COB 3.8 Form and content of financial promotions

1. (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. (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. (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.

When designing non-real time financial promotions relating to deposits or pure protection contracts which are long-term care insurance contracts12 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. (1)

   (for deposits) the British Bankers' Association/Building Societies Association Code of Conduct for the Advertising of Interest Bearing Accounts;

2. (2)

   [deleted]12

   12
3. (3)

   (for pure protection contracts which are long-term care insurance contracts12) the ABI Life Insurance (Non-Investment Business) Selling Code of Practice.

1. (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'.8 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. (2)
   1. (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.

   2. (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 Gcontains guidance on when the name of an authorised fund should not include the word "guaranteed".

   3. (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. (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:

   1. (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;

   2. (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);

   3. (c)

      a statement of the amount of authorised share capital of a company without the amount of the issued share capital;

   4. (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;

   5. (e)

      an implication that the assets of a whole group can be drawn on by a subsidiary when this is not the case;

   6. (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. (4)

   In relation to quotations of opinion:

   1. (a)

      where only part of an opinion is quoted, it should nevertheless be a fair representation;

   2. (b)

      any connection between the holder of the opinion and the firm should be made clear.

5. (5)

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

6. (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.1510

1. (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. (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.9

3. (3)

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

   1. (a)

      accentuating the potential benefits of an investment without also giving a fair indication of the risks;

   2. (b)

      failing to describe any benefits under a life policy which are not fixed;

   3. (c)

      drawing attention to favourable tax treatment without stating that this might not continue in the future; and 8

   4. (d)

      8drawing 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.

   5. (e)

      using prominent headline rates of return where these rates are unrealistic and unlikely to be obtained by most investors.9

4. (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. (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.9

6. (6)

   7If 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:

   1. (a)

      the securities are

      1. (i)

         listed in the United Kingdom under Chapter 21 of the listing rules (Investment entities); or

      2. (ii)

         issued by an investment trust and listed in an EEA State other than the United Kingdom;

   2. (b)

      the issuer of the securities in (a):

      1. (i)

         uses or proposes to use gearing as an investment strategy; or

      2. (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

   3. (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. (7)

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

   1. (a)

      have regard to the provisions in COB 5.4.12 E and COB 5.4.13 G; and

   2. (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.9

8. (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.9

1. (1)

   The purpose of COB 3.8.11 R is to:

   1. (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

   2. (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. (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:

   1. (a)

      an unfair comparison with the performance of another type of investment;

   2. (b)

      the selection of an inappropriate or irrelevant investment period;

   3. (c)

      the selection of an unreasonably short time period;

   4. (d)

      the selection of inconsistent time periods for a range of funds;

   5. (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. (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. (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. (5)

   8Firms 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:

   1. (a)

      the period of time to which the past performance information relates;

   2. (b)

      where relevant, the fact that this information may not be current; and

   3. (c)

      if (b) applies, an explanation of where up-to-date past performance information may be found.

6. (6)

   8Where 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. (7)

   8Information 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. (8)

   8In (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.)

1. (1)

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

   1. (a)

      an offer to bid basis (which should be stated) where there is an actual return or comparison of performance with other investments; or

   2. (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

   3. (c)

      a single pricing basis with allowance for charges.

2. (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. (3)

   Where the performance relates to a different investment vehicle, any material differences should be stated in the financial promotion.8

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

1. (1)

   the way in which the information about past performance has been presented;

2. (2)

   how it is positioned in the financial promotion; and

3. (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.8

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)).

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).3

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.

The requirements of COB 3.8.22 R:

1. (1)

   apply in respect of all individuals who initiate the communication, including representatives, call centre operators and introducers;13

2. (2)

   apply to all forms of real time financial promotion, including face to face and telephone financial promotion;

3. (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.

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.