CRED 11
Conduct of business
CRED 11.1
Introduction
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Conduct of business
CRED 11.1.1
See Notes
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CRED 11.1.2
See Notes
- (1) The rules and guidance set out in COBS mainly apply to designated investment businesses and have limited application to deposits.
- (2) The only parts of COBS that set out rules and guidance on deposits, other than for a cash deposit ISA or cash deposit CTF, are the financial promotion rules and those relating to distance contracts for accepting deposits in COBS 5 (Distance contracts) and COBS 15 (Cancellation). Guidance on the way in which those requirements apply to credit unions is set out in CRED 11.4 (Entering into a distance contract for accepting deposits).
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CRED 11.1.3
See Notes
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CRED 11.1.4
See Notes
The FSA logo
is a registered mark, is subject to copyright and is the property of the FSA. Credit unions are permitted to use the FSA
logo in limited circumstances. Any credit
union which wishes to use the FSA logo should refer to GEN 5 (FSA logo).
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Electronic commerce activities
CRED 11.1.5
See Notes
COBS 5.2 (E-Commerce) contains rules applicable to a credit union which carries on an electronic commerce activity; that is, a credit union which accepts deposits, or carries on certain other activities, by way of an information society service.
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CTF providers
CRED 11.1.7
See Notes
A credit union which acts as a CTF provider needs to be aware of the requirements relating to CTFs in COBS, in particular COBS Chapters 3,4, and 9 Annex 1, 10, 13, 14 and 15 SUP 15, where relevant, IPRU(INV) Chapter 8 and MIPRU.
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CRED 11.2
Financial promotion
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CRED 11.2.1
See Notes
Financial
promotion is defined as an invitation or inducement to engage in investment activity.
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CRED 11.2.2
See Notes
Financial
promotions can be real time or non-real time. A real time financial promotion is communicated in the course of a personal
visit, telephone conversation or interactive dialogue. A non-real time financial promotion is not
a real time financial promotion.
It includes a financial
promotion made by letter, e-mail or contained in a newspaper,
journal, magazine, other periodical publication, website, television or radio
programme or teletext service.
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CRED 11.2.3
See Notes
Where a financial promotion relates to a deposit (other than a cash deposit ISA or cash deposit CTF) only certain parts of the financial promotion rules apply. These are COBS 4.2.1 R, COBS 4.5.2 R, COBS 4.5.7 R, COBS 4.6.2 R, COBS 4.6.6 R, COBS 4.6.7 R, COBS 4.7.1 R, COBS 4.10.2 R, COBS 4.10.4 R, COBS 4.10.5 R and COBS 4.10.10 R.
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CRED 11.2.4
See Notes
In addition to the limited application of the financial promotion rules, a number of exemptions within the defined term excluded communication are relevant. In particular, paragraphs (a) and (e) of the definition provide further limitations on the application of the financial promotion rules in relation to credit unions:
- (1) Exemption (a): A financial promotion that would benefit from an exemption in the Financial Promotion Order if it were communicated by an unauthorised person, or which originates outside the United Kingdom and is not capable of having an effect in the United Kingdom.
- (2) Exemption (e): A "one off" financial promotion that is not a cold call. If the conditions set out in (a) to (c) are satisfied, a financial promotion is to be regarded as "one off"; if not, the fact that any one or more of these conditions is met is to be taken into account in determining if a financial promotion is "one off", but a financial promotion may be regarded as "one off" even if none of the conditions are met; the conditions are that:
- (a) the financial promotion is communicated only to one recipient or only to one group of recipients in the expectation that they would engage in any investment activity jointly;
- (b) the identity of the product or service to which the financial promotion relates has been determined having regard to the particular circumstances of the recipient;
- (c) the financial promotion is not part of an organised marketing campaign.
- (3) [deleted]
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CRED 11.2.5
See Notes
Despite the limited application of
COBS
to deposits and the exemptions mentioned in CRED
11.2.4 G,
financial promotions (including those which
are exempt) may be subject to more general rules including Principle 7 (Communications with clients) and
SYSC 3 (Systems and controls) and the fair, clear and not misleading rule.
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CRED 11.2.6
See Notes
The requirement on a firm under COBS 4.2.1 R (1) is that it must ensure that a financial promotion is fair, clear and not misleading. This is supported by further detailed rules including COBS 4.5.2 R:
- (1) A firm must ensure that information for a retail client:
- (a) includes the name of the firm;
- (b) is accurate and in particular does not emphasise any potential benefits of relevant business or a relevant investment without also giving a fair and prominent indication of any relevant risks;
- (c) is sufficient for, and presented in a way that is likely to be understood by, the average member of the group to whom it is directed, or by whom it is likely to be received; and
- (d) does not disguise, diminish or obscure important items, statements or warnings.
- (2) [deleted]
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CRED 11.3
Statutory status disclosure
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CRED 11.3.1
See Notes
This
section summarises the requirements of GEN 4 (Statutory status disclosure)
in the context of credit
unions which do not have overseas offices.
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CRED 11.3.2
See Notes
GEN
4.3 (Letter disclosure) requires a credit union to take reasonable care to state
that it is "authorised and regulated by the Financial Services Authority"
in every letter and e-mail which it sends to a depositor or potential depositor
on or after 1 March 2004.
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CRED 11.4
Entering into a distance contract for accepting deposits
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CRED 11.4.1
See Notes
Those parts of COBS that relate to distance contracts for accepting deposits will have limited application to a credit union. This is because the Distance Marketing Directive only applies where there is "an organised distance sales or service-provision scheme run by the supplier" (Article 2(a)). If, therefore, the credit union normally operates face to face and has not set up facilities to enable customers to deal with it at a distance, such as facilities for a customer to deal with it purely by post, telephone, fax of the Internet, the provisions will not be relevant. A one-off transaction dealt with by distance means in order to deal with a particular contingency or emergency will not fall under the COBS provisions.
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CRED 11.4.2
See Notes
For those credit unions to which the provisions in COBS will apply, the provisions which are of particular relevance concern the distance communications provisions (COBS 5), pre-contract information (COBS 6, COBS 13 and COBS 14), cancellation rights (COBS 15) and the financial promotion rules (discussed at CRED 11.2). If the credit union provides cash deposit ISAs or cash deposit CTFs further rules may apply.
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Pre-contract disclosure requirements
CRED 11.4.3
See Notes
COBS 5.1 sets out the basic requirement that applies before a credit union enters into a distance contract for accepting deposits. The credit union has to ensure that the terms on which it will conduct business, including, in particular, certain required information, is provided to a consumer (which means an individual, acting for purposes which are outside his trade, business or profession) in good time (that is, in sufficient time to enable a customer to consider properly the services on offer) in a durable medium, before the retail customer is bound by the distance contract, unless certain exemptions apply.
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CRED 11.4.4
See Notes
The required information is the contractual terms and conditions and the other information set out in COBS 5 Annex 1 R, and covers basic information about the credit union, the main characteristics of the service on offer, the price, details about any distance contract such as its duration, cancellation rights and any other early termination rights and penalties, and information about out-of-court complaints and compensation arrangements.
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Exemptions
CRED 11.4.5
See Notes
The exemptions referred to in CRED 11.4.3 G are set out in COBS 5.1. They are relevant:
- (1) where the contract is concluded by telephone and the consumer gives explicit consent to receiving a more limited range of information. COBS 5.1.12 R sets out the information to be provided in such cases. Full information has to be provided, in a durable medium, immediately after conclusion of the distance contract (COBS 5.1.13 R);
- (2) where a means of communication (other than telephone) is used which does not enable provision of required information in a durable medium before conclusion of the contract; in this case full information must also be provided in a durable medium immediately after conclusion of the distance contract (COBS 5.1.13 R);
- (3) where there is an initial service agreement and the contract is in relation to a successive or separate operation of the same nature under that agreement, or there is no initial service agreement and the contract is in relation to a successive or separate operation of the same nature and is being performed no more than one year from the date of performance of the last operation (COBS 5.1.8 R, COBS 5.1.9 R and COBS 5.1.10 G).
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Cancellation
CRED 11.4.7
See Notes
A
consumer
has a right
to cancel a
distance contract
for
accepting
deposits
without giving any
reasons and without penalty. The right to cancel has to be exercised within
14 days of the day of the conclusion of the contract or the day on which he
received the contractual terms and conditions, if later (COBS
15.2.1 R).
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CRED 11.4.8
See Notes
The only exemptions from the right to cancel are when:
- (1) the price of the service depends on fluctuations in the financial market outside the credit union's control which may occur during the cancellation period; or
- (2) the contract has already been fully performed with the consumer consent before he exercises his right to cancel; or
- (3) the credit union has an initial service agreement with the consumer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COBS 15.2.1 R)
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CRED 11.4.9
See Notes
The effects of cancellation are set out
in
COBS 15.4 (Effects of cancellation). Unless the
contract relates to a
CTF, the credit union has to return, no later than
30 days after the date it received notice of cancellation, any sums paid by
the customer in connection with the contract. The customer can be required to pay for any services
provided up to the date of cancellation, provided that the sums are in proportion
to the extent of the services actually provided and could not be construed
as a penalty. No payment can be required if the credit union cannot prove that a customer was told the
amount that would be payable as part of the pre-contract informationor if the credit union starts performance of the contract without the customer's prior consent.
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CRED 11.4.10
See Notes
If there are other ancillary distance contracts related to the first, those ancillary contracts may also be cancelled automatically when a consumer exercises a right to cancel (see COBS 15)
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