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

Part

COB Conduct of Business

Chapter

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

Printed on: 15/12/2024

Rulebook at: 24/07/2007

COB 6

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

COB 6.1

Product disclosure

01/12/2004

Application

COB 6.1.1

COB 6.1 to COB 6.5 apply to a firm:

(1) which sells, personally recommends or arranges (brings about) for the sale of a packaged product (other than units in a simplified prospectus scheme) to a private customer or to the trustees of an occupational pension scheme or to the trustee or operator of a stakeholder pension scheme; or
(1A) which is an operator of a simplified prospectus scheme or which sells, personally recommends or arranges (brings about) for the sale of units in such a scheme to a client, whether or not held within a PEP or an ISA; or
(2) which manages, sells or personally recommends a cash deposit ISA or cash deposit CTF for or to a private customer; or
(3) which effects, personally recommends or arranges for a variation of a life policy for or to a private customer; or
(4) which effects, personally recommends or arranges income withdrawals or short-term annuities for a private customer; or
(5) which is a long-term insurer and receives:

(a) a request from a private customer for a quotation for the surrender value of a life policy; or
(b) any other indication that a private customer wishes to surrender a life policy: or

(6) which receives a request from a private customer for a retirement quotation in respect of any of the following contracts provided by it:

(a) a personal pension scheme;
(b) a stakeholder pension scheme;
(c) a free-standing additional voluntary contribution contract;
(d) (where an open-market option is available under the contract terms) a retirement annuity contract; or
(e) (where an open-market option is available under the contract terms) a pension buy-out contract; or

(7) which enters into a distance contract with a retail customer to accept deposits.

06/04/2006

COB 6.1.1A

In COB 6.1 to COB 6.5, references to a private customer include, in relation to the conclusion of a distance contract, a retail customer.

09/10/2004

COB 6.1.2

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

01/10/2005

Application of COB 6.2.46R and COB 6.2.47R

COB 6.1.2A

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

01/05/2005

Purpose

COB 6.1.3

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

09/10/2004

Requirement to produce key features

COB 6.1.4

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

09/10/2004

Quality and production of key features

COB 6.1.5

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

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

06/04/2007

COB 6.1.6

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

01/12/2001

COB 6.2

Provisions of key features or simplified prospectus

01/05/2005

Application

COB 6.2.1

COB 6.2 applies to a firm in accordance with COB 6.1.1 R.

01/12/2001

Medium for provision of key features

COB 6.2.2

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

09/10/2004

COB 6.2.3

For detailed guidance on electronic provision please refer to COB 1.8 (Application to electronic media) and COB 3.14 (The internet and other electronic media).

01/12/2001

COB 6.2.4

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

01/05/2005

COB 6.2.5

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

01/12/2001

COB 6.2.5A

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

01/05/2005

Life policies

COB 6.2.6

COB 6.2.7 R - COB 6.2.18 R are disapplied by COB 6.2.21 R in relation to certain customers resident outside the United Kingdom.

01/12/2001

COB 6.2.7

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

01/10/2005

COB 6.2.8

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

01/12/2001

Exception for life policies: sales through intermediaries

COB 6.2.9

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

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

09/10/2004

Life policies: pre-completion variations

COB 6.2.12

(1) Where key features have already been provided by a firm to a private customer in accordance with COB 6.2.7 and the terms for the proposed life policy are subsequently altered before the private customer completes an application form, the firm must ensure that the private customer is provided with revised key features, unless the alteration is one or more of the following:

(a) the amount of the premium is changed;
(b) the amount of any commission or remuneration payable is reduced;
(c) a rider benefit is added, removed or amended.

(2) If (1)(a) to (c) apply, then, subject to COB 6.4.27 to COB 6.4.31 (telephone sales and other exemptions), if the contract is to be a distance contract with a retail customer, the retail customer must be provided with details of such changes in a durable medium in good time before the contract is concluded.

09/10/2004

COB 6.2.13

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

01/12/2001

COB 6.2.14

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

09/10/2004

COB 6.2.15

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

09/10/2004

Variations to existing life policies

COB 6.2.16

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

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

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

09/10/2004

COB 6.2.16A

(1) When a long-term care insurance contract which is

(a) not a pure protection contract and which was issued on or after 1 January 1995; or
(b) a pure protection contract and which was issued on or after 31 October 2004;

is varied so as to bring into effect provisions for long-term care benefits, the firm must provide the private customer with appropriate key features in good time sufficient to enable the private customer to consider them before the variation takes effect.
(2) If the circumstances of the variation, whether by the exercise of an option or otherwise, make it impossible to provide the key features before the variation takes effect, the firm must do so as soon as possible afterwards.

31/10/2004

COB 6.2.17

Key features were introduced for new policies sold from 1 January 1995. One way of meeting the requirements of COB 6.2.16 R is by providing a complete set of new key features to the policyholder.

09/10/2004

COB 6.2.18

(1) When a policyholder applies to vary:

(a) a life policy issued before 1 January 1995; or
(b) a pure protection contract issued before 31 October 2004 and which would after 30 October 2004 be a long-term care insurance contract;

(or is personally recommended to do so) and the variation of the policy gives rise to a right to cancel under COB 6.7.7 R, information must be given to the policyholder by the firm that is personally recommending, arranging or effecting the variation before it is put into effect, unless COB 6.2.19 R or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.
(2) When giving the information in (1), the firm must:

(a) believe on reasonable grounds that the information given is sufficient to enable the policyholder to understand the consequences of the variation; and
(b) in the case of a variation which results in a new distance contract, in good time before the variation is put into effect, provide all the contractual terms and conditions and the information in COB App 1.

31/10/2004

COB 6.2.19

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

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

09/10/2004

Exception for life policies: non-UK customers

COB 6.2.21

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

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

09/10/2004

Exceptions for life policies: variations held within a CTF

COB 6.2.21A

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

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

01/12/2001

Provision of key features: key features schemes

COB 6.2.22

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

01/10/2005

COB 6.2.23

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

01/10/2005

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

COB 6.2.24

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

(1) the firm is a product provider and the scheme holding is sold on the personal recommendation of, or arranged to be sold by another person, provided that other person:

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

(2) at the time he signs the application, the private customer is habitually resident outside the EEA and is not present in the United Kingdom; or
(3) (except for distance contracts with retail customers) the scheme holding is purchased by a private customer on an execution-only basis; or
(4) the scheme holding is purchased on behalf of a private customer by an investment manager exercising discretion; or
(5) the sale of the scheme holding is arranged or recommended by an investment manager who is not exercising discretion and the private customer has agreed, either in relation to that specific holding or generally, that key features need not be provided; or
(6) a private customer is making a purchase of a scheme holding (whether or not held within a CTF) in a key features scheme in which he already has a scheme holding and has already been provided with appropriate key features covering the purchase; or
(7) a private customer is transferring from accumulation units to income units of the same scheme (or vice versa) and has already been supplied with key features which cover the transfer.

01/10/2005

Purpose of the COB 6 provisions on the simplified prospectus

COB 6.2.25A

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

01/05/2005

Production and publication of simplified prospectus

COB 6.2.26

(1) An operator of a simplified prospectus scheme must, for each simplified prospectus scheme in respect of which it is the operator, produce and publish a simplified prospectus in accordance with the rules in this section and ensure that it contains in summary form each of the matters referred to in COB 6.2.37 R.
(2) A simplified prospectus must be incorporated in a written document or in any durable medium.
(3) An operator of a simplified prospectus scheme must be satisfied on reasonable grounds that each simplified prospectus which it produces:

(a) includes all such information as is necessary to enable an investor to make an informed decision about whether to acquire units in the scheme;
(b) does not omit any key item of information;
(c) wherever possible is written in plain language which avoids technical language and jargon; and
(d) adopts a format and style of presentation which is clear and attractive to the average reader, so that it can be easily understood by him.

(4) The simplified prospectus may be attached to the full prospectus as a removable part of it.
(5) [deleted]
(6) [deleted]

01/10/2005

Revision of simplified prospectus

COB 6.2.27

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

01/05/2005

COB 6.2.28

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

01/05/2005

Filing requirements

COB 6.2.29

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

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

01/05/2005

UK firms exercising passporting rights in respect of UCITS scheme

COB 6.2.30

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

01/05/2005

COB 6.2.31

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

01/10/2005

Offering a simplified prospectus

COB 6.2.32

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

01/05/2005

Obligation on a firm to provide a simplified prospectus

COB 6.2.33

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

01/10/2005

COB 6.2.34

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

01/05/2005

Exceptions from the requirement to provide the simplified prospectus

COB 6.2.35

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

(1) the firm is a product provider and the scheme holding is sold on the personal recommendation of, or arranged to be sold on the personal recommendation of, or arranged to be sold by another person, provided that other person:

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

(2) at the time the private customer signs the application, the private customer is habitually resident outside the EEA and is not present in the United Kingdom; or
(3) (except for distance contracts with retail customers) the scheme holding is purchased by the private customer in the course of an execution-only transaction; or
(4) the scheme holding is purchased on behalf of the private customer by an investment manager exercising discretion; or
(5) the sale of the scheme holding is arranged or recommended by an investment manager who is not exercising discretion and the private customer has agreed, either in relation to that specific holding or generally, that the simplified prospectus need not be provided; or
(6) a private customer is making a purchase of a scheme holding (whether or not held within a CTF) in a scheme in which he already has a scheme holding and has already been provided with the up-to-date simplified prospectus which covers the purchase; or
(7) a private customer is transferring from accumulation units to income units of the same scheme (or vice versa) and has already been supplied with the up-to-date simplified prospectus of the scheme which covers the transfer.

01/05/2005

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

COB 6.2.36

(1) A firm to which COB 6.2.33 R (Obligation on a firm to provide a simplified prospectus) applies when it:

(a) offers a funds supermarket service; or
(b) sells, personally recommends or arranges (brings about) the sale of a simplified prospectus scheme through a funds supermarket service;

need not, unless a private customer requests it, provide a private customer with a simplified prospectus for any simplified prospectus scheme to which the funds supermarket service relates provided it complies with the condition in (2).
(2) The condition is that the firm must instead provide the private customer with the abbreviated form of composite key features document that is permitted under COB 6.5 (Content of key features) and which covers each of the key features schemes and simplified prospectus schemes to which the funds supermarket service relates.

01/10/2005

COB 6.2.37

Contents of the simplified prospectus

This table belongs to COB 6.2.26 R (1)

Contents of simplified prospectus

Note:

This table sets out the required contents of the simplified prospectus. It reproduces Schedule C (Contents of the simplified prospectus) of the Management Company Directive (2001/107/EC), as amplified by the Commission Recommendation (2004/384/EC).
This Table also includes, and cross-refers to, other material which the FSA considers should be included.

Brief presentation of the simplified prospectus scheme (in this Table referred to as "the scheme").

(1)

when the scheme was created and an indication of the EEA State where the scheme has been registered or incorporated;

(2)

in the case of a scheme having different investment compartments (sub-funds), the indication of this circumstance;

(3)

the name and contact details of the operator (when applicable);

(4)

the expected period of existence of the scheme (when applicable);

(5)

the name and contact details of the depositary;

(6)

the name and contact details of the auditors;

(7)

the name and brief details of the financial group (e.g. a bank) promoting the scheme;

Investment information

(8)

a short description of the scheme's objectives including:

(a)

a concise and appropriate description of the outcomes sought for any investment in the scheme;

(b)

a clear statement of any guarantees offered by third parties to protect investors and any restrictions on those guarantees; and

(c)

a statement, where relevant, that the scheme is intended to track an index or indices, and sufficient information to enable investors both to identify the relevant index or indices and to understand the extent or degree of tracking pursued;

Notes:

Information on (8)(a) should include a statement as to whether there is any arrangement intended to result in a particular capital or income return from the units or any investment objective of giving protection to their capital value or income return and, if so, details of that arrangement or protection.

The information disclosed under (8)(b) should include an explanation of what is to happen when an investment is encashed before the expiry of any related guarantee or protection.

(9)

the scheme's investment policy, including:

(a)

the main categories of eligible financial instruments which are the object of investment;

(b)

whether the scheme has a particular strategy in relation to any industrial, geographic or other market sectors or specific classes of assets, e.g. investments in emerging countries' financial instruments;

(c)

where relevant, a warning that, whilst the actual portfolio composition is required to comply with the broad legal and statutory rules and limits, risk-concentration may occur in regard of certain tighter asset classes, economic and geographic sectors;

(d)

if the scheme invests in bonds, an indication of whether they are corporate or government, their duration and the ratings requirements;

(e)

if the scheme uses financial derivative instruments, an indication of whether this is done in pursuit of the scheme's objectives, or for hedging purposes only;

(f)

whether the scheme's management style makes some reference to a benchmark; and in particular whether the scheme has an 'index tracking' objective, with an indication of the strategy to be pursued to achieve this; and

(g)

whether the scheme's management style is based on a tactical asset allocation with high frequency portfolio adjustments;

provided the information is material and relevant;

Note:

The information referred to in paragraphs (8) and (9) may be set out as a single item in the simplified prospectus (e.g. for the information on index tracking), provided that the information so combined does not lead to confusion of the objectives and policies of the scheme. The order of the information items may be adapted to reflect the scheme's specific investment objectives and policy.

(10)

a brief assessment of the scheme's risk profile by investment compartment or sub-fund, including:

(a)

overall structure of the information provided:

(i)

a statement to the effect that the value of investments may fall as well as rise and that investors may get back less than they put in;

(ii)

a statement that details of all the risks actually mentioned in the simplified prospectus may be found in the full prospectus;

(iii)

a description in words of any risk investors have to face in relation to their investment, but only where such risk is relevant and material, based on risk impact and probability; and

(b)

details regarding the description (in words) of the following risks:

(i)

specific risks:

The description referred to in paragraph (10)(a)(iii) should include a brief and understandable explanation of any specific risk arising from particular investment policies or strategies or associated with specific markets or assets relevant to the scheme such as:

the risk that the entire market of an asset class will decline thus affecting the prices and values of the assets (market risk);

the risk that an issuer or a counterparty will default (credit risk);

only where strictly relevant, the risk that a settlement in a transfer system does not take place as expected because a counterparty does not pay or deliver on time or as expected (settlement risk);

the risk that a position cannot be liquidated in a timely manner at a reasonable price (liquidity risk);

the risk that the investment's value will be affected by changes in exchange rates (exchange or currency risk);

only where strictly relevant, the risk of loss of assets held in custody that could result from the insolvency, negligence or fraudulent action of the custodian or of a subcustodian (custody risk); and

risks related to a concentration of assets or markets; and

(ii)

horizontal risk factors:

The description referred to in paragraph (10)(a)(iii) should also mention, where relevant and material, the following factors that may affect the product:

performance risk, including the variability of risk levels depending on individual fund selections, and the existence, absence of, or restrictions on any guarantees given by third parties;

risks to capital, including potential risk of erosion resulting from withdrawals/cancellations of units and distributions in excess of investment returns;

exposure to the performance of the provider/third-party guarantor, where investment in the product involves direct investment in the provider, rather than assets held by the provider;

inflexibility, both within the product (including early surrender risk) and constraints on switching to other providers;

inflation risk; and

lack of certainty that environmental factors, such as a tax regime, will persist;

(iii)

possible prioritisation of information disclosure:

In order to avoid conveying a misleading image of the relevant risks, the information items should be presented so as to prioritise, based on scale and materiality, the risks so as to better highlight the individual risk profile of the scheme;

(11)

the historical performance of the scheme (where applicable) and a warning that this is not an indicator of future performance (which may be either included in or attached to the simplified prospectus), including:

(a)

disclosure of past performance:

(i)

the scheme's past performance, as presented using a bar chart showing annual returns for the last ten full consecutive years. If the scheme has been in existence for fewer than ten years but at least for a period of one year, it is recommended that the annual returns, calculated net of tax and charges, be given for as many years as are available; and

(ii)

if a scheme is managed according to a benchmark or if its cost structure includes a performance fee depending on a benchmark, the information on the past performance of the scheme should include a comparison with the past performance of the benchmark according to which the scheme is managed or the performance fee is calculated;

Note:

Comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison.

(b)

disclosure of cumulative performance:

Disclosure should be made of the cumulative performance of the scheme over the ten year period referred to in paragraph (11)(a)(i). A comparison should also be made with the cumulative performance (where relevant) of a benchmark, when comparison to a benchmark is required in accordance with paragraph (11)(a)(ii);

Note:

Where the scheme has been in existence for fewer than ten years but at least for a period of one year, disclosure of the past cumulative performance should be made for as many years as are available.

(c)

exclusion of subscription and redemption fees, subject to appropriate disclosure:

A statement should be made that past performance of the scheme does not include the effect of subscription and redemption fees.

Notes:

Where a comparison is being made with the cumulative performance of a benchmark as required by paragraph (11)(b), the comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison.

The scheme's historical performance may be produced as a separate attachment to the simplified prospectus.

(12)

a profile of the typical investor the scheme is designed for;

Economic information

(13)

the scheme's applicable tax regime, including:

(a)

the tax regime applicable to the scheme in the UK; and

(b)

a statement which explains that the regime of taxation of the income or capital gains received by individual investors depends on the tax law applicable to the personal situation of each individual investor and/or to the place where the capital is invested and that if investors are unclear as to their fiscal position, they should seek professional advice or information from local organisations, where available;

Note:

This information should include a statement in relation to SDRT provision, explaining how the scheme may suffer stamp duty reserve tax as a result of transactions in units and whether the operator's policy is such that an SDRT provision may be imposed.

(14)

details of any entry and exit commissions relating to the scheme and details of the scheme's other possible expenses or fees, distinguishing between those to be paid by the unitholder and those to be paid from the scheme's or the sub-fund's assets, including:

(a)

overall contents of the information provided:

(i)

disclosure of a total expense ratio (TER), calculated as indicated in COB 6 Annex 2 R, except for a newly created fund where a TER cannot yet be calculated;

(ii)

on an ex ante basis, disclosure of the expected cost structure, that is an indication of all costs available according to the list set forth in COB 6 Annex 2 R so as to provide investors, in so far as possible, with a reasonable estimate of expected costs;

(iii)

all entry and exit commissions and other expenses directly paid by the investor;

(iv)

an indication of all the other costs not included in the TER, including disclosure of transaction costs;

(v)

as an additional indicator of the importance of transaction costs, the portfolio turnover rate, calculated as shown in COB 6 Annex 3 R; and

(vi)

an indication of the existence of fee-sharing agreements and soft commissions;

Notes:

In explaining the function of the TER to the reader, appropriate wording should be used in the simplified prospectus. For example, TER might be explained in the following terms:
"The TER shows the annual operating expenses of the scheme - it does not include transaction expenses. All European funds highlight the TER to help you compare the annual operating expenses of different schemes."

It is the FSA's understanding that the disclosure of a reasonable estimate of expected costs on an ex ante basis, as required by paragraph (14)(a)(ii), only applies to new schemes where a TER cannot yet be calculated. Where a TER can be calculated for a simplified prospectus scheme, there is no need to have to disclose a reasonable estimate of expected costs on an ex ante basis in accordance with paragraph (14)(a)(ii), in addition to the TER.

In disclosing details of all entry and exit commissions relating to the fund and details of the scheme's other possible expenses or fees, the firm must present the information in the format required by COB 6.2.38 R (1) (Reduction in yield). Compliance with this rule will ensure that the information is presented in the form of an impact of charges table based on reduction in yield figures, so as to assist the comprehension of the reader.

Paragraph (14)(a)(vi)) should not be interpreted as a general validation of the compliance of any individual agreement or commission with the provisions of the Handbook . Taking into account current market practice, consideration should be given as to how far the scheme's existing fee-sharing agreements and comparable fee arrangements are for the exclusive benefit of the scheme.

The simplified prospectus should make a reference to the full prospectus for detailed information on these kinds of arrangements, which should allow any investor to understand to whom expenses are to be paid and how possible conflicts of interest will be resolved in his/her best interest. The information provided in the simplified prospectus should remain concise in this respect.

(b)

information about 'fee sharing agreements' and 'soft commissions':

(i)

identification of 'fee-sharing agreements';

Note:

For the purposes of paragraph (14)(b)(i), fee-sharing agreements should be taken as those agreements whereby a party remunerated, either directly or indirectly, out of the assets of a scheme agrees to split its remuneration with another party and which result in that other party meeting expenses through this fee-sharing agreement that should normally be met, either directly or indirectly, out of the assets of the scheme.

(ii)

identification of soft commissions;

Note:

For the purposes of paragraph (14) (b) (ii), soft commissions should be regarded as any economic benefit, other than clearing and execution services, that an asset manager receives in connection with the scheme's payment of commissions on transactions that involve the scheme's portfolio securities. Soft commissions are typically obtained from, or through, the executing broker.

(c)

presentation of TER and portfolio turnover rate;

Note:

Both the TER and the portfolio turnover rate may be either included in or attached to the simplified prospectus in the same paper as information on past performance.

Commercial information

(15)

how to buy the units;

Note:

This should include an explanation of any relevant right to cancel or withdraw from the purchase, or, where it is the case, that such rights do not apply.

(16)

how to sell the units;

(17)

in the case of a scheme having different investment compartments (sub-funds), an explanation of how to switch from one investment compartment into another and any charges applicable in such cases;

(18)

when and how dividends on units or shares of the scheme (if applicable) are distributed;

(19)

when and where prices of units are published or made available;

Additional information

(20)

a statement that, on request, the full prospectus and the annual and half-yearly reports of the scheme may be obtained free of charge before the conclusion of the contract and afterwards, together with details of how they may be obtained or how a person may gain access to them;

(21)

the name and contact details of the FSA as being the competent authority which has authorised or registered the scheme;

(22)

details of a contact point (person or department, and, if appropriate the times of day etc.) where additional information may be obtained if needed;

(23)

the date of publication of the simplified prospectus.

General Note:

In making the disclosures required by paragraphs (8) to (19) of this Table, the information must be presented in the form of questions and answers. This format is designed to assist the comprehension of the reader. This requirement will not apply in relation to a simplified prospectus that is to be used to market the units of the scheme in another EEA state or in relation to a simplified prospectus that is to be used to market the units of the scheme exclusively to persons who are not private customers.

01/10/2005

Reduction in yield

COB 6.2.38

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

01/10/2005

COB 6.2.39

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

This table belongs to COB 6.2.38R

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

Rule

Description

Modification

COB 6.5.31 R

Table

Substitute "COB 6.2.43 R (1)" for the reference to COB 6.5.15 R (2).

COB 6.5.32 R (1), (2) and (3)

Scheme projections

Substitute "COB 6.2.43 R (1)" for the references to COB 6.5.15 R (2).

COB 6.5.32 R (3) and COB 6.5.32 R (7)(a)

Scheme projections

Substitute "client" for the references to "private customer".

01/05/2005

COB 6.2.40

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

01/05/2005

Distance contracts for the sale of simplified prospectus schemes

COB 6.2.41

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

01/05/2005

COB 6.2.42

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

01/10/2005

Projection for simplified prospectus scheme

COB 6.2.43

(1) When a firm sells, personally recommends or arranges for the sale of a simplified prospectus scheme to a private customer and the proposed transaction is for a scheme:

(a) which relates to an election to make income withdrawals or purchase of a short-term annuity; or
(b) where the private customer's primary objective is to acquire:

(i) a specified sum of money on a specified date; or
(ii) a specified sum of money on death; or
(iii) an annuity of a specified amount payable as from a specified date;

the firm must provide the private customer with a projection, illustrating how the principal terms of the proposed transaction apply to him.
(2) (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.
(3) (1) does not apply to a direct offer financial promotion in relation to units in a simplified prospectus scheme.

06/04/2006

COB 6.2.44

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

01/05/2005

PEP and ISA investments

COB 6.2.45

(1) When a firm sells, personally recommends or arranges for the sale of a unit in a simplified prospectus scheme to a private customer which is to be held within a PEP or ISA, it must provide him with the following additional information:

(a) a description of the nature of the services the firm will provide for the private customer in relation to the PEP or ISA;
(b) [deleted]
(c) [deleted]
(d) a statement that the favourable tax treatment of ISAs may not be maintained;
(e) how and when statements (if any) will be sent;
(f) an explanation how the ISA or plan may be terminated or transferred to another ISA or PEP manager;
(g) whether the ISA is a mini or maxi-ISA agreement and an explanation of the differences between the two; and
(h) whether the private customer has a choice to reinvest income, where uninvested money will be held and whether interest is paid on such money.

(2) (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.
(3) (1) does not apply to the extent that a private customer is making a purchase of a scheme holding in a simplified prospectus scheme in which he already has a scheme holding and has already been provided with the information set out at (1)(a) to (h) which remains up-to-date.

01/05/2005

Child trust fund investments

COB 6.2.45A

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

01/10/2005

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

COB 6.2.46

(1) When a firm sells, personally recommends or arranges (brings about) for the sale of a UCITS scheme which is a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) to a client, it must offer the client free of charge a copy of the scheme's most recent simplified prospectus before an application for the scheme holding is completed.
(2) The simplified prospectus must meet the requirements of the UCITS Directive necessary for the scheme to enjoy the rights conferred by the Directive.
(3) When the scheme holding is purchased on behalf of a client by an investment manager exercising discretion, the requirement in (1) will be satisfied by the investment manager being offered the simplified prospectus free of charge before the application form for a scheme holding is completed.
(4) A firm must not carry on any of the activities referred to in (1) in relation to a UCITS scheme which is a recognised scheme under section 264 of the Act unless it is satisfied on reasonable grounds that:

(a) the scheme's simplified prospectus has been sent to the FSA before any units in the scheme are marketed in the UK; and
(b) the information contained in the simplified prospectus is up-to-date and is not in need of revision;

and that any subsequent amendments thereto have been sent to the FSA.

01/10/2005

Sale of a section 264 scheme by distance contract

COB 6.2.47

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

01/05/2005

Composite documents for several schemes, sub-funds and classes

COB 6.2.48

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

01/10/2005

Multiclass schemes: use of representative class

COB 6.2.49

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

01/10/2005

COB 6.3

Post-sale confirmation: life policies

01/12/2004

Application

COB 6.3.1

COB 6.3 applies to a firm in accordance with COB 6.1.1 R, in respect of life policies.

20/09/2001

COB 6.3.2

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

01/12/2001

COB 6.3.3

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

01/12/2001

COB 6.3.4

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

01/12/2001

COB 6.3.5

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

09/10/2004

Exceptions to post-sale confirmation

COB 6.3.6

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

(1) the long-term insurer has taken reasonable steps to determine that the life policy or variation is purchased or effected on behalf of a private customer by an investment manager exercising discretion; or
(2) the life policy is purchased by the trustees of an occupational pension scheme; or
(3) the life policy is purchased by the trustees or manager of a stakeholder pension scheme or if the life policy is otherwise sold as a stakeholder product;
(4) a life policy issued before 1 January 1995 is being varied; or
(5) at the time the private customer signs the application for the new life policy or variation, he is habitually resident:

(a) in an EEA State other than the United Kingdom; or
(b) outside the EEA and he is not present in the United Kingdom.

06/04/2005

COB 6.4

Product disclosure: special situations

01/12/2004

Application

COB 6.4.1

COB 6.4 applies to a firm in accordance with COB 6.1.1 R, in respect of occupational pension schemes, income withdrawals and short-term annuities, cash deposit ISAs, cash deposit CTFs, Revenue allocated CTFs, traded life policies, packaged products, other deposits and long-term care insurance contracts.

06/04/2007

COB 6.4.2

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

01/05/2005

Occupational pension schemes

COB 6.4.3

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

01/05/2005

COB 6.4.4

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

01/10/2005

COB 6.4.5

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

01/05/2005

SIPPs, personal pension deposits and personal pension products

COB 6.4.5A

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

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

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

06/04/2007

COB 6.4.5B

The sufficient information provided should include the range and depth of information normally found in key features.

06/04/2007

COB 6.4.5C

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

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

06/04/2007

Assets to be held within a SIPP

COB 6.4.5D

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

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

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

06/04/2007

COB 6.4.5E

If this chapter requires a particular type of product disclosure for a particular type of asset, the product disclosure provided in accordance with those rules is sufficient information for this purpose.

06/04/2007

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

COB 6.4.6

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

06/04/2007

COB 6.4.6A

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

06/04/2007

Income withdrawals and short-term annuities

COB 6.4.8

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

06/04/2007

COB 6.4.8A

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

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

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

06/04/2007

COB 6.4.8B

The sufficient information provided should include the range and depth of information normally found in key features.

06/04/2007

COB 6.4.9

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

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

06/04/2006

COB 6.4.10

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

06/04/2006

COB 6.4.11

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

06/04/2007

COB 6.4.12

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

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

06/04/2006

Cash deposit ISAs and cash deposit CTFs

COB 6.4.13

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

09/10/2004

Traded life policies

COB 6.4.14

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

09/10/2004

Stakeholder pension schemes

COB 6.4.15

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

01/10/2005

COB 6.4.16

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

01/12/2001

COB 6.4.17

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

01/12/2001

COB 6.4.18

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

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

09/10/2004

COB 6.4.19

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

01/10/2005

COB 6.4.20

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

01/12/2001

COB 6.4.21

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

01/12/2001

COB 6.4.22

A written notice required by COB 6.4.21 R must be provided by the firm no later than 8 business days after the cancellation period commences.

09/10/2004

COB 6.4.23

The notice in COB 6.4.22 R must:

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

01/12/2001

COB 6.4.24

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

01/12/2001

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

COB 6.4.25

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

06/04/2007

Exemption: telephone sales

COB 6.4.27

(1) Where this chapter requires key features, a simplified prospectus or other information to be provided, in the case of voice telephony communications, a firm:

(a) must provide the customer at the beginning of the telephone conversation with the name of the firm and (if the call is initiated by the firm) the commercial purpose of the call;
(b) provided the customer gives his explicit consent to receiving only limited information, may proceed on the basis of at least the following information:

(i) the name of the person in contact with the customer and his link with the firm;
(ii) a description of the main characteristics of the service;
(iii) the total price to be paid by the customer to the firm for the service, including all related fees, charges and expenses, and all taxes paid through the firm together with a statement, where relevant, that commission or remuneration will be paid to the adviser or representative, or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the customer to verify it;
(iv) where relevant, notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it;
(v) the existence or absence of a right to cancel the service under COB 6.7 and, where there is such a right, its duration and the conditions for exercising it, including information on the amount which the customer may be required to pay if the contract is terminated early or unilaterally under its terms, as well as the consequences of not exercising it; and
(vi) that other information is available on request, and the nature of that information, and
(vii) in addition to (a) and (b) above, where the product is a CTF, provided the customer gives his explicit consent to receiving only limited information, may proceed on the basis of the information referred to in COB 6.5.40 R (7) given orally.

(2) If the customer does not give his explicit consent to receiving limited information, and the parties wish to proceed by telephone, the firm must prior to the conclusion of the contract provide all of the information required by COB App 1 orally to the customer.
(3) In the case of either (1) or (2), the firm must send the private customer immediately after the contract is concluded, the required key features, simplified prospectus or other information (as applicable) in a durable medium.

01/05/2005

COB 6.4.28

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

09/10/2004

Exemption: certain other means of distance communication

COB 6.4.29

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

01/05/2005

Exemption: successive or separate operations under an initial service agreement

COB 6.4.30

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

01/05/2005

Exemption: other successive and separate operations

COB 6.4.31

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

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

01/05/2005

Exemption: automatic enrolment of employees in pension schemes

COB 6.4.31A

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

06/04/2007

COB 6.4.32

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

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

01/12/2001

COB 6.4.33

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

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

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

01/12/2001

Exemption: Revenue allocated accounts

COB 6.4.34

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

01/12/2001

COB 6.4.35

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

01/12/2001

COB 6.5

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

01/10/2005

Application

COB 6.5.1

COB 6.5 applies in accordance with COB 6.1.1 R.

01/12/2001

General

COB 6.5.2

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

(1) the key features it produces for a life policy or a key features scheme other than a stakeholder pension scheme (whether or not held within a PEP or an ISA) includes the information required by COB 6.5.11 R, set out in the order shown divided by appropriate and prominent sub-headings, some of which are prescribed in the rules;
(2) the information it produces under COB 6.4.13R (1) for a cash deposit ISA or cash deposit CTF complies with whichever of COB 6.5.42 R or COB 6.5.42A applies to it;
(3) the information document or abbreviated form of key features it produces:

(a) relating to friendly society tax exempt policies or traded life policies contains the applicable information specified in COB 6.5.43 R- COB 6.5.44;
(b) relating to broker funds contains the applicable information in COB 6.5.45;

(4) the post-sale confirmation document it produces contains the applicable information specified in COB 6.5.46 R;
(5) the key features it produces or issues for a stakeholder pension scheme:

(a) includes the relevant sub-headings set out at COB 6.5.11 R, the applicable information specified in COB 6.5.12 R - COB 6.5.40 R appropriate to those sub-headings; and
(b) is, subject to COB 6.5.6 R, accompanied by or includes the decision trees specified in COB 6.5.8 R, unless the stakeholder pension scheme is being purchased as a result of a personal recommendation; and

(6) all:

(a) key features; and
(b) abbreviated key features mentioned at COB 6.5.2 (3)(a) above,

it produces in relation to a distance contract with a retail customer include or are accompanied by all the contractual terms and conditions and the information in COB App 1 except to the extent that they are separately provided to the retail customer in a durable medium in good time before the retail customer is bound by the contract or offer.

01/10/2005

COB 6.5.3

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

09/10/2004

COB 6.5.4

(1) Where the rules in COB 6.5 do not require the use of prescribed text, firms may give the relevant information using their own words and style.
(2) For the purposes of COB 6.5.2 R (1):

(a) a firm which offers more than one key features scheme may choose whether to produce separate key features for each scheme (including a fund or sub-fund or share class), or to produce a single key features to cover a range of funds (provided the differences between those funds are made clear);
(b) where a publication covers more than one key features scheme (for example, in the case of a year book comprising information on all the funds offered by a unit trust manager), it might consist of a key features section at the beginning giving details common to all the relevant funds (whether unit trusts, ICVCs, sub-funds of an umbrella scheme or share classes within an ICVC), followed by separate pages setting out, for each fund, those items which are specific to it, for example 'Aims', 'Risk Factors' and 'Charges and their Effect'.

01/10/2005

Stakeholder pension schemes: decision trees

COB 6.5.5

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

01/08/2002

COB 6.5.6

Where a firm knows that a certain decision tree or trees will not be relevant to a private customer to whom key features are to be given, the firm can omit them and include only the relevant decision tree or trees.

01/12/2001

COB 6.5.7

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

01/12/2001

COB 6.5.8

(1) Whether a firm produces decision trees within or separate from key features, it must (unless COB 6.5.9 R applies and subject to COB 6.5.8A R) reproduce the text, content and format set out in COB 6 Annex 1.
(2) If COB 6 Annex 1 is subsequently amended:

(a) the firm must amend its decision trees as soon as reasonably practicable and, in any case, within three months of the date when the amendments to COB 6 Annex 1 come into force; and
(b) the firm may continue to use decision trees that complied with the previous version of COB 6 Annex 1 until it has done so.

01/08/2002

COB 6.5.8A

A firm must ensure that its decision trees include:

(1) (in the place in the relevant table in the Further information text at COB 6 Annex 1 where the square brackets appear):

(a) in the heading of the table, the current tax year; and
(b) the Basic State Pension rates and Pension Credit minimum income rates for the current tax year;

(2) (where the square brackets appear) at the bottom of the cover page and at the bottom of each page of the flow charts, the current tax year; and
(3) (where the square brackets appear) in the introductory text where additional explanatory text within Further information is signposted, the appropriate page number.

01/05/2004

COB 6.5.8B

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

01/08/2002

COB 6.5.8C

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

01/08/2002

COB 6.5.8D

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

01/08/2002

COB 6.5.8E

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

01/08/2002

COB 6.5.8F

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

01/08/2002

COB 6.5.9

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

01/08/2002

COB 6.5.10

(1) There is a limited scope within COB 6.5.9 R to depart from the prescribed decision tree format and content in order to blend in the trees with other promotional materials such as key features or internet financial promotions. However, the text and general design should follow the prescribed content and format. Firms will be aware that the FSA publishes its own version of the decision trees for public use: firms may consider them as examples of acceptable design.
(2) Examples of items and formatting where no adaptations should be made include:

(a) the text - both content and order, whether in the introduction, the boxes within the flowcharts, or any other sections of the decision trees;
(b) the use of boxed items within the introductory text;
(c) the use of emphasis (firms can choose the method of giving emphasis, such as size, bold or italic text);
(d) the vertical flow and pagination of the flowcharts within the decision trees;
(e) the boxes within the flowchart pages, these should be rectangular and filled with one consistent colour, except that two tints of the base colour may be used to highlight tick boxes and to differentiate columns of figures;
(f) the directional arrows linking the boxes within flowchart pages, these should be of one design and the same colour as fills the flowchart boxes.

(3) Examples of items where adaptations can be made include:

(a) the typeface and font size of the text;
(b) the pagination of the introductory text and the use of columns;
(c) the edging of boxes (for example, use of shadow or rounded corners);
(d) the use of background colours, for example, to match corporate colours or product brochures (see (2)(e));
(e) separate colour schemes to differentiate between sets of decision trees, for example between employed and self-employed versions;
(f) the use of an extra colour to highlight headings within flowchart pages and to identify separate versions of the decision trees;
(g) the size of paper used (A4 is recommended, but other sizes are possible, provided that the flowchart pages are clear and legible);
(h) where delivery is through an interactive computer-based system, the wording of the introductory text that explains how to use the decision trees.

01/12/2001

COB 6.5.11

Table of Information/Applicable provisions

This table belongs to COB 6.5.2 R (1)

Information

Applicable provisions

Title

COB 6.5.12 R

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

COB 6.5.13 R - COB 6.5.14 G

An example

COB 6.5.15 R - COB 6.5.19 R

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

COB 6.5.20 R

Tables:

Life policies
Key features schemes

COB 6.5.23 R - COB 6.5.26 R
COB 6.5.30 R - COB 6.5.32 R

Deductions summary:

Life policies
Key features schemes

COB 6.5.27 R - COB 6.5.29 R
COB 6.5.33 R - COB 6.5.36 G

Commission and remuneration

COB 6.5.38 R - COB 6.5.39 G

Further information

COB 6.5.40 R

01/10/2005

Title

COB 6.5.12

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

01/10/2005

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

COB 6.5.13

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

01/10/2005

COB 6.5.14

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

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

(a) the contractual terms and benefits of the packaged product which the private customer is or may be acquiring; or
(b) the contractual terms and benefits of any of the product provider's other products; or
(c) the business activities of the product provider or its associates;

if they have or may have a material adverse effect on the returns to the private customer or are otherwise material to his decision to invest; and
(18) in the case of a long-term care insurance contract which is based on single premium investment bonds, the fact that the income produced by the bonds may be insufficient to continue to meet the premiums of the underlying contract of insurance. The description could also explain the consequences of this, including, if it is the case, that capital may be eroded, further single premium may be payable, or the cover reduced.

01/01/2004

An example

COB 6.5.15

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

(1) where the proposed transaction is for a life policy other than:

(a) a long-term care insurance contract which is a pure protection contract;
(b) a linked life stakeholder product.
(c) one that relates to a CTF or a stakeholder product sold through basic advice,

(2) where the proposed transaction does not relate to a CTF or a stakeholder product sold through basic advice and is for a key features scheme or a linked life stakeholder product:

(a) and relates to an election to make income withdrawals or purchase of a short-term annuity; or
(b) where the private customer's primary objective is to acquire;

(i) a specified sum of money on a specified date; or
(ii) a specified sum of money on death; or
(iii) an annuity of a specified amount payable as from a specified date.

06/04/2006

COB 6.5.16

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

01/10/2005

COB 6.5.16A

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

31/10/2004

COB 6.5.16B

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

06/04/2007

COB 6.5.17

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

01/11/2002

COB 6.5.18

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

01/12/2001

COB 6.5.19

(1) A life policy projection in key features must be specific to the private customer, calculated on the basis of the private customer's age and sex, the sum assured, the premium and other principal factors of the proposed life policy unless:

(a) the life policy is a single premium life policy; or
(b) the total premiums payable do not exceed £120 a year (or £130 a year if the premiums are paid every four weeks); or
(c) the total premiums are less than £1,000; or
(d) the key features are part of a direct offer financial promotion; or
(e) the projection is in respect of a stakeholder product (which is not a stakeholder pension).

(2) If (1)(a), (b), (c) or (d) applies and no customer specific projection is included, a projection must be provided which typically represents the type of business which the firm conducts (or proposes to conduct) in relation to the life policy in question.
(3) A scheme projection in key features must be based on either:

(a) the actual amount which the private customer is proposing to invest; or
(b) an amount which typically represents the type of business which the firm conducts (or proposes to conduct) in relation to the scheme in question;

unless it is for income withdrawals or purchase of a short-term annuity, when it must be on the basis of (a).

06/04/2006

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

COB 6.5.20

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

01/10/2005

COB 6.5.21

The information required by COB 6.5.20 R should include:

(1) for a life policy such as an endowment which is being used to repay an interest-only mortgage loan, details of how and when the private customer will be notified whether the life policy is on target to provide sufficient funds to repay the loan and, if it is not, what options the private customer has;
(2) for a life policy, the consequences of making the life policy paid up or taking a contribution holiday;
(3) for an FSAVC, a prominent warning that, as an alternative, a scheme AVC exists which may offer better terms, details of which can be obtained from the occupational pension scheme administrator;
(3A) for a long-term care insurance contract, information to make policyholders aware of the importance of:

(a) regularly reviewing their circumstances and the likely costs of long-term care with a view to ensuring that their long-term care needs continue to be appropriately covered; and
(b) seeking advice in the event of change affecting the policyholder's long-term care needs, or in the event of a variation of the contract terms so as to provide long-term care benefits;

(3B) for a long-term care insurance contract in which the insurer has the right to review the premium:

(a) a statement of that fact, the frequency of any right to vary the premium payable and a description of the circumstances which would give rise to a variation of the premium, for example, a change in claims experience;
(b) a statement of the consequences of not paying any increased or extra premium resulting from any review, such as a reduction in policy benefits;
(c) a statement of the rate of investment return assumed in the premium calculation together with a note of each other main assumption subject to variation;
(d) a statement that the higher the assumed rate of investment return, the greater the chances of being asked to pay increased or extra premiums following a premium review;
(e) if the rate of investment growth assumed in the premium calculation is more than the intermediate rate shown in COB 6.6.50 R, an illustration of the potential increased regular premium or additional single premium that may be payable following the first premium review, assuming that the rate of investment return achieved up to the review and assumed thereafter was at the intermediate rate shown in COB 6.6.50 R;

(3C) for a long-term care insurance contract in which long-term care benefits are available after commencement of the policy at the option of the policyholder, a statement of the amount of premium payable for that option. Where any change to the level of cover requires further underwriting this should, where possible, be made clear at the outset.
(4) for a long-term care insurance contract which is based on single premium investment bonds -

(a) a statement drawing attention to the possible effect on the capital invested where withdrawals are taken to pay for care; this can be communicated by including a standard, non-client-specific, example comparing the effect of claim payments on the value of the life policy, first assuming no claims and then assuming a claim beginning at age 80 and lasting for five years; the standard mid rate of return should be used assuming claim payments at the highest benefit level payable under the life policy; and
(b) information to make the private customer aware that he can use key features to compare the investment potential of different product providers' packaged products, for example surrender values at various times and the effect of deductions;

(5) for a personal pension scheme, including a group personal pension scheme, a clear and prominent indication of the general availability of stakeholder pension schemes and the fact that these might meet the consumer's needs at least as well as the personal pension scheme on offer;
(6) for a stakeholder pension scheme, a description of the default investment option offered under regulation 3(5) of the Stakeholder Pension Schemes Regulations 2000;
(7) for an individual pension account:

(a) where the key features relate to a stakeholder pension scheme or personal pension scheme and the firm chooses to highlight, within key features or elsewhere, that the investment will be made through an IPA, a statement:

(i) identifying by name any IPA eligible investments which are to be or may be held as assets of the stakeholder pension scheme or personal pension scheme; and
(ii) indicating which of those assets will benefit from the Stamp Duty Reserve Tax exemption available to IPA's;

(b) where the firm is acting as an operator or distributor of a regulated collective investment scheme or investment trust savings scheme and elects to include within key features a statement that some or all of the investments are IPA eligible investments, an indication in respect of each such investment whether pension scheme members will benefit from the Stamp Duty Reserve Tax exemption available to IPA's;

(8) for a life policy or a key features scheme which is to be held within a CTF the information referred to in COB 6.5.40 R (7); and
(9) for a with-profits policy, a cross-reference to the CFPPFM (see COB 6.10.9G G (8)).

31/12/2005

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

COB 6.5.22

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

01/10/2005

COB 6.5.22A

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

06/04/2007

Tables for life policies

COB 6.5.23

For life policies which can have a surrender value, a firm must include the contents of COB 6.5.24 R unless COB 6.5.28 R applies.

01/12/2001

COB 6.5.24

The early years

This table belongs to COB 6.5.23 R

The early years

WARNING - if you cash in during the early years you could get back less than you have paid in.

The last two columns assume that investments will grow at [insert the intermediate rate appropriate to the type of life policy set out in COB 6.6.50 ] a year.

At end of year

Total paid in to date

[Total actual deductions to date]

Effect of deductions to date

What you might get back

The later years

Notes: The column headed 'Total actual deductions to date' is optional. If included, it must follow the requirements in COB 6.5.23 - COB 6.5.29. In the case of a Holloway sickness policy, an indication of the total cost of risk benefits expressed as a figure in £s may be given by way of a footnote to the column headed 'Effect of deductions to date'.

01/12/2001

COB 6.5.25

When completing COB 6.5.24 R, a firm must:

(1) under the heading 'the early years' include figures for the first five years of the life policy or, if the life policy has a fixed term of less than five years, as many of them as fall before the maturity date;
(2) under the heading 'the later years' include figures for the tenth and every subsequent fifth year of the term of the life policy (or of the contract period as defined in COB 6.6.25 R if that is shorter) and for the final year, except in the following cases:

(a) for a whole-life policy, figures must be included for every tenth year and:

(i) the final year, assuming that the life policy will continue (unless and until converted to a fixed term) until the insured life (or the youngest insured life) attains the age of 75 years or to a term of ten years if that is later; or
(ii) the year in which the projected fund reaches zero if earlier than (i); the consequences of this must be drawn to the private customer's attention;

(b) in the case of a single premium life policy with no fixed term, a term of ten years should be assumed, but figures for a longer term may be shown in addition;
(c) for a ten-year life policy, the figures for the final year may be included in the 'early years' table;
(d) for an alternatively secured pension, figures must be included for each year for a term of ten years, but figures for a longer term can be shown in addition; and
(e) where there is any significant discontinuity in the trend of surrender or transfer values, figures should be given for all the intervening years.

(3) in the 'Total paid in to date' column, include cumulative totals of premiums paid (making adjustment as necessary to take account of any automatic premium changes);
(4) in the 'Total actual deductions to date' and 'Effect of deductions to date' columns, include the cumulative sum of the charges and expenses (as defined in COB 6.6.23 R) and the cost of any protection benefits expected to be levied against the life policy; they must be calculated in accordance with COB 6.5.29 R;
(5) in the 'What you might get back' column, include projections of surrender values for the life policy:

(a) these must be calculated in accordance with COB 6.6.38 R (projections of surrender values) assuming the premium and any other relevant matters given for the purposes of COB 6.5.13 R (Nature of policy) and COB 6.5.15 R (An Example);
(b) the surrender value of a premium on a particular date must be calculated by assuming that any premium payable on that date is payable on the following day; and
(c) where any surrender values are guaranteed they must be provided with a suitably adjusted heading and introductory text;

(6) where the life policy is a personal pension, replace 'What you might get back' with 'What the transfer value might be' and make suitable amendments to the explanatory text; for a personal pension policy with income withdrawals or short-term annuity it must be replaced with 'Open market value';
(7) where the private customer is entitled to exercise and has chosen, or expressed the intention, to exercise the right to make partial surrenders, include a column headed 'Withdrawals' or, in the case of a personal pension with income withdrawals or short-term annuity, 'Total income taken'; the sum of withdrawals must be shown;
(8) for a personal pension with income withdrawals or short-term annuity, include a table headed 'What effect will the deductions have?' instead of 'The early years' and 'The later years'; where there is any charge or penalty in calculating the open market value, all the years to which this applies should be given; and
(9) in the case of a long-term care insurance contract based on single premium investment bonds, where the standard ten-year table does not illustrate adequately how the charges taken from a policy can increase considerably with age:

(a) the table must be extended to show figures at ten-year intervals and the year in which the private customer attains 100 years or the year the fund is exhausted if earlier; but
(b) the standard ten-year figure must be used for the reduction in yield and the accompanying words amended accordingly;

(10) in the case of a stakeholder product (which is not a stakeholder pension) the table may be given on the basis of generic figures and values.

06/04/2006

COB 6.5.26

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

01/12/2001

Deductions summary for life policies

COB 6.5.27

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

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

01/12/2001

COB 6.5.28

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

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

01/12/2001

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

COB 6.5.29

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

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

01/12/2001

Table for key features schemes

COB 6.5.30

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

01/10/2005

COB 6.5.31

This table belongs to COB 6.5.30 R

How will charges and expenses affect my investment?

[Give an indication of the nature and amount or rate of the charges and expenses which the private customer will or may bear, including any relevant proportion of scheme charges deducted directly from the fund or not directly attributed to the account of the private customer. In describing the nature of charges state how the charges will be made, in particular whether they will be taken from capital or income. Include a statement that dealing costs are not included.]

[Give a statement that there is a buying price and a selling price (if that is the case) and that the difference between them is called the 'spread', and an indication of where up-to-date information may be obtained on these prices.]

Their effect on an investment of £______ assuming growth of [insert the intermediate rate appropriate to the type of scheme (set out in COB 6.6.49 )] a year, is set out below

[Where (except as described in COB 6.5.15 (2) ) a projection is not a requirement, include a statement that the figures are not guaranteed and serve only to demonstrate the effect of charges and expenses on an investment.]

At end of year

Investment to Date

Effect of deductions to date

What you might get back [at the appropriate intermediate rate]

01/12/2001

COB 6.5.32

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

(1) when the inclusion of a scheme projection within key features is compulsory in accordance with COB 6.5.15 R (2), include figures calculated in accordance with COB 6.6 (Projections):

(a) at the end of years 1, 3, 5 and 10 and (optionally) for years 2 and 4;
(b) then for each fifth year following the tenth year which falls within the period of the projection; and
(c) the final year of the projection;

(2) when a scheme projection is not required by COB 6.5.15 R (2) but is included at a firm's discretion, include figures at the end of years 5 and 10 and (optionally) for years 1 and 3 or for years 1 to 4, all calculated in accordance with COB 6.6 (Projections);
(3) in the 'Investment to date' column, include:

(a) the actual amount which the private customer is proposing to invest; or
(b) an amount which is representative of the type of business which the firm conducts (or proposes to conduct) in relation to the contract in question;

but where, under COB 6.5.15 R (2), a projection is included in the key features, the amount shown as the 'Investment' must be the same as the amount used as the basis for the projection;
(4) in the 'Effect of deductions to date' column, include the cumulative sum of charges and expenses (as defined in COB 6.6.23 R) for each of the years shown, these figures must be calculated in accordance with COB 6.5.35 R- Calculation Method for Effect of charges to date;
(5) in the 'What you might get back' column, include figures taking account of charges and expenses showing what the value might be if the scheme were cashed in;
(6) where the contract is a personal pension, replace 'What you might get back' with 'What the transfer value might be', and make suitable amendments to the explanatory text; for a personal pension contract with income withdrawals or short-term annuity the replacement must be 'Open market value';
(7) include extra columns in the Table in the following cases:

(a) where the private customer is entitled to exercise and has chosen, or expressed the intention, to exercise the right to make partial withdrawals, an extra column must be included headed 'Withdrawals' or, in the case of a personal pension contract with income withdrawals or short-term annuity, 'Total income taken'; 'Withdrawals' must include distributions of income;
(b) where the investment involves periodic redemptions at pre-determined intervals to make payments to the private customer, a column headed 'Redemptions' is needed;
(c) where the investment distributes income and does not involve the automatic reinvestment of this income, a column headed 'Income' must be included;

in (a), (b) and (c) the arithmetic sum of the withdrawals or redemptions or income payments must be stated, on the assumption that these are made throughout on the same basis as contemplated at the time the projection was prepared; the method set out in COB 6.6.36 R must be used to calculate distributions of income;
(8) for a personal pension contract with income withdrawals or short-term annuity, include in a table under the heading 'What effect will deductions have?' figures for every fifth year; where there is any charge or penalty in calculating the open market value, all the years to which this applies must be given;
(9) include a statement that allowance for tax relief has been made in the calculation where any tax relief available to the scheme has been taken into account in the calculation of charges and expenses.
(10) in the case of a stakeholder product (which is not a stakeholder pension) the table may be given on the basis of generic figures and values.

06/04/2006

Deductions summary for key features schemes

COB 6.5.33

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

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

01/12/2001

COB 6.5.34

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

01/12/2001

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

COB 6.5.35

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

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

01/12/2001

COB 6.5.36

COB 6.5.35 R (5) applies, for example, to money market schemes and bond funds.

01/12/2001

Stakeholder pension schemes

COB 6.5.37

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

01/12/2001

CTFs and stakeholder products: annual charges

COB 6.5.37A

(1) If a firm imposes one annual charge including expenses, it need not make the detailed disclosures required by COB 6.5.24 and COB 6.5.30; but if it does not make those disclosures, it must instead include either:

(a) the following statement (the last sentence must be included if and only if it is clear at the time of acquisition that the annual charge will reduce to r% after a fixed period):

"There is an annual charge of [y]% of the value of the funds you accumulate. If your fund is valued at £250 throughout the year, this means we deduct [£250 x y/100] that year. If your fund is valued at £500 throughout the year, this means we deduct [£500 x y/100] that year. After ten years these deductions would reduce to [£250 x r/100] and [£500 x r/100] respectively."
or;

(b) the information required by COB 6.5.20.

01/12/2004

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

COB 6.5.38

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

(1) for life policies (other than long-term care insurance contracts which are pure protection contracts) or stakeholder pension schemes: 'Your adviser will give you details about the cost. The amount will depend on the size of the premium and the length of the policy term. It will be paid for out of the deductions'; or
(1A) for key features schemes : 'Your adviser will give you details about the cost. The amount will depend on the size of your [use: 'investment' or 'contribution'] [add if appropriate: 'and in the case of regular savings the period for which you make them']. It will be paid for out of the charges'; or
(1B) for long-term care insurance contracts which are pure protection contracts: 'Your adviser will give you details about the cost. The amount will depend on the size of the premium and the length of the policy term.'
(2)

(a) the amount or value in cash terms of the commission or remuneration, and an indication of the timing of these payments; and
(b) a statement that commission or equivalent is paid for out of 'the deductions or charges, if more appropriate' and, if applicable, that the amount will depend on the size of the premium or contribution and the length of the life policy, scheme or stakeholder pension scheme term.

01/10/2005

COB 6.5.39

The information given under COB 6.5.38 R (2) may include the name of the representative to whom the commission or equivalent is to be paid.

01/12/2001

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

COB 6.5.40

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

(1) for life policies:

(a) a clear indication, in one place, of the nature and amount or rate of any charges or expenses which the private customer will or may bear; if charges or expenses are levied in the form of reduced investment, both the method and effect must be clearly explained; in the case of a single premium charge for mortality or morbidity under linked benefit policies, it is sufficient to describe its nature and basis;
(b) the information that Annex III to the Consolidated Life Directive requires to be communicated to policyholders, which is specified in COB 6.5.49 R; and
(c) an explanation how the private customer may obtain further information about compensation arrangements and other matters relating to the life policy;

(2) for all key features schemes , an explanation that other information about the scheme is available on request and how it may be obtained;
(3) for regulated collective investment schemes that constitute key features schemes and for such investments held within a PEP or an ISA:

(a) a statement where details of the latest estimated distribution yield and buying and selling prices can be found;
(b) in the case of any purchase, how and when the price to be allocated in respect of each payment will be determined;
(c) whether certificates will be issued and, if so, when they will be sent;
(d) how units or shares may be redeemed and when payment on redemption will be made;
(e) the names and addresses of the scheme manager or authorised corporate director, and the names of the trustees, or depositary (if any);
(f) where and how copies of scheme particulars, annual and half-yearly reports and accounts and prospectuses can be obtained;
(g) an explanation of any relevant right to cancel or withdraw, or, where it is the case, that such rights do not apply;
(h) how complaints and queries are dealt with and how further details of compensation arrangements (if any) can be obtained;
(i) a summary of the private customer's potential liability (if any) to income tax and capital gains tax;
(j) whether the private customer has a choice to reinvest income, where uninvested money will be held and whether interest is paid on such money;
(k) for single-priced schemes:

(i) how the scheme may suffer dealing costs as a result of transactions in units; and
(ii) whether it is the authorised fund manager's policy that investors who carry out such transactions may be liable to contribute towards those dealing costs by means of a dilution levy or dilution adjustment, and, if not, an explanation of how this may affect the future growth of the scheme;

(l) in relation to SDRT provision:

(i) how the scheme may suffer stamp duty reserve tax as a result of transactions in units; and
(ii) whether the authorised fund manager's policy is such that an SDRT provision may be imposed;

(m) if there is any arrangement intended to result in a particular capital or income return from the units or shares or any investment objective of giving protection to their capital value or income return:

(i) details of that arrangement or protection;
(ii) for any related guarantee, sufficient details about the guarantor and the guarantee to enable a fair assessment of the guarantee; and
(iii) a description of the risks that could affect achievement of that return or protection including details of what happens when an investment is encashed before the expiry of any related guarantee or protection;

(n) if there is a class of limited issue shares or limited issue units, a summary of the restrictions on the issue and sale of those shares or units.

(4) for investment trust savings schemes and for such investments held within a PEP or an ISA:

(a) when shares will be purchased for the scheme, where uninvested money will be held and whether interest is paid;
(b) where information about the investment trust share price, yield, and premium and discount information can be obtained;
(c) where information about the net asset value and latest dividend can be found;
(d) whether the private customer has a choice to reinvest income, how it is reinvested, or how it is paid to the private customer;
(e) details of any nominees with which shares are registered;
(f) how shares can be sold and how the sale proceeds are determined;
(g) whether applications and payments will be acknowledged and whether contract notes or certificates are issued;
(h) whether there will be a statement of account showing details such as number and cost of shares and balance of cash;
(i) an explanation of any right to withdraw or cancel (as specified in COB 6.7) or, where it is the case, that such rights do not apply;
(j) where the investment trust report and accounts may be obtained;
(k) information about the manager and administrator of the scheme;
(l) the private customer's options in the case of items such as rights issues;
(m) how to stop investing in or how to leave a scheme and the position in respect of the shares held;
(n) terminations or alterations by the scheme manager;
(o) taxation details in respect of the private customer's investment; and
(p) how complaints are dealt with and how further details of compensation arrangements (if any) can be obtained;

(5) for ISAs with a stocks and shares (equity and insurance) component and PEPs, in addition to (1), (2), (3) or (4):

(a) a description of the nature of the services which will be provided for the private customer;
(b) [deleted]
(c) [deleted]
(d) a statement that the favourable tax treatment of ISAs may not be maintained;
(e) how and when statements (if any) will be sent;
(f) an explanation how the ISA or plan may be terminated or transferred to another ISA or PEP manager; and
(g) whether the ISA is a mini-or maxi-ISA agreement and an explanation of the differences between the two.

(6) For stakeholder pension schemes, an explanation how complaints are dealt with and how further details of compensation arrangements (if any) can be obtained.
(7) For investments held within a CTF:

(a) a prominent statement that after money is paid into a CTF it is locked in, and that this means that it can only be accessed by the child when he is 18, except as permitted by the CTF Regulations, and any contributions made to the CTF cannot be returned to the donor;
(b) if the CTF is a stakeholder CTF, an explanation of the minimum standards (as described in paragraph 2 of the Schedule to the CTF Regulations) and CTF lifestyling approach (as described in paragraph 2 of the Schedule to the CTF Regulations), together with a statement that satisfying these minimum standards does not mean that the investment is suitable for a customer or that there is any guarantee of performance;
(c) if the CTF is a non-stakeholder CTF, a prominent statement that it is not a stakeholder CTF and that a stakeholder CTF is available from a named alternative CTF provider, together with a detailed description of that stakeholder CTF;
(d) a statement that the CTF will not be opened until any cancellation period has expired; and
(e) a balanced comparison between stakeholder CTFs and non-stakeholder CTFs.

01/10/2005

COB 6.5.42

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

(1) [deleted]
(2) a statement making it clear whether the ISA is a mini or a maxi-ISA agreement and explaining the differences between the two;
(3) the minimum amount needed to open an account;
(4) the maximum yearly deposit;
(5) the interest rate earned, and if and how it may vary;
(6) the calculation of interest;
(7) how to make withdrawals and any limits;
(8) details of the arrangements for the application of the right to cancel, including the following:

(a) the options available on cancellation (a firm must either assist the private customer in switching accounts or refund all monies deposited together with interest);
(b) information about how cancellation will operate in circumstances where the account forms part of a maxi-ISA which contains other components;
(c) a statement that the effect of cancelling the last component has the effect of cancelling the entire ISA agreement and may also (where it is the case) delay the customer from entering into another ISA agreement until the next tax year; and
(d) a statement that a private customer who exercises a right to cancel will not incur any additional charges or be affected by any notice period;

(9) the arrangements for handling complaints;
(10) that the favourable tax treatment may not be maintained;
(11) that compensation may be available from the Financial Services Compensation Scheme;
(12) where applicable, that the firm cannot accept money directly and acts only as agent in arranging the cash deposit ISA, identifying the principal to whom such monies should be made payable, and explaining that the principal has accepted responsibility for the activities of the firm in relation to the cash deposit ISA;
(13) where a private customer can obtain further information about ISAs and, if applicable, other products within the firm's range; and
(14) a warning that a mini- and maxi-ISA may not be opened in the same tax year and that, by opening a mini cash ISA, the customer will be limiting the amount of investment in equities that he can make through ISAs, if he does not already have a mini stocks and shares or insurance ISA (not applicable for a TESSA-only ISA).

06/04/2005

COB 6.5.42A

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

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

01/12/2001

Friendly Society tax exempt policies

COB 6.5.43

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

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

09/10/2004

Traded life policies

COB 6.5.44

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

09/10/2004

Broker funds

COB 6.5.45

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

(1) the investment objectives, and the policies and strategies which are proposed to be followed to achieve those objectives;
(2) the relevant published index or other indicator with which comparison of the performance of the fund or scheme may fairly be made, which is, in the case of:

(a) life policies or pension funds:

(i) where the long-term insurer has its own managed unit-linked life or pension fund, the average performance of that managed fund; or
(ii) the average performance of one or more other funds, which are not broker funds, into which under the terms of the policy the private customer may switch, the objectives of which do not conflict with those of the broker fund; or
(iii) where there is no such fund, the sector average of general managed life or pension funds;

(b) broker unit trusts, the sector average of unit trusts appropriate to the objectives and strategy of the broker unit trust;

(3) a published index or sector average which the firm must identify as appropriate to the investment objectives and strategy of the fund or scheme under comparison; and
(4) the name of any person providing advice under the arrangement.

01/12/2001

Other information: post-sale confirmation: life policies

COB 6.5.46

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

01/12/2001

Consolidated Life Directive annex III: 'information for policyholders'

COB 6.5.47

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

01/12/2001

COB 6.5.48

The headings and other wordings within COB 6.5.49 R follow those used in the European Directives.

01/12/2001

COB 6.5.49

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

This table belongs to COB 6.5.47 R

Consolidated Life Directive - 'information for policyholders'

Information about the assurance undertaking

Information about the commitment

1. The name of the undertaking and its legal form

4. Definition of each benefit and each option

2. The name of the EEA State in which the head office and, where appropriate, the agency or branch concluding the policy is situated

5. Term of the policy

3. The address of the head office and, where appropriate, of the agency or branch concluding the policy

6. Means of terminating the policy

7. Means of payment of premiums and duration of payments

8. Means of calculation and distribution of bonuses

9. Indication of surrender and paid-up values and the extent to which they are guaranteed

10. Information on the premium for each benefit, both main benefits and supplementary benefits, where appropriate

11. For unit-linked policies, definition of the units to which the benefits are linked

12. Indication of the nature of the underlying assets for unit-linked policies

13. Arrangements for application of the right to cancel

14. General information on the tax arrangements applicable to the type of policy

15. The arrangements for handling complaints concerning policies by policyholders, lives assured or beneficiaries under policies, including, where appropriate, the existence of a complaints body, making clear that its existence is without prejudice to the right to take legal proceedings.

16. Law applicable to the policy where the parties do not have a free choice or, where the parties are free to choose the law applicable, the law the long-term insurer proposes to choose.

01/03/2003

Life policies: requests for quotations for surrender values

COB 6.5.50

When a long-term insurer receives:

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

01/09/2002

COB 6.5.51

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

01/09/2002

COB 6.5.52

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

01/09/2002

Open market option: "Wake-up letter"

COB 6.5.53

(1) A firm must provide a scheme member or policyholder described in (2) with the information set out in (3) in writing:

(a) when there is a request for a retirement quotation more than four months before the scheme member's or policyholder's intended retirement date; and
(b) at least four months before the scheme member's or policyholder's intended retirement date.

(2) A person in relation to whom (1) applies is a private customer who:

(a) is a member of a personal pension scheme; or
(b) is a member of a stakeholder pension scheme; or
(c) is the holder of a free-standing additional voluntary contribution contract; or
(d) (where an open market option is available under the contract terms) is the holder of a retirement annuity contract; or
(e) (where an open market option is available under the contract terms) is the holder of a pension buy-out contract.

(3) The information which a firm must provide in writing under (1) is an explanation of:

(a) the open market option (including the fact that companies offer different annuity rates and different types of annuity, and that these include:

(i) annuities which provide level or increasing benefits;
(ii) annuities which cover either a single life or make provision for a spouse or a partner; and
(iii) annuities which may be with or without guarantee on the early death of the scheme member or policyholder;

and that the scheme member or policyholder may get a better deal by shopping around);
(b) the financial advantages and disadvantages in general terms of making use of this option when compared with taking a pension annuity with that firm;
(c) how the scheme member or policyholder may make use of the open market option should he decide to do so; and
(d) the advisability of taking professional advice.

21/04/2005

COB 6.5.53A

A firm to which COB 6.5.53 R (3)(a) applies must also provide general information explaining characteristic features of the types of annuity mentioned.

21/04/2005

COB 6.5.54

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

01/09/2002

COB 6.5.55

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

21/04/2005

Open market option: "Reminder letter?"

COB 6.5.56

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

01/09/2002

Pension income withdrawals and phased retirement

COB 6.5.57

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

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

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

01/04/2003

COB 6.5.58

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

01/04/2003

COB 6.6

Projections

01/12/2004

Application

COB 6.6.1

COB 6.6 applies to a firm in respect of projections for life policies, key features schemes, simplified prospectus schemes, personal pension schemes and stakeholder pension schemes.

06/04/2007

Purpose

COB 6.6.2

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

01/05/2005

Content

COB 6.6.3

COB 6.6 sets out:

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

01/05/2005

General

COB 6.6.4

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

01/05/2005

COB 6.6.4A

If a firm produces a projection for a SIPP, it should do so in a way which is consistent with the principles in COB 6.6 (Projections).

06/04/2007

Exceptions

COB 6.6.5

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

(1) of the benefits payable under a defined benefit occupational pension scheme, unless they are money-purchase benefits;
(2) issued with a view to determining a maximum contribution allowed by HM Revenue and Customs, provided the assumptions used in calculating such a contribution are disclosed;
(3) if the benefits are fixed and do not depend on an assumption of a future investment return;
(4) of a benefit under an existing contract where the date to which the benefit is being projected is not more than six months after the date on which the projection is given;
(5) contained in a decision tree as specified in COB 6.5.8 R;
(6) of the benefits payable under pension scheme or a stakeholder pension scheme if they were:

(a) calculated and issued in accordance with regulations made under section 113 of the Pensions Schemes Act 1993; or
(b) calculated and issued as in (a) and, in addition, includes one or more of the following benefits:

(i) the projected fund at the projection date; or
(ii) the cash sum and the residual pension in real terms; or
(iii) the pension in real terms calculated assuming a rate of return 1% per annum less than that prescribed in the regulations; or

(c) calculated as in (a) or (b) but where the illustration of benefits is not required to be issued under the regulations by reference to proximity to the projection date or the small size of the fund.

(7) provided in accordance with COB 8.2.4 R and COB 8.2.17 E where the life policy, key features scheme, simplified prospectus scheme, or stakeholder pension scheme is a structured capital-at-risk product.

01/05/2005

COB 6.6.5A

(1) A revised projection to take account of a different marital or civil partnership status or projection date will fall within the exception in COB 6.6.5 R (6) as long as it meets the conditions of that rule.
(2) Where the exception in COB 6.6.5 R (6) does not apply and a firm provides a real value projection for a pension scheme or a stakeholder pension scheme, then normally it would be a type P projection if in terms of prices or a type Q projection if in terms of earnings. The calculation method is set out in COB 6.6.34 R (5).

05/12/2005

Higher volatility funds

COB 6.6.6

A firm must not provide a projection of possible investment returns or realisable values, or figures or statements which would enable the calculation of such a projection, for an investment in a higher volatility fund.

01/12/2001

Projections issued by independent intermediaries

COB 6.6.7

A firm must, in addition to complying with other rules in this section, ensure that a projection given to a particular customer is relevant to that customer's circumstances.

01/12/2001

Information to accompany projections

COB 6.6.8

(1) A document containing a projection must include the information detailed in COB 6.5 (Key Features) under the headings 'An Example', 'Tables', 'Deductions Summary' and 'Commission and Remuneration', unless (2) applies.
(2) The information under the headings 'Tables', 'Deductions Summary' and 'Commission and Remuneration' need not be included in a projection issued in respect of:

(a) an existing contract; or
(b) a financial promotion (other than a direct offer financial promotion); or
(c) an execution-only transaction relating to a key features scheme or a simplified prospectus scheme.

(3) If the projection relates to a contract to which regular premiums or contributions can be made, the total amount or number of premiums or contributions payable over the projection term must be made clear.
(3A) If the projection is a type P projection or a type Q projection, the basis used for increases in premiums or contributions must be disclosed.
(4) Other than a type P projection or a type Q projection, where a projection is given which makes allowance for increases in premiums or contributions, the premium or contribution in the final year must be shown (or, where the rate of possible future increments is based upon rates of growth in a salary or index, details of that salary or index).

01/05/2005

Generic and stochastic projections

COB 6.6.9

(1) A firm may provide a generic projection for illustrative purposes based on a single rate of investment return only in the following circumstances:

(a) in a financial promotion (other than a direct offer financial promotion) which comprises a table (or extracts from a table) published by a newspaper, magazine or other periodical publication, or by the firm itself, which compares illustrative projections from at least five product providers; or
(b) where the purpose is to indicate the likely cost of a proposed transaction; or
(c) to provide an estimate of the additional premium or contribution required to achieve a specified target; or
(d) when providing a type P projection or a type Q projection.

(2) A firm which provides a generic projection must ensure that:

(a) it does not relate solely to an existing contract;
(b) the rate of return used does not exceed the higher projection rate for its class of business;
(c) where the rate used exceeds the middle rate by more than 0.5 percentage point, a statement is included advising why it is believed reasonable to project at such a high rate of return;
(d) where the charges and expenses (as described in COB 6.6.23 R) of the product provider are available, they are used, or an estimate is given based on the firm's knowledge of the charges and expenses applicable to similar contracts;
(e) it is accompanied by the written statements contained in COB 6.6.17 R; and
(f) key features or a simplified prospectus are supplied in accordance with COB 6.1 to COB 6.5 (Key Features) if a recommendation is subsequently made.

(3) A firm may issue a stochastic projection only where:

(a) the purpose is to indicate a range of possible outcomes; and
(b) either:

(i) it is provided for the purpose of a proposed transaction; or
(ii) it is provided in addition to a projection which: (A) is not a stochastic projection but which complies with COB 6.6.4 R; or (B) is a projection excepted under COB 6.6.5 R(6).

(4) A firm which issues a stochastic projection must ensure that:

(a) it is based on a reasonable number of simulations and is consistent with the economic assumptions underlying the rates of inflation in COB 6.6.48A R and the intermediate rates of return in COB 6.6.50 R and COB 6.6.51 R;
(b) its presentation does not reduce the impact of non-stochastic projections; and
(c) it is issued only in circumstances in which the firm has taken reasonable steps to ascertain that the customer will be able to understand the stochastic projection.

01/05/2005

COB 6.6.9A

(1) For the purposes of COB 6.6.9 R (3)(a) and (4)(a) and (b):

(a) to indicate a range of expected outcomes, a firm should present the results:

(i) as amounts showing the median (50%) figure and, in addition, at least the amounts at 10% and 90%, or at least the amounts at 20% and 80%; or
(ii) graphically showing the frequency of results from at least 10% to 90%; or
(iii) in a diagrammatic form which indicates both the range and frequency of results;

(b) to base the stochastic projection on a reasonable number of simulations, a firm should incorporate the results of at least 500 simulations; to enable consistent projections to be issued and to facilitate recreating previously issued projections, a firm should use the same set of simulations until the investment model or the underlying assumptions are revised; and
(c) to be consistent with the economic assumptions, a firm should ensure that:

(i) the parameters of each asset class are consistent with each other and the median (50%) result for a fund invested 70% in UK equities and 30% in UK government fixed interest stocks does not exceed a projection calculated using the intermediate rate of return from COB 6.6.50 R or COB 6.6.51 R; and
(ii) the investment model is tested and adjusted so that the results are consistent with COB 6.6.9 R(4)(a).

(2) Compliance with (1) may be relied upon as tending to establish compliance with COB 6.6.9 R(3)(a) and (4)(a) and (b).

01/05/2003

Pension projections

COB 6.6.10

For pension targeting, a firm's own assumptions as to future rates of return (but not exceeding the higher rate of return as specified in COB 6.6.49 R), salary increases and inflation must be used to determine the level of contributions. Any allowance for salary increases used in pension targeting must not be less than the rate of return assumed before retirement less 3% per annum.

01/12/2001

COB 6.6.11

A projection in respect of the protected rights for an appropriate personal pension must, for the purpose of comparison, include a projection which:

(1) is calculated to the customer's State retirement age, using the lower and higher real rates of return specified in COB 6.6.52 R, together with a statement of the benefits which the minimum contributions would secure if the customer did not take out an appropriate personal pension;
(2) [deleted]
(3) aggregates contributions in respect of the current and the next two tax years;
(4) is followed by the appropriate personal pension projection and a description of any differences in:

(a) presentation, for example, real or monetary rates of return, joint or single life;
(b) the dates from which the benefits are assumed to be payable;
(c) the nature of the benefits, for example, index-linked or limited price indexation ('LPI') increases.

01/11/2002

COB 6.6.12

COB 6.6.11 R (1) to (3) require that, where the contract is in respect of contracting-out of the State Second Pension, there should be a comparison using real rates of return of the benefits being given up and the relevant contract. COB 6.6.11 R (4) permits additional projections provided that the differences are described.

01/11/2002

COB 6.6.13

A projection for an unsecured or alternatively secured pension from a personal pension or stakeholder pension scheme:

(1) must include:

(a) a statement of the initial amount of maximum income as specified in the current tables published by the Government Actuary for an unsecured or alternatively secured pension;
(b) a statement of the assumed initial level of income and the assumed basis for future years and in particular where there is a short-term annuity, if subsequent short-term annuities are assumed;
(c) a schedule showing under the heading 'WHAT THE BENEFITS MIGHT BE' the amount of income and the fund at each, or every fifth, anniversary for each of the rates of return specified in COB 6.6.49 R;
(d) a statement of the projected open market values and the amounts of annuity at age 75 or the date at which it is reasonably assumed an annuity will be purchased; and which for an alternatively secured pension will be after ten years; and
(e) a statement of the amount of annuity that could be secured using an immediate annuity rate available in the market; and

(2) must assume that the current rate of gilt-index yield will continue to apply in projecting amounts of minimum and maximum income throughout the term of the projection.

06/04/2006

Statements to accompany projections

COB 6.6.14

(1) A document containing a projection must include the appropriate statements set out in COB 6.6.16 R - COB 6.6.18 R.
(2) A statement may be altered if a firm believes on reasonable grounds that it is not wholly appropriate to the contract in question. But the alteration must not reduce the significance or impact of the statement.
(3) Any statement required to accompany a projection must appear adjacent to the projected values and be in a type size no smaller or less prominent than that used for the projected values.

01/11/2002

COB 6.6.15

(1) The statements in COB 6.6.16 R must accompany each projection for a life policy, key features scheme or simplified prospectus scheme as indicated, except a generic projection given in accordance with COB 6.6.9 R (see COB 6.6.17 R), or a protected rights annuity projection calculated in accordance with COB 6.6.11 R (see COB 6.6.18 R).
(2) For a pension scheme or stakeholder pension scheme, the appropriate statement from item 4 of COB 6.6.16 R must appear immediately after the projection.
(3) Where a pension scheme or stakeholder pension scheme projection, using monetary rates of return in COB 6.6.51 R, is provided at the same time as a type P projection or a type Q projection, the appropriate statement from COB 6.6.16 4 must appear immediately after the projection. The remainder of the appropriate statements in COB 6.6.16 R need only be included once, as long as the firm makes it clear that these statements apply to both types of projection.

01/05/2005

COB 6.6.16

Statements to accompany projections of life policies, key features schemes, simplified prospectus schemes, or stakeholder pension schemes (excluding generic projections and protected rights annuity projections)

This table belongs to COB 6.6.15 R

Statements to accompany projections of life policies, key features schemes, simplified prospectus schemes, or stakeholder pension schemes (excluding generic projections and protected rights annuity projections)

1. These figures are only examples and are not guaranteed - they are not minimum or maximum amounts. What you will get back depends on how your investment grows and on the tax treatment of the investment.

2. [You could get back] [your retirement fund could be] more or less than this.

3. All firms use the same rates of growth for projections but their charges vary. [They also use the same rates to show how funds may be converted into pension income].

4. (a) Do not forget that inflation would reduce what you could buy in the future with the amounts shown.
(b) This illustration shows, in today's prices, the pension that might be payable when you retire. This means we have allowed for future inflation to give you an indication of how much you would be able to buy with your pension if it were payable today.

5. [Your pension income will depend on how your investment grows and on interest rates at the time you retire].

6. These rates of return are not necessarily appropriate [for contracts written in] [for units traded in] [for shares traded in] currencies other than sterling.

7. Benefits may also be affected by fluctuations in exchange rates.

Note:
In respect of statement 4, the firm must include the appropriate statement (a) or (b).
Statement 5 applies to pension contracts only and statements 6 and 7 apply to non-sterling investments only.

01/05/2005

COB 6.6.17

Statements to accompany generic projections

This table belongs to COB 6.6.15 R

Statements to accompany generic projections

These figures are only illustrative.

An assessment of your needs will be confirmed before a recommendation can be made OR Your needs will be confirmed before a recommendation can be made.

Key features or a simplified prospectus , together with a projection which is personal to your circumstances, will be provided if a recommendation for an investment product is made.

01/05/2005

COB 6.6.18

Statements to accompany projections for protected rights contracts

This table belongs to COB 6.6.15 R

Statements to accompany projections for protected rights contracts

1. These figures are only meant to give you a rough idea of the amount of pension you might get compared with the benefit that you would be giving up under the State Second Pension.

2. The figures show what might happen if we achieved an investment return of [x%] or [y%] each year on top of the rate of earnings inflation.

3. They are only examples and are not guaranteed - they are not minimum or maximum amounts. What you will get back depends on how your investment grows.

4. You could get back more or less than this.

5. All firms use the same rates of growth for projections but their charges vary. They also use the same rates to illustrate how funds may be converted into pension income.

6. Your pension income will depend on how your investment grows and interest rates at the time you retire.

Note: [x%] and [y%] in statement 2 are the real rates of return used in the projection as specified in COB 6.6.51 .

01/11/2002

Records

COB 6.6.19

A firm must ensure that a record of a projection provided to a customer is made and retained, unless it relates to a proposal which does not proceed. The record must be retained for a minimum period of:

(1) six years in the case of a record relevant to a life policy, pension contract or stakeholder pension scheme;
(2) indefinitely in the case of a record relevant to a pension transfer or pension opt-out;
(3) three years in any other case.

01/12/2001

The calculation of a projection

COB 6.6.20

COB 6.6.21 R - COB 6.6.53 G set out:

(1) definitions of key terms used in the calculation of a projection (COB 6.6.21 R);
(2) the basic approach to be used when calculating a projection for life policies (COB 6.6.34 R), Holloway sickness policies( COB 6.6.35 R), key features schemes or simplified prospectus schemes (COB 6.6.36 R) and stakeholder pension schemes (COB 6.6.34 R);
(3) principles which must be taken into account when calculating a projection including general principles which may apply to all life policies, key features schemes, simplified prospectus schemes and stakeholder pension schemes (COB 6.6.37 R - COB 6.6.38 R) and specific principles applicable to certain types of product or features within a product (COB 6.6.39 R - COB 6.6.46 R);
(4) tables containing the rates of return to be used when calculating a projection depending on the type of contract being projected COB 6.6.47 R - COB 6.6.53 G).

01/05/2005

Key terms used in the calculation of a projection

COB 6.6.21

The descriptions of defined terms in COB 6.6.22 R to COB 6.6.33 R apply to all references to those terms in COB 6.6.34 R - COB 6.6.78 G which detail the method of calculating projections and of calculating charges and expenses and the recommended method of calculating scheme expenses.

01/12/2001

Adjusted premium

COB 6.6.22

(1) The adjusted premium is the premium or contribution payable under the contract during the contract period (defined in COB 6.6.25 R), disregarding any increases that cannot be quantified at the commencement of the contract (but allowing for any increases which are assumed and disclosed in the key features or projection).
(2) When calculating the amount of premium or contribution, a firm may deduct:

(a) the cost of any rider benefits;
(b) any part of a premium or contribution which is payable in respect of an exceptional mortality risk.

01/05/2005

Charges and expenses

COB 6.6.23

(1) For a key features scheme, simplified prospectus scheme or unit-linked life policy, charges and expenses are all explicit charges and expenses the customer will or may bear:

(a) including:

(i) all other deductions and expenses which will or may bear upon the fund (including charges in respect of any collective investment scheme or insurance fund in which any funds of the contract in question are invested but excluding dealing costs of the underlying portfolio); and
(ii) all deductions from the premium or contribution payable which do not accrue to the benefit of the customer by way of contribution to the value of the benefit;

(b) having regard to:

(i) the principal terms of the contract; and
(ii) any tax relief which will be available to the fund or key features scheme or simplified prospectus scheme in respect of so much of the fund's or scheme's gross expenses as can be properly attributed to the contract.

(2) For a with-profits contract, or a unit-linked life policy where not all charges and expenses are determined in accordance with (1), charges and expenses are such expenses as the firm reasonably determines to be appropriate to the contract having regard to:

(a) the principal terms of the contract;
(b) any tax relief which will be available to the firm in respect of so much of the firm's gross expenses as can properly be attributed to the contract;
(c) any transfers to shareholders' funds, or equivalent retentions from established surplus offset by any sustainable rate of transfer of surplus from non-profit business;
(d) dealing costs of the underlying portfolio which should be excluded; and
(e) any guidance published by the Institute of Actuaries or the Faculty of Actuaries (or by both jointly).

(3) If a contract has explicit charges, it should be assumed that they continue at a rate no less than that at which similar charges are being made at the time when the projection or calculation of the effect of the charges is made.

01/05/2005

COB 6.6.24

For the calculation of the effect of deductions in projections, charges are all explicit charges adjusted for tax as in COB 6.6.23 R (1)(b) and expenses are all other deductions. For stakeholder pension schemes, charges are all explicit charges and expenses for the underlying policy or contract, including any charges levied by the manager or trustees of the stakeholder pension scheme.

01/12/2001

Contract period

COB 6.6.25

The contract period of a life policy, key features scheme, simplified prospectus scheme or stakeholder pension scheme is the period beginning with the commencement of the contract and ending as follows:

(1) for a contract which contains an option under which benefits may be:

(a) payable earlier than the date on which they would be payable if the option were not exercised; and
(b) the marketing of which seeks to draw to the attention of customers the existence of an option or surrender value, so that it is reasonable to infer that the firm expects some customers to purchase the contract with the intention of exercising the option or surrendering the contract in whole or in part;

on the earliest date on which an option may be exercised or the contract may be surrendered (in whole or in part);
(2) for a contract which is a whole life assurance the premiums under which are regular premiums:

(a) the anniversary of the commencement of the contract which first falls after the seventy-fifth birthday of the person whose life is assured under the contract, taking, if there are two or more such persons:

(i) the older or oldest if the benefits under the contract are payable on the death of the first of them to die; and
(ii) the younger or youngest in any other case; or

(b) the tenth anniversary of the commencement of the contract;

whichever is the later;
(3) in the case of an endowment assurance or a non-pension deferred annuity, the premiums under which are regular premiums, on the maturity date;
(4) in the case of an endowment assurance or a non-pension deferred annuity under which the only premium payable is a single premium and the term of which does not exceed ten years, on the maturity date;
(5) in the case of a Holloway sickness policy, on the latest date on which the sickness benefit will cease to be payable;
(6) in the case of a pension contract other than an immediate annuity, on the maturity date or, if the contract provides for annuities at various dates, the latest date at which an annuity may be purchased, except for an alternatively secured pension, where this is at the tenth anniversary of the contract;
(7) in the case of an immediate annuity, on the date to which the customer is expected to live, calculating the expectancy of life for this purpose by reference to an appropriate mortality basis; and
(8) for the purpose of this section 'maturity date' means:

(a) in relation to an endowment type assurance, the date specified in the contract as the maturity date;
(b) in relation to a pension contract or stakeholder pension scheme, the vesting date of the annuity payable under the contract or, if no vesting date for the annuity is specified in the contract, the date specified in relation to the annuity as the retirement date by the firm in the projection in question, being a date not earlier than the earliest date on which the annuity could vest and not later than the latest such date.

06/04/2006

COB 6.6.26

In the case of any contract which falls within both COB 6.6.25 R (1) and one or more of COB 6.6.25 R (2)- (7), the contract period must be determined by reference to COB 6.6.25 R (1).

01/12/2001

COB 6.6.27

In the case of any contract not falling within COB 6.6.25 R, then:

(1) for key features schemes and simplified prospectus schemes, the contract period will end on the tenth anniversary of the commencement date of the contract; and
(2) for all other contracts there will be two contract periods, the first ending on the fifth anniversary of the commencement date of the contract, and the second ending on the tenth anniversary of the commencement date.

01/05/2005

Cost of risk benefits

COB 6.6.28

Cost of risk benefits means:

(1) explicit mortality or morbidity charges (at a level no lower than the current level); or
(2) the implicit cost or effect of mortality or morbidity appropriate to the class of customers;

and risk benefits means all forms of mortality and sickness benefits under a contract.

01/12/2001

Relevant contribution

COB 6.6.29

The relevant contribution is the actual payment or payments to be made by the customer, or a sum which reasonably reflects the amounts which the customer is proposing to invest, into a key features scheme or simplified prospectus scheme, except in the case of a protected rights annuity (see COB 6.6.31 R).

01/05/2005

Relevant premium

COB 6.6.30

The relevant premium is the actual premium payable under a life policy less an amount equal to the cost of any rider benefit, except in the case of a protected rights annuity (see COB 6.6.31 R).

01/12/2001

Relevant premium or contribution for protected rights annuities

COB 6.6.31

The relevant premium or contribution in relation to a protected rights annuity is an amount that may reasonably be estimated to be paid by the Secretary of State or the Department of Social Services for Northern Ireland by way of minimum contributions in respect of the customer involved.

01/12/2001

COB 6.6.32

The relevant premium or contribution may include amounts in respect of minimum contributions expected to be paid in future years. This applies if the estimate for those years makes allowance for the most recent assumptions published by the Government Actuary in respect of the future years, and these assumptions and the period of any projection are made clear.

01/12/2001

Relevant rate of return

COB 6.6.33

The relevant rate of return is the intermediate projection rate appropriate to the category of business as set out in COB 6.6.50 R - COB 6.6.52 R, or the lower rate if COB 6.6.38 R (1) (Projections of surrender values and transfer values) applies.

01/12/2001

Basic calculation method life policy or stakeholder pension scheme calculation

COB 6.6.34

(1) A projection of any future benefit payable under a life policy or stakeholder pension scheme must be calculated by reference to the relevant premium for the policy or stakeholder pension scheme.
(2) The relevant premium must be accumulated to the projection date at the rate of return for its class of business as detailed in COB 6.6.50 R to COB 6.6.52 R, subject to charges and expenses (as described in COB 6.6.23 R) and the cost of risk benefits. The intermediate projection rate need not be used for an existing contract.
(3) An allowance must be made where a customer has exercised or has expressed the intention to exercise an option to effect a partial surrender of a policy.
(4) Allowance must not be made for income withdrawals, surrenders, lapses or early discontinuance, except as in (3).
(5) A type P projection or a type Q projection must be calculated as follows:

(a) the relevant premium for the pension scheme or stakeholder pension scheme must be used;
(b) the relevant premium, with allowance for premium increases as specified in COB 6.6.48A R, must be accumulated to the projection date at the intermediate monetary rate of return detailed in COB 6.6.51 R subject to charges and expenses (as described in COB 6.6.23 R) and the cost of risk benefits;
(c) the retirement fund from (b) must then be converted to a real retirement fund by discounting from the projection date using the rate of increase in the retail prices index (for type P projection) or the rate of increase in earnings (for type Q projection) in COB 6.6.48A R;
(d) the pension must be calculated from the real retirement fund using the appropriate intermediate rate in COB 6.6.51 R, using the mortality tables in COB 6.6.84 R, the format in COB 6.6.82 R (7) and expenses in COB 6.6.83 R.

01/11/2002

Holloway sickness policy calculation

COB 6.6.35

For a Holloway sickness policy issued by a friendly society, a rate of bonus no greater than that last declared by the friendly society must be accumulated, with allowance for applicable charges and expenses (as described in COB 6.6.23 R) at the rates of return set out in COB 6.6.50 R until the projection date.

01/12/2001

Key features scheme and simplified prospectus scheme calculation

COB 6.6.36

(1) A projection of any future benefit payable under a key features scheme or simplified prospectus scheme must be calculated by reference to the relevant contribution for the scheme.
(2) The relevant contribution must be accumulated to the projection date at the rates of return for the relevant class of business as detailed in COB 6.6.50 R, subject to charges and expenses (as described in COB 6.6.23 R). The intermediate rate of return need not be used for an existing contract.
(3) An allowance must be made where a customer has exercised or expressed the intention to exercise an option under the key features scheme or simplified prospectus scheme to make withdrawals, either by:

(a) encashment of units; or
(b) distribution of income, which must be calculated using an estimated gross distribution yield, reduced by the rate of tax relevant to the contract; the distribution yield must be rounded to the higher 0.1%.

(4) No allowance must be made for the distribution of income except as in (3).
(5) A type P projection or, a type Q projection must be calculated in accordance with COB 6.6.34 R (5) but substituting "contribution" for "premium" throughout.

01/05/2005

General rules applicable to the calculation of projections

COB 6.6.37

(1) A projection must be rounded down to not more than three significant figures.
(2) Where the projection, other than a projection in real terms of a pension contract or stakeholder pension scheme, is less than the amount guaranteed under the life policy, key features scheme or simplified prospectus scheme, the projection must be increased to that guaranteed amount.
(3) Where a customer is entitled, and has expressed the intention, to increase the premium or contribution by an amount linked to future salary or other index increases, the relevant premium or contribution may be calculated:

(a) for a type P projection or a type Q projection, making allowance for increases at the relevant rate set out in COB 6.6.48A R; and
(b) for all other cases, by making allowance for such increases on the same basis as that used for administration charges in COB 6.6.47 R.

01/05/2005

Projections of surrender values and transfer values

COB 6.6.38

A projection of a surrender or transfer value:

(1) must be given using the intermediate rate of return appropriate to its category of business, unless:

(a) the firm reasonably expects the rate to overstate the potential of the contract, in which case a lower rate of return must be used and disclosed; or
(b) the customer so requests, in which case a lower rate of return may be used, and the fact that it has been used must be disclosed;

(2) must make allowance for partial surrenders of a contract where the contract terms permit this and the customer has exercised this option or expressed the intention to do so;
(3) must allow for the firm's surrender value basis and reflect the current approach of the firm towards applying penalties on surrender, including less than full credit for accrued terminal bonus, specific penalties or exit charges; and
(4) for a with-profits contract where bonus rates apply, must ensure that the bonus rates supported by the relevant premium are assumed to apply throughout the term of the contract.

01/12/2001

Rules specific to products or features of products: annuities

COB 6.6.39

(1) Any projection of an annuity with one or more years to maturity must show an annuity value based on the higher and lower rates of return as set out in COB 6.6.50 R to COB 6.6.52 R, and make allowance for:

(a) mortality (as set out in COB 6.6.84 R) and also, in the case of life policies, morbidity appropriate to the class of customers; and
(b) charges and expenses (as described in COB 6.6.23 R).

(2) Any projection of an annuity with less than one year to maturity must be calculated using annuity rates no more favourable than the firm's current immediate annuity rates.
(3) Where a firm which does not offer annuities issues a projection for a contract the proceeds of which are to be applied to the purchase of an annuity, the firm must use annuity rates no more favourable than those currently being used in the open market for such a projection.

01/11/2002

COB 6.6.40

In the case of a contract for an immediate annuity:

(1) the uniform rate of continuous change in annuity supported by the actual premium to be paid must be determined for each rate of return with allowance for:

(a) mortality appropriate to the class of customer; and
(b) charges and expenses (as described in COB 6.6.23 R) on the assumptions used when calculating the firm's own annuity rates;

(2) the rate of continuous change in annuity calculated must then be:

(a) applied to the initial annuity under the contract which is the subject of the projection; and
(b) assumed to be maintained throughout the term of the contract.

01/12/2001

Appropriate personal pensions and protected rights annuities

COB 6.6.41

(1) The retirement fund for a protected rights annuity under an appropriate personal pension scheme or stakeholder pension scheme must be calculated by accumulating the relevant contribution less charges and expenses (as described in COB 6.6.23 R) at the relevant rates of return for the period.

(a) The relevant period is either:

(i) where the relevant contribution is a minimum contribution, from the 1st September following the end of the tax year to which the minimum contribution relates up to the maturity date; or
(ii) where the relevant contribution is a transfer value, from the commencement of the contract up to the maturity date.

(b) The relevant rates of return are:

(i) in the case of a protected rights annuity projection issued in accordance with COB 6.6.11 R (1), the real rate of return in COB 6.6.52 R;
(ii) in the case of any other protected rights annuity projection, the monetary rates of return in COB 6.6.51 R.

(2) The annuity must be calculated by reference to the retirement fund using the relevant rates of return set out in COB 6.6.51 R, with allowance for mortality (as set out in COB 6.6.84 R) charges and expenses and the relevant rate of increase in payment.

01/12/2001

Pension schemes or stakeholder pension schemes

COB 6.6.42

(1) An additional projection may be given for a pension scheme or stakeholder pension scheme where the period to maturity is five years or less. This:

(a) may be calculated using the intermediate rates of return specified in COB 6.6.51 R or COB 6.6.52 R;
(b) may use a current annuity rate calculated using a rate of return no higher than the higher rate specified in COB 6.6.51 R or COB 6.6.52 R.

(2) If the firm providing the projection offers annuities, it must use its own annuity rates.

01/11/2002

Single premium contracts

COB 6.6.43

A projection relating to a series of single premiums (other than a protected rights annuity) may be a calculation set out as if those premiums were regular premiums, provided:

(1) it is not otherwise given on a misleading basis;
(2) the firm is bound unconditionally, and by express terms of the contract, to accept all single premiums which may be paid by the customer under the contract.

01/12/2001

With-profits endowment business

COB 6.6.44

For with-profit endowment assurance where the amount of any guaranteed benefit payable on death is not calculated by reference to the total value of the premiums paid under the contract before that event:

(1) the cost of risk benefits must allow for the bonus rate or rates supported by the relevant premium (given the basic sum assured for such a policy with an appropriate office premium) calculated for each rate of return; and
(2) the rate or rates of bonus must then be applied under the policy which is the subject of the projection and be assumed to be maintained throughout the term of the policy.

01/12/2001

With-profits whole life assurance business

COB 6.6.45

For with-profit whole life assurance other than a policy the bonuses under which are added to the surrender value:

(1) the cost of risk benefits must allow for the bonus rate or rates supported by the premium (given the basic sum assured for such a policy with an appropriate office premium) calculated for each rate of return; and
(2) the rate or rates of bonus must then be applied under the policy which is the subject of the projection and be assumed to be maintained throughout the term of the policy.

01/12/2001

Contracts with reviewable administration charges

COB 6.6.46

In respect of policies with reviewable administration charges:

(1) a firm must make allowance for increases in administration charges which are reviewable at the firm's discretion, on a basis which:

(a) is fair and reasonable; and
(b) takes into account the firm's pricing policy as regards future levels of administration charges;

(2) increases must be assumed at the appropriate rates of increase in COB 6.6.48A R for type P projections and type Q projections and the rates in COB 6.6.47 R for other projections, for any contracts where:

(a) an administration charge is reviewable by the firm (whether or not any increases are contractually linked to an external index); or
(b) expenses in respect of future renewal or claims costs are expressed as monetary amounts.

01/11/2002

COB 6.6.47

Table of assumed rates of increase for policies with reviewable administration charges

This table belongs to COB 6.6.46 R

Basis of review

Assumed rate of increase

Lower rate of return

Intermediate rate of return

Higher rate of return

Administration charge reviewed in line with price increases

0.5%

2.5%

4.5%

Administration charge reviewed in line with earnings increases

01/12/2001

Contracts with rider benefits or extra premiums for underwriting risks

COB 6.6.48

In respect of a contract with rider benefits, or where an extra premium is being charged for an increased underwriting risk:

(1) the rider benefit or extra premium charged for an impaired life, hazardous pursuit, or on the grounds of occupation, must be taken into account when determining a projection;
(2) if a deduction is made from the actual premium for a rider benefit or increased underwriting risk (or both), the sum of the amounts of the relevant premium must be quoted with the projection; and
(3) for policies with rider benefits, a firm may apply the following procedure:

(a) if the policy is also available without the rider benefit, then the same values must be projected as would be projected for such a policy with the premium appropriately reduced; and
(b) if the contract is available only with one or more rider benefits, the firm must deduct a fair estimate of the cost of the extra benefits from the premium when determining the projection; if a fair estimate cannot be made, a rough estimate (rounded to the next higher 10% of the total premium payable by the policyholder) must be deducted.

01/12/2001

Rate of inflation assumptions

COB 6.6.48A

For pension schemes and stakeholder pension schemes, the following rates of inflation must be used when calculating type P projections or type Q projections:

(1) rate of increase in the Retail Prices Index (for type P projections): 2.5%;
(2) rate of increase in earnings (for type Q projections): not less than 1.5% in excess of the rate of increase in the Retail Prices Index in (1).

01/11/2002

Rate of return assumptions

COB 6.6.49

(1) The appropriate rates of return for the type of contract being projected, taken from COB 6.6.50 R - COB 6.6.52 R, must be used when calculating a projection;
(2) reduced rates of return must be used if the firm expects the rates in the tables to overstate the investment potential of a contract;
(3) reduced rates of return may be used if requested by a customer; and
(4) whenever reduced rates are used, they must be disclosed in the document containing the projection.

01/12/2001

COB 6.6.50

Rate of return assumptions for all key features schemes, simplified prospectus schemes, ordinary branch non-pensions, industrial branch, friendly society, immediate annuity and Holloway sickness policies (all monetary rates of return)

This table belongs to COB 6.6.49 R

Rate of return assumptions for all key features schemes, simplified prospectus schemes , ordinary branch non-pensions, industrial branch, friendly society, immediate annuity and Holloway sickness policies (all monetary rates of return)

Lower rate

Intermediate rate

Higher rate

(a) Non-tax-exempt business relating to key features schemes, simplified prospectus schemes, ordinary branch non-pensions and industrial branch business

(b) Holloway sickness policies

(c) Tax-exempt business held within an ISA , PEP or CTF or by a friendly society, relating to key features schemes, simplified prospectus schemes, ordinary branch non-pensions and industrial branch business

(d) immediate annuities

Note:
In relation to key features schemes and simplified prospectus schemes : The monetary rates of return above include any distribution of income. The rates of return may be used for contracts for units denominated in currencies other than sterling unless it is expected they will overstate the investment potential of the contract.

01/05/2005

COB 6.6.51

Rate of return assumptions for pension contracts and stakeholder pension schemes excluding contracts for immediate annuities and protected rights annuities issued in accordance with COB 6.6.11 R (1)

This table belongs to COB 6.6.49 R

Rate of return assumptions for pension contracts and stakeholder pension schemes excluding contracts for immediate annuities and protected rights annuities issued in accordance with COB 6.6.11 (1)

Lower

Intermediate

Higher

rate

(a) in deferment

Monetary rates of return

(b) after vesting -

Monetary rates of return

Y+1.5%

Y+3.5%

Y+5.5%

For annuities linked to the retail price index

Y-1%

Y+1%

For annuities linked to LPI (limited price indexation)

Y-1%

Y+1%

Note: For the after vesting rates of return: Y= 0.5 * ( ILG5 + ILG0) -0.5 and rounded to the nearest 0.2%, with an exact 0.1% rounded down.
Where: ILG5 is the real yield on the FTSE Actuaries Government Securities Index-linked Real Yields over 5 years assuming 5% inflation, and ILG0 is the real yield on the FTSE Actuaries Government Securities Index-linked Real Yields over 5 years assuming 0% inflation.
The ILG0 and ILG5 yields to be used in the calculation of Y are the yields on the 15 February, or, where necessary, the previous working day. The rate of return Y must be updated on the following 6 April each year and used up to and including 5 April of the next year.

21/04/2005

COB 6.6.52

Rate of return assumptions for protected rights annuity projections given in accordance with COB 6.6.11 R (1)

This table belongs to COB 6.6.49 R

Rate of return assumptions for protected rights annuity projections given in accordance with COB 6.6.11 (1)

Lower

Intermediate

Higher

rate

(a) In deferment: for periods in excess of five years - real rates of return

N/A

for periods of five years or less - monetary rates of return

(b) after vesting: - for annuities linked to the retail prices index

21/04/2005

COB 6.6.53

The rates of return in COB 6.6.50 R - COB 6.6.52 R are assumed to compound annually and allow for inflation.

01/12/2001

Calculation of the reduction in yield due to the effect of charges and expenses content

COB 6.6.54

COB 6.6.55 R - COB 6.6.62 R set out the rules to be used when calculating the effect of deductions (the 'reduction in yield') to be provided within key features (COB 6.5) or in a projection accompanying a simplified prospectus (COB 6.2.43 R) for all types of life policies, key features schemes and simplified prospectus schemes. COB 6.6.63 G - COB 6.6.79 G provide guidance in assessing the expenses and charges relating to key features schemes and simplified prospectus schemes.

01/05/2005

Basic calculation method of the reduction in yield

COB 6.6.55

(1) A firm must accumulate the adjusted premium to the end of the contract period at the relevant rate of return, making:

(a) full allowance for the charges and expenses (as described in COB 6.6.23 R); and
(b) no allowance for charges and expenses.

(2) A firm must then calculate the rate of return which, if applied (on an annual compound basis) to the adjusted premium over the contract period, without making any allowance for the charges and expenses, will produce the same sum as that calculated under (1)(a).
(3) The reduction in yield is the difference between the relevant rate of return and the rate of return found in (2).

01/12/2001

COB 6.6.56

(1) When a firm is calculating a projection, charges which relate to benefits for any mortality or morbidity risks, or a proportion of them, must be assumed not to be made:

(a) providing the assumption does not produce figures for the effect of charges deductions which suggest that the charges under the contract are lower than they actually are; and
(b) only in so far as they are attributable solely to benefits for mortality or morbidity risks, a proper apportionment being made of any composite charges.

(2) When a charge cannot be apportioned, (1) will not apply, but the firm may include in the information required to be given within a projection a statement to the effect that the reductions have been calculated without disregarding charges relating to benefits for any mortality or morbidity risks.

01/12/2001

Alternative calculation method of the reduction in yield for a life policy

COB 6.6.57

The following alternative method of calculation of the reduction in yield may be used at a firm's discretion for a life policy:

(1) The adjusted premium must be accumulated to the end of the contract period at the relevant rate of return, making full allowance for the charges and expenses (as described in COB 6.6.23 R).
(2) If the accumulated value will reach zero before the end of the contract period, the accumulation must cease at that stage; subsequent references in this rule to the contract period are to be taken where relevant as referring to that shorter calculation period.
(3) In making this calculation, the total of all charges and expenses not solely attributable to the risk benefits must be assessed separately and accumulated to the end of the contract period at the relevant rate of return.
(4) The adjusted premium must be accumulated to the end of the contract period at the relevant rate of return, making no allowance for charges and expenses.
(5) The reduction in yield must be calculated in accordance with, COB 6.6.55 R, but using the shorter calculation period specified in (2), if applicable.

01/12/2001

Other provisions

COB 6.6.58

In the case of a protected rights annuity, the effect of charges and expenses (as described in COB 6.6.23 R) may be calculated on the assumption that premiums will continue to be paid after the first year.

01/12/2001

COB 6.6.59

The reduction in yield or the effect of charges and expenses must be expressed to the nearest tenth of 1%.

01/12/2001

Unit-linked contracts with more than one fund

COB 6.6.60

(1) Where there is more than one fund into which the premiums under a unit-linked contract are expected to be paid initially (disregarding any option of the customer to require the funds to be changed):

(a) the effect of charges and expenses must be calculated separately in relation to each such fund;
(b) unless a representative figure is shown in accordance with (3), each of those reductions in yield must be shown in the information required within key features; and
(c) a brief explanation of the difference between them may be included.

(2) If any of the funds referred to in (1) is a unitised with-profits fund, the calculation relating to that fund must be made on the with-profits expenses basis as described in COB 6.6.23 R (2).
(3) If, in the case of any contract, two or more of the calculations of the effect of charges and expenses would produce results which are so similar that one may fairly be regarded as representative of the other or others, only one figure for the effect of charges and expenses need be shown, accompanied by an indication that it is a representative figure.

01/12/2001

Regular and single premium contracts

COB 6.6.61

In the case of any contract where the premiums include both a regular and a single premium:

(1) the reduction in yield should be calculated separately for the regular premiums and for the single premium; and
(2) each of those reductions in yield should be shown in the information required in COB 6.5 (Contents of key features) with a brief indication of the difference between them.

01/12/2001

Table of specimen values of the reduction in yield

COB 6.6.62

Where COB 6.6.60 R or COB 6.6.61 R applies in relation to the calculation of the reduction in yield, either:

(1) different tables must be shown with the values calculated separately for each fund or for the regular premiums and the single premiums (as the case may require); or
(2) one table may be used, but it must contain those values calculated separately as required by (1), and it must make clear to the customer (or any potential customer in the case of a financial promotion) what the different values refer to.

01/12/2001

Charges and expenses disclosure for key features schemes and simplified prospectus schemes

COB 6.6.63

COB 6.6.65 G - COB 6.6.79 G set out rules and guidance on how to calculate charges and expenses (as described in COB 6.6.23 R) for key features schemes and simplified prospectus schemes.

01/05/2005

COB 6.6.64

COB 6.6.65 G - COB 6.6.69 R provide rules and guidance for authorised unit trusts (and OEICs and recognised collective investment schemes) and COB 6.6.70 G - COB 6.6.74 R rules and guidance for investment trust savings schemes.

01/12/2001

Charges and expenses disclosure for authorised unit trusts

COB 6.6.65

(1) Charges and expenses as described in COB 6.6.23 R means "all explicit charges and expenses, and includes all other deductions and expenses which will or may bear upon the fund". The following paragraphs give guidance on the assessment and apportionment of expenses.
(2) Those expenses that were, or would be, reported in the Annual report and Financial Statement of authorised unit trust schemes in accordance with the Statement of Recommended Practice ("SORP") issued by the FSA, will normally provide a suitable starting point for any assessment of the level of charges and expenses. The same principles apply to funds and schemes which are not within the scope of the SORP.
(3) Where expenses are charged directly against the assets of the fund, it will normally be appropriate to express such expenses as an annual percentage charge against the fund, which is then added to other such charges. An example is a manager's periodic charge to form an aggregate percentage charge. It is reasonable to round this charge to the nearest 0.05%.
(4) Where a key features scheme or simplified prospectus scheme invests in other packaged products, it will be necessary to look through to ensure that all charges and expenses which the customer will or may bear are included. Appropriate allowance may be made for any abatement to avoid double charging. If the product provider is not required to make expense disclosure in respect of such packaged products, the charges and expenses of an equivalent product from another provider should be used. In the case of investment trusts, the method in COB 6.6.70 G (4) should be used.
(5) Where the unit trust invests in other unit trusts, charges and expenses will be based on a reasonable distribution of assets that takes account of the investment philosophy of the unit trust.

01/05/2005

Representative unit trust

COB 6.6.66

(1) Where a document refers to investment in a number of trusts, charges and expenses (as described in COB 6.6.23 R) applicable to the trusts selected by the customer should be used. Where this is not practicable, it is permissible to use the charges and expenses of a representative unit trust.
(2) The representative unit trust will normally be the one that is most likely to be selected by the customers to whom the material is issued. Where advantage is taken of this option, the document should include information which shows the differences if other trusts are selected. The normal presentation will be to show the differences as a reduction of investment return, or as an adjustment to the Table in key features or in the projection accompanying the simplified prospectus. Where the reduction of investment return is used, it will not be necessary to show differences unless the rounded difference is at least 0.1% and the unrounded difference is at least 0.05%.

01/05/2005

Types of expenses

COB 6.6.67

(1) The following are those expenses and costs of investment that firms should take into account when making their calculations. The list is not comprehensive. These are in addition to explicit charges.
(2) Examples of expenses are:

(a) registration fees;
(b) safe custody fees;
(c) trustees' fees;
(d) handling charges;
(e) audit fees;
(f) regulatory fees and subscriptions;
(g) costs of investment management, but excluding dealing costs of the underlying portfolio, and costs associated with routine management and servicing of existing property investments;
(h) bid/offer spread in the pricing of units.

(3) The spread in (h) should be on a basis that fairly represents the expected levy of such spread in the firm's experience of normal trading conditions.
(4) The expenses should include allowance for any value added tax which is not recoverable.

01/12/2001

Translation to fund level

COB 6.6.68

(1) The expenses and explicit charges need to be adjusted for any expected variation in costs from the period of the report to the period relevant to the disclosure expenses if such variation is believed to make a material difference.
(2) The adjusted expenses should be expressed as a proportion of the relevant fund. For established funds, the relevant fund is the average size of the fund for the period of the report.
(3) Where the use of the figure calculated as in (2) would be misleading, a fair estimate of the size of the relevant fund which is consistent with the adjusted expenses should be used. The same method should be used in the case of new funds. In determining the reasonable levels of expense to be assumed, account should be taken of the expense attributable to the existing fund which most closely corresponds to it, with proper regard to material differences in cost.

01/12/2001

Review of expenses

COB 6.6.69

The expenses used in calculations must be reviewed whenever material changes in the levels are identified which would mean that the disclosed amounts are misleading. In any event the expenses must be reviewed at least once a year.

01/12/2001

Charges and expenses disclosure for investment trust savings schemes charges and expenses

COB 6.6.70

(1) Charges and expenses as described in COB 6.6.23 R should be taken to include all explicit charges and, in addition, all other deductions and expenses which are not financed from explicit charges. These include deductions and expenses within the trust.
(2) The method is to identify all expenses that will be borne by the customer, and these will include not only the cost of acquiring a holding but also the cost of disposing of the investment.
(3) Where expenses are charged directly against the assets of the investment trust, it will normally be appropriate to express the expenses as an annual percentage charge against the trust, which is then added to such charges, for example, a periodic management fee, to form an aggregate percentage charge. It will be reasonable to round to the nearest 0.05%.
(4) Where an investment trust company (A) invests in another investment trust company (B), it will be necessary to look through to ensure that all charges or expenses which the customer will or may bear are included. Appropriate allowance may be made for any abatement to avoid double charging. Charges and expenses will be based on a reasonable distribution of assets that takes account of the investment philosophy of the investment trust company (A). If the investment trust company (B) is not required to make expense disclosure in respect of such assets, the charges and expenses of a similar company should be used.

01/12/2001

Representative investment trust company

COB 6.6.71

(1) Where a document refers to investment in a number of investment trusts, charges and expenses (as described in COB 6.6.23 R) applicable to the trusts selected by the customer must be used. Where this is not practical, it is permissible to use the charges and expenses of a representative investment trust company.
(2) The representative investment trust company will normally be the one that is most likely to be selected by the customers to whom the material is issued. Where advantage is taken of this option, the document must include information which shows the differences if other trusts are selected. The normal presentation will be to show the differences in the other reduction of investment return, or as an adjustment to the Table in key features. Where the reduction of investment return is used, it will not be necessary to show differences unless the rounded difference is at least 0.1% and the unrounded difference is at least 0.05%.

01/12/2001

Types of expense

COB 6.6.72

(1) Expenses may be incurred either in acquiring or in holding an investment in an investment trust company. The list in (2) is not comprehensive and, in respect of other expenses, the list sets out the type of expense that should be included. The report and accounts of the investment trust company will normally provide a starting point in assessing the expenses that are charged against the assets of the investment trust company. These are in addition to disclosable charges.
(2) Expenses to be included will be of four main types:

(a) deductions levied against the assets of the investment trust company;
(b) management expenses levied against the assets of the investment trust company; these expenses include management fees plus any management costs financed from commission received, directors' fees, pension contributions, non-recurring expenses, all other professional and regulator's fees and subscriptions, rents paid, depreciations, custody fees, audit fees and all other pre-tax expenses (except for interest paid); management expenses include marketing costs, if any;
(c) expenses borne by the customer in acquiring or disposing of investment trust shares; these include adviser's commission (if any), stockbroker dealing commission on purchases and sales, stamp duty and withdrawal charges;
(d) investment spread in the pricing of the investment trust shares.

(3) Expenses should include allowance for any value added tax which is not recoverable.
(4) Expenses in (2)(c) and the spread in (2)(d) should be on bases that fairly represent the expected level of such expenses and spread. Where appropriate, a representative level of expenses and the spread should be used.

01/12/2001

Translation to trust level

COB 6.6.73

(1) Having identified all the expenses in COB 6.6.72 G (2), a firm needs to express them as rates of charges and expenses (as described in COB 6.6.23 R) that can be used in projections and key features.
(2) The process is as follows.

(a) The expenses in COB 6.6.72 G (2)(a) and (b) should be expressed as a proportion of the overall fund using net asset value: For established companies, the relevant fund is taken to be based on the average size of the investment trust company for the period of assessment.
(b) The expenses in COB 6.6.72 G (2)(c) and (d) will usually be expressed as a proportion of the fund based on share price or the amount of the investment, as appropriate. Some expenses will be a one-off expense or spread and some will be in the form of an annual charge.
(c) The rates of charges and expenses calculated under (a) and (b) should be added together. The fact that the calculation at (a) used net asset value can be ignored as it is assumed that the level of discount or premium remains unaltered.

(3) The charges and expenses will normally be historic and need to be adjusted for any expected variation in the level of costs from the period used in the assessment to the period relevant to the disclosure of the expenses if such variation is believed to make a material difference.
(4) Where the use of the figure calculated in (3) would be misleading, a fair estimate of the size of the company which is consistent with the adjusted expenses should be used. The same method should be used in the case of new investment trusts. In determining the reasonable levels of expense to be assumed, account may be taken of the expenses attributable to the existing investment trust which most closely corresponds to it, but with proper regard to any material differences in cost.
(5) Set-up costs may be amortised over a limited period not normally exceeding five years.

01/12/2001

Review of expenses

COB 6.6.74

01/12/2001

Example of the calculation of reduction in investment return

COB 6.6.75

COB 6.6.76 G - COB 6.6.78 G contain an example which has been prepared to assist understanding of the method of calculating the reduction in investment return. However, the figures should not be regarded as representative or indicative of likely levels of charges and expenses to be expected.

01/12/2001

General

COB 6.6.76

(1) The reduction in investment return shows the effect of all charges and expenses to the customer.
(2) The rates of investment return allow for all tax and withholding tax for which the product provider is responsible. The current rate of tax may be used to calculate the net distribution of income. Where appropriate, the net distributions are offset from the rate of investment return.
(3) It is not necessary to allow for daily changes so that monthly steps are acceptable.
(4) The rates of return are assumed to compound annually. The twelfth root is used to calculate the monthly rate. This is different from the fund management charge, where normally one twelfth of the annual rate is deducted monthly.
(5) The bid/offer spread should be allowed as an initial charge so that subsequent figures are on the basis of the bid price, except where the context requires allowance to be made for the spread.

01/12/2001

The parameters

COB 6.6.77

(1) Contract details: unit trust for a term of 10 years with a single investment of £6,000 (SP).
(2) Distributions: at the rate of 2.4% per annum, distributed as 1.2% of the offer value at the end of each half year.
(3) Charges:

(a) initial charge of 3% of investment (IC);
(b) fund management charge of 1/12 of 1.25% per month (FMC) on distribution units;
(c) attributable expenses of 1/12 of 0.25% per month (AE);
(d) investment spread of 3% (IS) making total bid/offer spread of 6%.

(4) Calculation:

(a) investment of £6,000 (SP) less (IC+IS) giving an initial bid value of £5,640
(b) interest of 6% pa or 0.4868% per month less (FMC + AE) = 1.004868 x (1- 0.015/12) 1 = 0.3612% per month
(c) the value after 10 years as shown in COB 6.6.79 G is £6,720
(d) the internal rate of return necessary to generate £6,720 plus distributions over 120 months from an initial investment of £6,000 is 0.3030% per month or 3.7% per annum
(e) one method of creating the table is to use 20 periods of six months, each of which end with the payment of a distribution.
(f) after 6 months:

(i) the bid value of the fund before the distribution is 6000 x 0.94 x (1.003612)^6 = £5,763
(ii) the distribution is 0.012 x 5763/0.94 = £73
(iii) the fund carried forward is 5763 - 73 = £5,690
(iv) after the end of Year 1, that is, after the second 6 months
(v) the bid value of the fund before the distribution is 5690 x (1.003612)^6 = £5,814
(vi) the distribution is 0.012 x 5814/0.94 = £74
(vii) the fund carried forward is 5814 - 74 = £5,740
(viii) this bid value is disclosed as there is no exit penalty as what you might get back.

(g) the "effect of deductions" is calculated from the accumulation of the investment with no allowance for charges and expenses but with allowance for income:

(i) the accumulated fund after 1 year with no allowance for charges is [6000 x (1.004868)^6 - 73] x (1.004868)^6 - 74 = £6,210
(ii) the "effect of deductions" is this figure less "what you might get back", that is, £6,210 - £5,740 = £470

(h) this process is continued throughout the term of the table; after 10 years, the accumulated investment at 0.4868% per month with no allowance for charges and expenses but with allowance for the same distributions of income is £8,621; "What you might get back" is £6,723 so the "effect of deductions" is the difference or £1,898;
(i) the deduction in investment return is determined by calculating the rate of interest which accumulates the investment with no allowance for charges and expenses but with allowance for income to £6,723; this is 0.3030% per month (0.4868% per month gives £8,621); the yearly rate is (1.00303)^12 - 1 or 3.7%.

01/12/2001

COB 6.6.78

In COB 6.6.79 G projected amounts are rounded down to three significant figures.

01/12/2001

COB 6.6.79

Specimen table of presentation of the effect of charges and expenses

This table belongs to COB 6.6.75 G

At end of year

Investment to date £

Income to date £

Effect of deductions to date £

What you might get back £

6,000

148

470

5,740

6,000

451

715

5,940

6,000

766

998

6,150

6,000

1,600

1,890

6,720

The last line in the table shows that over 10 years the effect of total charges and expenses could amount to £1,890.

Putting it another way, this would have the same effect as bringing the illustrated investment growth from 6.0% a year down to 3.7% a year.

01/12/2001

Assumptions for pension annuities

COB 6.6.80

The formulae shown must be used for calculating the factors for converting a retirement fund into an annuity. The formulae in COB 6.6.81 R assume that the annuity will be payable monthly in advance for a term certain of n years (typically five):

(1) for an RPI-linked and LPI-linked annuity (excluding a protected rights annuity): use Factor (1);
(2) for an annuity which is static or has fixed rates of escalation: use Factor (2);
(3) for a spouse's reversionary annuity (excluding a protected rights annuity, and whether or not there is overlap with any guaranteed period under the associated single life annuity): use Factor (3);
(4) [deleted]
(5) for a protected rights annuity: use Factor (5).

01/11/2002

COB 6.6.81

Table of formulae for pension annuity factors

This table belongs to COB 6.6.80 R and COB 6.6.82 R

Factor

Formula

(1)

(1+E)*[ä _n ⁽¹²⁾ + D _x+n /D _x * ä _x+n ⁽¹²⁾ ]

(2)

(1+E)*[ä _n ⁽¹²⁾ + D _x+n /D _x * ä _x+n ⁽¹²⁾ ]

(3)

(1+E)*[a _y -a _x:y ]

(4)

(1+E)*[ä _f ⁽¹²⁾ + 0.45*(a _m -a _m:f )]

(5)

(1+E)*[ä _f ⁽¹²⁾ + 0.50*(a _m -a _m:f )]

(6) namely a _x ⁽¹²⁾

= a _x + 13/24

(7) namely ä _x:t ⁽¹²⁾

= 13/24 * a _x:t + 11/24* a _x:t

01/12/2001

COB 6.6.82

(1) All factors must be rounded to three decimal places before being applied to the retirement fund.
(2) In the formulae the letters a and D have their normal actuarial notation meanings. In formulae for two lives, x is the member and y is the spouse or civil partner, and for the protected rights formulae, f indicates the use of female mortality and m that for males. In addition, a monthly annuity is either Factor (6) or (7).
(3) For retirement other than on a birthday, the factors must be obtained by linear interpolation on complete months. Where a member is not able (for practical reasons or otherwise) to determine the exact age at retirement, it must be assumed that the exact age at retirement is then the age at the last birthday.
(4) Where the projection is of an annuity after taking a tax-free lump sum, the table must be used with the retirement fund reduced by the projected tax-free lump sum before rounding. Any tax-free lump sum illustrated should be rounded to three significant figures, unless the lump sum is equal to the amount of a loan.
(5) Where a retirement fund includes both protected rights and non-protected rights benefits, the appropriate factors are to be used for each relevant part of the total fund.
(6) Where there are protected rights funds and the person is not expected to be married or registered as a civil partner at retirement, an illustration of single life pensions may be provided. The factor must be calculated using the same assumptions as formula (5) in COB 6.6.81 R but ignoring the reversionary annuity part of the formula.
(7) For type P projections, the annuity should assume 50% spouse's reversionary pension unless the firm has evidence that a different assumption would be more appropriate.

05/12/2005

COB 6.6.83

In the formulae in COB 6.6.81 R, the allowance for expenses (E) is 4% for all annuities.

01/11/2002

COB 6.6.84

In the formulae in COB 6.6.81 R, mortality rates must be calculated as follows:

(1) the mortality tables to be used are PMA92 (for males) and PFA92 (for females) appropriate to the individual's year of birth with the medium cohort projection improvements; these tables are published by the Faculty of Actuaries and Institute of Actuaries;
(2) where there are two lives concerned, for reversionary and for protected rights annuities, the husband is normally to be taken as being three years older than his wife; where the firm is aware that the wife is more that six years younger than her husband, an exact calculation must be performed using actual ages;
(3) protected rights annuities must be calculated for both sexes on the basis that the member experiences female mortality and the spouse experiences male mortality.

21/04/2005

COB 6.6.85

In the formulae in COB 6.6.81 R, the mortality functions must be calculated at a rate of interest J, where:

(1) J = (1 + I)/(1 + R) - 1;
(2) R is the rate of escalation increase appropriate for the customer in formulae (2) and (3) in COB 6.6.80 R; it is 3% for pre-April 1997 protected rights benefits in formula (4), and zero otherwise;
(3) the rate of return assumptions (1) are as set out in the tables in COB 6.6.50 R - COB 6.6.52 R with real rates of return being used for formulae (1) and (5) in COB 6.6.81 R and monetary rates otherwise; and
(4) different factors will need to be calculated where a projection is being prepared on lower and higher rates of return, and where appropriate also the intermediate rate.

01/12/2001

Pension transfer value analysis requirements content

COB 6.6.86

COB 6.6.87 R - COB 6.6.93 R outline how a pension transfer value analysis should be prepared. A pension transfer value analysis should provide a comparison between the potential benefits available to the customer from an occupational pension scheme of which he is a member and the potential benefits that would be available to him under a personal pension or buy-out contract.

01/12/2001

Basis of a pension transfer value analysis

COB 6.6.87

(1) The basis for the pension transfer value analysis must be clear, fair and not misleading.
(2) The information analysed must include details relevant to the customer's circumstances:

(a) spouse's, dependants' and children's pensions;
(b) early retirement provision, including provision for retirement in ill-health;
(c) a transfer value quotation detailing:

(i) guarantee period;
(ii) pre- and post-April 1988 Guaranteed Minimum Pension and excesses;
(iii) revaluation rates both in deferment and payment, and whether they are guaranteed or discretionary;
(iv) tax-free cash arrangements;

(d) lump sum death benefits;
(e) transfer club arrangements, if applicable;
(f) relevant earnings;
(g) period of service;
(h) scheme details (for example, benefits, bridging pensions, guarantee periods, position before and after normal retirement date, history of discretionary increases);
(i) whether members' benefits have been equalised for service from 17 May 1990;
(j) ill-health benefits.

01/12/2001

Required comparisons

COB 6.6.88

The analysis must contain the following:

(1) where the period before benefits are assumed to commence is one year or more:

(a) a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the same level of benefits as those which would be afforded by the occupational pension scheme if the customer were to retire at normal retirement date ("the Target Benefits");
(b) if in the firm's opinion early retirement would be materially more favourable to the customer than retirement at normal retirement date, a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the same pension as that afforded by the occupational pension scheme, assuming early retirement at a date on which the customer may be expected, or will have the option, to retire;
(c) a statement of the value of the benefits payable on the death of the customer, under the transfer contract and under the occupational scheme, on the assumption that the customer were to die on the day after the date on which the transfer contract is assumed to have commenced; comparisons assuming other dates of death may be included if they are likely to enhance understanding of the differences between the benefits payable under the transfer contract and the occupational pension scheme;

(2) where the period before benefits are assumed to commence is less than one year:

(a) a statement of the annuity payable under the transfer contract and of the comparable Target Benefits;
(b) where the normal retirement date under the occupational pension scheme is not within a year, a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the Target Benefits.

01/12/2001

COB 6.6.89

(1) In all cases (except in a case within COB 6.6.88 R (2) in respect of the annuity) a statement of the assumptions must be provided which complies with the requirements of COB 6.6.90 R.

01/12/2001

Required assumptions

COB 6.6.90

(1) The assumptions in COB 6.6.91 R must be made for the purposes of the required calculations, except as envisaged by this rule.
(2) The assumptions may be varied only to incorporate more cautious assumptions.
(3) If an annuity interest rate different from the Annuity Interest Rate (as specified in COB 6.6.91 R) is used, it must be the interest rate for annuities in payment provided that it is a multiple of 0.5% per annum and must not exceed the Annuity Interest Rate.
(4) Where the occupational pension scheme has a record of discretionary increases in pension, the assumptions must be consistent with the published practice of the trustees, if any, or based on a comparison of the increases granted over the last five years with a published index. It must be assumed that increases will continue, and allowance must be made for continuation by:

(a) relying on any statement by the trustees of their practice;
(b) comparing recent experience with the increase in the retail price index and restricting the future allowance to a maximum of the increase in the retail price index;
(c) making a default assumption of limited pension indexation;
(d) assessing the likelihood whether such increases will continue to be paid.

Figures may be provided showing the effect of applying a factor representing the likelihood of such continuation.

01/11/2002

COB 6.6.91

Assumptions to be made

This table belongs to COB 6.6.90 R

Formula

Annuity interest rate ("AIR")

The intermediate after vesting monetary rate of return in COB 6.6.51 (b)

Retail prices index

2.5%

Average earnings index ("AEI") and section 21 orders

4.0%

Pre-retirement limited price indexation revaluation

2.5%

Post-retirement limited price indexation increases

2.5%

Index-linked pensions

The rate of intermediate return in COB 6.6.51 for annuities linked to the retail price index

Note:
The interest rate in deferment must not be assumed but calculated as required by COB 6.6.92.

01/11/2002

Method of calculation

COB 6.6.92

(1) In calculating the Target Benefits for the purposes of the comparisons required by COB 6.6.88 R, regard must be had to benefits which commence at different times.

(a) Where a benefit becomes payable at a different age from the age at which the Guaranteed Minimum Pension becomes payable, the benefit must be valued from its appropriate commencement date.
(b) In the case of pensions payable only for a limited period, an allowance must be made.

(2) The method of calculating the rate to be used for the purpose of the comparisons required by COB 6.6.88 R is:

(a) make the assumptions required by COB 6.6.91 R;
(b) on those assumptions, calculate the Target Benefits;
(c) calculate, in accordance with COB 6.6.34 R- COB 6.6.62 R which relate to the calculation of projections, the interest rate in deferment necessary to attain a transfer value sufficient to provide benefits equal to the Target Benefits.

01/12/2001

Required disclosures

COB 6.6.93

The analysis must also contain:

(1) a list of all the main assumptions made for the purposes of the analysis, set out consecutively and with equal prominence;
(2) a warning as to the differences between the amounts of benefit under the occupational pension scheme and the level of benefits under the proposed transfer contract which depends on future investment performance and on interest rates at the time of retirement;
(3) a description of any differences in the dates on which the pensions become payable, for example in the case of a protected rights pension under a personal pension scheme which will not become payable until the customer attains the State retirement age;
(4) a warning of any shortfall in the value of the death benefits provided by the transfer contract and, where there is such a shortfall, if appropriate, a quotation for provision to make good the shortfall.

01/12/2001

COB 6.7

Cancellation and withdrawal

01/12/2004

Application

COB 6.7.1

COB 6.7 applies to:

(1) a product provider except when providing a non-investment insurance contract;
(1A) a CTF provider;
(2) an insurer which provides pure protection contracts which are long-term care insurance contracts;
(3) a firm when acting as an EIS manager, ISA manager, CTF provider or plan manager, or when selling on to a customer units which the firm has bought or redeemed as principal for that purpose;
(4) a deposit-taking firm, when acting as ISA manager, CTF provider or as the firm responsible for holding deposits in respect of another firm's cash deposit ISA or cash deposit CTF;
(5) the operator of a personal pension scheme or a stakeholder pension scheme;
(6) a firm which enters into distance contracts with retail customers, the making or performance of which constitutes, or is part of:

(a) dealing as agent, advising or arranging in relation to designated investments, unless the distance contract is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.10.6 G);
(b) any other designated investment business; or
(c) accepting deposits;

but not including a distance contract entered into by an appointed representative as principal.

06/04/2007

COB 6.7.2

COB 6.7 (Cancellation and withdrawal) does not act to cancel distance contracts entered into by an appointed representative as principal to provide intermediation services to a retail customer. Regulations 9 (Right to cancel) to 13 (Payment for services provided before cancellation) of the Distance Marketing Regulations may apply instead (see regulation 4(3)).

14/01/2005

COB 6.7.4

COB 6.7.5 G summarises the applicable cancellation and withdrawal rights and the maximum period of reflection. Firms should have regard to the detailed rules and guidance in all cases, particularly for the detailed exemptions.

09/10/2004

COB 6.7.5

Cancellable investment agreements.

This table belongs to COB 6.7.4 G

Cancellable investment agreements

Post-sale right to cancel?

Pre-sale right to withdraw?

Maximum period of reflection (but see COB 6.7.11 R)

A. Contracts where the right arises regardless of means of sale.

Appropriate personal pension (APP)

Yes^{5, 6}

30 days

Cash deposit ISA

Yes^{5, 6}

14 days

Life policy (including pension annuity or within ISA or CTF) or a personal pension scheme

Yes^{1, 5, 6, 12}

No¹

30 days

Stakeholder pension scheme (SHP)

Yes^{1, 5, 6}

No¹

30 days

Certain variations of existing life policies, personal pension schemes and SHP's

Yes^{1, 5, 6, 8}

No¹

30 days

B. Contracts where the right arises only if advice is given or if sold by distance contract.

Units in an AUT, recognised scheme or ICVC (within an ISA or PEP)

(1) if sold by distance contract;

(2) if sold otherwise with advice

Yes⁴

No⁴

14 days

Units in an AUT, recognised scheme or ICVC (within a CTF):

(1) if sold by distance contract

Yes^{10, 12}

(2) non-stakeholder CTFs not sold by distance contract sold with advice

Yes^{11, 12}

(3) non-stakeholder CTF not sold by distance contract sold without advice

(4) stakeholder CTFs not sold by distance contract

ISA, PEP or CTF not mentioned in any other row

(1) if sold by distance contract

Yes^{5, 6, 12}

14 days

(2) if sold otherwise with advice

Yes^{3, 9}

7 days

Units in an AUT, recognised scheme or ICVC (outside an ISA, PEP or CTF)

(1) if sold by distance contract

(2) if sold otherwise with advice

Yes

14 days

EIS

(1) if sold by distance contract

Yes^{5, 6}

14 days

(2) if sold otherwise with advice

Yes³

7 days

C. Contracts where the right arises for distance contracts only

Distance contract to accept deposits

Yes^{5, 6}

14 days

Distance contract not mentioned in another row the making or performance of which constitutes, or is part of, designated investment business

Yes^{5, 6, 7}

14 days

Notes:

1. For a pension annuity or pension transfer (and a relevant variation), the firm can, in certain circumstances, choose to provide the right to cancel, in whole or part, through a right to withdraw in COB 6.7.19 R. A firm may offer a right to withdraw, even where there is no right to cancel.

2. [Deleted]

3. There is no right to withdraw for a second or subsequent EIS or ISA, or (for an EIS or non-packaged product ISA or PEP) where the firm has previously disclosed to the customer that no such rights will apply.

4. For units in an AUT, recognised scheme or ICVC (within an ISA or PEP), the firm can choose to offer a seven-day pre-sale right to withdraw rather than a post-sale right to cancel (see COB 6.7.14 (1)). There is no right to cancel or withdraw for a second or subsequent ISA.

5. There is no post-sale right to cancel for a distance contract where the price depends on fluctuations in the financial market place outside the firm's control which may occur during the cancellation period.

6. There is no post-sale right to cancel for a distance contract:

(a) where the performance of the distance contract has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel; or

(b) where a firm has an initial service agreement with the customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.11.3 R).

In the case of life policies held within a CTF sold by distance contract, the right to cancel applies only to any initial service agreement.

7. For a distance contract to give advice, arrange deals, or deal as agent see COB 1.11.3 R (Distance contracts for intermediation services).

8. There is no right to cancel for variations of life policies held within a CTF.

9. For contracts relating to a CTF, there is no right to withdraw.

10. The initial service agreement is cancellable.

11. The cancellation rules that apply are the same as those that apply to the underlying investments.

12. Where a right to cancel applies to an agreement relating to a CTF that has been opened, the money may be reinvested but will not be returned to the private customer.

13. A private customer's right to cancel a contract for a SIPP may lapse in certain circumstances (see COB 6.7.13A R (Right to cancel a personal pension deposit, a personal pension product or a SIPP)).

06/04/2007

Purpose

COB 6.7.6

COB 6.7 reinforces Principle 6 (Customers' interests), which requires a firm to pay due regard to the interests of its customers and treat them fairly. In certain circumstances, customers who are entering into an investment agreement will be entitled to a period of reflection during which they can decide whether to proceed with their purchase.

09/10/2004

Post-sale right to cancel

COB 6.7.7

A retail customer has a right to cancel:

(1) a contract specified in row 1 of COB 6.7.15 R or COB 6.7.17 R, unless the right to cancel is disapplied or replaced by anything in row 2 of COB 6.7.15 R or COB 6.7.17 R;
(2) a contract to join a stakeholder pension scheme, a personal pension deposit, a personal pension product or a SIPP for which a right to cancel applies under COB 6.7.12 R; or COB 6.7.13A R;
(3) a contract for a cash deposit ISA, unless the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R, or a cash deposit CTF if the cash deposit CTF is sold by distance contract;
(4) a variation of a life policy, personal pension scheme or stakeholder pension scheme for which a right to cancel applies under COB 6.7.23 R, COB 6.7.23A R and COB 6.7.26A R.

06/04/2007

COB 6.7.8

The trustees of an occupational pension scheme, the operator of a personal pension scheme or the trustees and managers of a stakeholder pension scheme must be treated so far as necessary as a retail customer for the purposes of the cancellation rules , and acquire the same right to cancel as a retail customer.

06/04/2007

COB 6.7.9

(1) COB 6.7.8 R applies, for example, when trustees or operators of a personal pension scheme purchase life policies or schemes as investments of their pension schemes. Individual members of a personal pension scheme or a stakeholder pension scheme have a right to cancel initial membership of the scheme and, in some circumstances, a subsequent variation of their contributions.
(2) A product provider or operator of a stakeholder pension scheme may be unsure whether any of the situations in row 2 of COB 6.7.17 R applies to the contract in question. In such circumstances the product provider or operator of a stakeholder pension scheme may find it convenient to contract with an intermediary for the provision of documentary evidence needed to confirm the status of customers. However, the responsibility for ensuring compliance with the cancellation rules remains with the product provider or operator of a stakeholder pension scheme.

06/04/2007

Cancellation period

COB 6.7.10

When a retail customer has a right to cancel under COB 6.7.7 R, that right must (unless COB 6.7.11 R applies) be exercised:

(1) (in the case of a life policy, personal pension scheme or stakeholder pension scheme) within 30 days; or
(2) (in any other case) within 14 days.

06/04/2007

COB 6.7.10A

The cancellation period begins on:

(1) (other than for distance contracts, cash deposit ISAs and CTFs) the date the customer receives the reminder notice of his right to cancel in accordance with COB 6.7.30;
(2) (for distance contracts , cash deposit ISAs and CTFs) the later of:

(a) (for a life policy ) the day the retail customer is informed that the contract has been concluded; or
(b) (for any other contract) the day of the conclusion of the contract; or
(c) the day on which the retail customer receives the contractual terms and conditions and other information required by COB 3.9, COB 4.2 or COB 6, as applicable.

09/10/2004

COB 6.7.11

Where the terms of the firm's contract give the retail customer a longer period to cancel (that is, in excess of the 14 or 30 days specified), the firm must disclose in the information about the right to cancel the differences between the retail customer's rights under COB 6.7.10 R and the terms of the contract, which operate independently.

09/10/2004

Right to cancel a stakeholder pension scheme

COB 6.7.12

(1) A retail customer who has entered into a contract for a stakeholder pension scheme has a right to cancel, unless:

(a) the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R; or
(b) the relevant transaction is funded (wholly or partly) by a pension transfer, but only if and to the extent that the right to cancel has been replaced by a right to withdraw (see COB 6.7.17 R (Cancellable contracts and exceptions - non-life)).

(2) When the retail customer has entered into a contract for a stakeholder pension scheme involving recurring contributions to that stakeholder pension scheme, only the first contribution will attract a right to cancel provided that:

(a) the intention or option to make regular contributions has been disclosed in advance of the retail customer entering into the investment agreement; and
(b) the retail customer's intention to make regular contributions is evidenced.

06/04/2007

COB 6.7.13

For the purposes of COB 6.7.12 R (2)(a), disclosure of the option to make regular contributions may, for example, take place in key features. For the purposes of COB 6.7.12 R (2)(b), a retail customer's intention to make regular contributions could, for example, be demonstrated by the establishment of a direct debit mandate or instructions to an employer to deduct regular contributions from salary.

09/10/2004

Right to cancel a personal pension deposit, a personal pension product or a SIPP

COB 6.7.13A

A retail customer who has entered into a contract to join a personal pension deposit, personal pension product or a SIPP has a right to cancel, unless:

(1) the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R (Cancellable contracts and exceptions - non-life);
(2) the relevant transaction is funded (wholly or partly) by a pension transfer, but only if and to the extent that the right to cancel has been replaced by a right to withdraw (see COB 6.7.19 R (Cancellation substitute)); or
(3) (in the case of a SIPP) the performance of the contract (to join the SIPP) has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel.

06/04/2007

COB 6.7.13B

If a customer requests that a firm complete a transaction to join a SIPP before the expiry of the cancellation period, the firm should, in having regard to the information needs of the customer, make the customer aware that he will lose his right to cancel and satisfy itself on reasonable grounds that the customer understands the cost and other implications.

06/04/2007

Pre-sale right to withdraw

COB 6.7.14

A retail customer has a right to withdraw an offer to enter into:

(1) an EIS, ISA or PEP:

(a) following advice on investments;
(b) which is not a distance contract;
(c) unless a right to cancel is offered under COB 6.7.7 R (3), COB 6.7.15 R or COB 6.7.17 R; and
(d) subject to cases 8 and 9 of row 2 COB 6.7.17 R;

the right to withdraw procedures are that the offer made by the customer to enter into the contract cannot be accepted by the firm until at least seven days after the offer is made; or
(2) a pension annuity or a pension transfer (or a relevant variation), to the extent that the right to cancel is provided through a right to withdraw under the procedures set out in COB 6.7.19 R.

09/10/2004

COB 6.7.15

Cancellable contracts and exceptions - life

This table belongs to COB 6.7.7 R (1).

Cancellable contracts and exceptions- life

Long-term insurance contracts which a retail customer has a right to cancel under COB 6.7.7 R (1) (subject to row 2):

Row 1

life policy (whether or not held within an ISA or CTF - see notes 1, 2, 3, 6 and 7 in COB 6.7.16 R) (see COB 6.7.23 R regarding variation of an existing life policy);

appropriate personal pension which is a pension policy;

pure protection contract.

Row 2

There is no right to cancel where any one or more of the following cases applies:

pension fund management policy (but see note 5 in COB 6.7.16 R);

life policy that relates to or is associated with securing benefits under a defined benefits pension scheme (but see note 5 in COB 6.7.16 R);

any life policy for a term of six months or less (unless note 3 in COB 6.7.16 R applies) (see also note 5 in COB 6.7.16 R);

3A.

A pension policy that is itself a SIPP;

pension policy funded (wholly or in part) from payments derived from:

(a)

a pension transfer, to the extent that the right to cancel is provided through the right to withdraw (see COB 6.7.14 R (2)), using the cancellation substitute in COB 6.7.19 R; or

(b)

compensation or redress paid by a firm following a review undertaken in relation to a complaint;

traded life policy;

life policy effected by the trustees of an occupational pension scheme or the employer, or the manager or trustees of a stakeholder pension scheme that represents a:

(a)

pension buy-out contract; or

(b)

purchase of a without-profits deferred pension annuity; or

(c)

defined benefits pension scheme or a single premium payment to any occupational pension scheme with a pooled fund (that is, underlying investments are not earmarked for individual scheme members); or

(d)

purchase made to insure and secure members' pension benefits under a money-purchase occupational scheme or stakeholder pension scheme (unless it is the master, first or only policy);

pension annuity that is:

(a)

due to commence within a year and a day of the contract, to the extent that the right to cancel is provided through the right to withdraw (see COB 6.7.14 R (2)), using the cancellation substitute in COB 6.7.19 R; or

(b)

funded (wholly or in part) from compensation or redress paid by a firm following a review undertaken in relation to a complaint;

the retail customer, other than an EEA ECA recipient , at the time he signs the application, is habitually resident:

(a)

in an EEA State other than the United Kingdom (but see note 4 and note 5 in COB 6.7.16 R); or

(b)

outside the EEA and is not present in the United Kingdom;

pure protection contract effected by the trustees of an occupational pension scheme, an employer or a partnership to secure benefits for employees or the partners in the partnership;

10.

life policy which is a distance contract where the price depends on fluctuations in the financial market place outside the firm's control which may occur during the cancellation period;

11.

the contract is a distance contract where:

(a)

the performance of the distance contract has been fully completed by both parties at the retail customer's express request before the retail customer exercises his right to cancel; or

(b)

a firm has an initial service agreement with the retail customer and the contract is in relation to a successive operation or separate operations of the same nature under that agreement (see COB 1.10.2 G).

06/04/2007

COB 6.7.16

Notes to cancellable contracts and exceptions - life

This table belongs to COB 6.7.15 R

Notes to COB 6.7.15R:

Recurring single premium life policy: Under certain conditions, only the first premium in what might be a series of premiums attracts cancellation rights under COB 6.7.7 R (1). The conditions are:

(a) the option to make a series of single premium payments is disclosed at outset (for example, in the key features); and

(b) the intention is evidenced (for example, by the retail customer establishing a direct-debit mandate).

Multiple contracts: Where a retail customer enters into a set of contracts at the same time (for example, the different components held within a maxi-ISA and with the same firm), and that set is being purchased to fulfil one investment objective of the retail customer, the firm may treat the multiple contracts as being one contract for the purposes of COB 6.7. But if it does so, the firm must ensure that the customer retains a right to cancel each contract separately. This note applies also to a group of life policies which have been established as part of a specific marketing arrangement. Such an arrangement may not have an investment objective. The cancellation rights for any non-investment insurance contracts are set out in ICOB 6.

A purchaser of a single premium pension policy has a right to cancel where the designated retirement date is within six months of the date of the policy , unless the policy falls within case 1, 4 or 7(b) of row 2.

For a customer , other than an EEA ECA recipient , habitually resident in an EEA State other than the United Kingdom , firms are reminded that they may need to apply cancellation in accordance with the requirements in that EEA State.

This exemption from giving a right to cancel does not apply for distance contracts.

In the case of life policies held within CTFs that are distance contracts, the initial service agreement is cancellable.

If the CTF has been opened the life insurer must not cancel the life policy until it has new instructions to deal with the proceeds in accordance with the CTF Regulations.

In relation to Revenue allocated accounts, the life insurer must not accept any additional contributions until the cancellation period has expired without the right to cancel being exercised.

06/04/2005

COB 6.7.17

Cancellable contracts and exceptions - non-life

This table belongs to COB 6.7.7 R (1) and COB 6.7.14 R (1)

Cancellable contracts and exceptions - non-life

Contracts which a retail customer has a right to cancel under COB 6.7.7 R (1) (subject to row 2):

Row 1

pension contract (see notes 1, 2 and 4 in COB 6.7.18 R);

appropriate personal pension which is a pension contract (see note 4 in COB 6.7.18 R);

subscriptions (but see notes 1, 2 and 5 in COB 6.7.18 R) which can be invested only in units (whether or not held within an ISA, PEP, pension contract , personal pension product or SIPP) in an AUT , recognised scheme or ICVC purchased from:

(a)

the operator; or

(b)

its associate acting as an ISA manager or plan manager;

distance contracts (but see notes 6 and 8 in COB 6.7.18 R) (whether or not held within a CTF ) (other than for a life policy, stakeholder pension scheme, personal pension deposit, personal pension product, SIPP, cash deposit ISA, cash deposit CTF or a contract in A, B or C) the making or performance of which by the firm constitutes or is part of:

(a)

dealing as agent, advising or arranging in relation to designated investments, unless the distance contract is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.9.2 G (3)); or

(b)

any other designated investment business; or

(c)

accepting deposits.

subscriptions (but see note 7 in COB 6.7.18 R) which can be invested only in units held within a non-stakeholder CTF (other than a contract contained in D) in an AUT , recognised scheme or ICVC purchased from a CTF provider, where advice is given.

Row 2

There is no right to cancel where any one or more of the following cases applies:

the customer is not a private customer (but see note 5 in COB 6.7.18 R);

the contract is entered into with the firm as an execution-only transaction (unless note 4 or note 5 in COB 6.7.18 R applies);

the contract is entered into through a direct offer financial promotion (unless note 4 or note 5 in COB 6.7.18 R applies);

the contract represents an exchange of units between sub-funds;

the contract represents a defined benefits pension scheme (but see note 5 in COB 6.7.18 R);

the contract is entered into under a customer agreement or during negotiations (which are not ISA , PEP or CTF related) intended to lead to a client agreement (unless note 4 or note 5 in COB 6.7.18 R applies);

the contract relates to an ISA or PEP for which the right to cancel is replaced by the right to withdraw (but see COB 6.7.14 R (1) and note 5 in COB 6.7.18 R);

the contract relates to an EIS or non-packaged product ISA, PEP or CTF and is entered into, following advice on investments, and following an explanation that neither of the rights specified in case 7 will apply, given to the customer in accordance with COB 3.9.21 R or COB 4 Ann 2E(9)(a) in a direct offer financial promotion , terms of business, or given in EIS particulars (but see note 5 in COB 6.7.18 R);

the contract entered into is a second or subsequent ISA (or EIS) on substantially the same terms (see note 3 in COB 6.7.18 R) as an ISA (or EIS) purchased from the same ISA manager (or EIS manager) in the previous tax year (but see note 5 in COB 6.7.18 R);

10.

the contract relates to a change from accumulation units to income units or vice versa, in the same scheme;

pension contract funded (wholly or in part) from payments derived from compensation or redress paid by a firm following a review undertaken in relation to a complaint;

12.

pension contract funded (wholly or in part) from payments derived from a pension transfer to the extent that the right to cancel is provided through a right to withdraw (see COB 6.7.14 R (2)) using the cancellation substitute in COB 6.7.19 R;

13.

the contract relates to a recognised scheme and the agreement is with an operator who is not:

(a)

an authorised person; or

(b)

carrying on business in the United Kingdom;

14.

the contract relates or would relate to exported products, that is to say:

(a)

where the customer is not habitually resident in the United Kingdom (or, for a distance contract , EEA) at the date of the offer of the contract; or

(b)

the firm has reasonable grounds for assuming that no advice on investments about the contract was provided by anyone carrying on designated investment business in the United Kingdom (but see note 5 in COB 6.7.18 R;

15.

for distance contracts:

(a)

the price depends on fluctuations in the financial market outside the firm's control which may occur during the cancellation period, such as contracts related to:

(i)

foreign exchange; or

(ii)

money market instruments; or

(iii)

transferable securities; or

(iv)

units in collective investment undertakings; or

(v)

financial-futures contracts, including equivalent cash-settled instruments; or

(vi)

forward interest-rate agreements; or

(vii)

interest-rate, currency and equity swaps; or

(viii)

options to acquire or dispose of any instruments in (i) to (vii), including cash-settled instruments and options on currency and on interest rates; or

(b)

the performance of the distance contract has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel; or

(c)

the firm has an initial service agreement with the 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).

06/04/2007

COB 6.7.18

Notes to cancellable contracts and exceptions - non-life

This table belongs to COB 6.7.17 R

Notes to COB 6.7.17R:

Recurring single payment pension contracts and unit savings plans. Under certain conditions, only the first payment in what might be a series of payments attracts cancellation rights under COB 6.7.7 (1) . The conditions are:

(a)

the intention or option to make a series of single payments is disclosed at outset (for example, in key features); and

(b)

the intention is evidenced (for example, by the customer establishing a direct debit mandate) .

Multiple contracts. Where a customer enters into a set of contracts at the same time (for example, regarding different components held within a maxi-ISA) and with the same firm, and that set is being purchased to fulfil one investment objective of the customer, the firm may treat the contracts as being one contract for the purposes of COB 6.7. But if it does so, the firm must ensure that the customer has a right to cancel each contract separately.

For example, mini- to mini-ISA or maxi- to maxi-ISA would be regarded in this context as 'on substantially the same terms'.

A customer has a right to cancel an appropriate personal pension or pension contract at the outset and on any subsequent agreement for a variation of a pension contract (see COB 6.7.23 regarding variation of an existing contract).

This exemption from giving a right to cancel does not apply for distance contracts .

In the case of contracts held within CTFs , the initial service agreement is cancellable in all cases.

Cancellation rights exist only where the registered contact has received advice. In cases in which cancellation rights apply, they are the same as the cancellation rights that would apply to the underlying units if they were not held within a CTF.

In relation to Revenue allocated accounts , the firm must not accept any additional contributions until the cancellation period has expired without the right to cancel being exercised.

09/10/2004

COB 6.7.19

Cancellation substitute

This table belongs to COB 6.7.12 R, COB 6.7.13A R (2), COB 6.7.14 R (2), cases 4(a) and 7(a) of row 2 to COB 6.7.15 R, case 12 of row 2 to COB 6.7.17 R, COB 6.7.23 (3) and COB 6.7.26A (2).

Cancellation substitute

The retail customer's right to cancel under COB 6.7.7 R (1) ; COB 6.7.7 R (4) or COB 6.7.13A R (2) is provided through (see note 2) a right to withdraw only if:

the firm has supplied (or has reasonably relied upon another firm to supply) to the retail customer, at least 14 days before the contract is concluded, a written notice (see note 1) which prominently states:

(a)

that the retail customer has a specified period in which to consider his pension options;

(b)

the dates at which the period begins and ends (which must be, in the case of a pension transfer, before the transfer has been irrevocably effected);

(c)

the pension options available (for example, the open-market option in relation to a pension annuity);

(d)

the steps the retail customer must take in order to exercise a particular pension option;

(e)

that the retail customer is entitled to key features and is advised to check with the firm if the key features have not been received;

(f)

the cost of any advice given to the retail customer in relation to the transaction; and

the firm has taken sufficient steps (or has reasonably relied upon the same firm as in 1. to take those steps) to ensure that the customer has been informed and made fully aware of the potential advantages and disadvantages of proceeding and has had an opportunity to consider all other possible alternatives.

Notes:

1. The notice must be issued separately or feature prominently as part of another document supplied to the customer.

2. Where the retail customer's right to cancel is provided through a right to withdraw of less than 30 days, a further right to cancel of at least 30 days less the right to withdraw period must be provided in accordance with these rules so that the total period provided is at least 30 days.

06/04/2007

Voluntary provisions

COB 6.7.21

If anything in row 2 of either COB 6.7.15 R or COB 6.7.17 R removes the right to cancel a contract, but a firm voluntarily gives the retail customer a right to cancel in any event, the firm must treat the contract as if it were cancellable under COB 6.7.7 R (1).

09/10/2004

COB 6.7.22

(1) If the firm has any doubt whether a contract or the circumstances of its purchase bring the case within any part of COB 6.7.7 R (1), it should treat the contract as if it were cancellable.
(2) A firm that informs a retail customer that he has a right to cancel where it is not obliged to give a right to cancel will be taken to have voluntarily granted the retail customer a right to cancel (unless, for the purposes of COB 6.7.17 R, there is a relevant client agreement between the firm and the retail customer).

09/10/2004

Variations

COB 6.7.23

(1) After an increase in regular or single premiums or payments (including a pension transfer) to a life policy, personal pension scheme or stakeholder pension scheme, a retail customer has a right to cancel (see COB 6.7.7 R (4)) in the following circumstances, unless (2) or (2A) apply:

(a) any variation, other than a 'pre-selected option' (see COB 6.7.26 G), providing for substantial increases in premium or payment where the increase:

(i) is being paid by way of varying the existing contract; or
(ii) will result in a new contract established on the same terms as the original contract;

and, in each case, represents an increase on the original premium or payments (or the previous highest agreed premium or payment) of more than 25% (see COB 6.7.25 G); or
(b) any variation, other than a 'pre-selected option' (see COB 6.7.26 G), that results in a new contract which involves fresh contract terms or imposes additional obligations on the retail customer due to a change in the terms of the original contract; or
(c) any variation where the increase represents the proceeds of a pension transfer; or
(d) the variation of a long-term care insurance contract to provide long-term care benefits.

(2) Paragraph (1) does not apply if:

(a) there would have been no right to cancel the original contract under COB 6.7.7 R (1) had that agreement been entered into on the date of the variation; or
(b) the variation arises out of the settlement of a claim for damages or compensation connected with a previous contract; or
(c) the variation is in respect of a life policy held within a CTF.

(2A) Paragraphs (1)(a), (b) and (d) do not apply if the variation is in respect of a SIPP.
(3) A firm may use the cancellation substitute in COB 6.7.19 R in relation to a variation of a contract in any case where that substitute would have been available to it had the contract been entered into on the date of the variation.

06/04/2007

COB 6.7.23A

When under a long-term care insurance contract, a new contract is issued to provide for long-term care benefits, a policyholder who is an individual has a right to cancel unless COB 6.7.23 (2) applies.

31/10/2004

COB 6.7.24

For the avoidance of doubt, a right to cancel in relation to COB 6.7.23 R (1) applies to the variation and not the original contract.

01/12/2001

COB 6.7.25

In the case of COB 6.7.23 R (1)(a) and (b), there is no right to cancel where the variation results in an increase in premium or payment of 25% or less. For example, if the first premium paid by the customer (to the same policy) was £1,000, the second was £500, and the third was £900, the customer would have no right to cancel in relation to the third premium. Although £900 is more than 25% greater than £500, it is still below the original premium of £1,000. In this case, therefore, the right to cancel would only arise in circumstances where the premium was increased to over £1,250 (this being more than 25% of the original premium).

01/12/2001

COB 6.7.26

COB 6.7.23 R (1)(a) and (b) do not apply where the increase results from a pre-selected option. Increases of this type (for example, index-linked premiums or pension contributions that increase or decrease as salary fluctuates) will have been previously disclosed (for example, in the key features or terms and conditions) and agreed with the customer at the outset. Any subsequent increases of 25% or more resulting from a pre-selected option will not, therefore, attract fresh disclosure or cancellation rights.

01/12/2001

COB 6.7.26A

(1) If a customer who is an individual varies an existing personal pension scheme or stakeholder pension scheme by exercising an option to make income withdrawals, he has a right to cancel that first variation.
(2) A firm may use the cancellation substitute in COB 6.7.19 in relation to the right to cancel in (1).

06/04/2007

Electronic communication relating to cancellation and withdrawal

COB 6.7.27

For electronic transactions (for example, facsimile, e-mail or Internet) firms are referred to the guidance in COB 1.8. The rules in COB 6.7 permit the firm to issue information about a right to cancel and other communications, and to accept notice from customers who are exercising the right to cancel or withdraw, by electronic means. However, a firm should be able to demonstrate that the customer wishes to communicate electronically.

09/10/2004

Reminding the customer of the right to cancel - contracts other than distance contracts and cash deposit ISAs

COB 6.7.30

Other than for distance contracts , cash deposit ISAs and CTFs that are not distance contracts, where there is a right to cancel, the firm which enters into the contract with the customer must send the customer, in writing, a clear and prominent reminder notice of this right:

(1) (for any contract specified in Part II of COB 6.7.57 to which shortfall applies), no later than the end of the eighth day; and
(2) (in any other case) no later than the end of the fourteenth day;

after the contract is concluded.

09/10/2004

COB 6.7.31

When the customer is a trustee or an operator of a personal pension scheme who is reasonably believed by the firm to be expected to act on the instructions of the individual beneficiary, scheme member or purchaser of the policy or contract, the firm must send the notice of the right to cancel in COB 6.7.30 R to:

(1) the trustee or operator, as appropriate; and
(2) the beneficiary, scheme member or purchaser;

and must inform the beneficiary, scheme member or purchaser of the need to give instructions, within the specified cancellation period, to the trustee or operator where the right to cancel is to be exercised.

06/04/2007

Failure to give information on cancellation rights

COB 6.7.41

If a firm does not give a retail customer information about his cancellation rights in accordance with COB App 1.1.1 R (17), the contract remains cancellable and the retail customer will not be liable for any shortfall (see COB 6.7.56 R (1)).

09/10/2004

Exercising the right to cancel

COB 6.7.42

A retail customer who has a right to cancel under COB 6.7.7 R may, without giving any reason, cancel the contract by serving notice upon the firm, before expiry of the relevant cancellation period either:

(1) by post to the firm's last known address; or
(2) in accordance with any other practical instructions for exercising that right provided to the customer in accordance with COB App 1.1.1 R (17)(b).

09/10/2004

COB 6.7.44

Where the notice of cancellation is in a durable medium and served in accordance with COB 6.7.42, it must be treated as being served on the firm on the date it is despatched by the retail customer.

01/12/2001

COB 6.7.45

The purpose of COB 6.7.44 R is to identify the relevant day for determining whether the right to cancel was exercised within the relevant period in COB 6.7.10 R.

01/12/2001

COB 6.7.46

In the event of any dispute, unless there is clear written evidence to the contrary, the firm should treat the date cited by the customer as being the date when the notice was given, posted or otherwise sent.

01/12/2001

Record keeping

COB 6.7.47

Where notice of cancellation or withdrawal has been served on a firm (or its appointed representative or agent), the firm must make and retain records (which include a copy of any receipt of notice issued to the customer and the customer's original notice instructions):

(1) indefinitely in the case of a record relevant to a pension transfer, pension opt-out or FSAVC;
(2) for a minimum period of:

(a) six years in the case of a record relevant to a life policy, personal pension scheme or stakeholder pension scheme; and
(b) three years in any other case;

and, in each case, the minimum time period runs from the date when the firm first became aware that notice of cancellation had been served.

06/04/2007

Cancellation notices served out of time

COB 6.7.48

If a firm has provided information on cancellation rights in accordance with COB App 1.1.1 R (17), it need not (unless COB 6.7.11 R applies) accept a notice of cancellation if it is served later than the period specified for that contract in COB 6.7.10 R.

01/12/2001

Death of the life assured: cancellation of a pension annuity

COB 6.7.49

A firm need not accept notice of cancellation of a pension annuity contract if the life (or any of the lives) assured under it has died before notice is given.

01/12/2001

Joint policyholders: effecting cancellation of a life policy

COB 6.7.50

In the case of a life policy, cancellation by one of several policyholders is valid if that policyholder has the right to cancel, irrespective of whether the policyholder is exercising that right alone or jointly on behalf of all of the policyholders.

01/12/2001

Effects of cancellation

COB 6.7.51

By exercising a right to cancel under COB 6.7.7 R (1), (2), (4), (5) or (6), the customer withdraws from the contract and:

(1) the entire contract; or
(2) the particular ISA component; or
(3) the variation alone (see COB 6.7.23 R (1));

is terminated.

06/04/2007

Automatic cancellation of an attached distance contract

COB 6.7.51A

Regulation 12 (Automatic cancellation of an attached distance contract) of the Distance Marketing Regulations, has the effect that when notice of cancellation is given in relation to a contract, that notice also operates to cancel any attached distance financial services contract which does not fall within one of the exceptions to the right to cancel in regulation 11, unless the retail customer gives notice that cancellation of the main contract is not to operate to cancel the attached contract. So, for example, the attached contract will not be cancelled if the price of the service depends on fluctuations in the financial market outside the firm's control or if performance of the contract has been fully completed by both parties at the consumer's express request.

09/10/2004

Obligations on cancellation

COB 6.7.52

Unless the agreement relates to a CTF, when a retail customer exercises a right to cancel under COB 6.7.7 R:

(1) the firm must:

(a) pay to the retail customer (or, in the case of a pension transfer or pension annuity , for the benefit of the retail customer) without delay, and no later than 30 days after the date on which the firm received notice of cancellation from the retail customer, any sums which the customer has paid to or for the benefit of the firm in connection with the contract (including sums paid by the retail customer to agents of the firm) except for the amount referred to in (b);
(b) subject to (c), the firm is permitted to require the retail customer to pay for the services it has actually provided in connection with the contract; the amount payable, however, must be in accordance with the sums which the retail customer agreed to pay and must not:

(i) exceed an amount which is in proportion to the extent of the service already provided to the retail customer by the firm; and
(ii) be such that it could be construed as a penalty;

(i) the contract is a distance contract within COB 6.7.17 R, Row 1, case D (Distance contracts for certain designated investment business or accepting deposits);
(ii) where performance of the contract has commenced before expiry of the cancellation period, this was requested by the retail customer; and
(iii) the firm can demonstrate that the retail customer was provided with details of the amount which he may be required to pay if exercising his right to cancel in accordance with COB App 1.1.1 R (17)(a).

(2) The firm is entitled to receive without delay, and no later than 30 days after the date on which the customer posted or otherwise sent notice of cancellation to the firm:

(a) any sums or property or both that became the customer's under the contract; and
(b) payment of any shortfall due under COB 6.7.54 R.

06/04/2007

COB 6.7.52A

(1) When a person exercises a right to cancel a contract in connection with a CTF that has been opened, the CTF provider must ensure that:

(a) where the CTF provider and the firm that provides the underlying investment are different persons , any money that was held by the firm that provides the underlying investment in connection with the CTF is returned to the CTF provider as soon as reasonably practicable;
(b) any sums which any person has paid to or for the benefit of any firm in connection with the CTF continue to be held in a CTF bank account until the CTF provider receives further instructions regarding the investment of those sums in accordance with the CTF Regulations
(c) where a CTF provider holds sums in accordance with COB 6.7.52A, the CTF provider notifies the private customer in writing as soon as reasonably practicable, stating that the money is held awaiting re-investment instructions; and
(d) if the CTF bank account is non-interest bearing, the registered contact is informed of that fact as soon as possible after the money has been deposited in the account.

(2) When a person exercises the right to cancel a contract in connection with a CTF that has not been opened and the CTF provider holds money awaiting instructions, the CTF provider must comply with the requirements of COB 6.7.52A(1)(b), (c), and (d).

01/12/2001

COB 6.7.52B

Where cancellation rights are exercisable by a customer in relation to a CTF , the CTF provider will need permission to hold client money to be able to deal with the money from the cancelled contract unless they can take advantage from any exemption from the client money rules.

01/12/2001

COB 6.7.53

Any sum payable under COB 6.7.52 R is owed as a simple contract debt, and any sums payable in respect of the same cancellation may where relevant be set off against each other.

01/12/2001

Shortfall

COB 6.7.54

Subject to COB 6.7.56 R, the firm is entitled under COB 6.7.52 (3) to charge the retail customer for the market loss (that is, shortfall), calculated in accordance with COB 6.7.58 R, which the firm would incur in cancelling any contract specified in COB 6.7.57 R.

01/12/2001

Shortfall: worked example

COB 6.7.55

COB 6.7.58 R illustrates the process that firms need to undertake in order to discover the amount (that is, shortfall) by which the purchase price paid by the retail customer is greater than the purchase price prevailing when the firm becomes aware that the retail customer has cancelled. EXAMPLE: In the case of dual-priced investments , the shortfall on cancellation is calculated on an offer-to-offer basis; for example, 1,000 units are purchased at an offer price of 209.1p and the offer price is (or, in the case of a forward price , is subsequently ascertained to be) 196.2p as at the time when the firm became aware that notice of cancellation had been served by the retail customer. The shortfall on cancellation, therefore, is (209.1 - 196.2) = (12.9p x 1,000) = £129.

01/12/2001

Exceptions to shortfall

COB 6.7.56

A firm will have no right to charge a retail customer for any shortfall which results from the customer having exercised a right to cancel in any of the following circumstances:

(1) if the firm does not give the customer notice of his cancellation rights as required by COB 6.7 (17);
(2) if the firm fails to make any prominent mention of shortfall in the information about cancellation;
(3) if the firm has failed to send a reminder notice as required by COB 6.7.30 R (2);
(4) if the customer has served the cancellation notice before the contract is concluded.

01/12/2001

COB 6.7.57

Table: Contracts which are subject to shortfall.

This table belongs to COB 6.7.54 R

Investment agreements which are subject to shortfall

Part I: any contract specified in row 1 of COB 6.7.15 R (unless note 1 applies):

which is:

where the investment agreement is effected as a:

(1) a life policy
(2) a pension policy

(a) single premium life policy; or
(b) single premium pension policy; or
(c) single premium addition to an existing single or regular premium life policy or pension policy.

Part II: any contract specified in COB 6.7.13A R or row 1 of COB 6.7.17 R (unless note 2 applies):

which is:

where the investment agreement is effected as:

(1) a pension contract
(1A) a personal pension product
(2) a subscription to invest in an AUT
(3) a subscription to invest in an ICVC

(a) a single payment arrangement; or
(b) a single payment addition to an existing single or regular payment pension contract or unit savings plan.

Part III: a single contribution to a stakeholder pension scheme except where the contribution is a recurring contribution or the stakeholder pension scheme has been established at the outset on the basis of regular contributions.

Notes:
Shortfall does not apply to any contract which is established at the outset:

1. on a regular premium basis, or as a recurring single premium life policy or pension policy;

2. on a regular payment basis, or as a recurring single payment pension contract or unit savings plan.

06/04/2007

COB 6.7.58

Table: Calculation of shortfall.

This table belongs to COB 6.7.54 R

Calculation of shortfall

A firm must calculate shortfall as at the 'relevant date' (see note 1) as follows:

take the actual payment made, whether only or first payment (see note 2);

take the equivalent payment that would have been quoted (see notes 3, 4 and 5) to the same retail customer assuming an identical purchase was made at the 'relevant date';

add to the figure at B the amount of any income included in the figure at A (but originally excluded from the figure at B for the purposes of distribution to retail customers); and

deduct the figure at B (as amended by C) from the figure at A; if the resultant figure is zero or negative, there is no shortfall.

Notes: 1. The 'relevant date' is the date when the firm first became aware that notice of cancellation had been served upon it.

2. If the agreement is a variation of a previous contract (see COB 6.7.23 ), the firm must treat the increase in premium as the sum in A.

3. If details of the payments necessary to calculate B (for example, premium rates, investment prices or yields etc) are not publicly available (see note 6) at the 'relevant date', there is no shortfall.

4. If the agreement relates to a life policy or pension annuity on the life of another, the firm must treat the first life assured as the customer for the comparison in B.

5. Where the change is yield and not premium or price, in order to calculate B the firm must convert the change in yield (if an enhancement) into a change in premium or price.

6. In the case of a forward price, the requirement of public availability is satisfied if both the previous and next relevant prices are published in a national UK newspaper).

01/12/2001

COB 6.8

Insurance contracts: life policies

14/01/2005

Application

COB 6.8.1

COB 6.8 applies to a firm which effects or carries out life policies.

14/01/2005

Purpose

COB 6.8.2

(1) Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its clients. This section reinforces Principle 7 by requiring certain information to be provided on a continuing basis to a client with a life policy. (COB 6.1 to COB 6.5 deal with pre-sale information for life policies).

(2) This section implements certain requirements of the Third Life Directive.

(3) For non-investment insurance contracts, firms should refer to ICOB.

14/01/2005

Life policies: Information to be provided during the term of the contract

COB 6.8.6

COB 6.8.7 R and COB 6.8.8 R apply to a long-term insurer, unless, at the time of application, the client, other than an EEA ECA recipient, was habitually resident:

(1) in an EEA State other than the United Kingdom; or
(2) outside the EEA and he was not present in the United Kingdom.

01/03/2003

COB 6.8.7

If during the term of a life policy entered into on or after 1 July 1994 there is any proposed change in the information referred to in COB 6.5.49 R items (1) to (12), the long-term insurer must inform the policyholder of the effect of the change before the change is made.

14/01/2005

COB 6.8.8

If a life policy entered into on or after 1 July 1994 provides for the payment of bonuses and the amounts of bonuses are unspecified, the long-term insurer must, in every calendar year except the first, either:

(1) notify the policyholder in writing of the amount of any bonus which has become payable under the contract, and which has not previously been notified under this rule; or
(2) give the policyholder in writing sufficient information to enable him to determine the amount of any such bonus.

14/01/2005

COB 6.8.9

The information under COB 6.8.8 R (2) could include the total value of the benefits (including bonuses) which have accrued under the contract, the rates of bonus which have been declared since the previous notification or provision of information and a note of the benefits to which those new rates should be applied.

01/12/2001

COB 6.8.10

Although COB 6.8.8 R does not apply to a bonus if the amount is specified in the contract, long-term insurers are free to provide the information if they wish.

01/12/2001

Provision of information: general

COB 6.8.15

(1) When a firm provides information in accordance with COB 6.8.3 R, COB 6.8.7 R, COB 6.8.8 R or COB 6.8.12 R, it must provide the information in writing, unless (2) applies.
(2) If the contract is being made by telephone, the firm may give the information orally to the customer. If the customer enters into the contract, a written version of the required information must be sent to the customer within five business days of the contract being entered into.

01/12/2001

COB 6.8.16

In relation to electronic notification, firms are referred to the guidance in COB 1.8 (Application to electronic media).

01/12/2001

COB 6.8.17

Where a life policy is effected jointly, the information required by COB 6.8.7 R or COB 6.8.8 R may be sent to the first named customer.

14/01/2005

Record keeping

COB 6.8.18

A firm must make an adequate record of information provided to a customer under COB 6.8 and retain that record for a minimum period after the information is provided of six years.

14/01/2005

COB 6.10

Principles and Practices of Financial Management (PPFM)

01/12/2004

Application and purpose Application

COB 6.10.1

(1) The whole of this section, except COB 6.10.4A G and COB 6.10.21A R to COB 6.10.21K R , applies to a firm that:

(a) carries on with-profits business;
(b) is not an EEA insurer; and
(c) is not a non-directive friendly society.

(2) COB 6.10.4A G and COB 6.10.21A R to COB 6.10.21K R apply only to an EEA insurer that carries on with-profits business.
(3) This section does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.

31/12/2005

Purpose

COB 6.10.2

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

30/04/2004

COB 6.10.3

The rules and guidance in this section are intended to secure an appropriate degree of protection for policyholders, and potential policyholders, of firms carrying on with-profits business by requiring them to define and make available their Principles and Practices of Financial Management and to produce, for their with-profits policyholders, and potential with-profits policyholders, a consumer-friendly version of them. The rules and guidance in this section are also intended to enable policyholders, and potential policyholders, of firms carrying on with-profits business better to understand the way in which firms carry on their with-profits business.

31/12/2005

COB 6.10.4

A firm's Principles and Practices of Financial Management also play an important role in promoting confidence among with-profits policyholders and in the governance arrangements for with-profits business set out in COB 6.11 (Reporting to with-profits policyholders on compliance with PPFM).

30/04/2004

COB 6.10.4A

In relation to EEA insurers, the rules and guidance in this section are intended to enable UK policyholders properly to understand the essential elements of the EEA insurer's commitment under the relevant with-profits policy. The effect of COB 6.10.21A R to COB 6.10.21K R is that an EEA insurer that carries on with-profits business must provide its UK with-profits policyholders with information equivalent in scope and content to the information that a UK insurer must provide in its Principles and Practices of Financial Management and in its consumer-friendly version of them.

31/12/2005

Principles and Practices of Financial Management

COB 6.10.5

(1) A firm must establish and maintain the Principles and Practices of Financial Management according to which the business of its with-profits funds is conducted.
(2) A firm must make a record of its Principles and Practices of Financial Management in (1), and retain that record for six years from the date on which it was superseded by a more up-to-date record.

30/04/2004

COB 6.10.6

Whether a separate PPFM is needed for each with-profits fund is a matter for the firm in the light of its circumstances, including previous management of those funds and any relevant representations made by the firm to with-profits policyholders.

30/04/2004

COB 6.10.7

In order to comply with COB 6.10.5 R a firm should:

(1) establish and maintain a document approved by its governing body, setting out its PPFM; and
(2) keep a record of each version of the PPFM as it changes over time.

30/04/2004

Obligation to provide copies

COB 6.10.8

A firm must provide a copy of its PPFM, or the PPFM applicable to specified with-profits funds:

(1) free of charge at the request of any with-profits policyholder of the firm; and
(2) at the request of any person who is not a with-profits policyholder of the firm if that person pays any reasonable charge the firm may make for providing that copy.

30/04/2004

COB 6.10.9

In addition to providing copies of its PPFM, pursuant to COB 6.10.8 R, a firm may also wish to publish its PPFM on its website.

31/12/2005

Obligation to produce a consumer-friendly version of the PPFM

COB 6.10.9A

A firm must produce a consumer-friendly version of its PPFM for its with-profits policyholders and its potential with-profits policyholders.

31/12/2005

COB 6.10.9B

A firm's CFPPFM must:

(1) describe the most important information set out under each of the headings in its PPFM (see COB 6.10.22 R);
(2) be expressed in clear and plain language that can be easily understood by a with-profits policyholder, or potential with-profits policyholder, who does not possess any specialist or technical knowledge;
(3) be provided:

(a) with any:

(i) written notice, sent to the firm's with-profits policyholders, which sets out the firm's proposed changes to its with-profits principles (see COB 6.10.12 R and COB 6.10.13 R);
(ii) annual statements sent to the firm's with-profits policyholders; and
(iii) key features for a with-profits policy; and

(b) free of charge at the point of delivery; and

(4) the information set out in the CFPPFM may be included in another document, including those referred to in (3).

31/12/2005

COB 6.10.9C

A firm may also provide a copy of its CFPPFM with, or as part of, any other document.

31/12/2005

COB 6.10.9D

COB 6.10.9B R (3)(a)(ii) does not apply if, and to the extent that, there has been no material change in the firm's CFPPFM since it was last supplied.

31/12/2005

COB 6.10.9E

A firm must ensure that its CFPPFM is kept up to date with its PPFM, in all material respects, as the PPFM changes over time.

31/12/2005

COB 6.10.9F

A firm must:

(1) make its CFPPFM publicly available; and
(2) prominently signpost the availability of its CFPPFM on its website.

31/12/2005

COB 6.10.9G

In complying with COB 6.10.9B R (1) and COB 6.10.9BR (2), a firm should:

(1) have regard to Principle 7 (Communications with clients);
(2) give its CFPPFM a consumer-friendly title (for example, 'How we manage our with-profits business - a guide');
(3) include a short and clear statement at the beginning of its CFPPFM (for example, on a front cover) explaining its purpose and the importance of the information in it;
(4) use a contents page, bold headings, bullet points and colours, whenever that will help to make the CFPPFM more accessible and more easily understood;
(5) provide information in context, whenever that is necessary or appropriate (for example, by explaining what a with-profits policy is, and how it works, before describing the most important information set out under each of the headings in the firm's PPFM);
(6) use, short and concise paragraphs and, whenever reasonably possible, active verbs and personal pronouns rather than passive verbs and indirect pronouns (for example, a question could be: 'How do we make our bonus decisions?');
(7) avoid using technical, or industry specific, terms whenever that is reasonably possible (if a firm cannot reasonably avoid using such terms, it should explain, in plain language, what those terms mean);
(8) refer to its CFPPFM in:

(a) any annual statements sent to its with-profits policyholders;
(b) its key features for with-profits policies; and
(c) any other material document produced by the firm, where such a reference would be useful or appropriate;

(9) explain in the CFPPFM that:

(a) readers should refer to the firm's PPFM for a fuller description of the ways in which the firm manages its with-profits business; and
(b) copies of the firm's PPFM, or its relevant PPFM, are available on request (see COB 6.10.8 R) and how copies can be obtained.

31/12/2005

Principles of Financial Management

COB 6.10.10

The with-profits principles within the PPFM must:

(1) be enduring statements of the overarching standards the firm adopts in managing with-profits funds; and
(2) describe the business model used by the firm in meeting its duties to with-profits policyholders and in responding to longer-term changes in the business and economic environment.

30/04/2004

COB 6.10.11

The with-profits principles are not expected to change often. However, they should be informative enough to enable the directors, any actuary appointed under SUP 4 (Actuaries) and any With-profits Committee, amongst others, to judge whether existing or potential with-profits practices are appropriate for the firm.

30/04/2004

COB 6.10.12

A firm must send its with-profits policyholders written notice, setting out any proposed changes to the with-profits principles of the firm, three months in advance of the effective date of the proposed changes.

30/04/2004

COB 6.10.13

If a firm maintains more than one PPFM, the notice in COB 6.10.12 R need only be sent to those policyholders affected by the PPFM being changed.

30/04/2004

COB 6.10.14

A firm may give the notice required under COB 6.10.12 R by including the required information in any annual statements sent to with-profits policyholders if this is at least three months in advance of the effective date of the proposed changes.

30/04/2004

COB 6.10.15

Changes to the with-profits principles of a firm are likely to trigger one or more of the firm's obligations to notify the FSA under SUP 15.3 (General notification requirements).

30/04/2004

Practices of Financial Management

COB 6.10.16

The with-profits practices within the PPFM must:

(1) describe the firm's approach to managing with-profits funds and to responding to changes in the business and economic environment in the shorter-term; and
(2) contain sufficient detail to enable a knowledgeable observer to understand the material risks and rewards from effecting or maintaining a with-profits policy with the firm.

30/04/2004

COB 6.10.17

Subject to the with-profits principles, a firm's with-profits practices are expected to change as the firm's circumstances and the business environment change, with some alteration, for example, every few years.

30/04/2004

COB 6.10.18

A firm must send its with-profits policyholders written notice, setting out any changes to the with-profits practices of the firm.

30/04/2004

COB 6.10.19

If a firm maintains more than one PPFM, the notice in COB 6.10.18 R need only be sent to those policyholders affected by the PPFM being changed.

30/04/2004

COB 6.10.20

A firm may give the notice required under COB 6.10.18 R by including the required information in any annual statements sent to with-profits policyholders. The notice can be in arrears but should be within a reasonable time period from the effective date of the change.

30/04/2004

COB 6.10.21

Changes to the with-profits practices of a firm may trigger one or more of the firm's obligations to notify the FSA under SUP 15.3 (General notification requirements).

30/04/2004

Requirements on EEA insurers

COB 6.10.21A

An EEA insurer must, on the request of any with-profits policyholder who is habitually resident in the United Kingdom, provide the information necessary to enable that policyholder properly to understand the essential elements of the insurer's commitment under the policy.

30/04/2004

COB 6.10.21B

The information provided under COB 6.10.21A R must not be narrower in scope or less detailed in content than the equivalent PPFM under COB 6.10.22 R to COB 6.10.62.

30/04/2004

COB 6.10.21C

An EEA insurer may wish to publish the information provided pursuant to COB 6.10.21A R on its website.

31/12/2005

COB 6.10.21D

An EEA insurer must send its with-profits policyholders who are habitually resident in the United Kingdom, written notice, setting out any proposed changes to that part of the information provided under COB 6.10.21A R that is equivalent in substance to the with-profits principles of a firm to which COB 6.10.1 R(1) applies.

30/04/2004

COB 6.10.21E

An EEA insurer must send the notice provided under COB 6.10.21D R three months in advance of the effective date of the proposed changes.

30/04/2004

COB 6.10.21F

An EEA insurer may send the notice provided under COB 6.10.21D R only to those policyholders affected by the information being changed.

30/04/2004

COB 6.10.21G

An EEA insurer may give the notice provided under COB 6.10.21D R by including the required information in any annual statements sent to with-profits policyholders if this is at least three months in advance of the effective date of the proposed changes.

30/04/2004

COB 6.10.21H

An EEA insurer must send its with-profits policyholders who are habitually resident in the United Kingdom, written notice, setting out any changes to that part of the information provided under COB 6.10.21A R that is equivalent in substance to the with-profits practices of a firm to which COB 6.10.1 R(1) applies.

30/04/2004

COB 6.10.21I

An EEA insurer may send the notice provided under COB 6.10.21H R only to those policyholders affected by the information being changed.

30/04/2004

COB 6.10.21J

An EEA insurer may give the notice provided under COB 6.10.21H R by including the required information in any annual statements sent to with-profits policyholders. The notice can be arrears but should be within a reasonable time period from the effective date of the change.

30/04/2004

COB 6.10.21K

COB 6.10.9A R, COB 6.10.9B R, COB 6.10.9D R, COB 6.10.9E R and COB 6.10.9F R apply to an EEA insurer, as if:

(1) a reference to a firm was a reference to an EEA insurer; and
(2) a reference to a with-profits policyholder, or a potential with-profits policyholder, was a reference to a with-profits policyholder, or a potential with-profits policyholder, who is habitually resident in the United Kingdom.

31/12/2005

Scope and content of the Principles and Practices of Financial Management

COB 6.10.22

(1) The PPFM of a firm must cover any issues that has, or it is reasonably foreseeable may have, a significant impact on the firm's management of with-profits funds.
(2) The issues in (1) include: the amount payable under a with-profits policy, the investment strategy, business risk, charges and expenses, management of the inherited estate, volumes of new business and arrangements on stopping new business and arrangements on stopping taking new business, and equity between the with-profits fund and any shareholders.

30/04/2004

COB 6.10.23

In addition to the issues in COB 6.10.22 R(2), a firm's PPFM should also cover any other areas that are important to the management of its with-profits funds and that may affect the amounts payable under with-profits policies.

30/04/2004

COB 6.10.24

A firm's PPFM should reflect any requirements or constraints relevant to the management of with-profits funds that apply to the firm as a result of previous dealings: for example, previous business transfer schemes. The PPFM should also set out the extent to which the firm's freedom to alter its PPFM is constrained, including by such previous dealings.

30/04/2004

COB 6.10.24A

A firm's PPFM should describe the nature and extent of any shareholder commitment to support the with-profits fund. It should also describe when and how that commitment will take effect.

30/06/2005

COB 6.10.25

The rest of this section includes rules on each of the issues that a firm's PPFM must cover, followed in each case by guidance on how various information relevant to that issue might be split between with-profits principles and with-profit practices.

30/04/2004

The amount payable under a with-profits policy

COB 6.10.26

The PPFM of a firm must cover the methods that the firm uses to guide its determination of the amount that it is appropriate to pay individual with-profits policyholders, including:

(1) the aims of the methods used, and the approximations used;
(2) how the current methods, including any relevant historical assumptions used and any systems maintained to deliver results of particular methods, are documented within the firm; and
(3) the procedures for changing either the current method or any assumptions or parameters relevant to a particular method.

30/04/2004

COB 6.10.27

A firm may use a number of methods to determine the amount payable to a with-profits policyholder and may use more than one method to determine the amount payable to a particular with-profits policyholder.

30/04/2004

COB 6.10.28

The firm's with-profits principles should describe:

(1) the aims of the methods the firm uses to determine the amount payable to with-profits policyholders;
(2) the degree of approximation that the firm is prepared to allow in the application of those methods and in the application of its with-profits principles;
(3) how the firm controls changes to those methods; and
(4) the circumstances under which the firm might change any historical assumptions or parameters relevant to those methods: for example, previously applied investment returns, charges, or allocations of miscellaneous surplus, that have been derived from the historical experience and actions of the firm.

30/04/2004

COB 6.10.29

The firm's with-profits practices should describe, for each major class of with-profits policy:

(1) the methods that the firm currently uses to determine the amount payable to with-profits policyholders;
(2) the methods that the firm currently uses to determine the main assumptions or parameters that determine the output of those methods;
(3) the degree of approximation that the firm allows when it applies assumptions or parameters across generations of with-profits policyholders or across different types or classes of with-profits policies;
(4) the formality with which the firm documents the methods, parameters or assumptions that it uses to determine the amount payable to with-profits policyholders; and
(5) the firm's internal procedures for changing either the current methods or the current parameters or assumptions relevant to a particular method; and
(6) the firm's target range, or target ranges, that have been set and specified pursuant to COB 6.12.17 R; and
(7) the factors that the firm is likely to regard as relevant under COB 6.12.59 R.

30/06/2005

COB 6.10.30

The firm's with-profits practices should describe how the firm brings investment return, expenses or charges and tax into account and how the firm determines the impact of those items on the amount payable under a with-profits policy. In particular, the firm's with-profits practices should describe:

(1) any distinctions that the firm makes in recognising the investment return from a subset of the total assets of a with-profits fund;
(2) whether the firm apportions expenses fully between all the policies in a with-profits fund or apportions expenses in some other way, for example, by meeting some expenses from the firm's inherited estate;
(3) the relationship between the actual liability to tax of a with-profits fund and the tax that the firm imputes to determine the amount payable under a with-profits policy;
(4) the impact on the amount payable under a with-profits policy of any liability to tax of a with-profits fund as a result of the firm making a transfer to shareholders; and
(5) how the firm brings any other items into account, including, for example, charges made for the costs of guarantees, charges for the use of capital and charges for other risks.

30/04/2004

COB 6.10.31

The PPFM of a firm must cover the firm's approach to setting annual bonus rates applicable to with-profits policies.

30/04/2004

COB 6.10.32

The firm's with-profits principles should:

(1) describe the firm's general aims in setting annual bonus rates and the constraints to which the firm may be subject in changing economic circumstances; and
(2) indicate how the firm would determine the range of with-profits policies or generations of with-profits policies over which the firm believes a single bonus rate would be appropriate and the circumstances under which the firm believes a new bonus series would be necessary.

30/04/2004

COB 6.10.33

The firm's with-profits practices should:

(1) describe the firm's current approach to setting annual bonus rates, including the weight given to recent economic experience;
(2) indicate the frequency at which the firm re-sets or expects to re-set annual bonus rates;
(3) indicate the maximum amount (if any) by which annual bonuses would alter if the firm were to re-set annual bonus rates; and
(4) describe the firm's approach to setting any interim bonus rates before the next declaration of annual bonus rates.

30/04/2004

COB 6.10.34

The PPFM of a firm must cover the firm's approach to setting final bonus rates applicable to with-profits policies.

30/04/2004

COB 6.10.35

The firm's with-profits principles should describe the firm's approach to setting final bonus rates, in the context of the firm's general aims in determining the total amount payable under with-profits policies, and by reference to the constraints to which the firm may be subject in changing economic circumstances.

30/04/2004

COB 6.10.36

The firm's with-profits practices should:

(1) describe the firm's current approach to setting final bonus rates, including the weight given to recent economic experience. The description should include any distinctions that the firm makes between with-profits policies that remain in force until contractual dates, or dates on which no market value reduction applies (for example, maturity or retirement dates) and policies that are surrendered or transferred at other dates;
(2) describe the relationship or interaction between final bonus rates and any market value reductions, if both can apply at the same time;
(3) describe how final bonuses influence the value of with-profits policies that have formulaic surrender or transfer bases (for example, older conventional policies rather than unitised policies); and
(4) indicate the frequency at which the firm sets or expects to set final bonus rates and the circumstances under which changes in the economic environment would cause the firm to change the time between re-setting.

30/04/2004

COB 6.10.37

The PPFM should describe the firm's approach to smoothing the value of with-profits policies, including those matters required under COB 6.12.47 R.

30/06/2005

COB 6.10.38

The firm with-profits principles should:

(1) indicate whether and in what respect the firm takes a significantly different approach to smoothing depending on the type of claim arising from with-profits policies;
(2) indicate whether the firm intends smoothing to be neutral over time;
(3) indicate whether there is any total scale or cost of smoothing to the firm over the shorter-term that the firm believes should not be exceeded. The FSA takes the cost of smoothing to mean the extent to which the amount actually payable under a with-profits policy diverges from the theoretical determinant of policy value under COB 6.10.26 R, except where due to applicable guarantees; and
(4) indicate whether the firm's applies market value reductions, or changes the surrender bases for with-profits policy that are not unitised, only to reflect changes in underlying asset values.

30/04/2004

COB 6.10.39

The firm's with-profits practices should:

(1) indicate how rapidly the firm might need to adjust the value of with-profits policies, by specifying any period over which the firm expects smoothing to be neutral;
(2) indicate whether there is any overall limit to the accumulated cost of, or excess from, smoothing that the firm is prepared to tolerate;
(3) indicate whether the firm applies a single smoothing strategy to all generations and types of with-profits policy, or applies different smoothing strategies to subsets of the with-profits fund, in particular whether (and in what respect) the firm applies a different smoothing strategy to new entrants to a with-profits fund when the accumulated cost or excess from smoothing is large;
(4) describe the firm's current approach to smoothing: for example, the acceptable degree of change in the value of similar with-profits policies from one year to the next, or the formula the firm uses to recognise recent investment performance as a determinant of the value of a with-profits policy;
(5) describe how the firm applies smoothing to classes of with-profits policies that participate in final bonuses indirectly: for example, older policies with formulaic surrender or transfer bases;
(6) describe how accurately the firm applies market value reductions or surrender and transfer bases to give effect to smoothing; and
(7) describe how the firm accounts for partial payments under with-profits policies to which no penalty (for example, by market value reductions) is applied, in determining the eventual total value of a with-profits policy.

30/04/2004

Investment strategy

COB 6.10.40

The PPFM of a firm must cover the significant aspects of the firm's investment strategy for its with-profits business or, if different, any with-profits fund, including:

(1) the degree of matching to be maintained between assets relevant to with-profits business and liabilities to with-profits policyholders and other creditors;
(2) the firm's approach to assets of different credit or liquidity quality and different volatility of market values;
(3) the presence among the assets relevant to with-profits business of any assets that would not normally be traded because of their importance to the firm, and the justification for holding such assets; and
(4) the firm's controls on using new asset or liability instruments and the nature of any approval required before new instruments are used.

30/04/2004

COB 6.10.41

The firm's with-profits principles should:

(1) set out the firm's investment strategy in terms that allow alternative with-profits practices to be judged and where necessary rejected. The firm's with-profits principles should therefore specify the specific factors that drive the firm's investment strategy, in more detail than, for example, simply achieving the best return within the framework of the likely volatility of asset values;
(2) if the firm relies on assets outside a with-profits fund to maintain the firm's investment strategy, state on which assets and to what degree the firm relies;
(3) set out how the firm views the use, as part of its investment strategy, of derivatives and other instruments that may alter the economic out-turn from assets;
(4) set out any constraints on the firm's investment strategy either with respect to parts of a with-profits fund (for example, classes of with-profits policy or bonus series) or between different generations of with-profits policyholders; and
(5) set out any overarching constraints on the firm's exposure to any one counterparty including derivative exposures.

30/04/2004

COB 6.10.42

The firm's with-profits practices should:

(1) describe what procedures the firm follows to transfer assets to the with-profits fund under COB 6.10.41 G(2) and at what point such transfers would be recognised as irretrievable by the provider of outside assets;
(2) set out the period between formal reviews of the firm's investment strategy;
(3) describe the degree of matching the firm maintains between the assets of a with-profits fund and liabilities to with-profits policyholders and other creditors, and the basis of the liabilities assessed for such purposes;
(4) explain the firm's approach to investment in different asset classes, and assets of different credit or liquidity quality. This may include, for example, the firm's guidelines as to the overall limit on the amount of a with-profits fund that may be invested in particular asset classes and the overall crediting rating of parts of the portfolio, the minimum credit quality of new and existing investments as well as the overall liquidity constraints on the with-profits fund; and
(5) explain the approval process that the firm operates before investing in new or novel investment instruments.

30/04/2004

COB 6.10.43

A with-profits fund may include assets that would not normally be traded because of their importance to the firm. These might be physical assets: for example, the firm's head office building, but may include contingent support or guarantee arrangements to or from other entities.

30/04/2004

COB 6.10.44

In relation to assets that would not normally be traded because of their importance to the firm, the with-profits principles of the firm should:

(1) describe why such assets are of use to a with-profits fund;
(2) describe what reviews the firm carries out to ensure those assets still remain of use;
(3) set out any limits that the firm imposes on the scale of investment in those assets;
(4) indicate whether the out-turn from investment in those assets will impact on the amounts payable under with-profits policies; and
(5) indicate what credit or liquidity requirements the firm applies to investments in those assets.

30/04/2004

COB 6.10.45

In relation to assets that would normally be trade, the with-profits practices of the firm should describe those assets, their current application in determining claim values and any constraints imposed on the firm's investment freedom as a result of its investment in those assets.

30/04/2004

Business risk

COB 6.10.46

The PPFM of a firm must cover the exposure of the firm's with-profits business to business risk, including the firm's:

(1) procedures for deciding if the with-profits business may undertake a particular business risk;
(2) arrangements for reviewing and setting a limit on the scale of such risks; and
(3) procedures for reflecting the profits or losses of such business risks in the amounts payable under with-profits policies.

30/04/2004

COB 6.10.47

Business risk for a with-profits fund can include a number of exposures, for example:

(1) exposure to maintaining and acquiring with-profits policies;
(2) exposure to maintaining and acquiring non-profit policies;
(3) exposure to risks from other investments: for example, in investment management companies, service companies or overseas subsidiary insurance companies.

30/04/2004

COB 6.10.48

The PPFM of a firm should make clear how the firm considers such exposures before they are taken up or entered into, and how the firm intends to deal with rewards or risks going forward. In particular, the PPFM should make clear what alternatives the firm sets as a benchmark when reviewing existing business risk and new business risks to determine whether the rewards are reasonable given the risks undertaken.

30/04/2004

COB 6.10.49

Where the firm explicitly excludes business risk from a class of with-profits policies there may often be residual risks from the class that are natural to with-profits policies such as guarantee and smoothing costs. The PPFM should make clear where such costs are borne.

30/04/2004

COB 6.10.50

The firm's with-profits principles should set out the general limits that the firm applies to the taking on of business risk and the control that the firm exercises over existing business risk. In particular, the with-profits principles should define where compensation costs from a business risk would be borne.

30/04/2004

COB 6.10.51

The firm's with-profits practices should:

(1) describe the current limits that the firm applies to the taking on of business risk;
(2) describe the firm's approach to the application of the rewards and losses from business risks as a determinant of the amount payable under a with-profits policy;
(3) describe the degree to which the firm smoothes any profits or losses from business risks before applying them to determine the amount payable under a with-profits policy;
(4) indicate whether profits or losses from business risks must exceed a minimum value or scale before the firm will treat them as a determinant of the amount payable under a with-profits policy; and
(5) indicate whether and to what extent particular generations of with-profits policyholders or classes of with-profits policy bear or might bear particular business risks, including, for example, crystallised or contingent guarantees to other classes of policyholder or whether the out-turn from all business risk is pooled across all with-profits policies.

30/04/2004

Charges and expenses

COB 6.10.52

The PPFM must cover the way in which the firm applies charges and apportions expenses to its with-profits business, including, if material, any interaction with connected firms.

30/04/2004

COB 6.10.53

The firm's with-profits principles should:

(1) describe the overall aim of the firm's approach to applying charges and apportioning expenses to with-profits policies, covering all types of charges and expenses including investment costs, commissions and charges borne from investment through collective investment schemes; and
(2) set out the factors that would drive any change to the basis on which the firm applies charges to or apportions its actual expenses amongst with-profits policies, or exercises any discretion to apply charges to particular with-profits policies.

30/04/2004

COB 6.10.54

The firm's with-profits practices should:

(1) give a general description of the charges that the firm currently applies and the expenses that it currently apportions to major classes of with-profits policies;
(2) describe the relationship between the firm's actual charges and expenses, as applied to determine the amounts payable under with-profits policies, and the charges and expenses borne by the with-profits fund;
(3) state the circumstances under which the firm will charge expenses to the with-profits fund at an amount other than cost, and the reasons why the firm will do so; and
(4) state the interval at which the firm will review any arrangements under which it obtains out-sourced services, included those provided by connected parties, and give a broad indication of the terms on which the firm would be able to terminate the agreements to provide those services.

30/04/2004

COB 6.10.55

The PPFM of a firm should make clear the criteria that the firm will apply when it has to make judgements about how to apply charges and apportion expenses between with-profits funds or between a with-profits fund and shareholder owned funds, firms or service companies.

30/04/2004

Management of the inherited estate

COB 6.10.56

The PPFM of a firm must cover the firm's management of any inherited estate and the uses to which the firm may put that inherited estate.

30/04/2004

COB 6.10.57

The firm's with-profits principles should:

(1) describe how the firm will manage its inherited estate;
(2) describe the purposes for which the firm will apply the inherited estate;
(3) indicate the size or scale of inherited estate for which the firm is aiming, for example, by reference to the volume of the firm's existing business or the risks borne by the firm's existing business;
(4) explain the implications of the firm's preferred size or scale of inherited estate for the value of the firm's with-profits policies;
(5) describe any existing division of the firm's inherited estate between with-profits funds within the firm; and
(6) describe any constraints on the firm's freedom to deal with the inherited estate as a result of previous dealings: for example, a transfer of business scheme or attribution or re-attribution of a previous inherited estate.

30/04/2004

COB 6.10.58

The firm's with-profits practices should:

(1) describe how the firm uses the inherited estate by, for example, reference to the costs the inherited estate is meeting;
(2) state whether the firm's investment strategy for the firm's inherited estate is different to the firm's investment strategy for the rest of the with-profits fund; and
(3) describe any current guidelines that the firm has in place as to the size or scale of the inherited estate or as to how the firm would mange the inherited estate and over what time period, if it became too large or too small.

30/04/2004

Volumes of new business and arrangements on stopping taking new business

COB 6.10.59

The PPFM of a firm whose with-profit fund is accepting new business must cover the firm's practice for review of the limits on the quantity and type of new with-profits business and the actions that the firm would take if it ceased to take on new with-profits business of any significant amount.

30/04/2004

COB 6.10.60

The firm's with-profits principles should:

(1) set out the firm's approach to setting the volume of new business, both new with-profits business and non-profit business written in the with-profits fund; and
(2) set out the firm's anticipated reaction to closure to significant amounts of new business and, in particular, what action it would take in that event as regards the distribution of any inherited estate.

30/04/2004

20040430

The firm's with-profits practices should:

(1) describe the approach the firm takes to setting any maximum volume of new business each year and any particular limits on classes of business, including non-profit business within the with-profits fund; and
(2) describe what the firm considers should be the minimum proportion and scale of new business of a with-profits type to justify the with-profits fund staying open to new business.

30/04/2004

Equity between the with-profits fund and any shareholders

COB 6.10.62

The PPFM of a firm must cover the firm's approach to achieving a balance between the interests of with-profits policyholders and the interests of any shareholders of the firm.

30/04/2004

COB 6.10.63

The firm's with-profits principles should:

(1) describe the firm's arrangements for profit sharing between shareholders and with-profits policyholders and the scope for changes in the share of profits allotted to each; and
(2) indicate the approach that the firm will take before any changes to the profit sharing arrangements are implemented.

30/04/2004

COB 6.10.64

The firm's with-profits practices should:

(1) indicate the current basis on which the firm divides profit between with-profits policyholders and shareholders, including the method of calculating the profit to be divided;
(2) indicate whether the division of profit between with-profits policyholders and shareholders would change if there was a change in the underlying basis on which the shareholder share is computed (normally the valuation basis of the mathematical reserves);
(3) indicate other factors that would have a significant impact on the balance between the shareholder share and the with-profits fund, for example:

(a) tax or other imposts; or
(b) distributions in anticipation of a surplus; or
(c) the firm's approach to with-profits policies with both an entitlement to final bonus and an exposure to a market value reduction; or
(d) the impact of guaranteed bonuses; and

(4) state whether the pricing of any policies that the firm is writing, and particular policies open to new business, appear to be significantly and systematically reducing the firm's inherited estate if the shareholder transfer is taken into account.

30/04/2004

COB 6.11

Reporting to with-profits policyholders on compliance with PPFM

01/12/2004

Application

COB 6.11.1

This section applies to a firm carrying on with-profits business other than:

(1) a non-directive friendly society; or
(2) an EEA insurer.

30/04/2004

COB 6.11.2

This section does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.

30/04/2004

Purpose

COB 6.11.3

The rules and guidance in this section are intended to secure an appropriate degree of protection for with-profits policyholders and potential with-profits policyholders and to promote confidence among such policyholders by:

(1) giving guidance on governance arrangements relevant to the way in which with-profits firms comply with SYSC in the conduct of with-profits business; and
(2) requiring firms to make an annual report available to with-profits policyholders.

30/04/2004

Governance arrangements for with-profits business

COB 6.11.4

In complying with SYSC 3.2.6, a firm should maintain governance arrangements designed to ensure that in the conduct of with-profits business it complies with, maintains and records any applicable PPFM.

30/04/2004

COB 6.11.5

The governance arrangements referred to in COB 6.11.4 G should:

(1) be appropriate to the scale and complexity of a firm's with-profits business; and
(2) involve some independent judgement in the assessment of compliance with PPFM and how any competing or conflicting rights and interests of policyholders and, if applicable, shareholders have been addressed.

30/04/2004

COB 6.11.6

The independent judgement in COB 6.11.5 G(2) can be provided in different ways. These may include but are not confined to:

(1) establishing a committee of the governing body (a With-profits Committee), including non-executive members of the governing body and possibly some external non-directors with appropriate skills and experience;
(2) asking an independent person with appropriate skills and experience to report on these matters to the governing body or to any With-Profits Committee; or
(3) for small firms in particular, asking a non-executive member (or members) of the governing body to report to the governing body on these matters.

30/04/2004

COB 6.11.7

For the purposes of COB 6.11.6 G(2), appropriate skills and experience could have been gained in, for example, consumer protection, the life insurance industry, regulation or as a member of the accountancy, actuarial or legal professions.

30/04/2004

COB 6.11.8

If a person or committee who provides the independent judgement under COB 6.11.5 G(2) wishes to make a statement or report to with-profits policyholders, in addition to that made by a firm under COB 6.11.9 R, a firm should facilitate this. COB 6.11.12 G is also relevant to such a report.

30/04/2004

Annual report to with-profits policyholders

COB 6.11.9

A firm must produce an annual report to its with-profits policyholders stating whether, throughout the financial year to which the report relates, the firm believes it has complied with the obligations relating to PPFM referred to in COB 6.11.4 G and setting out the firm's reasons for that belief.

30/04/2004

COB 6.11.10

The annual report in COB 6.11.9 R must address all significant relevant issues, including the way in which the firm has:

(1) exercised, or failed to exercise, any discretion that it has in the conduct of its with-profits business; and
(2) addressed any competing or conflicting rights, interests or expectations of its policyholders (or groups of policyholders) and, if applicable, shareholders (or groups of shareholders).

30/04/2004

COB 6.11.11

The report to with-profits policyholders made under SUP 4.3.16AR (4) by a with-profits actuary must be annexed to the annual report in COB 6.11.9 R.

31/12/2004

COB 6.11.12

Any statement or report made under COB 6.11.8 G should be annexed to the annual report in COB 6.11.9 R.

30/04/2004

COB 6.11.13

The competing rights, interests or expectations in COB 6.11.10 R(2) include the competing interests of different classes and generations of with-profits policyholders, and, if applicable, shareholders.

30/04/2004

COB 6.11.14

In preparing the report to with-profits policyholders in COB 6.11.9 R, a firm should take advice from a with-profits actuary.

31/12/2004

COB 6.11.15

A firm should make the report in COB 6.11.9 R available to with-profits policyholders within six months of the end of the financial year to which it relates. A firm may choose how it makes the report available. Methods of delivery might include publishing the report on the firm's website, providing copies on request, or including it in the firm's annual financial statements. A firm should notify its with-profits policyholders in any annual statements how copies of the report can be obtained.

30/04/2004

COB 6.11.16

IPRU(INS) rule 9.6(6) requires an insurer to deposit with the FSA any statement or report made to its with-profits policyholders under COB 6.11.8 G, COB 6.11.9 R or SUP 4.3.16A R (4) when it deposits its return. If a statement or report has not been made when the return is deposited, IPRU(INS)rule 9.6(6A) requires the insurer to deposit it as soon as possible thereafter.

31/12/2005

COB 6.12

Treating with-profits policyholders fairly

30/06/2005

Application

COB 6.12.1

This section applies to a firm carrying on with-profits business.

30/06/2005

COB 6.12.2

This section applies to an EEA insurer, but only in so far as responsibility for the matter in question has not been reserved to the firm's Home State regulator by a European Community instrument.

30/06/2005

COB 6.12.3

This section does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.

30/06/2005

COB 6.12.4

This section does not apply if, and to the extent that, it would affect a with-profits policyholder's contractual rights under, or in respect of, a with-profits policy.

30/06/2005

COB 6.12.5

COB 6.12.4 R means, for example, that this section does not affect a with-profits policyholder's right to a minimum amount guaranteed on death, retirement or maturity. Nor does it affect a firm's practice of making deductions in the calculation of surrender values for the purpose of enhancing maturity payments, if:

(1) the firm has reasonably exercised its discretion to make those deductions;
(2) those deductions have been made in a clear, fair, lawful and consistent way, over a period of time;
(3) those deductions have been made in accordance with the firm's previous statements to policyholders (if any); and
(4) (as a result of (1) to (3)), the fact of those deductions, and the firm's right to make them, now form part of the implied terms of the with-profits policies affected.

30/06/2005

COB 6.12.6

Some of this section may not be relevant to a non-directive friendly society. Such a firm is, for example, not required by COB 6.10 to produce a PPFM.

30/06/2005

Purpose

COB 6.12.7

The rules and guidance in this section are intended to secure an appropriate degree of protection for actual and potential with-profits policyholders and to promote confidence among them.

30/06/2005

Introduction

COB 6.12.8

This section is directed only towards the protection of actual and potential with-profits policyholders and does not affect a firm's obligations to its other actual and potential policyholders.

30/06/2005

COB 6.12.9

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and to treat them fairly. Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its clients and to communicate information to them in a way that is clear, fair and not misleading. Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interest fairly.

30/06/2005

COB 6.12.10

The rules and guidance in this section supplement the Principles in their application to with-profits business and in their application to the relationship between a firm and its actual and potential with-profits policyholders. However, compliance with the rules and guidance in this section will not necessarily ensure compliance with the Principles.

30/06/2005

COB 6.12.11

For example, if a firm proposes to act in a particular way, when it considers whether its proposals will be consistent with Principle 6 (Customers' interests), it should also consider:

(1) whether its proposals are consistent with its contractual obligations to its with-profits policyholders and its wider bargain with them;
(2) whether its proposals would undermine, or materially reduce the value of, a with-profits policyholder's contractual rights;
(3) whether its proposals are consistent with its previous disclosures to its with-profits policyholders and its previous approach to the same issue;
(4) whether it will be acting entirely within the scope of any discretion that it may exercise and whether it will be exercising that discretion for the purpose for which it was granted or reserved; and
(5) any other material factor that may be relevant to the fair treatment of its with-profits policyholders.

30/06/2005

COB 6.12.12

Other parts of the Handbook are also relevant to the fair treatment of with-profits policyholders, including:

(1) PRIN and SYSC;
(2) GENPRU 2 (Capital), INSPRU 3 (Market risk) and INSPRU 1 (Insurance risk);
(3) Part I of IPRU(INS) 3 (Long-term insurance business) (Identification and application of assets and liabilities);
(4) Part V of IPRU(FSOC) 4 (Financial prudence) (Separation between long-term insurance business assets and other assets);
(5) COB 6.5 (Content of key features and important information: life policies, schemes, ISA and CTF cash deposit components and stakeholder pension schemes) and COB 8 (Reporting to customers);
(6) DISP 1 (Complaint handling procedures for firms) and DISP 3.8 (Determination by the Ombudsman); and
(7) ENF 20 (Unfair terms in consumer contracts).

31/12/2006

General approach to operating a with-profits fund

COB 6.12.13

Subject to COB 6.12.15 R, a firm must not change its PPFM unless that change is justified, in the reasonable opinion of the firm's governing body, by the need to:

(1) respond to changes in the business or economic environment;
(2) protect the interests of policyholders; or
(3) change the firm's with-profits practices better to achieve its with-profits principles.

30/06/2005

COB 6.12.14

A firm should:

(1) monitor the business and economic environment continuously; and
(2) maintain procedures that will enable it to identify promptly, and bring to the attention of its senior managers or its governing body, all material legal, regulatory, tax and other developments that are relevant to the conduct of its with-profits business.

30/06/2005

COB 6.12.15

Notwithstanding COB 6.12.13 R, a firm may change its PPFM if that change:

(1) is necessary to correct an error or omission in the PPFM; or
(2) would improve the clarity or presentation of the PPFM without materially affecting its substance; or
(3) is immaterial.

30/06/2005

Amounts payable under with-profits policies: Maturity payments

COB 6.12.16

For the purposes of this section, maturity payments include all payments made on a date when the terms of a with-profits policy provide for a minimum guaranteed amount to be paid. A firm may calculate its maturity payments in a number of different ways. COB 6.12.17 R to COB 6.12.37 G do not require a firm to use a particular methodology. However, they do require a firm to manage its with-profits business with the aim that, however it calculates its maturity payments, the overwhelming majority of them fall within a target range that has been set and specified in accordance with COB 6.12.17 R and calculated using the methodology required by, or described in, COB 6.12.24 R to COB 6.12.37 G.

31/12/2005

COB 6.12.17

Except where a contractual right would require a firm to make a higher maturity payment, and subject to COB 6.12.22 R, a firm must:

(1) set a target range for the maturity payments that it will make on:

(a) all of its with-profits policies; or
(b) each group of its with-profits policies;

(2) ensure that each target range:

(a) is expressed as a percentage of unsmoothed asset share; and
(b) includes 100% of unsmoothed asset share;

(3) specify each target range in its PPFM;
(4) manage its with-profits business, and the business of each with-profits fund, with the aim of making a maturity payment on each with-profits policy that falls within the relevant target range;
(5) subject to COB 6.12.35 R, make a maturity payment on each with-profits policy that falls within the relevant target range, whenever that is possible in the reasonable opinion of the firm's governing body; and
(6) manage its with-profits business, and each with-profits fund, with the longer term aim that it will make aggregate maturity payments, on its with-profits policies, of 100% of unsmoothed asset share.

31/12/2005

COB 6.12.18

A firm may choose how its target range, or target ranges, are distributed around 100% of unsmoothed asset share.

31/12/2005

COB 6.12.19

If a firm uses the definition of unsmoothed asset share in COB 6.12.24 R (1)(b), it will comply with COB 6.12.17 R (5) if it:

(1) makes a maturity payment on the specimen with-profits policy, which falls within the relevant target range; and
(2) makes a maturity payment on each of the with-profits policy represented by the specimen with-profits policy, which, if adjusted:

(a) in the same proportion as the level of premium on that policy to the level of premium on the specimen policy; or
(b) (if it would be more appropriate) in some other proportion,

would fall within the target range established in respect of the specimen policy.

31/12/2005

COB 6.12.20

The FSA accepts that it may not be possible (for the purposes of COB 6.12.17 R (5)) to make a payment that falls within the relevant target range in a number of circumstances, including where the firm's regulatory, or realistic, solvency position is strained, or it would be strained, if the firm made a payment within the relevant target range, and further support arrangements are not in place, for example, under an insurance business transfer scheme or a shareholder commitment described in the firm's PPFM.

31/12/2005

COB 6.12.21

To ensure compliance with COB 6.12.17 R (6), a firm should avoid favouring one group of policies over another. The FSA recognises, however, that the operation of smoothing and the payment of more, or less, than 100% of asset share at particular points in the economic cycle may mean that groups whose maturity payments are especially concentrated in a few years will see an outcome that may diverge from the 100% longer term target.

31/12/2005

COB 6.12.22

COB 6.12.17 R does not apply to a maturity payment that cannot reasonably be compared with a calculated asset share.

31/12/2005

COB 6.12.23

In some circumstances, it may not be fair or reasonable to calculate or assess a maturity payment using an asset share methodology. For example, a firm may use a different methodology, which delivers fair value, but is inconsistent with asset shares, or it may use bonus reserve or North American distribution methods, which deliver more uniform bonus rates than an asset share methodology would produce. Similarly, some with-profits policies (for example, annual premium whole life assurance policies) may have asset shares that are very variable. In other cases, the relevant policies may have been materially altered, or the firm may lack the historical data required to make an asset share calculation. In those cases, a firm may use a more approximate methodology to set bonus rates, provided that that methodology is consistently applied and properly reflects its representations to with-profits policyholders.

31/12/2005

COB 6.12.24

For the purposes of COB 6.12.17 R:

(1) unsmoothed asset share means:

(a) the unsmoothed asset share of the relevant with-profits policy; or
(b) the unsmoothed asset share of one or more specimen with-profits policies, which a firm has selected to represent a group, or all, of the with-profits policies effected in the same with-profits fund.

(2) a firm must calculate unsmoothed asset share by:

(a) applying the methods in INSPRU 1.3.119 R to INSPRU 1.3.123 R ;
(b) including any amounts that have been added to the policy as the result of a distribution from an inherited estate; and
(c) subject to (d), and where the terms of the policy so provide, adding or subtracting an amount that reflects the experience of the insurance business in the relevant with-profits fund; but
(d) if a with-profits fund has suffered adverse experience, which results from a firm's failure to comply with the rules in this section, that adverse experience may only be taken into account if, and to the extent that, in the reasonable opinion of the firm's governing body, the amount referred to in (c) cannot be met from:

(i) the firm's inherited estate (if any); or
(ii) any assets attributable to shareholders, whether or not they are held in the relevant with-profits fund.

31/12/2006

COB 6.12.25

COB 6.12.24 R (2)(b) does not require the inclusion of amounts that have been used from an inherited estate to support the year-on-year smoothing of bonus declarations.

31/12/2005

COB 6.12.26

A firm may choose to use the definition of unsmoothed asset share in:

(1) COB 6.12.24 R (1)(a) for some groups of with-profits policies; and
(2) COB 6.12.24 R (1)(b) for other groups of with-profits policies.

31/12/2005

COB 6.12.27

If a firm chooses to use:

(1) both definitions of unsmoothed asset share, it should specify, in its PPFM, which method it will use for each group of with-profits policies;
(2) the definition of unsmoothed asset share in COB 6.12.24 R (1)(b) for some or all of its with-profits policies, it should also:

(a) ensure that the specimen with-profits policy, or with-profits policies, selected have the same material characteristics as the with-profits policies they will represent, taking into account, for example, their duration and their terms and conditions; and
(b) explain, in its PPFM, that it has chosen the definition of unsmoothed asset share in COB 6.12.24 R (1)(b) for the relevant group of with-profits policies, and then describe in general terms what effect that decision might have on the relevant maturity payments (if any).

31/12/2005

COB 6.12.28

When a firm calculates unsmoothed asset share, for the purposes of COB 6.12.17 R and COB 6.12.24 R (2), its methodology should be consistent with the with-profits principles and with-profits practices described in its PPFM.

31/12/2005

COB 6.12.29

The unsmoothed asset share, calculated for the purposes of COB 6.12.17 R and COB 6.12.24 R (2), may include any deductions that are made from asset share for the cost of guarantees or the use of capital, where that is consistent with the with-profits principles and with-profits practices described in the firm's PPFM.

31/12/2005

COB 6.12.30

A firm may make a deduction from asset share for the cost of guarantees, or the use of capital, only if that is permitted by, and consistent with, a plan that has been approved by its governing body and described in its PPFM. If a firm makes such a deduction, it must ensure that that deduction is proportionate to, and consistent with, the costs that it is intended to meet or offset.

31/12/2005

COB 6.12.31

If a firm has a plan, for the purposes of COB 6.12.30 R, and it makes, or expects to make, deductions from asset share in reliance on that plan, it must also ensure that:

(1) all actual and expected deductions are described, or allowed for, in its key features and the projections that it sends, or makes available, to actual and potential with-profits policyholders; and
(2) its deductions do not change unless they are justified by a review that has been carried out in response to changes in the business or economic environment or changes in the nature of the firm's liabilities as a result of policyholders exercising options in their policies.

31/12/2005

COB 6.12.32

Deductions for the cost of guarantees or the use of capital could materially alter asset share, circumventing the requirements of COB 6.12.17 R (6). Therefore COB 6.12.30 R and COB 6.12.31 R require that any such deductions are part of a well-formulated plan that is altered only after due consideration. The firm should therefore consider, and set out in its plan:

(1) who will bear the risks associated with any guarantees given to with-profits policyholders; and
(2) the level or type of any charges that may be made to asset shares to cover the cost of bearing those risks.

31/12/2005

COB 6.12.33

Deductions should only be changed in response to changes in the business or economic environment and not in an arbitrary way. Retrospective changes in the form of an immediate reduction in current asset shares, however so described, would not normally be consistent with a well developed plan.

31/12/2005

COB 6.12.34

A firm should ensure that any charges made under the plan described in COB 6.12.30 R and COB 6.12.31 R are consistent with its actual investment policy and its intended investment policy.

31/12/2005

COB 6.12.35

Notwithstanding COB 6.12.17 R (5), a firm may make a maturity payment which falls outside the target range for the specimen with-profits policy, or with-profits policies, provided that it has good reason to believe that at least 90% of the maturity payments made on the with-profits policies in that group have fallen, or will fall, within the relevant target range.

31/12/2005

COB 6.12.36

In COB 6.12.35 R, maturity payment includes a proportionately adjusted amount as described in COB 6.12.19 G (2).

31/12/2005

COB 6.12.37

The FSA accepts that, in some cases, the target range established by reference to a specimen with-profits policy may be inappropriate for all of the with-profits policies in that group. That may be the case, for example, if the premiums paid on an individual with-profits policy are significantly greater than, or less than, those paid on the specimen with-profits policy. In those cases, the FSA also accepts that it might be fair, or fairer, to make a maturity payment that falls outside the specified target range. If a firm proposes to make a maturity payment that falls outside that target range, it should be satisfied, on reasonable grounds, that that is fair from the perspective of the particular policyholder, and the firm's other with-profits policyholders.

31/12/2005

Amounts payable under with-profits policies : Surrender payments

COB 6.12.38

A firm may calculate its surrender payments (including transfers) in a number of different ways. COB 6.12.39 R to COB 6.12.45 R do not require a firm to use a particular methodology. However, they do require a firm to ensure that, however it calculates its surrender payments, the amount actually paid is, in aggregate across all similar policies, not less than that which would have been paid if the firm had calculated the surrender payment using the methodology in COB 6.12.39 R to COB 6.12.45 R.

31/12/2005

COB 6.12.39

COB 6.12.17 R to COB 6.12.35 R apply to surrender payments as if a reference to maturity payment was a reference to surrender payment, except that COB 6.12.17 R (6) applies, in the case of surrender payments, to the unsmoothed asset share before any deductions made in accordance with COB 6.12.40 R.

31/12/2005

COB 6.12.40

When a firm calculates a surrender payment using the methodology in COB 6.12.39 R to COB 6.12.45 R, it must not make a deduction from the appropriate percentage of unsmoothed asset share unless that deduction is necessary, in the reasonable opinion of the firm's governing body, to protect the interests of the firm's remaining with-profits policyholders.

31/12/2005

COB 6.12.41

If a firm uses its own methodology to calculate surrender payments, it should take appropriate steps to check that that methodology produces a result which, in aggregate across all similar policies, is not less than the result that would be achieved if the firm used the methodology prescribed by COB 6.12.39 R and COB 6.12.40 R. The firm should decide what steps would best secure this outcome in its particular circumstances. It might, for example, ensure consistency by testing the surrender payments on a suitable range of specimen with-profits policies.

31/12/2005

COB 6.12.42

For the purposes of COB 6.12.40 R, appropriate factors that might be included in any deduction include:

(1) the firm's unrecovered costs, including any financing costs incurred in effecting or carrying out the surrendered with-profits policy to the date of surrender, including the costs that might have been recovered if the policy had remained in force;
(2) costs that would fall on the with-profits fund, if the surrender value is calculated by reference to an assumed market value of assets which exceeds the true market value of those assets;
(3) the firm's costs incurred in administering the surrender; and
(4) a fair contribution towards the cost of any contractual benefits due on the whole, or an appropriate part, of the continuing policies in the with-profits fund which would otherwise result in higher costs falling on the continuing with-profits policies.

31/12/2005

COB 6.12.43

For the purposes of COB 6.12.39 R, a firm may set a target range for surrender payments where the top-end of the range is lower than the top-end of the relevant target range for maturity payments.

31/12/2005

COB 6.12.44

If a firm has ceased to effect new contracts of insurance in a with-profits fund, or it expects to cease to effect new contracts of insurance in the near future (see COB 6.12.95 R), and, in the reasonable opinion of the firm's governing body, the firm's circumstances require, or are then likely to require, amendments to the deductions made in reliance on COB 6.12.40 R, the firm should include the changes it proposes to make in its run-off plan (see COB 6.12.98 R).

31/12/2005

COB 6.12.45

A firm must not make a market value reduction to the face value of the units of an accumulating with-profits policy unless:

(1) the market value of the with-profits assets in the relevant with-profits fund is, or is expected to be, significantly less than the assumed value of the assets on which the face value of the units of the policy has been based; or
(2) there has been, or there is expected to be, a high volume of surrenders, relative to the liquidity of the relevant with-profits fund; and

the market value reduction is no greater than is necessary to reflect the impact of (1) or (2) on the relevant surrender payment.

30/06/2005

COB 6.12.46

For the purposes of COB 6.12.45 R, a firm might reasonably expect a significant change in market values if, for example, that particular market has been moving in one direction and there is reason to believe that it will continue to do so. A firm might expect a high volume of surrenders if surrender volumes have been increasing, and there is reason to think that that will continue or if some unexpected and adverse event has occurred, which is relevant to the firm or the wider business or economic environment, which is likely to prompt a material number of surrenders.

30/06/2005

Approach to smoothing

COB 6.12.47

A firm must specify, in its PPFM, the with-profits principles and with-profits practices that it will use to smooth maturity payments and surrender payments. That specification must reflect the requirements of COB 6.12.17 R (6) and include:

(1) the smoothing policy applied to each of the different types of with-profits policy effected by the firm, including any specimen with-profits policies used for the purposes of COB 6.12.24 R (1)(b);
(2) the limits (if any) applied to the total cost of, or excess from, smoothing; and
(3) any limits applied to any changes in the level of maturity payments between one period and another.

30/06/2005

Conditions relevant to distributions

COB 6.12.48

A firm must:

(1) not make a distribution from a with-profits fund, unless the whole of the cost of that distribution can be met without eliminating the regulatory surplus in that with-profits fund;
(2) ensure that the amount distributed to policyholders from a with-profits fund is not less than the required percentage of the total amount distributed (see COB 6.12.56 R); and
(3) if it adjusts the amounts distributed to policyholders, apply a proportionate adjustment to amounts distributed to shareholders so that the distribution to policyholders will not be less than the required percentage.

06/04/2007

COB 6.12.49

A realistic basis life firm must not make a distribution from a with-profits fund to any person who is not a with-profits policyholder, unless the whole of the cost of that distribution (including the cost of any obligations that will or may arise from the decision to make a distribution) can be met from the excess of the realistic value of assets over the realistic value of liabilities in that with-profits fund.

30/06/2005

COB 6.12.50

In COB 6.12.49 R, a distribution to a person who is not a with-profits policyholder includes a transfer of assets out of a with-profits fund that is not made to satisfy a liability of that fund.

30/06/2005

COB 6.12.54

If, on a distribution, a firm incurs a tax liability on a transfer to shareholders, it must not attribute that tax liability to a with-profits fund.

30/06/2005

COB 6.12.55

Notwithstanding COB 6.12.54 R, a firm may attribute a tax liability to a with-profits fund if:

(1) the tax liability was incurred on a transfer to shareholders;
(2) the firm can show that attributing the tax liability to that with-profits fund is consistent with its established practice;
(3) that established practice is explained in the firm's PPFM; and
(4) that liability is not charged to asset shares.

30/06/2005

Distribution ratios

COB 6.12.56

The required percentage referred to in COB 6.12.48 R is, for each with-profits fund:

(1) the percentage (if any) required in respect of that fund by:

(a) the firm's articles of association, registered rules or other equivalent instrument; or
(b) a relevant order made by a court of competent jurisdiction;

(2) if (1) does not apply, the percentage specified in the firm's PPFM, if that percentage reflects the firm's established practice;
(3) if (1) and (2) do not apply, not less than 90 per cent.

06/04/2007

Requirement relating to distribution of an excess surplus

COB 6.12.57

At least once a year (or, in the case of a non-directive friendly society, at least once in every three years), a firm's governing body must determine, whether the firm's with-profits fund, or any of the firm's with-profits funds, has an excess surplus.

30/06/2005

COB 6.12.58

A firm will have an excess surplus in a with-profits fund if, and to the extent that:

(1) the regulatory surplus in that with-profits fund;
(2) the other financial resources of the firm that are applied to that with-profits fund; and
(3) any other financial resources that are expected to be made available for the benefit of that with-profits fund in the event of reasonably foreseeable adverse experience;
exceed:
(4) the amount required to meet the higher of any relevant enhanced capital requirement or individual capital assessment; and
(5) the amount necessary, in the reasonable opinion of the firm's governing body, to:

(a) support the current and future insurance business of the firm or the relevant with-profits fund;
(b) maintain the financial strength of the firm or the relevant with-profits fund; or
(c) address any other matters relevant to policyholders' interests or security.

30/06/2005

COB 6.12.59

A firm must specify, in its PPFM, the matters, or types of matter, that it may regard as relevant for the purposes of COB 6.12.58 R (5)(c).

30/06/2005

COB 6.12.60

(1) If a with-profits fund has an excess surplus, and to retain that surplus would be a breach of Principle 6 (Customers' interests), the firm should:

(a) make a distribution from that with-profits fund (unless the conditions in COB 6.12.48 R and COB 6.12.49 R cannot be met); or
(b) carry out a reattribution.

(2) Compliance with (1) may be relied on as tending to establish compliance with Principle 6 (Customers' interests).
(3) Contravention of (1) may be relied on as tending to establish a contravention of Principle 6 (Customers' interests).

30/06/2005

Charges to a with-profits fund

COB 6.12.61

A firm must not charge a cost to a with-profits fund unless, in the reasonable opinion of the firm's senior management, the firm has incurred, or it will incur, that cost in the operation of that with-profits fund.

30/06/2005

COB 6.12.62

COB 6.12.61 R does not prevent a firm from charging a fair proportion of its overheads (including executive remuneration) to a with-profits fund.

30/06/2005

COB 6.12.63

To ensure that costs are fairly and consistently apportioned between with-profits funds, and between with-profits policyholders and shareholders, a firm must establish, maintain and disclose in its PPFM, cost apportionment principles that will enable it to determine which costs are, or may be, charged to a with-profits fund and which costs are, or may be, charged to the other parts of its business or its shareholders.

30/06/2005

COB 6.12.64

If a firm makes charges to a with-profits fund for the cost of guarantees or the use of capital, it must review those charges regularly to ensure that they are adequate, fair and lawful.

30/06/2005

COB 6.12.65

It is for a firm to decide when, and how often, to review its guarantee charges, taking into account its circumstances and the wider business or economic environment.

30/06/2005

COB 6.12.66

(1) A firm must not pay compensation or redress from a with-profits fund.
(2) In (1), and for the purposes of COB 6.12.67 R, compensation and redress include the costs of assessing the extent of any compensation or redress due, and the costs of considering or defending compensation or redress claims.

30/06/2005

COB 6.12.67

Notwithstanding COB 6.12.66 R, a firm may pay compensation or redress due to a with-profits policyholder, or former with-profits policyholder:

(1) from its inherited estate (if any); or
(2) from assets attributable to shareholders, whether or not they are held within a long-term insurance fund; or
(3) from assets that would otherwise be attributable to asset shares, if, in the reasonable opinion of the firm's governing body, that compensation or redress cannot be paid from the assets in (1) or (2), or from any other source.

30/06/2005

COB 6.12.68

COB 6.12.66 R does not apply to ex gratia or rectification payments. A firm may, therefore, correct an erroneous underpayment to a with-profits policyholder, or former with-profits policyholder, using assets in a with-profits fund.

30/06/2005

COB 6.12.69

For the purposes of COB 6.12.67 R (3), a firm's governing body should assess whether compensation or redress can be paid from the firm's inherited estate, assets attributable to shareholders or any other source by reference to:

(1) its ability to continue to meet the higher of any relevant enhanced capital requirement or individual capital assessment; and
(2) any other factors relevant to policyholders' interests.

30/06/2005

COB 6.12.70

A firm that is not a mutual must not charge to a with-profits fund any amounts paid or payable to a skilled person in connection with a report under section 166 of the Act (Reports by skilled persons) if:

(1) the need for the report derives wholly or partly from a material failure to keep adequate records;
(2) the principal purpose of the report is to identify what action, if any, may be necessary as a result of the firm's non-compliance with its obligations under the regulatory system;
(3) the report indicates that the firm has, or may have, materially failed to satisfy its obligations under the regulatory system; or
(4) it is reasonable to assume that the report may be relied upon by the FSA in connection with its enforcement functions.

30/06/2005

COB 6.12.71

If a report under section 166 of the Act (Reports by skilled persons) does not relate entirely to insurance business being carried on in a with-profits fund, a firm should charge a fair proportion of the overall cost of the report to the fund, but only if that would be consistent with COB 6.12.70 R.

30/06/2005

COB 6.12.72

If a firm has properly charged an amount to a with-profits fund, but circumstances later show that the charge should not have been made (see COB 6.12.70 R and COB 6.12.71 G), the firm should fully reimburse the with-profits fund.

30/06/2005

Tax charge to a with-profits fund

COB 6.12.72A

A firm must not charge a contribution to corporation tax to a with-profits fund, if that contribution exceeds the notional corporation tax liability that would be charged to that with-profits fund if it were assessed to tax as a separate body corporate.

31/12/2005

COB 6.12.72B

If a firm carries on insurance business outside its with-profits fund, it should assess the extent to which the corporation tax liability arising in respect of that business has been affected by the insurance business within the with-profits fund. If the insurance business within the with-profits fund has reduced the corporation tax liability that would have otherwise arisen in respect of that other business, the firm's governing body should consider whether any unfairness results. In particular, if the firm has taken an action, or a series of actions, that were intended to cause a material part of the tax charged to the with-profits fund to emerge as a contribution to the profit of the firm, it may be unfair if no reduction is made to the amount so charged.

31/12/2005

New business

COB 6.12.73

If a firm proposes to effect new contracts of insurance in an existing with-profits fund, it must only do so on terms that are, in the reasonable opinion of the firm's governing body, unlikely to have a material adverse affect on the interests of its existing with-profits policyholders.

30/06/2005

COB 6.12.74

In some circumstances, it may be difficult or impossible for a firm to mitigate the risk of a material adverse affect on its existing, or new, with-profits policyholders, unless it establishes a new bonus series or with-profits fund. The factors that might cause a firm to establish a new bonus series or with-profits fund include:

(1) that the current investment outlook is not adequately reflected in existing premium rates. For example, a new high, or low, inflation environment, greater volatility of investment returns or a materially altered investment mix, might mean that the bonus potential for new and existing with-profits policies are materially different;
(2) high acquisition costs on the new with-profits policies, which would place an undue burden on the financial resources of the relevant with-profits fund or be detrimental to existing with-profits policyholders;
(3) that the firm has a high level of guarantees or options in its existing with-profits policies, which might place an excessive burden on new with-profits policies, or vice versa;
(4) the level of charges on the new with-profits policies, or the pattern of their emergence, if that might create a material risk of noncompliance with COB 6.12.76 G; or
(5) that existing policyholders might be disadvantaged by an adjustment to the balance of the investments held within the particular with-profits fund, which would result from the decision to materially increase the number of new with-profits policies effected by the firm.

30/06/2005

COB 6.12.75

Circumstances, in which it may be appropriate to establish a new with-profits fund, are likely to arise when the potential risks to new or existing with-profits policyholders are likely to be too great for the same with-profits fund to provide, adequately, for the interests of the two groups of policyholders, even after allowing for the beneficial effects of diversification (if any). Such potential risks are likely to arise from significant differences in the terms and conditions of the new and existing with-profits policies, including the basis on which charges are levied and reviewed.

30/06/2005

COB 6.12.76

When a firm prices the new insurance business that it proposes to effect in an existing with-profits fund, it should estimate the volume of new insurance business that it is likely to effect and then build in adequate margins that will allow it to recover any acquisition costs to be charged to the with-profits fund.

30/06/2005

COB 6.12.77

When a firm sets a target volume for new insurance business in an existing with-profits fund, it should pay particular attention to the risk of disadvantage to existing with-profits policyholders. Those policyholders might be disadvantaged, for example, by the need to retain additional capital to support a rapid growth in new business, when that capital might have been distributed in the ordinary course of the firm's existing business.

30/06/2005

COB 6.12.78

When a firm determines its strategy for new insurance business in an existing with-profits fund, it should take particular account of:

(1) the capital support available; and
(2) any benefits that may arise if, for example, the different types of new insurance business complement each other, for example, in direct financial terms or by the reduction of risk.

30/06/2005

COB 6.12.79

A firm's underwriting policy should remain reasonably consistent over time. Existing with-profits policyholders should not be exposed to the risk that a significant change in underwriting standards for new insurance business in the same with-profits fund will cause deterioration in experience that was not allowed for in the premium rates for that new business.

30/06/2005

Relationship of a with-profits fund with the firm and any connected persons

COB 6.12.80

If a firm, or a connected person, provides support to a with-profits fund (for example, by a contingent loan), the fund might take on more risk, for example, by investing in volatile assets. However, that would not be appropriate if the support will be repaid, leaving policyholders to bear all of the risks they have been exposed to. Therefore, no reliance should be placed on that support when the firm assesses the with-profits fund's financial position unless there are clear and unambiguous criteria governing any repayment obligations to the support provider. The degree of reliance placed on that support should depend on the subordination of the support to the fair treatment of with-profits policyholders and clarification of what fair treatment means in various circumstances. For a realistic basis life firm this would normally be evidenced by the liability for such support being capable, under stress, of a progressively lower valuation in the future policy-related liabilities.

30/06/2005

COB 6.12.81

Subject to COB 6.12.80 G, if assets from outside a with-profits fund are made available to support that fund, a firm should manage the fund disregarding the liability to repay those assets, at least in so far as that is necessary for its policyholders to be treated fairly.

30/06/2005

COB 6.12.82

A parent undertaking should avoid creating an expectation that it will support a subsidiary unless formal arrangements are in place to ensure that that support will be provided, if it is required.

30/06/2005

COB 6.12.83

A firm carrying on with-profits business must not:

(1) make a loan to a connected person using assets in a with-profits fund; or
(2) give a guarantee to, or for the benefit of, a connected person, where the guarantee will be backed using assets in a with-profits fund;
unless that loan or guarantee:
(3) will be on commercial terms;
(4) will, in the reasonable opinion of the firm's senior management, be beneficial to the with-profits policyholders in the relevant with-profits fund; and
(5) will not, in the reasonable opinion of the firm's senior management, expose those policyholders to undue credit or group risk.

30/06/2005

Other guidance on the conduct of with-profits business

COB 6.12.84

When a firm determines its investment strategy, and the acceptable level of risk within that strategy, it should take into account:

(1) the extent of the guarantees in its with-profits policies;
(2) any representations that it has made to its with-profits policyholders;
(3) its established practice; and
(4) the amount of capital support available.

30/06/2005

COB 6.12.85

A firm should only change its investment strategy when that is necessary or appropriate to take account of material changes in its economic circumstances or the wider economic environment, changes in policyholder utilisation of policy options or changes in the level of capital support available to the with-profits fund where further support arrangements are not in place under an insurance business transfer scheme or a shareholder commitment described in the firm's PPFM.

30/06/2005

COB 6.12.86

If a firm is considering using with-profits assets to finance the purchase of another business, directly, or by or through a connected person, or if a firm is considering whether it should retain such an investment, it should consider whether the purchase or retention would be, or will remain, fair to its with-profits policyholders. When a firm makes that assessment, it should consider:

(1) the size of the investment in relation to the with-profits fund;
(2) the expected rate of return on the investment;
(3) the risks associated with the investment, including liquidity risk, the capital needs of the acquired business and the difficulty of establishing fair value (if any);
(4) any costs that would result from divestment;
(5) whether an actuary, appointed by the firm under SUP 4 (Actuaries), would regard the investment as suitable for the with-profits fund;
(6) whether the investment has been, or will be, disclosed to with-profits policyholders;
(7) notwithstanding (6), whether a knowledgeable existing with-profits policyholder in that with-profits fund would regard it as an appropriate investment;
(8) in the case of a proprietary firm, whether it would be more appropriate for the investment to be made using assets other than those in a with-profits fund; and
(9) any other material factors.

30/06/2005

COB 6.12.87

If the firm carries out non-profit insurance business in a with-profits fund, it should review the profitability of the non-profit insurance business regularly. When it does so, the firm should consider whether, for example, its charges for that business should be adjusted, if adjustment is permitted, to maintain fairness to non-profit and with-profits policyholders. If the firm's review suggests that a change should be made, but the difference between the existing arrangements and the new arrangements is not material, the firm may choose whether or not to make it.

30/06/2005

COB 6.12.88

If a firm has reinsured its with-profits insurance business into another insurance undertaking, it should take reasonable steps to discharge its responsibilities to its with-profits policyholders, in respect of the reinsured business. Those steps should include maintaining adequate controls.

30/06/2005

Major changes in with-profits funds

COB 6.12.89

A firm must not enter into a material transaction relating to a with-profits fund unless, in the reasonable opinion of the firm's governing body, the transaction is unlikely to have a material adverse effect on the interests of that fund's existing with-profits policyholders.

30/06/2005

COB 6.12.90

For the purposes of COB 6.12.89 R, a material transaction includes a series of related non-material transactions which, if taken together, are material.

30/06/2005

COB 6.12.91

For the purposes of COB 6.12.89 R and COB 6.12.90 R, material transactions include:

(1) a significant bulk outwards reinsurance contract;
(2) inwards reinsurance of with-profits business from another insurance undertaking;
(3) a financial engineering transaction that would materially change the profile of any surplus expected to emerge on the with-profits fund's existing insurance business; and
(4) a significant restructuring of the with-profits fund, especially if it involves the creation of new sub-funds.

30/06/2005

COB 6.12.92

So that it can consider whether a proposed material transaction might adversely affect the interests of its with-profits policyholders, a firm should obtain a report from an actuary appointed under SUP 4 (Actuaries) or another appropriate professional adviser.

30/06/2005

COB 6.12.93

A firm should also consider whether a knowledgeable existing with-profits policyholder in that with-profits fund would conclude that the proposed material transaction would materially affect his interests, whether or not the transaction will be disclosed to policyholders.

30/06/2005

Ceasing to effect new contracts of insurance in a with-profits fund

COB 6.12.94

A firm must:

(1) inform the FSA and its with-profits policyholders within 28 days; and
(2) submit a run-off plan to the FSA as soon as reasonably practicable and, in any event, within three months,

of first ceasing to effect new contracts of insurance in a with-profits fund.

30/06/2005

COB 6.12.95

For the purposes of COB 6.12.94 R, a firm will be taken to have ceased to effect new contracts of insurance in a with-profits fund:

(1) when any decision by the governing body to cease to effect new contracts of insurance takes effect; or
(2) where no such decision is made, when the firm is no longer:

(a) actively seeking to effect new contracts of insurance in that fund, or
(b) effecting new contracts of insurance in that fund, except by increment.

30/06/2005

COB 6.12.96

A firm should not avoid taking a formal decision to cease to effect new contracts of insurance in a with-profits fund in an attempt to avoid the requirements of COB 6.12.94 R.

30/06/2005

COB 6.12.97

A firm should contact the FSA to discuss whether it has, or it should be taken to have, ceased to effect new contracts of insurance, for the purposes of COB 6.12.94 R if:

(1) COB 6.12.95 R (2) may apply;
(2) it is no longer effecting a material volume of new with-profits policies in a particular with-profits fund, other than by reinsurance;
(3) it is effecting only new reinsurance business in a particular with-profits fund; or
(4) it cedes by way of reinsurance most of the new with-profits policies it continues to effect.

30/06/2005

COB 6.12.98

The run-off plan required by COB 6.12.94 R (2) must:

(1) demonstrate how the firm will ensure a full and fair distribution of the closed with-profits fund, and its inherited estate (if any); and
(2) be approved by the firm's governing body.

30/06/2005

COB 6.12.98A

A firm should also include the information described in SUP App 2.15 in its run-off plan.

30/06/2005

COB 6.12.99

When a firm tells its with-profits policyholders that it has ceased to effect new contracts of insurance in a with-profits fund, it should also explain:

(1) why it has done so;
(2) what changes it has made, or proposes to make, to the fund's investment strategy (if any);
(3) how closure may affect with-profits policyholders (including any reasonably foreseeable effect on future bonus prospects);
(4) the options available to with-profits policyholders and an indication of the potential costs associated with the exercise of each of those options; and
(5) any other material factors that a policyholder may reasonably need to be aware of before deciding how to respond to this information.

30/06/2005

COB 6.12.100

A firm may not be able to provide its with-profits policyholders with all of the information described in COB 6.12.99 G until it has prepared the run-off plan required by COB 6.12.94 R (2). In those circumstances, the firm should:

(1) tell its with-profits policyholders that that is the case;
(2) explain what is missing and give a time estimate for its supply; and
(3) provide the missing information as soon as possible, and within the time estimate given.

30/06/2005

COB 6.12.103

To ensure a fair distribution, in compliance with COB 6.12.98 R (1), a firm will normally have to distribute that part of the with-profits fund that is not required to support any continuing business, including a fair proportion of any inherited estate attributable to it.

30/06/2005

COB 6.12.104

To ensure a fair and prudent distribution, a firm may have to distribute a lower proportion of any inherited estate attributable to a closed with-profits fund to policyholders whose with-profits policies mature in the shorter term as compared to those whose with-profits policies mature in the longer term.

30/06/2005

COB 6.12.105

If non-profit insurance business is written in a with-profits fund, a firm should take reasonable steps to ensure that the economic value of any future profits expected to emerge on the non-profit insurance business is available for distribution during the lifetime of the with-profits business.

30/06/2005

COB 6.12.106

For the purposes of COB 6.12.105 G, where it is agreed by its with-profits policyholders, and subject to meeting the requirements of COB 6.12.73 R, a mutual may make alternative arrangements for continuing to carry on non-profit insurance business; and a non-directive friendly society may make alternative arrangements for continuing to carry on non-insurance related business.

30/06/2005

COB 6.12.107

A firm should discuss with the FSA at an early stage any significant issues it identifies relating to its proposed distribution of a closed with-profits fund.

30/06/2005

Provision of information to with-profits policyholders and communicating with them fairly

COB 6.12.108

When a firm communicates information to a customer, COB 2.1.3 R requires it to take reasonable steps to do so in a way that is clear, fair and not misleading. The guidance in the rest of this section is relevant to the application of COB 2.1.3 R to the provision of information to with-profits policyholders.

30/06/2005

With-profits policyholders' understanding of the investment

COB 6.12.109

When a firm communicates information to its with-profits policyholders, it should not assume that those policyholders have a good understanding of their investment or the purpose, scope and operation of the firm's discretion. To achieve fairness, clearer explanations may be required than for some other long-term investments, especially when the firm refers to any unusual aspects of a with-profits policy.

30/06/2005

COB 6.12.110

It will usually be reasonable for a firm to assume that its with-profits policyholders have made reasonable efforts to understand the information that has already been given to them. However, if there is evidence that an individual policyholder has misunderstood the information that he has been given, or that he has misunderstood the investment or any of its material characteristics, a firm should not assume that that with-profits policyholder now understands the information that he has been given.

30/06/2005

Communications to with-profits policyholders

COB 6.12.111

When a firm communicates information to its with-profits policyholders, that information should properly reflect the long-term nature of the investment and the long-term nature of the firm's relationship with its with-profits policyholders. The firm's communications should also be consistent with the information that it has already given to with-profits policyholders.

30/06/2005

COB 6.12.112

To promote fairness in communications with its with-profits policyholders, a firm should:

(1) write clearly in plain language;
(2) use personal language (for example, 'we' and 'you') to make documents easier to understand; and
(3) use presentation and terminology that is consistent with the information that it has already provided.

30/06/2005

COB 6.12.113

A firm should highlight the importance of key documents, including the CFPPFM, indicating why it is important that with-profits policyholders should read and understand them.

31/12/2005

COB 6.12.114

A firm should give a with-profits policyholder the opportunity, and reasonable time, to act on information provided to him in accordance with his circumstances, provided that that would not adversely affect the interests of other with-profits policyholders.

30/06/2005

Information needs of a with-profits policyholder

COB 6.12.115

A firm should give a with-profits policyholder the information he might reasonably need to take a considered decision about (or get advice on) his investment, whenever that is necessary or appropriate. The information should include, where appropriate, information about any options that are available to him, and the costs or other material factors attributable to the exercise of any or all of those options.

30/06/2005

COB 6.12.116

The information referred to in COB 6.12.115 G includes:

(1) information about the performance of the with-profits policy;
(2) a projection of the future value of the with-profits policy;
(3) information about material changes in the circumstances of the with-profits fund, or the firm's approach to managing it, which might affect the with-profits policy and future bonus prospects;
(4) information about any material changes in the firm's charges which might affect the with-profits policy; and
(5) information about any material changes in the information already provided, for example, at the point of sale.

30/06/2005

COB 6.13

Process for reattribution of inherited estates

30/06/2005

Application

COB 6.13.1

(1) This section applies to a firm that carries on with-profits business and is proposing to make a reattribution of its inherited estate.
(2) Notwithstanding (1), this section does not apply to a firm if, and to the extent that, it would require the firm to breach, or would prevent the firm from complying with, an order made by a court of competent jurisdiction.
(3) If a firm proposes to seek an order, from a court of competent jurisdiction, that would allow or require it to act in a way that is contrary to the rules in this section (through, or because of, the exception in (2)), the firm must:

(a) tell the FSA that that is what it proposes to do; and
(b) seek the order at the earliest opportunity.

(4) If a firm wishes to take a step that would be contrary to the rules in this section, in anticipation of such an order, it must secure a waiver before it does so.

30/06/2005

Purpose

COB 6.13.2

The rules and guidance in this section are intended to:

(1) help firms to understand the arrangements, or the types of arrangement, that the FSA regards as appropriate when a firm makes a reattribution of its inherited estate; and
(2) ensure that policyholders are treated fairly during the reattribution process.

30/06/2005

COB 6.13.3

The FSA accepts that the interests of policyholders may be protected in a number of ways, depending on the circumstances of the firm and the type of reattribution that it proposes to make. In many cases, this will involve the sanctioning of an insurance business transfer scheme under Part VII of the Act, but that will not always be the case. The rules and guidance in this section are therefore intended to be sufficiently flexible to be capable of delivering the objective of ensuring that policyholders are treated fairly, regardless of the particular type of reattribution and whichever legal process is used. COB 6.13.1 R (2) also recognises that in some cases, for example, in connection with an insurance business transfer, the courts have the power to make procedural and other orders that may affect the application of the rules and guidance in this section.

30/06/2005

COB 6.13.4

A firm may propose alternative arrangements to those set out in this section by applying for a waiver under section 148(4) of the Act (Modification or waiver of rules).

30/06/2005

COB 6.13.5

Whether or not a waiver is required, a firm should consult the FSA about its intentions, before it begins a reattribution process, if it wishes the FSA to consider whether the firm's detailed proposals are consistent with the Principles for Businesses and, in particular, Principle 6 (Customers' interests). The FSA will endeavour to respond to a firm's proposals, including by giving guidance (if appropriate), within a reasonable time.

30/06/2005

COB 6.13.6

Although the FSA's approval is not required before a firm can make a reattribution , the FSA has the power, under section 45 of the Act (Variation etc. on the Authority's own initiative), to impose a requirement on a firm's permission if it appears to the FSA that it would be desirable to do so in order to protect the interests of consumers. If the FSA considers that some, or all, of a firm's reattribution is inconsistent with the Principles for Businesses, the FSA may use that power to require a firm to modify, or to refrain from carrying out, some or all of its reattribution.

30/06/2005

COB 6.13.7

The way in which the FSA may use its power to vary a permission on its own initiative is explained in SUP 7 (Individual requirements). One ground for using the power is that the FSA considers it desirable to do so in order to protect the interests of consumers. In assessing whether there are grounds for exercising such powers in connection with a reattribution, the FSA will have regard to whether or not a firm has acted in accordance with the guidance in this section and, if a firm has not done so, whether it has been able to demonstrate that compliance with that guidance would have been inappropriate or impracticable in its particular circumstances.

30/06/2005

Policyholder advocate: appointment and function

COB 6.13.8

A firm that is seeking to make a reattribution of its inherited estate must appoint a policyholder advocate to negotiate with the firm on behalf of relevant with-profits policyholders.

30/06/2005

COB 6.13.9

The policyholder advocate must be nominated or approved by the FSA before he is appointed.

30/06/2005

COB 6.13.10

The FSA is likely to nominate a policyholder advocate if it considers that the reattribution, or any part of it, is likely to be complex or controversial. If the FSA does not nominate a person to be the policyholder advocate, the firm should nominate a suitable candidate for FSA approval.

30/06/2005

COB 6.13.11

The FSA expects the policyholder advocate to be a natural person who:

(1) is free from any conflict of interest that might be, or might appear to be, detrimental to the interests of policyholders; and
(2) has the skills and knowledge necessary to act as the policyholder advocate on the proposed reattribution.

30/06/2005

COB 6.13.12

The FSA may wish to have preliminary discussions with the policyholder advocate nominated by the firm to help the FSA to determine whether he is suitably qualified and experienced to act as the policyholder advocate for the proposed reattribution. The FSA will consider the suitability of the nominee and inform the firm that nominated him whether it approves him. Since the nature of the proposed reattribution is a factor in determining the suitability of the nominee, the FSA cannot approve a nominee before a broad outline of the reattribution has been determined. If the FSA rejects a nominee it will normally tell him why it has done so and, if the nominee agrees, the FSA will also tell the firm.

30/06/2005

COB 6.13.13

The FSA considers that it is desirable for a firm to include an independent element in the policyholder advocate selection process. That might include consulting representative groups of policyholders or using the services of a recruitment consultant. When considering an application for approval of a nominee to perform the policyholder advocate role, the FSA will have regard to the extent to which the firm has involved others in the selection process.

30/06/2005

COB 6.13.14

The precise role of the policyholder advocate in any particular case will depend on the nature of the firm and the reattribution proposed. A firm will need to discuss with the FSA the precise role of the policyholder advocate in a particular case. However, the role of the policyholder advocate should include:

(1) negotiating with the firm, on behalf of the relevant with-profits policyholders, the aggregate value of the benefits to be offered to them in exchange for the rights or interests they will be asked to give up;
(2) commenting, to with-profits policyholders, on:

(a) the methodology used for the allocation of benefits amongst the relevant with-profits policyholders, or groups of with-profits policyholders, and the form of those benefits;
(b) the criteria used for determining the eligibility of the firm's various with-profits policyholders;
(c) the terms and conditions of the proposals (to the extent that they have a material effect on the value of the benefits to be offered, or on the bonuses that may be added to with-profits policies); and
(d) the views expressed by the independent expert or the reattribution expert (as the case may be), and the actuary appointed by the firm to perform the with-profits actuary function on the allocation of any benefits amongst the relevant with-profits policyholders; and

(3) telling with-profits policyholders, or each group of with-profits policyholders, with reasons, whether the firm's proposals are in their interests.

30/06/2005

Policyholder advocate: terms of appointment

COB 6.13.15

A firm must notify the FSA of the terms on which it proposes to appoint a policyholder advocate, whether or not the candidate was nominated by the FSA.

30/06/2005

COB 6.13.16

A firm should include with its notification:

(1) a copy of its proposed contract with the policyholder advocate;
(2) a copy of its proposed terms of reference for the policyholder advocate;
(3) details of the proposed negotiation timetable and the policyholder advocate's budget;
(4) the policyholder advocate's confirmation that he is content with the proposed contract, terms of reference, plan and budget, if he is, or with a summary of his reservations, if he is not; and
(5) any other information that the FSA may reasonably require when it considers the proposed terms of appointment for the policyholder advocate.

30/06/2005

COB 6.13.17

The FSA will respond to the firm, including by giving guidance (if appropriate), as soon as it has reached a view on the proposed terms of appointment.

30/06/2005

COB 6.13.18

A firm must ensure that the terms of appointment for the policyholder advocate:

(1) stress the independent nature of the policyholder advocate's appointment and function, and are consistent with it;
(2) define the relationship of the policyholder advocate to the firm and its policyholders respectively;
(3) set out the arrangements under which the policyholder advocate is to communicate with policyholders;
(4) make provision for the resolution of any disputes between the firm and the policyholder advocate; and
(5) specify when and how the policyholder advocate's appointment may be terminated.

30/06/2005

COB 6.13.19

A firm must ensure that the policyholder advocate's terms of appointment allow him to communicate freely and, at his discretion, in confidence with the FSA.

30/06/2005

COB 6.13.20

It may be necessary, or desirable, for the policyholder advocate to discuss the terms of the proposed reattribution directly with the FSA, or for him to be able to participate in the FSA's meetings with the firm. COB 6.13.19 R is intended to ensure that the policyholder advocate is free to do that whenever he, or the FSA, regards that as necessary or appropriate.

30/06/2005

COB 6.13.21

A firm may agree to include, within the terms of appointment for the policyholder advocate , arrangements for the policyholder advocate to be indemnified in respect of certain claims that may be made against him in connection with the performance of his functions. If such indemnity is given, it should not include protection against any liability arising from acts of bad faith.

30/06/2005

Reattribution expert

COB 6.13.22

Where a firm is not otherwise required to appoint an independent expert to assess its reattribution proposals, it must appoint an expert (referred to as the 'reattribution expert') to undertake an objective assessment of them, taking into account:

(1) the nature and extent of any restructuring of the firm's with-profits fund;
(2) the benefits that will be allocated to relevant with-profits policyholders in exchange for the rights and interests they are being asked to give up; and
(3) any other factors that may be regarded as material by the FSA or the expert.

30/06/2005

COB 6.13.23

Many transactions involving a reattribution will involve an insurance business transfer scheme that requires court approval under Part VII of the Act . In those cases, the firm will be required to appoint an independent expert who has the responsibilities set out in the Act and SUP 18. The independent expert's function is to assess objectively, and then prepare a report on, the relevant insurance business transfer scheme for the benefit of the court, although the firm with-profits policyholders , others affected by the scheme and the FSA will, or may, also rely on it. The reattribution expert's function is broadly the same and it contrasts with the role of the policyholder advocate, who is appointed primarily to negotiate the benefits to be given to with-profits policyholders in exchange for the rights and interests they are being asked to give up.

30/06/2005

COB 6.13.24

A firm must not appoint a reattribution expert who has not been nominated or approved by the FSA to act as an expert in relation to the firm's proposed reattribution.

30/06/2005

COB 6.13.25

If a firm appoints a reattribution expert, it must ensure that the expert's terms of appointment allow him to communicate freely and, at his discretion, in confidence with the FSA.

30/06/2005

COB 6.13.26

The FSA expects a reattribution expert to be a natural person who:

(1) is free from any conflict of interest that might, or might appear to, undermine his independence or the quality of his report;
(2) has relevant knowledge, both practical and theoretical, and experience of the types of insurance business transacted by the firm; and
(3) is an actuary familiar with the role and responsibilities of an actuary appointed under SUP 4 (Actuaries).

30/06/2005

COB 6.13.27

The general principles in SUP 5.4.8 G, regarding the suitability of a skilled person, also apply to the appointment of a reattribution expert.

30/06/2005

COB 6.13.28

A firm should co-operate fully with a reattribution expert and provide him with access to all relevant information and appropriate staff.

30/06/2005

COB 6.13.29

(1) A firm that appoints a reattribution expert must require him to prepare a report.
(2) The report required by COB 6.13.29 R (1) must be made available to the FSA, the policyholder advocate and the court (if it is relevant to any court proceedings).
(3) An adequate summary of the report required by COB 6.13.29 R (1) must also be made available to the firm with-profits and other policyholders.

30/06/2005

COB 6.13.30

A reattribution expert's report, required by COB 6.13.29 R (1), should comply with the applicable rules on expert evidence and contain the following information:

(1) the information detailed in SUP 18.2.33 G (1) to (10), (12) and (13), and SUP 18.2.39 G; and
(2) his opinion of the likely effect of the proposals on with-profits policyholders or, where relevant, each relevant group of with-profits policyholders, having particular regard, where relevant, to the matters set out in SUP 18.2.36 G, as if in each case, a reference to:

(a) the 'scheme report' was a reference to the 'reattribution expert's report';
(b) the 'independent expert' was a reference to the 'reattribution expert'; and
(c) the 'scheme' was a reference to the proposal for a 'reattribution'.

30/06/2005

COB 6.13.31

The amount of detail that it is appropriate to include in the report required by COB 6.13.29 R (1) will depend on the complexity of the proposals, the materiality of the details themselves and the circumstances.

30/06/2005

COB 6.13.32

Where the proposal for a reattribution forms part of a wider proposal for restructuring, it may not be appropriate to consider the reattribution in isolation. In those cases, the reattribution expert should seek a sufficient explanation of the firm's plans to enable him to understand, and report on, the wider picture.

30/06/2005

Negotiation timetable

COB 6.13.33

When a firm decides, in principle, to appoint a policyholder advocate , it should give him sufficient time to select the professional advisers he regards as necessary to enable him to perform his functions. It should also give him an opportunity to make preliminary enquiries about the firm, its long-term insurance fund, the nature of its proposals and the factual background to them.

30/06/2005

COB 6.13.34

At an appropriate time, a firm should announce the appointment of the policyholder advocate , marking the formal start of the negotiations. In the first instance, the arrangements under which a policyholder advocate is appointed should require him to take such steps as he considers necessary to communicate with, and receive views from, relevant with-profits policyholders about the proposed reattribution. Only when he is satisfied that he has had adequate time to communicate with relevant with-profits policyholders should a policyholder advocate expect, or be expected, to begin negotiations with a firm.

30/06/2005

COB 6.13.35

The FSA would not normally expect the period from the announcement of the appointment of a policyholder advocate to the conclusion of a prospective deal to be less than three months.

30/06/2005

Information to policyholders: the policyholder advocate and the negotiations

COB 6.13.36

A firm must make arrangements so that every policyholder that might be affected by the proposed reattribution will receive appropriate information about the reattribution process, and any offer that will be made to him, in a timely way.

30/06/2005

COB 6.13.37

Relevant with-profits policyholders should be given clear information about the proposals, including an explanation of the wider picture, for example if the reattribution is linked to the restructuring of a firm.

30/06/2005

COB 6.13.38

When a firm makes information available to its policyholders, it should have regard to Principle 7 (Communications with customers). It should also explain the benefits and disbenefits of its proposals, for each relevant group of policyholders and for the firm if, and to the extent that, that is appropriate in the context of the information that it will be providing at any particular time.

30/06/2005

COB 6.13.39

The information given to policyholders should explain the role and background of the individuals who have been appointed to perform particular functions, including those of the policyholder advocate and the independent expert or the reattribution expert, as the case may be.

30/06/2005

COB 6.13.40

The information should also explain the steps in the reattribution process, the timetable for the proposed reattribution and any interdependencies. A firm should also consider the information needs of policyholders who will not be directly affected by the firm's proposals.

30/06/2005

COB 6.13.41

A firm should ensure that appropriate arrangements are put in place for policyholders of the firm to have access to further information, including over the internet and through helplines. These should remain operational throughout the reattribution process and be able to provide policyholders with information on demand. A firm should take reasonable steps to ensure that the information provided to policyholders is kept up-to-date.

30/06/2005

COB 6.13.42

The FSA does not consider it necessary for policyholders to receive regular updates on the progress of negotiations between the firm and the policyholder advocate if they are completed within a relatively short timescale. However, in the case of protracted negotiations, policyholders should receive an update at least every six months , commencing with the announcement of the appointment of the policyholder advocate (see COB 6.13.34 G).

30/06/2005

Notification to policyholders: conclusion of negotiations and consent

COB 6.13.43

When a firm and a policyholder advocate complete their negotiations about the benefits that will be offered to relevant with-profits policyholders, in exchange for the rights and interests they will be asked to give up, the firm must:

(1) tell relevant policyholders that the firm and the policyholder advocate have completed their negotiations;
(2) explain the outcome of the negotiations and, if appropriate, the firm's final proposals for the reattribution; and
(3) give relevant with-profits policyholders the chance to:

(a) individually accept or reject those proposals; or
(b) (if the legal process to be followed allows the majority of policyholders to bind the minority) vote on whether the firm should go ahead with those proposals.

30/06/2005

COB 6.13.44

A firm should also:

(1) explain the essence of its proposals, including details of:

(a) the context or background to the proposals and how the final version has been arrived at; and
(b) any material changes or departures from the information that it has already supplied;

(2) explain the effect of the negotiations on policyholders, including a description of any benefits they are likely to receive and the rights and interests that they are likely to be asked to give up;
(3) include a report from the policyholder advocate, which explains the basis of his negotiations with the firm, whether he considers that the firm proposals are in the interests of relevant with-profits policyholders, or groups of with-profits policyholders, and gives reasons for the conclusions that he has reached; and
(4) include information about the report by the independent expert or the reattribution expert, as the case may be, including a summary of the report and details of how policyholders can obtain a copy of the full report, if they wish to do so (see COB 6.13.29 R).

30/06/2005

COB 6.13.45

The reattribution process may redefine the rights of certain parties. There are established legal processes that enable such rights to be redefined by majority vote. If a firm proposes a reattribution that follows some other process, the FSA considers that, for that reattribution to be fair, policyholders should be given the chance to decide whether or not to accept the firm's proposals and, if they decide not to accept, their existing rights should be protected. The FSA therefore expects firms to offer individual choice, or to follow an established legal process where the majority can bind the minority (with the sanction of the court, if applicable).

30/06/2005

COB 6.13.46

If a firm chooses to make an offer to its policyholders, when the firm and the policyholder advocate have not been able to agree the value of the benefits to be offered to with-profits policyholders in return for the rights and interests they are being asked to give up, it must also explain the fact of, and reasons for, the policyholder advocate's disagreement.

30/06/2005

COB 6.13.47

Where a firm proposes an elective process under COB 6.13.43 R (3)(a), and a minority do not accept the proposals in the first instance, the FSA would expect the firm to make arrangements to allow those policyholders a further opportunity to elect to be a party to the reattribution at a later date.

30/06/2005

COB 6.13.48

Where a proposal is put to the vote of policyholders in accordance with COB 6.13.43 R (3)(b):

(1) the voting arrangements should allow relevant with-profits policyholders the opportunity to vote by post or, if the vote is to take place at a meeting, for those policyholder to be able to appoint proxies to represent their views; and
(2) the notice period, the closing date for votes submitted by post or, as the case may be, the time for appointing proxies should normally be at least eight weeks after the prospective deal has been announced.

30/06/2005

COB 6.13.49

Before, or at the same time as giving notice to relevant with-profits policyholders of an invitation to accept the offer under COB 6.13.43 R (3)(a) or an invitation to vote under COB 6.13.43 R (3)(b), a firm must send out details of the individual benefits to be received by each relevant with-profits policyholder in exchange for the rights or interests they are being asked to give up.

30/06/2005

Notification to policyholders: final outcome

COB 6.13.50

A firm should, within a reasonable time, notify policyholders of the final outcome of the reattribution process. This should normally be done after the court has considered the proposed reattribution, if court sanction is required.

30/06/2005

COB 6.13.51

Provided that any court hearing is due to take place within a reasonable time once the outcome of the vote is known (see COB 6.13.43 R (3)(b)), the FSA does not consider it necessary for a firm to write individually to policyholders to explain the outcome of that vote. However, a firm should make the information publicly available, for example by putting a notice on its website, by giving details through its helpline, or by placing an advertisement in the national or regional press.

30/06/2005

Limits on the need to provide information

COB 6.13.52

COB 6.13.36 R, COB 6.13.43 R, COB 6.13.46 R and COB 6.13.49 R do not require a firm to disclose confidential, or commercially sensitive, information nor do they require a firm to disclose information that relates to a third party or is irrelevant to its reattribution proposals or arrangements.

30/06/2005

COB 6.13.53

A firm will not be treated as having failed to comply with any obligation in this section to provide information if the information has been provided to relevant with-profits policyholders by another person, such as the policyholder advocate, the independent expert or the reattribution expert.

30/06/2005

General costs

COB 6.13.54

Subject to COB 6.13.55 G to COB 6.16.58G, reattribution and insurance business transfer costs (excluding policyholder advocate costs) should be met from shareholder funds. A firm may present alternative arrangements if it can show good reasons for doing so.

30/06/2005

Policyholder advocate costs

COB 6.13.55

The policyholder advocate's budget, and the policyholder advocate's costs, should be agreed between the firm and the policyholder advocate. For these purposes, the policyholder advocate's costs include ancillary costs, such as the costs of professional advice and administrative and publicity costs.

30/06/2005

COB 6.13.56

The FSA recognises that the treatment of costs will almost certainly affect the value of the benefits offered. The FSA will not normally seek to restrict the way in which policyholder advocate costs are divided between shareholders and policyholders, provided that:

(1) the shareholder pays a reasonable proportion of them;
(2) the arrangements are fair; and
(3) the policyholder advocate confirms that he is satisfied with them.

30/06/2005

COB 6.13.57

A firm may therefore agree an arrangement with the policyholder advocate by which relevant with-profits policyholders contribute to the policyholder advocate's costs, for example by a deduction from the aggregate value of the benefits that will become available to those policyholders.

30/06/2005

COB 6.13.58

A firm might also propose a budget that it will fund entirely, or in part, from shareholder funds with any additional expenditure being met from funds attributable to relevant with-profits policyholders. Another approach would be cost sharing, so that a firm and relevant with-profits policyholders will benefit if savings are made, compared to the budget, and costs are shared if the budget is exceeded.

30/06/2005

COB 6.13.59

If a reattribution proposal is not successful, the FSA would expect the costs of the policyholder advocate to be met by the person initiating the proposal. That will usually be the shareholders of the firm.

30/06/2005

COB 6 Annex 1

Decision trees for stakeholder pension schemes (as required in COB 6.5.8R): text, content and format (R)

01/12/2004

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

28/04/2006

COB 6 Annex 2

Total expense ratio calculation

01/05/2005

This Annex belongs to COB 6.2.37 R (Contents of the simplified prospectus).
Notes:

This Annex sets out the requirements in relation to the TER. It reproduces, and adapts where appropriate for the purposes of COB 6, Annex 1 to Commission Recommendation (2004/384/EC), amplifying Schedule C (Contents of the simplified prospectus) to the Management Company Directive (2004/107/EC).

The non-exhaustive typology of calculation bases referred to in paragraph 2(b) below reflects the diversity of recent commercial practice across Member States (at the end of 2003) and should not be interpreted as a general validation of the compliance of any individual agreement or commission with the provisions of the Handbook.

01/05/2005

Total expense ratio (TER)

Definition of the TER

The total expense ratio (TER) of a simplified prospectus scheme is the ratio of the scheme's total operating costs to its average net assets calculated according to paragraph 3.

Included/excluded costs

(a)

The total operating costs are all the expenses which come in deduction of a simplified prospectus scheme's assets. These costs are usually shown in a scheme's statement of operation for the relevant fiscal period. They are assessed on an 'all taxes included' basis, which means that the gross value of expenses should be used.

(b)

Total operating costs include any legitimate expenses of the simplified prospectus scheme, whatever their basis of calculation (e.g. flat-fee, asset-based, transaction-based - see note 2 above), such as:

management costs including performance fees;

administration costs;

fees linked to depositary duties;

audit fees;

payments to shareholder services providers including payments to the simplified prospectus scheme's transfer agent and payments to broker-dealers that are record owners of the scheme's shares and that provide sub-accounting services for the beneficial owners of the scheme's shares;

payments to lawyers;

any distribution or unit cancellation costs charged to the scheme;

registration fees, regulatory fees and similar charges;

any additional remuneration of the management company (or any other party) corresponding to certain fee-sharing agreements in accordance with paragraph 4 below.

(c)

The total operating costs do not include:

transaction costs which are costs incurred by a simplified prospectus scheme in connection with transactions on its portfolio. They include brokerage fees, taxes and linked charges and the market impact of the transaction taking into account the remuneration of the broker and the liquidity of the concerned assets;

interest on borrowing;

payments incurred because of financial derivative instruments;

entry/exit commissions or any other fees paid directly by the investor;

soft commissions in accordance with paragraph 4.

Calculation method and disclosure

(a)

The TER is calculated at least once a year on an ex post basis, generally with reference to the fiscal year of the simplified prospectus scheme . For specific purposes it may also be calculated for other time periods. The simplified prospectus should in any case include a clear reference to an information source (e.g. the scheme's website) where the investor may obtain previous years'/periods' TER figures.

(b)

The average net assets must be calculated using figures that are based on the scheme's net assets at each calculation of the net asset value (NAV), e.g. daily NAVs where this is the normal frequency of NAV calculation as approved by the simplified prospectus scheme's competent authorities. Further circumstances or events which could lead to misleading figures have equally to be taken into consideration.

Tax relief should not be taken into account.

The calculation method of the TER must be validated by the simplified prospectus scheme's auditors and/or competent authorities.

Fee-sharing agreements and soft commissions

It regularly results from fee-sharing agreements on expenses that are generally not included in the TER, that the management company or another party is actually meeting, in all or in part, operating costs that should normally be included in the TER. They should therefore be taken into account when calculating the TER, by adding to the total operating costs any remuneration of the management company (or another party) that derives from such fee-sharing agreements.

There is no need to take into account fee-sharing arrangements on expenses that are already in the scope of the TER. Soft commissions should also be left outside the scope of the TER.

Thus:

the remuneration of a management company through a fee-sharing agreement with a broker on transaction costs and with other fund management companies in the case of funds of funds (if this remuneration has not already been taken into account in the synthetic TER (see paragraph 6 below) or through other costs already charged to the fund and therefore directly included into the TER) should anyway be taken into account in the TER,

conversely, the remuneration of a management company through a fee-sharing agreement with a scheme (except when this remuneration falls under the scope of the specific fund-of-fund case covered in the previous indent) should not be taken into account.

Performance fees:

Performance fees should be included in the TER and should also be disclosed separately as a percentage of the average net asset value.

Simplified prospectus scheme investing in UCITS scheme or in non-UCITS scheme:

When a simplified prospectus scheme invests at least 10% of its net asset value in UCITS schemes or in schemes that are not UCITS schemes which publish a TER in accordance with this Annex, a synthetic TER corresponding to that investment should be disclosed.

The synthetic TER is equal to the ratio of:

the simplified prospectus scheme's total operating costs expressed by its TER and all the costs borne by the scheme through holdings in underlying funds (i.e. those expressed by the TER of the underlying funds weighted on the basis of the simplified prospectus scheme's investment proportion), plus the subscription and redemption fees of these underlying funds, divided by

the average net assets of the scheme.

As mentioned in the previous subparagraph, subscription fees and redemption fees of the underlying funds should be included in the TER. Subscription and redemption fees may not be charged when the underlying funds belong to the same group in accordance with Article 24 (3) of the UCITS Directive.

When any of the underlying schemes that are not UCITS schemes does not publish a TER in accordance with this Annex, disclosure of costs should be adapted in the following way:

the impossibility of calculating the synthetic TER for that fraction of the investment must be disclosed,

the maximum proportion of management fees charged to the underlying fund(s) must be disclosed in the simplified prospectus,

a synthetic figure of total expected costs must be disclosed, by calculating:

a truncated synthetic TER incorporating the TER of each of those underlying funds for which the TER is calculated according to this Annex, weighted on the basis of the simplified prospectus scheme's investment proportion, and

by adding, for each of the other underlying funds, the subscription and redemption fees plus the best available maximum estimate of TER-eligible costs. This should include the maximum management fee and the last available performance fee for that fund, weighted on the basis of the simplified prospectus scheme's investment proportion.

Umbrella funds/multiclass funds:

In the case of umbrella funds, the TER should be calculated for each sub-fund. If, in the case of multiclass funds, the TER differs between different share classes, a separate TER should be calculated and disclosed for each share class. Furthermore, in keeping with the principle of equality among investors, where there are differences in fees and expenses across classes, these different fees/expenses should be disclosed separately in the simplified prospectus . An additional statement should indicate that the objective criteria (e.g. the amount of subscription), on which these differences are based, are available in the full prospectus.

01/05/2005

COB 6 Annex 3

Portfolio turnover calculation

01/05/2005

This Annex belongs to COB 6.2.37 R (Contents of the simplified prospectus).

Note:

This Annex sets out the requirements in relation to the portfolio turnover rate. It reproduces Annex II to Commission Recommendation (2004/384/EC), amplifying Schedule C (Contents of the simplified prospectus) to the Management Company Directive (2004/107/EC).
This table also includes other material which the FSA considers should be included.

Portfolio turnover rate

A simplified prospectus scheme's or, where relevant, a compartment's (sub-fund's) portfolio turnover rate must be calculated in the following way:

Purchases of securities = X

Sales of securities = Y

Total 1 = total of transactions in securities = X + Y

Issues/Subscriptions of units of the scheme = S

Cancellations/Redemptions of units of the scheme = T

Total 2 = Total transactions in units of the scheme = S + T

Reference average of total net assets = M

Turnover = [(Total 1 - Total 2)/M]*100

The reference average of total net assets corresponds to the average of net asset values calculated with the same frequency as under COB 6 Annex 2R. The portfolio turnover rate disclosed should correspond to the period(s) for which a TER is disclosed. The simplified prospectus should in any case include a clear reference to an information source (e.g. the scheme's website) where the investor may obtain previous periods' performance.

Note

Firms should note that inclusion of the portfolio turnover rate in the simplified prospectus is mandatory. The rate must be calculated according to the formula which is prescribed above. However, because the rate includes both purchases and sales of securities, readers may find it difficult to understand. Consequently firms should consider including an explanation of the formula, such as:

01/05/2005

01/05/2005

COB Conduct of Business

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

Productdisclosure and the customer's right to cancel or withdraw

Product disclosure

Application

Application of COB 6.2.46R and COB 6.2.47R

Purpose

Requirement to produce key features

Quality and production of key features

Provisions of key features or simplified prospectus

Application

Medium for provision of key features

Life policies

Exception for life policies: sales through intermediaries

Life policies: pre-completion variations

Variations to existing life policies

Exception for life policies: non-UK customers

Exceptions for life policies: variations held within a CTF

Provision of key features: key features schemes

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

Purpose of the COB 6 provisions on the simplified prospectus

Production and publication of simplified prospectus

Revision of simplified prospectus

Filing requirements

UK firms exercising passporting rights in respect of UCITS scheme

Offering a simplified prospectus

Obligation on a firm to provide a simplified prospectus

Exceptions from the requirement to provide the simplified prospectus

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

Contents of the simplified prospectus

This table belongs to COB 6.2.26 R (1)

Reduction in yield

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

This table belongs to COB 6.2.38R

Distance contracts for the sale of simplified prospectus schemes

Projection for simplified prospectus scheme

PEP and ISA investments

Child trust fund investments

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

Sale of a section 264 scheme by distance contract

Composite documents for several schemes, sub-funds and classes

Multiclass schemes: use of representative class

Post-sale confirmation: life policies

Application

Exceptions to post-sale confirmation

Product disclosure: special situations

Application

Occupational pension schemes

SIPPs, personal pension deposits and personal pension products

Assets to be held within a SIPP

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

Income withdrawals and short-term annuities

Cash deposit ISAs and cash deposit CTFs

Traded life policies

Stakeholder pension schemes

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

Exemption: telephone sales

Exemption: certain other means of distance communication

Exemption: successive or separate operations under an initial service agreement

Exemption: other successive and separate operations

Exemption: automatic enrolment of employees in pension schemes

Exemption: Revenue allocated accounts

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

Application

General

Stakeholder pension schemes: decision trees

Table of Information/Applicable provisions

This table belongs to COB 6.5.2 R (1)

Title

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

An example

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

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

Tables for life policies

The early years

This table belongs to COB 6.5.23 R

Deductions summary for life policies

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

Table for key features schemes

This table belongs to COB 6.5.30 R

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