COB Conduct of Business

Part

COB Conduct of Business

Printed on: 07/05/2025

Rulebook at: 06/04/2005

Chapters

COB 1 General
application
COB 2 Rules
which apply to all firms conducting designated investment business
COB 3 Financial
promotion
COB 4 Accepting
customers
COB 5 Advising
and selling
COB 5A Providing
basic advice on stakeholder products
COB 6 Product
disclosure and the customer's right to cancel or withdraw
COB 7 Dealing
and managing
COB 8 Reporting
to customers
COB 8A Claims
handling
COB 9 Client assets
COB 10 Operators of collective investment schemes
COB 11 Trustee and depositary activities
COB 12 Lloyd's
COB App 1 Appendix 1
Transitional Provisions and Schedules

COB 1

General
application

COB 1.1

Application and Purpose

01/12/2004

Application

COB 1.1.1

COB applies to every firm (except an ICVC) as specified in the remainder of this chapter.

01/12/2001

Purpose

COB 1.1.2

The purpose of this chapter is to set out to whom, for what activities, and within what territorial limits the rules, evidential provisions and guidance in COB apply.

01/12/2001

COB 1.2

General application: who?

01/12/2004

COB 1.2.1

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

(1) [deleted]
(2) for a UCITS qualifier and a service company that does not operate an ATS, only COB 1.9 (Application to electronic commerce activity providers) and , COB 3 (Financial promotion), COB 7.17 (Investment research recommendations: required disclosures) and any provision of COB incorporated into COB 1.9 or COB 3 by reference, apply;
(2A) for a service company that operates an ATS, only COB 1.9 and COB 3, any provision of COB incorporated into COB 1.9 or COB 3 by reference, and COB 7.17 (Investment research recommendations: required disclosures) and, in relation to the operation of the ATS, COB 4.2 (Terms of business), apply;
(3) COB does not apply to an ICVC;
(4) COB does not apply to an authorised professional firm with respect to its non-mainstream regulated activities except for:

(a) COB 2.1 (Clear, fair and not misleading communication);
(b) COB 3 (Financial promotion); and
(c) the following provisions of COB 4.2 (Terms of business and client agreements with customers): COB 4.2.1 R to COB 4.2.6 G, COB 4.2.12A E and COB 4 Ann 2E(25); and
(d) the IMD minimum implementation provisions and COB 4.3.19 R to COB 4.3.25 R as if they also applied to a firm carrying out the activities in COB 4.3.19R (1)(a) with or on behalf of private customers, unless:

(i) the designated professional body of the firm has made rules which implement some or all of the provisions of articles 12 and 13 of the IMD;
(ii) those rules have been approved by the FSA under section 332(5) of the Act; and
(iii) the firm is subject to the rules in the form in which they were approved;

in which case they are disapplied to the extent that articles 12 and 13 of the IMD are implemented by the rules of the designated professional body.

14/01/2005

COB 1.2.1A

If a firm engages in insurance mediation activities for non-investment insurance contracts, ICOB applies and COB does not apply.

14/01/2005

COB 1.2.1B

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

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

01/12/2004

COB 1.2.2

A UCITS qualifier should be aware of the requirements of CIS 17.4 (Facilities in the United Kingdom).

01/12/2001

COB 1.2.3

COB 6.7 (Cancellation and withdrawal) confers rights on customers to rescind agreements with, or withdraw offers from, firms within a specified period.

01/12/2001

COB 1.2.4

COB 3 (Financial promotion) is available for nationals of EEA States (other than the United Kingdom) wishing to take advantage of article 36 of the Financial Promotion Order.

01/12/2001

COB 1.2.5

Authorised professional firms should be aware of the following:

(1) PROF 5 (Non-mainstream regulated activities);
(2) COB 3.1.5 R (Authorised professional firms) and the exemption in article 55 of the Financial Promotion Order (Communications by members of professions) which applies in relation to financial promotions of authorised professional firms under COB 3.5.5 R (2) (Exemptions); and
(3) COB 4.2.3 G which contains guidance for authorised professional firms on the provision of terms of business.

09/10/2004

COB 1.3

General application: what?

01/12/2004

COB 1.3.1

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

(1) all regulated activities except:

(a) regulated mortgage activities; or
(b) to the extent that a provision of COB provides for a narrower application; or;
(c) insurance mediation activities in connection with non-investment insurance contracts; and

(2) unregulated activities to the extent specified in any provision of COB.

14/01/2005

COB 1.3.2

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

14/01/2005

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

COB 1.3.3

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

01/01/2004

Inter-professional business

COB 1.3.4

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

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

01/12/2004

COB 1.3.5

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

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

01/12/2004

COB 1.4

General Application: where?

01/12/2004

COB 1.4.1

The rules in COB 1.4 set out the maximum territorial scope of this sourcebook. Particular rules may have express territorial limitations.

01/03/2003

UK establishments: general

COB 1.4.2

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

01/03/2003

Business with UK clients from non-UK offices

COB 1.4.3

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

(1) this sourcebook does not apply in relation to an activity carried on from an office outside the United Kingdom which, if that office were a separate person, would fall within the overseas persons exclusions in article 72 of the Regulated Activities Order or would not be regarded as carried on in the United Kingdom; or
(2) COB 4.2 (Terms of business and client agreements with customers), COB 5 (Advising and selling) and COB 6 (Product disclosure and the customer's right to cancel or withdraw) do not apply to a firm with respect to an activity exclusively concerning a distance contract with a retail customer, if the following conditions are satisfied:

(a) the firm carries on the activity from an establishment maintained by the firm in an EEA State other than the United Kingdom;
(b) either that EEA State:

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

and, in either case, with the result that the obligation provided for by the DMD (or corresponding obligations) are applied by that State when the firm carries on that activity; and
(c) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.

09/10/2004

COB 1.4.4

In addition to the situations in COB 1.4.2 R and COB 1.4.3 R, COB 5.5.7 R (Overseas business for UK private customers) applies wherever the activity is conducted.

01/03/2003

Financial promotions

COB 1.4.5

Notwithstanding COB 1.4.2 R and COB 1.4.3 R, the territorial scope of the financial promotion rules COB 3) is as set out in COB 3.3 (Application: where?).

01/03/2003

ISD investment firms: compensation information

COB 1.4.6

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

01/03/2003

Life policies

COB 1.4.7

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

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

14/01/2005

Electronic commerce activities and communications

COB 1.4.10

The territorial scope of this sourcebook is modified by ECO in relation to electronic commerce activities and electronic commerce communications.

01/03/2003

COB 1.4.11

COB 1.9 contains guidance on how this sourcebook is modified by ECO.

01/03/2003

IMD passported activities

COB 1.4.12

(1) Notwithstanding COB 1.4.2 R, the IMD minimum implementation provisions apply, on the basis outlined in (4), to the passported activities carried on by a UK firm under the IMD from a branch elsewhere in the EEA unless the Host State regulator imposes measures which implement articles 12 and 13 of the IMD for those activities.
(2) Notwithstanding COB 1.4.2 R, the provisions in COB which implement articles 12 and 13 of the IMD (including COB 4.3.3R (1)(b)(i) (provision of initial disclosure document and fees and commission statement)) do not apply, on the basis outlined in (4), to a UK firm providing cross-border services in another EEA State under the IMD or the Consolidated Life Directive, except that the IMD minimum implementation provisions apply, on the basis outlined in (4), to a UK firm providing cross-border services in another EEA State under the IMD if the Host State regulator does not impose measures which implement the articles for those activities.
(3) In addition to the situation in COB 1.4.3 R, the IMD minimum implementation provisions apply, on the basis outlined in (4), to an incoming EEA firm providing cross-border services in the United Kingdom under the IMD unless the firm's Home State regulator imposes measures which implement the articles for these activities.
(4) The IMD minimum implementation provisions apply to an activity pursuant to this rule as follows:

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

01/12/2004

COB 1.4.13

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

01/12/2004

COB 1.5

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

01/12/2004

COB 1.5.1

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

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

01/12/2001

COB 1.6

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

01/12/2004

Stock lending activity

COB 1.6.1

In respect of any stock lending activity undertaken with or for a customer by a firm, only those provisions of COB in COB 1.6.2 R apply.

01/12/2001

COB 1.6.2

Provisions of COB applied to stock lending activity

This table belongs to COB 1.6.1 R

COB

Subject

Chapter 1

Application and general provisions

2.1

Clear, fair and not misleading communication

2.2

Inducements and soft commission

2.3

Reliance on others

2.4

Chinese walls

2.5

Exclusion of liability

2.6

General provisions related to distance marketing, but only in relation to distance contracts concluded with retail customers

4.1

Client classification

4.2

Terms of business and client agreements with customers

5.3

Suitability

5.4

Customers' understanding of risk

5.5

Information about the firm

5.7

Disclosure of charges, remuneration and commission

6.7

Cancellation and withdrawal, but only in relation to distance contracts concluded with retail customers

7.1

Conflict of interest and material interest

7.7

Aggregation and allocation

7.8

Realisation of a private customer's assets

7.9

Lending to private customers

7.12

Customer order and execution records

7.13

Personal account dealing

8.1

Confirmation of transactions

[deleted]

01/12/2004

Corporate finance business

COB 1.6.3

In respect of any corporate finance business undertaken by a firm, only those provisions of COB in COB 1.6.4 R apply.

01/12/2001

COB 1.6.4

Provisions of COB applied to corporate finance business

This table belongs to COB 1.6.3 R

COB

Subject

Chapter 1

Application and general provisions

2.1

Clear, fair and not misleading communication

2.2

Inducements and soft commission

2.3

Reliance on others

2.4

Chinese walls

2.5

Exclusion of liability

2.6

General provisions related to distance marketing, but only in relation to distance contracts concluded with retail customers

Chapter 3

Financial promotion, except COB 3.8.6 G - and COB 3.9

4.1

Client classification

5.3

Suitability

5.4

Customers' understanding of risk

5.5

Information about the firm, except COB 5.5.1 R - COB 5.5.8 G

5.10

Corporate finance business issues

6.4.25

Entering into a person to accept deposits, but (a) as if corporate finance business was accepting deposits and (b) only in relation to distance contracts concluded with retail customers

6.7

Cancellation and withdrawal, but only in relation to distance contracts concluded with retail customers

7.1

Conflict of interest and material interest

7.12

Customer order and execution records

7.13

Personal account dealing

7.16

Investment research

[deleted]

01/12/2004

COB 1.6.5

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

01/12/2001

COB 1.6.5A

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

01/12/2004

Oil market activity and energy market activity

COB 1.6.6

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

(1) oil market activity; and
(2) other energy market activity;

undertaken by any firm (but see COB 1.6.8 R).

01/12/2001

COB 1.6.7

Provisions applied to oil market activity and energy market activity

This table belongs to COB 1.6.6 R

COB

Subject

Chapter 1

Application and general provisions

2.1

Clear, fair and not misleading

2.3

Reliance on and responsibility for others

2.4

Chinese walls

2.5

Exclusion of liability

Chapter 3

Financial promotion

4.1

Client classification

7.1

Conflict of interest and material interest

7.3

Dealing ahead

7.15

Non-market-price transactions

8.1

Confirmation of transactions

[deleted]

01/12/2004

COB 1.6.8

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

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

20/09/2001

COB 1.6.9

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

This table belongs to COB 1.6.8 R.

COB

Subject

Chapter 1

Application and general provisions

2.3

Reliance on and responsibility for others

2.4

Chinese walls

2.5

Exclusion of liability

3.11

Unregulated collective investment schemes

7.15

Non-market-price transactions

[deleted]

01/12/2004

COB 1.6.10

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

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

20/09/2001

COB 1.6.11

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

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

20/09/2001

COB 1.6.12

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

01/04/2004

COB 1.7

Appointed representatives

01/12/2004

COB 1.7.1

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

01/12/2001

COB 1.8

Application to electronic media

01/12/2004

COB 1.8.1

GEN 2.2.14 R (References to writing) has the effect that electronic media may be used to make communications that are required by the Handbook to be 'in writing' unless a contrary intention appears.

01/12/2001

Additional guidance in respect of electronic communication with or for customers

COB 1.8.2

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

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

01/12/2001

COB 1.8.3

Firms should note that GEN 2.2.14 R does not affect any other legal requirement that may apply in relation to the form or manner of executing a document or agreement.

01/12/2001

COB 1.9

Application in relation to electronic commerce activities and communications

01/12/2004

Application and purpose

COB 1.9.1

(1) COB 1.9.1 G and COB 1.9.2 G apply to a firm:

(a) which is an electronic commerce activity provider, that is, any firm which carries on an electronic commerce activity; and
(b) in relation to a financial promotion which is an electronic commerce communication.

(2) Paragraph (1) means that firms need to be aware of this section whenever they are providing a service which:

(a) is normally provided for remuneration;
(b) is provided at a distance;
(c) is so provided by means of electronic equipment for the processing (including digital compression) and storage of data; and
(d) is so provided at the individual request of a recipient of the service.

(3) The purpose of this section is to indicate, for the benefit of such firms, the extent to which and the general manner in which the normal provisions of COB are modified by ECO.

01/11/2002

Modification of COB resulting from the E-Commerce Directive

COB 1.9.2

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

(1) ECO 1.1.6 R modifies COB so that a firm providing an electronic commerce activity from an establishment elsewhere in the EEA to a recipient who is in the United Kingdom (an incoming ECA provider) is not required to comply with any provision of COB except to the extent required by ECO 1. These exceptions relate to the 'consumer contract derogation' (see ECO 1.2) and to the 'insurance derogation' (see ECO 1.3);
(2) ECO 2:

(a) modifies COB so that, in relation to a financial promotion which is an outgoing electronic commerce communication, COB 3 has an extended application to cover the whole of the EEA;
(b) obliges such a firm, in providing an electronic commerce activity within the EEA, to comply with the minimum information and other requirements in the E-Commerce Directive; and
(c) relieves such a firm of the obligations covered by the derogations in ECO 1.

otherwise COB applies in the usual way to such a firm.
(3) ECO 3 applies to a firm providing an electronic commerce activity from an establishment in the United Kingdom to a recipient who is in the United Kingdom or in a non-EEA State (a domestic ECA provider). Such a firm has to comply with COB in the usual way and so the requirements in ECO 3 are in addition to COB. ECO 3 sets out the minimum information and other requirements in the E-Commerce Directive.

01/11/2002

The Distance Marketing Directive

COB 1.9.3

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

09/10/2004

COB 1.10

Application of the Distance Marketing Directive and the Distance Marketing Regulations

01/12/2004

COB 1.10.1

This section provides guidance on certain expressions used in COB that are derived from the Distance Marketing Directive and on the application of the Distance Marketing Regulations.

09/10/2004

Initial service agreement and successive operations

COB 1.10.2

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

(1) A firm's contract with a customer may take the form of an initial service agreement under which successive operations or a series of separate operations of the same nature are performed over time. Where this is the case, the DMD disclosure and cancellation requirements apply in relation to the initial service agreement only and not to the successive or separate operations. However, if new elements are added to the initial service agreement, the addition of those new elements is treated as a new contract to which the DMD disclosure and cancellation requirements apply. In accordance with recital 17 of the Distance Marketing Directive, examples are:

(a) the opening of a bank account, which would be an initial service agreement, and the deposit or withdrawal of funds from that account which would be a successive or series of separate operations under that initial agreement; however, adding a debit card to the account would be the addition of a new element involving a separate contract; and
(b) concluding an investment management agreement would be an initial service agreement, and carrying on discretionary or advisory transactions under that agreement would be a successive or a series of separate operations under it.
Other examples are, in the FSA's view:
(c) opening a brokerage account for the purposes of trading securities, and transactions under that account;
(d) establishing a facility to enable a customer to subscribe to an ISA for the present and future tax years, and successive subscriptions under that agreement;
(e) subscribing to an investment trust savings scheme, and successive purchases or sales of shares under that scheme; and
(f) concluding a life policy, pension contract or stakeholder pension scheme that includes a pre-selected option providing for future increases or decreases in regular premiums or payments, and subsequent index-linked changes to those premiums or increases or decreases to pension contributions following fluctuations in salary.

(2) Even if a firm has not entered into an initial service agreement with a retail customer, but simply performs successive operations or a series of separate operations of the same nature for a retail customer over time, the DMD disclosure requirements will not apply to the successive or separate operations, provided there has been an operation of the same nature within the past year. But if it has been longer than a year, the next operation will be treated as the first in a new series of operations and the DMD disclosure requirements will apply. In accordance with recital 17 of the Distance Marketing Directive, an example of "successive operations" is the subscription to units of the same collective investment scheme.

09/10/2004

Retail customer

COB 1.10.3

(1) The Distance Marketing Directive provides protections for 'any natural person who, in distance contracts... is acting for purposes which are outside his trade, business or profession', for which the FSA uses the term 'retail customer'. In practice, private individuals may act in a number of capacities. In the FSA's view retail customer does not include an individual acting, for example:

(a) as trustee of a trust such as a housing or NHS trust; or
(b) as member of the governing body of a club or other unincorporated association such as a trade body or a student union; or
(c) as a pension trustee (but see COB 6.4.19 and COB 6.7.8 regarding the information and cancellation rights of such trustees).

(2) Examples of retail customers are:

(a) personal representatives, including executors, unless they are acting in a professional capacity, for example, a solicitor acting as executor; or
(b) private individuals acting in personal or other family circumstances for example, as trustee of a family trust.

09/10/2004

Distance contract

COB 1.10.4

(1) To be a distance contract, a contract must be concluded under an 'organised distance sales or service-provision scheme' run by the contractual provider of the service who, for the purpose of the contract, makes exclusive use (directly or through an intermediary) of one or more means of distance communication up to and including the time at which the contract is concluded. The expression 'organised distance sales or service-provision scheme' is not defined in the DMD, but:

(a) recital 15 of the DMD states that contracts negotiated at a distance involve the use of means of distance communication which are used as part of such a scheme not involving the simultaneous physical presence of the supplier and the consumer; and
(b) recital 18 of the DMD states that the expression is intended to exclude services provided on a strictly occasional basis and outside a commercial structure dedicated to the conclusion of distance contracts.

(2) So, in the FSA's view, this means that:

(a) the firm must have put in place facilities designed to enable a retail customer to deal with it exclusively at a distance, such as facilities for a retail customer to deal with it purely by post, telephone, fax or the Internet. If a firm normally operates face-to-face and has no facilities in place enabling a retail customer to deal with it customarily by distance means, the DMD will not apply. A one-off transaction effected exclusively by distance means to meet a particular contingency or emergency will not be a distance contract; and
(b) there must have been no simultaneous physical presence of the firm and the other party to the contract throughout the offer, negotiation and conclusion of the contract. So, for example, contracts offered, negotiated and concluded over the Internet, through a telemarketing operation or by post will normally be distance contracts. A retail customer may visit the local office of the firm in the course of the offer, negotiation or conclusion of the contract with that firm. Wherever, in the literal sense, there has been "simultaneous physical presence" of the firm and the retail customer at the time of such a visit, any ensuing contract will not be a distance contract.

09/10/2004

Use of intermediaries

COB 1.10.5

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

01/12/2004

Distance contracts for intermediation services

COB 1.10.6

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

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

01/12/2004

Application of parts of the Distance Marketing Regulations

COB 1.10.7

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

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

09/10/2004

COB 1.11

Application of COB in relation to deposits

01/12/2004

COB 1.11.1

Table: Application of rules in COB in relation to deposits

COB

Subject matter

Application for cash deposit ISAs and cash deposit CTFs

Application for other deposits

2.5.5R

Exclusion of liability

Y (distance contract only)

2.6

General provisions related to distance marketing

Y (distance marketing only)

3.5.5R to 3.5.7R, 3.8.4R to 3.8.5E

Financial promotions

3.8.8R, 3.8.11R, 3.8.15R

Specific non-real time financial promotions

Y (if the financial promotion relates to a structured deposit)

3.9.6R(1), 3.9.7AR and 3.9.8R

Direct offer financial promotions

3.9.21R

Direct offer financial promotions

3.9.30R

Direct offer financial promotions

Y (cash deposit CTFs only)

6.1.4R, 6.1.5R, 6.2.2R, 6.4.13R, 6.5.2R(2), 6.5.3R

Product disclosure

6.5.42R

Product disclosure

Y (cash deposit ISAs only)

6.5.42AR

Product disclosure

Y (cash deposit CTFs only)

6.4.25R

Pre-contract information when entering into a distance contract for accepting deposits

Y (distance contract only)

6.4.27R to 6.4.31R

Exemptions for telephone sales; certain other means of distance communication; and successive operations

Y (distance contract and other telephone sales only)

Y (distance contract only)

6.5.40R(7)

Product disclosure

Y (cash deposit CTFs only)

6.7.7R(1), 6.7.17R, 6.7.18R, 6.7.21R

Cancellable contracts

Y (distance contract only)

6.7.7R(3)

Cancellable contracts

6.7.10R(2), 6.7.10AR, 6.7.11R

Cancellation period

Y (distance contract only)

6.7.42R to 6.7.48R

Exercising the right to cancel

Y (distance contract only)

6.7.51R to 6.7.53R

Effects of, and obligations on, cancellation

Y (distance contract only)

6.7.52AR

Effects of, and obligations on, cancellation

Y (cash deposit CTFs only)

Notes:

(1) Those rules marked with "X" do not apply; those marked with "Y" do apply.
(2) This Table lists rules imposing obligations. It does not list all application rules, exemptions, transitional rules or guidance.

01/12/2004

COB 2

Rules
which apply to all firms conducting designated investment business

COB 2.1

Clear, fair and not misleading communication

01/12/2004

Application

COB 2.1.1

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

01/12/2001

Purpose

COB 2.1.2

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

01/12/2001

Clear, fair and not misleading communication

COB 2.1.3

When a firm communicates information to a customer, the firm must take reasonable steps to communicate in a way which is clear, fair and not misleading.

01/12/2001

COB 2.1.4

When considering the requirements of COB 2.1.3 R, a firm should have regard to the customer's knowledge of the designated investment business to which the information relates.

01/12/2001

COB 2.1.5

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

01/12/2004

COB 2.2

Inducements and soft commission

01/12/2004

Application

COB 2.2.1

This section applies to a firm that conducts designated investment business with or for a customer.

01/12/2001

Purpose

COB 2.2.2

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

01/12/2004

Prohibition of inducements

COB 2.2.3

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

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

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

01/12/2001

COB 2.2.4

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

01/12/2001

Investment research

COB 2.2.4A

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

01/05/2004

Restriction in connection with packaged products

COB 2.2.5

(1) A firm should not enter, and should take reasonable steps to ensure that no person acting on its behalf enters, into any of the following arrangements with another firm in relation to a packaged product if any commission is required to be disclosed to a customer:

(a) volume overrides, if commission paid in respect of several transactions is more than a simple multiple of the commission payable in respect of one transaction of the same kind;
(b) an arrangement to pay commission that is increased in excess of the amount disclosed to the customer, unless the increase is attributable to an increase in the premiums or contributions payable by that customer;
(c) an agreement to indemnify the payment of commission on terms that would or might confer an additional financial benefit on the recipient in the event of the commission becoming repayable;
(d) an arrangement to pay commission other than to the firm responsible for a sale, unless:

(i) the firm responsible for the sale has passed on its right to receive the commission to the recipient; or
(ii) another firm has given advice on investments to the same customer after the sale; or
(iii) the commission is paid following the sale of a packaged product by the firm in response to a direct offer financial promotion communicated by that firm to a customer of the recipient firm.

(1A) COB 2.2.5 E (1) does not apply to arrangements between firms that are in the same immediate group. In this situation COB 5.7.5 R will apply.
(2) Contravention of (1) may be relied upon as tending to establish contravention of COB 2.2.3 R.

01/12/2004

Financial assistance and product providers

COB 2.2.5A

(1) This evidential provision applies in relation to a holding in, or the provision of credit to, a firm which holds itself out as giving advice on investments to private customers on packaged products except where the relevant transaction is between persons who are in the same immediate group.
(2) A product provider should not take any step which would result in it:

(a) having a direct or indirect holding in a firm in (1) of its capital or voting power ; or
(b) providing credit to a firm in (1) (other than commission due from the firm to the product provider in accordance with an indemnity commission clawback arrangement);
unless all the conditions in (4) are satisfied. A product provider should also take reasonable steps to ensure that its associates do not take any step which would result in it having a holding as in (a) or providing credit as in (b), having regard to (5).

(3) A firm in (1) should not take any step which would result in a product provider having a holding as in (2)(a) or providing credit as in (2)(b), unless all the conditions in (4) are satisfied.
(4) The conditions referred to in (2) and (3) are that:

(a) the holding is acquired, or credit is provided, on commercial terms; that is terms objectively comparable to those on which an independent person unconnected to a product provider would, taking into account all relevant circumstances, be willing to acquire the holding or provide credit;
(b) the firm (or, if applicable, each of the firms) taking the step has reliable written evidence that (a) is satisfied;
(c) there are no arrangements, in connection with the holding or credit , relating to the channelling of business from the firm in (1) to the product provider; and
(d) the product provider is not able, and none of its associates is able, because of the holding or credit, to exercise any influence over the advice on investments in relation to packaged products given by the firm.

(5) In this evidential provision, in applying (2) and (3) any holding of, or credit provided by, a product provider's associate is to be regarded as held by, or provided by, that product provider.
(6) In this evidential provision , in applying (3) references to a " product provider " are to be taken as including an unauthorised equivalent of a product provider ; that is, an unauthorised insurance undertaking or an unauthorised operator of a regulated collective investment scheme or of an investment trust savings scheme.
(7) Contravention of (2) or (3) may be relied upon as tending to establish contravention of COB 2.2.3 R.

01/12/2004

Packaged products - guidance on indirect benefits

COB 2.2.6

(-2) To comply with COB 2.2.3 R, neither a product provider nor any of its associates should give, and a firm should not receive from such persons , any indirect benefit, if the benefit is likely to conflict to a material extent with any duty owed by the receiving firm when giving advice on investments to private customers on packaged products. Such conflicts may arise, for example, where the gift might induce material bias as regards:

(a) the choice of product provider whose products are recommended; or
(b) the type of product which is recommended.

(-1) The guidance in COB 2.2.7 G is not relevant to indirect benefits which may be given by a product provider or its associate to its own representatives.
(1) The FSA will not regard a firm as being in contravention of COB 2.2.3 R if it gives or receives gifts, hospitality and promotional competition prizes of a reasonable value, providing they do not conflict with the duties that the recipient owes to its customers.
(2) A product provider may assist another firm to promote its packaged products so that the quality of its service to customers is enhanced. Such assistance should not be of a kind or value that is likely to impair the other firm's ability to pay due regard to the interests of its customers, and to give advice on, and recommend, packaged products available from the recipient firm's whole range or ranges of packaged products. The recipient firm should be mindful of the requirements of COB 5.3.5 R (Requirement for suitability generally).
(3) In relation to the sale of packaged products, COB 2.2.7 G indicates the kind of benefits which, in the FSA's view, a firm can give and receive without contravening COB 2.2.3 R.
(4) COB 2.2.6 G does not apply to indirect benefits provided by a firm to another firm that is in the same immediate group. In this situation COB 5.7.5 R will apply.

01/12/2004

COB 2.2.7

Reasonable indirect benefits

This Table belongs to COB 2.2.6 G.

Reasonable indirect benefits

Joint marketing exercises

A product provider or its associate may provide generic product literature (that is, letterheading, leaflets, forms and envelopes) that is suitable for use and distribution by or on behalf of another firm if:

(a)

the literature does not feature the recipient firm's name or features it less prominently than that of the product provider and is not used to promote the recipient firm's broker fund service; and

(b)

the total costs (for example, packaging, posting, mailing lists) of distributing such literature to its customer are borne by the recipient firm.

A product provider or its associate may supply another firm with 'freepost' envelopes, for forwarding such items as completed applications, medical reports or copy client agreements , when these are made generally available to all firms from which the provider obtains business.

A product provider or its associate may supply product specific literature (for example, key features, minimum information, direct offer financial promotions) to another firm if:

(a)

the literature is not designed to be used to promote the recipient firm's broker fund service; or

(b)

the literature does not contain the name of any other firm; or

(c)

the name of the recipient firm (if it is included) appears only incidentally in the literature and the supplying firm's name appears with greater prominence.

A product provider or its associate may supply draft articles, news items and financial promotion's for publication in another firm's magazine, only if in each case any costs paid by the product provider or its associate for placing the articles and financial promotions are not more than market rate, and exclude distribution costs.

Seminars and conferences

A product provider or its associate may take part in a seminar organised by another firm or a third party and may pay toward the cost of the seminar, if:

(a)

its participation is for a genuine business purpose;

(b)

the contribution is reasonable and proportionate to its participation and by reference to the time and sessions at the seminar when its staff play an active role; and

(c)

in the case of a seminar organised by a third party, the seminar is open to participation by other firms generally.

Technical services and information technology

A product provider or its associate may supply a 'freephone' link to which it is connected only if it is available to other firms generally.

A product provider or its associate may supply another firm with any of the following:

(a)

quotations and projections relating to its packaged products and, in relation to specific investment transactions (or for the purpose of any scheme for review of past business), advice on the completion of forms or other documents;

(b)

access to data processing facilities, or access to data, that is related to the product provider's business;

(c)

access to third party electronic dealing or quotation systems that are related to the product provider's business; and

(d)

software that gives information about the product provider's packaged products or which is appropriate to its business (for example, for use in a scheme for review of past business or for producing projections or technical product information).

A product provider may pay cash amounts or give other assistance to a firm not in the same immediate group for the development of software or other computer facilities necessary to operate software supplied by the product provider, but only to the extent that by doing so it will generate equivalent cost savings to itself or consumers.

A product provider or its associate may supply a broker fund adviser (and its customer ) with a periodic statement relating to the relevant broker fund if the broker fund adviser is unable to supply the periodic statement.

A product provider or its associate may supply another firm with information about sources of mortgage finance.

A product provider or its associate may supply another firm with generic technical information in writing, not necessarily related to the product provider's business, when this information:

(a)

is made available generally to other firms which give or might give advice on the product provider's packaged products; or

(b)

(i)

is of a specialist nature and is made available to a particular class of firm (that is, one that promotes itself as an expert in the same specialist area); and

(ii)

states clearly and prominently that it is produced by the product provider or (if different) supplying firm.

Training

A product provider or its associate may provide another firm with training facilities of any kind (for example, lectures, venue, written material and software) only if these are made available generally to all other firms which give or might give advice on the product provider's packaged products.

Travel and accommodation expenses

A product provider or its associate may reimburse another firm's reasonable travel and accommodation expenses when the other firm:

(a)

participates in market research conducted by or for the product provider;

(b)

attends an annual national event of a UK trade association, hosted or co-hosted by the product provider;

(c)

participates in the product provider's training facilities (see 11);

(d)

visits the product provider's UK office in order to:

(i)

receive information about the product provider's administrative systems; or

(ii)

attend a meeting with the product provider and an existing or prospective customer of the receiving firm.

01/12/2004

Requirements when using a soft commission agreement

COB 2.2.8

A firm must not deal in investments as agent for a customer, either directly or indirectly, through any broker, under a soft commission agreement, unless:

(1) the agreement is a written agreement for the supply of goods or services described in COB 2.2.12 R which do not take the form of, or include, cash or any other direct financial benefit;
(2) the broker has agreed to provide best execution to the firm;
(3) the firm has taken reasonable steps to ensure that the terms of business and methods by which services will be supplied by the broker do not involve any potential for comparative price disadvantage to the customer;
(4) for transactions in which the broker acts as principal, the firm has taken reasonable steps to ensure that commission paid under the agreement will be sufficient to cover the value of the goods or services to be received and the costs of execution; and
(5) the firm makes adequate prior and periodic disclosure to the customer in accordance with COB 2.2.16 R and COB 2.2.18 R.

01/12/2001

COB 2.2.9

When the soft commission broker is part of an 'integrated house', a firm may be able to meet the requirements of COB 2.2.8 R (4) if it is able to monitor the individual transaction prices obtained by the broker, and has taken reasonable steps to ensure that the broker has complied with its best execution obligation. Alternatively, a firm should select a soft commission broker who is able to demonstrate independence of action in the market place. This is unlikely to be fulfilled when that broker deals exclusively with one market maker.

01/12/2001

COB 2.2.10

When a broker is only partly remunerated by commission, in complying with COB 2.2.8 R (4) a firm should take reasonable steps to ensure that the commission element that should be disclosed constitutes the greater part of that broker's remuneration. A broker firm should also set its multiple at a level which it can demonstrate would generate sufficient commission income from softing transactions to cover the costs of the goods and services provided, and the costs of dealing and settling the associated transactions, together with the specialised softing administration. When considering whether the commission is sufficient to cover the costs of the services provided, the broker firm may have regard to the aggregate number of bargains transacted rather than each individual transaction.

01/12/2001

COB 2.2.11

Although "commission recapture" and "directed commission" arrangements are not covered by COB 2.2.8 R, a firm should have regard to the prohibition on inducements in COB 2.2.3 R.

01/12/2001

Allowable benefits provided under a soft commission agreement

COB 2.2.12

A firm may accept goods or services supplied under a soft commission agreement, and these goods or services will not constitute an inducement for the purposes of COB 2.2.3 R, provided that they are directly relevant to, and are used to assist in, the provision to the firm's customers of:

(1) investment management services;
(2) advice on dealing in, or on the value of, any designated investment;
(3) custody services relating to designated investments belonging to, or managed for, customers; or
(4) services relating to the valuation or performance measurement of portfolios.

01/12/2001

COB 2.2.13

Examples of particular goods and services that could be provided under a soft commission agreement include, to the extent they would assist in the provision of the services specified in COB 2.2.12 R:

(1) research, analysis and advisory services, including those on economic factors and trends;
(2) market price services;
(3) electronic trade confirmation systems;
(4) third party electronic dealing or quotation systems;
(5) computer hardware associated with specialised computer software or research services;
(6) dedicated telephone lines;
(7) seminar fees (if the subject matter is relevant to the provision of the services set out in COB 2.2.12 R); and
(8) publications (if the subject matter is relevant to the provision of the services set out in COB 2.2.12 R).

01/12/2001

COB 2.2.14

Examples of goods and services that the FSA does not regard as relevant to the provision of the services specified in COB 2.2.12 R include:

(1) travel, accommodation or entertainment costs, whether or not related to the conduct of designated investment business;
(2) any seminar fees not falling within COB 2.2.13 G (7) ;
(3) any subscription for publications not falling within COB 2.2.13 G (8);
(4) office administrative computer software, for example, word processing or accounting programmes;
(5) computer hardware not associated with specialist computer software;
(6) membership fees to professional associations;
(7) purchase or rental of standard office equipment or ancillary facilities;
(8) employees' salaries; and
(9) direct money payments.

01/12/2001

COB 2.2.15

In complying with COB 2.2.8 R when a firm is able to and does reclaim or offset all or part of the VAT payable on benefits received, the firm should ensure that its soft commission account with the broker is charged only with the net amount at the firm's effective rate. Disclosure of the value of benefits received, in accordance with COB 2.2.18 R, should be expressed net of VAT reclaimed, when appropriate.

01/12/2001

Prior disclosure

COB 2.2.16

Before a firm enters into a client agreement authorising it to deal for a customer, either directly or indirectly, with or through the agency of another person, under a soft commission agreement which the firm has, or knows, or ought reasonably to know, that another member of its group has, with that other person, the firm must inform the customer in writing of:

(1) the existence of the soft commission agreement; and
(2) the firm's or, when relevant, its group's policy relating to soft commission agreements.

20/09/2001

COB 2.2.17

When making the disclosures required by COB 2.2.16 R, a firm should note that:

(1) it is acceptable to make a general disclosure that soft commission agreements are, or may be, in place;
(2) the requirements apply equally when deals are placed directly, and not solely on an agency basis, with a third party (for example, a unit trust manager in the same group), that itself is a party to the soft commission agreement; and
(3) the policy statement should explain generally why the firm or a member of its group might find it necessary or desirable to pay soft commission, bearing in mind the practices in the markets in which it does business on behalf of its customers.

01/12/2001

Periodic disclosure

COB 2.2.18

If a firm has, or knows, or ought reasonably to know, that another member of its group has a soft commission agreement with another person under which either the firm or that other member of its group deals for a customer, the firm must:

(1) provide each relevant customer at least once a year, unless COB 2.2.19 R applies, with the following information covering the period since the firm last reported to that customer or, if no previous report has been made, since the firm first dealt for him:

(a) the percentage paid under soft commission agreements of the total commission paid by or at the direction of:

(i) the firm; and
(ii) any other member of the firm's group which is a party to those agreements;

(b) the value (on a cost price basis) of goods or services received by the firm under soft commission agreements, expressed as a percentage of the total commission paid by or at the direction of:

(i) the firm; or
(ii) other members of the firm's group;

(c) a summary of the goods or services received by the firm;
(d) a list of the brokers which are parties to the soft commission agreements; and
(e) the total commission paid from the portfolio of that customer;

(2) at least once a year explain to each relevant customer, unless COB 2.2.19 R applies, the policy of the firm relating to soft commission agreements for the period up to the submission of the next policy statement (which must not exceed one year) or state that its policy has not changed (this may be included in any periodic report provided under (1), or in a separate document);
(3) give to a customer to whom it is relevant an explanation promptly after any material change in the firm's policy relating to soft commission agreements, and, if it is the case, confirm to each relevant customer that the goods and services received by the firm are expected to assist only in the conduct of designated investment business with or for other customers.

20/09/2001

Exceptions

COB 2.2.19

A firm need not make the periodic disclosures required by COB 2.2.18 R (1) or COB 2.2.18 R (2) if:

(1) the customer is habitually resident overseas and has requested the firm not to do so; or
(2) a firm has information from which it is reasonable to conclude that the customer does not wish to receive this information.

01/12/2001

Record keeping

COB 2.2.20

(1) A firm must make records of the reports sent to its customers as required by COB 2.2.18 R and retain those records for at least three years from the date on which the soft commission agreement to which they relate is terminated.
(2) A firm must make a record of each payment of disclosable commission, and must retain that record for a period of at least six years from the date of payment.
(3) A firm must make a record of each benefit given to another firm in accordance with COB 2.2.6 G, and must keep that record for at least six years from the date on which it was given.

01/12/2001

COB 2.3

Reliance on others

01/12/2004

Application

COB 2.3.1

This section applies to a firm when it is conducting designated investment business or activities in connection with designated investment business.

01/12/2001

Purpose

COB 2.3.2

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

01/12/2001

Reliance on others

COB 2.3.3

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

01/12/2001

COB 2.3.4

(1) In relying on COB 2.3.3 R, a firm should take reasonable steps to establish that the other person providing written information is:

(a) not connected with the firm; and
(b) competent to provide the information.

(2) Compliance with (1) may be relied on as tending to establish compliance with COB 2.3.3 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of COB 2.3.3 R.

01/12/2001

COB 2.3.5

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

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

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

01/12/2001

COB 2.3.6

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

01/01/2004

COB 2.4

Chinese walls

01/12/2004

Application

COB 2.4.1

This section applies to a firm that conducts designated investment business.

01/12/2001

Purpose

COB 2.4.2

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

01/12/2001

COB 2.4.3

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

01/12/2001

Control of information

COB 2.4.4

(1) When a firm establishes and maintains a Chinese wall (that is, an arrangement that requires information held by a person in the course of carrying on one part of its business to be withheld from, or not to be used for, persons with or for whom it acts in the course of carrying on another part of its business), it may:

(a) withhold or not use the information held; and
(b) for that purpose, permit persons employed in the first part of its business to withhold the information held from those employed in that other part of the business;

but only to the extent that the business of one of those parts involves the carrying on of designated investment business or related ancillary activities.
(2) Information may also be withheld or not used by a firm when this is required by an established arrangement maintained between different parts of the business (of any kind) in the same group. This provision does not affect any requirement to transmit or use information that may arise apart from the rules in COB.
(3) For the purpose of this rule, 'maintains' includes taking reasonable steps to ensure that the arrangements remain effective and are adequately monitored, and must be interpreted accordingly.
(4) For the purposes of section 118(8) of the Act, behaviour conforming with COB 2.2.4R(1) does not amount to market abuse.

20/09/2001

Effect of acting in conformity with COB 2.4.4 R

COB 2.4.5

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

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

01/12/2001

Attribution of knowledge

COB 2.4.6

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

01/01/2004

COB 2.4.7

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

01/12/2001

COB 2.5

Exclusion of liability

01/12/2004

Application

COB 2.5.1

(1) This section applies to a firm that conducts designated investment business.
(2) This section also applies to a firm which enters into a distance contracts to accept deposit with a retail customer.

09/10/2004

Purpose

COB 2.5.2

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

09/10/2004

Limits on the exclusion of liability: designated investment business

COB 2.5.3

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

09/10/2004

COB 2.5.4

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

09/10/2004

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

COB 2.5.5

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

09/10/2004

COB 2.6

General provisions related to distance marketing

01/12/2004

Application

COB 2.6.1

This section applies to a firm which:

(1) conducts designated investment business with or for a retail customer;
(2) accepts a deposit from a retail customer.

09/10/2004

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

COB 2.6.2

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

09/10/2004

Unsolicited services

COB 2.6.3

(1) Subject to COB 2.6.3R (2), a firm must not:

(a) supply a service to a retail customer without a prior request on his part, when the supply of such service includes a request for immediate or deferred payment; or
(b) enforce any obligations against a retail customer in the event of unsolicited supplies of such services, the absence of reply not constituting consent.

(2) Paragraph (1) applies in relation to designated investment business, and accepting deposits, under an organised distance sales or service-provision scheme run by the firm or by an intermediary, who, for the purpose of that supply, makes exclusive use of one or more means of distance communication up to and including the time at which the services are supplied.

09/10/2004

COB 2.6.4

COB 2.6.3R (2) does not apply for a tacit renewal of a distance contract.

09/10/2004

Paper copy of contractual terms and conditions

COB 2.6.5

During the course of a distance contract with a firm, if a retail customer requests a paper copy of his contractual terms and conditions, the firm must provide it without additional charge and without delay.

09/10/2004

Change in means of distance communication

COB 2.6.6

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

09/10/2004

COB 3

Financial
promotion

COB 3.1

Application: who?

01/12/2004

Firms

COB 3.1.1

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

01/12/2001

COB 3.1.2

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

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

31/10/2003

Appointed representatives

COB 3.1.3

Under section 39(3) of the Act, a firm is responsible for financial promotions communicated by its appointed representatives when acting as such (see COB 1.7 (Appointed representatives)).

01/12/2001

Nationals of other EEA States

COB 3.1.4

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

01/12/2001

Authorised professional firms

COB 3.1.5

(1) COB 3 does not apply to an authorised professional firm in relation to the communication of a financial promotion if the following conditions are satisfied:

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

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

(c) the financial promotion must not be communicated on behalf of another person who would not be able lawfully to communicate the financial promotion if he were acting in the course of business.

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

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

20/09/2001

COB 3.1.6

Authorised professional firms are reminded that in circumstances in which COB 3 does not apply to the firm COB 2.1 (Clear, fair and not misleading communication) may apply.

01/12/2001

COB 3.2

Application: what?

01/12/2004

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

COB 3.2.1

(1) The rules in this chapter adopt various concepts from the restriction on financial promotion by unauthorised persons in section 21(1) of the Act (Restrictions on financial promotion). Guidance on that restriction is contained in AUTH App 1 (Financial promotion and related activities) and that guidance will be relevant to interpreting these rules. In particular, guidance on the meaning of:

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

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

01/06/2002

Media of communication

COB 3.2.2

(1) There is no restriction on the media of communication to which this chapter applies. It applies to a financial promotion communicated by any means, including by way of printed advertising, radio and television broadcast, a personal visit, a telephone call, an e-mail, the internet and electronic media such as digital and other forms of interactive television and media. Both solicited and unsolicited communications are covered.
(2) Financial promotions may be communicated, for example, by means of:

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

01/12/2004

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

COB 3.2.3

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

(a) a deposit; or
(b) a pure protection contract which is a long-term care insurance contract or reinsurance contract covering a person against all or part of his loss in relation only to an obligation taken on by him under a long-term insurance contract which is not a non-investment insurance contract;

only COB 3.1 to COB 3.5 and COB 3.8.4 R to COB 3.8.6 G and COB 3.14 apply, unless the financial promotion relates to a cash deposit ISA or cash deposit CTF in which case COB 3.9.6 R (1), COB 3.9.7A R, COB 3.9.8 R and COB 3.9.21 R also apply and, if the financial promotion relates to a cash deposit CTF, COB 3.9.30 R also applies; and
(2) if the financial promotion relates to a structured deposit, the following will also apply: COB 3.8.8 R, COB 3.8.9 G, COB 3.8.11 R, COB 3.8.12 G, COB 3.8.15 R and COB 3.8.16 G.

14/01/2005

Financial promotions for regulated mortgage contracts

COB 3.2.3A

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

31/10/2003

Financial promotions for non-investment insurance contracts

COB 3.2.3B

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

14/01/2005

Exemptions

COB 3.2.4

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

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

(a) COB 3.1 to COB 3.5 (Application, General and Purpose).
(b) COB 3.8.4 R (1) (Non-real time financial promotions: clear, fair, and not misleading) except if the financial promotion is exempt under COB 3.2.5 R;
(c) COB 3.12.1 G to COB 3.12.5 G (Approval of financial promotions; No approval of real time financial promotions; Approval of financial promotions when not all the rules apply); and

(3) (except where COB 3.2.3 R applies) if the firm:

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

COB 3.12.6 R and COB 3.12.7 G (Specific non-real time financial promotions for overseas persons) apply.

20/09/2001

COB 3.2.5

Exemptions

This table belongs to COB 3.2.4 R

Exemptions

This chapter does not apply to the following:

(1)

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

(a)

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

(b)

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

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

(2)

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

(3)

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

(4)

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

(a)

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

(b)

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

(c)

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

(5)

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

(a)

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

(b)

the name of an investment;

(c)

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

(d)

a logo;

(e)

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

(f)

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

(g)

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

(h)

the price or yields of investments and the charges;

(6)

a personal quotation or illustration form;

(7)

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

(8)

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

01/03/2003

Combination of exemptions

COB 3.2.6

A firm may rely on more than one exemption (and also on COB 3.3.1 R (Territorial limitation)) in relation to the same financial promotion.

01/12/2001

Guidance on the exemptions

COB 3.2.7

(1) Under (1) a financial promotion which is communicated only to market counterparties or intermediate customers is exempt. See COB 3.5.6 R and COB 3.5.7 R which amplify this exemption. A firm will need to take particular note of the conditions in COB 3.5.7 R when designing financial promotions for trade publications which may be available also to private customers.
(2)

(a) A table summarising some of the main exemptions contained in the Financial Promotion Order, and therefore relevant to COB 3.2.5 R (2), is in COB 3 Annex 1 G. Guidance on certain exemptions is contained in AUTH App 1 (Financial promotion and related activities).
(b) A firm is required to comply with the rules in COB 3 in relation to a financial promotion communicated by its appointed representative even though the financial promotion does not require approval because of the exemption in article 16 of the Financial Promotion Order (Exempt persons).

(3) In COB 3.2.5 R:

(a) Item (4) reflects the exemption in article 28 of the Financial Promotion Order (One-off non-real time communications and solicited real time communications), but goes further, exempting such financial promotions which relate to deposits and all contracts of insurance. It exempts, amongst other things, correspondence which is written specifically for a recipient, whether hard copy or e-mail. A firm should note, however, that such correspondence will, if personal recommendations are made, be subject to other obligations such as know your customer and suitability requirements (see COB 5.2 and COB 5.3). It does not exempt financial promotions communicated in the form of mass mailshots, which may appear to be items of personalised correspondence but which in fact comprise the same or virtually the same material sent to a number of recipients, without tailoring the material to the circumstances of each recipient. Such mailshots must meet the requirements of this chapter. AUTH App 1.14.3 G (One-off financial promotions (articles 28 and 28A)) provides further guidance on the scope of the exemption in article 28.
(b) Items (5)(e), (f) and (g) exempt a financial promotion made by a firm which refers only to its activities in general terms in image advertising. Acceptable examples include 'life and pensions' and 'life assurance and pensions business'. In addition a firm or its appointed representative may include its name, address and telephone number in accordance with items 5(a) and (c). AUTH App 1.4.20 G (Image advertising) provides guidance on when image advertising may involve a financial promotion.
(c) Item (5)(h) exempts financial promotions which merely comprise lists of prices published in newspapers, or through the internet, or other electronic media. In addition a firm may include its name, address and telephone number in accordance with items (5)(a) and (c). AUTH App 1.4.13 G (Publication or broadcast of prices of investments (historic or live)) provides guidance on when the display of prices may involve a financial promotion.
(d) Item (8) exempts financial promotions that are decision trees if the decision tree satisfies the requirements of COB 6.5.8 R. A decision tree will not be a financial promotion if it is neither an invitation nor an inducement to engage in investment activity; for example, when it is prepared for training or educational purposes.

(4) A company's annual report and accounts issued in accordance with a requirement of the Companies Act 1985 (or corresponding Northern Ireland or EEA provisions) are exempt under item (2) and article 59 of the Financial Promotion Order. But this exemption does not extend to the report and accounts of ICVCs, other types of OEIC, and unit trust schemes. AUTH App 1.21.11 G (Article 59: Annual accounts and directors' report) provides further guidance on the scope of the exemption in article 59.
(5) A financial promotion included in a newspaper, magazine or periodical which is printed and published overseas, but which may be brought into the United Kingdom and made available to persons in the United Kingdom, will be exempt provided that the financial promotion is not communicated to persons inside the United Kingdom (see COB 3.3 and AUTH App 1.12.2 G (Financial promotions to overseas recipients (article 12))).
(6) This chapter does not apply in relation to a financial promotion the communication of which by a firm would contravene section 238(1) of the Act (Restrictions on promotion of unregulated collective investment schemes) (see COB 3.11.4 R and AUTH App 1.20 (Additional restriction on the promotion of collective investment schemes)).

01/04/2005

Other Handbook rules relevant to financial promotions

COB 3.2.8

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

06/04/2005

COB 3.3

Application: where?

01/12/2004

Territorial scope

COB 3.3.1

This chapter applies to a firm only in relation to:

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

(a) it is made from a place outside the United Kingdom; and
(b) it is made for the purposes of a business which is carried on outside the United Kingdom and which is not carried on in the United Kingdom; and

(3) the approval of a non-real time financial promotion for communication to a person inside the United Kingdom;

subject to COB 3.3.3 R (Exceptions to territorial scope: rules without territorial limitation) and COB 3.3.4A R (Exceptions to territorial scope: distance contracts).

09/10/2004

COB 3.3.2

(1) The application under COB 3.3.1 R is relevant both when a firm communicates a financial promotion itself and when a firm approves a non-real time financial promotion for communication by others. But see also COB 3.3.3 R (2) regarding approvals.
(2) The exemptions in COB 3.2.5 R (Application: what?; Exemptions) also incorporate some territorial elements. In particular, the exemption for financial promotions originating outside the United Kingdom (section 21(3) of the Act (Restrictions on financial promotion)) (see COB 3.2.5 R(2) and AUTH App 1.12.2 G (Financial promotions to overseas recipients (article 12)), the exemptions for overseas communicators (see COB 3.2.5 R(3) and AUTH App 1.14.14 G (Overseas communications (articles 30 to 33)) and the exemption for incoming electronic commerce communications (see AUTH App 1.12.38 G (article 20B)).
(3) The scope of COB 3 is extended by ECO 2.2.3 R to cover financial promotions which are outgoing electronic commerce communications, subject to the lifting of rules in the derogations to the E-Commerce Directive as set out in ECO 2.

01/06/2002

Exceptions to territorial scope: rules without territorial limitation

COB 3.3.3

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

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

(a) COB 3.1 to COB 3.5 (Application, General and Purpose);
(b) COB 3.8.4 R (1) (Non-real time financial promotions: clear, fair and not misleading);
(c) COB 3.12.1 G to COB 3.12.5 G (Approval of financial promotions; No approval of real time financial promotions; Approval of financial promotions when not all the rules apply).

09/10/2004

COB 3.3.4

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

20/09/2001

Exceptions to territorial scope: distance contracts

COB 3.3.4A

(1) Notwithstanding COB 3.3.1 R and COB 3.3.3 R, this chapter, other than the rules in (3), does not apply to a firm when it communicates a financial promotion, if the conditions in (2) are satisfied:
(2) The conditions are that:

(a) the firm communicates the financial promotion from an establishment maintained by the firm in an EEA State other than the United Kingdom, and not from an establishment maintained by the firm in the United Kingdom or outside the EEA;
(b) either that EEA State:

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

(c) the financial promotion relates, exclusively, to a distance contract, for the conclusion of which the obligations provided for by the DMD (or corresponding obligations) are applied by that State; and
(d) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.

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

(a) COB 3.8.4 R (Non-real time financial promotions: clear, fair and not misleading; comparisons; restriction of information on compensation);
(b) COB 3.8.22 R (1) and (2) (Real time financial promotions);
(c) COB 3.9.5 R (Prohibited types of direct offer financial promotion);
(d) COB 3.10 (Unsolicited real time financial promotions);
(e) COB 3.11 (Unregulated collective investment schemes and qualified investor schemes); and
(f) COB 3.13.1 R (Additional requirements for financial promotions for an overseas long-term insurer).

09/10/2004

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

COB 3.3.5

For the purposes of this chapter:

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

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

(2) a financial promotion is communicated to a person inside the United Kingdom if it is communicated to a person other than as described in (1);

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

01/12/2001

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

COB 3.3.6

(1) If the conditions set out in 4(a), (b), (c) and (d) are met, a financial promotion directed from a place inside the United Kingdom will be regarded as directed only at persons outside the United Kingdom.
(2) If the conditions set out in 4(c) and (d) are met a financial promotion directed from a place outside the United Kingdom will be regarded as directed only at persons outside the United Kingdom.
(3) In any other case where one or more of the conditions in 4(a) to (e) is met, that fact will be taken into account in determining whether a financial promotion is directed only at persons outside the United Kingdom (but a financial promotion may still be regarded as directed only at persons outside the United Kingdom even if none of these conditions is met).
(4) The conditions are that:

(a) the financial promotion is accompanied by an indication that it is directed only at persons outside the United Kingdom;
(b) the financial promotion is accompanied by an indication that it must not be acted upon by persons in the United Kingdom;
(c) the financial promotion is not referred to in, or directly accessible from, any other financial promotion which is made to a person or directed at persons in the United Kingdom by or on behalf of the same person;
(d) there are in place proper systems and procedures to prevent recipients in the United Kingdom (other than those to whom the financial promotion might otherwise lawfully have been made) engaging in the investment activity to which the financial promotion relates with the person directing the financial promotion, a close relative of his or a member of the same group;
(e) the financial promotion is included in:

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

01/12/2001

COB 3.4

Purpose

01/12/2004

COB 3.4.1

(1) Section 21(1) of the Act (Restrictions on financial promotion) imposes a restriction on the communication of financial promotions by unauthorised persons. A person must not, in the course of business, communicate an invitation or inducement to engage in investment activity (a financial promotion) unless:

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

(2) However, the Financial Promotion Order exempts from the restriction created by section 21(1) of the Act certain types of financial promotion.
(3) Sections 238 and 240 of the Act (Restrictions on promotion/approval) impose restrictions on the communication and approval by firms of financial promotions relating to unregulated collective investment schemes. See further COB 3.11 (Unregulated collective investment schemes) and AUTH App 1.20 (Additional restriction on the promotion of collective investment schemes).

01/06/2002

COB 3.4.2

(1) The purpose of this chapter is to provide rules and guidance for a firm which wishes to communicate or approve a financial promotion. COB 3.5.2 G provides a guide to the topics covered in this chapter. AUTH App 1 (Financial promotion and related activities) provides further detailed guidance on the financial promotion regime under section 21 of the Act (Financial promotion) which will be relevant in interpreting these rules.
(2) This chapter amplifies, for activities within its scope:

(a) Principle 6 (Customers' interests) which requires a firm to pay due regard to the interests of its customers and treat them fairly; and
(b) Principle 7 (Communications with clients) which requires a firm to pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

01/06/2002

COB 3.5

General

01/12/2004

Topics covered in this chapter

COB 3.5.1

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

01/12/2001

COB 3.5.2

Areas of particular relevance to types of financial promotion.

This table belongs to COB 3.5.1 G

Areas of particular relevance to types of financial promotion

(1)

Provisions applying to all financial promotions

Application - who?

Application - what?

Application - where?

Purpose

General

(2)

Provisions applying only to non-real time financial promotions

Confirmation of compliance

COB 3.6

Records

COB 3.7

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

COB 3.8.2 R to COB 3.8.7 G

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

COB 3.8.8 R to COB 3.8.20 G

(3)

Provisions applying only to real time financial promotions

Form and content of financial promotions: real time financial promotions

COB 3.8.21 G to COB 3.8.25 G

Unsolicited real time financial promotions

COB 3.10

(4)

Provisions applying only to certain types of financial promotions

Direct offer financial promotions

COB 3.9

Unregulated collective investment schemes

COB 3.11

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

COB 3.12

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

COB 3.13

The internet and other electronic media

COB 3.14

01/12/2001

Other regulations and guidelines

COB 3.5.3

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

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

01/05/2004

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

COB 3.5.4

This chapter draws a distinction between a real time and a non-real time financial promotion. Guidance on the meaning of those expressions, which are based on article 7 of the Financial Promotion Order, is contained in AUTH App 1.10 (Types of financial promotion).

01/06/2002

COB 3.5.5

(1) A "real time financial promotion" is a financial promotion which is communicated in the course of a personal visit, telephone conversation or other interactive dialogue.
(2) A "non-real time financial promotion" is a financial promotion that is not a real time financial promotion. It includes a financial promotion made by letter, e-mail or contained in a newspaper, journal, magazine, other periodical publication, website, television or radio programme, or teletext service.
(3) The following are to be regarded as indications that a financial promotion is a non-real time financial promotion:

(a) the financial promotion is communicated to more than one person in identical terms (save for details of the recipient's identity);
(b) the financial promotion is communicated by way of a system which in the normal course constitutes or creates a record of the communication which is available to the recipient to refer to at a later time;
(c) the financial promotion is communicated by way of a system which in the normal course does not enable or require the recipient to respond immediately to it.

01/12/2001

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

COB 3.5.6

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

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

20/09/2001

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

COB 3.5.7

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

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

(2) If all the conditions set out in (4) are met, a communication is to be regarded as directed as in (1).
(3) In any other case in which one or more of those conditions are met, that fact is to be taken into account in determining whether the communication is directed as in (1) (but a communication may still be regarded as so directed even if none of the conditions in (4) are met).
(4) The conditions are that:

(a) the communication includes an indication of the description of persons to whom it is directed and an indication of the fact that the investment or service to which it relates is available only to such persons;
(b) the communication includes an indication that persons of any other description should not rely upon it;
(c) there are in place proper systems and procedures to prevent recipients other than persons to whom it is directed engaging in the investment activity, or participating in the collective investment scheme, to which the communication relates with the person directing the communication, a close relative of his or a member of the same group.

01/12/2001

COB 3.6

Confirmation of compliance

01/12/2004

Confirmation of compliance

COB 3.6.1

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

01/12/2001

COB 3.6.2

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

01/12/2001

Withdrawing confirmation

COB 3.6.3

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

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

01/12/2001

COB 3.6.4

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

01/12/2001

Communicating a financial promotion where another firm has confirmed compliance

COB 3.6.5

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

(1) A takes reasonable care to establish that another firm (firm 'B') has already confirmed the compliance of the financial promotion in accordance with COB 3.6.1 R;
(2) A takes reasonable care to establish that A communicates the financial promotion only to recipients of the type for whom it was intended at the time B carried out the confirmation exercise; and
(3) so far as A is, or ought reasonably to be, aware:

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

01/12/2001

COB 3.7

Records

01/12/2004

Requirement to make and retain records

COB 3.7.1

(1) A firm must make an adequate record of each non-real time financial promotion which it has confirmed as complying with the rules in this chapter.
(2) A record in (1) must be retained for the following periods:

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

01/12/2001

Content of records

COB 3.7.2

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

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

01/12/2001

COB 3.7.3

(1) A firm should also retain a copy of the financial promotion as finally published or, if this is not practicable, monitor the published version to verify that it is in substantially the same format as the version which the firm confirmed complied with the rules in this chapter.
(2) Records which should be retained include:

(a) any written financial promotion used by a representative;
(b) any written material which is used in an organised marketing campaign (including, for example, written mailshots whether sent by e-mail, post, facsimile or other media).

(3) see COB 3.14.5 G (6) for guidance on recording an electronic financial promotion containing market information which is updated continuously.

01/12/2004

Form of records

COB 3.7.4

A record in COB 3.7.1 R may be in any form, provided that it is readily accessible for inspection by the FSA.

01/12/2001

COB 3.7.5

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

01/09/2003

COB 3.8

Form and content of financial promotions

01/12/2004

Application

COB 3.8.1

This section applies as follows:

(1) COB 3.8.2 R to COB 3.8.20 G apply to a firm which communicates or approves a non-real time financial promotion;
(2) COB 3.8.21 G to COB 3.8.25 G apply to a firm which communicates a real time financial promotion.

01/12/2001

Non-real time financial promotions: name and contact point

COB 3.8.2

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

01/11/2002

COB 3.8.3

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

01/12/2001

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

COB 3.8.4

(1) A firm must be able to show that it has taken reasonable steps to ensure that a non-real time financial promotion is clear, fair and not misleading.
(2) A non-real time financial promotion which includes a comparison or contrast must:

(a) compare investments or services meeting the same needs or which are intended for the same purpose;
(b) objectively compare one or more material, relevant, verifiable and representative features of those investments or services, which may include price;
(c) not create confusion in the market place between the firm itself (or the person whose financial promotion it approves) and a competitor or between the firm's trademarks, trade names, other distinguishing marks, investments or services (or those of the person whose financial promotion it approves) and those of a competitor;
(d) not discredit or denigrate the trademarks, trade names, other distinguishing marks, investments, services, activities or circumstances of a competitor;
(e) not take unfair advantage of the reputation of a trademark, trade name or other distinguishing marks of a competitor;
(f) not present investments or services as imitations or replicas of investments or services bearing a protected trademark or trade name; and
(g) indicate in a clear and unequivocal way in any comparison referring to a special offer the date on which the offer ends or, where appropriate, that the special offer is subject to the availability of the investments and services, and, where the special offer has not yet begun, the date of the start of the period during which the special price or other specific conditions shall apply.

(3) If a non-real time financial promotion includes any information about the protection available under the compensation scheme or any other compensation scheme established in another EEA State or otherwise, it must restrict this to factual references to the scheme (an example of a factual reference is set out in COB 5.5.11 G).

01/03/2003

COB 3.8.5

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

(a) its promotional purpose is not in any way disguised or misrepresented;
(b) any statement of fact, promise or prediction is clear, fair and not misleading and discloses any relevant assumptions;
(c) any statement of opinion is honestly held and, unless consent is impracticable, given with the consent of the person concerned;
(d) the facts on which any comparison or contrast is made are verified, or, alternatively, that relevant assumptions are disclosed and that the comparison or contrast is presented in a fair and balanced way, which is not misleading and includes all factors which are relevant to the comparison or contrast.
(e) it does not contain any false indications, in particular as to:

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

(f) the design, content or format does not disguise, obscure or diminish the significance of any statement, warning or other matter which the financial promotion is required by this chapter to contain;
(g) it does not include any reference to approval by the FSA or any government body, unless such approval has been obtained in writing from the FSA or that body (see also GEN 1.2 (Referring to approval by the FSA));
(h) it does not omit any matters the omission of which causes the financial promotion not to be clear, fair and not misleading; and
(i) the accuracy of all material statements of fact in it can be substantiated.

(a) Compliance with COB 3.8.5 E (1) may be relied on as tending to show compliance with COB 3.8.4 R (1).
(b) Contravention of COB 3.8.5 E (1) may be relied on as tending to show contravention of COB 3.8.4 R (1).

01/12/2001

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

COB 3.8.6

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

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

14/01/2005

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

COB 3.8.7

(1) It cannot be assumed that recipients necessarily have an understanding of the investment or service being promoted. The use of terms that are ambiguous, or the targeting of an audience which is unlikely to understand the promotion, are matters which are relevant to an assessment of whether the promotion is 'clear, fair and not misleading'. If a non-real time financial promotion is specially designed for a targeted collection of recipients who are reasonably believed to have particular knowledge of the investment or service being promoted, this fact should be made clear.
(2)

(a) Except in relation to life policies providing guaranteed benefits, or deposits, the description of an investment as 'guaranteed' should only be used where there is a legally enforceable arrangement with a third party to meet the claim in full. In such cases sufficient details about the guarantor and the guarantee should be provided before a person enters into a transaction relating to the investment to enable him to make a fair assessment of the value of the guarantee.
(b) Where the investment is in units of an authorised fund the guarantee should be given by a third party other than the authorised fund manager or the depositary. Firms should note that COB 6.5.40 R (3)(m) requires specific information to be included in the key features of an authorised fund in respect of any guarantee or other arrangement intended to result in a particular capital or income return from a holding of units or shares in that authorised fund and in respect of any investment objective of giving protection to the capital value or income return from such a holding. CIS 3.5.2 R 26 requires similar information to be contained in the prospectus of an authorised fund. CIS 2.7.2 G contains guidance on when the name of an authorised fund should not include the word "guaranteed".
(c) A guarantee to the directors of a company that issues an EIS share is not a guarantee to a person invested in the relevant Enterprise Investment Scheme.

(3) The use of any of the following may mean that a non-real time financial promotion does not meet the general requirement of COB 3.8.4 R (1) of being clear, fair and not misleading:

(a) a statement such as 'no initial charges' or 'no entry or redemption charges' where the bid price is not the same as the offer price (for example there is a spread), unless the statement is suitably qualified with information about the additional costs of investment;
(b) the phrase 'frozen pensions', which implies that the pension fund will not remain invested and the pension benefits may not be subject to the possibility of an upward revaluation and will not be upgraded in circumstances where this is not the case (the phrase 'preserved pensions' is recommended as an alternative);
(c) a statement of the amount of authorised share capital of a company without the amount of the issued share capital;
(d) a statement of the amount of a company's total assets without the amount of its liabilities, or the amount of a company's total costs, or income or turnover, without making clear the period to which the statement relates;
(e) an implication that the assets of a whole group can be drawn on by a subsidiary when this is not the case;
(f) a comparison of the performance or the likely performance of an investment in units in a regulated collective investment scheme with an investment in units in an unregulated collective investment scheme.

(4) In relation to quotations of opinion:

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

(5) Firms should note that the "return" on an investment is the gain or profit; it does not include the original capital invested.
(6) A firm which offers general insurance contracts, providing benefits for the policyholder's care in the event of the policyholder's disability or incapacity, should avoid using terms which state expressly or imply that the policy will be available for the policyholder to claim on in the long-term, that is, for any period beyond the expiry of the policy. So a general insurance contract should not be promoted as being capable of providing long-term care insurance for the policyholder in the long-term, and expressions such as "long-term care" and "lifetime care" should generally be avoided in relation to general insurance contracts. If a general insurance contract provides benefits over the long-term in the event of a claim being made, a firm should make clear that the long-term aspect relates only to the availability of benefits in the event of a claim, not to the duration of the policy itself.

01/06/2004

Specific non-real time financial promotions: general requirements

COB 3.8.8

A specific non-real time financial promotion must;

(1) include a fair and adequate description of:

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

(2) if it relates to an investment or service of a person other than the firm, contain the name of that person, in addition to the name and address or contact point of the firm or its appointed representative (see COB 3.8.2 R).

01/11/2002

COB 3.8.9

(1) A specific non-real time financial promotion should give a fair and balanced indication of the requirements in COB 3.8.8 R (1)(a) to (c), to meet COB 3.8.4 R (1).
(2) The details of the commitment which is required by COB 3.8.8 R (1)(b) will depend on the nature of the investment being promoted. This could be, for example, the minimum amount which can be invested, minimum or maximum period of investment or, where it is the case, the fact that it could be some time before a person may see a return on his investment. Where an investor's capital would be tied up for more than one month following the last fixed payment due to be made under the contract, this should be made clear in any financial promotion for that product.
(3) In giving a fair and adequate explanation of the investment or service being promoted firms should avoid:

(a) accentuating the potential benefits of an investment without also giving a fair indication of the risks;
(b) failing to describe any benefits under a life policy which are not fixed;
(c) drawing attention to favourable tax treatment without stating that this might not continue in the future; and
(d) drawing attention to an investment or service's past performance, or placing emphasis on past performance, relative to other information given about the product in the financial promotion.
(e) using prominent headline rates of return where these rates are unrealistic and unlikely to be obtained by most investors.

(4) Guidance on the application of COB 3.8.4 R to the internet and other electronic media is provided in COB 3.14.
(5) To assist firms' compliance with COB 3.8.4 R (1) and COB 3.8.8 R(1) in relation to a specific non-real time financial promotion further guidance is given in COB 3 Annex 4 G.
(6) If the financial promotion relates to securities, or to an investment trust savings scheme for dealing in securities, in respect of which the conditions in (a), (b) and (c) are satisfied, then the firm should ensure that the risks associated with the relevant investment approaches in (b) are properly explained. The conditions are that:

(a) the securities are

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

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

(i) uses or proposes to use gearing as an investment strategy; or
(ii) invests or proposes to invest in securities that satisfy the conditions in (a) and the issuer of such securities uses or proposes to use gearing as an investment strategy; and

(c) the securities are likely to be subject to fluctuations in value which are significant compared with the likely fluctuations in value of the underlying investments.

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

(a) have regard to the provisions in COB 5.4.12 E and COB 5.4.13 G; and
(b) identify where there is a possibility of loss of initial capital invested and disclose this as one of the main points in the specific non-real time financial promotion.

(8) Firms are reminded that, when communicating or approving a financial promotion relating to a structured capital-at-risk product, COB 8.2.1 R and COB 8.2.4 R(2) apply.

01/01/2004

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

COB 3.8.10

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

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

01/12/2001

Specific non-real time financial promotions: past performance

COB 3.8.11

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

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

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

(2) information relating to a relevant and sufficient period of past performance to provide a fair and balanced indication of the performance.

01/06/2004

COB 3.8.12

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

(a) prevent an investment being promoted in such a way as to induce a person to believe that any previous periods of favourable performance will necessarily be repeated in the future; and
(b) encourage firms to draft warnings which are tailored to fit the design of the financial promotion and the audience to which they are primarily directed; so, for example, text used in a warning included in a specialist magazine may not be appropriate in a financial promotion in the popular press.

(2) Any of the following may mean that a specific non-real time financial promotion does not meet the requirement of COB 3.8.4 R (1) of being clear, fair and not misleading:

(a) an unfair comparison with the performance of another type of investment;
(b) the selection of an inappropriate or irrelevant investment period;
(c) the selection of an unreasonably short time period;
(d) the selection of inconsistent time periods for a range of funds;
(e) a comparison with deposits without an indication in clear terms, and with equal prominence, that the investment does not include the security of capital which is characteristic of a deposit with a bank or building society.

(3) Firms need to take special care when presenting euro-based information as new factors should be taken into account in the calculation or comparison of the performance of some products. There may be some techniques of presenting past performance data which can no longer be used if the factoring in of euro conversion produces a misleading result. Guidance cannot deal with all the circumstances in which performance data are used, and it is therefore important for firms to look at the end result and the context in which the information is presented to ensure it does not breach COB 3.8.4 R (1) (clear, fair and not misleading).
(4) Information on the past performance of a conventional with-profits contract may be relevant to a unitised contract to give potential policyholders access to information relating to the performance of a contract within the with-profit fund of a product provider. Any differences between the two systems and any factors which reduce the relevance of the past performance of the conventional contract, including differences in bonus policy and the level of charges and expenses, should be clearly explained.
(5) Firms are reminded of the guidance in COB 3.6.4 G (2) about ensuring that specific non-real time financial promotions remain compliant with COB 3. To meet COB 3.8.11 R (2), a specific non-real time financial promotion that contains past performance information and is intended for use over a period of time should make clear:

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

(6) Where a specific non-real time financial promotion, such as a brochure or a promotion on the Internet, includes past performance information that is presented over a number of pages, the past performance warning required by COB 3.8.11 R (1) should be included on each page on which past performance information is presented.
(7) Information about past performance should normally be based on the actual performance of a fund or funds for the entire period. Where past performance information for the actual fund does not exist, a firm may only include hypothetical past performance information in the promotion if the result will be clear, fair and not misleading. Past performance information that is based entirely on hypothetical past performance information will be acceptable only where it relates to a fund that is not and has not been actively managed, and where prices on the relevant markets are unlikely to have been influenced by the operation of the fund had it been in existence.
(8) In (7), hypothetical past performance information means information that has been constructed about the performance of a fund during a period for which no actual performance information is available, using the terms of the product and historical financial information. This would not include past performance information that is based on the actual performance of a fund (for example, where the pricing structure or other terms surrounding a product change but the underlying fund remains the same; where an existing fund is merging with another; or where a fund is cloned.)

01/06/2004

Standardised past performance information

COB 3.8.13

(1) If a firm includes in a specific non-real time financial promotion information referring to the past performance of a packaged product, it must also include:

(a) in the case of a scheme, unit-linked life policy or unit-linked stakeholder pension scheme (other than a unitised with-profits life policy or stakeholder pension scheme) past performance information calculated and presented in accordance with COB 3.8.13A R; or
(b) in the case of a packaged product which is not within (a) that:

(i) does not have a fixed term, the performance over the previous five years (or the whole period if the product has been offered for less than this); or
(ii) has a fixed term, the performance over the whole period of the product term;

ending with the date on which the firm confirms compliance with the rules in this chapter under COB 3.6.1 R (or as near as is reasonably practicable).
(2) The information included in accordance with COB 3.8.13 R (1) should be no less prominent than any other past performance information.
(3) A specific non-real time financial promotion must not contain any past performance information, including hypothetical past performance information, unless past performance information exists for the previous twelve months (or where COB 3.8.13R(1)(a) applies, for the previous four full quarters).
(4) For the purposes of COB 3.8.13 R (1)(a), firms should use single pricing, or (if this is not available) bid to bid prices, unless the firm has reasonable grounds to be satisfied that another basis would better reflect the past performance of the fund.
(5) This rule does not apply to a prospectus drawn up in accordance with CIS 3.2.1 R (Drawing up of prospectus) or COLL 4.2.2 R (Publishing the prospectus).

01/06/2004

COB 3.8.13A

Specimen table of disclosure of discrete past performance.

This table belongs to COB 3.8.13 R.

Percentage growth

[Fund name]

Quarter/Year - Quarter/Year pgr%

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

01/06/2004

COB 3.8.14

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

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

(2) Where the pricing policy of the investment has changed, the prices used to comply with COB 3.8.13 R should include such adjustments as are necessary to remove any distortions resulting from the pricing method.
(3) Where the performance relates to a different investment vehicle, any material differences should be stated in the financial promotion.

01/06/2004

COB 3.8.15

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

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

01/06/2004

COB 3.8.16

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

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

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

01/06/2004

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

COB 3.8.17

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

01/12/2001

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

COB 3.8.18

A specific non-real time financial promotion must not contain a projection of the possible investment return on a direct or indirect investment in EIS shares.

01/12/2001

Specific non-real time financial promotions: packaged products

COB 3.8.19

(1) A firm must not communicate or approve a specific non-real time financial promotion containing or offering advice on packaged products, or providing basic advice on a stakeholder product, unless the promotion discloses information to show whether the scope of the advice which is given or offered is or will be based upon a selection made from:

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

(2) A firm must not communicate or approve a specific non-real time financial promotion offering packaged products or stakeholder products produced by a person, A:

(a) that holds out any person other than A as the packaged product producer; or
(b) that does or says anything which might reasonably lead a private customer to be mistaken as to the identity of the product's producer; or
(c) in which the prominence of A's brand is less than that of other brands included in the promotion.

06/04/2005

COB 3.8.20

Firms are reminded that COB 3.8.19 R does not apply to image advertising (see COB 3.2.5 R (Exemptions) and COB 3.2.7 G (3)(b) (Guidance on the exemptions)).

01/12/2001

Real time financial promotions

COB 3.8.21

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

01/09/2002

COB 3.8.22

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

(1) does so in a way which is clear, fair and not misleading;
(2) does not make any untrue claims;
(3) makes clear the purpose (or purposes) of the financial promotion at the initial point of communication, and identifies himself and the firm which he represents;
(4) if the time and method of communication were not previously agreed by the recipient:

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

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

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

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

(7) if applicable, acts in conformity with the rules in COB 4.3 (Disclosing information about services, fees and commission - packaged products), COB 5A.1 (Providing basic advice on Stakeholder Products) and COB 5.1 (Advising on packaged products).

06/04/2005

COB 3.8.23

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

01/12/2001

COB 3.8.24

The requirements of COB 3.8.22 R:

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

01/12/2004

COB 3.8.25

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

01/12/2001

COB 3.9

Direct offer financial promotions

01/12/2004

Application

COB 3.9.1

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

01/12/2001

COB 3.9.2

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

01/12/2001

COB 3.9.3

Location of the provisions applicable to direct offer financial promotions

This table belongs to COB 3.9.2 G

(1)

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

COB 3.9.4 G

(2)

Prohibited types of direct offer financial promotions

COB 3.9.5 R

(3)

Direct offer financial promotions: general requirements

COB 3.9.6 R

(3A)

Contractual terms and conditions for distance contracts

COB 3.9.7A R

(4)

Cash deposit ISAs

COB 3.9.8 R

(5)

Electronic media

COB 3.9.9 G

(6)

Packaged products

COB 3.9.10 R to COB 3.9.11 G

(7)

Execution-only dealing service

COB 3.9.12 R to COB 3.9.13 G

(8)

Potential problem areas

COB 3.9.14 G

(9)

Information to be contained in direct offer financial promotions regarding:

COB 3.9.14 G

(a)

investments which can fluctuate in value

COB 3.9.15 R

(b)

life policies

COB 3.9.18 R

(c)

taxation

COB 3.9.19 R to COB 3.9.20 R

(d)

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

COB 3.9.21 R

(e)

charges for regulated collective investment schemes

COB 3.9.23 R

(f)

penny shares

COB 3.9.24 R

(g)

branded funds

COB 3.9.25 R

(h)

Enterprise Investment Schemes

COB 3.9.26 R to COB 3.9.28 R

(i)

income withdrawals

COB 3.9.29 R

(j)

structured capital-at-risk products

COB 3.9.31 R

(k)

CTFs

COB 3.9.8 R
COB 3.9.30 R

14/01/2005

Exemptions

COB 3.9.4

Firms are reminded that under COB 3.2.3 R:

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

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

(2) a direct offer financial promotion relating to a cash deposit ISA must comply with COB 3.9.6 R (1) and COB 3.9.8 R.

14/01/2005

Prohibited types of direct offer financial promotion

COB 3.9.5

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

(a) a derivative; or
(b) a warrant;

unless the firm itself has adequate evidence to suggest that the investment may be suitable for the person to whom the promotion is communicated.

15/11/2001

Direct offer financial promotions: general requirements

COB 3.9.6

(1) A direct offer financial promotion must be in a durable medium and contain sufficient information to enable a person to make an informed assessment of the investment or service to which it relates.
(2) In particular, a direct offer financial promotion must contain:

(a) the information set out in COB App 1 (the information in and (4) must be provided in relation to the person offering the investment or service and, if different, the firm communicating or approving the financial promotion);
(b) where it is the case that no advice on investments has been given, a prominent statement that:

(i) no advice on investments has been given; and
(ii) if a person has any doubt about the suitability of the agreement which is the subject of the financial promotion he should contact the firm for advice on investments (or another appropriate firm if the firm does not offer advice on investments).

(c) if the financial promotion is communicated by a firm whose permission includes a requirement that it must not hold client money, the name of the person to whom payment (if any) should be made;
(d) details of the basis or amount of any commission or remuneration which might be payable by the person who is offering the investment or service to another person.

09/10/2004

Contractual terms and conditions for distance contracts

COB 3.9.7A

(1) A firm must ensure that a retail customer is provided with all the contractual terms and conditions on which its service will be provided in a durable medium in good time before the retail customer is bound to the firm by a distance contract or offer resulting from a direct offer financial promotion, unless an exemption in (2), (3) or (4) applies:
(2) Exemption: means of distance communication
This exemption applies if the contract is concluded at the retail customer's request using a means of distance communication which does not enable provision of the contractual terms and conditions in a durable medium in accordance with (1). In that case, the firm must provide the retail customer with the information in a durable medium immediately after conclusion of the distance contract.
(3) Exemption: successive or separate operations under an initial service agreement
This exemption applies if the firm has an initial service agreement with the retail customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.10.2 G (1)).
(4) Exemption: other successive or separate operations
This exemption applies if:

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

09/10/2004

Cash deposit ISAs and cash deposit CTFs

COB 3.9.8

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

09/10/2004

Electronic media

COB 3.9.9

Guidance, including information on direct offer financial promotions on the internet and other electronic media, is provided in COB 3.14 (The internet and other electronic media).

01/12/2001

Packaged products

COB 3.9.10

A direct offer financial promotion relating to a packaged product must contain the information required by COB 6.5.2 R (1), (3) and (5) as applicable (Contents of key features).

09/10/2004

COB 3.9.11

The information should follow, where possible, the same order as key features. But adjustments may be made to the order, where this would assist design and understanding of the material.

01/12/2001

Execution-only dealing services

COB 3.9.12

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

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

01/12/2004

COB 3.9.13

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

01/12/2001

Potential problem areas for direct offer financial promotions.

COB 3.9.14

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

01/12/2001

Investments which can fluctuate in value

COB 3.9.15

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

01/12/2001

COB 3.9.16

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

01/12/2001

COB 3.9.17

Examples of explanations which could meet COB 3.9.15 R are:

(1) 'You are not certain to make a profit; you may lose money/make a loss';
(2) 'You may not get back the full amount of your investment';
(3) (for investment income): 'The income is not fixed - it can go up or down';
(4) (for contingent liabilities): 'You could lose all the money you invested and you may have to pay more later';
(5) (for higher volatility funds): 'This investment may be subject to sudden and large falls in value, you could get back nothing at all';
(6) (for property funds):

(a) 'This fund invests in property and land. This can be difficult to sell - so you may not be able to sell/cash in this investment when you want to. We may have to delay acting on your instructions to sell your investment';
(b) 'The value of property is generally a matter of a valuer's opinion rather than fact';

(7) (for an Enterprise Investment Scheme):

(a) 'It may be difficult to sell your investment, or to get accurate information about how much it is worth or how risky it is';
(b) 'These are unquoted securities which may have more risks than quoted securities or shares';
(c) 'Investments in unquoted securities may be difficult to sell. Market makers may not be prepared to deal in them. This scheme may invest in private companies and restrictions may apply to the transfer of these private company securities';
(d) 'Proper information for working out the current value of investments may not be available';

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

(a) 'The value of the property in these schemes can go down as well as up. The initial price of Enterprise Zone property may be distorted as a result of the tax allowances and other benefits available - it may often be necessary to pay a higher price for this property compared with other property';
(b) 'There is no established market in this investment';
(c) 'This investment is designed to be held for a very long time (normally 25 years). You may have difficulty selling it. You should not invest in this if you may need to sell early';
(d) 'Do not invest in this investment unless you have carefully thought about whether you can afford it and whether it is right for you';

(9) (for non-readily realisable investments): You may have difficulty selling this investment at a reasonable price and, in some circumstances, it may be difficult to sell it at any price. Do not invest in this unless you have carefully thought about whether you can afford it and whether it is right for you;
(10) (for front end loaded contracts): We take most of our charges in the early years of this investment. This means that if you withdraw during this time you may lose money/get back less than you invested;
(11) (for with-profit life policies): The value of this policy depends on how much profit we make and how we may decide to distribute this profit;
(12) (for penny shares): There is an extra risk of losing money when shares are bought in some smaller companies including penny shares. There is a big difference between the buying price and the selling price of these shares. If they have to be sold immediately, you may get back much less than you paid for them. The price may change quickly and it may go down as well as up;
(13) (for foreign currency denominated investments): Changes in the rates of exchange between currencies may cause your investment/the income to go down or up;
(14) (for investments where the market is restricted): There is only one market maker', and/or `the only market maker is the communicator of the financial promotion or an associate of the issuer;
(15) (for a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6)): 'This investment may be subject to sudden and large falls in value and you could get back nothing at all'.

01/01/2004

Life policies

COB 3.9.18

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

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

01/12/2001

COB 3.9.18A

Firms are reminded of the provisions in COB 4.3, COB 5.2 and COB 5.3 requiring particular disclosures to clients in relation to life policies.

01/12/2004

Taxation

COB 3.9.19

A direct offer financial promotion must include a summary of the taxation of any investment to which it relates and the taxation consequences for investors generally.

01/12/2001

COB 3.9.20

A firm must include in a direct offer financial promotion:

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

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

(4) where the words 'free from tax liability', or similar are used and it is the case, a statement making clear that this describes the benefits when paid to the investor, and a statement with equal prominence that the income is payable out of a fund which has already paid income tax, corporation tax or capital gains tax (whichever applies).

01/12/2001

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

COB 3.9.21

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

09/10/2004

Charges for regulated collective investment schemes

COB 3.9.23

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

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

01/12/2001

Penny shares

COB 3.9.24

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

01/12/2001

Branded funds

COB 3.9.25

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

01/12/2001

Enterprise Investment Schemes

COB 3.9.26

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

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

(a) either a copy of the prospectus; or
(b) if no prospectus is required by the POS Regulations COB 3.9.27 G relating to each company in which the Enterprise Investment Scheme manager has a material interest and intends to acquire interests on behalf of the scheme;

(3) a prominent statement that applications may only be made and accepted subject to the terms and conditions of the Enterprise Investment Scheme particulars and prospectus (if applicable); and
(4) a prominent explanation of any right to withdraw (under COB 6.7) or, where it is the case, that such rights will not apply.

01/12/2001

COB 3.9.27

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

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

01/09/2003

COB 3.9.28

In addition to the requirements of COB 3.9.26 R, a direct offer financial promotion relating to a private offer of EIS shares must include the information specified in COB 3 Annex 3 R.

01/12/2001

Income withdrawal

COB 3.9.29

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

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

01/12/2001

Child trust funds

COB 3.9.30

A direct offer financial promotion relating to a CTF must contain the information referred to in COB 6.5.40 R (7).

01/12/2004

Structured capital at risk products

COB 3.9.31

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

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

16/07/2004

COB 3.9.32

(1) When a firm complies with its obligations under COB 3.9.31 R it should ensure that the information it provides includes in particular the following:

(a) reference to the different risk profiles of generally available capital-at-risk products when compared with capital secure products such as deposits;
(b) reference to the fact that, because of the risk to capital, capital-at-risk products should only form part of an investment portfolio;
(c) reference to the fact that, before buying, investors should check they understand the way the product is priced, the charges involved, the length of time their money will be tied up and the consequences of cashing in the product early; and
(d) contact details for the FSA's consumer helpline and website.

(2) The FSA would regard a firm that provides a copy of the FSA's factsheet about capital-at-risk products entitiled 'Capital-at-risk products' as complying with its obligations under COB 3.9.31 R. Firms can obtain copies or buy the artwork by using the FSA's online order form at www.fsa.gov.uk/pubs, Consumer publications.
(3) Where a firm provides a copy of the FSA's factsheet, it may wish to include the following wording in its covering literature: "The enclosed factsheet about capital-at-risk products is from the Financial Services Authority (FSA), the independent watchdog set up by Parliament. Please read this document carefully.".

01/12/2004

COB 3.10

Unsolicited real time financial promotions

01/12/2004

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

COB 3.10.1

(1) An unsolicited real time financial promotion is a real time financial promotion which is not solicited as described in (2).
(2) A solicited real time financial promotion is a real time financial promotion which is solicited, that is, it is made in the course of a personal visit, telephone call or other interactive dialogue if that call, visit or dialogue:

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

and it is clear from all the circumstances when the call, visit or dialogue is initiated or requested that during the course of the visit, call or dialogue financial promotions would be made concerning the kind of controlled activities or controlled investment to which the financial promotion relates.
(3) In (2), a person is not to be treated as expressly requesting a call, visit or dialogue:

(a) because he omits to indicate that he does not wish to receive any or any further visits or calls or to engage in any or any further dialogue;
(b) because he agrees to standard terms that state that such visits, calls or dialogues will take place unless he has signified clearly that, in addition to agreeing to the terms, he is willing for them to take place.

(4) If a real time communication is solicited by a person ("R") it is treated as also having been solicited by any other person to whom it is made at the same time as R if that other person is a close relative of R or is expected to engage in any investment activity jointly with R.

01/03/2003

COB 3.10.2

COB 3.10.1 R is based on article 8 of the Financial Promotion Order. Guidance on whether a real time financial promotion is solicited is contained in AUTH App 1.10 (Types of financial promotion).

01/06/2002

Restriction of unsolicited real time financial promotions

COB 3.10.3

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

(1) the recipient has an established existing customer relationship with the firm and the relationship is such that the recipient envisages receiving unsolicited real time financial promotions; or
(2) the financial promotion relates to a generally marketable packaged product which is not:

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

(3) the financial promotion:

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

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

01/12/2001

COB 3.10.4

Firms are reminded of the exemptions in COB 3.2.5 R; COB 3.10.3 R does not prohibit an exempt unsolicited real time financial promotion.

01/12/2001

COB 3.11

Unregulated collective investment schemes and qualified investor schemes

01/12/2004

Unregulated collective investment schemes

COB 3.11.1

(1) Under section 238 of the Act (Restrictions on promotion), an authorised person must not communicate an invitation or inducement to participate in an unregulated collective investment scheme ("the scheme promotion restriction"). This applies in the case of a communication originating outside the United Kingdom only if the communication is capable of having an effect in the United Kingdom.
(2) However, the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060) exempts from the scheme promotion restriction certain types of communications relating to unregulated collective investment schemes.
(3) In addition, section 238(5) of the Act gives the FSA power to make rules exempting from the scheme promotion restriction certain promotions relating to unregulated collective investment schemes, provided that they are not made to the general public. The purpose of COB 3.11.2 R is to make appropriate use of the power which the FSA has under section 238(5) of the Act.
(4) Under section 240 of the Act (Restriction on approval of promotion), an authorised person cannot approve, for the purposes of section 21, the content of a communication relating to an unregulated collective investment scheme if he would not have been able, under section 238(1), to communicate it himself.
(5) AUTH App 1.20 (Additional restriction on the promotion of collective investment schemes) provides further guidance on the restriction under section 238(1) of the Act (Restrictions on promotion).

01/03/2003

Exemptions from the scheme promotion restriction

COB 3.11.2

A firm may communicate an invitation or inducement to participate in an unregulated collective investment scheme if the communication falls within COB 3 Annex 5 R.

01/12/2001

COB 3.11.3

(1) A firm may communicate an invitation or inducement to participate in an unregulated collective investment scheme, which originates in the United Kingdom or is capable of having an effect in the United Kingdom, only if either:

(a) the communication falls within COB 3 Annex 5 R; or
(b) the communication is exempt from the scheme promotion restriction under the Financial Services and Market Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001.

(2) Firms are reminded that, even if an invitation or inducement is within COB 3 Annex 5 R, other rules in this chapter may still apply.

01/03/2003

Limited disapplication of this chapter

COB 3.11.4

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

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

01/03/2003

COB 3.11.5

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

01/03/2003

Promotion of qualified investor schemes

COB 3.11.6

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

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

01/04/2004

COB 3.11.7

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

01/04/2004

COB 3.12

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

01/12/2004

Approval of financial promotions

COB 3.12.1

(1) Section 21(1) of the Act (Restrictions on financial promotion) prohibits an unauthorised person from communicating a financial promotion, in the course of business, unless an exemption applies or the financial promotion is approved by a firm. An overview of the main exemptions in the Financial Promotion Order is in COB 3 Annex 1 G and further guidance is provided in AUTH App 1 (Financial promotion and related activities), in particular, AUTH App 1.9 (Circumstances where the restriction in section 21 does not apply).
(2) Most of the rules in this chapter apply when a firm approves a financial promotion in the same way as when a firm communicates a financial promotion itself. A firm therefore has a similar responsibility for a financial promotion that it approves as for one that it communicates. For example, a firm which approves a non-real time financial promotion must:

(a) if COB 3.6.1 R applies, confirm that the financial promotion complies with the rules in this chapter; and
(b) if COB 3.8.4 R (1) applies, be able to show that it has taken reasonable steps to ensure that the financial promotion is clear, fair and not misleading.

(3) A firm may also wish to approve a financial promotion that it communicates itself. This would ensure that an unauthorised person who then also communicates the financial promotion to another person will not contravene the restriction on financial promotion in section 21(1) of the Act (Restrictions on financial promotion).
(4) A firm which approves a financial promotion that is exempt under COB 3.2.5 R (Exemptions) or COB 3.3.1 R (Application; where?) must still comply with certain rules in this chapter (see COB 3.2.4 R (2) and COB 3.3.3 R (2)).

01/06/2002

No approval of real time financial promotions

COB 3.12.2

A firm must not approve a real time financial promotion.

01/12/2001

Approval of financial promotions when not all the rules apply

COB 3.12.3

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

01/12/2001

COB 3.12.4

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

01/12/2001

COB 3.12.5

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

01/12/2001

Specific non-real time financial promotions for overseas persons

COB 3.12.6

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

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

(a) that the rules made under the Act for the protection of private customers do not apply;
(b) the extent and level to which the compensation scheme will be available, or if the scheme will not be available, a statement to that effect; and
(c) if the communicator wishes, the protection or compensation available under another system of regulation; and

(2) the firm has no reason to doubt that the overseas person will deal with private customers in the United Kingdom in an honest and reliable way.

01/12/2001

COB 3.12.7

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

01/12/2001

COB 3.13

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

01/12/2004

COB 3.13.1

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

(a) an authorised person; or
(b) an exempt person who is exempt in relation to effecting or carrying out contracts of insurance of the class to which the financial promotion relates; or
(c) a company which has its head office in an EEA State other than the United Kingdom and which is entitled under the law of that State to carry on there insurance business of the class to which the financial promotion relates; or
(d) a company which has a branch or agency in an EEA State other than the United Kingdom and is entitled under the law of that State to carry on there insurance business of the class to which the financial promotion relates; or
(e) a company authorised to carry on insurance business of the class to which the financial promotion relates in any country or territory which is listed in (2).

(2) The countries or territories referred to in (1)(e) are:

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

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

01/12/2001

COB 3.13.2

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

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

01/12/2001

COB 3.13.3

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

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

(a) the full name of the overseas long-term insurer;
(b) the registered or head office in the United Kingdom; and,
(c) if there is more than one such person, the principal or main person in the United Kingdom.

01/12/2001

COB 3.13.4

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

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

01/03/2003

COB 3.13.5

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

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

01/12/2001

COB 3.14

The internet and other electronic media

01/12/2004

COB 3.14.1

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

01/12/2001

Approach and general guidance

COB 3.14.2

Any material which meets the definition of a financial promotion, including any video or moving image material incorporated in any website containing a financial promotion, should comply with the rules in this chapter. See AUTH App 1.22 (The Internet) for further guidance on financial promotions on the internet, including the treatment of hyperlinks and banners.

01/06/2002

COB 3.14.3

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

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

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

01/12/2001

COB 3.14.4

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

01/12/2001

Specific guidance

COB 3.14.5

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

(a) To meet the requirements of COB 3.9.10 R, a firm should make it clear that the information is available to a recipient of the direct offer financial promotion, and easily obtainable, before any application is made.
(b) It is important that recipients should have the opportunity to view the full text of the relevant key features, initial disclosure document, terms and conditions, customer agreement and any other applicable risk information required by the rules.
(c) This can be achieved through the use of a hypertext link, as long as it is not hidden away in the body of the text where a recipient could miss it when browsing through the pages.
(d) Local printing of information by the user should be allowed, where feasible. Firms should endeavour to provide hard copy on request.

(2) Application forms

(a) It is not necessary for access to an application form to be denied until the recipient has read key features and other contractual terms, but firms should ensure that on the application form, or in the preceding text, they draw attention to the existence of this material and the importance of reading it, as relevant business will be conducted on the basis of the key features and written contractual terms.
(b) A financial promotion may be a direct offer financial promotion even if the firm is unable to provide a copy of the application form electronically.

(3) Exemptions COB 3.2.3A R (Application: what?: Exemptions) and COB 3.3.1 R (Territorial scope) contain exemptions from this chapter which depend on a particular financial promotion being made or directed only at certain persons. COB 3.5.6 R sets out the meaning of "made" and "directed at" in this context. COB 3.5.7 R and COB 3.3.6 R (respectively) set out various conditions relevant for determining whether a financial promotion will be regarded as directed only at such persons.
(4) Unregulated collective investment schemes A firm which communicates an invitation or inducement to participate in an unregulated collective investment scheme by means of a website it may take advantage of the exemptions in COB 3 Annex 5 R. But if it does so, it must in accordance with that annex design the website to reduce, as far as possible, the risk of participation by persons to whom the invitation or inducement may not be promoted (as described in COB 3.11). COB 3.5.7 R sets out various conditions relevant for determining whether that test is satisfied.
(5) The FSA website The FSA's website http://www.fsa.gov.uk contains a wide range of information including pages of specific relevance to customers. Firms may, if they wish, include a reference or hyperlink to the FSA's site; this will not however, replace any requirements of the financial promotion rules.
(6) Record-keeping: continuously updated market information COB 3.7.1 R requires a firm to make and retain an adequate record of a non-real time financial promotion. If the non-real time financial promotion includes market information that is updated continuously in line with the relevant market, the record will be adequate without recording that information. But see COB 7.12.9 G and COB 7.12.10 G (Orders received over the Internet) regarding giving a customer access to such information in conjunction with the ability to place a customer order by relying on such information.

01/12/2004

COB 3 Annex 1

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

01/12/2004

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

Article no. and name of exemption

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

Controlled activity/controlled investment

Other conditions

16(2) Exempt persons

Unsolicited real time

All

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

17 Generic promotions

All

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

18 Mere conduits

All

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

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

All

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

19 Investment professionals

All

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

20B Incoming electronic commerce communications

Non-real time

All

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

22 Deposits: non-real time communications

Non-real time

Accepting deposits within paragraph 1

Accompanied by information specified in article 22(2)

23 Deposits: real time communications

Real time

Accepting deposits within paragraph 1

None

24 Relevant insurance activity: non-real time communications

Non-real time

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

Accompanied by information specified in article 24(2)

26 Relevant insurance activity: real time communications

Real time

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

None

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

Solicited real time Non real time

Note 1

One-off communication

28A One-off unsolicited real time communications

Unsolicited real time

Note 1

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

38 Persons in business of placing promotional material

All

Note 1

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

40 Participants in certain recognised collective investment schemes

Solicited real time Non-real time

Note 1

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

48 Certified high net worth individuals

Solicited real time Non-real time

Note 2

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

49 High net worth companies, unincorporated associations etc

All

Note 1

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

50 Sophisticated investors

All

Note 1

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

51 Associations of high net worth or sophisticated investors

Solicited real time Non-real time

Note 1

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

59 Annual accounts and directors' report

All

Note 3

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

62 Sale of body corporate

All

Note 1

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

67 Promotions required or permitted by market rules

Solicited real time Non-real time

Note 4

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

70 Promotions in connection with listing applications

Solicited real time Non-real time

Note 1

Financial promotion to which listing rules apply

71-73 Promotions included in listing particulars and prospectuses

Non-real time

Note 1

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

14/01/2005

COB 3 Annex 2

Contents of Enterprise Investment Scheme particulars (R)

01/12/2004

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

The following statements, to be included with particular prominence:

(1)

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

(2)

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

(3)

the name and business address of:

(a)

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

(b)

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

(4)

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

(5)

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

(6)

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

(7)

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

(8)

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

(9)

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

(10)

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

(11)

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

(12)

a summary of the fiscal provisions concerning the EIS;

(13)

either a description of the arrangements which exist for:

(a)

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

(b)

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

or a statement that no such arrangements exist;

(14)

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

(a)

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

(b)

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

(c)

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

(d)

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

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

(15)

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

(16)

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

(17)

the investment policies and objectives of the EIS;

(18)

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

01/12/2001

COB 3 Annex 3

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

01/12/2004

This annex forms part of COB 3.9.28 R.

The following statements are to be included with particular prominence:

(1)

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

(2)

The name and business address of:

(a)

the EIS manager;

(b)

the promoter of the EIS ( if any);

(3)

the opening and closing dates for receipt of EIS subscriptions;

(4)

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

(5)

the arrangements:

(a)

for the holding of EIS subscriptions pending investment;

(b)

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

(c)

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

(6)

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

01/12/2001

COB 3 Annex 4

Additional guidance on particular types of financial promotion

01/12/2004

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

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

AVC Schemes (including FSAVCs)

Bond Funds

With-profits bonds

Pensions - phased retirement

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

PEP, ISA or CTF transfer

Personal pensions and stakeholder pension schemes

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

Guaranteed or protected products

High income products

Stock market products

[deleted]

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

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

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

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

Bond Funds

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

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

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

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

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

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

With-profits bonds

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

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

Pensions - phased retirement

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

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

PEP, ISA or CTF transfers

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

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

(2) initial set up charges;

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

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

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

Personal pensions and stakeholder pension schemes

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

Guaranteed or protected products

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

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

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

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

High income products

Income Term

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

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

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

Problem of disclosure of risks

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

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

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

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

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

Stock market products

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

(1) Potential for Growth

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

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

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

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

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

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

(5) Early Encashment

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

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

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

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

01/12/2004

COB 3 Annex 5

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

01/12/2004

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

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

(a)

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

(b)

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

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

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

Promotion to:

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

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

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

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

Any collective investment scheme

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

Any such collective investment scheme

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

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

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

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

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

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

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

Any collective investment scheme

Category 7 person A market counterparty or an intermediate customer.

Any collective investment scheme

Notes to the table

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

(a)

on-exchange derivatives or warrants;

(b)

on-exchange (or quoted) securities;

(c)

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

(d)

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

(e)

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

(f)

unlisted investments (including unlisted debt securities).

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

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

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

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

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

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

(a)

they are in the same group; or

(b)

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

01/12/2004

COB 4

Accepting
customers

COB 4.1

Client classification

01/12/2004

Application

COB 4.1.1

(1) This section applies to a firm intending to conduct, or conducting designated investment business or ancillary business relating to designated investment business (but not to a firm which in relation to any customer intends only to provide basic advice on a stakeholder product).
(2) For the purposes of COB only, the following provisions in COB 4.1 also apply to a firm intending to carry on, or carrying on, any other regulated activity to which COB applies:

(a) COB 4.1.12 R and COB 4.1.13 G (Large intermediate customer classified as a market counterparty); and
(b) COB 4.1.14 R (Client classified as a private customer).

06/04/2005

COB 4.1.2

The communication or approval of a financial promotion relating to designated investment business, or a designated investment, is an ancillary activity relating to designated investment business to which this section applies under COB 4.1.1 R (1).

01/12/2001

Purpose

COB 4.1.3

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

14/01/2005

Requirement to classify

COB 4.1.4

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

01/12/2001

Agent as client

COB 4.1.5

(1) If a firm ("F") is aware that a person ("C1") with or for whom it is conducting designated investment business, or related ancillary activities, is acting as agent for another person ("C2") in relation to that business, C1, and not C2, is the client of F in respect of that business, if:

(a) C1 is another firm or an overseas financial services institution; or
(b) C1 is any other person, provided that avoidance of duties which F would otherwise owe to C2 is not the main purpose of the arrangements between the parties.

(2) Paragraph (1) does not apply if F has agreed with C1 in writing to treat C2 as its client.
(3) If there is an agreement under (2) in relation to more than one client (C2) represented by C1, F may discharge any requirement to notify, obtain instructions or consent from, or enter into an agreement with each C2 by sending to, or receiving from, C1, a single communication which is expressed to cover each C2, except that:

(a) separate risk warnings under COB 5.4 (Customers' understanding of risk);
(b) confirmations under COB 8.1 (Confirmation of transactions); and
(c) periodic statements under COB 8.2 (Periodic statements) are required for each C2

are required for each C2.
(4) If paragraph (1) does not apply, because of the proviso in (1)(b) or an agreement under (2), C2, and not C1, is the client of F in respect of that business.

15/11/2001

COB 4.1.6

Firms are reminded that COB 4.1.5 R:

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

01/12/2001

Classification of another firm or an overseas financial services institution

COB 4.1.7

(1) When a firm ("F") conducts designated investment business, or related ancillary activities, with or for:

(a) another firm; or
(b) an overseas financial services institution;

("C1"), C1 is a market counterparty of F, unless (2), (3) or (4) applies.
(2) C1 is an intermediate customer of F when the activity carried on by F would be inter-professional business (if C1 were a market counterparty), and:

(a) C1 is acting for an underlying customer ("C2"); and
(b) [deleted]
(c) F and C1 have agreed that F should classify C1 as an intermediate customer when C1 is acting for C2.

(3) C1 is an intermediate customer of F when the activity carried on would not be inter-professional business (if C1 were a market counterparty) and:

(a) C1 has not indicated that it is acting on its own behalf in relation to that activity; or
(b) C1 is a long-term insurer acting on behalf of its life fund.

(4) If C1 is a collective investment scheme, C1 is an intermediate customer of F.
(5) [deleted]

01/09/2003

Classification of a collective investment scheme

COB 4.1.7A

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

01/09/2003

COB 4.1.8

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

01/09/2002

Classification of an exchange or clearing house

COB 4.1.8A

A firm must classify a client which is a recognised investment exchange, designated investment exchange, regulated market or clearing house as either a market counterparty or an intermediate customer.

01/09/2002

Expert private customer classified as an intermediate customer

COB 4.1.9

(1) A firm may classify a client who would otherwise be a private customer as an intermediate customer if:

(a) the firm has taken reasonable care to determine that the client has sufficient experience and understanding to be classified as an intermediate customer; and
(b) the firm:

(i) has given a written warning to the client of the protections under the regulatory system that he will lose;
(ii) has given the client sufficient time to consider the implications of being classified as an intermediate customer; and
(iii) has obtained the client's written consent, or is otherwise able to demonstrate that informed consent has been given.

(2) For the purposes of (1), a client's consent to being classified as an intermediate customer may be limited to one or more types of:

(a) designated investment; or
(b) designated investment business.

01/12/2001

COB 4.1.10

(1) To take reasonable care to determine that a client has sufficient experience and understanding to be classified as an intermediate customer for the purposes of COB 4.1.9 R (1)(a), the firm should have regard to:

(a) the client's knowledge and understanding of the relevant designated investments and markets, and of the risks involved;
(b) the length of time the client has been active in these markets, the frequency of dealings and the extent to which he has relied on the advice on investments of the firm;
(c) the size and nature of transactions that have been undertaken for the client in these markets;
(d) the client's financial standing, which may include an assessment of his net worth or of the value of his portfolio.

(2) It is likely that a firm will need to have regard to more than one of these criteria, or to other criteria, before it can be satisfied that a client, who would otherwise be a private customer, is eligible to be classified as an intermediate customer.

01/12/2001

COB 4.1.11

(1) In the written warning required by COB 4.1.9 R (1)(b)(i), a firm should, where relevant:

(a) advise the client that he will lose the protection afforded by the following rules in COB applicable to private customers:

(i) COB 3 (Financial promotion);
(ii) COB 4.3 (Disclosing information about services, fees and commissions - packaged products);
(iii) COB 5.1 (Advising on packaged products);
(iv) COB 5.4 (Customers' understanding of risk);
(v) COB 5.7 (Disclosure of charges, remuneration and commission);
(vi) COB 6.1 (Packaged product and ISA disclosure);
(vii) COB 7.9 (Lending to private customers);
(viii) COB 7.10 (Margin requirements);
(ix) COB 7.11 (Non-exchange traded securities);

(b) explain any consequences to the client in respect of the following rules in COB which are limited or modified in their application to intermediate customers:

(i) COB 8.1 (Confirmation of transactions);
(ii) COB 8.2 (Periodic statements);

(c) explain possible consequences to the client in respect of the following rules which are capable of modification in their application to intermediate customers:

(i) COB 7.5 (Best execution);
(ii) CASS 2 (Custody);
(iii) CASS 4 (Client money);

(d) warn the client that he will also lose the right of access to the Financial Ombudsman Service; and
(e) warn the client that the firm may have regard to his expertise when complying with requirements under the regulatory system that communications must be clear, fair and not misleading.

(2) Contravention of any part of COB 4.1.11 E (1) may be relied upon as tending to establish contravention of COB 4.1.9 R (1)(b)(i).

01/04/2004

Large intermediate customer classified as a market counterparty

COB 4.1.12

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

(1) the client at the time he is classified is one of the following:

(a) a body corporate (including a limited liability partnership) which has (or any of whose holding companies or subsidiaries has) called up share capital of at least £10 million (or its equivalent in any other currency at the relevant time);
(b) a body corporate that meets (or any of whose holding companies or subsidiaries meets) two of the following tests:

(i) a balance sheet total of 12.5 million euros (or its equivalent in any other currency at the relevant time);
(ii) a net turnover of 25 million euros (or its equivalent in any other currency at the relevant time);
(iii) an average number of employees during the year of 250;

(c) a local authority or public authority;
(d) a partnership or unincorporated association which has net assets of at least £10 million (or its equivalent in any other currency at the relevant time) (and calculated, in the case of a limited partnership, without deducting loans owing to any of the partners);
(e) a trustee of a trust (other than an occupational pension scheme, SSAS, personal pension scheme or stakeholder pension scheme) with assets of at least £10 million (or its equivalent in any other currency), calculated by aggregating the value of the cash and designated investments forming part of the trust's assets, but before deducting its liabilities;
(f) a trustee of an occupational pension scheme, SSAS or stakeholder pension scheme where the trust has (or has had at any time during the previous two years):

(i) at least 50 members; and
(ii) assets under management of not less than £10 million (or its equivalent in any other currency at the relevant time); and

(2) the firm has, before commencing business with the client on a market counterparty basis:

(a) advised the client in writing that he is being classified as a market counterparty;
(b) given a written warning to the client that he will lose protections under the regulatory system;
(c) for a client falling under (1)(a) or (b):

(i) taken reasonable steps to ensure that the written notices required by (2)(a) and (b) have been delivered to a person authorised to take such a decision for the client; and
(ii) not been notified by the client that the client objects to being classified as a market counterparty;

(d) for a client falling under (1)(c), (d), (e) or (f):

(i) taken reasonable steps to ensure that the written notices required by 2(a) and (b) have been delivered to a person authorised to take such a decision for the client; and
(ii) obtained the client's written consent or is otherwise able to demonstrate that consent has been given.

01/12/2001

COB 4.1.13

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

01/12/2001

Client classified as a private customer

COB 4.1.14

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

01/09/2003

Review of classification

COB 4.1.15

(1) If a firm classifies:

(a) a client as an intermediate customer under COB 4.1.9 R (Expert private customer classified as an intermediate customer); or
(b) a client as a market counterparty under COB 4.1.12 R (Large intermediate customer classified as a market counterparty);

it must review that classification at least annually to ensure that it remains appropriate to the designated investment business which the firm carries on with or for that client, unless (2) applies.
(2) If a firm has not conducted designated investment business with or for a client during the previous 12 month period, the firm may defer the review referred to in (1) until the firm next conducts designated investment business with or for the client.

01/12/2001

Record keeping

COB 4.1.16

(1) A firm must make a record of the classification established for each client under this section, including sufficient information to support that classification.
(2) A firm must retain the record referred to in (1) for a minimum period after the date on which the firm ceases to carry on business with or for that client, as follows:

(a) indefinitely, if relevant to a pension transfer, pension opt-out or FSAVC;
(b) for a period of at least six years, if relevant to a life policy or pension contract;
(c) for a period of at least three years in any other case.

01/09/2002

COB 4.2

Terms of business and client agreements with customers

01/12/2004

Application

COB 4.2.1

This section applies to a firm intending to conduct or conducting designated investment business with or for a specific customer.

09/10/2004

Meaning of 'private customer'

COB 4.2.2

In this section, COB 4.2, references to a 'private customer' include, in relation to the conclusion of a distance contract, a retail customer, and references to 'customer' are to be interpreted accordingly.

09/10/2004

Authorised professional firms

COB 4.2.3

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

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

01/12/2004

Purpose

COB 4.2.4

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

09/10/2004

Requirement to provide terms of business to a customer

COB 4.2.5

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

09/10/2004

COB 4.2.6A

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

01/12/2004

Requirement to enter into a client agreement with a private customer

COB 4.2.7

(1) If a firm intends to conduct any of the following designated investment business with or for a private customer:

(a) managing investments on a discretionary basis;
(b) designated investment business relating to a contingent liability investment;
(c) stock lending activity; or
(d) designated investment business involving underwriting (except in respect of a life policy);

its terms of business for the customer must, unless (2) applies, take the form of a client agreement, and the firm must not enter into this client agreement unless it has taken reasonable care to ensure that the private customer has had a proper opportunity to consider the terms.
(2) A firm need not enter into a client agreement with a private customer if the private customer is habitually resident outside the United Kingdom and the firm has taken reasonable steps to establish that the private customer does not wish to enter into a client agreement.

01/12/2001

COB 4.2.8

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

01/12/2001

Content of terms of business

COB 4.2.10

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

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

09/10/2004

COB 4.2.11

(1) A firm should, in order to provide adequate detail, include in its terms of business provided to a customer:

(a) a provision about each item set out in COB 4 Ann 2E and COB 4 Ann 3E; and
(b) any further or alternative provisions that the customer has asked for and on his own initiative agreed with the firm;

to the extent that each such provision is relevant in the circumstances and that it is practicable to provide it.
(1A) In relation to a service company, or a firm that is undertaking oil market activity or other energy market activity, that operates an ATS, the references in paragraph (1)(a) to COB 4.2.15 E and COB 4.2.16 E do not apply.
(2) Compliance with (1) may be relied on as tending to establish compliance with COB 4.2.10 R (1).
(3) Contravention of (1) may be relied on as tending to establish contravention of COB 4.2.10 R (1).

01/04/2004

Information not available at time of issue of terms of business

COB 4.2.11A

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

09/10/2004

COB 4.2.11B

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

09/10/2004

Terms of business provided in more than one document

COB 4.2.12

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

09/10/2004

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

COB 4.2.12A

(1) An authorised professional firm should include, in its terms of business, the information in COB 4 Annex 2.
(2) For an authorised professional firm, with respect to its non-mainstream regulated activities and as to the content only of its terms of business:

(a) compliance with (1) may be relied on as tending to establish compliance with COB 4.2.5 R; and
(b) contravention of (1) may be relied on as tending to establish contravention with COB 4.2.5 R.

09/10/2004

Amendment of terms of business

COB 4.2.13

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

01/12/2001

Records

COB 4.2.14

(1) A firm must make a record of each terms of business it provides to a customer, and any amendment to them, as soon as the terms of business come into force.
(2) A firm must retain each record referred to in (1):

(a) indefinitely, where the terms of business relate to a pension transfer, pension opt-out or FSAVC;
(b) for six years, where the terms of business relate to a life policy, pension contract or stakeholder pension scheme; and
(c) for three years in any other case.

(3) For the purposes of (2), the appropriate time period runs in each case from the date on which the customer ceases to be a customer of the firm.

09/10/2004

COB 4.2.17

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

Operating an ATS

Additional contents in respect of operating an ATS

An ATS operator should also ensure that the terms of business provided to a customer contain information about the following:

(1)

how the ATS operates, including any order handling and order execution processes;

(2)

the status of other users of the ATS, for example whether market counterparties, intermediate customers or private customers and whether based within or outside the United Kingdom;

(3)

arrangements for the clearing and settlement of transactions, including the respective obligations and responsibilities (if any) of the ATS operator and the customer in relation to clearing and settlement;

(4)

if investments that are not listed are traded on the ATS:

(a)

that unlisted investments are traded on the ATS; and

(b)

that the ATS operator will advise the customer on request where publicly available information about such investments can be obtained;

(5)

whether transactions executed using the ATS are reportable transactions;

(6)

trading procedures (if any) that may be adopted in the event of system malfunction;

(7)

the circumstances in which the ATS operator can terminate the customer's access to the ATS;

(8)

procedures (if any) to be adopted in the case of trading errors or disputes; and

(9)

whether investments traded on the ATS are qualifying investments for the purposes of the market abuse regime.

01/12/2004

COB 4.3

Disclosing information about services, fees and commission - packaged products

01/12/2004

Application

COB 4.3.1

(1) COB 4.3 applies:

(a) to a firm when carrying on with or for private customers any of the following in relation to packaged products:

(i) advising; or
(ii) dealing as agent; or
(iii) arranging;

(b) to a firm, other than an insurer, that carries on in relation to a life policy any of the activities in (1) with or for an intermediate customer or a market counterparty.

(2) COB 4.3, other than COB 4.3.7R (1) and (2), does not apply to a firm when providing basic advice on a stakeholder product.

06/04/2005

Purpose

COB 4.3.2

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

01/12/2004

Disclosure to private customers on first making contact

COB 4.3.3

(a) A firm must take reasonable steps to ensure that its representatives on first making contact with a private customer with a view to:

(i) advising on investments on packaged products; or
(ii) dealing as agent in packaged products; or
(iii) arranging (bringing about) deals in packaged product; or
(iv) making arrangements with a view to transactions in life policies;

provide the customer, in a durable medium, with information concerning:
(b)

(i) the firm and the scope of and nature of its services (an initial disclosure document); and
(ii) where (a)(i) applies, the firm's arrangements for charging and receiving fees and commission (a fees and commission statement);

in both cases being information which the firm reasonably considers will be, or is likely to be, appropriate for the customer having regard to the type of service which the firm may provide or business which the firm may conduct.

(2) A firm must also provide a private customer with an initial disclosure document if, in relation to the amendment of a life policy for that private customer, it:

(a) advises on investments on packaged products; or
(b) deals as agent in packaged products; or
(c) arranges.

(a) The requirements in (1) and (2) do not apply:

(i) to the extent that the appropriate information has already been given to the customer on a previous occasion and that information is still likely to be accurate and appropriate for the customer; or
(ii) if COB 4.3.16 G (initial contact by telephone) applies; or
(iii) to a firm when it carries out an execution only transaction in non-life packaged products; or
(iv) to an insurer for those customers in respect of which it is not advising on investments.

(b) A firm that reasonably expects it will not be advising on investments in respect of products falling within any of the product groups set out in Note 14 to COB 4 Annex 6R does not have to comply with the requirements in (1)(b)(ii) but if it does advise on investments on these products the rules will apply to the firm in respect of the fees and commission statement as if it was required by (1)(b)(ii) to provide the statement.

(4) The requirements in (1) and (2) will apply to:

(a) a firm that is acting as a discretionary investment manager for private customers; or
(b) a firm which is effecting execution-only transactions in packaged products for private customers;

only if the firm is carrying on an insurance mediation activity in relation to life policies for those private customers, in which case the requirements in (1) and (2) will only apply to the extent of requiring the firm to provide those private customers with an initial disclosure document.
(5) A firm which acts for a private customer under a non-discretionary management agreement need not comply with the requirements in (1) above to provide an initial disclosure document or a fees and commission statement if the following are satisfied:

(a) the firm is remunerated by the customer by the payment of a fee; and
(b) the agreement provides that the firm may recommend securities as well as packaged products for inclusion in the customer's portfolio and that in respect of packaged products the firm will make selections from the whole market;

but such a firm must, if it is carrying on an insurance mediation activity for a private customer in relation to life policies, comply with the requirements in (1) as to the provision of an initial disclosure document to the private customer.
(6) A firm which is required in accordance with this rule to provide an initial disclosure document to a private customer may instead provide the customer with a combined initial disclosure document if it has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will, in addition to packaged products, relate to one or more of the following:

(a) regulated mortgage contracts;
(b) regulated lifetime mortgage contracts;
(c) non-investment insurance contracts.

(7) The information contained in the initial disclosure document may be provided orally if a firm has not made a personal recommendation to a private customer, and:

(a) the customer requests it; or
(b) immediate cover is necessary;

but in both cases the firm must provide the initial disclosure document immediately after the conclusion of the contract, in a durable medium.

01/12/2004

COB 4.3.4

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

01/12/2004

Provision of fees and commission statement on request

COB 4.3.5

A firm must take reasonable steps to ensure that it provides a private customer with an appropriate fees and commission statement whenever requested to do so.

01/12/2004

Firms which charge fees

COB 4.3.6

(1) A firm must before starting to act for a private customer on the basis of a fee charging arrangement:

(a) secure the customer's agreement to the particular rate or amount which the firm will charge for its services; and
(b) provide the customer with a record in a durable medium of the particular fee charging arrangement which will apply unless the firm starts to act for the private customer during a telephone call, in which case this record must be forwarded to the customer on conclusion of the call.

(2) A firm which charges a private customer a fee must do so on the basis that it will, in respect of any commission which it receives in respect of transactions in packaged products for that customer (and to which the particular fee charging arrangement relates), ensure the value of that commission is transferred to the customer by one or more of the following:

(a) reducing the amount of its fee;
(b) arranging for the amount invested by the customer to be increased; or
(c) refunding the amount of the commission to the customer;

except that this does not prohibit such a firm from agreeing with the customer (in writing) that it will retain an amount or rate of trail or renewal commission up to an amount each year specified in the agreement and so small, relative to the overall amount of fees paid by the customer, that it would be manifestly disproportionate for the firm to be required to account to the customer in one of the ways outlined in (a) to (c).

01/12/2004

Ongoing disclosure

COB 4.3.7

(1) A firm which has started to provide a private customer with services in relation to packaged products following the provision of a fees and commission statement must not (at least until the completion of those services):

(a) increase the rate or amount of the fees it is charging the customer; or
(b) subject to (4), arrange to retain any commission which exceeds the maximum amount or rate disclosed ;

without first providing a further appropriate statement and obtaining the customer's prior consent to the proposed alteration in a durable medium.
(2) A firm which in accordance with (1) secures a private customer's agreement to retain an increased rate or amount of commission must ensure that, if it subsequently provides the customer with a suitability letter, it includes an explanation of why it was necessary for the principal to recommend a packaged product in respect of which the firm will retain such higher commission or fees.
(3) If a firm decides to provide a private customer with advice on investments on a type of packaged product (which falls within a product group specified in Note 14 to COB 4 Annex 6R) in relation to which the fees and commission statement previously given to the customer does not contain the information required in Note 14 to COB 4 Annex 6R, it must issue a new and appropriate statement to that customer.
(4)

(a) Notwithstanding (1)(b) a firm is not required to provide a further fees and commission statement for the purposes of (1) if:

(i) the maximum amounts or rates disclosed in the statement already provided to the customer only apply to policies of the example term or age of policyholder given in the fees and commission statement, or to policies with shorter terms; and
(ii) the firm arranges a policy for a term longer than the example term in the statement (or longer than the term deemed for the example age given) and the increase in the commission which the firm arranges to retain over the maximum disclosed in the statement is not more than an amount that is directly proportional to the increase in the duration of the term of the policy(or to the term deemed from the age of policyholder ).

(b) If requested by a customer, a firm must explain the basis of the higher maximum commission or fees charged in accordance with (4)(a)(ii).

01/12/2004

COB 4.3.8

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

01/12/2004

Initial disclosure document

COB 4.3.9

(1) An initial disclosure document must contain the keyfacts logo, headings and text in the order shown in COB 4 Annex 4R and in accordance with the Notes.
(2) A combined initial disclosure document must contain the keyfacts logo, headings and text in the order shown in COB 4 Annex 5R and in accordance with the Notes.
(3) If a private customer so requests, a firm should be able to provide an explanation of the basis on which it has chosen to market the particular packaged products within the range from which advice on investments will be given to that customer including an explanation of why the firm has selected particular product providers.
(4) Information given in the initial disclosure information about compensation arrangements made by an investment firm must:

(a) (if it relates to the activities of an establishment in the United Kingdom) be in English; or
(b) (if it relates to the activities of a branch in another EEA State) be in an official language of that EEA State.

(5) Information given in the initial disclosure information about the insurance mediation activities of a firm must be in English, unless the customer requests it to be, and the firm agrees to it being, in another language.

01/12/2004

COB 4.3.10

Firms can obtain from the FSA website http://www.fsa.gov.uk a specimen of the initial disclosure document. Subject to COB 4.3.9 R, a firm may produce its initial disclosure document by using its own house style and brand.

01/12/2004

Fees and commission statement

COB 4.3.11

(1) A fees and commission statement must contain the keyfacts logo, heading and text in the order shown in COB 4 Annex 6R and in accordance with the Notes.
(2) A firm must maintain as many versions of the fees and commission statement set out at COB 4 Annex 6R as are appropriate to the different bases on which it may conduct business with private customers:

(a) fee only (version 1);
(b) commission (or equivalent) only (version 2);
(c) fee or commission (or equivalent) (version 3);
(d) fee or commission (or equivalent); or combination of commission (or equivalent) and fee (version 4);
(e) commission (or equivalent); or combination of commission (or equivalent) and fee(version 5);
(f) fee; or combination of commission (or equivalent) and fee (version 6).

(3) A firm must keep its fees and commission statements up to date and keep a record of each fees and commission statement for a period of six years from the date on which it was updated or replaced.
(4) A firm must maintain a record of each particular fees and commission statement which it provides to a private customer (other than when given merely in response to a request).

01/12/2004

COB 4.3.12

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

01/12/2004

COB 4.3.13

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

01/12/2004

Record for distribution of range of packaged products

COB 4.3.14

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

01/12/2004

COB 4.3.15

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

01/12/2004

keyfacts information, terms of business and telephone sales

COB 4.3.16

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

01/12/2004

COB 4.3.17

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

01/12/2004

COB 4.3.18

(1) Where a firm's initial contact with a private customer (for a purpose set out in COB 4.3.3R (1)) is by telephone then the following information must be provided and requirements satisfied before proceeding further:

(a) the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;
(b) whether the firm offers packaged product from the whole market or from a limited number of companies or from a single company or single group of companies;
(c) whether the firm will provide the customer with advice on investments on packaged products;
(d) if the firm does not offer products from the whole market, that the customer can request a copy of the appropriate range of packaged products;
(e) whether the firm offers a fee based service, a commission based service, a service based on a combination of fee and commission, or a combination of these three types of services, and the consequences for the customer of proceeding with each type of service;
(f) that the information given under (a) to (e) will subsequently be confirmed in writing.

(2) A firm which complies with (1) will, subject to (3), satisfy the condition set out in item (1) of COB 4 Annex 1.
(3) If during the course of a telephone call a firm is to conclude a contract (whether for the provision of a mediation services and/or for the purchase or sale of a packaged product), it must as well as complying with (1) and (2) above satisfy the requirement in COB 4.2.5 R and COB 4 Annex 1.
(4) If a firm's initial contact with a private customer by telephone is such that COB 4.3.3 R (other than COB 4.3.3R (3)(a)(ii)) applies then, subject to any relevant exclusions, it must send the customer an initial disclosure document and a fees and commission statement as soon as is reasonably practicable following the conclusion of the call.

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

01/12/2004

COB 4.3.19

(1) COB 4.3.20 R to COB 4.3.25 R apply to a firm, other than an insurer, when it conducts any of the following in relation to life policies with or for an intermediate customer or a market counterparty:

(a) advising on investments; or
(b) dealing; or
(c) arranging.

(2) COB 4.3.26 R (disclosure by introducers) applies to a firm:

(a) when it introduces a private customer to another firm;
(b) other than an insurer when it introduces an intermediate customer or market counterparty to another firm.

14/01/2005

COB 4.3.20

(1) The information in COB 4.3.21 R must be provided to the client in a durable medium at any time before conclusion of the contract, and if necessary upon amendment or renewal thereof, unless (2) or (4) applies.
(2) The information in COB 4.3.21 R:

(a) may be provided orally if:

(i) the client requests this; or
(ii) the client requires immediate cover;

(b) need not be provided before conclusion of the contract if the contract is concluded by telephone, but if the client is a retail customer the requirements in COB 4.2.5 R and COB 4 Annex 1 must be satisfied.

(3) If (2) applies, the client must be provided with the information in COB 4.3.21 R in a durable medium immediately after the conclusion of the contract.
(4) The requirements in (1) do not apply to the extent that the information has already been given to the client on a previous occasion and that information is still likely to be accurate and up to date.

14/01/2005

COB 4.3.21

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

This table belongs to COB 4.3.20 R

The name and address of the firm and, where relevant, the name and address of the appointed representative.

The firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory status disclosure)).

That items 1 and 2 can be checked on the FSA Register by visiting the FSA's website www.fsa.gov.uk/register or by contacting the FSA on 0845 606 1234.

Whether the firm or any appointed representative of the firm has any holding, direct or indirect, representing more than 10 per cent of the voting rights or of the capital in an insurance undertaking.

Whether an insurance undertaking or parent of an insurance undertaking has a holding, direct or indirect, representing more than 10 per cent of the voting rights or of the capital in the firm or in any appointed representative of the firm.

In relation to the life policy provided, whether the firm offers the product:

(a)

on the basis of a fair analysis of the market; or

(b)

from a limited number of insurance undertakings; or

(c)

from a single insurance undertaking.

If (b) or (c) apply, the firm must also disclose whether it is contractually obliged to conduct insurance mediation activity in this way.

If the contract has not been offered on the basis of a fair analysis of the market, that the client can request a copy of the list of the insurance undertakings from which the firm has offered the product.

How to complain to the firm and, where relevant, that complaints may subsequently be referred to a named complaints scheme.

Where relevant, that compensation may be available from a named compensation scheme should the firm be unable to meet its liabilities; the firm must describe the extent and level of cover and how further information can be obtained.

14/01/2005

COB 4.3.22

(1) A firm must provide the information specified in COB 4.3.21 R:

(a) (if it relates to the activities of an establishment in the United Kingdom) in English; or
(b) (if it relates to the activities of a branch in another EEA State) in an official language of that EEA State.

(2) The information provided by a firm pursuant to COB 4.3.20 R and which relates to the firm's insurance mediation activities, must be in English, unless the customer requests it to be, and the firm agrees to it being, in another language.

14/01/2005

COB 4.3.23

A firm can, subject to COB 4.3.24 G, comply with COB 4.3.20 R by providing the information specified in COB 4.3.21 R in an initial disclosure document or, if appropriate, a combined initial disclosure document.

14/01/2005

COB 4.3.24

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

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

14/01/2005

Information to be provided to clients on request

COB 4.3.25

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

14/01/2005

Disclosure by introducers

COB 4.3.26

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

14/01/2005

Group Personal Pensions

COB 4.3.27

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

(1) that the firm will be providing advice on investments on group personal pension schemes and/or stakeholder pension schemes provided by the employer;
(2) whether the employee will be provided with advice on investments:

(a) that is restricted to the group personal pension scheme or stakeholder pension scheme provided the employer; or
(b) the matters in (a) and other products;

(3) the amount and nature (ie fees and/or commission (or equivalent) and/or a combination of fees and commission (or equivalent)) of any payments that the employee will have to pay for the advice on investments.

01/12/2004

COB 4 Annex 1

Exemptions from terms of business requirement

01/12/2004

COB 4 Annex 1.1

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

This table belongs to COB 4.2.5 R

Exempted type of firm or transaction or event:

Conditions for using the exemption:

(1)

Voice telephony communications

(a)

At the beginning of the telephone conversation, the firm must provide the customer with the name of the firm and (if the call is initiated by or on behalf of the firm) the commercial purpose of the call;

(b)

if the customer gives his explicit consent to receiving only limited information about the terms of business, the firm must in good time before the retail customer is bound by a contract or offer on the telephone, provide the customer with 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 services, including all related fees, charges and expenses, and all taxes paid through the firm or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the customer to verify it; and notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it;

(iv)

the existence or absence of a right to cancel 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 in accordance with COB 6.7.52 R (1)(b), as well as the consequences of not exercising it; and

(v)

that other information is available on request and the nature of that information;

(c)

if the customer does not give his explicit consent to receiving limited information, and the parties wish to proceed by telephone, the firm must in good time before the retail customer is bound by a contract or offer on the telephone, provide all of the information required by COB App 1 orally to the customer; and

(d)

in the case of either (b) or (c), the firm must immediately after conclusion of the contract, send the customer a full terms of business

(See also COB 3.8.21 G (Real time financial promotions) and COB 3.10 (Unsolicited real time financial promotions)).

(2)

The service is being provided exclusively by means of distance communication (other than telephone) which does not enable a terms of business to be provided before a contract is concluded

(a)

The service is provided in this way at the customer's request; and

(b)

the firm must send the terms of business to the customer immediately after conclusion of the contract

(3)

The firm has an initial service agreement with the customer

The designated investment business to be conducted is a successive operation or separate operation of the same nature to be performed for the customer under that initial agreement (see COB 1.11.3 R)

(4)

The firm has no initial service agreement with the customer but the designated investment business to be conducted is a successive operation or separate operation of the same nature for the customer (see COB 1.11.3 R)

The firm has performed an operation of the same nature for the customer within the last year

(5)

Life insurer

The firm is effecting a life policy issued or to be issued by it as principal

(6)

Operator of a collective investment scheme

The firm is:

(a)

conducting any designated business as part of scheme management activity; or

(b)

providing any service to the trustee or depositary of the scheme which is not part of the operator's scheme management activity; or

(c)

selling or purchasing as principal units in a scheme except a sale or purchase of units in an unregulated collective investment scheme under a distance contract with a retail customer

(7)

Trustee or depositary

The firm is acting as a trustee of a unit trust or depositary of an ICVC

(8)

Operator of investment trust savings scheme

The firm is:

(a)

bringing about a transaction in the shares of any investment trust that is the subject of the scheme; or

(b)

conducting any designated investment business as part of its activities as such (except a distance contract not within (a) with a retail customer)

(9)

Supplier of a published recommendation

The firm is supplying a published recommendation

(10)

OPS firms who are trustees of an OPS

The firm is carrying on any designated investment business as part of its OPS activity in relation to an occupational pension scheme of which it is trustee

(11)

Advising during preparation of terms of business

The advice on investments or information is provided solely for the purpose of preparing terms of business or entering into a client agreement

(12)

Designated investment business performed after termination of terms of business

The firm is acting for the purposes only of fulfilling any obligations still outstanding under the terms of business

(13)

Execution-only transactions

The firm is entering into or bringing about any execution-only transaction except:

(a)

a transaction in a contingent liability investment with or for a private customer; or

(b)

where the firm is entering into a distance contract with a retail customer, unless the contract:

(i)

relates solely to dealing as agent, advising or arranging by the firm; and

(ii)

is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.11.3 R)

(14)

Direct offer financial promotion

The firm is concluding a contract with a customer as a result of a direct offer financial promotion to which COB 3.9 (Direct offer financial promotions) applies. (COB 4.2.5 R (Requirement to provide terms of business to a customer) may therefore apply for a contract concluded as a result of a direct offer financial promotion communicated to a person outside the United Kingdom.)

(15)

The customer is an intermediate customer and not a retail customer

The firm must provide terms of business within a reasonable period of the firm beginning to conduct business with or for the customer

09/10/2004

COB 4 Annex 2

Terms of business content - general

01/12/2004

COB 4 Annex 2.1

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

This table belongs to COB 4.2.11 E

A firm's terms of business (including a client agreement) provided to a customer should, where relevant, include some provision about:

(1)

Commencement of the terms of business
When and how the terms of business are to come into force.

(2)

Regulator
The firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory Status Disclosure)).

(3)

Investment objectives
The customer's investment objectives.

(4)

Restrictions

(a)

Any restrictions on:

(i)

the types of designated investment in which the customer wishes to invest; and

(ii)

the markets on which the customer wishes transactions to be executed; or

(b)

that there are no such restrictions.

(5)

Services
The services the firm will provide.

(6)

Payments for services
Details of any payment for services payable by the customer to the firm, including where appropriate:

(a)

the basis of calculation;

(b)

how it is to be paid and collected; and

(c)

how frequently it is to be paid;

whether or not any other payment is receivable by the firm (or to its knowledge by any of its associates) in connection with any transaction executed by the firm, with or for the customer, in addition to or in lieu of any fees.

(7)

Investment manager
If the firm is to act as an investment manager:

(a)

the arrangements for giving instructions to the firm and acknowledging those instructions;

(b)

the initial value of the managed portfolio;

(c)

the initial composition of the managed portfolio; and

(d)

the period of account for which statements of the portfolio are to be provided in accordance with COB 8.2.4 (Requirement for a periodic statement) (where periodic statements are required).

(8)

Accounting
The arrangements for accounting to the customer for any transaction executed on his behalf.

(9)

Cancellation and withdrawal

(a)

In the case of a non-packaged product ISA, PEP or CTF, an explanation of any right to withdraw (see COB 6.7 (Cancellation and withdrawal)) or, if it is the case, a statement that such rights will not apply.

(b)

(In the case of ISAs), information about:

(i)

the options available on cancellation;

(ii)

how cancellation will operate in circumstances where the account forms part of, for example, a maxi-ISA which contains other components; and

(iii)

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.

(10)

Unsolicited real time financial promotion
In the case of a private customer, the circumstances, if any, in which the firm or its representative or employees may communicate an unsolicited real time financial promotion to the private customer.

(11)

Acting as principal
That the firm may act as principal in a transaction with the customer, if this is the case.

(12)

Conflict of interest and material interest
When a material interest or conflict of interest may or does arise, the manner in which the firm will ensure fair treatment of the customer as required by COB 7.1.3 R (Fair treatment).

(13)

Broker fund adviser
If the firm acts as a broker fund adviser for a private customer, a statement explaining the nature of the firm's dual role as adviser to the customer and adviser to the life office or operator in question.

(14)

Use of soft commission agreements
If the firm is to be authorised under the terms of business to undertake transactions with or through the agency of another person with whom the firm has a soft commission agreement, the prior disclosure required by COB 2.2.16 R (Prior disclosure).

(15)

Customer's understanding of risk
When a firm chooses to fulfil its obligations under COB 5.4.3 R (Requirement for risk warnings) in the terms of business in relation to any of the following:

(a)

warrants or derivatives;

(b)

non-readily realisable investment;

(c)

penny shares;

(d)

securities which may be subject to stabilisation;

(e)

stock lending activity;

(f)

a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6);

the relevant risk warning.

(16)

Unregulated collective investment scheme
That the services to be provided by the firm will or may include advice on investments relating to, or executing transactions in units in unregulated collective investment schemes, if this is the case.

(17)

Underwriting
That the firm may enter into transactions for the customer, either generally or subject to specified limitations, when the customer will incur obligations as an underwriter or sub-underwriter, if this is the case.

(18)

Stock lending
In the case of a private customer, that the firm may undertake stock lending activity with or for the private customer (if this is the case), specifying the assets to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the private customer in respect of the lending.

(19)

Right to realise a private customer's assets
The information required by COB 7.8.3 R (Contractual rights to realise a private customer's assets), if applicable.

(20)

Complaints procedure
How to complain to the firm, and a statement, if relevant, that the customer may subsequently complain directly to the Financial Ombudsman Service.

(21)

Compensation
Whether or not compensation may be available from the compensation scheme, should the firm be unable to meet its liabilities, and information about any other applicable named compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained. (See the example in COB 5.5.11 G (Investment firms: compensation information)).

(22)

Termination method
How the terms of business may be terminated, including a statement:

(a)

That termination will be without prejudice to the completion of transactions already initiated, if this is the case;

(b)

That the customer may terminate the terms of business by written notice to the firm and when this may take effect;

(c)

That if the firm has the right to terminate the terms of business, it may do so by notice given to the customer, and specifying the minimum notice period, if any; and

(d)

of any agreed time after which, or any agreed event on which, the terms of business will terminate.

(23)

Termination consequences
The way in which transactions in progress are to be dealt with upon termination.

(24)

Contracting out of best execution
When the obligation to provide best execution can be and is to be waived, a statement:

(a)

that the firm does not owe a duty of best execution; or

(b)

the circumstances in which it does not owe such a duty.

(25)

Authorised professional firms
If the firm is an authorised professional firm and may conduct a non-mainstream regulated activity with or for the customer (whether with or without any other regulated activity for the same customer), an explanation, with respect to that activity, of:

(a)

how to complain to the firm, where the customer may subsequently complain and the mechanisms that operate in respect of such a subsequent complaint; and

(b)

what, if any, compensation arrangements are available to the customer if the firm is unable to meet any of its liabilities, or the availability of an explanation describing those arrangements.

01/12/2004

COB 4 Annex 3

Terms of business content - managing investments

01/12/2004

COB 4 Annex 3.1

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

This table belongs to COB 4.2.11 E.

Managing investments on a discretionary basis

Additional contents in respect of discretionary management
In respect of discretionary management, terms of business (including a client agreement) provided to a customer should, in addition, include some provision about each of:

(1)

Extent of discretion

(a)

the extent of the discretion to be exercised by the firm, including any restrictions on:

(i)

the value of any one investment; and

(ii)

the proportion of the portfolio which any one investment or any particular kind of investment may constitute; or

(b)

that there are no such restrictions.

(2)

Periodic statements

(a)

The frequency of any periodic statements, except when a periodic statement is not required by COB 8.2.7 (Promptness, suitable intervals and adequate information); and

(b)

whether those statements will include some measure of performance, and if so, what the basis of that measurement will be.

(3)

Valuation

The basis on which assets comprised in the portfolio are to be valued.

(4)

Borrowings

That the firm may commit the customer to supplement the funds in the portfolio, including borrowing on his behalf, if this is the case, and, if it may:

(a)

the circumstances in which the firm may do so;

(b)

whether there are any limits on the extent to which the firm may do so and, if so, what those limits are; and

(c)

any circumstances in which such limits may be exceeded.

(5)

Underwriting commitments

If it is the case, that the firm may commit the customer to any obligation to underwrite or sub-underwrite any issue or offer for sale of securities, and:

(a)

whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and

(b)

whether there are any financial limits on the extent of the underwriting and, if so, what these limits are.

01/12/2004

COB 4 Annex 4

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

01/12/2004

COB 4 Annex 4.1

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

01/12/2004

COB 4 Annex 5

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

01/12/2004

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

01/12/2004

COB 4 Annex 6

Fees and Commission Statement template and completion notes

01/12/2004

COB 4 Annex 6.1

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

01/12/2004

COB 4 Annex 7R

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

01/12/2004

COB 4 Annex 7.1

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

A firm must state in each fees and commission statement it issues:

(a)

its maximum rate of commission (or equivalent) for each product group in the statement;

(b)

the market average rate for each product group;

(c)

an illustration in the example column of an amount of commission (or equivalent) calculated by reference to its maximum rate for each product group in the statement and the example contribution levels stated in the tables (ie eg £100 per month or £10,000 lump sum).

Maximum rate of commission (or equivalent)

The maximum rate of commission (or equivalent) specified by a firm must be the maximum amount that the firm decides to retain.

If the maximum commission (or equivalent) is not apparent from the rates supplied by a product provider then a firm must adopt the net present value comparison method set out below.

For any product group, the maximum rate of commission (or equivalent) must not be more than a firm could reasonably expect to receive from any product provider.

Identifying a maximum rate of commission - comparison of net present value

A firm must use the assumptions set out in paragraphs 8-12 below when calculating the maximum commission figures to be inserted into its fees and commission statement. Where a firm uses a tool provided by the FSA for this express purpose (for example a calculator provided by the FSA on a cd-rom for the purpose of calculating the maximum commission figures), the calculations can be presumed to have used these assumptions.

The net present value for each commission (or equivalent) rate must be calculated as the sum of the discounted values of each commission (or equivalent) payment that the firm may retain for that commission (or equivalent) rate, using the assumptions set out in paragraphs 8-12 below.

For any product group, the firm's maximum rate of commission (or equivalent) is the commission (or equivalent) rate in that product group with the highest net present value.

A firm must use the assumptions outlined in Table 1 when calculating net present values.

Table of assumptions to be used in calculating net present values.

Product

Discount Rate

Net growth rate

Lapse rate (per annum)

Assumed Term

Withdrawal rate (per annum)

Regular premiums/contributions

Collective investment scheme

Net growth rate + 3%

10 years

Endowment

Net growth rate + 3%

Maturity

Personal Pensions / SHP

Net growth rate + 3%

12% for 5 years then 5%

Maturity

Whole of Life

Net growth rate + 3%

37 years

Single premiums/contributions

Annuities

Net growth rate + 3%

16 years

Bonds

Net growth rate + 3%

2.5%

7 years

Collective investment scheme

Net growth rate + 3%

7 years

Personal Pensions / SHP

Net growth rate + 3%

2.5%

10 years

Income withdrawals

Net growth rate + 3%

10 years

Commission (or equivalent) payments must be assumed to be payable as outlined in

The timing of commission (or equivalent) payments

Type of commission (or equivalent payment)

When payable

Initial / indemnified commission

immediately at outset of the contract

Commission as a % of premiums

at the time of payment of the relevant monthly premium

Commission as a % of fund value

at the end of each policy month, immediately after any withdrawals and lapses, at a monthly rate of 1/12th of the annual % of the fund value

10.

Withdrawals must be assumed to occur monthly at a rate that is 1/12th of the assumed annual withdrawal rate.

11.

Lapses must be assumed to occur monthly, at a rate that is 1/12th of the assumed annual lapse rate. In calculating the net present value, no commission should be assumed to be payable on the proportion of policies that are assumed to have lapsed.

12.

Mortality rates must be ignored.

Describing the maximum rate of commission (or equivalent)

13.

Subject to paragraph 14, a firm must use each appropriate description in (ie one or more) to describe the maximum rates of commission (or equivalent) in its fees and commission statement.

COB 4 Annex 7R Table 3

Type of commission (or equivalent)

Descriptions

Regular premium or contributions

i. "X% of the first 12 month's payments"

ii. "X % of each of the first n month's payments"

iii. "Y% of all payments"

iv. "Y% of all payments from month p"

v. "Z% of your fund value each year from year q".

Lump sums

i. "X% of the amount you invest"

ii. "Z% of your fund value each year from year q"

14.

A firm must adapt any of the descriptions prescribed by Tables 3 so that its fees and commission statements adequately describe the particular characteristics of a firm's commission (or equivalent) arrangements. For example, a firm can and should re-express the percentage figure, in the description taken from Table 3, in a "shape" (that is a description of the pattern of payments) that it considers to be typical of the way in which it retains commission (or equivalent). This may differ from the shape in which the particular maximum rate of commission (or equivalent) is actually payable. Another example of the way in which a firm should adapt the descriptions in Table 3 is if the commission received by a firm is payable as a fixed cash amount per policy then alternative wording should be used by the firm to adequately describe the fixed nature of the payment in its description of the rate of commission.

15.

A firm that uses more than one of the descriptions in must make it clear that it has used more than one description (eg by inserting the word "plus" in between each description).

16.

The maximum rate of commission (or equivalent) must be rounded to the nearest 0.1% unless the commission (or equivalent) is a multiple of 0.25% of a fund value in which case it should be shown rounded to the nearest 0.25%.

Identifying and describing the market average

17.

The FSA will publish the net present value of market average rates on its website from time to time.

18.

A firm must express the market average rate in the shape or pattern of payments which most closely corresponds to the number, frequency and nature of payments in the shape or pattern of payments used to describe the firm's maximum commission (or equivalent).

19.

A firm can use any suitable tool or method to re-express the market average in its fees and commission statements, as long as that method uses the assumptions set out in 8-12 above (for example a calculator contained on a cd-rom of the type referred to in paragraph 5).

20.

The market average rate shown in the fees and commission statement must be a re-expression of the published net present value of the market average using the assumptions set out in 8-12 above. Subject to any rounding in the final description, this re-expression should have the same net present value as the published market average.

21.

A firm must describe the market average rate using the most appropriate description in the Descriptions column in Table 3.
The market average may be equivalently expressed by adopting the method set out in the worked example in COB 4 Annex 9G below, used in conjunction with tables of net present value factors that will be made available by the FSA. These factors will be calculated using the assumptions set out above. Alternatively, the market average expression may be expressed using such other tools, systems or methods as the FSA may make available from time to time.

Changes in the market average

22.

A firm must ensure that its fees and commission statement are revised to take account of changes in the market average rates published by the FSA by not later than:

(a)

2 months from the date on which the FSA prescribes amended market average rates if the effect of the amendment is to reduce any of the averages for a relevant product group by 4% or more of the previous average; and

(b)

in all other cases at such time as the firm has occasion to revise its statements.

The example

23.

Subject to paragraph 25, a firm must use, in the example in its fees and commission statement, the description in Table 4 that corresponds to description(s) of the maximum rate of the commission (or equivalent) that appears in its fees and commission statement.

COB 4 Annex 7 R Table 4

Type of commission (or equivalent )

Description of the maximum rate of commission (or equivalent )

Corresponding description to be used in the example

Regular premium or contributions

i. "X% of the first 12 month's payments"

i. "£X initially"

ii. "X % of each of the first n month's payments"

ii. "£X spread evenly over the first n months"

iii. "Y% of all payments"

iii. "£Y each year"

iv. "Y% of all payments from month p"

iv."£Y each year from month p"

v. "Z% of your fund value each year from year q".

v. "£Z in year p, £Z + A in year p + 1, and so on (the actual amounts will vary in line with your fund value)"

Lump sums

i. "X% of the amount you invest"

"£X initially"

ii. "Z% of your fund value each year from year q"

"£Z each year from year p (The actual amounts will vary in line with your fund value)"

24.

A firm that uses more than one of the descriptions in Table 4 must make it clear that it has used more than one description (eg by inserting the word "plus" in between each description).

25.

A firm must adapt any of the descriptions prescribed by Tables 3 and 4 as are necessary to ensure that a fees and commission statement adequately describes the particular characteristics of a firm's commission (or equivalent) arrangement. Examples of the way in which the descriptions could be adapted are provided in paragraph 14 above.

01/12/2004

COB 4 Annex 8

Worked example of commission disclosure in a fees and commission statement

01/12/2004

COB 4 Annex 8.1

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

01/12/2004

COB 4 Annex 9

Example of a completed fees and commission statement

01/12/2004

COB 4 Annex 9.1

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

01/12/2004

COB 5

Advising
and selling

COB 5.1

Advising on packaged products

01/12/2004

Application

COB 5.1.1

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

06/04/2005

Purpose

COB 5.1.2

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

01/12/2004

Scope and range of advice on packaged products: general

COB 5.1.6A

(1) A firm which gives advice on investments to private customers about packaged products must, subject to (2), take reasonable steps to ensure that the scope of the advice on investments given to a private customer is based upon a selection from one of the following:

(a) the whole market (or the whole of a named sector of the market); or
(b) a limited number of product providers; or
(c) a single company or single group of companies.

(2) A firm may change the scope of the advice on investments it gives to a particular private customer by widening the scope from that in (1)(c) through to that in (b) or (a) or from (b) to (a), but it must take reasonable steps to ensure that before doing so the customer is made aware of the proposed change by a communication in a durable medium.
(3) If a firm:

(a) extends the scope of the advice on investments it will give a private customer; or
(b) extends the range of packaged products on which its advice on investments will be based;

and as a consequence the firm's arrangements for its remuneration are materially altered, the firm must provide the customer with a new and appropriate fees and commission statement.

01/12/2004

COB 5.1.6B

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

01/12/2004

Range of packaged products: appointed representatives

COB 5.1.6C

(1) A firm must maintain in writing and keep up to date a statement of:

(a) the scope of advice on investments (within the meaning of COB 5.1.6AR (1)) which each of its appointed representatives is, through its contract with the firm, permitted to give; and including
(b) the range (or ranges) of packaged products on which each appointed representative advises.

(2) In applying the rules in COB to a firm in respect of its appointed representatives, references to a firm's scope or range of packaged products are to be taken as references to the scope (or scopes) and to the range (or ranges) of its appointed representatives.

01/12/2004

COB 5.1.6D

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

01/12/2004

Range of packaged products: records

COB 5.1.6E

(1) A firm must make, and keep up to date, a record of the scope (or scopes) of the advice (within the meaning of COB 5.1.6AR (1)) which it provides, its range (or ranges) of packaged products and the associate or ranges of each of its appointed representatives (if different from the firm's).
(2) The record in (1) must be retained for six years from the date on which it was superseded by a more up-to-date record.
(3) The record for distribution to a customer must be the particular range of packaged products which is appropriate for the services provided to that customer and include details of:

(a) the identity of the product providers within the range whose packaged products the firm may sell; and
(b) a list of the categories of their products the firm may sell.

(4) In the case of a firm whose scope of advice on investments is the selection of packaged products from the whole of the market (or from the whole of a sector of the market) and which provides no other scope of advice on investments, it will be sufficient if the firm's record is restricted to confirming that the advice on investments it provides is given on this basis (and in the case of a firm which provides advice on investments on the whole of a sector of the market, confirms the nature and parameters of that sector).
(5) For the purposes of the record in (1), (3) and (6), in relation to the packaged products within a particular category available from a product provider:

(a) where a firm provides services to a particular customer in relation to all of the products within that category the record may refer simply to that category and the product provider and not each particular product within the category; and
(b) notwithstanding (3)(b), where a firm does not provide services to a particular customer in relation to all of the products within that category the record must give details of each of the products in the category on which it does provide services.

(6) A firm must maintain a record of the particular range of packaged products on which its advice on investments to each private customer is based and such a record must be kept for six years from the date on which the advice on investments is given.

01/12/2004

Branding packaged products

COB 5.1.6F

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

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

01/12/2004

COB 5.1.6G

A firm must display the brand of the product provider at least as prominently as any other brand in the documentation that it makes available to its customer's in relation to a packaged product.

01/12/2004

Staying within the range of advice of packaged products

COB 5.1.7

(1) A firm must, subject to (2), take reasonable steps to ensure that neither it nor any of its representatives gives advice on investments to a private customer about the purchase of a packaged product unless the product is:

(a) within the firm's range (or ranges) of packaged products; and
(b) is within the particular range of packaged products on which advice on investments is given to that customer.

(2) The restriction in (1) does not apply where COB 5.3.8A R (Suitability of packaged products: out-of-range recommendations) applies.

01/12/2004

COB 5.1.9

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

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

01/12/2004

COB 5.1.10

COB 5.1.7 R (1) applies to advice on investments given to private customers about the components of an ISA which are packaged products.

01/12/2001

Restriction on holding out

COB 5.1.11A

(1) A firm that, in relation to packaged products, provides advice on investments to a private customer, must not hold itself out as acting independently unless it intends to:

(a) provide advice on investments to that customer that is on packaged products from the whole market (or the whole of a sector of the market); and
(b) offers the customer the opportunity of paying fee for the provision of such advice.

(2) A firm which in accordance with (1) holds itself out as independent must ensure that the advice on investments subsequently given to the private customer concerned is on packaged products from the whole market (or the whole of a sector of the market).
(3) A firm will not contravene (2) and does not need to offer the option of fee based advice on investments in accordance with (1), if it acts in accordance with COB 4.3.27 R.

01/12/2004

COB 5.1.11B

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

01/12/2004

Representatives to have access to whole range

COB 5.1.12

(1) A firm must, subject to (2), take reasonable steps to ensure that those of its representatives who give advice on investments on packaged products are able to sell with advice on investments each packaged product within the particular range of packaged products from which products are selected for a customer.
(2) A firm may restrict the packaged products it authorises a particular representative to sell, if:

(a) that representative is not sufficiently competent to sell certain types of product; and
(b) it requires that representative to identify instances when another packaged product within the relevant range packaged products ought to be recommended; the representative must then be required to refer the private customer to another representative of the firm who is authorised and competent to sell that product.

01/12/2004

Remuneration structure and referrals

COB 5.1.13

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

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

01/12/2004

Excess charges on price-capped products

COB 5.1.14

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

01/12/2004

COB 5.1.14A

Products subject to price caps within COB 5.1.14 R would include ISAs marketed as "CAT standard".

01/12/2004

COB 5.2

Know your customer

01/12/2004

Application

COB 5.2.1

This section applies to a firm that:

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

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

06/04/2005

COB 5.2.2

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

01/12/2001

COB 5.2.3

When a firm provides limited advice on investments to a private customer, the firm should not treat any resulting transaction as an execution-only one.

01/12/2001

Purpose

COB 5.2.4

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

01/12/2001

Requirement to know your customer

COB 5.2.5

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

01/12/2001

COB 5.2.6

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

01/12/2001

COB 5.2.7

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

01/12/2001

COB 5.2.8

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

01/12/2001

Record keeping: personal and financial circumstances

COB 5.2.9

(1) Unless (2) applies, a firm must make and retain a record of a private customer's personal and financial circumstances that it has obtained in satisfying COB 5.2.5 R. The firm must retain the record for a minimum period after the information is obtained, as follows:

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

(2) A firm need not retain the record where following a personal recommendation to a private customer in connection with a designated investment, the private customer does not proceed with the recommendation or any part of it.
(3)

01/01/2005

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

COB 5.2.10

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

01/01/2003

COB 5.2.11

Guidance on the collection of information about a private customer.

This table belongs to COB 5.2.8 G.

Guidance on the collection of personal and financial information about a private customer

COB 5.2.5 R does not prescribe the method of obtaining sufficient personal and financial information about a private customer. A firm may design and use a process suitable for the market in which it transacts business. This process is often described as "fact-finding" and the document which records the information is often known as the "fact-find".

(a)

Information collected from a private customer should, at a minimum provide an analysis of a customer's personal and financial circumstances leading to a clear identification of his needs and priorities so that, combined with attitude to risk, a suitable investment can be recommended.

(b)

A customer information record can be electronic or paper based and it should be readily available and accessible at all times.

(c)

There is no requirement under the regulatory system to obtain the private customer's consent in writing to a customer information record. When a customer is to give consent in writing to an information record, the request for consent should include a prominent warning advising the customer to read the information record in full before giving consent.

(d)

Firms may send a customer a copy of the information record as proof of compliance with COB 5.3.14 R (Suitability letter). Further guidance on the contents of suitability letters is contained in COB 5.3.29 G.

Affordability

In assessing whether a private customer can afford an investment, due regard should be given to that customer's current level of income and expenditure, and any likely future changes to his income and expenditure.

Friendly society life policies

When recommending a friendly society life policy, the premium of which does not exceed £50 a year or, if the premiums are payable weekly, £1 a week, the firm should:

(a)

obtain details of the private customer's (and his dependants') net income and expenditure; and

(b)

keep a record of the reasons why the recommended transaction is considered to be suitable for that individual customer.

01/12/2004

Statement of demands and needs

COB 5.2.12

(1) Unless either COB 5.2.13 R or COB 5.2.14 R applies, a firm must provide the client with a statement of his demands and needs if:

(a) it makes a personal recommendation of a life policy to a client; or
(b) it arranges (whether through issuing a direct offer financial promotion or otherwise) for the client to enter into a life policy.

(2) Unless (3) applies, the statement in (1) must be provided:

(a) as soon as practicable, and in any event before the conclusion of the contract for the life policy; and
(b) in a durable medium.

(3) A firm may provide the statement in (1) orally if:

(a) the client requests it; or
(b) immediate cover is necessary;

but in both cases the firm must provide the information in (1) immediately after the conclusion of the contract, in a durable medium.

14/01/2005

COB 5.2.13

If the only contact between the firm and the client before conclusion of the contract is by telephone, the statement of demands and needs must be provided immediately after the conclusion of the contract, in a durable medium.

14/01/2005

COB 5.2.14

A firm need not provide a statement of demands and needs if the required information is contained in a suitability letter, or explanation of a personal recommendation, provided under COB 5.3.

14/01/2005

COB 5.2.15

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

14/01/2005

COB 5.2.16

COB 5.2.17 G contains guidance on the contents of the statement required by COB 5.2.12R (1).

14/01/2005

COB 5.2.17

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

This table belongs to COB 5.2.16 G.

Introduction

(1)

Where relevant, the statement should explain simply and clearly why the personal recommendation is viewed as suitable, having regard to the client's personal demands and needs.

Style and Presentation

(2)

The style and presentation of the statement is left for the firm to decide, so that a statement can be designed which works best for the market in which the firm transacts business. A statement is more likely to be effective if it demonstrates these features:

(a)

simplicity and plain language: when technical terms need to be incorporated, they should be explained if the client is unlikely to understand their meaning; and

(b)

concise and clear messages: lengthy explanations and extensive statements are likely to reduce the effectiveness of the statement, and make the client less likely to read the statement properly.

14/01/2005

COB 5.2.18

Firms are reminded of the record keeping obligations under SYSC 3.2.20 R

01/12/2004

COB 5.3

Suitability

01/12/2004

Application

COB 5.3.1

This section applies to a firm when it:

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

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

06/04/2005

COB 5.3.2

This section does not apply to a firm in respect of a direct offer financial promotion, except in respect of a promotion of a personal pension scheme under COB 5.3.28 R.

01/12/2001

COB 5.3.3

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

09/10/2004

Purpose

COB 5.3.4

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

01/12/2001

Requirement for suitability generally

COB 5.3.5

(1) A firm must take reasonable steps to ensure that, if in the course of designated investment business:

(a) it makes any personal recommendation to a private customer to:

(i) buy, sell, subscribe for or underwrite a designated investment (or to exercise any right conferred by such an investment to do so); or
(ii) elect to make income withdrawals; or
(iii) enter into a pension transfer or pension opt-out from an occupational pension scheme; or

(b) it effects a discretionary transaction for a private customer (except as in (5)); or
(c) it makes a personal recommendation to an intermediate customer or a market counterparty to take out a life policy;

the advice on investments or transaction is suitable for the client.
(2) If the recommendation or transaction in (1) relates to a packaged product:

(a) it must, subject to COB 5.3.8 G - COB 5.3.10 R, be the most suitable from the range of packaged products, on which advice on investments is given to the client as determined by COB 5.1.7 R; and
(b) if there is no packaged product in the firm's relevant range of packaged products which is suitable for the client, no recommendation must be made.

(3) In making the recommendation or effecting the transaction in (1), the firm must have regard to:

(a) the facts disclosed by the client; and
(b) other relevant facts about the client of which the firm is, or reasonably should be, aware.

(4) A firm which acts as an investment manager for a private customer must take reasonable steps to ensure that the private customer's portfolio or account remains suitable, having regard to the facts disclosed by the private customer and other relevant facts about the private customer of which the firm is or reasonably should be aware.
(5) Where, with the agreement of the private customer, a firm has pooled his funds with those of others with a view to taking common discretionary management decisions, the firm must take reasonable steps to ensure that a discretionary transaction is suitable for the fund, having regard to the stated investment objectives of the fund.

01/12/2001

COB 5.3.5A

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

01/12/2004

Suitability of packaged products: out-of-range recommendations

COB 5.3.8A

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

01/12/2004

COB 5.3.8B

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

01/12/2004

Requirement for suitability: whole-of-market advisers

COB 5.3.10A

(1) A firm which holds itself out as giving personal recommendations to private customers on packaged products from the whole market (or the whole of a sector of that market) must not give any such personal recommendation unless it:

(a) has carried out a reasonable analysis of a sufficiently large number of packaged products which are generally available from the market (or sector of the market); and
(b) conducts the analysis in (a) on the basis of criteria which reflect adequate knowledge of the packaged products generally available from the market as a whole (or from a relevant sector).

(2) A firm in (1) must satisfy the obligation in COB 5.3.5 R (2) by taking reasonable steps to ensure that a personal recommendation given to a private customer is:

(a) in accordance with its analysis carried out under (1); and
(b) is the packaged product which on the basis of that analysis is the most suitable to meet the customer's needs.

01/12/2004

COB 5.3.10B

(1) A firm which holds itself out as giving personal recommendations to intermediate customers or market counterparties on life policies from the whole market (or from a relevant sector) must not give any such personal recommendation unless it:

(a) has carried out an analysis of a sufficiently large number of life policies which are generally available from the market (or sector of the market); and
(b) conducts the analysis in (a) on the basis of criteria which reflect adequate knowledge of the life policies generally available from the market as a whole (or from a relevant sector).

(2) A firm in (1) must satisfy the obligation in COB 5.3.5 R (2) by taking reasonable steps to ensure that a personal recommendation given to a client is:

(a) in accordance with its analysis carried out under (1); and
(b) for a life policy which on the basis of that analysis is suitable to meet the client's needs.

01/12/2004

Requirement for suitability: manager of OPS and stakeholder pension scheme

COB 5.3.12

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

01/12/2004

Requirements for suitability: other specific requirements

COB 5.3.13

(1) COB 5.3.20 R contains specific rules applicable to the suitability of broker funds.
(2) COB 5.3.21 R - COB 5.3.27 R contain specific rules applicable to the suitability of pension transfers and pension opt-outs.
(3) COB 5.3.28 R contains specific rules applicable to the promotion of personal pension schemes, including group personal pension schemes by means of direct offer financial promotions.
(4) COB 5.3.29 G contains guidance which is relevant for assessing the suitability of:

(a) pension transfers and pension opt-outs;
(b) personal pension schemes and free-standing additional voluntary contributions (FSAVCs) compared to stakeholder pension schemes;
(c) hybrid products;
(d) industrial assurance policies;
(e) income withdrawals ;
(f) ISA, PEP or CTF transfers; and
(g) contracting out of SERPS; and
(h) borrowing to invest.

01/12/2001

Requirement for a suitability letter: other specific requirements

COB 5.3.14

(1) A firm that gives a personal recommendation, in relation to a life policy, to a person who is a policyholder or a prospective policyholder of a life policy, must provide the person with a suitability letter prior to the conclusion of the contract, unless one of the exceptions in COB 5.3.19 R applies.
(2) If, following a personal recommendation by a firm that does not fall within (1), a private customer:

(a) buys, sells, surrenders, converts, cancels, or suspends premiums for or contributions to, a pension contract or a stakeholder pension scheme; or
(b) elects to make income withdrawals; or
(c) acquires a holding in, or sells all or part of a holding in, a scheme; or
(d) enters into a pension transfer or pension opt-out from an OPS;

the firm must provide the customer with a suitability letter, within the time period stipulated by COB 5.3.18 R, unless one of the exceptions in COB 5.3.19 R applies.

01/12/2004

COB 5.3.15

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

01/12/2001

COB 5.3.16

The suitability letter in COB 5.3.14 R must:

(1) explain why the firm has concluded that the transaction is suitable for the customer, having regard to his personal and financial circumstances;
(2) contain a summary of the main consequences and any possible disadvantages of the transaction;
(3)

(a) in the case of a personal pension scheme which is not a stakeholder pension scheme, explain the reasons why the firm considers the personal pension scheme to be at least as suitable as a stakeholder pension scheme;
(b) in the case of an FSAVC:

(i) if the customer has the alternative of a stakeholder pension scheme, explain the reasons why the firm considers the recommended contract to be at least as suitable as a stakeholder pension scheme or as any additional voluntary contribution (AVC) or the facility to make additional contributions to the occupational pension scheme which may be available; or
(ii) if the customer does not have the alternative of a stakeholder pension scheme, explain the reasons why the firm considers the recommended contract to be at least as suitable as any AVC or the facility to make additional contributions to the occupational pension scheme which may be available;

(4) identify the individual who is authorised by the firm to advise on the type of product that has been recommended;
(5) if the recommended product is from a product provider (or if relevant, an undertaking in the immediate group of that provider) which is identified in section 6 of the firm's initial disclosure document given in accordance with COB 4.3.3R (1), include the information given in section 6 or in section 6 of the firm's combined initial disclosure document; and
(6) in the case of a recommendation by a firm under COB 5.3.8A R (Suitability of packaged products: out-of-range recommendations) explain why it has recommended a packaged product outside the firm's range of packaged products, including why it is suitable for the customer.

01/12/2004

COB 5.3.17

COB 5.3.30 G provides guidance on the contents of suitability letters.

01/12/2001

COB 5.3.18

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

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

09/10/2004

COB 5.3.18A

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

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

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

14/01/2005

COB 5.3.18B

If the only contact between the firm and the client before conclusion of the contract is by telephone, the suitability letter must be provided immediately after the conclusion of the contract, on a durable medium.

14/01/2005

Suitability: intermediate customers and market counterparties

COB 5.3.18C

(1) If a firm makes a personal recommendation to an intermediate customer or a market counterparty to take out a life policy, it must explain to the client the reasons for personally recommending that life policy.
(2) The explanation required under (1) must:

(a) take account of the complexity of the life policy proposed; and
(b) be provided to the client before the contract is concluded.

14/01/2005

COB 5.3.18D

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

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

14/01/2005

Exceptions from requirement to provide a suitability letter

COB 5.3.19

COB 5.3.14 R does not apply:

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

01/12/2004

Record keeping requirements

COB 5.3.19A

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

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

01/01/2003

Suitability of broker funds

COB 5.3.20

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

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

01/12/2001

Suitability of pension transfers and opt-outs

COB 5.3.21

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

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

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

01/12/2001

COB 5.3.22

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

01/12/2001

COB 5.3.23

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

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

01/12/2001

COB 5.3.24

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

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

01/12/2001

COB 5.3.25

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

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

01/12/2001

COB 5.3.26

[deleted]

(1) Every six months, a firm must notify the FSA, in writing, of the number of pension opt-out and the number of pension transfer transactions which it has arranged during the previous six months. A firm need not make a notification if it has not arranged any such transactions.
(1A) A firm must also notify the FSA, in writing, at quarterly intervals, of the following details in respect of the preceding quarter:

(a) the number of execution-only:

(i) pension opt-outs arranged if they exceed 1% of all the firm's pension opt-outs arranged during the quarter; and
(ii) pension transfers arranged if they exceed 1% of all the firm's pension transfers arranged during the quarter;

(b) the number of:

(i) pension opt-outs arranged against the firm's advice if they exceed 1% of all the firm's pension opt-outs arranged by the firm during the quarter; and
(ii) pension transfers arranged against the firm's advice if they exceed 1% of all the firm's pension transfers arranged by the firm during the quarter; and

(c) the number of pension opt outs and the number of pension transfers arranged on a correspondence-only basis by the firm during that quarter.

(1B) A firm must provide the information required by (1) and (1A) as soon as reasonably practicable after the end of the period.
(2) A firm must make records of the notifications required by (1) and (1A) and retain them indefinitely.

01/05/2003

COB 5.3.27

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

01/12/2001

Suitability of personal pension schemes: promotions to employees

COB 5.3.28

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

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

01/01/2003

COB 5.3.29

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

Suitability of guidance

Pension Transfers and Pension Opt-outs

When advising a customer who is, or is eligible to be, an active member of a defined benefits occupational pension scheme whether he should opt out or transfer, a firm should:

(a)

start by assuming it will not be suitable; and

(b)

only then consider it to be suitable if it can clearly demonstrate on the evidence available at the time that it is in the customer's best interests.

When the firm is recommending a customer to transfer or opt out of any other type of occupational pension scheme, the suitability letter should include:

(a)

a clear explanation why transferring or opting out is more suitable than remaining in the occupational pension scheme;

(b)

a request for the customer to contact the firm immediately should clarification or further information be needed or if the letter does not match the customer's understanding of why the transfer or opt-out has been recommended;

(c)

a statement to the effect that the firm has relied on information supplied by the customer and the occupational pension scheme;

(d)

particularly with pension opt-outs, an arithmetical analysis setting out the financial implications of leaving the scheme;

Pension Opt-outs only

When advising on a pension opt-out from an occupational pension scheme, a firm should:

(a)

identify all the rights and benefits available to the customer under the occupational pension scheme and carefully consider the effect of replacing them with the very different benefits of a personal pension; the following factors should be taken into account relating to the occupational pension scheme:

(i)

spouse's, dependants' and children's pensions;

(ii)

early retirement provision, including retirement in ill-health;

(iii)

revaluation rates both in deferment and payment, and whether they are guaranteed or discretionary (and if discretionary, whether likely to continue);

(iv)

ancillary benefits (for example, tax-free cash or lump-sum death benefits);

(v)

transfer club arrangements, where applicable;

(vi)

the customer's contribution and the employer's contribution;

(vii)

benefits on leaving service;

(viii)

whether or not eligibility for other benefits, such as permanent health insurance, is dependent on being a member of the occupational pension scheme;

(ix)

the financial security of the occupational pension scheme, by reference (for example) to the last actuarial statement or the most recent trustee's report and accounts; and

(b)

take into account the following additional factors:

(i)

whether or not the employer would contribute to the personal pension scheme;

(ii)

the charging structure of the personal pension and its impact on transfer values in the early years;

(iii)

subjective factors relating to the customer's personal circumstances such as;

future career plans and earning prospects (including any reasonable likelihood of career progression making better occupational terms available) and intended retirement date;

attitude towards earnings-related compared with money-purchase benefits;

attitude to financial risk and security;

a possible wish to make pension arrangements separate from employment (for example, because the customer is on a short-term non-renewable employment contract or does not expect to stay in his current employment for more than a short period);

any value the customer attaches to personal control;

the customer's cash needs;

(c)

if the customer is about to change, or has just changed, employment, consider the issues in (ii) and (iii) in relation to any scheme of the new employer for which the customer is eligible now, or will become eligible in the near future;

(d)

if the customer is an active or prospective member of a money-purchase occupational scheme, follow 1- 3 to the extent that the factors listed are relevant to such schemes taking particular account of differences in costs and charges.

Pension Transfers only

(a)

Advising a customer on the suitability of transferring deferred benefits from a defined benefits occupational pension scheme requires detailed consideration of the ceding scheme compared to the individual pension contract to which the transfer would take place. A process will be needed which should include procedures:

(i)

for gathering ceding scheme information as detailed in (b);

(ii)

to assess the customer's attitude to risk and security; this is relevant not merely to the choice of contract or fund, but also (and more fundamentally) to the initial choice between an occupational pension scheme and an individual pension contract;

(iii)

to ascertain the customer's career aspirations and desired retirement age and to consider what a realistic retirement age would be, having regard to the size of the transfer value and the extent to which it can be converted into a stream of income before State pension age;

(iv)

to ascertain whether the customer's new employer (if any) has arrangements to accept transferred benefits, as if so a further analysis may be necessary;

(v)

enabling the representative to look at other pension options, if available;

(vi)

for carrying out a transfer value analysis;

(vii)

for enabling the customer to receive sufficient, clear information to make an informed investment decision (see (iii)).

(b)

The following information as a minimum will be needed from the ceding scheme in respect of the customer:

(i)

spouse's, dependants' and children's pensions;

(ii)

early retirement provision, including retirement in ill-health;

(iii)

transfer value quotation detailing:

guarantee period;

pre- and post- April 1988 Guaranteed Minimum Pension and Excesses;

revaluation rates in deferment and payment and whether they are guaranteed or discretionary and if discretionary whether they are likely to continue and how far they are reflected in the transfer value;

tax-free cash arrangements;

(iv)

lump-sum death benefits;

(v)

transfer club arrangements, if applicable;

(vi)

relevant earnings;

(vii)

period of service;

(viii)

scheme details (for example benefits, bridging pensions, guarantee periods, position pre- and post normal retirement date, history of discretionary increases);

(ix)

whether members' benefits have been equalised for service from 17 May 1990;

(x)

ill-health benefits;

(xi)

a consideration of the scheme's financial position and whether the transfer value has been reduced because the scheme is underfunded.

(c)

Relevant items of information about the customer include:

(i)

the different risks of personal pension schemes and defined benefit pension schemes;

(ii)

the impact of fluctuations in annuity rates on the size of the eventual pension;

(iii)

the impact of protected rights on the planned retirement date;

(iv)

any changes to the tax-free lump-sum;

(v)

any reduction in immediate death benefits;

(vi)

the transfer value analysis including an indication of the rate of growth needed to ensure the investor is no worse off as a result of any transfer;

(vii)

the position and interests of the customer's spouse and dependants.

(d)

(a) - (c) also apply to prospective money-purchase benefits transfers where appropriate; and additional information concerning the customer should be considered, including:

(i)

the possibility of incurring early transfer penalties and new front-end charges;

(ii)

how the transfer affects the investment risk;

(iii)

how the effects of charges and expenses differ between the schemes;

(iv)

changes to the tax-free cash;

(v)

any reduction in immediate death benefits.

Personal Pension Schemes and FSAVCs compared to Stakeholder Pension Schemes

A particular feature of the personal pension scheme market is that a potential investor in a personal pension scheme will always have the option of a stakeholder pension scheme and may find that equally suitable for his or her needs.

Representatives will need to undertake the comparison between personal pension schemes and stakeholder pension schemes and, as required by COB 5.3.16 R (3), explain in the suitability letter why, if they have recommended a personal pension scheme, it is considered to be at least as suitable.

There are some circumstances where a potential investor in an FSAVC will have the option of a stakeholder pension scheme, in addition to the option of an in-house AVC.

Representatives will need to undertake a comparison between the three options and explain in the suitability letter why, if they have recommended an FSAVC, it is considered to be at least as suitable as a stakeholder pension scheme or the in-house AVC.

If a representative without access to a stakeholder pension scheme makes a comparison with a stakeholder pension scheme, the comparison may be with a stakeholder pension scheme on the minimum product standards unless the representative is or ought to be aware that the customer has access to a stakeholder pension scheme on more advantageous terms.

The guidance in this section of the table applies equally to recommendations for individual and group personal pensions, even though the latter may, in accordance with Regulation 22 of the Stakeholder Pension Scheme Regulations 2000 (SI 2000/1403), exempt an employer from having to designate a stakeholder pension scheme for his employees.

Firms are reminded that key features documents for personal pension schemes should signpost the availability of stakeholder pension schemes, as set out in COB 6.5.21 (5).

Firms promoting a personal pension scheme (including a group personal pension scheme) to the employees of a particular employer through direct offer financial promotion are reminded of the provisions of COB 5.3.28 R. Accordingly, firms should take reasonable care to ensure that the personal pension scheme is likely to be at least as suitable as a stakeholder pension scheme for the majority of employees to whom the personal pension scheme is being promoted, and that this is adequately evidenced.

Hybrid Products

A 'hybrid product' is a product which results from combining a package of products to create one recommended solution. An example is a 'back to back' contract which takes a lump sum investment and splits it into two amounts; one part is used to provide income through the purchase of a temporary annuity and the other part is invested in a unit trust or life insurance bond so that by the end of the annuity term the growth may produce the return of the original lump sum invested.

The requirements for suitability and best investment advice apply to all elements of a hybrid product:

(a)

if appropriate, representatives need to scrutinise ready-made packages from a single product provider to make sure that each element is competitive and that a better solution is not available by combining elements from different providers;

(b)

simplicity or administrative convenience is not sufficient reason for using one provider for all elements.

Industrial Assurance Policies

If an industrial assurance policy is recommended to a customer and a comparable policy (which is not an industrial assurance policy) is available which is at least as suitable, the suitability letter should explain clearly the reasons why the industrial assurance policy is being recommended.

Income Withdrawals

When a firm is advising a customer about personal pension fund withdrawals:

(a)

the customer's personal and financial circumstances should be considered carefully, in particular:

(i)

the customer's investment objectives, need for tax-free cash and state of health;

(ii)

current and future income requirements, existing pension assets and the relative importance of the plan, given the customer's financial circumstances;

(iii)

the customer's attitude to risk, ensuring that any discrepancy between his attitude to risk relating to pension fund withdrawals and that in relation to other investments is clearly explained;

(b)

the suitability letter should explain:

(i)

the purpose of the contract for the customer;

(ii)

the relative importance of the contract, given the customer's financial circumstances;

(iii)

the customer's attitude to risk; and

(iv)

the risk factors involved in entering into a pension fund withdrawal, which are:

taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is taken; this could result in a lower income when the annuity is eventually purchased;

the investment returns may be less than those shown in the illustrations;

annuity rates may be at a worse level when annuity purchase takes place;

when maximum withdrawals are to be taken, high income withdrawals may not be sustainable during the deferral period.

ISA, PEP or CTF transfers

When a firm is advising a customer on whether to transfer existing ISA, PEP or CTF holdings, COB 5.2 (Know your customer) and COB 5.3 (Suitability) apply. All the advantages and disadvantages of transferring should be considered. In particular the following information (which is not exhaustive) should be considered and provided to the customer, usually as part of the suitability letter, before the transfer takes place:

(a)

exit charges and any other costs associated with the transfer;

(b)

initial start-up charges;

(c)

transaction details (that is, whether holdings are liquidated or transferred intact, as permitted by the terms and conditions);

(d)

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

(e)

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

Contracting out of SERPS

When a firm is advising a customer on whether to contract out of SERPS in favour of an appropriate personal pension or contracted-out money-purchase scheme ('COMP'):

(a)

representative should give careful consideration to:

(i)

the range of pivotal ages outside which it will generally be in the best interests of customers to remain in SERPS;

(ii)

the level of earnings below which it may not be in a new customer's interests to contract out;

(iii)

the minimum length of time for which a customer may benefit from being contracted out;

(b)

factors to be taken into account when making this assessment include:

(i)

customer's age and sex;

(ii)

State pension age for females (where different from males);

(iii)

customer's level and stability of earnings and tax position;

(iv)

customer's career prospects (including the likely period for remaining contracted-out);

(v)

customer's existing pension provision or opportunity to participate in an occupational pension scheme;

(vi)

potential loss of rights compared to SERPS benefits;

(vii)

terms of the personal pension scheme or contracted-out money-purchase scheme with particular reference to the level of charges;

(viii)

customer's attitude to risk.

(c)

The suitability letter should clearly explain any risks in contracting out.

Borrowing to invest

When considering the suitability of a particular investment product which is linked directly or indirectly to any form of loan or mortgage, a firm

(a)

should take account of the source of the funds being invested and the suitability of the overall transaction; and

(b)

must follow any relevant suitability and other rules in COB and MCOB.

For example, the circumstances in which a recommendation to enter into a regulated lifetime mortgage contract and invest the funds into a long-term care insurance contract might be appropriate are limited, and both COB 5.3 and MCOB 8.5 apply.

01/12/2004

COB 5.3.30

Guidance on the contents of suitability letters.

This table belongs to COB 5.3.17 G.

Guidance on the contents of suitability letters

Introduction

COB 5.3.14 R requires a written explanation of a recommendation relating to a product to be provided to a private customer. This is commonly referred to as 'the suitability letter' although it does not need to take the form of a letter, for example it might form part of:

(a)

a financial report to the customer (provided that it is prominent); or

(b)

a fact find document (a copy of the whole fact find or just the recommendation section could be given to the customer); if a copy of the fact find or the recommendation section is sent, the copy should be of sufficient quality to be clearly legible.

A suitability letter, to be successful, should explain simply and clearly why the recommendation is viewed as suitable having regard to the customer's:

(a)

personal and financial circumstances;

(b)

needs and priorities identified through the fact finding process;

(c)

attitude to risk in the area of need to which the recommendation relates.

When a suitability letter is needed

COB 5.3.14 R sets out the occasions when a suitability letter is required. COB 5.3.19 R sets out the exceptions to this rule. A letter is required in all cases where pension transfers or pension opt-outs are recommended.

Style and presentation

The style and presentation of a suitability letter is left for firms to decide so that they can design a document which works best for the market in which they transact business. A suitability letter is more likely to be effective if it demonstrates these features:

(a)

personalisation - the more personalised the suitability letter, the more effective it is likely to be;

(b)

simplicity and plain English - when technical terms need to be incorporated, they should be explained if the customer is unlikely to understand their meaning;

(c)

concise and clear messages - lengthy explanations in extensive letters are likely to reduce the effectiveness of the letter with the customer disinclined to read it properly.

Ideally each suitability letter will be different, reflecting the approach of the representative, the customer's profile, subjects discussed and the considerations on which the advice was based. Some firm may wish to introduce a degree of standardisation to suitability letter production to aid quality control. When using a standardised approach the firms should take the following into account:

(a)

standard paragraphs are best limited to the description of the most common needs and the products which will satisfy those needs;

(b)

the firm should clearly link the customer's own needs, priorities and attitude to risk to the product recommended rather than just setting out stock motives that may apply to all customers;

(c)

tick box, pre-printed forms should rarely be used, and when they are it should only be in the simplest and most straightforward advice situations.

Content

A firm should take the following into account when constructing a suitability letter:

(a)

the letter should explain why the customer's needs, priorities, attitude to risk and financial situation all combine to make the recommended product suitable for the customer. It should not merely state what product is being recommended with no link to the customer's personal circumstances;

(b)

other needs discussed during the factfind process which the customer does not wish to consider do not need to be included in the suitability letter (although they should be recorded in the factfind); they should be included if they assist in demonstrating why the product recommended is considered suitable;

(c)

alternative products which were recommended but rejected by the customer should be mentioned;

(d)

only the available options under a contract which have been recommended, whether accepted or rejected, need be mentioned in the letter;

(e)

where the range of packaged products from which advice on investments has been given contains the products of more than one product provider in respect of the same type of packaged product, the letter should include (the list is not exhaustive) why a particular product provider has been recommended; reasons may include product features not available elsewhere, price, service levels, performance track record, investment prospects, medical evidence terms, reputation and financial strength.

Signing

Each suitability letter should be signed by a person authorised by the firm to advise on the type of product which is being recommended. Ideally this will be the representative who gave the particular advice but, if not, both the signatory and the representative should accept responsibility for the letter and the recommendation.

Timing of suitability letters

Suitability letters should be issued to customers at the time that the recommendation is made or as soon as possible afterwards, to allow as much time as possible for the customer to consider the recommendation before any cancellation period ends. In any event the letter should be issued no later than the issue of the cancellation notice or, in situations where no cancellation notice will be issued, for example in the case of personal pension income withdrawals, before the transaction is put into effect.

01/12/2004

COB 5.4

Customers' understanding of risk

01/12/2004

Application

COB 5.4.1

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

06/04/2005

Purpose

COB 5.4.2

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

01/12/2001

Requirement for risk warnings

COB 5.4.3

A firm must not:

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

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

15/11/2001

COB 5.4.3A

A securitised derivative (as defined in the Glossary) is a derivative, and COB rules relevant to derivatives therefore apply. Firms should note that the Glossary definition of securitised derivative is slightly different from the definition in chapter 24 of the listing rules. An instrument listed under that chapter, which is not an option or contract for differences, is not a securitised derivative for the purposes of COB.

01/08/2002

COB 5.4.4

The reasonable steps in COB 5.4.3 R should include the steps set out in COB 5.4.6 E to COB 5.4.12 E as appropriate, in relation to transactions in the following types of investment or activity:

(1) warrants and derivatives (see COB 5.4.6 E, COB 5.4.6A E or COB 5.4.6C E as appropriate);
(2) non-readily realisable investments (see COB 5.4.7 E);
(3) penny shares (see COB 5.4.8 E);
(4) securities subject to stabilisation (see COB 5.4.9 E);
(5) stock lending activity (see COB 5.4.10 E);
(6) a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6) (see COB 5.4.11 E);
(7) structured capital-at-risk products (see COB 5.4.12 E).

01/01/2004

COB 5.4.5

Contravention of COB 5.4.4 E may be relied on as tending to establish contravention of COB 5.4.3 R.

01/12/2001

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

COB 5.4.6

(1) In relation to a transaction in a warrant or derivative (other than a retail securitised derivative or an option or contract for differences to which COB 5.4.6C E applies), the firm should:

(a) provide the private customer with the notice in COB 5 Annex 1 E (Warrants and derivatives risk warning notice); and
(b) require the private customer to acknowledge receipt of the notice and confirm acceptance of its contents, in writing.

(2) A firm need not undertake steps COB 5.4.6 E (1) (a) and (b) in respect of a private customer who is ordinarily resident outside the United Kingdom, if it has taken reasonable steps to determine that the private customer does not wish to receive the notice.
(3) The notice in COB 5 Annex 1 E (Warrants and derivatives risk warning notice) need not be sent in relation to the realisation of a warrant that is already held by the private customer, or of a warrant attached to another designated investment.
(4) For a firm acting as an outgoing ECA provider, the exemption contained in COB 5.4.6 E (2) applies only if the private customer is ordinarily resident outside the EEA and if the outgoing ECA provider has taken reasonable steps to ensure that the private customer does not want to receive the notice.

01/08/2002

Risk warnings in respect of retail securitised derivatives

COB 5.4.6A

(1) In relation to a transaction in a retail securitised derivative, the firm should provide the private customer with:

(a) the notice in COB 5 Annex 1 E (Warrants and derivatives risk warning notice); or
(b) a copy of the listing particulars prepared for the securitised derivative in accordance with chapter 24 of the listing rules, in a manner calculated to bring to the attention of the private customer the description of risk factors required by paragraphs 24.36 and 24.37 of the listing rules (Disclosure about risk factors); or
(c) a notice containing a clear, fair and adequate description of the securitised derivative which is to be the subject of the transaction, in a manner calculated to bring to the attention of the private customer the risks involved, and in particular (and if applicable):

(i) that the securitised derivative gives rise to risks similar to those arising when an investor buys or sells an option;
(ii) that the securitised derivative is 'geared' or 'leveraged', which means that a relatively small movement in the price of the underlying instrument, whether favourable or adverse, could result in a larger movement in the price of the securitised derivative;
(iii) that the price of the securitised derivative may therefore be volatile;
(iv) that the securitised derivative has a limited life, and may expire worthless if the underlying instrument (such as a share or index) does not perform as expected;
(v) that, consequently, the private customer should not enter into the transaction unless he is prepared to lose all of the money he has invested, plus any commission or other charges;
(vi) that the private customer should satisfy himself that the securitised derivative is suitable for him, in the light of his circumstances and financial position, and if the private customer is in any doubt he should seek professional advice; and
(vii) a clear, fair and adequate description of any other relevant risks affecting the value, trading price, and realisation of the value of the securitised derivative.

(2) A firm should either:

(a) require the private customer to acknowledge receipt of the document provided in accordance with (1)(a), (b) or (c) and confirm acceptance of its contents, in writing; or
(b) be otherwise able to demonstrate that the private customer has received the document and had a proper opportunity to consider its terms.

(3) A firm need not undertake steps (1) and (2) in respect of a private customer who is ordinarily resident outside the United Kingdom, if it has taken reasonable steps to determine that the private customer does not wish to receive the notice.

01/08/2002

COB 5.4.6B

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

01/08/2002

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

COB 5.4.6C

In relation to an option or contract for differences which is included on the official list of an EEA State other than the United Kingdom, a firm should comply with COB 5.4.6A E if:

(1) the investment is not a contingent liability investment; and
(2) (if it provides a right of exercise) the investment would comply with paragraph 24.7 of the listing rules (Method of exercising retail securitised derivatives), if it were listed on the UK official list.

01/08/2002

Risk warnings in respect of non readily realisable investments

COB 5.4.7

In relation to a transaction in a designated investment that is not a readily realisable investment, a firm should:

(1) warn the private customer that there is a restricted market for such designated investments, and that it may therefore be difficult to deal in the designated investment or to obtain reliable information about its value; and
(2) disclose any position knowingly held by the firm or any of its associates in the designated investment or in a related designated investment.

01/12/2001

Risk warnings in respect of penny shares

COB 5.4.8

In respect of penny shares, a firm should provide the risk warnings required by COB 3.9.17 G (12) (Investments that can fluctuate in value).

01/12/2001

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

COB 5.4.9

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

01/12/2004

Stock lending activity

COB 5.4.10

A firm should not engage in stock lending activity with or for a private customer unless it has notified him:

(1) that this may affect his tax position and that he should consult a tax adviser before proceeding; and
(2) of the consequences of the stock lending activity, including what impact it may have on the rights of the holder of the designated investments concerned.

01/12/2001

Risk warnings in respect of listed securities where gearing is involved

COB 5.4.11

In relation to a transaction in a security or an investment trust savings scheme for dealing in securities which satisfies the conditions specified in COB 3.8.9 G (6) a firm should provide to the private customer a notice to warn the private customer that the strategy which the issuer of securities uses or proposes to use may result in:

(1) movements in the price of the securities being more volatile than the movements in the price of underlying investments;
(2) the investment being subject to sudden and large falls in value; and
(3) the private customer getting back nothing at all if there is a sufficiently large fall in value in the investment.

01/01/2004

COB 5.4.12

(1) Unless (2) applies, in relation to a transaction in a structured capital-at-risk product, the firm should provide the private customer with a notice containing a clear, fair and adequate description of the structured capital-at-risk product which is to be the subject of the transaction, in a manner calculated to bring to the attention of the private customer the risks involved, in particular (and if applicable):

(a) that the return of initial capital invested at the end of the investment period is not guaranteed and therefore the private customer may get back less then what was originally invested;
(b) that the amount of initial capital repaid may be geared, which means that a small percentage fall in the related index may result in a larger reduction in the amount paid out to the private customer;
(c) that any maximum benefit advertised to the private customer is only available after a set period, indicating how long that period is;
(d) that redeeming a product early may result in redemption penalties and a poor return;
(e) that the initial capital invested may be placed into high risk investments, such as non-investment grade bonds;
(f) that the rate of income or growth advertised to private customers may depend on specified conditions being met, indicating what these conditions are;
(g) that the private customer should not enter into the transaction unless he is prepared to lose some or all of the money he has invested;
(h) that the private customer should satisfy himself that the structured capital-at-risk product is suitable for him, in the light of his circumstances and financial position, and if the private customer is in any doubt he should seek professional advice; and
(i) a clear, fair and adequate description of any other relevant risks affecting the value, trading price, and realisation of the value of the structured capital-at-risk product.

(2) If the firm is acting as an investment manager, it should provide the notice referred to in (1) as part of its terms of business, but need not provide a notice before each transaction in a structured capital-at-risk product, provided that the structured capital-at-risk product is within the range of structured capital-at-risk products described in the terms of business.

15/07/2004

COB 5.4.13

In relation to a transaction in a structured capital-at-risk product, if it is relevant, firms should comply with COB 5.4.7 E.

15/07/2004

COB 5.5

Information about the firm

01/12/2004

Application

COB 5.5.1

(1) This section applies to a firm that conducts designated investment business with or for a private customer.
(2) This section does not apply when a firm communicates or approves a financial promotion.

01/12/2001

Purpose

COB 5.5.2

01/12/2001

Information required to be disclosed

COB 5.5.3

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

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

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

01/12/2004

COB 5.5.4

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

01/12/2001

COB 5.5.5

Table of information to be disclosed in written communications.

This table belongs to COB 5.5.4 E

Written communications

Any written communication, including stationery, business cards or other business documentation published by the firm, or used by its employees, agents, representatives or introducers, should include:

(a)

the name, business address and telephone number of the firm or of the branch or office of the firm from which the communication originates;

(b)

[deleted]

(c)

the name and status or relationship with the firm, of the individual from whom the communication originates;

(d)

a statement of the firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory status disclosure));

(e)

[deleted]

(f)

if the communication is by or relates to an introducer, a statement of the introducer's capacity

[deleted]

01/12/2004

COB 5.5.5A

Firms are reminded of GEN 4.3 (Letter disclosure), which requires a disclosure in letters to private customers.

01/03/2003

Overseas business for UK private customers

COB 5.5.7

(1) A firm must not conduct designated investment business:

(a) from an office of its own (or of any appointed representative) outside the United Kingdom;
(b) with or for a private customer who is in the United Kingdom;

unless it has, where relevant, made a disclosure in accordance with (2) to the private customer.
(2) The required disclosure in (1) means a written statement making it clear that in some or all respects the regulatory system applying, including any compensation arrangements, will be different from that of the United Kingdom. The statement may also indicate the protections or compensation available under another system of regulation.
(3) A firm must not make an introduction or make arrangements or give advice on investments with a view to another person conducting designated investment business;

(a) from an office outside the United Kingdom;
(b) with or for a private customer (or a person who, if a client, would be a private customer), who is in the United Kingdom;

unless the firm has, where relevant, made a disclosure in accordance with (2) and there are no reasonable grounds for the firm to doubt that the private customer will be dealt with in an honest and reliable way.

01/12/2001

Business conducted from non-UK offices

COB 5.5.8

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

01/03/2003

ISD investment firms: compensation information

COB 5.5.9

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

09/10/2004

COB 5.5.10

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

01/03/2003

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

COB 5.5.11

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

01/03/2003

ISD investment firms: language of compensation information

COB 5.5.12

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

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

01/03/2003

COB 5.6

Excessive charges

01/12/2004

Application

COB 5.6.1

This section applies to a firm that makes a charge to a private customer in the course of, or in connection with its designated investment business.

01/12/2001

Purpose

COB 5.6.2

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

01/12/2004

Charges to a private customer

COB 5.6.3

A firm must ensure that its charges to a private customer made in connection with the conduct of designated investment business are not excessive.

01/12/2001

COB 5.6.4

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

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

01/12/2001

Charges in respect of designated investments that are not readily realisable

COB 5.6.5

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

01/12/2001

COB 5.6.6

In appropriate cases it may be necessary for the basis of a valuation referred to in COB 5.6.5 R to be confirmed or approved by an independent expert.

01/12/2001

COB 5.7

Disclosure of charges, remuneration and commission

01/12/2004

Application

COB 5.7.1

This section applies to a firm that conducts designated investment business with or for a private customer.

01/12/2001

Purpose

COB 5.7.2

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

01/12/2001

Disclosure of charges

COB 5.7.3

(1) Before a firm conducts designated investment business with or for a private customer, the firm must disclose in writing to that private customer the basis or amount of its charges for conducting that business and the nature or amount of any other income receivable by it or, to its knowledge, by its associate and attributable to that business.
(2) If the designated investment business in (1) is in respect of an execution-only transaction:

(a) which does not relate to a packaged product; and
(b) where prior written disclosure would delay the transaction;
the firm may instead:
(c) make the disclosure required by (1) orally before the transaction is executed; and
(d) provide written confirmation of the matters disclosed to the private customer within five business days of the execution.

01/09/2002

COB 5.7.4

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

01/12/2004

Disclosure of commission (or equivalent) for packaged products

COB 5.7.5

(1) When a firm sells, personally recommends or arranges the sale of a packaged product to a private customer, and subsequently on the request of a private customer, the firm must disclose to the private customer, in cash terms:

(a) any commission equivalent payable by it to a representative or appointed representative; and
(b) any commission or commission equivalent receivable by it, or by any of its associates in connection with the transaction

unless COB 5.7.9 R or COB 5.7.10 R applies.
(2) In (1)(b) a firm is, in respect of any transaction, to be regarded as receiving commission equivalent if:

(a) it is received from a product provider ("P"), or an associate of P; and
(b) either P or its associate is in the same immediate group as the firm; and
(c) the value of the commission equivalent (as assessed in accordance with these rules) is greater than the amount of commission in cash terms.

(3) In (1) and (2) "cash terms" in relation to commission does not include the value of any indirect benefits which the firm may receive in accordance with COB 2.2.

01/12/2004

COB 5.7.6

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

01/12/2004

COB 5.7.8

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

01/12/2004

Exceptions to the disclosure for packaged products

COB 5.7.9

COB 5.7.5 R does not apply if:

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

21/08/2002

COB 5.7.10

The requirement in COB 5.7.5 R to disclose to a private customer the amount or value, in cash terms, of commission or equivalent does not apply if the firm provides the private customer with example key features, in accordance with COB 6.2.7 R (Life policies) and COB 6.2.22 R (Schemes), provided that the firm discloses to the private customer the actual amount or value of commission or equivalent within five business days of effecting the transaction.

01/12/2004

Guidance on disclosure requirements for packaged products

COB 5.7.11

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

01/12/2001

COB 5.7.12

If the precise rate or value of commission or equivalent is not known in advance, the firm should estimate the rate likely to apply to the representative in respect of the transaction.

01/12/2004

COB 5.7.13

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

01/12/2004

COB 5.7.14

The collection of premiums payable under a life policy by introducers acting as the appointed collecting agents of a product provider will not be treated by the FSA as a transaction for the purposes of COB 5.7.5 R.

01/12/2001

COB 5.7.15

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

01/12/2004

COB 5.7.16

Calculating commission equivalent

This table forms part of COB 5.7.8 E.

Calculating commission equivalent

This table sets out the basis on which the firm should determine the value of cash payments, benefits and services to be disclosed as commission equivalent under COB 5.7.5 R. Benefits and services, as set out in parts B and C below, need be included only where their value is such that they could not be provided to a firm as an indirect benefit under COB 2.2.6 G (Packaged products - guidance on indirect benefits) and COB 2.2.7 G (Reasonable indirect benefits).The result of the calculation should be that the amounts disclosed as commission equivalent are, as far as possible, the same as the amounts and value of commission which would be paid in a corresponding sale.

Part A: Cash payments

These cover all payments by a firm to a representative, appointed representative or a firm in the same immediate group in relation to a transaction in a packaged product, including:

(a)

payments to any representative of the firm in respect of the transaction (for example, a manager's override), including any payments from the firm to introducers;

(b)

bonus payments made for the achievement of certain sales targets;

(c)

that element of any payment made in relation to other business which may be considered to result directly or indirectly from the transaction; for example, any extra element of commission equivalent payable on the sale of a mortgage which is to be repaid through an investment in a packaged product;

(d)

payments resulting directly from business written in previous years (for example, renewal commission equivalent), which are conditional on the completion of minimum amounts of new business;

(e)

payments made by an associate of the firm to an associate of the representative;

(f)

salaries and other payments which do not relate directly to any one transaction, provided they are treated similarly to 'benefits' and 'services' (see paragraph 14).

In determining the amounts to be included in the calculation, a firm should have regard to the following:

(a)

When the precise rate of commission equivalent is not known in advance (for example, if retrospective volume overrides apply), the firm should estimate the rate likely to apply to the representative in question. This could, for example, be based on an average rate applicable to particular groupings of representatives or on a best estimate for each representative. It should never be below any minimum rate applicable to that representative or sale.

(b)

When payments are credited to an 'account' from which periodic withdrawals may be made, the amount included should be that credited to the account whether or not the recipient intends to withdraw it immediately. If a representative is able to 'overdraw' an account, all amounts to be credited in respect of a transaction, up to any 'borrowing limit', should be included as if they were credited at the time the transaction was effected.

(c)

When a payment is made before the firm receives the premium or the investment monies to which it relates (for example, indemnity commission equivalent), it should be included as being received at the time of payment. If the representative or the provider firm wishes to explain this arrangement to the customer, he is free to do so, provided this does not detract from the required disclosure.

(d)

When the firm arranges for a lump sum to be paid to a representative through a third party, in exchange for the income stream to which the representative is entitled (for example, a factoring arrangement), the lump sum should be included as if it were a payment from the firm.

(e)

When a firm provides, or arranges for a third party to provide, a loan to a representative, on the security of, or in the expectation of, future payments from the firm, the amounts to be included are the payments to the representative on which the provision of the loan is based, as if they were received at the time the transaction was effected, irrespective of their actual timing.

(f)

When an agent is employed and remunerated by the firm's appointed representative , the payments to be included should be those made by the firm to the appointed representative , not those made by the appointed representative to its own employee.

Part B: Benefits

These include the cost to the firm of all non-monetary benefits provided by it to a representative. These benefits include any item that could be considered as a benefit or expense under the Income and Corporation Taxes Act 1988 (ICTA). A benefit should be included whether or not the representative is liable to income tax on it and whether it is chargeable to tax.

The type of benefits covered by paragraph 3 include the use of a car, attendance at conferences, subsidised loans, contributions to pension schemes, national insurance contributions, the value of any voucher outside the ICTA definition of benefit or expense, and the value of share option (taking into account any discount on issue and assuming that the shares in question grow at a reasonable rate in line with other investments).

Part C: Services

These include benefits which could not be provided to a firm, A, as an indirect benefit (under COB 2.2.3 R (Prohibition of inducements) and COB 2.2.6 G (Packaged products - guidance on indirect benefits)), and which A would therefore have to fund out of its disclosable commission. For those services which can be provided as an indirect benefit, it is not necessary for the firm providing the benefit, B, actually to provide services to another firm, A, for B to be able to apply this criterion in relation to its employees, representatives or agents.

The following services should be included:

(a)

office accommodation and equipment, including telephone, photocopying and fax;

(b)

loans where a commercial rate of interest is not charged, including commission equivalent advances overdue for repayment;

(c)

general stationery and mailing or distribution costs;

(d)

computer hardware and software (except software which specifically relates to the firm's packaged product, such as software used in supporting the pensions review process or for producing illustrations, projection and product information);

(e)

clerical and administrative support (except support given in relation to the pensions review process);

(f)

business insurance cover, including professional indemnity and fidelity guarantee;

(g)

recruitment;

(h)

compliance monitoring;

(i)

customer services;

(j)

business planning services;

(k)

line management.

To put a value on these services, the following costs should be included:

(a)

all overheads attributable to a particular cost item (for example, the cost of a compliance official);

(b)

salary costs pro rata where individuals are only engaged part-time on relevant business;

(c)

rent and associated premises costs at an appropriately reduced rate where the premises are also used for other business activities;

(d)

only that proportion of the cost of lead generation promotions attributable to the generation of relevant business (but including the placing of any financial promotion, and its mailing or provision of access to third party customers);

(e)

only the marginal additional compliance costs of ensuring that representatives and their support and training material comply with relevant rules;

(f)

the commercial value of a service which is the use of an asset owned by the firm (for example in the case of a property, its full market rent);

(g)

in respect of appointed representative, the costs of any promotion in a newspaper or elsewhere and the provision of representative-specific literature in connection with a direct offer financial promotion;

(h)

in respect of a firm in the same immediate group and connected appointed representatives, where the name of the company is included in the direct offer financial promotion, the costs of any promotion in a newspaper or elsewhere and the provision of literature specific to the representative in connection with a direct offer financial promotion.

The following costs should be excluded:

(a)

any contributions made by a representative out of his own resources;

(b)

the cost of corporate awareness advertising;

(c)

training costs;

(d)

underwriting, policy administration and claims handling costs;

(e)

costs of developing and maintaining computer systems for the provision of projections of benefits, customer-specific key features documents or other product information;

(f)

costs of compensating customers;

(g)

the costs of head office and branch level management and support, other than payments to managers falling under Part 1, for representatives, where these services could also be provided to a firm not in the same immediate group, for example, broker consultants and 'inspectors';

(h)

'collecting remuneration' payable in respect of industrial assurance policies or by friendly societies, provided that the amounts excluded do not exceed the genuine costs of premium collection; comparison with the remuneration payable to collectors who are not representatives or with the renewal remuneration payable on ordinary branch business may provide a guide.

Part D: Calculation methodology

Estimating commission equivalent

The cost of benefits and services should normally be based on the most recent relevant experience of the firm, except where one of the following applies:

(a)

the firm has reasonable grounds to believe that the commission equivalent for the period concerned will be higher than that implied by the experience; or

(b)

the firm has strong grounds to believe that the commission equivalent for the period concerned will be lower than that implied by the experience; or

(c)

no such experience is available.

If any of (a) to (c) applies, the estimate should be based on and evidenced by business plans which the firm is satisfied on reasonable grounds are achievable.

10.

Firms that receive or expect to receive:

(a)

commission in respect of packaged products which are not its own products or the products of a product provider who is in the same immediate group; and

(b)

commission equivalent in respect of its own products

must ensure that the costs and benefits attributed to these products do not exceed the amounts that can be financed from that commission.

Construction of commission equivalent scales

11.

The total costs of cash payments, benefits and services should be assessed and the normal approach is to split them into new business costs and after sale servicing costs. The costs of each of these functions should be assessed directly in relation to the work carried out by the representatives.

12.

(a)

The commission equivalent costs identified in 11 should be spread across the business using a new business commission equivalent scale and a servicing commission equivalent scale respectively. The new business commission equivalent scales when applied to the total value/volumes of business should reproduce the total new business commission equivalent costs, and similarly for the servicing scales.

(b)

The commission equivalent scales should distinguish between products for which the commission equivalent to representatives is likely to be different.

13.

Where the representative's commission equivalent includes a cash payment related to volume and/or value of the transactions sold, the following method would be appropriate:

(a)

The basic payment scale should comprise a new business payment scale and a servicing payment scale. The cost of benefits and services should be expressed in the form of a new business uplift factor and a servicing uplift factor. So the "new business uplift factor" would be the cost of new benefits and services divided by the new business payments. The "servicing uplift factor" would be the cost of servicing benefits and services divided by servicing payments.

(b)

The payment scales should be grossed up by new business uplift factors or servicing uplift factors as appropriate to reflect the cost of benefits and services. The grossed up scales represent the new business and servicing commission equivalent scales, and are applied to each contract to derive the commission equivalent to be disclosed.

(c)

Where the level of payment in the first year of a policy equals the level of payment in subsequent years then "new business payments" refers to payments in the first year of a contract and "servicing payment" refers to the level of payment in subsequent years.

(d)

If servicing costs are expected to be incurred in any year in which no servicing payments are to be made on a contract, disclosure should still be made, for example by using a technique similar to that described in 14.

14.

(a)

When a representative receives a salary, or other payment unrelated to volume or sales:

(i)

this should be amalgamated with the cost of benefits and services; and

(ii)

the total costs should be apportioned over individual transactions in a way that reflects the value of a contract to a firm or the firm's immediate group.

(b)

Where a firm is a distributor for a product provider within the same immediate group, the firm must apportion total costs over individual transactions in a way that reflects the value of the contract to the firm's immediate group.

15.

Where other methods of commission equivalent are employed, for example, part salary and part related to the volume/value of the sale, the salary element should be added to the cost of benefits and services and the method in 13 should be used.

16.

Where a representative agrees to forgo part of his or her normal payment to improve the terms of the contract, the same uplift factor (in line with 13(a)) may be applied to the reduced payment, or the same monetary cost of benefits and services may be used, subject to the following constraints:

(a)

the same uplift factor approach should only be adopted if the customer will also receive the full benefit of the lower of:

(i)

the reduction in the amount of disclosed commission equivalent for non-financial benefits and services; and

(ii)

an equivalent proportion of the policy loadings intended to cover non-financial benefits and services.

(b)

Where the 'same uplift factor' approach is adopted, the proportion of payments forgone must be allowed for in calculating the uplift factor.

(c)

Where an average scale of commission equivalent is used, the percentage reduction in payment in respect of the individual representative may be applied to the average payment in order to calculate the reduced payment.

17.

The firm should review the commission equivalent scales if at any time it becomes aware that the commission equivalent figures have become misleading. A review should take place at least annually.

18.

When an identical commission equivalent scale applies to all representatives (although they might earn differing percentages of it), the same average amount of commission equivalent (and the value of other benefits and services) in respect of identical transactions may be disclosed, regardless of the percentage of the scale paid to each individual representative. Averaging may be used for representatives on the same scale and employees of firms in the same immediate group, but not appointed representatives.

Payments to associates

19.

Where a firm pays commission equivalent to a another firm in the same immediate group, or an appointed representative which is an associate of the firm, it should ensure that the calculation of the sum to be disclosed is the higher of:

(a)

all payments, benefits and services provided to the firm or appointed representative, from whatever source, plus an additional allowance for profit of 15% - unless the firm can demonstrate that another figure (higher or lower) is more appropriate; and

(b)

the cash payments actually paid by the firm, plus the value of services provided.

01/12/2004

COB 5.7.17

Remuneration and commission disclosure statements: content and wording.

This table forms part of COB 5.7.13 G.

Remuneration and commission disclosure statements: content and wording

A firm may wish to follow the guidance on content and wording in this table when drawing up its written statement of remuneration or commission under COB 5.7.5 R.

Degree of accuracy

To help the customer understand, the firm may round large amounts of commission or remuneration to three significant figures (that is, where the leading three figures are sufficient to convey the magnitude of the result, for example £122 instead of £122.35).

Sample wordings

Examples of appropriate remuneration or commission disclosure wordings, for:

(a)

independent intermediaries and other intermediaries (in a direct offer financial promotion or post-sale information): "For arranging this policy/contract XYZ Ltd will pay commission to IFA Ltd £…"

(b)

representatives employed by an appointed representative: "For arranging this policy/contract XYZ Ltd will pay remuneration and provide services to AR Ltd worth £…"

(c)

representatives employed by an appointed representative (at the point of sale or in a direct offer financial promotion): "For arranging this policy/contract AR Ltd expects to receive remuneration and services from XYZ Ltd worth £…"

(d)

representatives employed directly by the firm (including self-employed sole trader appointed representatives):

(i)

"for arranging this policy/contract I expect to receive remuneration and services from XYZ Ltd worth £…"; or

(ii)

"for arranging this policy XYZ Ltd expect to incur sales costs of £…"; or

(iii)

an acceptable post sale alternative might be: "for arranging this policy XYZ Ltd has provided remuneration and services to your adviser worth £…";

this type of approach would be suitable either to a salaried or commissioned representative.

The description of the monetary amount (just shown as '£…') in the examples in paragraph 2 will vary according to the incidence and basis of remuneration or commission. Examples of some common cases are:

(a)

indemnified payments (on a monthly payment contract): "£X immediately and £Y each month from the Nth month to the end of the term"

(b)

level basis (on an annual payment whole life contract): "£X each year"; but in the case of a sale by any representative, the provision of benefits and services would probably require instead a statement in the form: "£X immediately and £Y each year thereafter".

(c)

fund related basis:

(i)

using the same rate of growth and the same periods as those in the key features document or the simplified prospectus, the example will normally show the commission or remuneration in the first year in which it is paid and the tenth year; or

(ii)

for an investment of £P, "For arranging this policy, XYZ Ltd will pay commission to IFA Ltd of £X, and half a percent of the fund value each year. For example, if your fund was worth £P, we would pay £X per year: if it was worth £2xP, we would pay £Z per year. Commission is paid every six months".

(d)

increasing payment basis: "£X immediately and a variable amount in each year thereafter, being, for example, £Y in the second year and increasing to £Z by the final year".

01/12/2004

COB 5.8

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

01/12/2004

Application

COB 5.8.1

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

01/12/2001

Purpose

COB 5.8.2

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

01/12/2001

Clearing firms and introducing brokers and overseas introducing brokers

COB 5.8.3

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

01/12/2001

COB 5.8.4

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

01/12/2001

COB 5.8.5

A clearing firm should, by appropriate disclosures, ensure that the customer is aware of the nature of the services to be provided to him by the clearing firm.

01/12/2001

COB 5.8.6

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

01/12/2001

COB 5.8.7

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

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

01/12/2001

COB 5.9

Information about stakeholder pension schemes

01/12/2004

Application

COB 5.9.1

This section applies to a firm that provides information about stakeholder pension schemes at a meeting arranged for a group of employees.

01/12/2001

Requirement

COB 5.9.2

When a firm provides information about stakeholder pension schemes to a group of five or more employees at a meeting which has been sponsored by one or more employers, that information must be given by an adviser appointed by the firm to give advice to private customers on packaged products.

01/12/2001

Exception

COB 5.9.3

COB 5.9.2 R does not apply to a firm that provides information about stakeholder pension schemes to a group of four or less employees at a meeting.

01/12/2001

COB 5.10

Corporate finance business issues

01/12/2004

Application

COB 5.10.1

This section applies to a firm that conducts corporate finance business.

01/05/2004

Purpose

COB 5.10.2

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

01/05/2004

Securities offerings

COB 5.10.3

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

01/05/2004

COB 5.10.4

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

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

01/05/2004

COB 5.10.5

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

(1) at an early stage, for example before it accepts a mandate to manage the offering, discussing or agreeing with its corporate finance client relevant aspects of the offering process, such as:

(a) the process the firm proposes to follow in order to determine what recommendations it will make about allocations for the offering;
(b) details of how the target investor group, to whom it is planned to offer the securities, will be identified;
(c) the process through which recommendations on allocation and pricing are prepared, and by whom; and
(d) (if relevant) that it may recommend placing securities with an investment client of the firm for whom the firm provides other services, with the firm's own proprietary book, or with an associate, and that this represents a potential conflict of interest;

(2) having internal arrangements designed to ensure that the firm will give unbiased and full advice to the corporate finance client about the valuation and pricing for an offering (the FSA accepts that valuation is a complex process and great precision may not always be possible in a security offering);
(3) having internal arrangements under which individuals or business units in the firm, whose responsibilities are ordinarily to provide services to the firm's investment clients (that is, those on the investment client side of the Chinese wall), are not involved directly in decisions about recommendations to a corporate finance client on pricing (although they might, for example, be permitted to provide information about likely investor interest to those advising the corporate finance client);
(4) ensuring that its systems, controls and procedures to identify and manage conflicts of interest also cover the allocation process for an offering of securities; for example:

(a) having internal arrangements under which the allocation process and the development of recommendations on allocation (names and amounts proposed to be allocated) are made to the corporate finance client only by staff who do not have any responsibilities for servicing investment clients;
(b) inviting the corporate finance client to participate actively in the allocation process so that its proper interests can be taken into account effectively, including making available to the corporate finance client appropriate information to support the proposed recommendations on allocation;
(c) basing recommendations about allocation and pricing on objectives agreed with the corporate finance client;
(d) making the initial recommendation for allocation to private customers of the firm as a single block and not on a named basis;
(e) having internal arrangements under which senior personnel in the department (or equivalent business unit), who are responsible for providing services to private customers, make the individual allocation recommendations for allocation to private customers of the firm; and
(f) disclosing to the issuer, after completion of the transaction, details of the allocations which were actually made; and

(5) having internal arrangements under which allocation recommendations are not determined by the level of business which a firm does or hopes to do with any other client (see also COB 2.2 (Inducements and soft commission)); for example:

(a) any allocation to a private customer of the firm should be justifiable in terms of the process for developing allocation recommendations which was disclosed to the corporate finance client at the outset (as well as in terms of any other obligations which the firm may have - for example under COB 5.3 (Suitability) or COB 7.7 (Aggregation and allocation)); and
(b) any recommendation for allocation to the proprietary trading desk of the firm or to an associate or affiliate of the firm should be justifiable in terms of the objectives of the allocation policy and should be consistent with the process for developing allocation recommendations disclosed by the firm at the outset.

01/05/2004

COB 5.10.6

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

01/05/2004

Securities offerings: behaviour in breach of the Principles

COB 5.10.7

(1) For the avoidance of doubt, the FSA considers that the following would each be a breach of the Principles referred to in COB 5.10.2 G, and a breach of COB 2.2.3 R:

(a) an allocation made as an inducement for the payment of excessive compensation in respect of unrelated services provided by the firm; for example, very high rates of commissions paid to the firm by an investment client, or an investment client providing very high volumes of business at normal levels of commission (which may also be a breach of COB 7.2 (Churning and switching));
(b) an allocation made to a senior executive or a corporate officer of an existing or potential corporate finance client, or of a listed company, in consideration for the future or past award of corporate finance business; and
(c) an allocation which is expressly or implicitly conditional upon the receipt of orders or the purchase of any other service from the firm by the investor, or any body corporate of which the investor is a corporate officer.

(2) A firm's systems, controls and procedures should, therefore, be designed to prevent these sorts of behaviour.

01/05/2004

COB 5 Annex 1

Warrants and derivatives risk warning notice (E)

01/12/2004

This notice is provided to you, as a private customer, in compliance with the rules of the Financial Services Authority (FSA). Private customers are afforded greater protections under these rules than other customers are and you should ensure that your firm tells you what this will mean to you. This notice cannot disclose all the risks and other significant aspects of warrants* and/or derivative* products such as futures*, options*, and contracts for differences* (* delete as appropriate). You should not deal in these products unless you understand their nature and the extent of your exposure to risk. You should also be satisfied that the product is suitable for you in the light of your circumstances and financial position. Certain strategies, such as a 'spread' position or a 'straddle', may be as risky as a simple 'long' or 'short' position.
Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. Different instruments involve different levels of exposure to risk and in deciding whether to trade in such instruments you should be aware of the following points. (Include or delete as appropriate).

1. Warrants
A warrant is a time-limited right to subscribe for shares, debentures, loan stock or government securities and is exercisable against the original issuer of the underlying securities. A relatively small movement in the price of the underlying security results in a disproportionately large movement, unfavourable or favourable, in the price of the warrant. The prices of warrants can therefore be volatile.
It is essential for anyone who is considering purchasing warrants to understand that the right to subscribe which a warrant confers is invariably limited in time with the consequence that if the investor fails to exercise this right within the predetermined time-scale then the investment becomes worthless.
You should not buy a warrant unless you are prepared to sustain a total loss of the money you have invested plus any commission or other transaction charges.

2. Off-exchange warrant transactions
Transactions in off-exchange warrants may involve greater risk than dealing in exchange traded warrants because there is no exchange market through which to liquidate your position, or to assess the value of the warrant or the exposure to risk. Bid and offer prices need not be quoted, and even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what is a fair price.
Your firm must make it clear to you if you are entering into an off-exchange transaction and advise you of any risks involved.

3. Securitised derivatives
These instruments may give you [a time-limited right (Note 1)] [an absolute right (Note 2)] to acquire or sell one or more types of investment which is normally exercisable against someone other than the issuer of that investment. Or they may give you rights under a contract for differences which allow for speculation on fluctuations in the value of the property of any description or an index, such as the FTSE 100 index. In both cases, the investment or property may be referred to as the "underlying instrument".
These instruments often involve a high degree of gearing or leverage, so that a relatively small movement in the price of the underlying investment results in a much larger movement, unfavourable or favourable, in the price of the instrument. The price of these instruments can therefore be volatile.
These instruments have a limited life, and may (unless there is some form of guaranteed return to the amount you are investing in the product) expire worthless if the underlying instrument does not perform as expected.
You should only buy this product if you are prepared to sustain a [total loss (Note 3)] [substantial loss (Note 4)] [loss (Note 5)] of the money you have invested plus any commission or other transaction charges.
You should consider carefully whether or not this product is suitable for you in light of your circumstances and financial position, and if in any doubt please seek professional advice.
Notes (these notes are not part of the notice):
1 Use for instruments such as covered warrants where there is some form of exercise required by the investor.
2 Use for instruments such as linked notes, or some certificates where there is no form of exercise required by the investor.
3 Use for instruments such as covered warrants where the return payable to the investor is totally dependant upon the performance of the underlying instrument/s to which the product is linked and there is not another form of payment due to the investor (for example the repayment of capital).
4 Use for instruments such as linked notes where there is a form of return paid to the investor irrespective of the performance of the underlying instrument/s to which the product is linked, but the return is low.
5 Use for instruments such as linked notes where there is a form of return paid to the investor irrespective of the performance of the underlying instrument/s to which the product is linked, but the return is high but less than 100% of the amount paid for the product.

4. Futures
Transactions in futures involve the obligation to make, or to take, delivery of the underlying asset of the contract at a future date, or in some cases to settle the position with cash. They carry a high degree of risk. The 'gearing' or 'leverage' often obtainable in futures trading means that a small deposit or down payment can lead to large losses as well as gains. It also means that a relatively small movement can lead to a proportionately much larger movement in the value of your investment, and this can work against you as well as for you. Futures transactions have a contingent liability, and you should be aware of the implications of this, in particular the margining requirements, which are set out in paragraph 9.

5. Options
There are many different types of options with different characteristics subject to the following conditions.
Buying options:
Buying options involves less risk than selling options because, if the price of the underlying asset moves against you, you can simply allow the option to lapse. The maximum loss is limited to the premium, plus any commission or other transaction charges. However, if you buy a call option on a futures contract and you later exercise the option, you will acquire the future. This will expose you to the risks described under 'futures' and 'contingent liability investment transactions'.

Writing options:
If you write an option, the risk involved is considerably greater than buying options. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received. By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you, however far the market price has moved away from the exercise price. If you already own the underlying asset which you have contracted to sell (when the options will be known as 'covered call options') the risk is reduced. If you do not own the underlying asset ('uncovered call options') the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure.

Traditional options:
Certain London Stock Exchange member firms under special exchange rules write a particular type of option called a 'traditional option'. These may involve greater risk than other options. Two-way prices are not usually quoted and there is no exchange market on which to close out an open position or to effect an equal and opposite transaction to reverse an open position. It may be difficult to assess its value or for the seller of such an option to manage his exposure to risk.
Certain options markets operate on a margined basis, under which buyers do not pay the full premium on their option at the time they purchase it. In this situation you may subsequently be called upon to pay margin on the option up to the level of your premium. If you fail to do so as required, your position may be closed or liquidated in the same way as a futures position.

6. Contracts for differences
Futures and options contracts can also be referred to as contracts for differences. These can be options and futures on the FTSE 100 index or any other index, as well as currency and interest rate swaps. However, unlike other futures and options, these contracts can only be settled in cash. Investing in a contract for differences carries the same risks as investing in a future or an option and you should be aware of these as set out in paragraphs 4 and 5 respectively. Transactions in contracts for differences may also have a contingent liability and you should be aware of the implications of this as set out in paragraph 9.

7. Off-exchange transactions in derivatives
It may not always be apparent whether or not a particular derivative is arranged on exchange or in an off-exchange derivative transaction. Your firm must make it clear to you if you are entering into an off-exchange derivative transaction.
While some off-exchange markets are highly liquid, transactions in off-exchange or 'non transferable' derivatives may involve greater risk than investing in on-exchange derivatives because there is no exchange market on which to close out an open position. It may be impossible to liquidate an existing position, to assess the value of the position arising from an off-exchange transaction or to assess the exposure to risk. Bid prices and offer prices need not be quoted, and, even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what is a fair price.

8. Foreign markets
Foreign markets will involve different risks from the UK markets. In some cases the risks will be greater. On request, your firm must provide an explanation of the relevant risks and protections (if any) which will operate in any foreign markets, including the extent to which it will accept liability for any default of a foreign firm through whom it deals. The potential for profit or loss from transactions on foreign markets or in foreign denominated contracts will be affected by fluctuations in foreign exchange rates.

9. Contingent liability investment transactions
Contingent liability investment transactions, which are margined, require you to make a series of payments against the purchase price, instead of paying the whole purchase price immediately.
If you trade in futures contracts for differences or sell options, you may sustain a total loss of the margin you deposit with your firm to establish or maintain a position. If the market moves against you, you may be called upon to pay substantial additional margin at short notice to maintain the position. If you fail to do so within the time required, your position may be liquidated at a loss and you will be responsible for the resulting deficit.
Even if a transaction is not margined, it may still carry an obligation to make further payments in certain circumstances over and above any amount paid when you entered the contract.
Save as specifically provided by the FSA, your firm may only carry out margined or contingent liability transactions with or for you if they are traded on or under the rules of a recognised or designated investment exchange. Contingent liability investment transactions which are not so traded may expose you to substantially greater risks.

10. Limited liability transactions
Before entering into a limited liability transaction, you should obtain from your firm or the firm with whom you are dealing a formal written statement confirming that the extent of your loss liability on each transaction will be limited to an amount agreed by you before you enter into the transaction.
The amount you can lose in limited liability transactions will be less than in other margined transactions, which have no predetermined loss limit. Nevertheless, even though the extent of loss will be subject to the agreed limit, you may sustain the loss in a relatively short time. Your loss may be limited, but the risk of sustaining a total loss to the amount agreed is substantial.

11. Collateral
If you deposit collateral as security with your firm, the way in which it will be treated will vary according to the type of transaction and where it is traded. There could be significant differences in the treatment of your collateral depending on whether you are trading on a recognised or designated investment exchange, with the rules of that exchange (and the associated clearing house) applying, or trading off-exchange. Deposited collateral may lose its identity as your property once dealings on your behalf are undertaken. Even if your dealings should ultimately prove profitable, you may not get back the same assets which you deposited, and may have to accept payment in cash. You should ascertain from your firm how your collateral will be dealt with.

12. Commissions
Before you begin to trade, you should obtain details of all commissions and other charges for which you will be liable. If any charges are not expressed in money terms (but, for example, as a percentage of contract value), you should obtain a clear and written explanation, including appropriate examples, to establish what such charges are likely to mean in specific money terms. In the case of futures, when commission is charged as a percentage, it will normally be as a percentage of the total contract value, and not simply as a percentage of your initial payment.

13. Suspensions of trading
Under certain trading conditions it may be difficult or impossible to liquidate a position. This may occur, for example, at times of rapid price movement if the price rises or falls in one trading session to such an extent that under the rules of the relevant exchange trading is suspended or restricted. Placing a stop-loss order will not necessarily limit your losses to the intended amounts, because market conditions may make it impossible to execute such an order at the stipulated price.

14. Clearing house protections
On many exchanges, the performance of a transaction by your firm (or third party with whom he is dealing on your behalf) is 'guaranteed' by the exchange or clearing house. However, this guarantee is unlikely in most circumstances to cover you, the customer, and may not protect you if your firm or another party defaults on its obligations to you. On request, your firm must explain any protection provided to you under the clearing guarantee applicable to any on-exchange derivatives in which you are dealing. There is no clearing house for traditional options, nor normally for off-exchange instruments which are not traded under the rules of a recognised or designated investment exchange.

15. Insolvency
Your firm's insolvency or default, or that of any other brokers involved with your transaction, may lead to positions being liquidated or closed out without your consent. In certain circumstances, you may not get back the actual assets which you lodged as collateral and you may have to accept any available payments in cash. On request, your firm must provide an explanation of the extent to which it will accept liability for any insolvency of, or default by, other firms involved with your transactions.

[name of firm]
[on duplicate for signature by private customer]
I/We have read and understood the risk warning set out above.
Date
[Signature of the customer]
[Signature of joint account holder]

Note to firms
Paragraphs 1-15 may be deleted when they relate to particular kinds of business which will not be carried out with or for the customer.
This notice may be incorporated as part of a two-way customer agreement, but the customer must sign separately that he has read and understood the risk warnings.

01/08/2002

COB 5 Annex 2

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

01/12/2004

This statement complies with the rules of the Financial Services Authority (FSA)

[Name of Firm] or its representatives may, from time to time, recommend transactions in securities to you, or carry out such transactions on your behalf, where the price may have been influenced by measures taken to stabilise it.

You should read the explanation below carefully. This is designed to help you judge whether you wish your funds to be invested at all in such securities and, if you do, whether you wish:

(1) to be consulted before [Name of Firm] carries out any such transaction on your behalf; or

(2) to authorise [Name of Firm] to carry out any such transaction on your behalf without first having to consult you.

What is stabilisation?

Stabilisation enables the market price of a security to be maintained artificially during the period when a new issue of securities is sold to the public. Stabilisation may affect not only the price of the new issue but also the price of other securities relating to it.

The FSA allows stabilisation in order to help counter the fact that, when a new issue comes onto the market for the first time, the price can sometimes drop for a time before buyers are found.

Stabilisation is being carried out by a 'stabilisation manager' (normally the firm chiefly responsible for bringing a new issue to market). As long as the stabilising manager follows a strict set of rules, he is entitled to buy back securities that were previously sold to investors or allotted to institutions which have decided not to keep them. The effect of this may be to keep the price at a higher level than it would otherwise be during the period of stabilisation.

The Stabilisation Rules:

(1) limit the period when a stabilising manager may stabilise a new issue;

(2) fix the price at which he may stabilise (in the case of shares and warrants but not bonds); and

(3) require him to disclose that he may be stabilising but not that he is actually doing so.

The fact that a new issue or a related security is being stabilised should not be taken as any indication of the level of interest from investors, nor of the price at which they are prepared to buy the securities.

01/12/2004

COB 5A

Providing
basic advice on stakeholder products

COB 5A.1

Providing basic advice on stakeholder products

06/04/2005

Application and Purpose

COB 5A.1.1

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

06/04/2005

COB 5A.2

Disclosure on making first contact: information about services

06/04/2005

COB 5A.2.1

(1) A firm must take reasonable steps to ensure that its representatives, on first making contact with a customer with a view to providing basic advice on a stakeholder product, provide, in a durable medium, an initial disclosure document that complies with COB 4.3.9R (1).
(2) A firm must take reasonable steps to ensure that its representatives explain the contents of the initial disclosure document at the time it is provided to the customer.
(3) The requirements in (1) and (2) do not apply:

(a) to the extent that the information has already been given to the customer on a previous occasion and it is still likely to be accurate and appropriate for the customer; or
(b) if COB 5A.2.6 R (initial contact by telephone) applies.

(4) A firm which is required by this rule to provide an initial disclosure document to a private customer may instead provide the customer with a combined initial disclosure document, that complies with COB 4.3.9R (2), if it has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will, in addition to stakeholder products, relate to one or more of the following:

(a) regulated mortgage contracts ;
(b) regulated lifetime mortgage contracts;
(c) non-investment insurance contracts.

(5) A firm must, if requested to do by a customer, provide an explanation of the basis on which it has chosen to market the particular stakeholder products within the range on which basic advice will be given to a customer, including an explanation of why the firm has selected particular product providers.

06/04/2005

Smoothed Products

COB 5A.2.2

A firm must not provide basic advice on smoothed linked long term products.

06/04/2005

COB 5A.2.3

COB 5A.2.2 R does not prevent a firm from including smoothed linked long term products in regulated activity that does not involve the provision of basic advice.

06/04/2005

Providing a copy of the range of stakeholder products

COB 5A.2.4

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

06/04/2005

Terms of business and telephone sales

COB 5A.2.5

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

06/04/2005

COB 5A.2.6

(1) Where a firm's initial contact with a customer (for a purpose set out in COB 5A.2.1 R) is by telephone, then the firm must provide the following information and satisfy the following requirements before proceeding further:

(a) the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;
(b) whether the firm will select from or deal with stakeholder products from a limited number of companies or from a single company;
(c) that the firm will provide the customer with only basic advice on stakeholder products and without full assessment of his needs and circumstances;
(d) that the information given under (a) to (c) will subsequently be confirmed in writing.

(2) A firm which complies with (1) will, subject to (3), satisfy the condition set out in item (1) of COB 4 Annex 1 R.
(3) If during the course of a telephone call a firm is to conclude a contract (for example for the provision of a mediation services or for the purchase or sale of a stakeholder product), it must satisfy the requirements in COB 4.2.5 R and COB 4 Annex 1 as well as comply with (1) and (2) above.

06/04/2005

COB 5A.2.7

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

06/04/2005

COB 5A.3

Scope and range of advice on stakeholder products: general

06/04/2005

COB 5A.3.1

(1) A firm which provides a private customer with basic advice on a stakeholder product must take reasonable steps to ensure that the scope of the basic advice given to a private customer is based upon a selection of one of the following:

(a) a limited number of providers of stakeholder products; or
(b) a single provider of a stakeholder product.

(2) A firm which provides a customer with basic advice on a stakeholder product must do so only on the basis of a range of stakeholder products which includes no more than one of each of:

(a) a CIS stakeholder product or a linked-life stakeholder product; or
(b) a stakeholder pension; or
(c) a stakeholder CTF.

(3) A firm must take reasonable steps to ensure that any of its representatives which give basic advice on stakeholder products that offer a choice of funds, do not give advice on, or recommend, a particular fund for the customer.
(4) A firm must take reasonable steps to ensure that its representatives do not, while they are engaged in providing basic advice on stakeholder products, provide advice on products other than those within the range offered by the firm.
(5) A firm which has commenced the sales process for stakeholder products in respect of a particular customer may only depart from that process if:

(a) it has taken reasonable steps to ensure its representatives advise the customer that basic advice on stakeholder products within the range offered by the firm will not be provided during the period of departure; and
(b) it has taken reasonable steps to ensure its representatives do not provide basic advice during the period of departure.

(6) A firm must take reasonable steps to ensure that if its representatives return to the sales process for stakeholder products after the period of departure referred to in COB 5A.3.1R (5), they first advise the customer that the period of departure has ended and the sales process for stakeholder products has recommenced.

06/04/2005

COB 5A.3.2

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

06/04/2005

COB 5A.3.3

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

06/04/2005

Range of stakeholder products: appointed representatives

COB 5A.3.4

(1) A firm must maintain in writing and keep up to date a statement of:

(a) the scope of basic advice (within the meaning of COB 5A.3.1R (1)) which each of its appointed representatives is, through its contract with the firm, permitted to give; and including
(b) the range (or ranges) of stakeholder products on which each appointed representative advises.

(2) In applying the rules in COB to a firm in respect of its appointed representatives, references to a firm's scope or range of stakeholder products are to be taken as references to the scope (or scopes) and to the range (or ranges) of its appointed representatives.

06/04/2005

COB 5A.3.5

An appointed representative's range of stakeholder products should be defined by means of a list of the names or titles of each of the stakeholder products which it is permitted to sell.

06/04/2005

Range of stakeholder products: records

COB 5A.3.6

(1) A firm must make, and keep up to date, a record of its scope and range (or ranges) of stakeholder products.
(2) The record in (1) must be retained for six years from the date on which it was superseded by a more up-to-date record.
(3) The record for distribution to a customer must be the particular range of stakeholder products which is appropriate for the services provided to that customer and include details of:

(a) the identity of the firms within the range whose stakeholder products the firm may sell; and
(b) a list of the products the firm may sell.

(4) A firm must maintain a record of the particular range of stakeholder products on which its basic advice to each private customer is based and such a record must be kept for six years from the date on which the basic advice is given.

06/04/2005

Branding stakeholder products

COB 5A.3.7

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

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

06/04/2005

Staying within the range of advice of stakeholder products

COB 5A.3.8

(1) A firm must take reasonable steps to ensure that neither it nor any of its representatives provides basic advice on a stakeholder product unless the product is:

(a) within the firm's range (or ranges) of stakeholder products; and
(b) is within the particular range of stakeholder products on which the firm has indicated it will give basic advice to that customer.

06/04/2005

"Independence" - restriction on holding out

COB 5A.3.9

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

06/04/2005

Remuneration structure and referrals

COB 5A.3.10

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

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

06/04/2005

COB 5A.4

Providing basic advice on stakeholder products through scripted questions

06/04/2005

COB 5A.4.1

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

06/04/2005

Suitability of stakeholder products

COB 5A.4.2

(1) A firm must only recommend that a customer acquire a stakeholder product if:

(a) it has taken reasonable steps to assess:

(i) the customer's answers to the scripted questions;
(ii) any other facts, circumstances or information disclosed by the customer during the sales process.

(b) it has, having due regard to the information in (a), reasonable grounds for believing that the stakeholder product is suitable for the customer:
(c) the firm reasonably believes that the customer understands the advice he has been given and the basis on which it was provided.

(2) The requirements in (1)(b) do not apply in the case of a deposit-based stakeholder product.

06/04/2005

COB 5A.4.3

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

06/04/2005

COB 5A.4.4

A firm must not recommend or agree that a customer make contributions to an ISA in excess of the Inland Revenue's ISA limits.

06/04/2005

COB 5A.4.5

A firm must not, in the course of providing basic advice, advise a customer on the contribution levels to a stakeholder pension needed to achieve a specific income in retirement.

06/04/2005

Procedure on making a recommendation

COB 5A.4.6

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

(1) explains to the customer, if necessary in summary form, the "aims", "risks" and "commitment" sections of the appropriate key features together with such other explanation of the product as will enable the customer to make an informed decision whether to accept the recommendation;
(2) provides the customer with a summary sheet, in a durable medium, setting out for each product recommended:

(a) the specific amounts that the customer wishes to pay into each product;
(b) the reasons for the recommendation, including any information provided by the customer on which the recommendation is based, including the customer's attitude to risk;

(3) informs the customer that in determining any subsequent complaint the Ombudsman may take into account the limited information on which the recommendation is based and that the recommendation is not tailored to take account of those aspects of a customer's financial needs and circumstances not covered by its sales process.

06/04/2005

COB 5A.4.7

COB 5A.4.6R (1) does not apply to a recommendation to acquire a deposit-based stakeholder product.

06/04/2005

COB 5A.4.8

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

06/04/2005

COB 5A.4.9

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

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

06/04/2005

Record of recommendations

COB 5A.4.10

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

06/04/2005

COB 5A Annex 1

Sales processes for stakeholder products

06/04/2005

This Annex forms part of COB 5A.4.3 G and gives guidance on the standards and requirements to which a firm may have regard in designing a sales process for stakeholder products which meets the requirements of COB 5A.4.2 R.

General Standards - all sales

A sales process for stakeholder products may allow the representative administering it to depart from scripted questions where this is desirable to enable the customer to better understand the points that need to be made provided this is compatible with the representative's competence and the degree of support offered by the firm's software and other systems. A software based system is more likely to provide an adaptable means of providing prompts and support for representatives which may accordingly support a more flexible sales process.

Questions, statements and warnings provided to a customer should be short, simple and couched in plain language that customers will understand. Questions should address one issue at a time.

The sales process should enable the customer to exit freely and without pressure at any stage and should make provision for the representative to terminate the process if at any stage it appears that there is no likelihood of any product being suitable for the customer (whether by reason of the affordability of products for the customer, the need to address other financial priorities (see below), the mis-match of risk or otherwise).

Where necessary the sales process should incorporate procedures to allow uncertainties in the customer's answers to be addressed before proceeding further and should generally reflect caution about proceeding further if clarification or further information cannot be obtained during the process (this would be likely to be the case for example if a customer were unable to confirm whether he or she was eligible for membership of an occupational pension scheme).

Preliminary - all sales

The following preliminary information and explanation should be given to the customer:

(a)

only basic advice will be given about stakeholder products;

(b)

stakeholder products are intended to provide a relatively simple and low-cost way of investing and saving;

(c)

the range of products on which the representative will give advice to that customer;

(d)

the customer will be asked a series of questions about his or her circumstances and needs and at the end of the procedure he or she may be recommended to acquire a stakeholder product;

(e)

that the assessment of whether a stakeholder product is suitable will be made without a detailed assessment of the customer's needs but will be based only upon the information disclosed during the questioning process; and

(f)

the customer's answers will be noted and that at the end of the process, if a recommendation to acquire a stakeholder product is made, the customer will be provided with a copy of the completed questionnaire.

Following 5, the customer should be asked if he or she wishes to proceed and, if not, the sales process should cease.

Affordability - all sales

If it appears that the customer will be likely to be unable to afford a stakeholder product, the sale should be terminated at that stage and the customer given an explanation together with a copy of the questions and answers completed to that point.

Financial Priorities and Debt - all sales

A customer should be assessed to ascertain other possible financial priorities such as the need for insurance protection for self or dependents, the need for access to liquid cash to meet an emergency, or, a need to reduce a level of existing debt and, if appropriate, the customer should be given an unambiguous warning about the desirability of meeting those other priorities before making payments to a stakeholder product.

A stronger warning about the desirability of addressing debt as a priority should be given if it appears that the customer is significantly indebted, and particularly where there is a strong indication that such debt commitments may render any new commitment unaffordable in the short-term. For this purpose a firm should consider using a threshold or indicator to decide whether a customer should be excluded on the basis of affordability. Examples may include where the customer has (a) annual unsecured debt repayments in excess of 20% of gross annual income or (b) four or more active forms of unsecured credit or (c) has consistently reached his overdraft limit. A firm should review its chosen indicator or threshold regularly to ensure that it reflects prevailing economic conditions and takes account of industry best practice.

10.

A firm should clearly explain the information it is seeking in respect of a customer's 'debt' and consider the use of a range of alternative words, such as 'loans', 'repayable student loans' 'borrowing' or 'other forms of credit', to ensure all relevant information is obtained. A firm may use a simple reckoner to assess customer debt but should be conscious of the nature of, and not give impression that they are providing anything more than, basic advice.

11.

After a firm has given either or both of the warnings mentioned in 8 and 9 above, the customer should be invited to consider whether the sales process should be terminated at that stage.

Saving and investment objectives - all sales (except establishing a stakeholder CTF)

12.

A customer's savings and investment objectives, including the period over which the customer wishes to save or invest, should be ascertained including whether:

(a)

early access to some or all of the amount saved or invested could be important;

(b)

the customer wishes to save or invest for retirement; or whether

(c)

the customer wants to accumulate a specific sum by a specific date.

13.

If the information obtained under 12 above indicates that the customer's objective:

(a)

is as described in 12 (c) then normally no CIS, linked life stakeholder product or topping up of a stakeholder CTF should be recommended; or

(b)

is to save or invest for the short term only or that early access to the whole accumulated sum may be important, then no CIS, linked life stakeholder product, stakeholder pension or topping up of a stakeholder CTF should normally be recommended.

Tolerance of risk - all sales

14.

If a customer is not, in any circumstances, willing to accept any risk of the capital value of an investment being reduced then normally no CIS, linked life stakeholder product, or stakeholder CTF should be recommended. However a firm may, if it is appropriate, explain the effect of inflation on long-term savings especially in relation to pensions and invite the customer to consider his attitude to risk in the light of that explanation.

15.

If a customer is willing to accept the risk of capital reduction in some circumstances but not others then, before any recommendation to acquire a CIS or linked life stakeholder product is made, the customer should be reminded of the other circumstances in which he or she is unwilling to accept risk to capital.

Stakeholder pensions

16.

A stakeholder pension should not be recommended and instead the customer should be advised to seek alternative or further advice if it appears that the customer:

(a)

has or will have access to an occupational pension scheme; or

(b)

is likely to view income in retirement from state benefits as sufficient; or

(c)

already has a pension to which he or she could make further contributions; or

(d)

wishes to retire within five years.

17.

In addition to providing the advice in 16, a firm may also want to advise the customer that there may be more beneficial courses of action than buying a stakeholder pension (for example joining an occupational pension scheme).

18.

A firm designing a sales process for use in the workplace may take account of the benefits offered by the employer. If a firm recommends a stakeholder pension on the basis of benefits provided by an employer then it should explain the basis of the recommendation to the customer and suggest that the customer seek advice if he or she has any concerns.

19.

A firm should design its processes with a view to addressing the risk that customers will fail to appreciate the significance of questions about their pension provision and should accordingly incorporate a range of questions and information designed to foster the customer's understanding of the issues and to elicit appropriate information.

20.

Customers should be told that a stakeholder pension is life-styled and what this means.

21.

A firm may provide a copy of the pension table specified in COB 6 Annex 1 R for the customer's reference but in doing so should also provide and explain the caveats and assumptions behind the table. A firm should make it clear that the decision on how much to invest is the customer's responsibility and that he should get further advice if has any concerns.

Child Trust Funds

22.

A firm is reminded of its obligation to provide a customer with the information relating to stakeholder CTFs that is specified in COB 6.5.40 (7)(a), COB 6.5.40 (7)(b), COB 6.5.40 (7)(d) and COB 6.5.40 (7)(e).

ISAs

23.

It should be ascertained whether the customer has already opened an ISA (whether a "maxi" or "mini" version) and if so whether it would be appropriate for the customer to open a non-ISA version of the same product.

06/04/2005

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 to a private customer or to the trustees of an occupational pension scheme or to the trustee or operator of a stakeholder pension scheme; or
(2) 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 for or to 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.

01/12/2001

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 schemes) contain exemptions from the requirement to produce key features in relation to life policies and schemes.
(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.

01/12/2001

Application of COB 6.2.26R

COB 6.1.2A

COB 6.2.26 R applies 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.

01/12/2001

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 collective investment scheme, investment trust savings scheme or stakeholder pension scheme ; 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.

01/12/2001

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

Provision of key features

01/12/2004

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 or other information required by COB 6.4 - 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).

09/10/2004

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 or other information to be given, it does not require the same information to be provided again if the private customer already has it.

09/10/2004

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 6.4.31 R (telephone sales and other exemptions).

09/10/2004

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: schemes

COB 6.2.22

When a firm sells, personally recommends or arranges for the sale of a scheme to a private customer, unless COB 6.2.24 R (exceptions) or COB 6.4.27 to COB 6.4.31 R (telephone sales and other exemptions) applies, the private customer must be provided with key features for the scheme before the private customer completes an application for the scheme holding.

09/10/2004

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 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.

09/10/2004

Exceptions from the requirement to provide key features for schemes

COB 6.2.24

A firm need not provide key features to a private customer in respect of a 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 fund 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; or
(8) the scheme is a UCITS scheme recognised under section 264 of the Act (Schemes constituted in other EEA States); however, if the sale is by way of a distance contract, the firm must provide all the contractual terms and conditions and the information in COB App 1 instead of key features.

01/04/2005

Requirement to offer a simplified prospectus for section 264 schemes

COB 6.2.26

(1) When a firm 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, 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) a copy of the scheme's simplified prospectus has been filed with 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 filed with the FSA.

01/04/2004

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, self invested personal pension schemes,, cash deposit ISAs, cash deposit CTFs, Revenue allocated CTFs, traded life policies, stakeholder pension schemes, packaged products, other deposits and long-term care insurance contracts.

09/10/2004

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.

09/10/2004

Occupational pension schemes

COB 6.4.3

COB 6.1 (Packaged product and ISA disclosure) and COB 6.2 (Provision of key features) 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.

01/12/2001

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 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.
(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 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.

01/12/2001

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 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.

01/12/2001

Self-invested personal pension schemes

COB 6.4.6

(1) A firm which sells, personally recommends or arranges the sale of a packaged product ) to or for a member, prospective member or trustees of a self-invested personal pension scheme, must provide key features to that member or trustees, in accordance with COB 6.2.7 R to COB 6.2.25 R.
(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.

01/12/2001

COB 6.4.7

Investments within a self-invested personal pension scheme (a "SIPP") are effected by the trustees on behalf of scheme members. Key features should be given to the trustees and to members of SIPPs when packaged products (whether life policies or schemes) are recommended by a firm to scheme members or effected by SIPP trustees. Notice of the right to cancel should also be copied to SIPP members in these circumstances, in accordance with COB 6.7.31 R.

09/10/2004

Income withdrawals

COB 6.4.8

When a firm personally recommends, arranges or effects income withdrawals to or for a private customer, the customer must be provided with key features in good time before he signs any form of application or authority electing to make those withdrawals, whether that election 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.

09/10/2004

COB 6.4.9

In relation to an election to make income withdrawals, the requirement for the provision of key features in:

(1) COB 6.2.7 R also applies when an existing life policy is to be endorsed;
(2) COB 6.2.22 R also applies when an existing scheme holding is to be used.

01/12/2001

COB 6.4.10

In relation to an election to make income withdrawals, 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), where there is conflict.

01/12/2001

COB 6.4.11

When a private customer makes a series of elections within a period of 12 months to make income withdrawals, the firm that is personally recommending, arranging or effecting the elections may provide one combined set of key features, for those elections, or may provide separate sets of key features for elections which relate to life policies and schemes.

01/12/2001

COB 6.4.12

At intervals no longer than 12 months from the date of an election by a private customer to make income withdrawals, the relevant product provider 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 election; and
(2) inform the private customer how to obtain advice on investments in respect of his income withdrawals, and that it would be in his best interests to do so.

01/12/2001

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 6.4.31 R (telephone sales and other exemptions) applies, provide the private customer with key features before the private customer completes an application for the stakeholder pension scheme.

09/10/2004

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 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.
(2) In COB 6.2 to COB 6.5, for the purposes of (1), the firm must treat trustees and operators as private customers.

09/10/2004

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)

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), unless an exemption in COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.

09/10/2004

Exemption: telephone sales

COB 6.4.27

(1) Where this chapter requires key features 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 or other information (as applicable) in a durable medium.

09/10/2004

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 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 or other information to the customer in a durable medium immediately after the conclusion of the contract.

31/10/2004

Exemption: successive or separate operations under an initial service agreement

COB 6.4.30

This exemption applies where this chapter requires a key features 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)).

31/10/2004

Exemption: other successive and separate operations

COB 6.4.31

This exemption applies where this chapter requires a key features 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)).

09/10/2004

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, schemes, ISA and CTF cash deposit components and stakeholder pension schemes

01/12/2004

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 packaged product other than a stakeholder pension scheme 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.

09/10/2004

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 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 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'.

01/12/2001

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 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 scheme or stakeholder pension scheme

COB 6.5.20 R

Tables:

Life policies
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
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

01/12/2001

Title

COB 6.5.12

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

01/12/2001

Nature of life policy or scheme or stakeholder pension scheme

COB 6.5.13

(1) A firm must describe the nature of the life policy or 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.

01/12/2001

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 scheme or a linked life stakeholder product:

(a) and relates to an election to make income withdrawals; 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.

31/10/2004

COB 6.5.16

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

01/12/2001

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 6.5.17

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, when it must be on the basis of (a).

06/04/2005

Description of the life policy or 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, scheme, or stakeholder pension scheme, and any other information necessary to enable the private customer to make an informed decision.

01/12/2001

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 scheme which is to be held within a CTF the information referred to in COB 6.5.40 R (7).

20/09/2001

Tables and deductions summaries for life policies, 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 - COB 6.5.36 G set out the Tables, Deductions Summary and method of calculating 'Effect of deductions to date' for 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.

01/12/2001

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 a personal pension policy with income withdrawals, there is an option to quote figures for the sixth year and at three-yearly intervals thereafter; 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 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, 'Total income taken'; the sum of withdrawals must be shown;
(8) for a personal pension with income withdrawals, 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.

06/04/2005

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 schemes

COB 6.5.30

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

01/12/2001

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 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, '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, include in a table under the heading 'What effect will deductions have?' figures for every third year or 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.

06/04/2005

Deductions summary for 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 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, 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 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.

31/10/2004

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, 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 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 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.

06/04/2005

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 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.

01/09/2002

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) 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".

01/09/2002

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, schemes and stakeholder pension schemes.

01/12/2001

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, scheme or stakeholder pension scheme receive information about possible future returns from their investment in a way which is fair and not misleading.

01/12/2001

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 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).

01/12/2001

General

COB 6.6.4

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

01/12/2001

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 the Inland Revenue, 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, scheme or stakeholder pension scheme is a structured capital-at-risk product.

01/11/2002

COB 6.6.5A

(1) A revised projection to take account of a different marital 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).

01/11/2002

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 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).

01/11/2002

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 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.

01/05/2003

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 income withdrawals from a personal pension or stakeholder pension scheme:

(1) must include:

(a) a statement of the initial amounts of minimum and maximum income as specified in the current tables published by the Government Actuary for income withdrawals;
(b) a statement of the assumed initial level of income and the assumed basis for future years;
(c) a schedule showing under the heading 'WHAT THE BENEFITS MIGHT BE' the amount of income and the fund at each, or every third, 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
(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.

01/11/2002

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 or 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.

01/11/2002

COB 6.6.16

Statements to accompany projections of life policies, 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, 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.

01/11/2002

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 , including a projection which is personal to your circumstances, will be provided if a recommendation for an investment product is made.

01/12/2001

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), 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, 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).

01/12/2001

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).
(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.

01/12/2001

Charges and expenses

COB 6.6.23

(1) For a 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 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.

01/12/2001

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, 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;
(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.

01/12/2001

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 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.

01/12/2001

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 scheme , except in the case of a protected rights annuity (see COB 6.6.31 R).

01/12/2001

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

Scheme calculation

COB 6.6.36

(1) A projection of any future benefit payable under a 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 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.

01/11/2002

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 or 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.

01/11/2002

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 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 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 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 schemes, ordinary branch non-pensions and industrial branch business

(d) immediate annuities

Notes:
In relation to 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.

01/12/2001

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%

Y+3%

Y+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) 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.

01/11/2002

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

01/12/2001

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) for all types of life policies and schemes. COB 6.6.63 G - COB 6.6.79 G provide guidance in assessing the expenses and charges relating to schemes.

01/12/2001

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 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 schemes.

01/12/2001

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 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.

01/02/2004

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. 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 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 , 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 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.

01/11/2002

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; 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.

01/11/2002

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 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.

14/01/2005

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 policy, pension annuity or within ISA or CTF)

Yes^{1, 5, 6, 12}

No¹

30 days

Personal pension contract

Yes^{1, 5, 6}

No¹

30 days

Stakeholder pension scheme (SHP)

Yes^{1, 5, 6}

No¹

30 days

Certain variations of existing life policies, pension contracts 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.

14/01/2005

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 for a stakeholder pension scheme for which a right to cancel applies under COB 6.7.12 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, pension contract 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.

11/01/2004

COB 6.7.8

The trustees of an occupational 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.

09/10/2004

COB 6.7.9

(1) COB 6.7.8 R applies when trustees purchase life policies or schemes as investments of their pension schemes. Individual members of stakeholder pension schemes 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.

09/10/2004

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 policy, personal pension contractor stakeholder pension scheme) within 30 days; or
(2) (in any other case) within 14 days.

09/10/2004

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 the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R.
(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.

09/10/2004

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

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);

pension policy or stakeholder pension scheme 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

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).

09/10/2004

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 or, pension contract ) 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, 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;

11.

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 contractor stakeholder pension scheme 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).

09/10/2004

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 6.7.14 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) or COB 6.7.7 R (4) 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.

09/10/2004

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, pension contract 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) applies:

(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.

(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.

09/10/2004

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 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).

11/01/2004

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 who is reasonably believed by the firm to be expected to act on the instructions of the individual beneficiary 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; and
(2) the beneficiary or purchaser;

and must inform the beneficiary or purchaser of the need to give instructions, within the specified cancellation period, to the trustee where the right to cancel is to be exercised.

09/10/2004

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, pension contract 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.

01/12/2001

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) or (4), 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.

01/12/2001

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), (2), (3) or (4):

(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.

01/12/2001

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 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
(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.

01/12/2001

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 6.9

With-profits guides

01/12/2004

Application

COB 6.9.1

This section applies to a long-term insurer which issues with-profits life policies and which is:

(1) a long-term insurer other than a friendly society; or
(2) a directive friendly society that is carrying on long-term insurance business other than just in relation to industrial assurance policies; or
(3) a friendly society which issues Holloway sickness policies if details of the funds' expenses and asset distribution are not published elsewhere at least annually.

01/12/2001

Purpose

COB 6.9.2

This section is relevant to a firm's obligations under Principle 7 (Communications with clients) which requires a firm to pay due regard to the information needs of its customers, and communicate with them in a way which is clear, fair and not misleading. In the case of with-profits life policies, it is desirable for customers and their advisers to have additional information available to them in order to enable them to understand how the long-term insurer is likely to take decisions concerning the distribution of profits and the declaration of bonuses.

01/12/2001

With-profits guides

COB 6.9.3

A firm must produce a with-profits guide in accordance with COB 6.9.4 R and make it available in accordance with COB 6.9.5 R.

01/12/2001

COB 6.9.4

A firm must:

(1) not later than six months after its financial year end or, if later, two months after the end of the lodgement period for annual regulatory returns, produce a separate and self-contained guide for each with-profits fund that it maintains, unless the fund is closed to new policyholders;
(2) issue a revised guide or a supplement to the guide as soon as reasonably practicable after a change in the circumstances of or affecting the with-profits fund which would cause the guide to become misleading or incomplete;
(3) ensure that each guide is consistent with the information contained in the annual prudential regulatory returns; and
(4) ensure that each guide contains the information specified in COB 6.9.6 R.

01/12/2001

COB 6.9.5

(1) If asked to supply a copy of a with-profits guide for a fund that it maintains, a firm must do so free of charge.
(2) The guide supplied in accordance with (1) must be the latest version unless a specific earlier version is requested.

01/12/2001

Content of with-profits guides

COB 6.9.6

A with-profits guide must contain the headings, tables and information prescribed in COB 6.9.7 R and:

(1) the lettered sections and the tables in those sections must appear in the order set out in COB 6.9.7 R but the information required within each lettered section may be provided in a different order;
(2) the text prescribed by COB 6.9.7 R must be used, but:

(a) any text in brackets must be replaced by appropriate text applicable to the firm and with-profits fund to which the guide relates; and
(b) the text must be modified if the firm considers it inappropriate to the fund or the aspects of it being explained;

(3) a firm may omit or alter the lettering and numbering of the headings, sections and paragraphs;
(4) the guidance notes must not be included; and
(5) in preparing information for inclusion in the with-profits guide, a firm must have regard to any relevant guidance published by the Institute of Actuaries or the Faculty of Actuaries (or both jointly).

01/12/2001

COB 6.9.7

Contents of a with-profits guide

This table belongs to COB 6.9.6 R.

[Name of fund] with-profits guide [date of issue]

Introduction

All insurance companies, and the larger friendly societies, which market with-profits policies in the United Kingdom, are required to make available a guide containing information about the company or society and its with-profits fund. This is because the benefits under such policies depend in part, and sometimes to a considerable extent, on bonus additions which are made by the company or the society from time to time and which cannot be known in advance. It is therefore important that potential policyholders and their advisers should have access to information about the most important factors influencing such bonuses.

However, investors are advised that, in comparing a policy marketed by one company or society with other policies, it is unwise to place too much importance on any one factor. An over-all view of all relevant elements will usually give a more realistic comparison: in particular, an examination of the history of a fund over a period of years will usually give a fuller picture than can be obtained from looking at the figures for just one year.

[The company/society] is satisfied that this guide fairly presents information as at [date] about the company/society ¹ and complies with the rules of the Financial Services Authority.

[If the firm is producing an appendix to the guide referring to an industrial assurance with-profits fund, the firm may include an explanation of the difference between ordinary and industrial assurance business]

Note: 1 - Delete whichever is inapplicable

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 6.10.21J G, 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 6.10.21J G 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.

30/04/2004

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. These rules and guidance 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.

30/04/2004

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

The effect of COB 6.10.21A R, COB 6.10.21B R and COB 6.10.21C G 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 the form of Principles and Practices of Financial Management.

30/04/2004

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

A firm should indicate in any annual statements sent to with-profits policyholders that copies of the firm's PPFM, or the PPFM applicable to specified with-profits funds, are available on request, under COB 6.10.8 R. The PPFM might also be published on a firm's website.

30/04/2004

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

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 should indicate in any annual statements sent to with-profits policyholders that the information provided under COB 6.10.21A R is available on request. The PPFM might also be published on an EEA insurer's website.

30/04/2004

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

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 6.10.25

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.
(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.

30/04/2004

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 must cover the firm's approach to smoothing the value of with-profits policies.

30/04/2004

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 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.

01/05/2004

COB 7

Dealing
and managing

COB 7.1

Conflict of interest and material interest

01/12/2004

Application

COB 7.1.1

(1) This section applies to a firm when it is conducting designated investment business with or for a customer.
(2) COB 7.1.4 E (1) do not apply in relation to investment research (see COB 7.3 (Dealing ahead of investment research)).

01/12/2004

Purpose

COB 7.1.2

Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interest fairly. This section aims to ensure that when a firm has, or may have, a conflict of interest between itself and its customer, or between one customer and another customer, the firm pays due regard to the interests of each customer and manages the conflict of interest fairly.

01/12/2004

Fair treatment

COB 7.1.3

If a firm has or may have:

(1) a material interest in a transaction to be entered into with or for a customer; or
(2) a relationship that gives or may give rise to a conflict of interest in relation to a transaction in (1); or
(3) an interest in a transaction that is, or may be, in conflict with the interest of any of the firm's customers; or
(4) customers with conflicting interests in relation to a transaction;

the firm must not knowingly advise, or deal in the exercise of discretion, in relation to that transaction unless it takes reasonable steps to ensure fair treatment for the customer (see COB 2.4.7 G (Attribution of knowledge)).

01/12/2004

COB 7.1.4

(1) For the purposes of COB 7.1.3 R, a firm should manage a conflict of interest by taking reasonable steps in one or more of the following ways:

(a) disclosing an interest to a customer; or
(b) relying on a policy of independence; or
(c) establishing internal arrangements (Chinese walls); or
(d) declining to act for a customer.

(2) Contravention of (1) may be relied on as tending to establish contravention of COB 7.1.3 R.
(3) Compliance of (1) may be relied on as tending to establish compliance with COB 7.1.3 R.

01/12/2004

Disclosing an interest to a customer

COB 7.1.5

The following are examples of material interest or conflicts of interest that a firm should disclose under COB 7.1.4 E (1):

(1) dealing in investments as principal (unless the firm is acting as a market maker);
(2) dealing in investments as agent for more than one party;
(3) a recommendation to buy or sell a designated investment in which one of the firm's customers has given instructions to buy or sell;
(4) a recommendation to buy or sell a designated investment in which the firm has respectively a long or short position;
(5) acting as a broker fund adviser.

01/12/2004

COB 7.1.6

(1) In disclosing an interest to a customer, a firm should:

(a) disclose to the customer, either orally or in writing, any material interest or conflict of interest it has, or may have, whether generally or in relation to a specific transaction, before it advises the customer about the transaction or before it deals on behalf of the customer in the exercise of discretion in relation to the transaction; and
(b) be able to demonstrate that it has taken reasonable steps to ensure that the customer does not object to that material interest or conflict of interest.

(2) Contravention of (1) may be relied on as tending to establish contravention of COB 7.1.3 R.
(3) Compliance of (1) may be relied on as tending to establish compliance with COB 7.1.3 R.

01/12/2004

Relying on a policy of independence

COB 7.1.7

COB 7.1.4 E (1)(b) recognises that a firm may demonstrate that it has taken reasonable steps to ensure fair treatment for its customers by relying on a policy of independence. If a firm relies on a policy of independence, that policy should:

(1) require the relevant employee to disregard any material interest or conflict of interest when advising a customer or dealing for a customer in the exercise of discretion;
(2) be recorded in writing by the firm and made known to the relevant employee;
(3) be disclosed to a private customer stating that the firm may have a material interest or conflict of interest relating to the transaction or service concerned.

01/12/2004

Establishing internal arrangements

COB 7.1.8

A firm may manage a conflict of interest by establishing and maintaining the arrangements set out in COB 2.4 (Chinese walls).

01/12/2001

Declining to act for a customer

COB 7.1.9

If a firm determines that it is unable to manage a conflict of interest using one of the methods described above, it should decline to act on behalf of the customer.

01/12/2001

Broker fund advisers

COB 7.1.10

In addition to COB 7.1.3 R, a broker fund adviser, acting for a private customer, must obtain an acknowledgement from the private customer stating that he understands the nature of the firm's dual role as adviser to the private customer and adviser to the long-term insurer, overseas long-term insurer or operator of the broker fund in question.

01/12/2004

COB 7.1.11

COB 7.1.10 R is particularly relevant when any remuneration receivable by the firm or its associate, for acting in that dual capacity, would be greater than it would otherwise be when the firm is recommending to the customer a life policy or units in a regulated collective investment scheme.

01/12/2004

COB 7.1.12

(1) A broker fund adviser must ensure that it does not effect, personally recommend or arrange (bring about) the issue to a customer of a life policy by a relevant insurance undertaking, under which contributions will be made to the adviser's broker fund, unless the relevant insurance undertaking is contractually responsible to that customer in writing for the acts and omissions of the broker fund adviser or its associate in its role as an adviser to that fund as if they were the acts or omissions of the relevant insurance undertaking and will remain responsible until the earlier of:

(a) the broker fund adviser or its associate ceasing to be the adviser to the fund; and
(b) the termination of the policy.

(2) In (1), a relevant insurance undertaking is an insurance undertaking which does not have permission to effect or carry on long-term insurance business but which is authorised to carry on long-term insurance business in the Bailiwick of Guernsey, the Isle of Man, the Commonwealth of Pennsylvania, the State of Iowa or the Bailiwick of Jersey.
(3) In (1), associate has the extended meaning given to it in the definition of broker fund adviser.
(4) A firm must comply with the requirements in (1) where it effects, personally recommends or arranges (brings about) switching in relation to a broker fund for the customer.

01/12/2004

Product providers with broker funds

COB 7.1.13

A product provider with a broker fund must not enter into a transaction with a customer in respect of a broker fund, unless there is a written agreement in force between it, the broker fund adviser and any other person having responsibility for the management of the broker fund to which the agreement relates, clearly establishing the responsibilities of each party to the agreement, the investment objectives of the broker fund and the policies and strategies that are to be followed to achieve those objectives.

01/03/2003

UCITS management company

COB 7.1.14

In addition to COB 7.1.3 R, a UCITS management company which also manages investments (other than of collective investment schemes) must obtain prior general approval from the client before it invests all or part of the client's portfolio in the units of a UCITS it manages.

13/02/2004

COB 7.2

Churning and switching

01/12/2004

Application

COB 7.2.1

This section applies to a firm that conducts designated investment business with or for a customer.

01/12/2001

Purpose

COB 7.2.2

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. A firm should therefore not "churn" a customer's account, that is, enter into transactions with unnecessary frequency having regard to the customer's agreed investment strategy. A firm should also not switch a private customer within or between packaged products unnecessarily, having regard to what is suitable for that customer. Firms are reminded that a customer's interests are paramount.

01/12/2001

Restrictions on dealing and switching

COB 7.2.3

A firm must not:

(1) deal, or arrange a deal, in the exercise of discretion for any customer; or
(2) make a personal recommendation to a private customer to deal, or arrange a deal that gives effect to such a recommendation; or
(3) make or arrange a switch within a packaged product or between packaged products, in the exercise of discretion for a private customer; or
(4) make a personal recommendation to a private customer to switch within a packaged product or between packaged products, or make or arrange a switch that gives effect to such a recommendation;

unless the firm has taken reasonable steps to ensure that the deal or switch is in the customer's best interests, both when viewed in isolation and when viewed in the context of earlier transactions.

01/12/2001

COB 7.3

Dealing ahead of investment research

01/12/2004

Application

COB 7.3.1

This section applies to a firm if it, or any of its associates, prepares investment research for publication or distribution to its clients, or intends to publish or distribute investment research to its clients.

01/05/2004

Purpose

COB 7.3.2

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interests fairly, both between itself and its customers and between a customer and another client. In conjunction with Principle 1 (Integrity), Principle 2 (Due skill, care and diligence) and Principle 5 (High standards of market conduct), they require a firm to manage conflicts of interest which may arise in a way which ensures that all its clients are treated fairly and which ensures that the firm is conducting its business with integrity and according to proper standards of business. This section aims to ensure that a firm pays due regard to the interests of its clients by not undertaking an own account transaction when the firm or its associate publishes investment research, except in very limited circumstances.

01/05/2004

COB 7.3.2A

The FSA regards circumstances in which a firm deals in designated investments that are the subject of investment research which it publishes to clients as a significant potential source of conflicts of interest. The conflicts involved are such that the FSA does not consider that they can be managed adequately by disclosure of their existence.

01/05/2004

COB 7.3.2B

The FSA considers that these conflicts of interest do not arise if equity analysts or others prepare research papers or analyses relating to designated investments solely for a firm's own internal use, for example, in order to inform its decisions about managing its proprietary trading or its strategic direction. The FSA considers that it is inappropriate for an analyst to prepare research papers or analyses which are intended, first for internal use by the firm, and then for later publication to clients.

01/05/2004

Requirement not to undertake own account transactions

COB 7.3.3

If a firm or its associate intends to publish or distribute investment research to clients or prepares investment research for publication or distribution to its clients, unless COB 7.3.4 R applies, the firm must:

(1) not knowingly undertake an own account transaction in the designated investment concerned or any related designated investment; and
(2) (when the intention to publish is that of, or is known to, the firm) take all reasonable steps to ensure that its associates do not knowingly undertake any own account transaction in that designated investment, or any related designated investment;

until the clients for whom the publication was principally intended have had (or are likely to have had) a reasonable opportunity to act upon it.

01/05/2004

COB 7.3.3A

Firms are reminded of the Chinese wall provisions in COB 2.4.6 R (Attribution of knowledge)).

01/09/2002

Exceptions

COB 7.3.4

COB 7.3.3 R does not apply if:

(1) [deleted]
(2) the firm or its associate is a market maker in the designated investment concerned or in a related designated investment and it undertakes the transaction in good faith and in the normal course of market making; or
(3) the firm or its associate deals in order to fulfil an unsolicited customer order.
(4) [deleted]
(5) [deleted]

01/05/2004

COB 7.3.5

The exceptions in COB 7.3.4 R (2) allow a firm to continue to provide key services to the market and to its customers even if the firm would be considered to have knowledge of the timing and content of the investment research which is intended for publication to clients when, for example, it is impracticable for the firm to put in place a Chinese wall because the firm has few employees or cannot otherwise separate its functions.

01/05/2004

COB 7.4

Customer order priority

01/12/2004

Application

COB 7.4.1

This section applies to a firm when executing customer orders in designated investments.

01/12/2001

Purpose

COB 7.4.2

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and to treat them fairly. Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interest fairly. This section is therefore designed to ensure that a firm acts fairly in executing both own account orders and customer orders and manages any conflict of interest accordingly.

01/12/2001

Dealing fairly and in due turn

COB 7.4.3

A firm must execute customer orders and own account orders in designated investments fairly and in due turn.

01/12/2001

COB 7.4.4

COB 7.4.3 R does not preclude a firm from, for example:

(1) executing:

(a) a prior own account order ahead of a subsequent current customer order in the same designated investment or a related designated investment; or
(b) a current customer order when the person dealing for the customer neither knew nor ought reasonably to have known of an earlier unexecuted current customer order;

(2) postponing execution of a current customer order when the firm has taken reasonable steps to ensure that execution of another customer order ahead of that customer order is likely to improve the terms on which the current customer order is executed (in which case the firm should ensure that the customer whose customer order is being executed ahead of that other customer order is also being treated fairly);
(3) treating the life fund as if it were a customer to the extent that the firm is an insurance company dealing for the account of its life fund;
(4) treating the investment trust or scheme as if it were a customer to the extent that the firm is dealing for the account of an investment trust or a collective investment scheme that is a body corporate, which in either case is in the same group as the firm;
(5) treating an employee (or close relative) of the firm or of its associate, or a trustee acting on his behalf, as if he were a customer; or
(6) treating the firm's occupational pension scheme as a customer to the extent that the firm is dealing for the account of its occupational pension scheme.

01/12/2001

COB 7.4.5

MAR 1.4.26 C (Trading information) clarifies that behaviour based solely on information about another person's intention to deal will not constitute market abuse. Firms are reminded, however, that it may constitute a breach of COB 7.4.3 R.

01/12/2001

COB 7.5

Best execution

01/12/2004

Application

COB 7.5.1

This section applies to a firm when executing a customer order in a designated investment.

01/12/2001

Purpose

COB 7.5.2

Principle 2 (Skill, care and diligence) and Principle 6 (Customers' interests) require a firm to act with due skill, care and diligence and to pay due regard to its customer's interests. This section sets standards for firms when executing current customer orders in designated investments, particularly in the securities and derivatives markets, to obtain for customers the best price available to the firm, given the kind and size of such transactions.

01/12/2001

When best execution is owed

COB 7.5.3

A firm that executes a customer order in a designated investment must provide best execution, unless COB 7.5.4 R applies.

01/12/2001

Exceptions

COB 7.5.4

COB 7.5.3 R does not apply in any of the following circumstances:

(1) the customer order is for:

(a) the purchase of a life policy; or
(b) the purchase of or sale of units in a regulated collective investment scheme from or to the operator of that scheme;

(2) the firm has agreed with an intermediate customer that it need not owe a duty of best execution to him, unless that customer is:

(a) the trustee of an occupational pension scheme or an OPS collective investment scheme; or
(b) the trustee of any other trust for whom, and to the extent that, the firm acts as a permitted third party under COB 11.6 (Delegation to a permitted third party); or

(3) the firm relies on another person to whom it passes a customer order for execution to provide best execution, but only if it has taken reasonable care to ensure that he will do so.

15/11/2001

Providing best execution

COB 7.5.5

To provide best execution, a firm must:

(1) take reasonable care to ascertain the price which is the best available for the customer order in the relevant market at the time for transactions of the kind and size concerned; and
(2) execute the customer order at a price which is no less advantageous to the customer, unless the firm has taken reasonable steps to ensure that it would be in the customer's best interests not to do so.

01/12/2001

COB 7.5.6

(1) In order to take reasonable care under COB 7.5.5 R (1) , a firm:

(a) should disregard any charges and commission made by it or its agents that are disclosed to the customer under COB 5.7 (Disclosure of charges, remuneration and commission);
(b) need not have access to competing exchanges, or to all, or a minimum number of, available price sources; but if a firm can access prices displayed by different exchanges and trading platforms and make a direct and immediate comparison, it should execute the customer order at the best price available to the firm on such exchanges or trading platforms, if this is in the best interests of the customer;
(c) should pass on to the customer the price at which it executes the transaction to meet the customer order;
(d) should not take a mark-up or mark-down from the price at which it executes the customer order; and
(e) that is engaged in programme trading should ensure that it applies the duty of care in COB 7.5.5 R to each individual transaction.

(2) In relation to a customer order for euro priced securities traded on the London Stock Exchange, if the firm has decided to execute in sterling, the firm should take reasonable care to ascertain the best price available in sterling and to deal at a price no less advantageous to the customer.
(3) In relation to a customer order for shares that are traded on SETS, a firm's obligations under COB 7.5.5 R will be satisfied if, subject to COB 7.5.6 E (1)(b), a firm executes the customer order through SETS.
(4) If, in relation to a customer order for securities that are traded on SETS, a firm does not execute the customer order through SETS, the firm should ensure that:

(a) when a customer order is for normal settlement and is within the size currently displayed on SETS, the price obtained at least matches the best bid or offer price available on SETS;
(b) when a customer order is larger than the total of limit orders displayed on the best bid or offer on SETS, but there is sufficient depth overall, the price obtained at least matches the weighted average price of all orders for that security displayed on SETS;
(c) when a customer order is larger than the totality of orders currently displayed on the best bid or offer on SETS, and execution at the weighted average price would be impracticable, it uses due skill and care to ascertain the best available price, having regard to the price of recently executed transactions of a similar size, any prices or quotes available to it, and to prevailing market conditions;
(d) when there are no current bid or offer prices displayed on SETS, it refers to the previous best bid or offer prices, and to the latest published trades in the relevant security, and uses due skill and care to determine the best price in the light of the information available; and
(e) when a customer order is subject to a special condition (for example, non-standard settlement), the price should at least match the price available on SETS, and that any charge and commission in respect of the non-standard element is separately and appropriately disclosed to the customer.

(5) Compliance with (1), (2) and (3) may be relied on as tending to establish compliance with COB 7.5.5 R (1).
(6) Contravention of (1) or (2) may be relied on as tending to establish contravention of COB 7.5.5 R (1).
(7) Compliance with (3) or (4) may be relied upon as tending to establish compliance with COB 7.5.5 R (2).
(8) Contravention of (4) may be relied upon as tending to establish contravention of COB 7.5.5 R (2).

01/12/2001

COB 7.5.7

Disclosure of charges and commission in relation to non-standard settlement under COB 7.5.6 E (4)(e) may be made on a contract or confirmation note, or in a separate written statement to the customer before the transaction is executed. If the issue of a written statement in advance of the transaction is impracticable, the firm may make an oral disclosure to the customer provided it discloses the charges and commission promptly in writing after the transaction is executed.

01/12/2001

COB 7.5.8

An example of a circumstance in which a firm may, under COB 7.5.5 R, execute a customer order at a price which is less advantageous than the best available price is when a firm has a continuing relationship with a customer, and reasonably expects that it will be able to secure compensating advantages for the customer in other transactions that should provide best execution for the customer over a period or a series of transactions. In such cases, the decision would need to be taken and justified in respect of each separate transaction as it arose.

01/12/2001

COB 7.5.9

The evidential provision relating to mark-ups and mark-downs in COB 7.5.6 E (1)(d) does not prevent firms from being remunerated by means of mark-ups or mark-downs provided that such remuneration is disclosed to the customer as required by COB 8.1.15 E (Content of a confirmation of transaction: general requirements).

01/09/2002

COB 7.5.10

Where a customer order is subject to a special condition as envisaged in COB 7.5.6 E (4)(e), the firm should disclose any additional cost involved in satisfying the special condition or in respect of the non-standard element. If, however, it is not possible for the charge to be "unbundled" from the price itself, firms are permitted to deal on a bundled basis subject to the overriding obligation to provide best execution.

01/09/2002

COB 7.6

Timely execution

01/12/2004

Application

COB 7.6.1

This section applies to a firm when it agrees or decides in the exercise of its discretion to execute a current customer order in a designated investment.

01/12/2001

Purpose

COB 7.6.2

In accordance with Principle 2 (Skill, care and diligence) and Principle 6 (Customers' interests), this section requires a firm when it agrees or decides in its discretion to execute a current customer order to do so with due skill, care and diligence and to act in the best interests of customers in selecting the most opportune time to execute the current customer order.

01/12/2001

COB 7.6.3

This section applies only to current customer orders, as opposed to customer orders. A customer order that can be executed immediately is a current customer order. A customer order that is to be executed on fulfilment of a condition, only becomes a current customer order once that condition is satisfied.

01/12/2001

Achieving timely execution

COB 7.6.4

Once a firm has agreed or decided in its discretion to execute a current customer order in a designated investment, it must do so as soon as reasonably practicable unless COB 7.6.5 R applies.

01/12/2001

COB 7.6.5

COB 7.6.4 R does not apply if a firm has taken reasonable steps to ensure that postponing the execution of a current customer order in a designated investment is in the best interests of the customer.

01/12/2001

COB 7.6.6

Examples of situations in which a firm should take particular care to assess the timing of execution of all or part of a current customer order include when:

(1) a firm receives a customer order outside the normal trading hours of the relevant market or trading platform and intends executing that customer order on that market or other trading platform;
(2) a foreseeable improvement in the level of liquidity in the relevant designated investment is likely to enhance the terms on which the firm executes the customer order;
(3) executing the customer order as a series of partial executions over a period of time is likely to improve the terms on which the customer order as a whole is executed.

01/12/2001

COB 7.6.7

A firm may have reasonable grounds for postponing execution of a current customer order in the best interests of the customer. Examples of this may include when the deal is part of an aggregated transaction (see COB 7.7 (Aggregation and allocation)) for:

(1) one or more customers; or
(2) for the firm and one or more customers (including all those who would otherwise have priority over any other person for whom the deal is done);

and the firm has taken reasonable steps to ensure that the deal will not operate to the disadvantage of any of the customers concerned.

01/12/2001

COB 7.6.8

COB 7.12 (Customer order and execution records) contains the requirements for recording customer order and execution details.

01/12/2001

COB 7.7

Aggregation and allocation

01/12/2004

Application

COB 7.7.1

This section applies to a firm when it aggregates a customer order with an own account order, or with an order from a market counterparty, or with another customer order, while conducting designated investment business.

01/12/2001

Purpose

COB 7.7.2

Principle 1 (Integrity) requires a firm to conduct its business with integrity while Principle 6 (Customers' interests) requires that customers are treated fairly. When a firm aggregates and subsequently executes an order for customer, market counterparty and own account transactions collectively, or any combination of them, it should allocate the designated investments concerned fairly to all clients.

01/12/2001

Requirement for recorded standards and procedures

COB 7.7.3

When a firm aggregates a customer order with an own account order, or with an order from a market counterparty, or with another customer order, and subsequently allocates the designated investments concerned, it must do so in accordance with a written policy on allocation that is consistently applied and that fulfils the requirements of this section.

01/12/2001

Aggregation

COB 7.7.4

A firm may not aggregate a customer order with an own account order, or with an order from a market counterparty, or with another customer order, unless:

(1) it is likely that the aggregation will not work to the disadvantage of each of the customers concerned; and
(2) it has disclosed either orally or in writing to each customer concerned, either specifically or in the terms of business, that the effect of aggregation may work on some occasions to its disadvantage.

01/12/2001

Requirement for timely allocation

COB 7.7.5

When a firm has aggregated a customer order with an own account order, or with an order from a market counterparty, or with another customer order, and part or all of the aggregated order has been filled, it must promptly allocate the designated investments concerned.

01/12/2001

COB 7.7.6

(1) To allocate promptly, a firm that has aggregated an order under COB 7.7.4 R should complete the allocation of the designated investments concerned within one business day of the transaction, subject to (2), (3), (4) and (5).
(2) The period in (1) is within five business days if:

(a) only intermediate customers are concerned; and
(b) each of them has agreed to such an extension.

(3) The period in (1) is within three business days if:

(a) the aggregated order relates to one or more ISAs or PEPs; and
(b) the firm can show that it is necessary to execute those transactions in that way in order to serve its customer's best interests.

(4) All transactions in a series of transactions, all of which are executed within the one business day, may be treated as having been executed at the time of the last transaction, so long as a record of the time that each individual transaction was executed is made, such as by means of a time stamp.
(5) If transactions in a series of transactions occur over more than one business day, then the requirement for timely allocation in COB 7.7.5 R (and (1), (2) or (3) as appropriate) will apply separately in relation to each business day in which any such transaction is executed.
(6) Compliance with (1) may be relied on as tending to establish compliance with COB 7.7.5 R.
(7) Contravention of (1) may be relied on as tending to establish contravention of COB 7.7.5 R.

01/12/2001

COB 7.7.7

COB 8.1.3 R (Requirement to confirm transactions) and COB 8.1.5 E (Essential details and prompt despatch) allow for a single confirmation to be sent to each intermediate customer for a series of transactions over a period up to and including five business days.

01/12/2001

COB 7.7.8

If, for any reason, a firm is not able to allocate the designated investments concerned promptly, the reason for the delay should be fully documented and recorded by the firm.

01/12/2001

Requirement for fair allocation

COB 7.7.9

When a firm executes an aggregated order that combines:

(1) a customer order and an own account order; or
(2) a customer order and an order from a market counterparty (other than an associate of the firm); or
(3) a customer order and another customer order;

in the subsequent allocation it must:

(4) not give unfair preference to the firm or to any of those for whom it dealt; and
(5) where (1) applies, give priority to satisfying customer orders, if the aggregate total of all orders cannot be satisfied, unless it can demonstrate on reasonable grounds that without its own participation it would not have been able to execute those orders on such favourable terms, or at all.

01/12/2001

COB 7.7.10

A firm may treat the following as a customer order:

(1) a transaction on the account of the life fund of an insurance company, when the insurance company is in the same group as the firm (or is the firm);
(2) a transaction for the account of an investment trust or a collective investment scheme that is a body corporate in the same group as the firm;
(3) a transaction for the account of an employee (or a close relative) of the firm or of its associate, or a trustee acting on his behalf, but only when the transaction is undertaken on a pre-established and recorded basis;
(4) a transaction for the firm's occupational pension scheme.

01/12/2001

Re-allocation

COB 7.7.11

A firm may undertake a revised allocation of an aggregated order if:

(1) an error is identified in either the intended basis of allocation or the actual allocation, provided that the firm makes a record of the reason for the re-allocation and completes it within one business day of the error being identified; or
(2) the order is only partially executed resulting in an uneconomic allocation to some customers; in such a case the firm must take reasonable steps to ensure that a re-allocation is in the best interests of the customers for whom it has dealt; and
(3) the revised allocation is carried out in accordance with COB 7.7.12 R.

01/12/2001

Price of allocation

COB 7.7.12

When a firm has executed an aggregated order or is undertaking a revised allocation as described in COB 7.7.11 R, then it must allocate that order either at:

(1) the price paid for each designated investment concerned (net of all relevant fees and commissions); or
(2) a volume-weighted average of the prices of a series of transactions.

01/12/2001

COB 7.7.13

The method of calculating the volume-weighted average price of two transactions in the same shares is illustrated as follows: Transaction 1 - 100 shares at 1.00 each Transaction 2 - 400 shares at 2.00 each Volume-weighted average price = [(100x1.00) + (400x2.00)] / 500 = 1.80

01/12/2001

Record keeping requirements

COB 7.7.14

(1) A firm must, on executing an aggregated transaction that includes one or more customer orders, make a record of:

(a) the identity of each client concerned;
(b) whether the transaction is to be transacted in whole or in part for a discretionary managed investment portfolio and, if in part, the relevant proportions.

(2) If a firm aggregates a number of client orders that include one or more customer orders, the firm must make a record of the intended basis of allocation as soon as is practicable.
(3) If a firm aggregates an order for one or more customers and itself, the firm must make a record of the intended basis of allocation before the transaction is executed.

01/12/2001

COB 7.7.15

A firm may choose to show the relevant proportions as the number of shares (or units) for each client together with the aggregate number of shares (or units).

01/12/2001

COB 7.7.16

When allocating an aggregated transaction that includes the execution of one or more customer orders, a firm must make a record of:

(1) the date and time of the allocation;
(2) the relevant designated investment;
(3) the identity of each customer and market counterparty concerned;
(4) the amount allocated to each respective customer, market counterparty and to the firm; and
(5) the agreement with each intermediate customer to extend the allocation period under COB 7.7.6 E (2)(b).

01/12/2001

COB 7.7.17

A firm must make a record of the basis of and reason for any re-allocation made in accordance with COB 7.7.11 R at the time of the re-allocation.

01/12/2001

COB 7.7.18

A firm must retain the records required by COB 7.7 for a period of at least three years from the date on which the order is allocated or re-allocated.

01/12/2001

COB 7.8

Realisation of a private customer's assets

01/12/2004

Application

COB 7.8.1

This section applies to a firm when it:

(1) seeks a right; or
(2) seeks to exercise a right;

to realise a private customer's assets in order to discharge an obligation of that private customer which arises from designated investment business conducted by the firm.

01/12/2001

Purpose

COB 7.8.2

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section therefore aims to ensure that a firm, where relevant, discloses to a private customer, in the terms of business, that it may exercise remedies involving the realisation of assets.

01/12/2001

Contractual rights to realise a private customer's assets

COB 7.8.3

A firm must not realise a private customer's assets unless it is legally entitled to do so, and it has either:

(1) set out in the terms of business provided to the private customer in accordance with COB 4.2.5 R (Requirement to provide terms of business to a customer) (or a client agreement entered into in accordance with COB 4.2.7 R (Requirement to enter into a client agreement with a private customer)):

(a) the action it may take to realise any assets of the private customer;
(b) the circumstances in which it may do so; and
(c) each asset (if relevant) or type or class of asset over which it may exercise the right; or

(2) given the private customer notice (oral or written) of its intention to exercise its rights at least three business days before it does so.

01/12/2001

COB 7.9

Lending to private customers

01/12/2004

Application

COB 7.9.1

This section applies to a firm when it lends money or grants credit to a private customer or arranges for any other person to do so, in the course of, or in connection with, its designated investment business.

01/12/2001

Purpose

COB 7.9.2

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section seeks to ensure that a firm lends money or grants credit to a private customer only in appropriate circumstances, and only if the customer has given prior consent in full knowledge of any resulting interest and fees.

01/12/2001

Restrictions on lending to private customers

COB 7.9.3

A firm, subject to the exceptions in COB 7.9.5 R, must not lend money or grant credit to a private customer (or arrange for any other person to do so) in the course of, or in connection with, its designated investment business unless:

(1) the firm has made and recorded an assessment of the private customer's financial standing, based on information disclosed by the private customer;
(2) the firm has taken reasonable steps to ensure that the arrangements for the loan or credit and the amount concerned are suitable, based on the information disclosed by the private customer, for the type of investment agreement proposed or which the private customer is likely to enter into; and
(3) the private customer has given his prior written consent to both the maximum amount of the loan or credit and the amount or basis of any interest or fees to be levied in connection with the loan or credit.

01/12/2001

COB 7.9.4

When the provisions of the Consumer Credit Act 1974 apply, the firm should ensure that it has an appropriate licence under that Act and that it complies with all that Act's requirements (details are available from the Office of Fair Trading).

01/12/2001

Exceptions

COB 7.9.5

COB 7.9.3 R does not apply when:

(1) a firm settles a securities transaction of the private customer because he has failed to pay or has paid late; or
(2) a firm covers a margin call made on a private customer for a period of no longer than five business days; or
(3) a long-term insurer lends money or grants credit to a private customer, or arranges for any other person to do so, in connection with a life policy.

20/09/2001

COB 7.9.6

A firm should consider whether the circumstances mentioned in COB 7.9.5 R give rise to any obligations under the client money rules to maintain adequate client money resources.

01/12/2001

Record keeping requirements

COB 7.9.7

A firm must make a record of the information about the private customer's financial standing upon which the assessment required by COB 7.9.3 R (1) was made, including the date on which the information was last updated or checked, and retain the record for three years from the date on which the credit arrangements ceased.

01/12/2001

COB 7.10

Margin requirements

01/12/2004

Application

COB 7.10.1

This section applies to a firm which executes a transaction in a contingent liability investment with or for a private customer, in the course of, or in connection with, its designated investment business.

01/12/2001

Purpose

COB 7.10.2

Principle 3 (Management and control) requires a firm to have adequate risk management systems, while Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section aims to ensure that a firm does not expose itself to unacceptable levels of credit risk while managing its margin requirements. It also aims to ensure that a firm manages a private customer's exposure to contingent liabilities by diligently monitoring the firm's relevant provision of credit.

01/12/2001

Provision of margin by a private customer

COB 7.10.3

(1) A firm must obtain from a private customer any margin payable, whether at the outset or subsequently, by or to the firm, for a transaction in a contingent liability investment.
(2) The minimum margin to be obtained from a private customer in accordance with (1) for an on-exchange transaction in a contingent liability investment is an amount or value equal to the margin requirements of the relevant exchange or clearing house.

01/12/2001

COB 7.10.4

Before conducting a transaction with or for a private customer, a firm should notify the customer of:

(1) the circumstances in which the customer may be required to provide any margin;
(2) the form in which the margin may be provided;
(3) the steps the firm may be required or entitled to take if the customer fails to provide the required margin, in accordance with COB 7.10.5 R, including:

(a) the fact that the customer's failure to provide margin may lead to the firm closing out his position after a time limit specified by the firm;
(b) the circumstances in which the firm will have the right or duty to close out the customer's position; and

(4) the circumstances, other than failure to provide the required margin, that may lead to the firm closing out the customer's position without prior reference to him.

01/12/2001

Failure to meet a margin call

COB 7.10.5

A firm must close out a private customer's open position if that customer fails to meet a margin call made for that position for five business days following the date on which the obligation to meet the call accrues, unless:

(a) the firm has received confirmation from a relevant third party that the private customer has given instructions to pay in full; and
(b) the firm has taken reasonable care to establish that the delay in its receipt is owing to circumstances beyond the private customer's control; or

(2) the firm makes a loan or grants credit to the private customer to enable that customer to pay the full amount of the margin call in accordance with the requirements of COB 7.9.3 R (Restrictions on lending to private customers).

01/12/2001

COB 7.10.6

In COB 7.10.5 R (1)(a) a relevant? third party includes a party connected with the transaction such as a clearing firm.

01/12/2001

COB 7.11

Non-exchange traded securities

01/12/2004

Application

COB 7.11.1

This section applies to a firm that conducts designated investment business with or for a private customer and:

(1) sells to the customer any security that is not traded on a recognised investment exchange, a designated investment exchange or any regulated market; and
(2) holds itself out as a market maker in that security.

01/12/2001

Purpose

COB 7.11.2

This section aims to ensure that a firm deals fairly with a private customer in relation to the sale and subsequent purchase of a non-exchange traded security.

01/12/2001

Requirement for selling non-exchange traded securities to private customers

COB 7.11.3

A firm must:

(1) give written notice to a private customer, no later than the time of sale, that:

(a) a reasonable price for repurchase of the security will be available to the private customer for a period, specified in that notice, that must not be less than three months from the date the notice is given; and
(b) sale by the private customer of the security after the end of that period may be difficult due to the nature and possible illiquidity of the security; and

(2) ensure that a reasonable price is available to the private customer for the duration of the period specified in the notice.

01/12/2001

COB 7.11.4

In establishing a reasonable price a firm should consider factors that are of direct relevance to the particular security, for example that a company has announced (unanticipated) substantially increased profits.

01/12/2001

COB 7.11.5

Factors that the firm took into account when the original sale was done should, if these remain unchanged, be taken into account in the same way when the price is established for the purchase of the security back from the private customer. Firms should take care to ensure that fluctuations in price are not solely or mainly justified by reference to an absence of liquidity, unless this reflects factors that are directly relevant to the particular security.

01/12/2001

COB 7.12

Customer order and execution records

01/12/2004

Application

COB 7.12.1

This section applies to a firm that:

(1) receives (or, in the exercise of its discretion, decides upon) a customer order;
(2) executes a customer order;
(3) passes a customer order to another person for execution; or
(4) in addition to (1), (2) or (3), also executes own account transactions;

in any designated investment other than a life policy.

01/12/2001

Purpose

COB 7.12.2

Principle 3 (Management and control) requires a firm to take reasonable care to organise and control its affairs responsibly and effectively. This section aims to ensure that a firm makes and retains records of customer orders and other transactions in the course of adhering to the customer order execution requirements in COB 7.4 (Customer order priority), COB 7.5 (Best execution) and COB 7.6 (Timely execution).

01/12/2001

Record keeping requirement

COB 7.12.3

A firm must ensure by the establishment and maintenance of appropriate procedures that it promptly records adequate information in relation to the events in COB 7.12.1 R, including any own account transactions.

01/12/2001

COB 7.12.4

(1) When an event in the left-hand column of COB 7.12.6 E occurs, a firm should make a record of the matters set out in the right-hand column that relate to that event.
(2) Compliance with (1) may be relied on as tending to establish compliance with COB 7.12.3 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of COB 7.12.3 R.

01/12/2001

COB 7.12.5

In addition to the information referred to in COB 7.12.4 E, other information that the firm considers prudent should be recorded.

01/09/2002

COB 7.12.6

Minimum contents of customer order and execution records

This table belongs to COB 7.12.3 R

When:

The firm should record:

(1)

a customer order arises

(b)

the date and time of:

(i)

receipt by the firm of the customer order; or

(ii)

the decision by the firm to deal;

(c)

the identity of the employee who received the customer order or made the decision in (b)(i) and (ii);

(d)

(i)

the designated investment concerned; and

(ii)

the number of, or total value of, the designated investment (including any price limit);

(e)

whether the customer order is for a purchase or sale; and

(f)

any other instruction received by the firm from the customer with regard to the execution of the customer order.

(2)

the firm executes a transaction

(a)

the name or other designation and account number of the client (if any) for whom the transaction was executed (unless the transaction was an own account transaction);

(b)

the name of the counterparty, if known to the firm;

(c)

the date and if available, the time of the transaction;

(d)

the identity of the employee executing the transaction;

(e)

(i)

the designated investment concerned; and

(ii)

the number of, or total value of, the designated investment;

(f)

the price and other significant terms (including exchange rate details if relevant); and

(g)

whether the transaction was a purchase or a sale.

(h)

[deleted]

(3)

the firm passes a customer order to another person for execution

(a)

the name of the person instructed;

(b)

the terms of the instruction; and

(c)

the date and time that the instruction was given.

01/09/2002

COB 7.12.7

When a firm aggregates and subsequently allocates a customer order with an own account transaction or with another customer order, the time and price required to be recorded by COB 7.12.6 E and (f) will be determined in accordance with the provisions in COB 7.7.5 R (Requirement for timely allocation) and COB 7.7.12 R (Price of allocation) respectively.

01/12/2001

COB 7.12.8

For the purposes of COB 7.12.3 R, if information is recorded as soon as practicable following receipt or execution, then the FSA will regard it as having been recorded promptly. When information required to be recorded is supplied to the firm by someone else, it should be recorded upon receipt.

01/12/2001

Orders received over the Internet

COB 7.12.9

When a firm gives a customer access to market information, that is updated continuously in line with the relevant market, in conjunction with the ability to place a customer order by relying on such market information, and the customer order is executed automatically upon receipt, the firm should record the price, even if only indicative, which the customer relied on when placing the customer order, as part of the information required to be recorded in accordance with COB 7.12.3 R.

01/12/2001

COB 7.12.10

When a firm provides market information as described in COB 7.12.9 G, and the customer order is submitted over the Internet but is not executed automatically upon receipt, the firm should record the price displayed on the screen at the time the customer order is placed, as part of the information required to be recorded in accordance with COB 7.12.3 R.

01/12/2001

Period of retention

COB 7.12.11

A firm must retain the records referred to in COB 7.12.3 R for a period of at least three years after the date of the event in the left-hand column of COB 7.12.6 E.

01/12/2001

COB 7.13

Personal account dealing

01/12/2004

Application

COB 7.13.1

This section applies to a firm that conducts designated investment business.

01/12/2001

COB 7.13.2

This section has been written in accordance with the FSA's responsibilities under articles 10 and 11 of the Investment Services Directive. These rules also form part of the conditions applied to EEA firms with a UK branch office in the interest of the general good under article 17 of the Investment Services Directive.

01/12/2001

Purpose

COB 7.13.3

Principle 3 (Management and control) requires a firm to take reasonable care to organise and control its affairs responsibly and effectively. Principle 8 (Conflicts of interest) requires a firm to manage conflicts of interest fairly between itself and its customers. This section is designed to ensure that a firm's customers are not disadvantaged by the personal dealings of the firm's employees. Firms will, therefore, need to ensure that appropriate controls and monitoring arrangements are implemented and maintained.

01/12/2001

Restrictions on personal account dealing

COB 7.13.4

A firm must take reasonable steps to ensure that:

(1) a personal account transaction in a designated investment undertaken by any of its employees does not conflict with the firm's duties to its customers under the regulatory system, unless COB 7.13.6 R applies; and
(2) when it permits an employee to undertake a personal account transaction in a designated investment in relation to which the firm conducts designated investment business, or in any related investment, it receives prompt notification of, or is otherwise able to identify, that transaction.

01/03/2003

COB 7.13.5

Firms should note that an employee is defined in the Glossary (for the purposes of this section) as meaning not just an individual who is employed or appointed by a firm but also an individual who is:

(1) an appointed representative of a firm; or
(2) employed or appointed by an appointed representative of a firm, whether under a contract of service or services or otherwise.

So, where a firm has one or more appointed representatives, COB 7.13.4 R will apply to the firm in relation to, for example, employees of its appointed representative in exactly the same way as it would were those individuals employed by the firm itself.

01/12/2001

Exceptions

COB 7.13.6

COB 7.13.4 R does not apply to:

(1) an employee who is a sole trader whose regulated activities consist only of own account transactions; or
(2) an employee, if the firm has taken reasonable steps to determine that the employee will not be involved to any material extent in, or have access to information about, the firm's designated investment business. Firms are reminded that there are further provisions relating to the management and activities of investment analysts in COB 7.16.

01/12/2001

COB 7.13.6A

For the purposes of COB 7.13.6 R (2), the FSA considers that an investment analyst is likely to be involved to a material extent in the firm's designated investment business. Firms are reminded that there are further provisions relating to the management and activities of investment analysts in COB 7.16.

01/05/2004

Reasonable steps

COB 7.13.7

(1) For the purposes of COB 7.13.4 R, a firm's "reasonable steps" should ensure that:

(a) the restrictions, and the basis, if any, upon which its employees may undertake personal account transactions, are set out in a written notice drawn explicitly to the attention of each employee, and that the contents of such a notice are made a term of his contract of employment or contract for services;
(a)A an investment analyst may not undertake a personal account transaction in a designated investment if the investment analyst prepares investment research which is published or distributed to clients:

(i) on that designated investment or its issuer; or
(ii) on a related investment, or its issuer; unless the personal account transaction is:
(iii) not contrary to any published or distributed recommendation for which he is responsible as an employee of the firm, which has not been withdrawn; or
(iv) to realise the cash value of a holding or position, is undertaken in order to meet an obligation of the investment analyst which is not related to any designated investment within (i) or (ii), and is one to which the firm has given its permission in writing;

(b) the written notice in (1)(a) states that, if an employee is precluded from entering into a transaction for his own account, he must not (except in the proper course of his employment):

(i) procure any other person to enter into such a transaction; or
(ii) communicate any information or opinion to any other person if he knows, or ought to know, that the person will, as a result, enter into such a transaction, or counsel or procure some other person to do so; and

(c) procedures are established and maintained by the firm that are appropriate to its business, and that are designed with a view to ensuring that:

(i) each of its employees does not undertake a personal account transaction in a designated investment in relation to which the firm conducts designated investment business, or in any related investment, unless the firm has given its permission in writing to that transaction, or to transactions generally in designated investments of that kind;
(ii) when the firm gives such permission, the requirements in COB 7.13.4 R (1) are complied with.

(2) Compliance with (1) may be relied upon as tending to establish compliance with COB 7.13.4 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of COB 7.13.4 R.

01/05/2004

COB 7.13.8

A firm will be able to identify its employees' personal account transactions under COB 7.13.4 R (2) if it designates its employees' own accounts in a way that enables them to be distinguished from other customers' accounts.

01/12/2001

COB 7.13.9

When an employee undertakes a personal account transaction through a person other than the firm or its associate, a copy of the note confirming details of the transaction issued by that person will be sufficient notification for the purposes of COB 7.13.4 R (1).

01/12/2001

COB 7.13.10

Firms should note that for the purposes of COB 7.13.7 E (1), while they may look to a third party to make the appropriate arrangements to ensure that the "reasonable steps" referred to in that provision are taken, ultimate responsibility for ensuring that such steps are in fact carried out rests with the firm. Therefore a firm, which has entered into arrangements with its appointed representative under which that appointed representative agrees to carry out the steps in COB 7.13.7 E (1)(a) in relation to individuals employed by the appointed representative, remains responsible should the appointed representative fail, for any reason, to carry out the necessary steps. In relation to COB 7.13.7 E (1)(c)(i), it should be noted that all permissions have to be given by the firm itself.

01/05/2004

COB 7.13.10A

(1) Because of the nature of the conflicts of interest that arise, a firm may decide:

(a) that an investment analyst should be prohibited from carrying out any personal account transactions at all; or
(b) that an investment analyst should be prohibited from undertaking a personal account transaction in a designated investment if the investment analyst prepares investment research:

(i) on that designated investment or its issuer; or
(ii) on a related investment, or its issuer; or
(iii) on a designated investment or an issuer which belongs to the same industry or business sector as that designated investment; or

(c) that there should be a prohibition on personal account transactions by investment analysts for a limited time covering a period before and after the intended publication date for investment research.

(2) If a firm does impose a prohibition, it may wish to make clear to the employee whether or not the prohibition extends to the sorts of transaction which the Glossary excludes from the definition of personal account transaction (for example, transactions in units in regulated collective investment schemes, and certain discretionary transactions).

01/12/2004

Record keeping requirements

COB 7.13.11

(1) A firm must make a record of:

(a) the restrictions upon personal account dealing and the basis upon which any permission to deal is made;
(b) each permission given by it under COB 7.13.4 R (2) ;
(c) each notification made to it under COB 7.13.4 R (2) ;
(d) in respect of COB 7.13.6 R (2), the basis upon which the firm has determined that an employee will not be involved in, or have access to information about, the firm's designated investment business; and

retain these records for the minimum period specified in (2), (3) or (4), as the case may be.
(2) In relation to a record under (1)(a), the period is three years from the date that the restrictions or basis were communicated to the employee.
(3) In relation to each permission and notification in (1)(b) and (c), the period is three years from the date that the permission or notification was made.
(4) In relation to a record under (1)(d), the period is three years after the date on which the individual ceases to be an employee.

01/12/2001

COB 7.13.12

A firm's records under COB 7.13.11 R (1) should be sufficiently detailed to identify the position in relation to (1)(a) to (d) for each of its employees. So where the firm gives permission under (1)(b) to a particular employee, as opposed to employees generally, an individual record of that permission is required to be made and retained. However, where the firm's restrictions on personal account dealing are set out in, for example, a standard booklet which is issued to all its employees, it is sufficient for the purposes of (1)(a) for the firm's records to show what global restrictions were in place at any given moment in time and it is not necessary for there to be a record of each booklet that was issued to each employee.

01/12/2001

COB 7.14

Programme trading

01/12/2004

Application

COB 7.14.1

This section applies to a firm when it executes a programme trade that includes one or more designated investments. The term 'programme trade' is used in this section to describe a single transaction or series of transactions executed for the purpose of acquiring or disposing, for a customer, of all or part of a portfolio or a large basket of securities.

01/12/2001

Purpose

COB 7.14.2

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section provides guidance on the steps a firm should take when executing a programme trade, either as principal or agent, whenever a customer is involved.

01/12/2001

Programme trading

COB 7.14.3

Before a firm executes a programme trade, it should disclose to its customer whether it will be acting as a principal or agent, unless the customer has given prior notification that no such notice is required. A firm should not subsequently act in a different capacity from that which is disclosed without the prior consent of the customer.

01/12/2001

COB 7.14.4

A firm should ensure that neither it, nor an associate, executes an own account transaction in any designated investment included in a programme trade, unless the firm has notified the customer in advance that it may do this, or can otherwise demonstrate that it has provided fair treatment to the customer concerned.

01/12/2001

COB 7.14.5

COB 7.5.6 E (1)(e) (Providing best execution) provides that a firm should ensure that it applies the duty of care in COB 7.5.5 R (1) (Providing best execution) to each individual transaction executed as part of a programme trade, subject to the exceptions in COB 7.5.4 R (Exceptions).

01/12/2001

COB 7.15

Non-market-price transactions

01/12/2004

Application

COB 7.15.1

This section applies to a firm when it conducts designated investment business with or for a customer.

01/12/2001

Purpose

COB 7.15.2

Principle 1 (Integrity) requires a firm to conduct its business with integrity, whilst Principle 5 (Market conduct) requires a firm to observe proper standards of market conduct. In general, firms should undertake transactions at the prevailing market price. Failure to do this may result in a firm participating, whether deliberately or unknowingly, in the concealment of a profit or loss, or in the perpetration of a fraud. A firm should therefore not enter into a non-market-price transaction unless it has taken reasonable steps to ensure that the transaction is not illegal or otherwise for an improper purpose.

01/12/2001

Non-market-price transactions

COB 7.15.3

Subject to COB 7.15.4 R, a firm must not, as agent or principal, enter into a non-market-price transaction under which it deals in a designated investment with or for a customer, unless it has taken reasonable steps to ensure that the transaction is not being entered into by the customer for an improper purpose.

01/12/2001

COB 7.15.4

COB 7.15.3 R does not apply to a non-market-price transaction if it is subject to the rules of a recognised investment exchange.

01/12/2001

COB 7.15.5

For further guidance, firms are referred to the corresponding provisions on non-market-price transactions set out in MAR 3 (Inter-professional conduct), in particular MAR 3.5.7 E (Non-market-price transactions). Although these provisions apply to a firm's bilateral dealings with a market counterparty, they are also relevant to business conducted with or for customers.

01/12/2001

COB 7.16

Investment research

01/12/2004

Application

COB 7.16.1

This section applies to a firm that prepares investment research for publication or distribution to its clients, or that publishes or distributes investment research to its clients.

01/07/2004

Purpose

COB 7.16.2

The purpose of this section is to amplify relevant Principles, and set out particular steps a firm should take, in relation to investment analysts and investment research. The FSA considers that in this context Principle 1 (Integrity), Principle 2 (Skill, care and diligence), Principle 3 (Management and control), Principle 5 (Market Conduct), Principle 6 (Customers' interests), Principle 7 (Communication with clients) and Principle 8 (Conflicts of interest) are particularly relevant.

01/07/2004

Conflicts of interest in investment research: general

COB 7.16.3

The FSA considers that conflicts of interest are much less likely to arise if investment research is solely for a firm's own internal use, for example to inform its decisions about managing its proprietary trading or its strategic direction. The FSA considers that it is inappropriate for an analyst to prepare research papers or analyses which are intended firstly for internal use for the firm's own advantage, and then for later publication to clients (in circumstances in which it might reasonably be expected to have a material influence on the clients' investment decisions).

01/07/2004

COB 7.16.4

The obligations referred to in COB 7.16.2 G apply to all types of investment research. A firm's senior management is responsible for ensuring that its systems, controls and procedures are robust and adequate to identify and manage the conflicts of interest which arise in relation to investment research or similar publications, and to ensure, as far as practicable, that those arrangements operate effectively. The FSA does not consider that these conflicts of interest can be adequately managed by disclosure alone.

01/07/2004

Policies for managing conflicts of interest: impartial investment research

COB 7.16.5

(1) This rule applies to a firm that publishes or distributes investment research and where either:

(a) the firm holds it out (in whatever terms) as being an impartial assessment of the value or prospects of its subject matter; or
(b) it is reasonable for those to whom the firm has published or distributed it to rely on it as an impartial assessment of the value or the prospects of its subject matter.

(2) If this rule applies, a firm must:

(a) establish and implement a policy, appropriate to the firm, for managing effectively the conflicts of interest which might affect the impartiality of investment research of the type described in (1);
(b) make a record of the policy and retain it until at least three years after it ceases to have effect;
(c) take reasonable steps to ensure that it and its employees comply with the policy;
(d) make available to any person in writing, on request, a copy of the policy (for example, by including it on an appropriate website); and
(e) take reasonable steps to ensure that the policy remains appropriate and effective.

(3) The policy must identify the types of investment research to which it applies, and must make provision for systems, controls and procedures (making clear the extent to which the firm's policy relies on Chinese walls or other information barriers within the firm):

(a) to identify conflicts of interest which might affect the impartiality of the investment research to which the policy relates; and
(b) to manage effectively conflicts of interest, to the extent that they arise or might arise within the firm, in relation to at least the following:

(i) the supervision and management of investment analysts;
(ii) the remuneration structure for investment analysts;
(iii) the extent to which investment analysts may become involved in activities other than the preparation of the investment research;
(iv) the extent to which (if at all) inducements offered by issuers, or others with material interest in the subject matter of investment research, may be accepted by investment analysts or senior employees of the firm;
(v) who may comment on draft investment research before publication, and the process for taking account of their comments;
(vi) the timing and manner of publication and distribution of investment research and of the communication of its substance; and
(vii) what information or disclosures are appropriate to include in the investment research (taking due account of matters required by law).

01/07/2004

COB 7.16.6

(1) Investment research may be held out as impartial in various ways, for example if it is labelled with that term or similar terms like 'independent' or 'objective'. Even without this kind of labelling on the investment research itself, it may still be held out as impartial if, for example, the firm's representatives state that it is so (in writing or orally), or behave in a way that reasonably gives that impression.
(2) The policy a firm makes available under COB 7.16.5 R(2) is likely to be implemented by detailed procedures and operational arrangements. Those detailed procedures and operational arrangements need not be published.

01/07/2004

Policy content: general

COB 7.16.7

Firms should organise the investment research function (including the way in which their investment analysts are supervised and remunerated) in a way which minimises the potential influence of the commercial interests of the firm, its employees, its associates, or its clients, on the impartiality of its investment research.

01/07/2004

COB 7.16.8

A firm's policy under COB 7.16.5 R should be appropriate for its own structure and business. The policy will therefore need to take account of the following factors (further guidance on what an appropriate policy might cover is set out in COB 7.16.9 G to COB 7.16.15 G, not all of which will be relevant to every firm):

(1) the firm's size and organisational structure;
(2) the classification under COB 4.1 of its clients, to whom the investment research is published or distributed, and their experience and expertise;
(3) the nature of the investments in relation to which (or in relation to the issuers of which) the firm publishes or distributes investment research; and
(4) the nature of the business which it conducts with or for its clients and on its own account.

01/12/2004

Policy content: supervision and remuneration of analysts

COB 7.16.9

If an individual (such as someone involved in raising capital for a corporate client) has responsibilities that might reasonably be considered to conflict with the interests of the clients to whom the investment research is published or distributed, it will not usually be appropriate for him to be responsible for:

(1) the day to day supervision or control of an investment analyst;
(2) decisions on the subject matter or content of investment research or the timing of its publication (though it may be appropriate for him to have an opportunity to check the accuracy of the facts relied on in the investment research);
(3) determining the remuneration of an investment analyst.

01/07/2004

COB 7.16.10

(1) An investment analyst's remuneration should be structured so as not to create (or reasonably suggest the creation of) an incentive which is inconsistent with the provision of an impartial assessment of the subject matter of investment research by the analyst.
(2) An investment analyst's remuneration should not be linked to a specific transaction, or to recommendations contained in investment research, but it may be linked to the general profits of the firm.

01/07/2004

Policy content: involvement of analysts in other activities

COB 7.16.11

(1) An investment analyst should not be involved in activities in a way which suggests that he is representing the interests of the firm or a client if this is likely reasonably to appear to be inconsistent with providing an impartial assessment of the value or prospects of the relevant investments.
(2) A firm's policy may allow it to use an investment analyst's knowledge and information to assist it to research corporate finance business opportunities, to provide ideas to sales or trading staff, or to provide information and advice to the firm's investment clients.
(3) It is likely to be inappropriate for the policy to allow the firm to:

(a) use an investment analyst in a marketing capacity (for example in pitches to solicit or obtain corporate finance business from the issuer of a relevant investment), if this would give a reasonable perception of lack of impartiality in his investment research; or
(b) allow an investment analyst to act in a way which reasonably appears to be representing the issuer of a relevant investment, for example, in roadshows relating to issues or allocations of relevant investments.

01/07/2004

Policy content: avoiding inappropriate influences

COB 7.16.12

Firms should put in place arrangements so that investment research sets out impartial views about the value or prospects of the relevant investment or the relevant issuer of the investment analyst or analysts responsible for its content. For example:

(1) the firm should prohibit any of its investment analysts or other employees, from offering or accepting an inducement to provide favourable investment research (COB 2.2.3 R requires the firm itself to take reasonable steps to ensure that such inducements are not offered, given, solicited or accepted);
(2) the firm should not give effective editorial control to someone whose role or commercial interests might reasonably be considered to conflict with the interests of the clients to whom the investment research is to be published or distributed; accordingly, a firm should:

(a) not allow anyone other than an investment analyst (such as a relevant issuer) to approve the content of investment research before publication; and
(b) only allow a person outside the firm (such as a relevant issuer), or any employee other than the investment analyst, to view it before its publication for verification of factual information in the investment research.

01/07/2004

Policy content: means and timing of publication

COB 7.16.13

A firm's policy and procedures should provide for investment research to be published or distributed to its clients in an appropriate manner. For example it will be:

(1) appropriate for a firm to take reasonable steps to ensure that its investment research is published or distributed only through its usual channels, as set out in the policy;
(2) inappropriate for an employee (whether or not an investment analyst) to communicate the substance of any investment research, except as set out in the policy.

01/07/2004

COB 7.16.14

A firm should also consider whether or not other business activities of the firm could create the reasonable perception that its investment research may not be an impartial analysis of the market in or the value or prospects of a relevant investment. Consequently a firm should consider whether its policy should contain any restrictions on the timing of the publication of investment research. For example, a firm might consider whether it should restrict publication of relevant investment research around the time of an investment offering.

01/07/2004

Policy content: disclosures

COB 7.16.15

A firm should consider what information by way of disclosures should accompany the investment research it publishes or distributes.

01/07/2004

COB 8

Reporting
to customers

COB 8.1

Confirmation of transactions

01/12/2004

Application

COB 8.1.1

This section applies to a firm when it executes a sale or purchase of a designated investment with or for a customer.

01/12/2001

Purpose

COB 8.1.2

Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its customers. The provisions in COB 8.1 are designed to ensure that customers are promptly advised of the essential details of a transaction. Firms are obliged to despatch these details, except in certain circumstances when they are supplied by someone else, or at a later date, or if the customer waives the right to receive the information.

01/12/2001

Requirement to confirm a transaction

COB 8.1.3

(1) A firm must, subject to COB 8.1.6 R, despatch to the customer a written confirmation recording the essential details of the transaction, and must do so promptly.
(2) For the purposes of (1), a firm may despatch a confirmation to an agent, other than the firm or an associate of the firm, nominated by the customer in writing.

01/12/2001

COB 8.1.4

(1) Regarding the electronic provision of a confirmation, see COB 1.8 (Application to electronic media).
(2) A firm may comply with COB 8.1.3 R (1) by posting a confirmation on its website, provided that the confirmation is only accessible to the party that placed the order. If the firm does this for a private customer, it should regularly review the website to ensure that the customer has reviewed his confirmations. If the private customer has not accessed his confirmation within five days of it being posted on the website, the firm should send the confirmation to him either in hard copy or electronically.

01/12/2001

Essential details and prompt despatch

COB 8.1.5

(1) A firm should provide the following essential details of a transaction, to the extent they are relevant:

(a) the information specified in:

(i) COB 8.1.15 E for all transactions;
(ii) COB 8.1.16 E in particular circumstances;
(iii) COB 8.1.17 E for transactions in units in a regulated collective investment scheme;
(iv) COB 8.1.18 E for transactions in derivatives;
(v) COB 8.1.19 E upon the exercise of an option; or

(b) such information as the customer has agreed with the firm (in the case of a private customer, agreed in writing with his informed consent), or is in accordance with the custom of a non-UK market in which the transaction was arranged; or
(c) a copy of a confirmation received by the firm from a third party together with any other information provided by the firm which, when taken together, satisfies (1)(a).

(2) To despatch a confirmation promptly, a firm should:

(a) despatch it no later than the business day following the day the transaction was executed (as specified in COB 8.1.12 R) or within any period agreed with the customer (in the case of a private customer, agreed in writing with his informed consent); or
(b) despatch a copy of a confirmation received from a third party together with additional information, if any, to the customer as soon as practicable, but in any event no later than the business day following receipt; or
(c) when the firm has issued or redeemed units in a regulated collective investment scheme, despatch it at the latest on the business day following the day the issue or redemption price was determined, unless (b) applies; or
(d) when a firm executes a transaction in:

(i) an OTC derivative; or
(ii) stock lending or borrowing; or
(iii) a repo; or
(iv) rights to or interests in OTC derivatives;

despatch a confirmation as soon as practicable in accordance with proper standards of market practice for the investment concerned.

(3) Compliance with (1) and (2) may be relied upon as tending to establish compliance with COB 8.1.3 R.
(4) Contravention of (1) or (2) may be relied upon as tending to establish contravention of COB 8.1.3 R.

01/01/2003

Exceptions to the requirement to despatch a confirmation

COB 8.1.6

A firm need not despatch a confirmation when:

(1) the designated investment is a life policy or a personal pension contract; or
(1A) the designated investment is held within a CTF and the annual statement provided under the CTF Regulations includes the information that would have been contained in a confirmation despatched in accordance with COB 8.1.3 relating to the transactions executed during the relevant period (but information which has since become irrelevant may be excluded); or
(2) an arrangement is in place for the customer to make a series of payments for the purchase of units in a regulated collective investment scheme or of shares in an investment trust (including one-off payments made in addition to those in the series); or
(3) the firm has agreed with the customer (or, in the case of a private customer, agreed in writing with his informed consent) that confirmations need not be supplied, either generally or in specified circumstances (but see COB 8.1.7 R and COB 8.1.8 R); or
(4) the firm is acting as an investment manager, or as an ISA manager or plan manager, and:

(a) the designated investment is not a contingent liability investment;
(b) the firm has taken reasonable steps to determine that the customer does not wish to receive confirmations, either generally or in specified circumstances; and
(c) the firm complies with COB 8.1.7 R or COB 8.1.8 R; or

(5) it would duplicate a confirmation containing the essential details of the transaction (other than those that are firm-specific) which is to be promptly despatched by someone else.

01/12/2004

COB 8.1.7

A firm which is not an OPS firm referred to in COB 8.1.8 R may rely upon the exceptions in COB 8.1.6 R (3) or COB 8.1.6 R (4) only if any periodic statement which the firm provides to the customer in accordance with COB 8.2 ( Periodic Statement) (and subject to the exceptions in COB 8.2.6 R) contains the information that would have been contained in a confirmation despatched in accordance with COB 8.1.3 R (other than information which has since become irrelevant) relating to the transactions executed during the relevant period.

01/01/2003

COB 8.1.8

An OPS firm conducting OPS activity for an OPS trustee which is an intermediate customer of the OPS firm, and is habitually resident in the United Kingdom, may rely upon the exceptions in COB 8.1.6 (3) or COB 8.1.6 R (4) only if it provides a periodic statement containing the information required by COB 8.2.10.

01/12/2001

COB 8.1.9

The request in COB 8.1.6 R (3) includes a general request as well as a request made on any specific occasion.

01/12/2001

COB 8.1.10

If the firm executes a series of transactions, or aggregates orders, it should modify the information to be provided as necessary, to ensure that the confirmation is clear, fair and not misleading, as required by COB 2.1.3 R.

01/12/2001

When a confirmation may omit certain information

COB 8.1.11

If:

(1) anyone fails to supply information which the firm requires for inclusion in a confirmation; or
(2) the transaction involves a conversion of one currency into another and that conversion has not been made by the firm;

the firm may omit this information from the confirmation, provided the fact of its omission is stated with an indication that it is to be supplied later (or that it cannot be supplied at all if that is the case). The relevant information must then be supplied to the customer promptly after receipt.

01/12/2001

When a transaction is treated as executed

COB 8.1.12

(1) When a firm executes a transaction outside normal market hours, the transaction must be treated as executed on the following business day.
(2) When a firm executes a series of transactions, all the transactions may be treated as executed at the time of the last transaction so long as a record of the time that each individual transaction was executed is made, for example, by means of a time stamp.
(3) When a firm aggregates and then subsequently allocates a customer order with an own account order or with another customer order, the transaction must be treated as executed at the time of allocation under COB 7.7.5 R (Requirement for timely allocation).

01/12/2001

COB 8.1.13

Any right of the customer to cancel the designated investment does not affect the time when the transaction is treated as executed.

01/12/2001

Record keeping requirements

COB 8.1.14

A firm must make a copy of the confirmation information despatched to a customer under COB 8.1.3 R and retain it for three years from the date of despatch.

01/12/2001

COB 8.1.15

Content of a confirmation of transaction - general requirements

This table belongs to COB 8.1.5 E

Content of a confirmation of transaction - general requirements

The firm's name and address.

The firm's statutory status in accordance with GEN 4 Annex 1 (Statutory status disclosure).

If the firm (other than the operator of a regulated collective investment scheme) executed a transaction in a security as principal, that fact.

The customer's name or other designation and account number.

A description of the designated investment, including the amount invested.

Whether the transaction is a sale or purchase.

The unit price at which the transaction was executed, and, if the unit price is averaged including any price set in accordance with COB 7.7.12 R (Price of allocation), a statement of that fact.

The date of the transaction.

Either:

(a)

the time of the transaction; or

(b)

a statement that information about the time of the transaction will be supplied on request.

10.

The total consideration payable and the date on which it is due.

11.

Except if the firm is the operator of a collective investment scheme (subject to COB 8.1.17), the remuneration of the firm and that of any associate (unless that associate is not obliged to disclose it to the firm under this provision, as a result of the firm being its customer, or otherwise) in connection with the transaction, distinguishing:

(a)

the amount of any commission charged; and

(b)

the basis on which the commission has been determined, unless:

(i)

all commission charged to the customer has already been disclosed to him; or

(ii)

the basis has already been disclosed to him elsewhere; and

(c)

if the firm or an associate acted as principal in executing the transaction, and the firm owes a duty of best execution to its customer, the amount of any mark-up or mark-down imposed by the firm or its associate.

12.

The amount of any fees, taxes or duties, unless included in remuneration mentioned in 11.

Note: If the transaction was for an intermediate customer, the firm need not identify separately the unit price and the remuneration of the firm and that of any associate in connection with the transaction, if the intermediate customer has requested a confirmation combining both of these items.
Where the firm or its associate has executed the customer order against its own book, the firm need not, when disclosing remuneration under COB 8.1.15, disclose in the confirmation any trading or dealing profit which is not a commission or mark-up or mark-down.

01/12/2004

COB 8.1.16

Content of a confirmation of transaction - additional content in particular circumstances

This table belongs to COB 8.1.5 E

Content of a confirmation of transaction - additional content in particular circumstances

If the transaction involves:

The confirmation should state:

a conversion of currency;

the rate of exchange obtained;

a firm receiving any payment or reward from another person in connection with the transaction;

unless a prior written statement to this effect has been made to the customer, the amount or basis of any payment or reward or the fact that this will be made available on request;

the firm being remunerated for acting as an agent for the market counterparty to the transaction as well as acting as agent for the customer;

that fact;

a right to receive interest on an investment (for example, in relation to a government or public security);

the number of days or amount of interest which the purchaser is required to pay for (or the vendor is entitled to receive) as part of the total consideration.

charges shared with another person (except employees);

unless a prior written statement to this effect has been made to the customer, the amount or basis of any shared charges, or the fact that this will be made available on request;

a security which is not a packaged product or a readily realisable security and

how the unit price of the transaction was arrived at or a statement that such information is available upon request

(a)

the firm acted as a principal in executing the transaction with the customer;

(b)

there is no calculable mark-up or mark-down; and

(c)

the firm owes duty of best execution;

units in an unregulated collective investment scheme of which the firm or one of its associates is the operator;

the amount or percentage of the operator's initial charges included in the price of those units;

the firm's or an associate's remuneration being passed on by the firm to a third party as a reward for introducing the business;

the identity of the third party and the amounts passed on or the fact that details of such arrangements will be made available on request;

any dividend or capitalisation or other right which has been declared, but which has not been paid, allotted or otherwise become effective in respect of the investment, and under the terms of the transaction the benefit of which will not pass to the purchaser.

that fact.

01/12/2004

COB 8.1.17

Content of a confirmation of a transaction - additional content relating to transactions in units in a regulated collective investment scheme

This table belongs to COB 8.1.5 E

Content of a confirmation of transaction - additional content relating to transactions in units in a regulated collective investment scheme

If the firm is not the operator and the transaction was executed with the customer by the firm as principal, that fact.

The name of the scheme and the type and number of units involved.

The amount of:

(a)

the operator's initial charges (in cash or percentage terms), if any; and

(b)

any charges (other than the initial charges) made by the firm to the customer in respect of the transaction and, unless such charges to the customer are made on the same basis, the basis on which the amount of the charges was determined.

A statement that the price at which the transaction has been executed is on an historic price or forward price basis, as the case may be.

01/12/2004

COB 8.1.18

Content of a confirmation of a transaction - additional content relating to transactions in derivatives

This table belongs to COB 8.1.5 E

Content of a confirmation of transaction - additional content relating to transactions in derivatives

The maturity, delivery or expiry date of the derivative.

In the case of an option, a reference to the last exercise date, whether it can be exercised before maturity and the strike price.

If the transaction involved, or will involve, the purchase of one currency with another, the rate of exchange involved or a statement that the rate will be supplied when the currency has been purchased, including the maturity or expiry date of any currency hedge, unless the currency hedge is separately reportable under COB 8.1.3.

If the transaction closes out an open futures position, all essential details required in respect of each contract comprised in the open position and each contract by which it was closed out and the profit or loss to the customer arising out of closing out that position (a difference account).

01/12/2004

COB 8.1.19

Content of a confirmation of transaction - additional content on exercise of an option

This table belongs to COB 8.1.5 E

Content of a confirmation of transaction - additional content on exercise of an option (exercise confirmations)

The date of exercise, and either the time of exercise or that the customer will be notified of that time on request.

Whether the exercise creates a sale or purchase in the underlying asset.

The strike price of the option (for a currency option, the rate of exchange will be the same as the strike price) and, if applicable, the total consideration from or to the customer.

01/12/2004

COB 8.2

Periodic statements

01/12/2004

Application

COB 8.2.1

This section applies to a firm when it:

(1) acts as an investment manager, or administers any other account or portfolio which includes designated investments, for a customer; or
(2) operates a customer's account containing uncovered open positions in a contingent liability investment.
(3)

(a) sells a structured capital-at-risk product to a private customer; or
(b) advises a private customer on a structured capital-at-risk product; or
(c) communicates or approves a financial promotion relating to a structured capital-at-risk product to a person who is a private customer; or
(d) manages the relevant assets of the issuer of a structured capital-at-risk product.

01/12/2001

COB 8.2.2

Examples of uncovered open positions include:

(1) selling a call option on an investment not held in the portfolio;
(2) unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable securities denominated in that currency; and
(3) transactions having the effect of "selling" an index to an amount greater than the portfolio's holdings of designated investments included in that index.

01/12/2001

Purpose

COB 8.2.3

Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its customers. A firm should therefore supply the customer with a regular statement, on a timely basis, providing information on the customer's investment portfolio.

01/12/2001

Requirement for a periodic statement

COB 8.2.4

(1) A firm to which COB 8.2.1 R or (2)(2) applies must, promptly and at suitable intervals, provide the customer with a written statement containing adequate information on the value and composition of the customer's account or portfolio with the firm, as at the end of the period covered by the statement, unless COB 8.2.6 R applies.
(2) A firm must not carry out any activity in COB 8.2.1 R (3) unless it:

(a) provides; or
(b) takes reasonable steps to ensure that there are arrangements for providing;

promptly, and at suitable intervals, investors in a structured capital-at-risk product with a written statement containing adequate information on the value and composition of the investor's structured capital-at-risk product, as at the end of the period covered by the statement.
(3) A firm need not comply with (2) if COB 8.2.6 R (Exceptions from the requirement to provide a periodic statement) applies.

01/12/2001

COB 8.2.5

For periodic statements provided electronically, firms are referred to the guidance in COB 1.8 (Application to electronic media).

01/12/2001

Exceptions from the requirement to provide a periodic statement

COB 8.2.6

A firm need not:

(1) provide a periodic statement:

(a) to a private customer habitually resident outside the United Kingdom;
(b) to an intermediate customer, if the firm is not an OPS firm;
(c) to an intermediate customer habitually resident outside the United Kingdom, if the firm is an OPS firm;

if the customer concerned has so requested or the firm has taken reasonable steps to establish that he does not wish to receive it; or
(2) provide a periodic statement if it would duplicate a statement to be provided by someone else; or
(3) provide a periodic statement in respect of a CTF if the annual statement provided under the CTF Regulations contains the information that would be required to comply with COB 8.2.4 R.

01/12/2004

COB 8.2.6A

If COB 8.2.6 R (3) applies, COB 8.2.10 E provides an indication of how the requirement in COB 8.2.4 R may be satisfied. Further guidance that is relevant if the CTF includes a discretionary managed portfolio or a structured capital-at-risk product is contained in COB 8.2.12 E and COB 8.2.17 E.

01/12/2004

Promptness, suitable intervals and adequate information

COB 8.2.7

(1) In order to comply with COB 8.2.4 R, a firm, other than an OPS firm conducting OPS activity, should take the steps set out in COB 8.2.10 E.
(2) Compliance with (1) may be relied on as tending to establish compliance with COB 8.2.4 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of COB 8.2.4 R.

01/12/2001

OPS firms

COB 8.2.8

(1) In order to comply with COB 8.2.4 R, an OPS firm conducting OPS activity should:

(a) comply with COB 8.2.10 E (1) and (2)and COB 8.2.15 E in all circumstances;
(b) comply with COB 8.2.10 E and (b) if the customer is a private customer; and
(c) comply with COB 8.2.10 E if the customer is an intermediate customer and the firm relies on the exception in COB 8.1.6 R (3) or COB 8.1.6 R (4) from the requirement to provide confirmations.

(2) Compliance with (1)(a) and, where applicable, (b) and (c) may be relied on as tending to establish compliance with COB 8.2.4 R.
(3) Contravention of (1)(a) or, where applicable, (b) or (c) may be relied on as tending to establish contravention of COB 8.2.4 R.

01/12/2001

Record keeping requirements

COB 8.2.9

A firm must make a copy of any periodic statement, and retain it for three years from the date on which it was provided.

01/12/2001

COB 8.2.10

Periodic statements - timing and content

This table belongs to COB 8.2.7 E

Periodic statements: timing and content

Promptness

(1)

(a)

A periodic statement should be provided to a private customer within 25 business days after the end of the period to which the statement relates.

(b)

A periodic statement should be provided to a private customer within 10 business days after the end of the period to which the statement relates if, at the end of that period, the portfolio includes any uncovered open positions in contingent liability investments.

(c)

A firm whose sole permitted activity is venture capital business should (instead of (a) or (b)) provide a periodic statement to a private customer within 50 business days after the end of the period to which the statement relates.

(d)

Any periodic statement provided to an intermediate customer should be provided within such period as the intermediate customer has on his own initiative agreed with the firm as adequate.

Suitable intervals

(2)

A periodic statement should be provided:

(a)

six-monthly, to a private customer or an intermediate customer not subject to (2)(d), unless the customer's account or portfolio consists entirely of structured capital-at-risk products, in which case the periodic statement may be provided once in any period not exceeding 12 months;

(b)

once in any other period not exceeding 12 months if the private customer has advised the firm in writing that he wishes to receive less frequent periodic statements than required by (a);

(c)

monthly if the customer's portfolio includes an uncovered open position in a contingent liability investment;

(d)

at such intervals as an intermediate customer has on his own initiative agreed with the firm as adequate.

Adequate information

(3)

A periodic statement should contain:

(a)

(i)

the information set out in COB 8.2.11 E;

(ii)

if applicable the additional information in COB 8.2.12 E, COB 8.2.13 E, COB 8.2.14 E, COB 8.2.15 E and COB 8.2.17 E (but the information set out in COB 8.2.17 E need only be provided once in any period not exceeding 12 months); and

(iii)

if a firm relies upon the exceptions in COB 8.1.6 to the requirement to provide confirmations, the information that would have been contained in confirmations complying with COB 8.1.3; or

(b)

information that a private customer habitually resident outside the United Kingdom, or an intermediate customer, has agreed that the firm should provide; or

(c)

in the case of an OPS firm subject to COB 8.2.8 (3):

(i)

the information that would have been contained in a confirmation complying with COB 8.1.3, relating to the following classes of asset:

(a)

securities which are not readily realisable securities;

(b)

derivatives;

(c)

warrants;

(d)

land and buildings; and

(ii)

in relation to all other transactions not included in (i), a summary of the information that would have been contained in a confirmation complying with COB 8.1.3; this summary should contain sufficient information about the relevant transactions to enable an OPS trustee to determine whether it will be necessary to obtain more detailed information about the relevant transactions.

For example, the summary might disclose, for each asset class:

(a)

the number and value of transactions entered into for the portfolio;

(b)

any material portfolio changes;

(c)

whether a material number of changes were entered into in relation to a single entity and, if so, which ones;

(d)

the information required by item 11 and 12 of COB 8.1.15 E.

01/01/2005

COB 8.2.11

Periodic statements - general information

This table belongs to COB 8.2.10 E

Periodic statements: general information

Contents and value As at the end of the period covered: the number, description and value of each designated investment held; the amount of cash held; and the total value of the portfolio.

Basis of valuation A statement of the basis on which the value of each designated investment has been calculated and, if applicable, a statement that the basis for valuing a particular designated investment has changed since the previous periodic statement. If any designated investments are shown in a currency other than the usual one used for valuation of the portfolio, the relevant currency exchange rates must be shown.

01/12/2004

COB 8.2.12

Periodic statements - additional information required for a discretionary managed portfolio

This table belongs to COB 8.2.10 E

Periodic statements: additional information required for a discretionary managed portfolio* * (except OPS firms conducting OPS activity - see COB 8.2.15 )

Details of any assets loaned or charged
A statement of which investments (if any) were at the closing date loaned to any third party and which investments (if any) were at that date charged to secure borrowings made on behalf of the portfolio; and
the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during that period.

Transactions and changes in composition
Particulars of each transaction entered into for the portfolio during the period; and
the aggregate of money and particulars of all investments transferred into and out of the portfolio during the period; and
the aggregate of any interest payments (and, in the case of a cash deposit ISA, the interest rates applied during the period of account), together with the dates of their application and dividends or other benefits received by the firm for the portfolio during that period.
The particulars required may be disclosed in separate statements (excluding confirmations of transactions) issued to the customer during the period.

Charges and remuneration
If not previously advised in writing:

(a)

a statement of the aggregate charges of the firm and its associates; and

(b)

a statement of the amount (or, if provision of this information is not practicable, the basis) of any remuneration received by the firm or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio. (Firms should also note the requirements of COB 2.2.18 R (Periodic disclosure)).

CAT standards
If the periodic statement relates to an ISA intended to be managed in accordance with CAT standards, a statement whether the relevant CAT standards have been adhered to throughout the period of account.

01/11/2002

COB 8.2.13

Periodic statements - additional information required for a contingent liability investment

This table belongs to COB 8.2.10 E

Periodic statements: additional information required for a contingent liability investment

Changes in value
The aggregate of money transferred into and out of the portfolio during the valuation period.

Open positions
In relation to each open position in the account at the end of the account period, the unrealised profit or loss to the customer (before deducting or adding any commission which would be payable on closing out).

Closed positions
In relation to each transaction executed during the account period to close out a customer's position, the resulting profit or loss to the customer after deducting or adding any commission.

Note:
Instead of the specific detail required by item 2 and 3, the statement may show the net profit or loss in respect of the customer's overall position in each contract.

Aggregate of contents
The aggregate of each of the following in, or relating to, the customer's portfolio at the close of business on the valuation date:

(a)

cash;

(b)

collateral value;

(c)

management fees; and

(d)

commissions attributable to transactions during the period or a statement that this information has been separately disclosed in writing in earlier statements or confirmations to the customer.

Option account valuations in respect of each open option contained in the account on the valuation date stating:

(a)

the share, future, index or other investment involved;

(b)

the trade price and date for the opening transaction, unless the valuation statement follows the statement for the period in which the option was opened;

(c)

the market price of the contract; and

(d)

the exercise price of the contract.

Option account valuations may show an average trade price and market price in respect of an option series if the customer buys a number of contracts within the same series.

01/12/2004

COB 8.2.14

Periodic statements - additional information required for a broker fund

This table belongs to COB 8.2.10 E

Periodic statements: additional information required for a broker fund (to the extent that the firm can reasonably be expected to obtain the information)

Significant holdings
If any asset is worth more than 5% of the value of the fund, it must be described and its percentage in value stated.

Unit-linked life policies (except where a firm is managing a broker fund on behalf of a single customer)
If the fund consists of unit-linked life policies, a comparison, over the account period and over the whole life of the fund, of the percentage change in the price of the units in the fund:

(a)

with the prices of units in the managed unit-linked pension fund of the long-term insurer (if the fund is dedicated to pension policies); or

(b)

with the prices of units in the managed unit-linked life fund of the long-term insurer (in any other case).

Price comparison
Unless the firm is managing a broker fund on behalf of a single customer, a comparison of the price of units in the fund or scheme with the published index or sector average stated in the product particulars.

Investment objectives and strategies
The current investment objectives and strategies including an indication as to whether or not either of these have changed since the previous report.

Benefits and rewards
The cash value of the benefits and rewards which the broker fund adviser and any associate have received directly or indirectly during the reporting period by way of remuneration which may be shown in aggregate or as applicable to each customer or both.

01/12/2004

COB 8.2.15

Periodic statements - minimum content required where an OPS firm conducts OPS activity

This table belongs to COB 8.2.10 E

Periodic statements: information required when an OPS firm conducts OPS activity

Investment objectives

A statement of any investment objectives governing the mandate of the portfolio of the occupational pension scheme as at the closing and starting date.

Details of any assets loaned or charged

(a)

a summary of any investments that were, at the closing date, lent to a third party and any investments that were at that date charged to secure borrowings made on behalf of the portfolio; and

(b)

the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during that period and a comparison with the previous period.

Transactions and changes in composition

(a)

a summary of the transactions entered into for the portfolio during the period and a comparison with the previous period;

(b)

the aggregate of money and a summary of all investments transferred into and out of the portfolio during the period; and

(c)

the aggregate of any interest payments, dividends and other benefits received by the firm for the portfolio during that period and a comparison with the previous period.

Charges and remuneration
If not previously advised in writing, a statement for the period of account:

(a)

of the aggregate charges of the firm and its associates; and

(b)

of any remuneration received by the firm or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio.

Movement in value of portfolio
A statement of the difference between the value of the portfolio at the closing date of the period of account and its value at the starting date, having regard, during the period of account, to:

(a)

the aggregate of assets received from the occupational pension scheme and added to the portfolio;

(b)

the aggregate of the value of assets transferred, or of amounts paid, to the customer;

(c)

the aggregate income received on behalf of the customer in respect of the portfolio; and

(d)

the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio.

01/12/2004

COB 8.2.16

(1) The items in COB 8.2.15 should contain sufficient information about the relevant transactions to enable an OPS trustee to determine whether it will be necessary to obtain more detailed information about the relevant transactions.
(2) A firm may wish to provide more information than is required by COB 8.2.15, by distinguishing capital and income. If the statement includes some measure of performance, the basis of measurement should be stated.

01/12/2001

COB 8.2.17

Periodic statements - additional information required for a structured capital-at-risk product

This table belongs to COB 8.2.10 E

Additional information required when a firm sells, advises on or communicates or approves a financial promotion relating to a structured capital-at-risk product to a person who is a private customer, or manages the relevant assets of the issuer of a structured capital-at-risk product, or acts as an investment manager where the investments managed include structured capital-at-risk products

Statement of 'snap shot' maturity value
A statement of the maturity value of the investment, on the assumption that the relevant index, indices, 'basket' of selected stocks, or other factor remained at the level they were on the closing date of the period covered.

Changes in maturity value
A statement of the levels of the relevant index, indices, 'basket' of selected stocks, or other factor, at which the maturity value of the investment would be less than the amount of the initial capital invested, and an indication of by how much less the maturity value would be.

Risk warning
A warning that the value of the relevant index, indices, 'basket' of selected stocks, or other factor can go up or down.

01/01/2005

COB 8A

Claims
handling

COB 8A.1

Application and purpose

01/12/2004

Who and what ?

COB 8A.1.1

This chapter applies in respect of claims handling under long-term care insurance contracts to:

(1) an insurer;
(2) a firm acting on behalf of a policyholder; and
(3) a managing agent.

01/12/2004

COB 8A.1.2

Throughout this chapter, references to an insurer apply equally to a managing agent.

01/12/2004

COB 8A.1.3

An insurer is responsible for claims handling. A managing agent is responsible for claims handling for policies underwritten at Lloyd's. An insurer or a managing agent remains responsible for claims handling if it outsources any of its claims-related activities, including where it gives an intermediary authority to handle claims on its behalf. An insurer or a managing agent is not responsible for the administration and performance activities that a firm carries out on behalf of a policyholder in connection with a claim. In relation to these activities, a firm which acts on behalf of policyholders should refer to COB 8A.3.

01/12/2004

COB 8A.1.4

An insurer should refer to the rules and guidance set out in SUP 2.3.5 R to SUP 2.3.10 G in respect of any person to whom it outsources its claims handling functions.

01/12/2004

COB 8A.1.5

This chapter applies to claims made by or on behalf of policyholders.

01/12/2004

Purpose

COB 8A.1.6

(1) The purpose of this chapter is to ensure that:

(a) claims are handled fairly;
(b) claims are settled promptly;
(c) policyholders are provided with information on the claims handling process and with an explanation of why a claim is rejected or not settled in full, where relevant; and
(d) firms acting on behalf of policyholders disclose and manage any conflicts of interest that may exist.

(2) This chapter reinforces:

(a) Principle 3 (Management and control), which requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems;
(b) Principle 6 (Customers' interests), which requires a firm to pay due regard to the interests of its policyholders and treat them fairly; and
(c) Principle 8 (Conflicts of interest), which requires a firm to manage conflicts of interest fairly, both between itself and its policyholders and between a policyholder and another client.

01/12/2004

COB 8A.2

Claims handling: general

01/12/2004

Requirements to handle claims promptly and fairly

COB 8A.2.1

An insurer must carry out claims handling promptly and fairly.

01/12/2004

COB 8A.2.2

When handling the claim of a policyholder, an insurer should comply with the rules and guidance in COB 8A.4.

01/12/2004

COB 8A.2.3

An insurer should refer to the guidance in SYSC 3.2 (Areas covered by systems and controls) in its procedures for claims handling. For example, an insurer should have in place systems and controls which take account of reasonably foreseeable peaks in demand, to allow it to deal with claims promptly in such circumstances.

01/12/2004

COB 8A.2.4

An insurer should refer to the guidance set out in TC 1 (Commitments) in respect of the competence of any person who carries out claims handling on its behalf.

01/12/2004

Giving policyholders guidance on claiming

COB 8A.2.5

When an insurer is informed that a policyholder wishes to claim under his policy it must give the policyholder reasonable guidance to help him make a claim under his policy.

01/12/2004

Rejecting or refusing claims

COB 8A.2.6

An insurer must not:

(1) unreasonably reject a claim made by a policyholder;
(2) except where there is evidence of fraud, refuse to meet a claim made by a policyholder on the grounds:

(a) of non-disclosure of a fact material to the risk which the policyholder could not reasonably be expected to have disclosed;
(b) of misrepresentation of a fact material to the risk unless the misrepresentation is negligent; or
(c) of breach of warranty, unless the circumstances of the claim are connected with the breach and unless:

(i) under a 'life of another' contract, the warranty relates to a statement of fact concerning the life to be assured and that statement would have constituted grounds for rejection of a claim by the insurer under COB 8A.2.6R (2)(a) or COB 8A.2.6R (2)(b) if it had been made by the life to be assured under an 'own life' contract; or
(ii) the warranty is material to the risk and was drawn to the attention of the policyholder before the conclusion of the contract.

01/12/2004

COB 8A.3

Duties of firms acting on behalf of policyholders

01/12/2004

COB 8A.3.1

COB 8A.3 applies to a firm.

01/12/2004

COB 8A.3.2

COB 8A.3 will usually apply to a firm that is not an insurer, but it may also apply to an insurer, for example, if it were dealing with a claim on a policy insured by another insurer.

01/12/2004

A firm's duty of care, skill and diligence

COB 8A.3.3

A firm when acting for a policyholder in relation to a claim must act with due care, skill and diligence.

01/12/2004

COB 8A.3.4

The rules and guidance in COB 8A.3 do not seek to set out the full extent of the duties owed by firms to any person for whom they act, nor do they displace the general law on the duties of agents.

01/12/2004

A firm's duty to avoid conflicts of interest

COB 8A.3.5

(1) A firm must not, in connection with any claim, put itself in a position where its own interest, or its duty to any person for whom it acts, conflicts with its duty to any policyholder for whom it acts, unless:

(a) it made proper disclosure to that policyholder of all information needed to put the policyholder in a position where he can give informed consent to the arrangement; and
(b) it has obtained the prior informed consent of the policyholder.

(2) A firm must decline to act for the person or policyholder referred to in (1), or any of them, unless in the particular circumstances of the case disclosure and informed consent are sufficient to enable it to reconcile the conflict.

01/12/2004

COB 8A.3.6

COB 8A.3.5 R imposes a requirement on a firm to avoid conflicts of interest in relation to claims where it acts on behalf of a policyholder unless it can manage them by disclosure to, and the obtaining of consent from, the policyholder.

01/12/2004

COB 8A.3.7

A firm should consider whether it is possible to manage the conflict by disclosing the conflict to the policyholder and obtaining his consent. Where a firm acts for a policyholder in arranging a policy, it is likely to be the agent for the policyholder in connection with the preparation and handling of any claim against the insurer. If the firm intends to be the agent of an insurer in relation to claims under that policy, it will need to consider whether it is at risk of putting itself in the position where it cannot act without some breach of duty either to the insurer or the policyholder. The firm should consider whether disclosure and consent are sufficient to reconcile the conflicting obligations. An example of a circumstance in which disclosure and consent are unlikely to be sufficient and when a firm may well consider it should not act for the insurer or the policyholder or either, is where the firm knows that the policyholder will, to obtain a quick payment, accept a low amount in settlement of a claim and also knows the insurer is willing to settle for a higher amount.

01/12/2004

COB 8A.3.8

If a firm acts for an insurer and not for a policyholder in relation to a claim on a contract which it arranged for that policyholder, the firm must inform the policyholder that, in relation to that claim, it is acting on behalf of the insurer and not the policyholder.

01/12/2004

COB 8A.3.9

COB 8A.3.8 R would apply, for example, where a firm has delegated authority for claims handling and deals with a claim in relation to a contract that is sold to a policyholder, if the firm is not acting on behalf of that policyholder in relation to the claim.

01/12/2004

COB 8A.3.10

If a firm is notified of a claim in relation to a policy which it has arranged, and the insurer has not given it the authority to deal with that claim, it must:

(1) forward the notification to the insurer promptly; or
(2) inform the policyholder immediately that it cannot deal with the notification.

01/12/2004

COB 8A.4

Policyholders: performance standards for handling claims

01/12/2004

Responding to notification of the claim

COB 8A.4.1

An insurer must respond promptly to a notification by a policyholder of a claim.

01/12/2004

COB 8A.4.2

Notification of a claim is a demand of the insurer to pay or provide a benefit insured under the policy, for example, by submitting a claim form or giving the equivalent information orally, where permitted by the policy. An enquiry that precedes such a demand, for example, as to whether a particular loss is covered, and therefore whether a claim could be made under the terms of the policy, is not notification of a claim.

01/12/2004

COB 8A.4.3

COB 8A.4.1 R requires an insurer to respond promptly once it has received notification of a claim. Generally a prompt response would be one within five business days of a policyholder making a claim, although in some circumstances a prompt response could be less than five business days, such as where the policyholder would expect a swifter response because of the nature of the claim or the terms of the policy.

01/12/2004

COB 8A.4.4

The response referred to in COB 8A.4.1 R must:

(1) provide the information set out in COB 8A.4.5 R;
(2) be in a durable medium, unless the notification by the policyholder is made orally and the insurer does not require the policyholder to complete a claim form; and
(3) provide the policyholder with a claim form, if the insurer requires one to be completed.

01/12/2004

COB 8A.4.5

The information referred to in COB 8A.4.4R (1) is:

(1) that the claim relates to a risk that is clearly outside the scope of the policy, if that is the case (in which case no further information need be provided);
(2) the action that will be taken by the insurer and when that action will be taken;
(3) if the insurer is appointing any other parties to contact the policyholder on the insurer's behalf, in respect of each other party appointed the following information, if known (but, if the purpose of the appointment is to investigate the validity of a claim, the information need not be given if it would limit or prevent the effective investigation of the claim or any part of it):

(a) its name (unless the other party trades under the name of the insurer);
(b) its function; and
(c) the work it will carry out in relation to the claim.

01/12/2004

COB 8A.4.6

The purpose of the rules and guidance in COB 8A.4.1 R to COB 8A.4.5 R is to provide the policyholder at an early stage with information in relation to the processing and settlement of his claim by the insurer. COB 8A.4.5R (1) is intended to prevent a policyholder pursuing a claim for which he is clearly not covered. It is not intended to pre-empt the outcome of an investigation of a claim.

01/12/2004

COB 8A.4.7

The purpose of COB 8A.4.5R (3) is to ensure that a policyholder knows the name and function of any party who will contact him in relation to a claim as a representative of the insurer, for example, an outsourced claims handling company. An insurer would not be expected to notify the policyholder of other parties who are appointed to investigate the validity of a claim if this would limit or prevent an effective investigation. However, if a third party is appointed to liaise with the policyholder on the insurer's behalf, as well as assess the validity of the claim, the insurer would be expected to disclose the information in COB 8A.4.5R (3) unless it would limit or prevent an effective investigation.

01/12/2004

Investigation and processing of the claim

COB 8A.4.8

An insurer must keep the policyholder reasonably informed about the progress of his claim.

01/12/2004

COB 8A.4.9

Where the investigation of a claim is likely to be protracted, an insurer should provide periodic progress or status reports, when appropriate, to a policyholder, including providing the policyholder with any relevant update in relation to the information provided under COB 8A.4.4 R. The insurer should also respond without undue delay to any reasonable request by the credit union for information.

01/12/2004

Determining the claim

COB 8A.4.10

An insurer must notify the policyholder as soon as practicable whether it:

(1) rejects all of his claim;
(2) rejects his claim but without prejudice to the rejection makes an offer in compromise; or
(3) accepts all or part of his claim.

01/12/2004

COB 8A.4.11

If the insurer rejects the claim but without prejudice to the rejection makes an offer in compromise, it must notify the policyholder of the terms of that offer as soon as practicable.

01/12/2004

COB 8A.4.12

If the insurer accepts all or part of the policyholder's claim, it must notify the policyholder as soon as practicable whether:

(1) as to the parts it accepts, it agrees to provide the money, property or service claimed by the policyholder in full; or
(2) it makes some other offer in compromise. In that event, it must notify the policyholder of the terms of its offer.

01/12/2004

COB 8A.4.13

(1) Unless the insurer accepts the policyholder's claim in full, the insurer must explain why it rejects all or part of the policyholder's claim or accepts his claim or makes a compromise offer, specifying any relevant term of the policy.
(2) The insurer must offer the policyholder the choice of receiving the information at COB 8A.4.13R (1) in a durable medium.

01/12/2004

COB 8A.4.14

The insurer must, in respect of each part of the claim which it accepts, inform the policyholder whether the claim will be settled by paying him, or by paying another person to provide goods or services, or by providing those goods or services.

01/12/2004

Settling a claim

COB 8A.4.15

An insurer must settle a claim by a policyholder promptly.

01/12/2004

COB 8A.4.16

(1) Settlement terms are agreed when:

(a) the insurer accepts the policyholder's claim; and
(b) the policyholder accepts the insurer's offer of settlement.

(2) When the insurer settles the claim by paying the policyholder, the insurer should aim to make payment within five business days after the insurer and the policyholder have agreed settlement terms, subject to any pre-conditions laid down by the insurer or in law being met by the policyholder. This does not prevent the insurer paying a claim before the policyholder has finally agreed settlement terms.
(3) The guidance in (2) will not apply if the insurer settles the claim by:

(a) payment against a liability due on a future date;
(b) the provision of goods or services;
(c) making payments on a date specified by the policyholder;
(d) payment of the claim through another party (eg a care home) on a monthly or some other basis;

and in the case of (a) or (b) the insurer should make prompt payment or arrange for prompt provision of the goods or services after the insurer and the policyholder have agreed settlement terms.

01/12/2004

COB 8A.4.17

The arrangements for settlement set out in COB 8A.4.16G (3)(b) apply to arrangements to supply goods or services to the policyholder. In such situations, the goods or services should be provided promptly but where they cannot be, the insurer should inform the policyholder when to expect them.

01/12/2004

COB 8A.4.18

An insurer should note that unless it has previously informed a policyholder that a claim will not be met in full or in part until premiums have been paid, the insurer may not delay the payment of a claim on the grounds that premiums are outstanding.

01/12/2004

Pre-Action Protocols

COB 8A.4.19

A policyholder who does not accept an insurer's rejection of his claim (or part of it) may challenge that rejection. If he chooses to do so through the courts, firms should be aware that, in England and Wales, there are pre-action protocols which lay down certain requirements as to the steps to be taken before proceedings are issued. This chapter does not displace these requirements, to which firms should have regard in the event that a rejection of a claim moves towards litigation.

01/12/2004

COB 8A.5

Record keeping

01/12/2004

COB 8A.5.1

An insurer must make and retain, for the duration of the claim and for a minimum of six years after the insurer's obligations to the policyholder under the long-term care insurance contract have ceased, the following information in relation to each claim made against a policy issued by it or handled by it:

(1) details of the claim;
(2) a record of each communication with the policyholder including the date on which it was made; and
(3) the date the claim was settled or rejected and details of settlement or rejection including information relevant to the basis for the settlement or rejection.

01/12/2004

COB 9

Client assets

COB 9.1

These provisions have been moved to the Client Assets sourcebook (CASS)

01/12/2004

COB 9.1.1

01/12/2001

COB 9.2

These provisions have been moved to the Client Assets sourcebook (CASS)

01/12/2004

COB 9.2.1

01/12/2001

COB 9.3

These provisions have been moved to the Client Assets sourcebook (CASS)

01/12/2004

COB 9.3.1

01/12/2001

COB 9.4

These provisions have been moved to the Client Assets sourcebook (CASS)

01/12/2004

COB 9.4.1

20/09/2001

COB 9.5

These provisions have been moved to the Client Assets sourcebook (CASS)

01/12/2004

COB 9.5.1

01/12/2001

COB 10

Operators of collective investment schemes

COB 10.1

Application

01/12/2004

COB 10.1.1

(1) COB 10 applies to a firm which is an operator of a collective investment scheme in accordance with COB 10.1.2 R.
(2) The right hand column of the table in COB 10.1.2 R specifies the sections in COB 10 which apply to the operator specified in the left hand column of the table.

01/12/2001

COB 10.1.2

Application

This table belongs to COB 10.1.1 R

Application

Type of firm

Section

Operator of a regulated collective investment scheme in so far as the firm is undertaking scheme management activity.

COB 10.1, COB 10.2 and COB 10.3

Operator of an unregulated collective investment scheme in so far as the firm is undertaking scheme management activity.

COB 10.1, COB 10.2, COB 10.3, COB 10.4 and COB 10.5

Operator of an unregulated collective investment scheme.

COB 10.1, COB 10.6 and COB 10.7

01/12/2001

COB 10.1.3

The term operator includes an authorised corporate director of an ICVC.

01/12/2001

COB 10.1.4

Operators are also required to comply with the other relevant provisions of the Handbook. For example:

(1) The Principles for Business (PRIN);
(2) Senior Management Arrangements, Systems and Controls (SYSC);
(3) an operator that communicates or approves a financial promotion relating to a scheme is also required to comply with COB 3;
(4) an operator that holds clients' money otherwise than as trustee of an unregulated collective investment scheme is also required to comply with CASS 4;
(5) an operator that is also the trustee of an unregulated collective investment scheme is also required to comply with COB 11 in relation to its activity as a trustee firm;
(6) an operator of an authorised unit trust scheme is also required to comply with the Collective Investment Schemes sourcebook (CIS);
(7) an operator of an ICVC is also required to comply with the Collective Investment Schemes sourcebook (CIS); and
(8) an operator is also required to comply with the Money Laundering sourcebook (ML).

01/12/2001

Purpose

COB 10.1.5

The purpose of this chapter is:

(1) to take into account the existence of other legislation and rules that may apply to operators (for example, the Collective Investment Schemes sourcebook); to adopt or disapply rules from other chapters in COB; in this way, conflicts between rules and duplication of rules are avoided;
(2) to make a number of general modifications to the operation of the applied rules in COB in the operator context; in general, the ordinary definition of a customer is modified to mean the scheme; however, in certain circumstances, such as an obligation to provide certain kinds of information about the scheme and its investments, the ordinary definition of a customer is modified to mean a participant in the scheme; and
(3) to apply a number of rules that have been specifically designed to apply to operators when undertaking scheme management activity.

01/12/2001

COB 10.2

Application of general COB rules

01/12/2004

Application or modification of general COB rules for operators

COB 10.2.1

An operator when it is undertaking scheme management activity:

(1) must comply with the rules specified in COB 10.2.5 R as modified by COB 10.2.3 R and in COB 10.2.5 R; and
(2) need not comply with any other rule in COB.

20/09/2001

COB 10.2.2

[deleted]

(1) [deleted]
(2) [deleted]

01/09/2003

General modifications

COB 10.2.3

The rules specified in COB 10.2.5 R apply to an operator when it is undertaking scheme management activity (unless otherwise expressly provided in this chapter) with the following modifications:

(1) subject to (3), references to customer are to be construed as references to any scheme in respect of which the operator is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on;
(2) In the case of an unregulated collective investment scheme, references to terms of business or a client agreement are to be construed as references to the scheme documents of an unregulated collective investment scheme required by COB 10.6.2 R; and
(3) in the case of an unregulated collective investment scheme, when an operator is required by the rules in COB to provide information to, or obtain consent from, a customer, the operator must ensure that the information is provided to, or consent obtained from, a participant or a potential participant in the scheme as the case may be.

01/12/2001

COB 10.2.4

Terms including the word customer such as customer order and current customer order are to be construed in accordance with COB 10.2.3 R.

01/12/2001

COB 10.2.5

Application of conduct of business rules

This table belongs to COB 10.2.1 R

Application of conduct of business rules

Chapter, Section or Rule

Description

Modifications

Application and general provisions

2.1

Clear, fair and not misleading communication

2.2

Inducements and soft commission

In the case of a regulated collective investment scheme, COB 2.2.8 R (5) and COB 2.2.16 R to COB 2.2.19R do not apply.

2.3

Reliance on others

2.4

Chinese Walls

5.3

Suitability

COB 10.4 applies instead of COB 5.3.

7.1

Conflict of interest and material interest

7.2

Churning and switching

7.4

Customer order priority

7.5

Best execution

In the case of a regulated collective investment scheme, COB 7.5 applies as if the scheme was a private customer. In the case of an unregulated collective investment scheme, COB 10.5.3 R applies instead of COB 7.5.4 R in the circumstances set out in COB 10.5.3 R.

7.6

Timely execution

7.7

Aggregation and allocation

COB 10.3.3 E applies instead of COB 7.7.6 E. COB 10.3.5 R applies instead of COB 7.7.14 R.

7.12

Customer order and execution records

Operators of collective investment schemes

01/09/2003

COB 10.3

Modification of the allocation rule

01/12/2004

COB 10.3.1

COB 10.3 applies to an operator only when undertaking scheme management activity.

01/12/2001

COB 10.3.2

COB 10.3.3 E replaces COB 7.7.6 E. COB 10.3.3 E modifies the general rule on the timing of allocation (that is, COB 7.7.5 R) to take into account the kind of scheme in which no participant is a private customer.

20/09/2001

COB 10.3.3

(1) To allocate promptly, an operator which has aggregated an order under COB 7.7.4 R should complete the allocation of the designated investments concerned within one business day of the transaction, subject to (2), (3) and (4).
(2) The period in (1) is within five business days if:

(a) the scheme is one in which no participant is a private customer; or
(b) the scheme is an unregulated collective investment scheme and no current participant in the scheme was a private customer on joining the scheme as a participant.

(3) For the purposes of COB 10.3.3 E, all transactions in a series of transactions all of which are executed within one business day, may be treated as having been executed at the time of the last transaction, so long as a record of the time that each individual transaction was executed is made, such as by means of a time stamp.
(4) If transactions in a series of transactions occur over more than one business day, then the requirement in COB 7.7.5 R (and (1) or (2) as appropriate) will apply separately in relation to each business day in which any transaction is executed.
(5) Compliance with (1) may be relied on as tending to establish compliance with COB 7.7.5 R.
(6) Contravention of (1) may be relied on as tending to establish contravention of COB 7.7.5 R.

01/12/2001

COB 10.3.4

COB 10.3.5 R replaces COB 7.7.14 R. COB 10.3.5 R modifies the general rule on the record keeping of aggregated transactions (that is, COB 7.7.14 R) to take into account the fact that an operator may act on a proportional basis or otherwise and may also act for all schemes under its management or for some of the schemes under its management.

01/12/2001

COB 10.3.5

(1) An operator must, on executing an aggregated transaction on behalf of a number of schemes under its management, make a record of:

(a) the identity of the schemes concerned; and
(b) whether the transaction was executed proportionally for these schemes under its management generally or that a stated proportion was executed for some schemes under its management.

(2) If an operator aggregates a number of customer orders on behalf of a number of schemes under its management, the operator must make a record of the intended basis of allocation as soon as is practicable.
(3) If an operator aggregates an order for one or more schemes under its management and itself, the operator must make a record of the intended basis of allocation before the transaction is executed.

01/12/2001

COB 10.4

Suitability of the portfolio of an unregulated collective investment scheme

01/12/2004

COB 10.4.1

COB 10.4 applies to an operator of an unregulated collective investment scheme only when undertaking scheme management activity.

01/12/2001

COB 10.4.2

COB 10.4 adapts COB 5.3 (Suitability) for an operator of an unregulated collective investment scheme. It requires the operator to ensure that its management of the portfolio of the scheme is suitable taking into account its investment management objectives. The Collective Investment Schemes sourcebook deals separately with the basis upon which an operator of a regulated collective investment scheme manages its portfolio.

01/12/2001

COB 10.4.3

An operator of an unregulated collective investment scheme when it is undertaking scheme management activity must take reasonable steps to ensure that:

(1) each transaction undertaken with or for an unregulated collective investment scheme under its management; and
(2) the portfolio for an unregulated collective investment scheme under its management;

is suitable for the scheme.

01/12/2001

COB 10.4.4

For the purposes of COB 10.4.3 R, an operator of an unregulated collective investment scheme should have regard to the stated investment objectives of the scheme.

01/12/2001

COB 10.5

Modification of the best execution rule

01/12/2004

COB 10.5.1

COB 10.5 applies to an operator of an unregulated collective investment scheme only when undertaking scheme management activity.

01/12/2001

COB 10.5.2

COB 10.5.3 R modifies the effect of COB 7.5.4 R. COB 10.5.3 R modifies the general rule (that is, COB 7.5.4 R) on the exceptions to the best execution rule (that is, COB 7.5.3 R) to take into account the existence of unregulated collective investment schemes in which no participant is a private customer.

01/12/2001

COB 10.5.3

COB 7.5.3 R does not apply:

(1) in any of the circumstances specified in COB 7.5.4 R; or
(2) in relation to an unregulated collective investment scheme whose scheme documents include a statement that best execution does not apply in relation to the scheme and in which:

(a) no participant is a private customer; or
(b) no current participant in the scheme was a private customer on joining the scheme as a participant.

01/12/2001

COB 10.6

Scheme documents for an unregulated collective investment scheme

01/12/2004

COB 10.6.1

Except in relation to a distance contract with a retail customer for the sale or purchase as principal of units in a scheme (for which see COB 4.2.5 R and COB 4 Annex 1.1 R), COB 10.6.2 R fulfils the purpose of the terms of business (including the client agreement) requirements (see COB 4.2) in the context of an unregulated collective investment scheme by application of content requirements in scheme documents. In this way, the scheme documents record the basis on which the operator provides investment management services to a participant in the scheme. The Collective Investment Schemes sourcebook deals separately with the basis upon which an operator of a regulated collective investment scheme provides investment management services to a participant of the scheme.

01/12/2001

Provision of scheme documents to private customers

COB 10.6.2

An operator of an unregulated collective investment scheme must not accept a private customer as a participant in the scheme unless it has taken reasonable steps to offer and, if requested, provide to the potential participant scheme documents which adequately describe how the operation of the scheme is governed.

01/12/2001

Format and content of scheme documents

COB 10.6.3

An operator's scheme documents may consist of any number of documents provided that it is clear that collectively they constitute the scheme documents and provided the use of several documents in no way diminishes the significance of any of the statements which are required to be given to the potential participant.

01/12/2001

COB 10.6.4

COB 10.6.4 G is intended to ensure that the scheme documents of an unregulated collective investment scheme (if they exist) make it clear that if a participant is reclassified as a private customer, this reclassification will not affect certain scheme management activities of the operator of the scheme. In particular, despite such a reclassification, the operator will not be required to comply with COB 7.5.3 R (that is, the best execution rule) and the requirement in COB 10.3.3 E (1) to complete the allocation of an aggregated transaction order within one business day of the transaction. It should be noted that COB 10.6.5 R does not require that scheme documents must be produced for an unregulated collective investment scheme.

01/12/2001

COB 10.6.5

Where the scheme is an unregulated collective investment scheme where no current participant in the scheme was a private customer on joining the scheme as a participant, the scheme documents must include a statement that:

(1) explains that if a participant is reclassified as a private customer subsequent to joining the scheme as a participant, then the operator may continue to treat all participants in the scheme as though they were not private customers; and
(2) explains that, in respect of an order aggregated under COB 7.7.4 R, the operator may allocate the designated investments concerned within five business days of the transaction;
(3) explains that if a participant is reclassified as a private customer subsequent to joining the scheme as a participant, then COB 10.5.3 R will continue to apply to that scheme; and
(4) explains that, in the event of a reclassification described in (3), the operator will not be required to provide best execution under COB 7.5.3 R in relation to the scheme.

01/12/2001

COB 10.6.6

It should be noted that the operator will still have to comply with other COB provisions as a result of the reclassification of a participant as a private customer: for example, the requirement under COB 10.7.2 R to provide periodic statements to participants who are private customers in an unregulated collective investment scheme.

01/12/2001

Adequate Information

COB 10.6.7

(1) In order to provide adequate information in scheme documents under COB 10.6.2 R, an operator should include in the scheme documents required by COB 10.6.2 R a provision about each of the items of relevant information set out in COB 10.6.8 E.
(2) Compliance with (1) may be relied on as tending to establish compliance with COB 10.6.2 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of COB 10.6.2 R.

01/12/2001

COB 10.6.8

Content of scheme documents

This table belongs to COB 10.6.7 E

Content of scheme documents

The scheme documents should include provision about:

(1)

Regulator

The firm statutory status in accordance with GEN 4 Annex 1 (Statutory status disclosure);

(2)

Services

the nature of the services that the operator will provide in relation to the scheme;

(3)

Payments for services

details of any payment for services payable by the scheme or from the property of the scheme or participants in the scheme to the operator, including where appropriate:

(a)

the basis of calculation;

(b)

how it is to be paid and collected;

(c)

how frequently it is to be paid; and

(d)

whether or not any other payment is receivable by the operator (or to its knowledge by any of its associates) in connection with any transactions effected by the operator with or for the scheme, in addition to or in lieu of any fees;

(4)

Commencement

when and how the operator is appointed;

(5)

Accounting

the arrangements for accounting to the scheme or participants in the scheme for any transaction effected;

(6)

Termination method

how the appointment of the operator may be terminated;

(7)

Complaints procedure

how to complain to the operator and a statement that the participants in the scheme may subsequently complain direct to the Financial Ombudsman Service;

(8)

Compensation

whether or not compensation may be available from the compensation scheme should the operator be unable to meet its liabilities, and information about any other applicable compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained (see the example in COB 5.5.11 G (Example of compensation information for a UK domestic investment firm operating from the United Kingdom);

(9)

Investment objectives

the investment objectives for the portfolio of the scheme;

(10)

Restrictions

(a)

any restrictions on:

(i)

the types of investments or property which may be included in the portfolio of the scheme; and

(ii)

markets on which investments or property may be acquired for the portfolio of the scheme;

(iii)

the amount or value of any one investment or asset, or on the proportion of the portfolio of the scheme which any one investment or asset or any particular kind of investment or asset may constitute; or

(b)

that there are no such restrictions;

(11)

Holding of scheme assets

(a)

if it is the case, that the operator will:

(i)

hold money on behalf of the scheme or be the custodian of investments or other property of the scheme; or

(ii)

arrange for some other person to act in either capacity and, if so, whether that person is an associate of the operator identifying that person and describing the nature of any association; and

(b)

in either case:

(i)

how any money is to be deposited;

(ii)

the arrangements for recording and separately identifying registrable investments of the scheme and, where the registered holder is the operator's own nominee, that the operator will be responsible for the acts and omissions of that person;

(iii)

the extent to which the operator accepts liability for any loss of the investment of the scheme;

(iv)

the extent to which the operator or any other person mentioned in (11)(a)(ii), may hold a lien or security interest over investments of the scheme;

(v)

where investments of the scheme will be registered collectively in the same name, a statement that the entitlements of the scheme may not be identifiable by separate certificates or other physical documents of title, and that, should the operator default, any shortfall in investments of the scheme registered in that name may be shared proportionately among all schemes and any other customers of the operator whose investments are so registered;

(vi)

whether or not investments or other property of the scheme can be lent to, or deposited by way of collateral with, a third party and whether or not money can be borrowed on the behalf of the scheme against the security of those investments or property and, if so, the terms upon which they may be lent or deposited;

(vii)

the arrangements for accounting to the scheme for investments of the scheme; for income received (including any interest on money and any income earned by lending investments or other property) of the scheme; and for rights conferred in respect of investments or other property of the scheme;

(viii)

the arrangements for determining the exercise of any voting rights conferred by investments of the scheme; and

(ix)

where investments of the scheme may be held by an eligible custodian outside the United Kingdom, a general statement that different settlement, legal and regulatory requirements, and different practices relating to the segregation of those investments, may apply;

(12)

Clients' money outside the United Kingdom

if it is the case, that the operator may hold the money of the scheme in a client bank account outside the United Kingdom;

(13)

Exchange rates

if a liability of the scheme in one currency is to be matched by an asset in a different currency, or if the services to be provided to the operator for the scheme may relate to an investment denominated in a currency other than the currency in which the investments of the scheme are valued, a warning that a movement of exchange rates may have a separate effect, unfavourable or favourable, on the gain or loss otherwise made on the investments of the scheme;

(14)

Stabilised investments

if it is the case, that the operator is to have the right under the scheme documents to effect transactions in investments the prices of which may be the subject of stabilisation;

(15)

Conflict of interest and material interest

if it is the case, that the operator is to have the right under the agreement or instrument constituting the scheme to effect transactions on behalf of the scheme in which the operator has directly or indirectly a material interest (except for an interest arising solely from the participation of the operator as agent for the scheme), or a relationship of any description with another party which may involve a conflict with the operator's duty to the scheme, together with a disclosure of the nature of the interest or relationship;

(16)

Use of soft commission agreements

if the operator is to be authorised under the agreement or instrument constituting the scheme to effect transactions with or through the agency of another person with whom the operator has a soft commission agreement, the prior disclosure required by COB 2.2.16 R;

(17)

Acting as principal

if it is the case, that the operator may act as principal in a transaction with the scheme;

(18)

Stock lending

if it is the case, that the operator may undertake stock lending activity with or for the scheme specifying the type of assets of the scheme to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the scheme in respect of the lending;

(19)

Transactions involving contingent liability investments

(a)

if it is the case, that the agreement or instrument constituting the scheme allows the operator to effect transactions involving contingent liability investments for the account of the portfolio of the scheme;

(b)

if applicable, whether there are any limits on the amount to be committed by way of margin and, if so, what those limits are; and

(c)

if applicable, that the operator has the authority to effect transactions involving contingent liability investments otherwise than under the rules of a recognised investment exchange or designated investment exchange and in a contract traded thereon;

(20)

Periodic statements

(a)

the frequency of any periodic statement (this should not be less than once every 12 months under COB 10.7.3 E) except where a periodic statement is not required by COB 10.7.5 R (Exceptions from the requirement to provide a periodic statement); and

(b)

whether those statements will include some measure of performance, and, if so, what the basis of that measurement will be;

(21)

Valuation

the bases on which assets comprised in the portfolio of the scheme are to be valued;

(22)

Borrowings

if it is the case, that the operator may supplement the funds in the portfolio of the scheme and, if it may do so:

(a)

the circumstances in which the operator may do so;

(b)

whether there are any limits on the extent to which the operator may do so and, if so, what those limits are; and

(c)

any circumstances in which such limits may be exceeded;

(23)

Underwriting commitments

if it is the case, that the operator may for the account of the portfolio of the scheme underwrite or sub-underwrite any issue or offer for sale of securities, and:

(a)

whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and

(b)

whether there are any financial limits on the extent of the underwriting and, if so, what these limits are;

(24)

Investments in other collective investment schemes

whether or not the portfolio may contain units in a collective investment scheme either operated or advised by the operator or by an associate of the operator or in a collective investment scheme which is not a regulated collective investment scheme;

(25)

Investments in securities underwritten by the operator

whether or not the portfolio may contain securities of which any issue or offer for sale was underwritten, managed or arranged by the operator or by an associate of the operator during the preceding 12 months.

01/12/2001

COB 10.7

Periodic statements for an unregulated collective investment scheme

01/12/2004

COB 10.7.1

COB 10.7 applies in the case of an operator of an unregulated collective investment scheme. COB 10.7 modifies the general section on periodic statements (that is, COB 8.2) to take into account the operation of an unregulated collective investment scheme. In this way, an operator should send to a participant of the scheme, on a timely basis, a regular statement providing a valuation of the portfolio of the scheme and other details.

01/12/2001

The requirement to prepare and issue periodic statements

COB 10.7.2

An operator of an unregulated collective investment scheme must, subject to COB 10.7.5 R, provide to participants in the scheme, promptly and at suitable intervals, a written statement which contains adequate information on the value and composition of the portfolio of the scheme at the beginning and end of the period of the statement.

01/12/2001

Promptness, suitable intervals and adequate information

COB 10.7.3

(1) An operator should act in accordance with the provisions in the right hand column of COB 10.7.7 E to fulfil the requirement of COB 10.7.2 R indicated in the left hand column against these provisions.
(2) Compliance with (1) may be relied on as tending to establish compliance with COB 10.7.2 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of COB 10.7.2 R.

01/12/2001

COB 10.7.4

Regarding the electronic provision of a periodic statement, see COB 1.8.

01/12/2001

Exceptions from the requirement to provide a periodic statement

COB 10.7.5

(1) An operator of an unregulated collective investment scheme need not provide a periodic statement:

(i) to a participant in the scheme who is a private customer ordinarily resident outside the United Kingdom; or
(ii) to a participant in the scheme who is an intermediate customer;

if the participant has so requested or the operator has taken reasonable steps to establish that the participant does not wish to receive it; or
(b) if it would duplicate a statement to be provided by someone else.

(2) For a firm acting as an outgoing ECA provider, the exemption in (1)(a)(i) applies only to a participant in the scheme who is a private customer ordinarily resident outside the EEA.

21/08/2002

Record keeping requirements

COB 10.7.6

An operator of an unregulated collective investment scheme must make a copy of any periodic statement it has provided in accordance with COB 10.7.2 R to participants in the scheme. The record must be retained for a minimum period of three years.

01/12/2001

COB 10.7.7

Periodic statements

This table belongs to COB 10.7.3 E

Periodic statements

Promptness

(1)

(a)

A periodic statement should be provided within 25 business days after the end of the period to which the statement relates.

(b)

In the case of:

(i)

a scheme the portfolio of which is comprised exclusively of investment in equity that is not traded or listed on an exchange; or

(ii)

a scheme which is a property enterprise trust; or

(iii)

a scheme the portfolio of which is comprised exclusively of investment in equity that is not traded or listed on an exchange and assets which are land and buildings;

the operator should provide a periodic statement within 50 business days after the end of the period to which the statement relates.

Suitable intervals

(2)

A periodic statement should be provided at least:

(a)

six-monthly; or

(b)

once in any other period, not exceeding 12 months, which has been mutually agreed between the operator and the participant in the scheme.

Adequate information

(3)

(a)

A periodic statement should contain:

(i)

(A)

the information set out in COB 10.7.9 E; and

(B)

where the portfolio of the scheme includes uncovered open positions in contingent liability investments, the additional information in COB 10.7.10 E; or

(ii)

such information as a participant who is a private customer ordinarily resident outside the United Kingdom, or an intermediate customer, has on his own initiative agreed with the operator as adequate.

(b)

For a firm acting as an outgoing ECA provider, (3)(a)(ii) should be read as though the words 'United Kingdom' were replaced by 'EEA'.

21/08/2002

COB 10.7.8

Examples of uncovered open positions include:

(1) selling a call option on an investment not held in the portfolio;
(2) unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable investments denominated in that currency; and
(3) transactions having the effect of selling an index to an amount greater than the portfolio's holdings of investments included in that index.

01/12/2001

COB 10.7.9

General contents of a periodic statement

This table belongs to COB 10.7.7 E

General contents of a periodic statement

Contents and value

(a)

As at the beginning of the account period, the total value of the portfolio of the scheme, being either:

(i)

the value of the assets comprised in the portfolio on the date as at which the statement provided for the immediately preceding period of account is made up; or

(ii)

in the case of the first periodic statement, the value of the assets comprised in the portfolio on the date on which the operator assumed responsibility for the management of the portfolio.

(b)

As at the end of the account period:

(i)

the number, description and value of each investment held on behalf of the scheme;

(ii)

the amount of cash held on behalf of the scheme; and

(iii)

the total value of the portfolio of the scheme.

Basis of valuation

A statement of the basis on which the value of each investment has been calculated and, if applicable, a statement that the basis for valuing a particular investment has changed since the previous periodic statement. Where any investments are shown in a currency other than the usual one used for valuation of the portfolio of the scheme, the relevant currency exchange rates must be shown.

Details of any assets loaned or charged

(a)

A summary of those investments (if any) which were, at the closing date, loaned to any third party and those investments (if any) that were at that date charged to secure borrowings made on behalf of the portfolio of the scheme; and

(b)

the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during the period.

Transactions and changes in composition

Except in the case of a portfolio which aims to track the performance of an external index:

(a)

a statement that summarises the transactions entered into for the portfolio of the scheme during the period; and

(b)

the aggregate of money and a summary of all investments transferred into and out of the portfolio of the scheme during the period; and

(c)

the aggregate of any interest payments, dividends and other benefits received by the operator for the portfolio of the scheme during that period.

Charges and remuneration

If not previously advised in writing, a statement for the account period:

(a)

of the aggregate charges of the operator and its associates; and

(b)

of any remuneration received by the operator or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio of the scheme.

Movement in value of portfolio

A statement of the difference between the value of the portfolio at the closing date and its value at the starting date of the account period, having regard at least, during the account period, to the following:

(a)

the aggregate of assets received from participants of the scheme and added to the portfolio of the scheme;

(b)

the aggregate of the value of assets transferred, or of amounts paid, to the scheme;

(c)

the aggregate income received on behalf of the scheme in respect of the portfolio; and

(d)

the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio of the scheme.

Notes:

For the purposes of Item 1, where the scheme is a property enterprise trust, it will be sufficient for the periodic statement to disclose the number of properties held in successive valuation bands where this is appropriate to the size and composition of the scheme, rather than the value of each asset in the portfolio. The valuation bands of over £10m, £5-£10m, £2.5-£5m, £1-£2.5m and under £1m would be appropriate, unless an operator could show that different bands were justifiable in the circumstances.

The statement to be provided under Item 6 is not intended to be an indicator of the performance of the portfolio of the scheme.

An operator may wish to distinguish capital and income, and thereby provide more information than referred to in this table. If the statement includes some measure of performance, the basis of measurement should be stated.

01/12/2001

COB 10.7.10

Contents of a periodic statement in respect of contingent liability investments

This table belongs to COB 10.7.7 E

Contents of a periodic statement in respect of contingent liability investments

Changes in value

The aggregate of money transferred into and out of the portfolio of the scheme during the account period.

Open positions

In relation to each open position in the portfolio of the scheme at the end of the account period, the unrealised profit or loss to the portfolio of the scheme (before deducting or adding any commission which would be payable on closing out).

Closed positions

In relation to each transaction effected during the account period to close out a position of the scheme, the resulting profit or loss to the portfolio of the scheme after deducting or adding any commission.
(Instead of the specific detail required by Items 2 or 3, the statement may show the net profit or loss in respect of the overall position of the scheme in each contract)

Aggregate of contents

The aggregate of each of the following in, or relating to, the portfolio of the scheme at the close of business on the valuation date:

(a)

cash;

(b)

collateral value;

(c)

management fees; and

(d)

commissions attributable to transactions during the period or a statement that this information has been separately disclosed in writing on earlier statements or confirmations to the participant.

Option account valuations

In respect of each open option comprising the portfolio of the scheme on the valuation date:

(a)

the share, future, index or other investment or asset involved;

(b)

(unless the valuation statement follows the statement for the period in which the option was opened) the trade price and date for the opening transaction;

(c)

the market price of the contract; and

(d)

the exercise price of the contract.

Options account valuations may show an average trade price and market price in respect of an option series where a number of contracts within the same series have been purchased on behalf of the scheme.

01/12/2001

COB 11

Trustee and depositary activities

COB 11.1

Application

01/12/2004

COB 11.1.1

This chapter applies to depositaries and trustee firms when acting as such.

01/12/2001

COB 11.1.2

The definition of depositary includes trustees of authorised and unauthorised unit trust schemes as well as depositaries of ICVCs. The definition of trustee firm includes any firm carrying on activity as a trustee but not an OPS firm. There is overlap between these definitions. A trustee of an authorised unit trust scheme is both a trustee firm and a depositary.

01/12/2001

COB 11.1.3

The definition of trustee firm includes a firm acting as personal representative.

01/12/2001

COB 11.1.4

Firms are reminded that trustee firm may include individuals who require authorisation and who are within the definition of trustee firm. It also includes partnerships where the partnership requires authorisation.

01/12/2001

COB 11.1.5

Article 66 of the Regulated Activities Order provides exclusions for some trustees, nominees and personal representatives from certain regulated activities. This chapter does not apply to a trustee firm in respect of an activity which is excluded from being a regulated activity carried on by the trustee firm under any paragraph in article 66.

01/12/2001

COB 11.1.6

In COB only the rules in COB 1, COB 11 and the rules applied by this chapter apply to a trustee firm or depositary.

01/12/2001

COB 11.1.7

This chapter does not apply with respect to any regulated activities carried on by a trustee with a trust beneficiary where the trustee firm is not acting as trustee. Such activities would be subject to the rules in COB applied otherwise than through this chapter.

01/12/2001

COB 11.1.8

In respect of trustee firms, the rules:

(1) apply in addition to any duties or powers imposed or conferred upon a trustee by the general law;
(2) do not qualify or restrict the duties or powers that the general law imposes or confers upon a trustee; trustee firms will be under a duty to observe the provisions of their trust instrument; if its provisions conflict with any applicable rule, trustees will need to take advice in resolving the conflict.

01/12/2001

COB 11.1.9

A depositary of a regulated collective investment scheme is also required to comply with the Collective Investment Schemes sourcebook (CIS).

01/12/2001

COB 11.1.10

A depositary of an ICVC is also required to comply with the OEIC Regulations.

01/12/2001

COB 11.1.11

All depositaries and trustee firms are also required to comply in particular with the Principles for Businesses (PRIN), Senior Management Arrangements, Systems and Controls (SYSC) and the Money Laundering sourcebook (ML).

01/12/2001

Purpose

COB 11.1.12

The purpose of this chapter is to select rules to apply to the activities of trustee firms and depositaries. COB is modified by this chapter for that purpose. The rules in this chapter:

(1) redefine customer so that it applies meaningfully in the trustee firm/depositary context. A trustee firm, for example, may be both the customer and the firm. A requirement to make a disclosure to a customer may therefore not be clear when applied to a trustee firm - the requirement may be taken to apply to the trustees as a body, or to the trust beneficiaries. In the context of collective investment schemes disclosure may appropriately be effected through reports and documentation sent to the participants;
(2) recognise that some trustee firms may not be experts in investment; in consequence they should be allowed to delegate regulatory responsibility for compliance with COB to other suitable firms.
(3) apply appropriate rules to different types of trustee; for example the rules in COB 11.5.3 R are not applied to personal representatives because this would amongst other things require such a firm to send out periodic statements.
(4) apply rules specifically devised for trustee firms or depositaries; for example, COB 11.8 (Proper advice) applies only to trustee firms.

01/12/2001

COB 11.2

Relationship with the scheme

01/12/2004

COB 11.2.1

[deleted]

(1) [deleted]
(2) [deleted]

01/09/2003

COB 11.2.2

Where a trustee firm is required by any applicable rule in COB to provide information to, or obtain consent from, a customer, the trustee firm must ensure the information is provided to, or consent obtained from all the trustees, or as many trustees as are required by the trust instrument.

01/12/2001

COB 11.3

Packaged products

01/12/2004

COB 11.3.1

A trustee firm must not arrange the purchase, or recommend the purchase of a packaged product unless the trustee firm has taken reasonable steps to ensure that that packaged product will secure the investment objectives of the trust of which it is trustee at least as well as any other generally available packaged product of which it is or reasonably should be aware.

01/12/2004

COB 11.4

Depositaries

01/12/2004

COB 11.4.1

A depositary when acting as such:

(1) must comply with the rules in COB specified in COB 11.4.3 R, as modified;
(2) need not comply with any other rule in COB.

01/12/2001

COB 11.4.2

COB 11.4.1 R applies to a trustee firm which is also a depositary. If a trustee firm is not a depositary then COB 11.5 applies instead.

01/12/2001

COB 11.4.3

Rules applicable to depositaries

This table belongs to COB 11.4.1 R

Chapter

Description

Modifications

Application and general provisions

'Customer' means 'trustee' or 'trust', as appropriate. COB 1.5 and COB 1.6 do not apply.

2.1 to 2.4

Rules which apply to all firms

COB 2.2.8 R - COB 2.2.20 R do not apply.
For the depositary of a unit trust scheme, 'customer' means 'trustee' or 'trust', as appropriate. For the depositary of an ICVC, 'customer' means the ICVC. For the depositary of any other collective investment scheme, 'customer' means the scheme.

2.5

Exclusion of liability

For the depositary of a unit trust scheme, 'customer' and 'private customer' mean 'trustee' or 'trust', as appropriate. For the depositary of an ICVC, 'customer' means the ICVC. For the depositary of any other collective investment scheme, 'customer' means the scheme.

Financial promotion

5.5

Information about the firm

'Customer' and 'private customer' mean 'trustee' or the operator of the collective investment scheme, as appropriate.

7.1

Conflict of interest and material interest

'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate.

7.13

Personal account dealing

'Client' and 'customer' mean 'collective investment scheme'.

[deleted] 10

[deleted]
Operators of collective investment schemes

[deleted]
The chapter does not apply to a depositary of an ICVC. It applies to the trustee of a unit trust scheme only where there is no separate operator, or where and to the extent that the separate operator does not take all day-to-day investment decisions in relation to the scheme.

Trustee and depositary activities

01/12/2004

COB 11.5

Trustee firms which are not depositaries

01/12/2004

COB 11.5.1

The only rules in COB which apply to a trustee firm which is not a depositary and when acting as such are as follows:

(1) where the firm is:

(a) a bare trustee (or, in Scotland, a nominee) holding investments for another person and acting on that person's instructions;
(b) a personal representative;
(c) a trustee acting as trustee of an issue of debentures or government and public securities:

(i) where the issue is made by a company listed on a recognised investment exchange or on a designated investment exchange (or by a wholly-owned subsidiary of such a company); or
(ii) where the issue is made by a government, local authority or public authority; or
(iii) where the aggregate amounts issued (under the trust deed or any deed supplemental to it and ignoring any amounts redeemed, repurchased or converted) exceed the sum of £10,000,000, or its equivalent in a foreign currency;

the rules in COB 11.5.2 R, as modified
(2) where the firm does not fall within (1), the rules in COB 11.5.3 R as modified.

01/12/2001

COB 11.5.2

Rules applicable to trustee firms which are not depositaries and to which COB 11.5.1R (1) applies

This table belongs to COB 11.5.1 R (1).

Chapter

Description

Modifications

Application and general provisions

'Customer' means 'trustee' or 'trust', as appropriate. COB 1.5 and COB 1.6 do not apply.

2.1

Clear, fair and not misleading communication

'Customer' means 'trustee'

2.2

Inducements and soft commission

'Customer' means 'trustee' or 'trust', as appropriate.

2.3

Reliance on others

'Customer' means 'trustee'.

2.4

Chinese walls

'Customer' and 'client' mean 'trustee' or 'trust', as appropriate.

2.5

Exclusion of liability

'Customer' and 'private customer' mean 'trustee', as appropriate.

Financial promotion

4.1

Client classification

'Client' and 'customer' mean 'trustee' or 'trust', as appropriate.

5.5

Information about the firm

'Customer' and 'private customer' means 'trustee' or 'trust', as appropriate.

7.1

Conflict of interest and material interest

'Customer' means 'trustee' or 'trust', as appropriate.

7.2

Churning and switching

'Customer' means 'trustee' or 'trust', as appropriate.

[deleted]

Trustee and depositary activities

01/12/2004

COB 11.5.3

Rules applicable to trustee firms which are not depositaries and to which COB 11.5.1R (2) applies

This table belongs to COB 11.5.1 R (2).

Chapter

Description

Modifications

Application and general provisions

'Customer' means 'trustee' or 'trust', as appropriate.
COB 1.5 and COB 1.6 do not apply.

2.1

Clear, fair and not misleading communication

'Customer' means 'trustee'

2.2

Inducements and soft commission

'Customer' means 'trustee' or 'trust', as appropriate.

2.3

Reliance on others

'Customer' means 'trustee'.

2.4

Chinese walls

'Customer' and 'client' mean 'trustee' or 'trust', as appropriate.

2.5

Exclusion of liability

'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate.

Financial promotion

4.1

Client classification

'Client' and 'customer' mean 'trustee' or 'trust', as appropriate.

5.2

Know your customer

'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate.

5.3

Suitability

'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate.
COB 5.3.14 R - COB 5.3.19 R do not apply to a trustee firm. However, a trustee firm must keep appropriate records to show compliance with COB 5.3.

5.4

Customers' understanding of risk

'Customer' and 'private customer' mean 'trustee'.

5.5

Information about the firm

'Customer' and 'private customer' means 'trustee' or 'beneficiary', as appropriate.

7.1

Conflict of interest and material interest

'Customer' and 'private customer' mean 'trustee', or 'trust', as appropriate.

7.2

Churning and switching

'Customer' means 'trustee' or 'trust', as appropriate.

7.3

Dealing ahead

'Customer' means 'trustee' or 'trust', as appropriate.

7.4

Customer order priority

'Customer' means 'trust'.

7.5

Best execution

'Customer' means 'trustee' or 'trust', as appropriate.

7.6

Timely execution

'Customer' means 'trust'.

7.7

Aggregation and allocation

'Customer' means 'customer' or 'trust', as appropriate.

7.9

Lending to private customers

'Private customer' means 'beneficiary'.

7.10

Margin requirements

'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate.

7.12

Customer order and execution records

'Customer' means 'trustee' or 'trust', as appropriate.

7.13

Personal account dealing

'Client' means 'trust'.

7.14

Programme trading

'Customer' means 'trustee' or 'trust', as appropriate.

7.15

Non market price transactions

'Customer' means 'trustee' or 'trust', as appropriate.

8.1

Confirmation of transactions

'Customer' means 'trustee' or 'trust', as appropriate.

8.2

Periodic statements

'Customer' means 'trustee' or 'trust', as appropriate.

[deleted]

Trustee and depositary activities

01/12/2004

COB 11.6

Delegation to a permitted third party.

01/12/2004

COB 11.6.1

A trustee firm may not appoint a permitted third party ("PTP") under this rule unless:

(1) the trustee firm could not reasonably be expected to discharge the responsibility itself.
(2) the delegation is made in writing which:

(a) describes in adequate detail the regulated activities to be carried on by the PTP; and
(b) states that the arrangement is to be regarded as a PTP arrangement for the purposes of this rule;

(3) the PTP undertakes in writing to the trustee firm to comply with all rules relevant to the regulated activity in question; and
(4) the PTP is an appropriate person to perform the regulated activity.

01/12/2001

COB 11.6.2

For the purposes of COB 11.6.1 R (1) a trustee firm may reasonably be expected to accept responsibility for the PTP's compliance where the trustee firm undertakes substantial trustee business. The PTP rules are intended to be of assistance to smaller trustee firms who are inexperienced in regulated business.

01/12/2001

COB 11.6.3

For the purposes of COB 11.6.1 R (4), where the PTP has appropriate permission enabling him to carry on the regulated activity in question, that fact may be taken to indicate that the PTP is an appropriate person to perform the regulated activity.

01/12/2001

COB 11.6.4

When a trustee firm has appointed a PTP under COB 11.6.1 R, the trustee firm will not be responsible for compliance by the PTP with any rules relating to any regulated activity which the PTP carries on for the trustee firm.

01/12/2001

COB 11.6.5

The effect of COB 11.6.4 R is that the trustee firm is not liable for the acts or defaults of the PTP in respect of the regulated activities concerned.

01/12/2001

COB 11.6.6

The trustee firm must notify the FSA within 14 days of it delegating any regulated activity to a PTP and the notification must include the identity of the PTP.

01/12/2001

COB 11.6.7

Trustee firms are reminded that permitted third party is defined as being either: (a) an authorised person; (b) an exempt person for whom an authorised person is accepting responsibility; or (c) a person lawfully carrying on a regulated activity in another EEA State.

01/12/2001

COB 11.6.8

Trustee firms may delegate to persons other than permitted third parties under general principles of law and subject to the FSA's rules.

01/12/2001

COB 11.6.9

The rules permitting use of a PTP do not absolve the trustee firm from the need to comply with any restrictions on delegation or the manner of delegation derived from trust law or from the trust instrument. The rules do not affect the trustee firm's position under the general law, including the law of agency.

01/12/2001

COB 11.7

Record Keeping

01/12/2004

COB 11.7.1

(1) A firm must make a record of any written delegation to a PTP under COB 11.6.1 R (1) and of the PTP's undertaking under COB 11.6.1 R (2) and of any variation of those documents.
(2) A record in (1) must be retained for a period ending three years after the date on which the PTP's appointment ceases.

01/12/2001

COB 11.7.2

COB 11.7.1 R obliges a trustee firm to keep records of any variations in the terms of the agreement occurring during the period of the PTP's appointment for three years from the date at which the appointment ends.

01/12/2001

COB 11.8

Proper advice

01/12/2004

COB 11.8.1

A trustee firm must obtain and consider proper advice whenever it intends to exercise its power of investment, except where there are reasonable grounds for not doing so.

01/12/2001

COB 11.8.2

Proper advice is advice from a person who is able to give it competently.

01/12/2001

COB 11.8.3

There is no need to obtain proper advice where there are reasonable grounds not to do so, for example if the trustee firm is itself appropriately qualified to make the particular investment decision concerned or if the investment decision could be reasonably considered not to merit obtaining proper advice.

01/12/2001

COB 11.8.4

COB 11.8 amplifies the requirements of section 6(2) of the Trustee Investments Act 1961 (or section 5 of the Trustee Act 2000 from the date on which that Act enters into force) and trustees' duties at common law.

01/12/2001

COB 11.8.5

A trustee firm must follow the proper advice received unless it is reasonable not to do so.

01/12/2001

COB 11.8.6

A trustee firm which finds it necessary to seek proper advice would normally be expected to follow the advice received. However, there may be reasonable grounds to disregard the advice. For example, a trustee firm may be unable to follow proper advice because of restrictions arising from the trust instrument.

01/12/2001

COB 11.8.7

The trustee firm must make records to show compliance with COB 11.8.5 R and retain them for three years from the date on which the proper advice is received.

01/12/2001

COB 12

Lloyd's

COB 12.1

Application

01/12/2004

COB 12.1.1

This chapter applies to a firm when it carries on any of the following activities:

(1) advising on syndicate participation at Lloyd's or agreeing to carry on that regulated activity;
(2) managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's or agreeing to carry on that regulated activity;
(3) carrying on designated investment business in relation to funds at Lloyd's;
(4) communicating or approving a financial promotion in relation to:

(a) the underwriting capacity of a Lloyd's syndicate; or
(b) membership of a Lloyd's syndicate; or
(c) effecting or carrying out life policies written at Lloyd's; or
(d) any of the activities specified in (1) or (3).

14/01/2005

COB 12.1.2

Underwriting agents should be aware that the Society's regulatory requirements remain applicable to them even if these requirements cover similar matters to the applicable COB provisions.

01/12/2001

COB 12.1.3

This chapter does not affect the application of COB to a firm when carrying on activities other than those specified in COB 12.1.1 R.

01/12/2001

COB 12.1.4

The Society is itself also required to comply with the requirements of INSPRU which contains rules and guidance in respect of areas where COB provisions also have relevance. In particular LLD 4.2.1 R places a requirement on the Society to make appropriate byelaws governing conduct in the capacity transfer market. LLD also imposes at LLD 9.2.3 R a requirement on the Society to comply with the standards of due care and diligence set out in CASS in relation to the custody of assets that constitute members' funds.

01/12/2001

Purpose

COB 12.1.5

The purpose of this chapter is to protect the interests of members or potential members and policyholders or potential policyholders.

01/12/2001

COB 12.1.6

This chapter provides rules that apply to firms when carrying on the activities in COB 12.1.1 R. Rules from other chapters are modified for this purpose. These COB provisions will apply to the activities of members' agents, members' advisers, the Society, managing agents (in some circumstances) and to any other authorised person undertaking any of the activities specified in COB 12.1.1 R.

01/12/2001

Rules of general application

COB 12.1.7

(1) When a firm is carrying on any of the activities specified in COB 12.1.1 R (1), COB applies in full, except to the extent disapplied under COB 12.1.14 R.
(2) COB does not apply to a firm when carrying on the activity specified in COB 12.1.1 R (2), except as specified in COB 12.1.15 R.
(3) COB 3 applies to a firm when carrying on the activity specified in COB 12.1.1 R (4).

01/12/2001

COB 12.1.8

Firms subject to the financial promotion rules under COB 12 are also reminded that syndicate business plans may be used in ways that bring them within the definition of a financial promotion. In such cases the financial promotion rules will apply, in particular COB 3.6 (Confirmation of compliance), COB 3.7 (Records) and COB 3.8 (Form and content of financial promotions).

01/12/2001

COB 12.1.9

A firm which provides advice to a person on a transaction in the capacity transfer market will be carrying on the activity specified in COB 12.1.1 R (1) and will be subject to COB, as specified in COB 12.1.7 R (1) in respect of that activity.

01/12/2001

COB 12.1.10

COB does not apply to a firm when carrying on the regulated activity of arranging (bringing about) deals in investments that relate to the underwriting capacity of a Lloyd's syndicate or membership of a Lloyd's syndicate.

01/12/2001

COB 12.1.11

A firm carrying on the activity specified at COB 12.1.1 R (1) must, in addition to meeting the requirements of COB 5, take reasonable steps to ensure that it does not advise a potential member who is a private customer to become a member of a syndicate unless membership of the Society itself is suitable for the private customer having regard to the facts disclosed by him and other relevant facts about the private customer of which the firm is or reasonably should be aware.

01/12/2001

Definitions and modifications

COB 12.1.12

When a firm is carrying on activities to which this chapter applies, any reference in COB to the term:

(1) "designated investment" is to be taken to include the following specified investments:

(a) the underwriting capacity of a Lloyd's syndicate;
(b) membership of a Lloyd's syndicate; and
(c) rights to or interests in the specified investments in (a) or (b);

(2) "designated investment business" is to be taken to include the following regulated activities:

(a) advising on syndicate participation at Lloyd's;
(b) managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's; and
(c) agreeing to carry on the regulated activities in (a) or (b).

01/12/2001

COB 12.1.13

When a firm is carrying on activities to which this chapter applies, any reference in COB to the term customer is to be taken to refer to a member or potential member except in the case of COB 6.7 (Cancellation and withdrawal) to COB 6.8 (Insurance Contracts: life and general) where it refers to a policyholder or potential policyholder.

01/12/2001

COB 12.1.14

This table disapplies parts of COB to a firm when carrying on the activities to which COB 12.1.7 R (1) relates.

Chapter

Description

Disapplication

4.2

Terms of business and client agreements with customers

COB 4.2.11 E and COB 4.2.12 R are disapplied.

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

COB 6 is disapplied.

8.2

Periodic statements

COB 8.2 is disapplied to a firm advising on syndicate participation at Lloyd's.
COB 8.2.7 is disapplied to the Society.

[deleted]

[deleted].

Trustee and depositary activities

COB 11 is disapplied.

01/01/2004

COB 12.1.15

This table applies COB to firms when carrying on the activity to which COB 12.1.7 R (2) relates except where ICOB applies in relation to non-investment insurance contracts.

Chapter

Description

Application

Application and general provisions

Applied

Rules which apply to all firms conducting designated investment business

Applied

4.1

Client classification

Applied

6.7

Cancellation and withdrawal

Applied

6.8

Insurance contracts - life
policies

Applied

Claims handling

Applied

14/01/2005

COB 12.1.16

The tables at COB 12.1.17 G to COB 12.1.21 G are provided to help firms when carrying on those activities to which this chapter applies locate those rules that are particularly relevant to their activities. Firms should be aware that these tables may not include all rules which apply to an individual firm as these will vary depending on the firm's particular circumstances and that there may be other rules that apply.

14/01/2005

COB 12.1.17

Location of rules of general application to firms when carrying on activities to which this chapter applies.

This table forms part of COB 12.1.16 G.

Chapter

Description

COB 1

Application and general provisions

COB 2

Rules which apply to all firms conducting designated investment business

COB 4.1

Client classification

01/12/2001

COB 12.1.18

Location of rules of particular relevance to a firm when advising on syndicate participation at Lloyd's.

This table forms part of COB 12.1.16 G.

Chapter

Description

COB 4.2.1 R to COB 4.2.10 R (inclusive), COB 4.2.13 R to COB 4.2.14 R

Terms of business and customer agreements

COB 5

Advising and selling

COB 7.1

Conflict of interest and material interest

01/12/2001

COB 12.1.19

Location of rules of particular relevance to a firm when carrying on designated investment business in relation to funds at Lloyd's.

This table forms part of COB 12.1.16 G.

Chapter

Description

COB 4.2.1 R to COB 4.2.10 R (inclusive), COB 4.2.13 R and COB 4.2.14 R

Terms of business and customer agreements

COB 7

Dealing and managing

COB 8.1

Confirmation of transactions

COB 8.2.1 to COB 8.2.6 (inclusive) and COB 8.2.9

Periodic statements

01/12/2001

COB 12.1.20

Location of rules of particular relevance to a firm managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's.

This table forms part of COB 12.1.16 G.

Chapter

Description

COB 6.7

Cancellation and withdrawal

COB 6.8

Insurance contracts - life policies

ICOB

Insurance: Conduct of Business Sourcebook

14/01/2005

COB 12.1.21

Location of rules of particular relevance to a firm when communicating or approving financial promotions in relation to the investments and activities specified at COB 12.1.1 R (4).

This table forms part of COB 12.1.16 G.

Chapter

Description

COB 3

Financial promotion

01/12/2001

COB App 1

Appendix 1

COB App 1.1

Required information for certain terms of business, key features and direct offer financial promotions

01/12/2004

COB App 1.1.1

Required information

This table belongs to COB 3.9.6 R, COB 4.2.10 R, COB 6.2.16 R, COB 6.2.18R, COB 6.4.13R, COB 6.4.25R, COB 6.4.27R, COB 6.5.2R(6), COB 6.5.42R to COB 6.5.44R.

Required information

The supplier

(1)

The name and the main business of the firm, the geographical address at which it is established and any other geographical address relevant to the customer's relations with the firm.

(2)

Where the firm has a representative established in the customer's EEA State or other country of residence, the identity of that representative and the geographical address relevant to the customer's relations with him.

(3)

Where the customer's dealings are with any professional other than the firm, the identity of that professional, the capacity in which he is acting with respect to the customer, and the geographical address relevant to the customer's relations with that professional.

(4)

(a)

For authorised persons:

(i)

the required disclosure statement in GEN 4 Annex 1 (Statutory status disclosure); and

(ii)

the fact that the person is entered on the FSA Register and his FSA registration number.

(b)

For unauthorised persons:

(i)

where the person's activity is subject to an authorisation scheme, the particulars of the relevant supervisory authority; and

(ii)

where the person is registered in a trade or similar public register, the trade register in which the person is registered and his registration number or an equivalent means of identification in that register.

The financial service

(5)

A description of the main characteristics of the service the firm will provide.

(6)

The total price to be paid by the customer to the firm for its services, including all related fees, charges and expenses, and all taxes paid through the firm or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the customer to verify it.

(7)

Notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it.

(8)

Details of any specific additional cost to the customer for using a means of distance communication.

(9)

Where relevant, notice indicating that the service involves special risks related to its specific features or the operations to be executed or whose price depends on fluctuations in the financial markets outside the firm's control and that past performance is no indicator of future performance.

(10)

Any limitations of the period for which the information provided is valid.

(11)

The arrangements for payment and performance.

The contract

(12)

In relation to services performed permanently or recurrently, the minimum duration of the contract.

(13)

The EEA State or States whose laws are taken by the firm as a basis for the establishment of relations with the retail customer prior to the conclusion of the contract.

(14)

Any contractual clause on law applicable to the contract or on competent court, or both.

(15)

The language in which the contract is supplied and in which the firm will communicate during the course of the contract.

(16)

Information on any rights the parties may have to terminate the contract early or unilaterally under its terms, including any penalties imposed by the contract in such cases.

(17)

The existence or absence of a right to cancel under COB 6.7 and, where there is such a right:

(a)

its duration and the conditions for exercising it, including information on the amount which the customer may be required to pay (or which may not be returned to the customer) in accordance with COB 6.7.52R(1)(b), as well as the consequences of not exercising it; and

(b)

practical instructions for exercising the right to cancel, including as a minimum the method in COB 6.7.42R(1) and details of the address to which any cancellation notice should be sent.

Redress

(18)

How to complain to the firm, whether or not complaints may subsequently be referred to the Financial Ombudsman Service and information about any other applicable named complaints scheme.

(19)

Whether or not compensation may be available from the compensation scheme should the firm be unable to meet its liabilities, and information about any other applicable named compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained. (See the example in COB 5.5.11 G (Investment firms: compensation information)).

01/12/2004

Transitional Provisions and Schedules

COB TP 1

Transitional Rules for pre-N2 and ex-Section 43 firms at N2

COB TP 1.1

1.0

Application

1.1

These transitional provisions apply to:

(a)

pre-N2 firms; and

(b)

ex-section 43 firms.

2.0

Purpose

2.1

The FSA is aware that the introduction of COB will impose an additional compliance burden on firms, even when there is an underlying continuity of policy. The FSA wishes to lighten that burden in a manner consistent with its regulatory objectives and the principles of good regulation under the Act. The following rules provide transitional relief which takes three distinct forms:

(a)

extra time provisions (ETPs) which, in practice, give firms additional time after commencement to complete their preparations for the impact of certain provisions in COB;

(b)

technical timing provisions (TTPs) which give relief from certain provisions in COB that require firms to fulfil obligations to customers at periodic intervals. TTPs postpone the impact of these provisions in COB in relation to periods that span N2; and

(c)

timeless (saving) provisions (TSPs) which give firms relief for an indefinite period after N2 from certain provisions in COB relating mainly to terms of business and client agreements COB 4.2 and from provisions in the Handbook generally (including COB) relating to client classification. TSPs allow firms to continue to use, or rely upon, documentation or compliance work that was undertaken in accordance with previous regulator rules in relation to existing clients at N2.

2.2

If a firm's permitted regulated activities are subject to one or more of the transitional provisions in COB , and were carried on before commencement, those regulated activities should be interpreted, where appropriate, as if they were authorised investment business before commencement.

2.3

GEN contains some technical transitional provisions that apply throughout the Handbook and which are designed to ensure a smooth transition at commencement. These include transitional provisions relevant to record keeping and notification rules.

2.4

For the avoidance of doubt, COB TP 1.2, COB TP 1.2 and COB TP 1.2 at COB TP 1.2 override paragraph 9 (Time starting before commencement) of the technical timing provisions in GEN.

2.5

SUP contains transitional provisions, which carry forward written concessions relating to pre-commencement provisions.

3.0

Continuity of contracts

3.1

The FSA is sometimes asked whether a firm should re-negotiate contracts to replace references to its authorisation status or regulatory provisions made under predecessor legislation with references to its status or regulatory provisions made under the Act . Clearly, whether a firm should renegotiate its contracts is a matter for the firm , which needs to be considered in the light of the effect of the contractual provision as a whole. As a general rule, unless the FSA has made particular requirements relating to such matters, the FSA would not expect to see this done for regulatory reasons. Firms may wish to consider whether they need appropriate professional advice.

3.2

Clearly, the interpretation of contractual provisions is a matter for the courts. However, where a firm continues, as a result of the grandfathering process, to enjoy permission which provides it with authority under the Act to carry on regulated activities substantially similar to the investment business it could carry on under its authorisation under predecessor legislation, the FSA would be surprised if a court were to conclude that updating a contractual provision was necessary to enable it to give effect to the intentions of the parties to the contract.

4.0

Definitions

4.1

In these transitional provisions the following words are to have the meaning given to them below:

"corresponding rule" means a rule of the previous regulator of a firm that is substantially similar in purpose and effect to the relevant provision in COB.

"section 43 business" means activities in respect of which the firm would have been an exempted person under section 43 of the Financial Services Act 1986.

"pre-N2firm" means:

(a)

a firm which immediately before commencement was authorised under the Financial Services Act 1986 to carry on investment business in the United Kingdom by virtue of its membership of:

(i)

IMRO;

(ii)

PIA; or

(iii)

SFA;

(b)

a firm which immediately before commencement held an authorisation granted directly by the FSA under the Financial Services Act 1986 to carry on investment business in the United Kingdom immediately before commencement; or

(c)

an employee of such a firm in (a) or (b), including any of its appointed representatives (as defined under section 44 of the Financial Services Act 1986);

but does not include:

(d)

an ex-RPB firm; or

(e)

a firm in relation to its section 43 business.

"transitional period" means the period starting on commencement and finishing on midnight on 30 June 2002, except where otherwise specified.

COB TP 1.2

COB TR 1

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies: The COB provisions in Table COB TR 2 with the labels indicated

Transitional provision

Transitional provision: dates in force

Handbook provision: coming into force

1.0

Extra time provisions

1.1

ETP1

Transitional relief

(1) commencement to 30 June 2002, except as specified in (2) and (3) below;
(2) for COB 9.3.105R, from commencement to 31 December 2002;
(3) for COB 3.9.10 R, COB 6.1 to COB 6.8, until a date yet to be specified.

commencement

(1)

A pre-N2 firm will not contravene any of the provisions labelled ETP1 in COB TP 1.3 to the extent that, on or after commencement, it is able to demonstrate that it has complied with the corresponding rule of its previous regulator or, where applicable, the relevant former statutory requirement, subject to any modification, wherever appropriate, to take account of the passing of the Act.

(2)

Paragraph (1) does not apply to the following:

(a)

(from 1 September 2002) COB 6.1.1 (5) to COB 6.1.1 (6) (Application);

(b)

(from 1 September 2002) COB 6.5.50 to COB 6.5.52 (Life policies: requests for quotations for surrender values);

(c)

(from 1 September 2002) COB 6.5.53 to COB 6.5.56 (Open market option).

(d)

(from 1 August 2002) COB 6.5.40 (3)(k) (Further information for life policies, schemes, insurance or equity ISAs, PEPs and stakeholder pensions);

(e)

(from 1 August 2002) COB 6.5.8 to COB 6.5.9 (Stakeholder pension schemes: decision trees);

(f)

(from 6 April 2003) COB 6.6.51 (b) (Rate of return assumptions), COB 6.6.83 (Assumptions for pension annuities), COB 6.6.84 (Assumptions for pension annuities), COB 6.6.90 (3) and COB 6.6.91 (Required assumptions);

(g)

(from 1 November 2002) COB 6.5.40 (3)(m) (Further information for life policies, schemes, insurance or equity ISAs, PEPs and stakeholder pensions);

(h)

(from 1 April 2004) COB 6.1.1A (Application of COB 6.2.26);

(i)

(from 1 April 2004) COB 6.2.26 (Requirement to offer a simplified prospectus for section 264 schemes); and

(j)

(from 1 April 2004 for a mini cash ISA for the tax year 2004/2005 and later tax years) COB 6.5.42 (14) (Information requirements for cash deposit ISAs, friendly society tax-exempt policies, traded life policies and broker funds);

(k)

(from 9 October 2004) any rule in COB inserted or amended by the Distance Marketing Directive Instrument 2004 and, in the case of an amendment, to the extent of such amendment;

(l)

(from 31 October 2004) any rule in COB inserted or amended by the Long-Term Care Insurance Contracts Instrument 2004 and, in the case of an amendment, to the extent of such amendment.

1.1A

ETP1 (for COB 6.1 - COB 6.8)

(1)

The FSA is extending transitional relief for COB 6.1 - COB 6.8 and various other rules in COB, pending the outcome of the review of product disclosure and polarisation. As each of those reviews are completed, the transitional provisions will be revoked or modified to provide an appropriate transition into the new regime. Firms will be given notice of any revocation or modification as part of consultation on the new regime.

commencement until a date yet to be specified.

(2)

Interim changes to these rules may not benefit from this transitional relief.

1.2

ETPs 1 to 9
TTPs 1 to 3
TSPs 1 to 7

It is for a pre-N2 firm to satisfy itself that it has complied with the corresponding rule of its previous regulator or, where applicable, the relevant former statutory requirement. In order to benefit from the relief, a firm must ensure that the rule of its previous regulator which it proposes to comply with is substantially similar to the provision in COB to which it relates.

for ETP 1 as for COB TP 1.1
for ETP 2 to 9 and TTP 1 to 3 commencement to 30 June 2002

commencement

For the assistance of firms , the FSA has compiled tables of derivations indicating the rules of a firm's previous regulator that correspond to the provision in COB being transitioned. Firms may wish to refer to these tables but in doing so should understand that they are not intended to be exhaustive and are produced merely as a guide.

Firms are advised that should they wish to take advantage of the transitional provisions set out in this section, the onus is on the firm to be able to demonstrate that in any given case it has in fact complied with the corresponding rules of its previous regulator or, as the case may be, the former statutory requirement.

1.3

ETPs 1 to 9
TTPs 1 to 3
TSPs 1 to 7

Firms will have noted from the wording of COB TP 1.1 that they should treat the corresponding rules of their previous regulator as modified to the extent necessary to ensure that the provision can operate effectively notwithstanding the enactment of the Act. Firms will need to adopt a common sense approach in interpreting the corresponding rules of their previous regulator and modify them accordingly. For example, references in such rules to a firms previous regulator should be read as if they referred to the FSA. Other modifications may not be as straightforward, such as where the concept of an indirect customer is not carried forward under the new legislation. In cases of difficulty, firms are encouraged to approach the FSA for its views.

for ETP 1 as for COB TP 1.1
for ETP 2 to 9 and TTP 1 to 3 commencement to 30 June 2002
indefinitely for TSPs

commencement

1.4

ETP2

[deleted]

1.5

ETP1

Expired

1.6

ETP3

Expired

1.7

ETP3

Expired

1.8

ETP4

Expired

1.9

ETP4

Expired

1.10

ETP5

Expired

1.11

ETP6

Expired

1.12

ETP7

Client Money
An ex-section 43 firm need not comply with the provisions labelled ETP7 in Table COB TP 1.3 in relation to its section 43 business until the expiry of a period of 12 months following commencement, provided it continues to comply with the requirements of the Grey Paper (version June 1999), as published by the FSA, relating to the segregation of money and other assets belonging to counterparties.

until a date yet to be specified

commencement

1.13

ETP8

Expired

1.14

ETP8

Expired

1.15

ETP9

Group business disapplication for ex-IMRO firms and ex-SFA firms

Commencement until a date yet to be specified

commencement

(1)

This paragraph applies to a pre-N2 firm which immediately before commencement was a member of IMRO or SFA.

(2)

COB 1.3.1 R applies to an ex-IMRO firm in (1) as if it provided as follows:
"COB applies to firms with respect to the carrying on of:

(1)

all regulated activities except:

(a)

to the extent that a provision of COB provides for a narrower application; and

(b)

activities which fall within article 69 of the Regulated Activities Order (Groups and joint enterprises), notwithstanding, in respect of article 69, article 4(4) of that Order (Specified activities: general: investment firms); and

(2)

unregulated activities to the extent specified in any provision of COB.".

(3)

COB 1.3.1 R applies to an ex-SFA firm in (1) as if it provided as follows:
"COB applies to firm with respect to the carrying on of:

(1)

all regulated activities except:

(a)

to the extent that a provision of COB provides for a narrower application: and

(b)

in relation to all of COB other than COB 7.13 (Personal account dealing) and the rules in COB requiring records to be made and retained, activities which fall within article 69 of the Regulated Activities Order (Groups and joint enterprises), notwithstanding, in respect of article 69, article 4(4) of that Order (Specified activities: general: investment firms); and

(2)

unregulated activity to the extent specified in any provision of COB.".

1.16

ETP9

The purpose of ETP 9 is to carry forward for ex-IMRO firms and ex-SFA firms the former regulatory treatment of intra-group investment business, which is carried on in conjunction with investment business for third parties. The effect of that treatment was that under the IMRO rulebook the rules do not apply to the business done for group companies which fell within the group business exemption in paragraph 18 of Schedule 1 to the Financial Services Act 1986. The effect of that treatment under the SFA rulebook was that with the exception of the rules relating to compliance (of which the personal account dealing and record keeping rules are carried forward in COB) the conduct of business rules did not apply to the business done for group companies that fell within the group business exemption. Effectively it was only the non-group third party element of such firms' investment business that was subject to the relevant rules. COB would not have carried forward this group business disapplication for such firms, were it not for the introduction of ETP 9.
Note that during the transitional period the FSA will be consulting on its proposals how this issue should be treated in COB after 30 June 2002.

commencement until a date yet to be specified

commencement

2.0

Technical timing provisions

2.1

TTP1

Expired

2.2

TTP2

Expired

2.3

TTP3

Expired

2.4

TTP1, 2 and 3

Expired

3.0

Timeless (saving) provisions

3.1

TSP1

Confirmation of compliance and approval

A pre-N2 firm will not contravene any of the provisions labelled TSP1 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it has carried out the confirmation exercise referred to in COB 3.6.1 R (Confirmation of compliance), for an investment advertisement issued or approved before commencement, in accordance with the corresponding rule of its previous regulator.

indefinitely

commencement

3.2

TSP2

Terms of business and client agreements

(1)

Subject to (2) and (3), a pre-N2 firm will not contravene any of the provisions in Table COB TP 1.3 labelled TSP2 to the extent that, on or after commencement, it is able to demonstrate that it has continued to use, or rely upon, terms of business (including a client agreement), or a soft commission agreement, given to, or made with, a client before the end of the transitional period in accordance with the corresponding rule of its previous regulator.

indefinitely

commencement

(2)

If the basis on which a pre-N2 firm conducts, or proposes to conduct, its designated investment business for a client changes after commencement in a way not contemplated by the original terms of business and where the original terms of business allow the firm to amend its terms without the customer's consent, the firm must provide the client with amended terms of business in accordance with COB 4.2.13 R (Amendment of terms of business).

(3)

A pre-N2 firm must take reasonable steps to ensure that a private customer to whom it has provided terms of business (including a client agreement ) before commencement is notified in writing of the matters set out in COB 4.2.15E (2), (21) and (22) as soon as practicable after commencement.

3.3

TSP2

(1)

Firms should note that COB 4.2 also benefits from an ETP1 as set out in COB TP 1.1. The purpose of this is to allow firms additional time, after commencement , to amend their terms of business for new clients taken on after N2.

indefinitely

commencement

(2)

Where a pre-N2 firm has started, but has not concluded, negotiating terms of business with a client before commencement, it may rely on COB TP 1.1 even if the terms of business are not agreed until after commencement.

(3)

COB TP 1.3 does not require the firm to provide a client with amended terms of business where the change in the terms was contemplated in the original terms of business.

(4)

Further to Principle 7 (Communications with clients) of the FSA's Principles for Business, a firm should not refuse a customer's reasonable request for new terms of business to reflect the new regime applicable under the Act.

(5)

A pre-N2 firm will comply with COB TP 1.1 if the firm gives written notification to the private customer as part of the firm's next routine communication to the customer. In most circumstances, the FSA expects that a period of between three and six months from commencement should give sufficient time for a pre-N2 firm to notify a private customer under this rule. For example, a pre-N2-firm might notify under COB TP 1.1 much sooner than six months after commencement when it provides private customers with risk warnings in respect of warrants and derivatives or non-readily realisable investments (COB 5.4 Customers' understanding of risk).

(6)

A pre-N2 firm's only routine communication with a private customer might occur more that six months after commencement. For example, a long-term insurer providing customers with the annual statement might only communicate with some customers (particularly 'dormant' customers) annually or less frequently. In such limited circumstances, a period of up to six months might be too restrictive an interpretation of the requirement to take reasonable steps to notify private customers as soon as practicable after commencement. This is exceptional and a period of up to six months from commencement will be sufficient in most cases.

(7)

The FSA wishes to minimise any unnecessary repetition or duplication of notifications flowing from COB TP 1.1. A pre-N2 firm acting under COB TP 1.1 may reasonably fulfil its notification obligation to a private customer through the pre-N2 firm's agent or intermediary who services the private customer and is authorised by the FSA, or through the pre-N2 firm's appointed representative who services the private customer and for whom the pre-N2 firm is responsible as principal under section 39 of the Act (Exemption). But a pre-N2 firm will retain responsibility for fulfilling the notification requirement in COB TP 1.1.

(8)

COB TP 1.1 requires notification in writing. This may be done by using electronic media, subject to COB 1.8 (Application to electronic media). The requirement will not be discharged, however, simply by publishing a notice in a national or local newspaper.

3.4

TSP3

Know your customer and suitability

indefinitely (as regards (1) and (2))

commencement

(1)

Subject to (2), a pre-N2 firm will not contravene any of the provisions labelled TSP3 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it has continued to use, or rely upon, a record of a private customer's personal and financial circumstances made in accordance with the corresponding rules of its previous regulator, and in doing so has had regard to the guidance set out in COB 5.2.6 G.

(2)

The relief in (1) will apply only so long as there is no relevant change in the customer's personal and financial circumstances.

(3)

Paragraph (2) applies only for relevant changes of which a firm ought reasonably to be aware assuming compliance with COB 5.2.5 R (Requirement to know your customer)

indefinitely from 1 January 2003 (as regards (3))

3.5

TSP4

Suitability and customers' understanding of risk

A pre-N2 firm will not contravene any of the provisions labelled TSP4 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it uses, or relies upon, a suitability letter or, as the case may be, a risk warning or disclosure, given to a customer in accordance with the corresponding rule of its previous regulator, in relation to a transaction or series of transaction sexecuted or arranged before the expiry of the transitional period.

indefinitely

commencement

3.6

TSP4

Firms should note that the requirements in COB 5.2 and COB 5.3 relating to the production of suitability letters and risk warnings also benefit from an ETP1 provision.

indefinitely

commencement

3.7

TSP5

Scheme documents for an unregulated collective investment scheme

A pre-N2 firm that is an operator will not contravene any of the provisions labelled TSP5 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it has continued to use, or rely upon, a scheme document provided to a participant before the expiry of the transitional period, in accordance with the corresponding rule of its previous regulator.

indefinitely

commencement

3.8

TSP6

Notice and consents

(1)

A pre-N2 firm will not contravene any of the provisions labelled TSP6 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it has continued to use or rely upon a valid notice or consent which, before the expiry of the transitional period, was given to, given by or obtained from a client or counterparty in accordance with the corresponding rule of its previous regulator, or, where applicable, the relevant former statutory instrument.

indefinitely

commencement

(2)

A pre-N2 firm will not contravene any of the provisions labelled TSP in the Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, its auditors have provided its previous regulator with written confirmation of the type required by COB 9.3.42R (2)(a) in accordance with the corresponding rule of its previous regulator.

3.9

TSP7

Cancellation

The Financial Services (Cancellation) Rules 1994 and the Financial Services (Non-Life Cancellation) Rules 1997 continue to apply in respect of investment agreements, as defined in section 44(9) of the Financial Services Act 1986, entered into before commencement.

indefinitely

commencement

3.10

TSP7

COB 6.7 (Cancellation and withdrawal) applies in the case of an investment agreement entered into before commencement but which, on or after that date, is subsequently varied.

indefinitely

commencement

COB TP 1.3

COB TR 2: Rules benefiting from transitional relief (pre-N2 and ex-section 43 firms) G

This Table belongs to COB TP 1.2

COB Rule

Rule Heading

Label

ETP

TSP

Chapter 1 Applications and general provisions

1.3 General application: what?

1.3.1R

ETP9

Chapter 2 Rules which apply to all firms conducting designated investment business

2.2 Inducements and soft commission

2.2.8R

Requirements when using a soft commission agreement

ETP1

TSP2

2.2.12R

Allowable benefits provided under a soft commission agreement

ETP1

2.2.16R

Prior disclosure

ETP1

Chapter 3 Financial promotion (whole chapter)

ETP1

TSP7

3.6 Confirmation of compliance

3.6.1R

Confirmation of compliance

ETP1

TSP1

3.6.3R

Withdrawing confirmation

ETP1

TSP1

3.6.5R

Communicating a financial promotion where another firm has confirmed compliance

ETP1

TSP1

Chapter 4 Accepting customers

4.2 Terms of business and client agreements with customers (whole section)

ETP1

TSP2

Chapter 5 Advising and selling

5.2 Know your customer

5.2.5R

Requirement to know your customer

ETP1

TSP3

5.2.9R

Record keeping: personal and financial circumstances

ETP1

TSP3

5.2.10R

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

ETP1

TSP3

5.3 Suitability

TSP4

5.3.5R

Requirement for suitability generally

ETP1

5.3.14R

Requirement for a suitability letter: other specific requirements

ETP1

5.3.19R

Exceptions from requirement to provide a suitability letter

ETP1

5.3.20R

Suitability of broker funds

ETP1

5.3.21R

Suitability of pension transfers and opt-outs

ETP1

5.3.22R

ETP1

5.3.23R

ETP1

5.3.24R

ETP1

5.3.25R

ETP1

5.3.26R

ETP1

5.3.27R

ETP1

5.3.28R

Suitability of personal pension schemes: promotions to employees

ETP1

5.4 Customers' understanding of risk

TSP4

5.4.3R

Requirement for risk warnings

ETP1

TSP4

5.7 Disclosure of charges, remuneration and commission

5.7.3R

Disclosure of charges

ETP1

5.7.5R

Disclosure of commission (or equivalent) for packaged products

ETP1

5.7.9R

Exceptions to the disclosure for packaged products

ETP1

5.7.10R

ETP1

5.7.15R

ETP1

Chapter 6 Product disclosure and the customers' right to cancel or withdraw (whole chapter)

ETP1

TSP7

6.7 Cancellation and withdrawal (whole section)

ETP1

TSP6

6.9 With-profits guides (whole section)

Chapter 8 Reporting to customers

8.1 Confirmation of transactions

8.1.3R

Requirement to confirm a transaction

ETP1

8.1.6R

Exceptions to the requirement to despatch a confirmation

ETP1

8.1.7R

ETP1

8.1.8R

ETP1

8.1.11R

When a confirmation may omit certain information

ETP1

8.1.12R

When a transaction is treated as executed

ETP1

8.1.14R

Record keeping requirements

ETP1

8.2 Periodic statements

8.2.4R

Requirement for a periodic statement

ETP1

8.2.6R

Exceptions from the requirement to provide a periodic statement

ETP1

8.2.9R

Record keeping requirements

ETP1

Chapter 10 Operators of collective investment schemes

10.3 Modification of the allocation rule

10.3.1R

ETP1

10.4 Suitability of the portfolio of an unregulated collective investment scheme

10.4.3R

ETP1

10.6 Scheme documents for an unregulated collective investment scheme

10.6.2R

Provision of scheme documents to private customers

ETP1

TSP5

10.6.5R

TSP5

10.7 Periodic statements for an unregulated collective investment scheme (whole section)

ETP1

01/04/2005

COB TP2

Client classification transitional provisions at N2

COB TP 2.1

COB TR 3: Client Classification Provisions

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies: All rules in the Handbook

TRANSITIONAL PROVISION

Transitional provision: dates in force

Handbook provision: coming into force

1.0

Timeless (saving) provisions for the Handbook (including COB)

1.1

Rules in the Handbook unless the contrary intention appears

Client Classification
(1) This paragraph applies only to a pre-N2 firm and in relation to any person who became a client of the firm before commencement (in this rule referred to as an "existing client").
(2) If a firm before commencement classified an existing client , other than another firm or overseas financial services institution, as a market counterparty in accordance with the rules of its previous regulator, it will not contravene a rule in the Handbook by treating the client as a market counterparty, unless (3) applies.
(3) If the client in (2) has been classified as a market counterparty only in relation to a particular transaction or type of transaction, the firm must from commencement classify that client in accordance with COB 4.1.
(4) If a firm before commencement classified an existing client, other than another firm or overseas financial services institution, or a client within COB TR 1 1.6, as a non-private customer in accordance with the rules of its previous regulator, it will not contravene a rule in the Handbook by treating that client as an intermediate customer.
(5) The firm may, notwithstanding (4), classify the client in (4) as a market counterparty provided the firm complies with COB 4.1.12 R (2) (Large intermediate customer classified as a market counterparty).
(6) If a firm before commencement classified an existing client, other than another firm or overseas financial services institution, as a private customer in accordance with the rules of its previous regulator, it will not contravene a rule in the Handbook by treating that client as a private customer.
(7) The firm may, notwithstanding (6), classify the client in (6) as an intermediate customer provided the firm complies with COB 4.1.9 R (Expert private customer classified as an intermediate customer).
(8) If a firm before commencement classified an existing client, other than another firm or overseas financial services institution, as an ordinary business investor in accordance with the rules of its previous regulator , it will not contravene a rule in the Handbook by treating that client as an intermediate customer.

indefinitely

varies depending on the rule concerned

1.2

Rules in the Handbook unless the contrary intention appears

Firms should note that COB TP 2.1 does not require them to take positive steps to re-classify clients falling within the scope of the rule at N2 for the purposes of compliance with COB 4.1.4 R (Requirement to classify). COB TP 2.1 has the effect of automatically re-classifying these clients except as otherwise stated.

indefinitely

varies depending on the rule concerned

1.3

Rules in the Handbook unless the contrary indication appears

There are no transitional rule regarding classification by a firm ("F") of a client who is a firm or overseas financial services institution ("C1"). In such cases the effect of COB 4.1.7 R is that C1 will be a market counterparty of F, unless COB 4.1.7 R (2) apply. If C1 wishes to be classified as an intermediate customer for inter-professional business from commencement, the requirement for agreement under COB 4.1.7 R (2)(c) could, for example, be satisfied if:(a) C1 notifies F in writing that it wishes to be classified as an intermediate customer for that purpose and that F's agreement will be implied if F continues to do business with C1 after commencement; and(b) F has not notified C1 in writing that it does not agree to that classification.

indefinitely

varies depending on the rule concerned

1.4

Rules in the Handbook unless the contrary intention appears.

For the assistance of firms , the FSA has prepared a client classification mapping table, which explains the link between pre-N2 client categories and the client classification in COB . This is to be found in Annex E of the Policy Statement on Transitional Arrangements for the Conduct of Business Sourcebook issued in July 2001.

1.5

Rules in the Handbook unless the contrary intention appears.

If a firm treats a client as a private customer , or as an intermediate customer , or as a market counterparty in accordance with COB TP 1.1 or COB TP 1.1, it will not contravene a rule in the Handbook by doing so.

01/04/2005

COB TP3

Transitional Rules for ex-RPB firms

COB TP 3.1

1.0

Application

1.1

This section applies to firms who are ex-RPB firms.

2.0

Purpose

2.1

The FSA is aware that the introduction of COB will impose an additional compliance burden on firms, even where there is an underlying continuity of policy. The FSA wishes to lighten that burden in a manner consistent with its statutory objectives and the principles of good regulation under the Act. Transitional measures are being produced for parts of COB which take three distinct forms. First, firms are in practical terms being given additional time after the commencement day, until 30 November 2002, to complete their preparations for the impact of certain COB rules. Secondly, relief is being given in relation to certain rules that require firms to fulfil obligations to customers at periodic intervals, so as to postpone the impact of the COB provisions in relation to periods that span N2. Thirdly, firms are being given relief for an indefinite period after N2 for certain COB provisions so as to allow firms to continue to use, or rely upon, documentation or compliance work undertaken in accordance with rules of their previous regulator in relation to existing customers at N2.

2.2

If a firm's permitted regulated activities are subject to one or more of the transitional provisions in COB, and were carried on before commencement, those regulated activities should be interpreted , where appropriate , as if they were authorised investment business before commencement.

2.3

2.4

For the avoidance of doubt, TTP1 at COB TP 3.1 overrides paragraph 9 (Time starting before commencement ) of the technical timing provisions in GEN.

3.0

Continuity of contracts

3.1

The FSA is sometimes asked whether a firm should renegotiate contracts to replace references to its authorisation status under predecessor legislation with reference to its status under the Act. Clearly, whether a firm should renegotiate its contracts is a matter for the firm which needs to be considered in the light of the effect of the contractual provision as a whole. As a general rule , however , the FSA would not expect to see this done for regulatory reasons.

3.2

Clearly, the interpretation of contractual provisions is a matter for the courts. However, where a firm continues, as a result of the grandfathering process, to enjoy permission which provides it with authority under the Act to carry on regulated activities substantially similar to the investment business it could carry on under its authorisation under predecessor legislation, the FSA does not view it as necessary to update the contractual provisions.

4.0

Definitions

4.1

In these transitional provisions the following words are to have the meaning given to them below:

"corresponding rule" means a rule of the previous regulator of a firm that is substantially similar in purpose and effect to the relevant provision in COB.

"ex-RPB firm" means a firm which immediately before commencement was authorised under the Financial Services Act 1986 to carry on investment business in the United Kingdom by virtue of a certificate from a recognised professional body under section 16 of the 1986 Act.

COB TP 3.2

COB TR 4: COB Transitional Provisions (for ex-RPB firms)

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies: The COB provisions in Table COB TR 5 with the label indicated

Transitional provision

Transitional provision: dates in force

Handbook provision: coming into force

1.0

Extra time provisions

1.1

ETP1

Expired

1.2

ETPs 1 to 3 (inclusive)
TTP 1
TSPs 1 to 4 (inclusive)

It is for an ex-RPB firm to satisfy itself that it has complied with the corresponding rule of its previous regulator or, where applicable, relevant former statutory requirement. In order to benefit from the relief, a firm must ensure that the rule of its previous regulator which it proposes to comply with is substantially similar to the COB provision to which it relates. For the assistance of firms the FSA has compiled tables of derivations indicating the rules of a firm's previous regulator that correspond to the COB provisions being transitioned. Firms may wish to refer to these tables but in doing so should understand that they are not intended as exhaustive and are produced merely by way of a guide. Firms are advised that should they wish to take advantage of the transitional measures set out in this section, the onus is on them to be able to demonstrate that in any given case they have in fact complied with the corresponding rules of their previous regulators or, as the case may be, former statutory requirement.

commencement to 30 November 2002 (for ETPs and TTPs)Indefinitely (for TSPs)

commencement

1.3

ETPs 1 to 3( inclusive)
TTP 1
TSPs 1 to 4 (inclusive)

Firms will have noted from the wording of COB TP 1.1 that they should treat the corresponding rules of their previous regulator as modified to the extent necessary to ensure that the provision can operate effectively notwithstanding the enactment of the Act. Firms will need to adopt a common sense approach in interpreting the corresponding rules of their previous regulator and should modify them accordingly. For example, references in such rules to a firm's previous regulator should be read as if they referred to the FSA. Other modifications may not be as straightforward. In cases of difficulty, firms are encouraged to approach the FSA for its views.

commencement to 30 November 2002 (for ETPs and TTPs)Indefinitely (for TSPs)

commencement

1.4

ETP2

Expired

1.5

ETP2

Expired

1.6

ETP3

Expired

1.7

ETP3

Expired

2.0

Technical timing provisions

2.1

TTP1

Expired

2.2

TTP1

Expired

3.0

Timeless (saving) provisions

3.1

TSP1

Confirmation of compliance and approval An ex-RPB firm will not contravene any of the provisions labelled TSP1 in COB TP 3.1 to the extent that it is able to demonstrate that, on or after commencement, it has carried out the confirmation exercise referred to in COB 3.6.2 G (2), for an investment advertisement issued or approved before commencement, in accordance with the corresponding ruleof its previous regulator.

Indefinitely

commencement

3.2

TSP2

Terms of business and customer agreements

Indefinitely

commencement

(1) Subject to (2) and (3), an ex-RPB firm will not contravene any of the provisions in COB TP 3.1 labelled TSP2 to the extent that, on or after commencement , it is able to demonstrate that it has continued to use, or rely upon, terms of business (including a client agreement) given to, or made with, a client in accordance with the corresponding rule of its previous regulator.

(2) If the basis on which an ex-RPB firm conducts or proposes to conduct its designated investment business for a client changes after the commencement day, it must provide the client with amended terms of business in accordance with COB 4.2.13 R .

(3) An ex-RPB firm must take reasonable steps to ensure that a private customer to whom it has provided terms of business (including a client agreement) before commencement is notified in writing of the matters set out in COB 4.2.15E (21) and (22) as soon as practicable after commencement.

3.3

TSP2

(1) Firms should note that COB 4.2 also benefits from an ETP1 extra-time provision as set out in COB TR 3.1R. The purpose of this is to allow firms additional time, after commencement , to amend their terms of business for new clients taken on after N2.

Indefinitely

commencement

(2) Where an ex-RPB firm has started, but not concluded, negotiating terms of business with a client before commencement , it may rely on COB TR 3.2(1) R even if the terms of business are not agreed until after commencement.

(3) COB TR 3.2(2)R does not require the firm to provide a client with amended terms of business where the change in the terms was contemplated in the original terms of business.

3.4

TSP3

Know your customer and suitability

Indefinitely

commencement

(1) Subject to (2), an ex-RPB firm will not contravene any of the provisions labelled TSP3 in COB TP 1.3to the extent that it is able to demonstrate that, on or after commencement, it has continued to use, or rely upon, a record of a private customer's personal and financial circumstances made in accordance with the corresponding rules of its previous regulator, and in doing so has had regard to the guidance set out in COB 5.2.6 G.

(2) The relief in (1) will only apply so long as there is no relevant change in the customer 's personal and financial circumstances.

3.5

TSP4

Suitability and customers' understanding of risk An ex-RPB firm will not contravene any of the provisions labelled TSP4 in COB TP 1.3 to the extent that, on or after commencement , it uses, or relies upon, a suitability letter or, as the case may be, a risk warning or disclosure, given to a customer in accordance with the corresponding rule of its previous regulator, in relation to a transaction or series of transactions executed or arranged prior to commencement.

Indefinitely

commencement

3.6

TSP4

Firms should note that the requirements in COB 5.2 and COB 5.3 relating to the production of suitability letters and risk warning also benefit from an ETP1 provision.

Indefinitely

commencement

COB TP 3.3

COB TR 5: COB rules benefiting from transitional relief for ex-RPB firms

This Table belongs to COB TR 4

COB Rule

Rule Heading

Assignation

ETP

TTP

TSP

CHAPTER 3 FINANCIAL PROMOTION (whole chapter)

ETP1
ETP2

3.6 Confirmation of compliance and approval

3.6.1R

Confirmation of compliance

ETP1

TSP1

3.6.2R

Withdrawing confirmation

ETP1

TSP1

3.6.5R

Communicating a financial promotion where another firm has confirmed compliance

ETP1

TSP1

CHAPTER 4 ACCEPTING CUSTOMERS

4.2 Terms of business and customer agreements

ETP1

TSP2

CHAPTER 5 ADVISING AND SELLING

5.2 Know your customer

ETP1

TSP3

5.3 Suitability

ETP1

TSP4

5.4 Customers' understanding of risk

5.4.3R

Requirement for risk warnings

ETP1

TSP4

5.5 Information about the firm

ETP3

CHAPTER 8 REPORTING TO CUSTOMERS

8.1 Confirmation of transactions

8.1.3R

Requirement to confirm a transaction

ETP1

8.1.6R

Exceptions to the requirements to dispatch a confirmation

ETP1

8.1.7R

ETP1

8.1.8R

ETP1

8.1.11R

When a confirmation may omit certain information

ETP1

8.1.12R

When a transaction is treated as arranged

ETP1

8.1.14R

Record keeping requirements

ETP1

8.2 Periodic statements

8.2.4R

Requirement for a periodic statement

ETP1

TTP1

8.2.9R

Record keeping requirements

ETP1

TTP1

CHAPTER 9 CLIENT ASSETS

9.1 Custody (whole chapter)

ETP1

9.1.35 (3)-(5)R

TSP4

9.1.40R

TSP4

9.1.49R

Client agreement

TSP2

9.1.51R

TSP2

9.1.54R

Risk disclosures

TSP4

9.1.57R

TSP4

9.1.58R

TSP4

9.1.69R

Custodian agreement

TSP2

9.1.74R

Stock lending

TSP2

01/04/2005

COB TP 4

Miscellaneous transitional provisions applying to all firms

COB TP 4.4

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional provision

Transitional provision: dates in force

Handbook provision: coming into force

COB 6.5.40 R (3)(k) and (l)

Expired

COB 6.5.18 and COB 6.6

Expired

From 1 November 2002 to 5 April 2003

1 November 2002

COB 6.8.26and COB 6.8.28

Expired

COB 3.8.4 R (3), 3.9.7R (1), COB 3.13.4 R

Expired

COB 4.2.15E (2), 4.3.15E (22), COB 5.5.3 R, COB 5.5.5 E, COB 5.5.9 R - COB 5.5.12 R

R, E, G

A firm is not required to comply with the amendments to the rules in column (2) made by the Statutory Status Disclosure Instrument 2003 until 1 October 2004; to the extent that a firm continues to rely upon terms of business (including a client agreement) given to or made with a client before 1 October 2004, the firm does not need to comply with the amendments to COB 4.2.15 E made by that Instrument until the firm's terms of business is next updated.

From 1 March 2003

1 March 2003

COB 8.1.15 E (2), COB 10.6.8 E (1)

The amendments to COB 8.1.15E(2) and COB 10.6.8E(1) and (8) made by the Statutory Status Disclosure Instrument 2003 do not apply to a firm:
(1) in relation to a confirmation of a transaction under COB 8.1 (Confirmation of transactions); and
(2) in relation to the scheme documents referred to in COB 10.6 (Scheme documents for an unregulated collective investment scheme);
until, as appropriate, the firm's system for producing confirmations or the scheme documents are next updated by the firm.

From 1 March 2003

1 March 2003

COB 4.2.5 R

ATS terms of business
A service company, or a firm that is undertaking oil market activity or other energy market activity, that operates an ATS as at the day on which COB 4.2.17 E comes into force is not required to provide terms of business to a customer who has commenced using the ATS before that day.

Indefinitely

1 January 2004

COB 4.2.5 R and COB 4.2.10 R

A firm need not, by reason of COB 4.2.17 E , amend, or give notice of an amendment to, its terms of business to include provision about the additional matters in COB 4.2.17 E in respect of a customer to whom it has provided terms of business before the day on which COB 4.2.17 E comes into force.

Indefinitely

1 January 2004

Rules in the Handbook

Classification of CISs. If a firm at any time before 1 September 2003 classified a collective investment scheme in accordance with COB 4.1 (Client classification) as in force at that time, it will not contravene any of the rules in the Handbook by treating the scheme in accordance with that classification.

From 1 September 2003

Various

COB 7.1.14 R

UCITS management company COB 7.1.14 R does not take effect in relation to any discretionary management undertaken in accordance with a client agreement entered into before 12 February 2004.

From 13 February 2004 to 12 February 2007

13 February 2004

COB 5.4.4 E (6)

Expired

COB 3.9.31 R (3)

Expired

COB 6.2.26 R

Simplified prospectus requirements for section 264 schemes
A firm may comply with COB 6.2.22 R (Schemes) instead of COB 6.2.26 (Requirement to offer a simplified prospectus for section 264 schemes), if the EEA State in which the recognised scheme is established has not implemented the obligations of the UCITS Directive in relation to the simplified prospectus, until the earlier of:
(1) the date that the relevant obligations of the UCITS Directive have been implemented in that EEA State; and
(2) 30 September 2004 or, if later, the date when the relevant provisions of the UCITS Directive have been implemented in the UK.

From 1 April 2004 until 30 September 2004, or, if later, the date when the relevant provisions of the UCITS Directive have been implemented in the UK

1 April 2004

COB 6.11.9

Annual report to with-profits policyholders
A firm must produce its first report to with-profits policyholders under COB 6.11.9 in respect of the part of its financial year that follows the date on which PRU 7.4 (With-profits Insurance Capital Component) comes into force.

From 30 April 2004

30 April 2004

01/04/2005

COB TP5

Distance Marketing Directive transitional rules (applicable to all firms)

COB TP 5.1

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional provision

Transitional provision: dates in force

Handbook provision: coming into force

Delayed amendment of COB for non-distance contracts

COB

The amendments to COB made by the Distance Marketing Directive Instrument 2004 on 9 October 2004 do not apply in relation to business which does not involve the conclusion of a distance contract with a retail customer, provided that the firm complies with the requirements of COB in force immediately before 9 October 2004, taking account of any amendments which come into force after that date.

From 9 October 2004 for 12 months

Already in force

Exception for provision of key features to EEA customers

COB 6.2.21R(1)(a) and COB 6.2.24 (1)

(1)

There is no requirement for key features to be provided for a new life policy, variation to a life policy or in respect of a scheme if, at the time he signs the application, the customer:

From 9 October 2004, indefinitely

Already in force

(a)

(in the case of a life policy) is habitually resident in an EEA State other than the United Kingdom; or

(b)

(in the case of a scheme) is not present in the United Kingdom;

provided that the conditions in (2) are satisfied.

(2)

The conditions referred to in (1) are that:

(a)

the EEA State in which the private customer is (as applicable) habitually resident or present imposes requirements on the communication of precontract information (beyond the minimum required by Community legislation) when doing the designated investment business concerned from an establishment in the United Kingdom; and

(b)

the firm complies with COB 6.4.25, in respect of the packaged product, as if references to "accepting deposits" and "deposits" were references to "designated investment business" and "packaged products" respectively.

Non-investment insurance contracts: compliance with DMD Regulations or ICOB

When an insurer effects or carries out, or a firm manages the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's in relation to, a non-investment insurance contract which is a distance contract, then either:

From 9 October 2004 until 14 January 2005

(1)

the Distance Marketing Regulations apply as if the insurer or firm was an unauthorised person; or

(2)

(if the insurer has elected) the rules in ICOB which implement the DMD apply.

An election under (2) is irrevocable and applies in relation to all such contracts. The insurer must make a record of the election and retain it for 6 years from 14 January 2005.
In this transitional provision:
"ICOB" means the Insurance: Conduct of Business sourcebook; and
"non-investment insurance contract" means a contract of insurance which is a general insurance contract or a pure protection contract but which is not a long-term care insurance contract.

Delayed amendment of the Handbook for distance contracts

Handbook

(1)

The amendments to the Handbook made by the Distance Marketing Directive Instrument 2004 and the Distance Marketing (Amendment) Instrument 2004 do not apply to a firm unless it has elected to comply with them.

From 9 October 2004 until 31 October 2004

Already in force

(2)

An election under (1) is irrevocable. The firm must make a record of the election and retain it for 6 years from 31 October 2004.

01/04/2005

COB TP6

Transitional rules for depolarisation (applicable to all firms)

COB TP 6.1

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional provision

Transitional provision: dates in force

Handbook provision: coming into force

COB

From 1 December 2004 to 31 May 2005, a firm may, subject to TR 7.6, comply with COB as if it were not amended by the Depolarisation Instrument 2004, unless the firm is a product provider in which case it must comply with , as it applies to a product provider, from 1 December 2004

From 1 December 2004 to 31 May 2005

1 December 2004

COB rules amended by the Depolarisation Instrument 2004

(1)

Subject to COB TP 6.1 and COB TP 6.1, the Depolarisation Instrument 2004 may apply to a firm as follows.

From 1 December 2004 to 31 May 2005

1 December 2004

(2)

A firm may elect at any time from 1 December 2004 to 31 May 2005, to comply with COB as amended by the Depolarisation Instrument 2004.

(3)

A firm must notify the FSA in writing of an election in (2) and of the date prior to 31 May 2005 from which it will commence compliance with COB as amended by the Depolarisation Instrument 2004.

(4)

A firm may make different elections in (2) for each appointed representative that acts on its behalf but can only make a single election in respect of each single appointed representative.

COB rules amended by the Depolarisation Instrument 2004

A firm must, in relation to any private customer to whom it has begun to provide services in respect of a packaged product before 14 January 2005 or, if applicable, the date of an election in COB TP 6.1, complete the provision of that service in accordance with COB as it applied before amendment by the Depolarisation Instrument 2004.

From 1 December 2004

1 December 2004

COB 4 Annex 2 and COB 5.5.5 E

A firm may continue to rely upon compliance with COB 4 Annex 2 and COB 5.5.5 E (including to the extent that a firm issues a financial promotion that complies with COB 4 Annex 2) provided:

From 1 December 2004 until 30 November 2005

1 December 2004

(1)

the information given to a private customer is not contradicted by any information given to the customer by way of an initial disclosure document or a fees and commission statement and;

(2)

any financial promotion complies with COB 3.8.19 R as amended by the Depolarisation Instrument.

COB 2.2.6 G

The FSA will not regard a firm as being in contravention of COB 2.2.3 Rif it gives or receives assistance in conducting the review of past business in pension transfers and opt outs provided the provision or receipt of such a benefit does not conflict with any duty the recipient owes to its customers.

From 1 December 2004 to 31 May 2006

1 December 2004

COB as amended by the Depolarisation Instrument 2004

Notwithstanding COB TP 6.1 and COB TP 6.1, a firm which does not elect under COB TP 6.1 to comply with COB as amended by the Depolarisation Instrument 2004 must, from 14 January 2005, comply with:

14 January 2005 until 31 May 2005

14 January 2005

(1)

COB 1.2.1 R, COB 1.4.12 R and COB 4.3.19 R to COB 4.3.26 R, as amended by the Depolarisation Instrument 2004;

(2)

COB 4.3.19 R to COB 4.3.25 R as amended by the Depolarisation Instrument 2004 but as if they applied to a firm carrying out the activities in COB 4.3.19R (1)(a) with or on behalf of private customers;

(3)

COB 5.2.12 R to COB 5.2.14 R as amended by the Depolarisation Instrument 2004; and

(4)

COB 5.3.14 R (1) and COB 5.3.18A R to COB 5.3.18C R, as amended by the Depolarisation Instrument 2004;

unless the firm is an insurer, in which case it does not need to comply with the provisions specified in (2), (3) and (4).

The effect of COB TP 6.1 is that from 14 January 2005, if a firm has not elected to comply with the new COB provisions, the firm is in any event required to comply with the requirements of the IMD as set out in the provisions referred to in COB TP 6.1.
As regards the information requirements of the IMD, firms have the choice (by virtue of COB 4.3.23 G) of providing the minimum information set out in COB 4.3.19 R or using an initial disclosure document.

01/04/2005

COB TP7

Transitional rules for carrying on with-profits business

COB TP 7.1

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional provision

Transitional provision: dates in force

Handbook provision: coming into force

COB 6.10.24A G; COB 6.10.29; COB 6.10.37; COB 6.12.1 R to COB 6.12.15; and COB 6.12.45 R to COB 6.12.116 G

The provisions listed in column (2) do not apply to a firm if, and to the extent that, they are inconsistent with an arrangement that was formally approved by the FSA, a previous regulator or a court of competent jurisdiction, on or before 20 January 2005.

From 30 June 2005

30 June 2005

COB 6.12.16 G to COB 6.12.44 G

The provisions listed in column (2) of this table do not apply to a firm if, and to the extent that, they are inconsistent with an arrangement that was formally approved by the FSA, a previous regulator or a court of competent jurisdiction, on or before 20 January 2005.

From 31 December 2005

31 December 2005

Paragraphs 1 and 2

COB 6.12 may be contrary to, or inconsistent with, some arrangements that were formally approved by the FSA, a previous regulator or a court of competent jurisdiction, on or before 20 January 2005. The effect of COB TP 7.1 is that COB 6.12 does not apply to such arrangements if, and to the extent that, it is inconsistent them. A firm should be mindful, however, that, even if some or all of COB 6.12 is disapplied, the firm is still subject to the rules in the rest of the Handbook, including Principle 6.

From 30 June 2005

01/04/2005

COB Sch 1

Record keeping requirements

01/12/2004

COB Sch 1.1

The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements.

31/10/2004

COB Sch 1.2

It is not a complete statement of those requirements and should not be relied on as if it were.

31/10/2004

COB Sch 1.3

Handbook reference

Subject of record

Contents of record

When record must be made

Retention period

COB 2.2.20 R (1)

Periodic reports

Details of soft commission agreements

Date of periodic statement

3 years (from termination of relevant soft commission agreement)

COB 2.2.20 R (2)

Disclosable commission

Each payment

Date of payment

6 years

COB 2.2.20 R (3)

Indirect benefits given to an independent intermediary

Each benefit

Date from which benefit was conferred

6 years

COB 3.7.1 R

Non-real time financial promotion - each: Pension transfer Pension opt-out FSAVC

Name of individual who confirmed compliance or approved the financial promotion. See COB 3.7.2 G (1) for other contents

Date of confirmation or approval

Indefinitely

COB 3.7.1 R

Non-real time financial promotion - each: Life policy Pension contract Stakeholder pension scheme

Name of individual who confirmed compliance or approved the financial promotion. See COB 3.7.2 G (1) for other contents

Date of confirmation or approval

6 years

COB 3.7.1 R

Non-real time financial promotion - any other case

Name of individual who confirmed compliance or approved the financial promotion. See COB 3.7.2 G (1) for other contents

Date of confirmation or approval

3 years

COB 4.1.16 R

Classification of each client - if relevant to: Pension transfers Pension opt-outs FSAVCs

Sufficient information to support classification

When the client relationship begins or upon re-classification , to include annual review where necessary

Indefinitely

COB 4.1.16 R

Classification of each client - if relevant to: Life policies Pension contracts

Sufficient information to support classification

When the client relationship begins or upon re-classification , to include annual review where necessary

6 years (from end of client relationship)

COB 4.1.16 R

Classification of each client - any other case

Sufficient information to support classification

When the client relationship begins or upon re-classification , to include annual review where necessary

3 years (from end of client relationship)

COB 4.2.14 R

Terms of business for: Pension transfer Pension opt-out FSAVC

Each term of business provided and any amendments

As soon as in force

Indefinitely

COB 4.2.14 R

Terms of business for: Life policy Pension contract Stakeholder pension scheme

Each term of business provided and any amendments

As soon as in force

6 years (from the date on which the customer ceases to be a customer)

COB 4.2.14 R

Terms of business: any other case

Each term of business provided and any amendments

As soon as in force

3 years (from the date on which the customer ceases to be a customer)

COB 4.3.11 R

Fees and commission statement

At the time a firm sets its fees and commission statements

6 years from the date on which the record is superseded by a more up-to-date record

[deleted]

COB 5.1.6C R

The scope and range (or ranges) of advice each of the firm's appointed representatives is permitted to give

The scope of advice and range (or ranges) of packaged products in respect of which an appointed representative is permitted to advise.

At the time the appointed representative is appointed and on each change to the permitted scope and range (or ranges) of advice

6 years from the date on which the record is superseded by a more up-to-date record

COB 5.1.6E R

The scope of the advice on investments a firm provides and its range of packaged products

At the time the record changes

6 years from the date on which the record is superseded by a more up-to-date record

COB 5.1.6F R

Range of packaged products

When the range changes

6 years from the date on which the record is superseded by a more up-to-date record

COB 5.2.9 R

Private customer's details for a pension transfer, pension opt-out, FSAVC

Personal and financial circumstances

On giving advice

Indefinitely

COB 5.2.9 R

Private customer's details for a life policy, pension contract or stakeholder pension scheme

Personal and financial circumstances

On giving advice

6 years

COB 5.2.9 R

Private customers details for any other case

Personal and financial circumstances

On giving advice

3 years

COB 5.2.10 R

Private customer: Opt out or transfer from an OPS on an execution only basis

Execution only transaction, no investment advice given

Upon execution

Indefinitely

COB 5.3.19A R

Private customer: Suitability relating to a pension opt-out or transfer, or FSAVC

Suitability letter

After letter sent

Indefinitely

COB 5.3.19A R

Private customer:
Suitability relating to a life policy, pension contract, or stakeholder pension scheme

Suitability letter

After letter sent

6 years

COB 5.3.19A R

Private customer:Suitability relating to any other case

Suitability letter

After letter sent

3 years

COB 5.3.25 R

Private customer instructs a pension opt-out or transfer contrary to advice of firm

Firm's advice to customer and customer instructions to firm to proceed

Upon execution

Indefinitely

COB 5.3.26 R (2)

Statistics of pension opt-out or pension transfer transactions

Details of the notification required by COB 5.3.26 R (1) and COB 5.3.26 R (1A)

On making the notification

Indefinitely

COB 5.3.27 R

Statistics of pension opt-out, pension transfer or FSAVC transactions involving private customers

Separate records per customer

On arranging the transaction

Indefinitely

COB 5.3.28 R

Direct offer personal pension scheme

Record of justification for promotion

On making the promotion

6 years

COB 5A.3.4 R

The scope of basic advice which a firm's appointed representative is permitted to give (including the range of stakeholder products on which each appointed representative advises.)

The scope of basic advice each appointed representative is permitted to advise

At the time an appointed representative is permitted to provide basic advice.

6 years from the date on which the record is superseded by a more up-to-date record

COB 5A.3.6R (1)

A firm's scope and range of stakeholder products

When a firm commences providing basic advice

6 years from the date on which the record is superseded by a more up-to-date record

COB 5A.3.6R (4)

The range of stakeholder products on which a firm's basic advice to a private customer is based

When a firm commences providing basic advice

6 years from the date on which the advice is given

COB 6.5.52

Non-tradable life policy

Sufficient information to support classification that own policies are not tradable

Upon assessment of the firm's position and every 6 months thereafter

Indefinitely

COB 6.6.19

Projections relating to a life policy, pension contract or stakeholder pension scheme

A projection provided to a customer

As soon as proposal proceeds

6 years

COB 6.6.19

Projections relating to a pension transfer or pension opt-out

A projection provided to a customer

As soon as proposal proceeds

Indefinitely

COB 6.6.19

Projections relating to any other case

A projection provided to a customer

As soon as proposal proceeds

3 years

COB 6.7.47

Cancellation or withdrawal:
Pension transfer, opt-out or FSAVC

To include a copy of any receipt of notice issued to the customer and the customer's original notice instructions

Upon notice of cancellation or withdrawal being served to firm, its appointed representative or agent

Indefinitely

COB 6.7.47

Cancellation or withdrawal:
Life policy, pension contract or stakeholder pension scheme

To include a copy of any receipt of notice issued to the customer and the customer's original notice instructions

Upon notice of cancellation or withdrawal being served to firm, its appointed representative or agent

6 years (from the date when the firm became aware that notice of cancellation had been served)

COB 6.7.47

Cancellation or withdrawal:
Any other case

To include a copy of any receipt of notice issued to the customer and the customer's original notice instructions

Upon notice of cancellation or withdrawal being served to firm, its appointed representative or agent

3 years (from the date when the firm became aware that notice of cancellation had been served)

COB 6.8.18 (1)

Firm effecting or carrying out pure protection contracts
which are life policies

Adequate details of information provided

After information provided

6 years

COB 7.7.6 E (4)

Allocation of aggregated transactions in a series of transactions all executed within one business day

The time each transaction is made

On executing an aggregated transaction

COB 7.7.14 R (1)

An aggregated transaction that includes a customer order

Identity of each customer; whether transaction is in whole or in part for discretionary managed investment portfolio and any relevant proportions

On executing an aggregated transaction

3 years

COB 7.7.14 R (2)

Firm aggregating a number of client orders that include a customer order

Intended basis of allocation

As soon as is practicable

3 years

COB 7.7.14 R (3)

Aggregation of one or more customer orders and an own account order

Intended basis of allocation

Before the transaction is executed

3 years

COB 7.7.16 R

Allocation of an aggregated transaction that includes the execution of a customer order

Date and time of allocation; relevant designated investment; identity of each customer and market counterparty and the amount allocated to each customer and market counterparty; agreement to extend allocation period for intermediate customers under COB 7.7.6 E (2)(b)

Date on which the order is allocated

3 years

COB 7.7.17 R

Re-allocation

Basis and reason for any re-allocation

At the time of the re-allocation

3 years

COB 7.9.7 R

Lending to private customers

Assessment of a private customer's financial standing and the date when the information was last updated/checked

Upon assessment

3 years (from the date on which the credit arrangement ceased)

COB 7.12.3 R and COB 7.12.6 E

Customer orders

Customer's name (or other designation)/account number; date and time of receipt or decision by the firm to deal; who received the order or made the decision to deal; the designated investment; the number of/total value of the designated investment including any price limit; whether sale or purchase; any other instructions received.

When the order arises

3 years (after the date of completion of the transaction)

COB 7.12.3 R and COB 7.12.6 E

Execution of a transaction by a firm

Name/other designation of client (if any); name of counterparty (if known); date and time of execution; who executed the transaction; the designated investment; number of/total value of the designated investment; price and other significant terms; whether sale or purchase

When the firm executes a transaction

3 years (after the date of completion of the transaction)

COB 7.12.3 R and COB 7.12.6 E

The firm instructs another person to deal

Name of the person instructed; terms of instruction and date and time of instruction

When the firm instructs another person to deal

3 years (after the date of completion of the transaction)

COB 7.13.11 R (1)(a)

Personal account dealing

The restrictions upon pa dealing and the basis upon which any permission to deal is made

Whenever the restrictions are placed and from the date of consent

3 years (from the date that the restrictions or basis were communicated to the employee)

COB 7.13.11 R (1)(b)

Personal account dealing

Each permission to deal given by the firm

From the date of consent

3 years (from the date that the permission was given)

COB 7.13.11 R (1)(c)

Personal account dealing

Each notification of the transaction made by the employee to the firm

From the date of notification

3 years (from the date that the notification was made)

COB 7.13.11 R (1)(d)

Personal account dealing

The basis upon which the firm has determined that an employee will not be involved in, or have access to information about, the firm's designated investment business

On determining the basis

3 years (from the date on which the individual ceases to be an employee)

COB 7.16.5 R (2)(b)

Policy for managing conflicts of interest arising as a result of publication or distribution of investment research

Details of the policy

When adopted

Until three years after the policy ceases to have effect

Information provided

On dispatch of confirmation

3 years

COB 8.2.9 R

Periodic statements

Copy of any periodic statement

On date on which it is provided

3 years

COB 8A.5.1 R

Claim under a long-term care insurance contract

Details of the claim; a record of each communication with the policyholder, including the date it was made; the date the claim was settled or rejected.

As soon as practicable

The duration of the claim and 6 years after the insurer's obligations to the policyholder under the long-term care insurance contract have ceased

[deleted]

COB 10.3.3 E (3)

Allocation of aggregated transactions in a series of transactions all executed within one business day

The time each transaction is made

On executing an aggregated transaction

COB 10.3.5 R (1)

Aggregated transaction on behalf of a number of schemes

Identity of schemes concerned, whether transaction was effected proportionally or if a stated proportion was effected for some schemes under its management

On executing an aggregated transaction

COB 10.3.5 R (2)

Aggregated customer orders on behalf of a number of schemes

The intended basis of allocation

As soon as is practicable

COB 10.3.5 R (3)

Aggregated orders of schemes under its management and own account orders

The intended basis of allocation

Before the transaction is executed

COB 10.7.6 R

Periodic statements in relation to unregulated collective investment scheme

Operator to retain copy of any periodic statement it has provided to participants in the scheme

On providing the periodic statement

3 years

COB 11.7.1 R

PTP appointment

Details of the written delegation to a PTP, PTP's undertaking under COB 11.6.1 R (3) and of any variation in the documentation

On the PTP's appointment

3 years (from date of end of the PTP's appointment)

COB 11.8.7 R

Trustee firm following (or rejecting) proper advice in relation to exercise of power of investment

Evidence of compliance with COB 11.8.5 R

Date on which proper advice is received

3 years

06/04/2005

COB Sch 2

Notification requirements

01/12/2004

COB Sch 2.1

Handbook reference

Matter to be notified

Contents of notification

Trigger event

Time allowed

COB 5.3.26 R

pension opt-out and pension transfer transactions

in writing - number of pension opt-outs and pension transfer transactions the firm has arranged in previous 6 monthly period

6-month intervals

as soon as reasonably practicable

COB 5.3.26 R

execution only pension opt-out and pension transfer transactions

in writing - number of transactions arranged if they exceed 1% of all the firm's pension opt-outs or pension transfers arranged during that quarter

3-month intervals

as soon as reasonably practicable

COB 5.3.26 R

pension opt-out and pension transfer transactions

in writing - number of transactions arranged against the firm's advice if they exceed 1% of all the firm's pension opt-outs or pension transfers arranged during that quarter

3-month intervals

as soon as reasonably practicable

COB 5.3.26 R

pension opt-outs and pension transfer transactions

in writing - the number of any transactions arranged on a correspondence - only basis by the firm during that quarter

3-month intervals

as soon as reasonably practicable

COB 5.7.16 E, paragraph 9

failure to follow actuarial advice

reasons for not following actuarial advice and alternative assumptions the firm plans to use

where a firm does not follow its actuary's advice

as soon as reasonably practicable

[deleted]

COB 11.6.6 R

delegation of regulated activity by a trustee firm to a PTP

the trustee firm must notify the FSA within 14 days of it first delegating any regulated activity to a PTP and the notification must include the identity of the PTP

upon first delegation of regulated activity

14 days

01/01/2004

COB Sch 3

Fees and other required payments

01/12/2004

COB Sch 3.1

There are no requirements for fees or other payments in COB.

01/12/2004

COB Sch 4

Powers Exercised

01/12/2004

COB Sch 4.1

The following powers and related provisions in or under the Act have been exercised by the FSA to make the rules in COB:

Section 118(8) (Market abuse)

Section 138 (General rule-making power)

Section 139 (4) (Miscellaneous ancillary matters)

Section 145 (Financial promotion rules)

Section 147 (Control of information rules)

Section 149 (Evidential provisions)

Section 156 (General supplementary powers)

Section 238(5) (Restrictions on promotion)

Section 247 (Trust scheme rules)

Regulation 6(1) of The Open-Ended Investment Companies Regulations 2001

The following powers in the Act have been exercised by the FSA to give the guidance in COB:

Section 157(1) (Guidance)

14/01/2005

COB Sch 5

Rights of actions for damages

01/12/2004

COB Sch 5.1

The table below sets out the rules in COB contravention of which by an authorised person may be actionable under section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention.

19/01/2003

COB Sch 5.2

If a "Yes" appears in the column headed "For private person?", the rule may be actionable by a "private person" under section 150 (or, in certain circumstances, his fiduciary or representative; see article 6(2) and (3)(c) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (SI 2001/2256)). A "Yes" in the column headed "Removed" indicates that the FSA has removed the right of action under section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given.

19/01/2003

COB Sch 5.3

The column headed "For other person?" indicates whether the rule may be actionable by a person other than a private person (or his fiduciary or representative) under article 6(2) and (3) of those Regulations. If so, an indication of the type of person by whom the rule may be actionable is given.

19/01/2003

COB Sch 5.4

Right of action under section 150

Chapter/Appendix

Section/Annex

Paragraph

For private person?

Removed?

For other person?

All rules in COB with the status letter "E"

Any rule in COB which prohibits an authorised person from seeking to make provision excluding or restricting any duty or liability

Yes

Any other person

Any rule in COB which is directed at ensuring that transactions in designated investments are not effected with the benefit of unpublished information that, if made public, would be likely to affect the price of that designated investment

Yes

Any other person

All other rules in COB

Yes

14/01/2005

COB Sch 6

Rules that can be waived

01/12/2004

COB Sch 6.1

The rules in COB can be waived by the FSA under sections 148 or 250 of the Act (Modification or waiver of rules) or regulation 7 of the OEIC Regulations (Modification or waiver of FSA rules), except for the following rules:

(a)

the rules in COB 1 (Application and general provisions) to the extent that those rules apply or modify other rules in COB which may not be waived;

(b)

the rules in COB 2.3 (Reliance on others) to the extent that those rules apply or modify other rules in which may not be waived;

(c)

COB 2.4.4 R (1), COB 2.4.4 R (3) (to the extent that it relates to COB 2.4.4 R (1)) and COB 2.4.4 R (4);

(d)

COB 3.11.2 R (Unregulated Collective Investment Schemes);

(e)

[deleted];

(f)

[deleted];

(g)

the rules in COB 10 (Operators of collective investment schemes) to the extent that those rules apply or modify other rules in COB which may not be waived;

(h)

the rules in COB 11 (Trustee and depositary activities) to the extent that those rules apply or modify other rules in COB which may not be waived;

(i)

the rules in COB 12 (Lloyd's) to the extent that those rules apply or modify other rules in COB which may not be waived.

01/09/2002