingdom.

31/10/2003

Appointed representatives

COB 3.1.3

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

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

(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:

(a) the firm's main business must be the practice of its profession IPRU(INV) 2.1.2R (3));
(b) the financial promotion must be made for the purposes of and incidental to the promotion or provision by the firm of:

(i) its professional services; or
(ii) its non-mainstream regulated activities (see PROF 5.2); and

(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) In (1)(b)(i), "professional services" means services:

(a) which do not constitute a regulated activity; and
(b) the provision of which is supervised and regulated by a designated professional body.

20/09/2001

COB 3.1.6

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

(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 AUTH App 1 (Financial promotion and related activities) and that guidance will be relevant to interpreting these rules. In particular, guidance on the meaning of:

(a) "communicate" is in AUTH App 1.6 (Communicate);
(b) "invitation or inducement" and "engage in investment activity" (two elements which, with "communicate", make up the definition of "financial promotion") is in AUTH App 1.4 (Invitation and inducement) and AUTH App 1.7 (Engage in investment activity).

(2) Guidance on the "approval" of a financial promotion is in COB 3.12.1 G (Approval of financial promotions).

01/06/2002

Media of communication

COB 3.2.2

(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) Financial promotions may be communicated, for example, by means of:

(a) product brochures;
(b) general advertising in magazines, newspapers, radio and television programmes and websites;
(c) mailshots (whether distributed by post, facsimile, e-mail or other media);
(d) telemarketing activities, such as telephone calls made by call centres;
(e) written correspondence, telephone calls and face to face discussions including by representatives;
(f) sales aids which themselves constitute a financial promotion;
(g) presentations to groups of individuals;
(h) tip-sheets; and
(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

(1) To the extent that a financial promotion relates to:

(a) a deposit; or
(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;

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
(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.

14/01/2005

Financial promotions for regulated mortgage contracts

COB 3.2.3A

This chapter does not apply to a firm to the extent that a financial promotion is a qualifying credit promotion (but see MCOB 3 (Financial promotions)).

31/10/2003

Financial promotions for non-investment insurance contracts

COB 3.2.3B

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

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) if the financial promotion relates to an unregulated collective investment scheme, COB 3.11 (Unregulated collective investment schemes) applies;
(2) (except where COB 3.2.3 R applies) if the firm approves the financial promotion, the following apply:

(a) COB 3.1 to COB 3.5 (Application, General and Purpose).
(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;
(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) (except where COB 3.2.3 R applies) if the firm:

(a) approves a specific non-real time financial promotion relating to an investment or service of an overseas person; and
(b) the financial promotion is exempt under any of COB 3.2.5 R;

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

Exemptions

This table belongs to COB 3.2.4 R

Exemptions

This chapter does not apply to the following:

(1)

a financial promotion to a market counterparty or an intermediate customer, that is a financial promotion which:

(a)

is made only to recipients who the firm has taken reasonable steps to establish are market counterparties or intermediate customers; or

(b)

may reasonably be regarded as directed only at recipients who are market counterparties or intermediate customers;

when a person is classified as an intermediate customer under COB 4.1.9 R (Expert private customer classified as intermediate customer), this exemption applies only for a financial promotion that relates to the designated investments or designated investment business for which he has been so classified;

(2)

a financial promotion which can lawfully be communicated by an unauthorised person without approval;

(3)

a financial promotion communicated from outside the United Kingdom which would be exempt under articles 30, 31, 32 or 33 of the Financial Promotion Order (Overseas communicators) if the office from which the financial promotion is communicated were a separate unauthorised person (but see COB 5.5.7 R (Overseas business for UK private customers) and GEN 4.4 (Business for private customers from non-UK offices));

(4)

a "one-off" non-real time financial promotion or a "one-off" solicited real time financial promotion; if the conditions set out in (a) to (c) are satisfied, a financial promotion is to be regarded as "one-off"; if not, the fact that any one or more of these conditions is met is to be taken into account in determining if a financial promotion is "one-off", but a financial promotion may be regarded as "one-off" even if none of the conditions are met; the conditions are that :

(a)

the financial promotion is communicated only to one recipient or only to one group of recipients in the expectation that they would engage in any investment activity jointly;

(b)

the identity of the product or service to which the financial promotion relates has been determined having regard to the particular circumstances of the recipient ;

(c)

the financial promotion is not part of an organised marketing campaign;

(5)

a financial promotion which contains only one or more of the following:

(a)

the name of the firm (or its appointed representative);

(b)

the name of an investment;

(c)

a contact point (address (including an e-mail address), telephone or facsimile number);

(d)

a logo;

(e)

a brief, factual description of the firm's (or its appointed representative) activities;

(f)

a brief, factual description of the firm's (or its appointed representative's) fees;

(g)

a brief, factual description of the firm's investment products;

(h)

the price or yields of investments and the charges;

(6)

a personal quotation or illustration form;

(7)

a financial promotion which is subject to the Takeover Code or the SARs (or exempted from complying with the Takeover Code or the SARs by that Code , those rules , or by a ruling of the Takeover Panel ) or to the requirements relating to takeovers or related operations in another EEA State;

(8)

a financial promotion in the form of a decision tree for a stakeholder pension scheme, provided the text, content and format of the decision tree comply with the requirements of COB 6.5.8.

01/03/2003

Combination of exemptions

COB 3.2.6

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

(1) Under (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)

(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 AUTH App 1 (Financial promotion and related activities).
(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) In COB 3.2.5 R:

(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. AUTH App 1.14.3 G (One-off financial promotions (articles 28 and 28A)) provides further guidance on the scope of the exemption in article 28.
(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). AUTH App 1.4.20 G (Image advertising) provides guidance on when image advertising may involve a financial promotion.
(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). AUTH App 1.4.13 G (Publication or broadcast of prices of investments (historic or live)) provides guidance on when the display of prices may involve a financial promotion.
(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) A company's annual report and accounts issued in accordance with a requirement of the Companies Act 1985 (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. AUTH App 1.21.11 G (Article 59: Annual accounts and directors' report) provides further guidance on the scope of the exemption in article 59.
(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 AUTH App 1.12.2 G (Financial promotions to overseas recipients (article 12))).
(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 AUTH App 1.20 (Additional restriction on the promotion of collective investment schemes)).

01/04/2005

Other Handbook rules relevant to financial promotions

COB 3.2.8

(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) 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) 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.

06/04/2005

COB 3.3

Application: where?

01/12/2004

Territorial scope

COB 3.3.1

This chapter applies to a firm only in relation to:

(1) the communication of a financial promotion to a person inside the United Kingdom;
(2) the communication of an unsolicited real time financial promotion to a person outside the United Kingdom, unless:

(a) it is made from a place outside the United Kingdom; and
(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) 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

(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) 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 AUTH App 1.12.2 G (Financial promotions to overseas recipients (article 12)), the exemptions for overseas communicators (see COB 3.2.5 R(3) and AUTH App 1.14.14 G (Overseas communications (articles 30 to 33)) and the exemption for incoming electronic commerce communications (see AUTH App 1.12.38 G (article 20B)).
(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.

01/06/2002

Exceptions to territorial scope: rules without territorial limitation

COB 3.3.3

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

(1) COB 3.11 (Unregulated collective investment schemes);
(2) if a firm approves a financial promotion:

(a) COB 3.1 to COB 3.5 (Application, General and Purpose);
(b) COB 3.8.4 R (1) (Non-real time financial promotions: clear, fair and not misleading);
(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

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

(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) The conditions are that:

(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;
(b) either that EEA State:

(i) has implemented the DMD; or
(ii) has obligations in its domestic law corresponding to those provided for by the DMD;

(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
(d) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.

(3) The rules which continue to apply, notwithstanding this rule, are:

(a) COB 3.8.4 R (Non-real time financial promotions: clear, fair and not misleading; comparisons; restriction of information on compensation);
(b) COB 3.8.22 R (1) and (2) (Real time financial promotions);
(c) COB 3.9.5 R (Prohibited types of direct offer financial promotion);
(d) COB 3.10 (Unsolicited real time financial promotions);
(e) COB 3.11 (Unregulated collective investment schemes and qualified investor schemes); and
(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

For the purposes of this chapter:

(1) a financial promotion is communicated to a person outside the United Kingdom if it is:

(a) made to a person who receives it outside the United Kingdom; or
(b) directed only at persons outside the United Kingdom; and

(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

(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) 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) 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) The conditions are that:

(a) the financial promotion is accompanied by an indication that it is directed only at persons outside the United Kingdom;
(b) the financial promotion is accompanied by an indication that it must not be acted upon by persons in the United Kingdom;
(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 or on behalf of the same person;
(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;
(e) the financial promotion is included in:

(i) a website, newspaper, journal, magazine or periodical publication which is principally accessed in or intended for a market outside the United Kingdom;
(ii) a radio or television broadcast or teletext service transmitted principally for reception outside the United Kingdom.

01/12/2001

COB 3.4

Purpose

01/12/2004

COB 3.4.1

(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:

(a) he is an authorised person; or
(b) the content of the financial promotion is approved by an authorised person.

(2) However, the Financial Promotion Order exempts from the restriction created by section 21(1) of the Act certain types of financial promotion.
(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 AUTH App 1.20 (Additional restriction on the promotion of collective investment schemes).

01/06/2002

COB 3.4.2

(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. AUTH App 1 (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) This chapter amplifies, for activities within its scope:

(a) Principle 6 (Customers' interests) which requires a firm to pay due regard to the interests of its customers and treat them fairly; and
(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.

01/06/2002

COB 3.5

General

01/12/2004

Topics covered in this chapter

COB 3.5.1

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

Areas of particular relevance to types of financial promotion.

This table belongs to COB 3.5.1 G

Areas of particular relevance to types of financial promotion

(1)

Provisions applying to all financial promotions

Application - who?

Application - what?

Application - where?

Purpose

General

(2)

Provisions applying only to non-real time financial promotions

Confirmation of compliance

COB 3.6

Records

COB 3.7

Form and content of financial promotions: non-real time financial promotions

COB 3.8.2 R to COB 3.8.7 G

Form and content of financial promotions: specific non-real time financial promotions

COB 3.8.8 R to COB 3.8.20 G

(3)

Provisions applying only to real time financial promotions

Form and content of financial promotions: real time financial promotions

COB 3.8.21 G to COB 3.8.25 G

Unsolicited real time financial promotions

COB 3.10

(4)

Provisions applying only to certain types of financial promotions

Direct offer financial promotions

COB 3.9

Unregulated collective investment schemes

COB 3.11

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

COB 3.12

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

COB 3.13

The internet and other electronic media

COB 3.14

01/12/2001

Other regulations and guidelines

COB 3.5.3

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

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

01/05/2004

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

COB 3.5.4

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 AUTH App 1.10 (Types of financial promotion).

01/06/2002

COB 3.5.5

(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) 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) The following are to be regarded as indications that a financial promotion is a non-real time financial promotion:

(a) the financial promotion is communicated to more than one person in identical terms (save for details of the recipient's identity);
(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;
(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

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

(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) 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) 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

(1) This rule applies for the purposes of determining whether a communication is directed:

(a) only at market counterparties or intermediate customers under COB 3.2.5 R; or
(b) in a way that complies with paragraph 2(b) in COB 3 Annex 5 R.

(2) If all the conditions set out in (4) are met, a communication is to be regarded as directed as in (1).
(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) The conditions are that:

(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;
(b) the communication includes an indication that persons of any other description should not rely upon it;
(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

(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) 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

(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) 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

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) ceasing to communicate it;
(2) withdrawing its approval (if applicable); and
(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

(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) 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) 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

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) 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) 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) so far as A is, or ought reasonably to be, aware:

(a) the financial promotion has not ceased to be clear, fair and not misleading since that time; and
(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

(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) A record in (1) must be retained for the following periods:

(a) indefinitely in the case of a financial promotion relating to a pension transfer, pension opt-out or FSAVC;
(b) six years in the case of a financial promotion relating to a life policy, pension contract or stakeholder pension scheme;
(c) three years in any other case.

01/12/2001

Content of records

COB 3.7.2

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

01/12/2001

COB 3.7.3

(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) Records which should be retained include:

(a) any written financial promotion used by a representative;
(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) 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

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

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

This section applies as follows:

(1) COB 3.8.2 R to COB 3.8.20 G 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.

01/12/2001

Non-real time financial promotions: name and contact point

COB 3.8.2

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

(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) 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) 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

(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) A non-real time financial promotion which includes a comparison or contrast must:

(a) compare investments or services meeting the same needs or which are intended for the same purpose;
(b) objectively compare one or more material, relevant, verifiable and representative features of those investments or services, which may include price;
(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;
(d) not discredit or denigrate the trademarks, trade names, other distinguishing marks, investments, services, activities or circumstances of a competitor;
(e) not take unfair advantage of the reputation of a trademark, trade name or other distinguishing marks of a competitor;
(f) not present investments or services as imitations or replicas of investments or services bearing a protected trademark or trade name; and
(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) 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

(1) A firm should take reasonable steps to ensure that, for a non-real time financial promotion:

(a) its promotional purpose is not in any way disguised or misrepresented;
(b) any statement of fact, promise or prediction is clear, fair and not misleading and discloses any relevant assumptions;
(c) any statement of opinion is honestly held and, unless consent is impracticable, given with the consent of the person concerned;
(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.
(e) it does not contain any false indications, in particular as to:

(i) the firm's independence;
(ii) the firm's resources and scale of activities; or
(iii) the scarcity of any investment or service;

(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;
(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));
(h) it does not omit any matters the omission of which causes the financial promotion not to be clear, fair and not misleading; and
(i) the accuracy of all material statements of fact in it can be substantiated.

(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).
(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

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

14/01/2005

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

COB 3.8.7

(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)

(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.
(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. Firms should note that COB 6.5.40 R (3)(m) requires specific information to be included in the key features of an authorised fund in respect of any guarantee or other arrangement intended to result in a particular capital or income return from a holding of units or shares in that authorised fund and in respect of any investment objective of giving protection to the capital value or income return from such a holding. CIS 3.5.2 R 26 requires similar information to be contained in the prospectus of an authorised fund. CIS 2.7.2 G contains guidance on when the name of an authorised fund should not include the word "guaranteed".
(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) 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:

(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;
(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);
(c) a statement of the amount of authorised share capital of a company without the amount of the issued share capital;
(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;
(e) an implication that the assets of a whole group can be drawn on by a subsidiary when this is not the case;
(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) In relation to quotations of opinion:

(a) where only part of an opinion is quoted, it should nevertheless be a fair representation;
(b) any connection between the holder of the opinion and the firm should be made clear.

(5) Firms should note that the "return" on an investment is the gain or profit; it does not include the original capital invested.
(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.

01/06/2004

Specific non-real time financial promotions: general requirements

COB 3.8.8

A specific non-real time financial promotion must;

(1) include a fair and adequate description of:

(a) the nature of the investment or service;
(b) the commitment required;
(c) the risks involved; and

(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

(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) 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) In giving a fair and adequate explanation of the investment or service being promoted firms should avoid:

(a) accentuating the potential benefits of an investment without also giving a fair indication of the risks;
(b) failing to describe any benefits under a life policy which are not fixed;
(c) drawing attention to favourable tax treatment without stating that this might not continue in the future; and
(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.
(e) using prominent headline rates of return where these rates are unrealistic and unlikely to be obtained by most investors.

(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) 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) 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:

(a) the securities are

(i) listed in the United Kingdom under Chapter 21 of the listing rules (Investment entities); or
(ii) issued by an investment trust and listed in an EEA State other than the United Kingdom;

(b) the issuer of the securities in (a):

(i) uses or proposes to use gearing as an investment strategy; or
(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

(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) In giving a fair and adequate explanation of the risk involved, firms should, where relevent:

(a) have regard to the provisions in COB 5.4.12 E and COB 5.4.13 G; and
(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) 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.

01/01/2004

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

COB 3.8.10

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) has or may have a position or holding in the investment concerned or in a related investment; or
(2) has or may have a material interest in any investment concerned, and the nature and extent of that interest; or
(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) 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

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) suitable text which states unambiguously, and without reservation, that past performance should not be seen as an indication of future performance:

(a) that is specifically designed for the type of financial promotion concerned and its target audience; and
(b) which is presented legibly in the main text of the financial promotion; and

(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

(1) The purpose of COB 3.8.11 R is to:

(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
(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) 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:

(a) an unfair comparison with the performance of another type of investment;
(b) the selection of an inappropriate or irrelevant investment period;
(c) the selection of an unreasonably short time period;
(d) the selection of inconsistent time periods for a range of funds;
(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) 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) 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) 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:

(a) the period of time to which the past performance information relates;
(b) where relevant, the fact that this information may not be current; and
(c) if (b) applies, an explanation of where up-to-date past performance information may be found.

(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) 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) 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

(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:

(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
(b) in the case of a packaged product which is not within (a) that:

(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
(ii) has a fixed term, the performance over the whole period of the product term;

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).
(2) The information included in accordance with COB 3.8.13 R (1) should be no less prominent than any other past performance information.
(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).
(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.
(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).

01/05/2005

COB 3.8.13A

Specimen table of disclosure of discrete past performance.

This table belongs to COB 3.8.13 R.

Percentage growth

[Fund name]

Quarter/Year - Quarter/Year pgr%

Notes:
1. The table must show performance information for five (or if performance information for fewer than five is available, all) complete 12-month periods, the most recent of which ends with the last full quarter preceding the date on which the firm confirms compliance with the rules in this chapter under COB 3.6.1 R.
2. For products with performance data for less than five 12-month periods, firms should clearly indicate that performance data does not exist for the relevant periods.
3. No allowance must be made for tax recoveries on income for pension contracts, individual savings accounts or PEPs.
4. pgr is the percentage growth rate for the year, where:
pgr = ((P1 - P0)/PO)*100 and rounded to the nearest 0.1%, with exact 0.05% rounded to the nearest even 0.1%; and where P0 is the price at the start of the 12-month period and P1 is the price on the same day in the following 12-month period.
5. The prices must allow for any net distributions to be reinvested.
6. The price at P1 must be adjusted for any charges since the date of P0 which are based on a proportion of the fund and are levied by the cancellation of units.

01/06/2004

COB 3.8.14

(1) The information required by COB 3.8.13 R (1)(b) should be given on:

(a) an offer to bid basis (which should be stated) where there is an actual return or comparison of performance with other investments; or
(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
(c) a single pricing basis with allowance for charges.

(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) 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

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

01/06/2004

COB 3.8.16

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

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

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

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

(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:

(a) the whole market (or from the whole of a named sector of the market); or
(b) a limited number of product providers; or
(c) a single product provider.

(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:

(a) that holds out any person other than A as the packaged product producer; or
(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
(c) in which the prominence of A's brand is less than that of other brands included in the promotion.

06/04/2005

COB 3.8.20

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

Real time financial promotions

COB 3.8.21

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

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

(1) does so in a way which is clear, fair and not misleading;
(2) does not make any untrue claims;
(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) if the time and method of communication were not previously agreed by the recipient:

(a) checks that the recipient wishes him to proceed;
(b) terminates the communication if the recipient does not wish him to proceed (but may ask for another appointment);
(c) recognises and respects, promptly, the right of the recipient to:

(i) end the communication at any time; and
(ii) refuse any request for another appointment;

(5) gives any recipient with whom he arranges an appointment a contact point;
(6) does not communicate with a person:

(a) at an unsocial hour, unless the person has previously agreed to such a communication;
(b) on an unlisted telephone number, unless the person has previously agreed to such calls on that number;

(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).

06/04/2005

COB 3.8.23

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

The requirements of COB 3.8.22 R:

(1) apply in respect of all individuals who initiate the communication, including representatives, call centre operators and introducers;
(2) apply to all forms of real time financial promotion, including face to face and telephone financial promotion;
(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

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

This section applies to a firm which communicates or approves a direct offer financial promotion.

01/12/2001

COB 3.9.2

(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) COB 3.8.2 R to COB 3.8.20 G also apply to direct offer financial promotions.
(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

Location of the provisions applicable to direct offer financial promotions

This table belongs to COB 3.9.2 G

(1)

Exemptions for deposits, pure protection contracts which are long-term insurance contracts and reinsurance contracts

COB 3.9.4 G

(2)

Prohibited types of direct offer financial promotions

COB 3.9.5 R

(3)

Direct offer financial promotions: general requirements

COB 3.9.6 R

(3A)

Contractual terms and conditions for distance contracts

COB 3.9.7A R

(4)

Cash deposit ISAs

COB 3.9.8 R

(5)

Electronic media

COB 3.9.9 G

(6)

Packaged products

COB 3.9.10 R to COB 3.9.11 G

(7)

Execution-only dealing service

COB 3.9.12 R to COB 3.9.13 G

(8)

Potential problem areas

COB 3.9.14 G

(9)

Information to be contained in direct offer financial promotions regarding:

COB 3.9.14 G

(a)

investments which can fluctuate in value

COB 3.9.15 R

(b)

life policies

COB 3.9.18 R

(c)

taxation

COB 3.9.19 R to COB 3.9.20 R

(d)

EIS or non-packaged products, ISAs or PEPs with no right of withdrawal

COB 3.9.21 R

(e)

charges for regulated collective investment schemes

COB 3.9.23 R

(f)

penny shares

COB 3.9.24 R

(g)

branded funds

COB 3.9.25 R

(h)

Enterprise Investment Schemes

COB 3.9.26 R to COB 3.9.28 R

(i)

income withdrawals

COB 3.9.29 R

(j)

structured capital-at-risk products

COB 3.9.31 R

(k)

CTFs

COB 3.9.8 R
COB 3.9.30 R

14/01/2005

Exemptions

COB 3.9.4

Firms are reminded that under COB 3.2.3 R:

(1) COB 3.9 does not apply to a direct offer financial promotion relating to:

(a) a deposit (except a cash deposit ISA or cash deposit CTF); or
(b) a pure protection contract which is a long-term care insurance contract or reinsurance contracts; and

(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.

14/01/2005

Prohibited types of direct offer financial promotion

COB 3.9.5

(1) A direct offer financial promotion must not relate to a broker fund.
(2) A direct offer financial promotion must not relate to:

(a) a derivative; or
(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

(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) In particular, a direct offer financial promotion must contain:

(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);
(b) where it is the case that no advice on investments has been given, a prominent statement that:

(i) no advice on investments has been given; and
(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).

(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;
(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

(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) Exemption: means of distance communication
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.
(3) Exemption: successive or separate operations under an initial service agreement
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)).
(4) Exemption: other successive or separate operations
This exemption applies if:

(a) the firm has no initial service agreement with the retail customer;
(b) the firm has performed an operation with the retail customer within the last year; and
(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

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

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

(1) A direct offer financial promotion relating to a packaged product other than a simplified prospectus scheme must contain the information required by COB 6.5.2 R (1), (3) and (5) as applicable (Contents of key features).
(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). and where a projection has to be provided in accordance with COB 6.2.43R (1) (Projection for simplified prospectus scheme), the required contents of that projection.

01/05/2005

COB 3.9.11

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.

01/05/2005

Execution-only dealing services

COB 3.9.12

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) 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) 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

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

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

(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) 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

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

Examples of explanations which could meet COB 3.9.15 R are:

(1) 'You are not certain to make a profit; you may lose money/make a loss';
(2) 'You may not get back the full amount of your investment';
(3) (for investment income): 'The income is not fixed - it can go up or down';
(4) (for contingent liabilities): 'You could lose all the money you invested and you may have to pay more later';
(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) (for property funds):

(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';
(b) 'The value of property is generally a matter of a valuer's opinion rather than fact';

(7) (for an Enterprise Investment Scheme):

(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';
(b) 'These are unquoted securities which may have more risks than quoted securities or shares';
(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';
(d) 'Proper information for working out the current value of investments may not be available';

(8) (for property enterprise trusts and Enterprise Zone Property Unit Trusts):

(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';
(b) 'There is no established market in this investment';
(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';
(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) (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) (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) (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) (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) (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) (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) (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

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

(1) which benefits (if any) are fixed amounts, and what those amounts are; and
(2) which benefits are not fixed amounts.

01/12/2001

COB 3.9.18A

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

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

A firm must include in a direct offer financial promotion:

(1) a warning that taxation levels, bases and (if relevant) reliefs can change;
(2) the assumed rate of taxation;
(3) (where taxation reliefs are mentioned) statements:

(a) distinguishing between reliefs which apply directly to investors and anyone else;
(b) that the reliefs are the ones which currently apply; and
(c) that the value depends upon the circumstances of the investor; and

(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

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

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

01/12/2001

Penny shares

COB 3.9.24

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

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

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

(1) the information specified in COB 3 Annex 2 R;
(2)

(a) either a copy of the prospectus; or
(b) if no prospectus is required by the POS Regulations 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) 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) a prominent explanation of any right to withdraw (under COB 6.7) or, where it is the case, that such rights will not apply.

01/12/2001

COB 3.9.27

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) assets and liabilities;
(2) financial position;
(3) profits and losses;
(4) prospects; and
(5) rights attaching to the EIS shares.

01/09/2003

COB 3.9.28

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

COB 3.9.29

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

(1) taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is taken; this could result in a lower income when the annuity is eventually purchased;
(2) the investment returns may be less than those shown in the illustrations;
(3) annuity rates may be at a worse level when annuity purchase eventually takes place; and
(4) if the maximum withdrawals permitted by HM Revenue and Customs regulations are to be taken, high income withdrawals may not be sustainable during the deferral period.

21/04/2005

Child trust funds

COB 3.9.30

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

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) an explanation of the types of capital-at-risk products generally available and how they would typically work;
(2) an explanation of the risks associated with investing in these capital-at-risk products;
(3) details of the key issues that consumers should consider before investing in a capital-at-risk product; and
(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

(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:

(a) reference to the different risk profiles of generally available capital-at-risk products when compared with capital secure products such as deposits;
(b) reference to the fact that, because of the risk to capital, capital-at-risk products should only form part of an investment portfolio;
(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
(d) contact details for the FSA's consumer helpline and website.

(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) 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

(1) An unsolicited real time financial promotion is a real time financial promotion which is not solicited as described in (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:

(a) was initiated by the recipient of the financial promotion; or
(b) takes place in response to an express request from the recipient of the financial promotion;

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.
(3) In (2), a person is not to be treated as expressly requesting a call, visit or dialogue:

(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;
(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.

(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

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 AUTH App 1.10 (Types of financial promotion).

01/06/2002

Restriction of unsolicited real time financial promotions

COB 3.10.3

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

(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) the financial promotion relates to a generally marketable packaged product which is not:

(a) a higher volatility fund; or
(b) a life policy with a link (including a potential link) to a higher volatility fund; or

(3) the financial promotion:

(a) relates to a controlled activity to be carried on by an authorised person or exempt person; and
(b) the only controlled investments involved or which reasonably could be involved are:

(i) readily realisable securities (other than warrants); and
(ii) generally marketable non-geared packaged products.

01/12/2001

COB 3.10.4

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

(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) 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) 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) 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) AUTH App 1.20 (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).

01/03/2003

Exemptions from the scheme promotion restriction

COB 3.11.2

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

(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:

(a) the communication falls within COB 3 Annex 5 R; or
(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) 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

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) the communication is permitted by COB 3.11.2 R;
(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) 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

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

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

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

01/04/2004

COB 3.11.7

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

(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 AUTH App 1 (Financial promotion and related activities), in particular, AUTH App 1.9 (Circumstances where the restriction in section 21 does not apply).
(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:

(a) if COB 3.6.1 R applies, confirm that the financial promotion complies with the rules in this chapter; and
(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) 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) 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)).

01/06/2002

No approval of real time financial promotions

COB 3.12.2

A firm must not approve a real time financial promotion.

01/12/2001

Approval of financial promotions when not all the rules apply

COB 3.12.3

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

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

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

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) the financial promotion makes clear which firm has approved or communicated it and, where relevant, explains:

(a) that the rules made under the Act for the protection of private customers do not apply;
(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
(c) if the communicator wishes, the protection or compensation available under another system of regulation; and

(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

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

(1) A firm must not communicate or approve a financial promotion to enter into a life policy with a person who is not:

(a) an authorised person; or
(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
(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
(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
(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) The countries or territories referred to in (1)(e) are:

(a) the Bailiwick of Guernsey;
(b) the Isle of Man;
(c) the Commonwealth of Pennsylvania;
(d) the State of Iowa; and
(e) the Bailiwick of Jersey.

(3) For the purposes of (1), Gibraltar shall be regarded as if it were an EEA State.

01/12/2001

COB 3.13.2

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

(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) 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) 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

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) 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) 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) the registered office of any such trustee and of any investment manager and of his principal office (if different); and
(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:

(a) the full name of the overseas long-term insurer;
(b) the registered or head office in the United Kingdom; and,
(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

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) 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) if it also refers to other investments it must make this clear.

01/03/2003

COB 3.13.5

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) made immediately after the full name;
(2) alongside the full name; or
(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

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

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 AUTH App 1.22 (The Internet) for further guidance on financial promotions on the internet, including the treatment of hyperlinks and banners.

01/06/2002

COB 3.14.3

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) 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) 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

(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) 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

(1) Key features, simplified prospectus, initial disclosure document and written contractual terms

(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.
(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.
(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.
(d) Local printing of information by the user should be allowed, where feasible. Firms should endeavour to provide hard copy on request.

(2) Application forms

(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.
(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) 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) 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) 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) 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.

01/05/2005

COB 3 Annex 1

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

01/12/2004

This annex belongs to COB 3.2.7 G (2) and summarises some of the main exemptions in the Financial Promotion Order. It is not an exhaustive list, and does not seek to replace the Order itself. The first column contains the article number, and the name of the exemption as set out in the Financial Promotion Order, the second column indicates to which type of financial promotions the exemption applies (unsolicited real time, solicited real time or non-real time), the third column indicates to which controlled activities and controlled investments the exemption applies and the final column gives a brief summary of the principal conditions required by the exemption. In all cases, firms wishing to use an exemption should consult the Order and in particular take note of the conditions which apply.
References to articles are to articles of the Financial Promotion Order and to paragraphs are to paragraphs of Schedule 1 to the Financial Promotion Order. For non-investment insurance contracts, firms should refer to ICOB.

Article no. and name of exemption

Type of promotion: Unsolicited real time, solicited real time, non-real time

Controlled activity/controlled investment

Other conditions

16(2) Exempt persons

Unsolicited real time

All

Made by a person who is an appointed representative carrying on the business for which his principal has accepted responsibility for the purposes of section 39 of the periodic statement; and in relation to which the appointed representative is exempt from the general prohibition; and where the communication is one which, if made by the principal, would comply with the financial promotion rules relevant to a communication of that kind

17 Generic promotions

All

Does not identify (directly or indirectly) a person who provides the controlled investment to which the financial promotion relates; and does not identify directly or indirectly any person as a person who carries on a controlled activity in relation to that controlled investment

18 Mere conduits

All

Made by a person who acts as a mere conduit for it (other than electronic commerce communications)

18A Electronic commerce communications: mere conduits, caching and hosting

All

Where the making of the communication constitutes the provision of an information society service of a kind described as 'mere conduit', 'caching' or 'hosting' under the E-Commerce Directive and the conditions mentioned in the directive are met

19 Investment professionals

All

Made only to recipients whom the person making the communication believes on reasonable grounds to be investment professionals; or may reasonably be regarded as directed only at such recipients

20B Incoming electronic commerce communications

Non-real time

All

Incoming electronic commerce communications other than:
(1) a communication which constitutes an advertisement by the operator of a UCITS scheme of units in that scheme; or
(2) a communication consisting of an invitation or inducement to enter into a contract of insurance, where made by an undertaking with authorisation in accordance with article 6 of the First Life Directive or the First Non-Life Directive, and the insurance falls within the scope of any of the Insurance Directives; or
(3) an unsolicited communication made by electronic mail.

22 Deposits: non-real time communications

Non-real time

Accepting deposits within paragraph 1

Accompanied by information specified in article 22(2)

23 Deposits: real time communications

Real time

Accepting deposits within paragraph 1

None

24 Relevant insurance activity: non-real time communications

Non-real time

Effecting and carrying out contracts of insurance within paragraph 2 in relation to contracts of insurance other than life policies

Accompanied by information specified in article 24(2)

26 Relevant insurance activity: real time communications

Real time

Effecting and carrying out contracts of insurance within paragraph 2 in relation to contracts of insurance other than life policies

None

28 One-off non-real time communications and solicited real time communications

Solicited real time Non real time

Note 1

One-off communication

28A One-off unsolicited real time communications

Unsolicited real time

Note 1

One-off communication where the communicator believes on reasonable grounds that the recipient understands the risks associated with engaging in the investment activity to which the communication relates; and at the time that the communication is made the communicator believes on reasonable grounds that the recipient would expect to be contacted by him in relation to the investment activity to which the communication relates

38 Persons in business of placing promotional material

All

Note 1

Made to a person whose business it is to place, or arrange for the placing of, promotional material provided that it is communicated so that he can place or arrange for placing it

40 Participants in certain recognised collective investment schemes

Solicited real time Non-real time

Note 1

Made by a person who is the operator of a scheme recognised under section 270 or 272 of the Act; and to persons in the United Kingdom who are participants in any such recognised scheme operated by the person making the communication; and which relates only to such recognised schemes as are operated by that person or to units in such schemes

48 Certified high net worth individuals

Solicited real time Non-real time

Note 2

(1) Made to a
certified high net worth individual (as defined by article 48(2)); and (2) does not invite or induce the recipient to engage in investment activity with the person who signed the certificate of high net worth; and (3) accompanied by an indication of the matters specified by article 48(4).

49 High net worth companies, unincorporated associations etc

All

Note 1

Either:
(1) made only to recipients whom the person making the financial promotion believes on reasonable grounds to be persons to whom the conditions set out in the article apply; or
(2) may reasonably be regarded as directed only at such persons.

50 Sophisticated investors

All

Note 1

(1) Made to a certified sophisticated investor (as defined by article 50(1));
(2) does not invite or induce the recipient to engage in investment activity with the person who has signed the certificate;
(3) relates only to a description of investment in respect of which that investor is certified; and
(4) accompanied by an indication of the matters specified by article 50 (3)

51 Associations of high net worth or sophisticated investors

Solicited real time Non-real time

Note 1

(1) Made to an association, the membership of which the person making the financial promotion believes on reasonable grounds comprises wholly or predominantly persons who are certified high net worth individuals within article 48, high net worth persons within article 49(2)(a) to (d) and certified sophisticated investors within article 50 ; and
(2) relates only to an investment under the terms of which a person cannot incur a liability or obligation to pay or contribute more than he commits by way of investment

59 Annual accounts and directors' report

All

Note 3

Made by a body corporate (other than an open-ended investment company) which consists of, or is accompanied by, the whole or any part of the annual accounts, or is accompanied by the report, and complies with the requirements specified by article 59

62 Sale of body corporate

All

Note 1

(1) Made by a company, a partnership, a single individual or a group of connected individuals;
(2) relates to a transaction to acquire or dispose of shares in a company (other than an open-ended investment company) or is entered into for the purposes of such an acquisition or disposal, and
(3) either certain conditions are satisfied or the object of the transaction may reasonably be regarded as being the acquisition of day to day control of the affairs of the company

67 Promotions required or permitted by market rules

Solicited real time Non-real time

Note 4

Financial promotion is required or permitted to be communicated by the rules of the relevant market, a body which regulates the market, or a body which regulates offers or issues of investments to be traded on such a market

70 Promotions in connection with listing applications

Solicited real time Non-real time

Note 1

Financial promotion to which listing rules apply

71-73 Promotions included in listing particulars and prospectuses

Non-real time

Note 1

These articles contain details of exemptions relating to financial promotions included in listing particulars and prospectuses for public offers of listed securities and financial promotions relating to prospectuses for public offers of unlisted securities

14/01/2005

COB 3 Annex 2

Contents of Enterprise Investment Scheme particulars (R)

01/12/2004

This annex forms part of COB 3.9.26 R (1) .

The following statements, to be included with particular prominence:

(1)

that applications may only be made and accepted subject to the terms and conditions of the EIS particulars;

(2)

that the applicant is advised not to subscribe to the EIS unless he has taken appropriate independent advice;

(3)

the name and business address of:

(a)

every person acting in a professional capacity in relation to the EIS;

(b)

every person likely to take part in any decision or recommendation relating to investment of monies subscribed to the EIS;

(4)

any arrangements under which any preferential treatment will or may be given in relation to subscription to the EIS to particular persons or classes of person subscribing to the EIS;

(5)

the circumstances in which persons or particular classes of person are excluded from participation in the EIS or in any particular investment of EIS monies;

(6)

the manner in which shares in companies in which EIS monies are to be invested are to be held on behalf of participants in the EIS and the manner in which, according to their EIS subscriptions, interests in such shares are to be allocated to each participant;

(7)

any arrangements for registering shares in the names of participants in the EIS at or after the end of the period during which shares must be held in order to obtain tax relief;

(8)

the circumstances in which a person's participation in the EIS may be terminated;

(9)

any arrangements for dealing with EIS monies which become available as a result of a sale of EIS investments by the EIS manager;

(10)

whether the EIS manager remains free to subscribe for shares, or to hold options to do so, in companies in which the EIS funds are invested and, if so, an indication of the price or the formula by which a price is determined at which it may subscribe and the maximum proportion of the ordinary share capital of those companies for which it may subscribe or which may be the subject of options in its favour, or both;

(11)

whether the EIS manager proposes to establish another EIS and, if so, whether or not arrangements exist to ensure that the EIS manager does not discriminate between one EIS and another and, if so, what they are;

(12)

a summary of the fiscal provisions concerning the EIS;

(13)

either a description of the arrangements which exist for:

(a)

securing that any person who knowingly has a material interest in any decision or recommendation concerning the investment of EIS subscriptions which are not subject to independent approval is excluded from participation in the making of that decision or recommendation; and

(b)

for securing independent approval of decisions and recommendations concerning the investment of EIS subscriptions which may be made by persons who have a material interest in them;

or a statement that no such arrangements exist;

(14)

where the arrangements described in (13) above do not cover any of the following interests:

(a)

an interest of the EIS manager or of its associates arising by way of remuneration in connection with the management or operation of the EIS or any other EIS;

(b)

an interest arising from investment of subscriptions of the EIS or of any other EIS managed by the EIS manager or its associates;

(c)

an interest of a bank resulting from a loan made by such an institution;

(d)

an interest arising from the formation by the EIS manager, or its associates, of a company with a view to an interest in that company being acquired on behalf of an EIS, of which it, or its associates, is the scheme manager;

a statement that investment may be made despite the existence of such an interest;

(15)

particulars of any material interest or duty of the EIS manager which would conflict with the interests of participants in the EIS or its duty to those participants;

(16)

any arrangements to enable participants in the EIS to notify the EIS manager of companies with which they are connected within the meaning of Sections 291, 291A and 291B of the Income and Corporation Taxes Act 1988;

(17)

the investment policies and objectives of the EIS;

(18)

the periodic reports made available to participants and how frequently those reports will be made in accordance with the EIS.

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

This annex forms part of COB 3.9.28 R.

The following statements are to be included with particular prominence:

(1)

"The [firm] [scheme manager] [and its directors] [has] [have] taken all reasonable care to ensure that all the facts stated in this document are true and accurate in all material respects and that there are no other material facts, or opinions, which have been omitted, which would make any part of this promotion misleading. The [firm] [scheme manager] [and its directors] accept[s] responsibility accordingly";

(2)

The name and business address of:

(a)

the EIS manager;

(b)

the promoter of the EIS ( if any);

(3)

the opening and closing dates for receipt of EIS subscriptions;

(4)

the maximum and minimum sizes, if any for; permitted individual subscriptions to the scheme;

(5)

the arrangements:

(a)

for the holding of EIS subscriptions pending investment;

(b)

for the return of subscriptions should the EIS be over-subscribed or the monies not be accepted for other reasons;

(c)

for the return of EIS subscriptions remaining uninvested at the time when the final investment of the EIS has been made or the final date for investment has passed;

(6)

any arrangements for the payment of dividends, if any, to participants in the EIS.

01/12/2001

COB 3 Annex 4

Additional guidance on particular types of financial promotion

01/12/2004

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.

Section I: Guidance relevant to specific non-real time financial promotions for particular product types

AVC Schemes (including FSAVCs)

Bond Funds

With-profits bonds

Pensions - phased retirement

Section II: Guidance relevant to direct offer financial promotions for PEP, ISA or CTF transfers and personal pensions and stakeholder pension schemes

PEP, ISA or CTF transfer

Personal pensions and stakeholder pension schemes

Section III: Guidance relevant to specific non-real time financial promotions for products with identified characteristics

Guaranteed or protected products

High income products

Stock market products

[deleted]

Additional Voluntary Contribution Schemes (including Free Standing Additional Voluntary Contributions)

A financial promotion for an AVC scheme or FSAVC contract should contain a prominent warning that as an alternative:

(1) (for FSAVC promotions) an AVC exists, and that details can be obtained from the scheme administrator;

(2) (for AVC promotions) FSAVC contracts are available.

Bond Funds

A firm constructing a financial promotion for corporate bond funds or similar contracts should take account of the following:

(1) Clear description of the risk
Yields offered by bonds often reflect in part the risk rating of the issuer. Investment in such bonds brings an increased risk of default on repayment and this in turn translates into a risk that the capital value of the fund will be affected. Financial promotions for funds which invest in riskier bonds should clearly explain this point to recipients. The prominence and wording of the explanation should reflect both the risk profile of the portfolio held by the fund, and the prominence given to information about the yield on the fund. The main body of the financial promotion should state that the yield or the capital value of the fund (or both) can fluctuate, as the case may be.

(2) Quoting out of date yields
Financial promotions often feature prominently the yield on the fund. In some cases the actual yield being paid at the time the promotion is communicated is materially different to the yield quoted. Owing to lead times, inaccuracies can occur if the market is moving rapidly, but yields several weeks or months out of date are misleading. The promotion should quote the date at which the rate applied. It is misleading for financial promotions with a long shelf life to prominently feature a rate which may become invalid.

(3) Funds not fully invested
Yield figures should reflect the overall position of the fund allowing for any monies held in cash. Yields quoted on the assumption that the fund is 100% invested in bonds where a proportion is invested in cash would be misleading.

(4) Running and redemption yields
If a yield figure is to be quoted, then both the gross redemption yield and the running yield should be mentioned with equal prominence. This is to ensure that a balanced impression is given of both the short-term and the long-term prospects for the fund. When quoting the gross redemption yield, the main body of the financial promotion should also mention the fact that it is a prediction, and is not guaranteed.
A firm should take into account, and explain, any material differences between the yield figures.

(5) Describing the yield and growth prospects
A firm needs to be careful when describing the future yield or growth prospects of a fund. The prominence and tone given to descriptions of future prospects should reflect a reasonable assessment of the fund taking into account, for example, the redemption yield, whether charges are taken from capital, and the general economic climate.

With-profits bonds

Particular areas of concern about financial promotion of with profit bonds are:
(a) failure to make it clear that a whole life with profits bond is unsuitable as a short term investment;
(b) unclear statements as to what factors will determine the cash-in value of the bond;
(c) reservation of the right to adjust the value of the contract by means such as Market Value Adjustment Factors without adequately explaining the significance or likelihood of such a procedure;
(d) use of a rate of bonus in a way that implies such a rate will apply;
(e) quotation of values based on existing bonus rates to lead recipients to anticipate receiving such amounts;
(f) reference to building society accounts in comparison with the bond without adequately explaining the differences between the two types of investment.

Quoting a high initial bonus rate may suggest that it is achievable for all investors, whereas for example, the rate may only be available to investors who make a sizeable investment or who make their investment considerably earlier than the closing date. In addition, initial bonus rates are frequently subject to limiting factors, such as:
(a) establishment charges;
(b) monthly policy charges;
(c) fund management or investment charges;
(d) early surrender penalties or discontinuance charges;
(e) market adjustment factors.
Therefore where applicable firms should not include terms such as 'guaranteed', 'return' and fixed for the first year' without making it clear that the bonus rate may not be achievable.

Pensions - phased retirement

Some promotions for phased retirement pensions tend to emphasise the various advantages but do not give adequate risk warnings, some of the important assumptions, or detail potential disadvantages. The following failures are typical:
(a) not including risk warnings in respect of performance and value of underlying units.
(b) not indicating that future annuity rates are not guaranteed and may be higher or lower.
(c) not disclosing any information about additional charges linked to the plan.
(d) not making any reference to protected rights being deferred to age 65 or 60 (in illustrations of pensions commencing earlier).
(e) not indicating how a surviving spouse is provided for.

Four particular areas that need to be made clear are:
(a) Mortality
Compared with a conventional annuity, phased retirement normally provides higher residual sums on death. For survivors to age 75, this can result in a strain, as annuities will not have been purchased at an earlier age. This risk should be made clear.
If a spouse's pension is to be provided, it needs to be made clear whether each annuity is bought on a joint life basis and whether the annuity is bought on death or at age 75.
If protected rights pensions at age 65 or 60 are to be provided, it needs to be made clear how these are to be provided.
(b) Investment
The future investment returns on the residual funds and the future immediate annuity rates are unknown. The risk of this to the investor needs to be made clear.
Care needs to be taken to ensure that the impression is not given that postponing the purchase of an annuity will automatically be to the investor's advantage.
(c) Tax
Most of the financial advantage in phased retirement derives from utilising tax free cash sums to provide part of the investors pension payment. Therefore the investor does not have the benefit of the tax free cash sum at retirement, which can be a disadvantage. Any comparison with a conventional annuity should allow for the use of a purchased life annuity purchased with the tax free cash, or include a statement that the effect of the option to use the tax free cash to secure a purchased life annuity has been ignored.
Because the pension will usually constitute most of a investor's income, it will generally be correct to assume basic rate tax. Where the level of income makes it appropriate, higher rate tax may be allowed for; this can be done assuming an average tax rate or taking account of specific tax bands. If tax thresholds are assumed to increase, the rate must be consistent with the investment return assumed and the rate of increase in the target pension.
(d) Expenses
The costs in operating phased retirement are usually higher than for conventional annuities. These costs need to be disclosed, especially as they are relevant to any comparison with a conventional annuity. Particular reference should be made to the level of initial charge and annual management charge on unit-linked funds.

PEP, ISA or CTF transfers

A direct offer financial promotion for a PEP, ISA or CTF transfer should include details of the likely advantages and disadvantages of transferring an existing PEP, ISA or CTF holding, including:

(1) exit charges and any other costs associated with the transfer;

(2) initial set up charges;

(3) transaction details (ie are holdings liquidated or transferred intact), as permitted by the terms and conditions;

(4) the possibility (and likely effects) of shortfall, following cancellation;

(5) potential for loss of income or growth, following a rise in the markets, whilst the PEP, ISA or CTF transfer remains pending.

Personal pensions and stakeholder pension schemes

Firms promoting personal pension schemes through direct offer financial promotions are reminded of the provisions of COB 5.3.

Guaranteed or protected products

Equal prominence to guaranteed and not guaranteed benefits
Firms should give equal prominence to the description of benefits which are guaranteed and of benefits which are not.

Guaranteed income but not capital
(a) A clear statement should be made where relevant benefits are not guaranteed.
(b) If any guarantee is given, the guarantor should be named.
(c) An equivalent annualised rate of return should be quoted if the cash rate is quoted.

Guaranteed or protected amount payable at the end of the term
The words 'guarantee', 'protected element' or similar may be used to describe the minimum amount payable at the end of the term. This is usually provided at some cost to the investor and financial promotions therefore need to make clear what that cost is and how it is imposed.

Counterparty risk
Firms should ensure that financial promotions for products with a protected element to them, which is not guaranteed, include an explanation of the associated risk of counterparty failure. Firms should avoid giving a misleading impression of the capital security.

High income products

Income Term

If the word 'income' is used, it will be difficult for the promotion to avoid being misleading unless it:

(a) is used to indicate payments comprised solely of interest or dividend earnings; or

(b) is clearly defined at an early point in the promotion as having a different meaning, and in particular specifies the risk to capital necessary to achieve the payment.

Problem of disclosure of risks

(a) If the rate of income available is at some capital risk or at the expense of growth, or the income or a portion of it comprises a return of capital, these facts should be clearly explained.

(b) If direct or indirect comparison is made with a deposit, there should be a prominent statement that the investment does not include the security of capital which is afforded under a deposit.

High income bonds, high income unit trusts and similar types of collective investment schemes

(a) Some unit trusts achieve a high income by the use of derivatives such as put and call options. Firms should provide a statement to the effect that the high income is achieved at the expense of most of the potential capital gain.

(b) If it is claimed that the downside potential is less than that of a conventional unit trust, it should be made clear with equal prominence that if the fund goes down its potential recovery will be less than that of a conventional unit trust.

Stock market products

Stock market products are those investments which offer returns linked to the price of equities or an index such as the FTSE 100.

(1) Potential for Growth

(a) Expressions like 'stock market growth' or 'the growth of the FTSE 100 Index' are frequently used and are potentially misleading if the product will not be investing in all the stocks which make up the index.

(b) Promotion of a product which is linked to growth in the FTSE 100 index should make clear that it does not include an allowance for any return or reinvestment of dividend income.

(c) Promotions should therefore make it clear that references to 'stock market growth' exclude any form of income payment.

(2) Amount invested
Some promotions quote returns in excess of the percentage increase in the FTSE 100 index, without mentioning that 100% of capital is not invested at outset.

(3) Gross returns and tax on underlying fund
Promotions showing guaranteed returns against the FTSE 100 index expressed in 'gross' terms are potentially misleading where the underlying funds of the firm concerned are taxable and the returns quoted are therefore unavailable to the investor because he will receive the benefits after tax has been deducted and which he cannot reclaim.

(4) Taxation of investor
The tax treatment in the hands of the investor should be made clear, in particular, whether the return will be treated as income or as capital gains where the investor may be entitled to a tax free exemption limit with the added benefit of indexation.

(5) Early Encashment

(a) The terms for early encashment need to be fully explained.

(b) Despite the minimum amount at the end of the specified term, an appropriate risk warning should be included where the value of the investment can fall if an investor wishes to encash the contract before the end of the term.

(6) Averaging
Contracts are normally based on the assumption that the index being used will rise. The use of the average level of the index will reduce the investment potential of the contract. Where the averaging periods cover more than the last six months of the contract term, it should not be implied that averaging is to protect against falls at the end of the term. It should be made clear that investors benefit only from some of the performance of the index and that one effect of averaging is likely to be to constrain the final level of the index used to calculate benefits.

(7) Maximum benefits
These should not be promoted as a particular feature if the economic circumstances required to meet those benefits require investment conditions more favourable than those which would need to prevail to achieve the higher of the growth assumptions specified by the FSA.

01/12/2004

COB 3 Annex 5

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

01/12/2004

This annex forms part of COB 3.11.2 R and COB 3.11.6 R.

Where the left-hand column in the table refers to promotion to a category of person, this means that the invitation or inducement:

(a)

is made only to recipients who the firm has taken reasonable steps to establish are persons in that category; or

(b)

is directed at recipients in a way that may reasonably be regarded as designed to reduce, so far as possible, the risk of participation in the collective investment scheme by persons who are not in that category;

and see COB 3.5.6 R and COB 3.5.7 R, which amplify this paragraph.

A firm may rely on more than one exemption in relation to the same invitation or inducement.

Promotion to:

Promotion of an unregulated collective investment scheme or qualified investor scheme which is:

Category 1 person
(1) a person who is already a participant in an unregulated collective investment scheme or a qualified investor scheme; or
(2) a person who has been, in the last 30 months, a participant in an unregulated collective investment scheme or a qualified investor scheme

A. that collective investment scheme; or
B. any other collective investment scheme whose underlying property and risk profile are both 'substantially similar' (see Note 1) to those of that collective investment scheme; or
C. a collective investment scheme which is intended to absorb or take over the assets of that collective investment scheme; or
D. a collective investment scheme, units in which are being offered by its operator as an alternative to cash on the liquidation of that collective investment scheme

Category 2 person
(1) a person
(a) for whom the firm has taken reasonable steps to ensure that investment in the collective investment scheme is suitable; and
(b) who is an 'established' or 'newly accepted' customer of the firm or of a person in the same group as the firm (see Notes 2 & 3).

Any collective investment scheme

Category 3 person:
a person who is eligible to participate in a scheme constituted under:
(1) the Church Funds Investment Measure 1958;
(2) section 24 of the Charities Act 1993; or
(3) section 25 of the Charities Act (Northern Ireland) 1964.

Any such collective investment scheme

Category 4 person:
An eligible employee, that is, a person who is:
(1) an officer,
(2) an employee,
(3) a former officer or employee, or

1. A collective investment scheme the instrument constituting which: A. restricts the property of the scheme, apart from cash and near cash, to
(1) (where the employer is a company) shares in and debentures of company or any other connected company (see Note 4)

(4) a member of the immediate family of any of (1)-(3) of an employer which is (or is in the same group as) the firm, or which has accepted responsibility for the activities of the firm in carrying out the designated investment business in question

(2) (in any case), any property, provided that the scheme takes the form of:
(i) a limited partnership, under the terms of which the employer (or connected company) will be the unlimited partner and the eligible employees will be some or all of the limited partners; or
(ii) a trust which the firm reasonably believes not to contain any risk that any eligible employee may be liable to make any further payments (other than charges) for investment transactions earlier entered into, which the eligible employee was not aware of at the time he entered into them; and B. (in a case falling within A(1) above) restricts participation in the scheme to eligible employees, the employer and any connected company. 2. Any collective investment scheme provided that the participation of eligible employees is to facilitate their co-investment: (i) with one or more companies in the same group as their employer (which may include the employer) and/or (ii) with one or more clients of such a company

Category 5 person
A person admitted to membership of the Society of Lloyd's or any person by law entitled or bound to administer his affairs

A scheme in the form of a limited partnership which is established for the sole purpose of underwriting insurance business at Lloyd's

Category 6 person An exempt person (other than a person exempted only by section 39 of the Act (Exemption of appointed representatives)) if the financial promotion relates to a regulated activity in respect of which the person is exempt from the general prohibition

Any collective investment scheme

Category 7 person A market counterparty or an intermediate customer.

Any collective investment scheme

Notes to the table

Note 1.
The property of a collective investment scheme is 'substantially similar' to that of another collective investment scheme if in both cases the objective is to invest in the same one of the following sectors:

(a)

on-exchange derivatives or warrants;

(b)

on-exchange (or quoted) securities;

(c)

the property market (whether in security of property companies or in property itself);

(d)

collectable items of a particular description (such as works of art, antique vehicles, etc);

(e)

artistic productions (such as films, television, opera, theatre or music);

(f)

unlisted investments (including unlisted debt securities).

The risk profile of a scheme will be substantially similar to that of another scheme only if there is such similarity in relation to both liquidity and volatility.

Note 2.
A person is an 'established customer' of another person if he has been and remains an actual customer of that person in relation to designated investment business done with or through that other person.

Note 3.
A person is a 'newly accepted' customer of a firm if:

a written agreement relating to designated investment business exists between the customer and the firm (or, if the customer is normally resident outside the United Kingdom, an oral or written agreement); and

that agreement has been obtained without any contravention of section 238 or 240 of the Act, or of any rule in COB applying to the firm or (as far as the firm is reasonably aware) any other authorised person.

Note 4.
A company is 'connected' with another company if:

(a)

they are in the same group; or

(b)

one company is entitled either alone or with another company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to the share capital, which are exercisable in all circumstances at any general meeting of the other company or of its holding company.

01/12/2004

COB Conduct of Business

Financial promotion

Financialpromotion

Application: who?

Firms

Appointed representatives

Nationals of other EEA States

Authorised professional firms

Application: what?

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

Media of communication

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

Financial promotions for regulated mortgage contracts

Financial promotions for non-investment insurance contracts

Exemptions

Exemptions

This table belongs to COB 3.2.4 R

Combination of exemptions

Guidance on the exemptions

Other Handbook rules relevant to financial promotions

Application: where?

Territorial scope

Exceptions to territorial scope: rules without territorial limitation

Exceptions to territorial scope: distance contracts

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

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

Purpose

General

Topics covered in this chapter

Areas of particular relevance to types of financial promotion.

This table belongs to COB 3.5.1 G

Other regulations and guidelines

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

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

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

Confirmation of compliance

Confirmation of compliance

Withdrawing confirmation

Communicating a financial promotion where another firm has confirmed compliance

Records

Requirement to make and retain records

Content of records

Form of records

Form and content of financial promotions

Application

Non-real time financial promotions: name and contact point

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

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

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

Specific non-real time financial promotions: general requirements

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

Specific non-real time financial promotions: past performance

Standardised past performance information

Specimen table of disclosure of discrete past performance.

This table belongs to COB 3.8.13 R.

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

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

Specific non-real time financial promotions: packaged products

Real time financial promotions

Direct offer financial promotions

Application

Location of the provisions applicable to direct offer financial promotions

This table belongs to COB 3.9.2 G

Exemptions

Prohibited types of direct offer financial promotion

Direct offer financial promotions: general requirements

Contractual terms and conditions for distance contracts

Cash deposit ISAs and cash deposit CTFs

Electronic media

Packaged products

Execution-only dealing services

Potential problem areas for direct offer financial promotions.

Investments which can fluctuate in value

Life policies

Taxation

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

Charges for regulated collective investment schemes

Penny shares

Branded funds

Enterprise Investment Schemes

Financial
promotion