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COB 3.2 Application: what?

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

COB 3.2.1 G
  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:3

    1. (a)

      "communicate" is in AUTH App 1.6 (Communicate);3

    2. (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. (2)

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

Media of communication

COB 3.2.2 G
  1. (1)

    There is no restriction on the media of communication to which this chapter applies. It applies to a financial promotioncommunicated 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. (2)

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

    1. (a)

      product brochures;

    2. (b)

      general advertising in magazines, newspapers, radio and television programmes and websites;

    3. (c)

      mailshots (whether distributed by post, facsimile, e-mail or other media);

    4. (d)

      telemarketing activities, such as telephone calls made by call centres;

    5. (e)

      written correspondence, telephone calls and face to face discussions including by representatives;12

    6. (f)

      sales aids which themselves constitute a financial promotion;

    7. (g)

      presentations to groups of individuals;

    8. (h)

      tip-sheets; and

    9. (i)

      other publications, which may contain non-personal recommendations as to the acquisition, retention or disposal of investments of any description.

Financial promotions for deposits10, pure protection contracts which are long-term care insurance contracts and certain reinsurance contracts10

COB 3.2.3 R
  1. (1)

    To the extent that a financial promotion relates to:

    10
    1. (a)

      8a deposit; or

    2. (b)

      8a pure protection contract which is a long-term care insurance contract10 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 contract10;

      10

    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 Ralso apply and, if the financial promotion relates to a cash deposit CTF, COB 3.9.30 R also applies; and911

  2. (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.

7Financial promotions for regulated mortgage contracts

COB 3.2.3A R

7This 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)).

10Financial promotions for non-investment insurance contracts

COB 3.2.3B R

10This 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)).

Exemptions

COB 3.2.4 R

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. (1)

    if the financial promotion relates to an unregulated collective investment scheme, COB 3.11 (Unregulated collective investment schemes) applies;

  2. (2)

    (except where COB 3.2.3 R applies) if the firm approves the financial promotion, the following apply:

    1. (a)

      COB 3.1 to COB 3.5 (Application, General and Purpose).

    2. (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;2

    3. (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. (3)

    (except where COB 3.2.3 R applies) if the firm:1

    1. (a)

      approves a specific non-real time financial promotion relating to an investment or service of an overseas person; and

    2. (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.

COB 3.2.5 R

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; 4

(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)); 6

(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); 5

(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; 5

(f)

a brief, factual description of the firm's (or its appointed representative's) fees;5

(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;2

(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.

Combination of exemptions

COB 3.2.6 R

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.

Guidance on the exemptions

COB 3.2.7 G
  1. (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. (2) 314
    1. (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).14

    2. (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).14

  3. (3)

    In COB 3.2.5 R:

    1. (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 28.3

    2. (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 representative5 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.3

    3. (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.3

    4. (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.5

  4. (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 59.3

  5. (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. (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)).3

Other Handbook rules relevant to financial promotions

COB 3.2.8 G
  1. (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. (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 individual12 or provides basic advice on a stakeholder product13, rules on advising and selling in COB 512 or, as the case may be, COB 5A, apply13.

  3. (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 promotioncommunicated 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.