COB 3.9 Direct offer financial promotions

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

1. (1)

   A direct offer financial promotion must not relate to a broker fund.

2. (2)

   A direct offer financial promotion must not relate to:

   1. (a)

      a derivative; or

   2. (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.1

1. (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.6

2. (2)

   In particular, a direct offer financial promotion must contain:6

   1. (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);6

   2. (b)

      where it is the case that no advice on investments has been given, a prominent statement that:10

      1. (i)

         no advice on investments has been given; and10

      2. (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).106

   3. (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;6

   4. (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.6

1. (1)

   6A 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. (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. (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. (4)

   Exemption: other successive or separate operations

   This exemption applies if:

   1. (a)

      the firm has no initial service agreement with the retail customer;

   2. (b)

      the firm has performed an operation with the retail customer within the last year; and

   3. (c)

      the contract is in relation to a successive operation or separate operation of the same nature (see COB 1.10.2 G (2)).

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 1.1679

1. (1)

   A direct offer financial promotion relating to a packaged product other than a simplified prospectus scheme must contain the information required by COB 6.5.2 R (1), (3) and (5) as applicable (Contents of key features).12

2. (2)

   12A direct offer financial promotion relating to a simplified prospectus scheme must contain the information required by COB 6.2.37 (Table: Contents of the simplified prospectus). and where a projection has to be provided in accordance with COB 6.2.43R (1) (Projection for simplified prospectus scheme), the required contents of that projection.

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. (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. (2)

   customer orders may on occasion be aggregated (in which case the statement must comply with COB 7.7.4 R).

1. (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. (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.

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

1. (1)

   which benefits (if any) are fixed amounts, and what those amounts are; and

2. (2)

   which benefits are not fixed amounts.

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.

A firm must include in a direct offer financial promotion:

1. (1)

   a warning that taxation levels, bases and (if relevant) reliefs can change;

2. (2)

   the assumed rate of taxation;

3. (3)

   (where taxation reliefs are mentioned) statements:

   1. (a)

      distinguishing between reliefs which apply directly to investors and anyone else;

   2. (b)

      that the reliefs are the ones which currently apply; and

   3. (c)

      that the value depends upon the circumstances of the investor; and

4. (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).

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.69

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. (1)

   whether all or part of the scheme expenses will be taken out of capital or income; and

2. (2)

   the likely long-term effect on capital or income.

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).

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.

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

1. (1)

   the information specified in COB 3 Annex 2 R;

2. (2)
   1. (a)

      either a copy of the prospectus; or

   2. (b)

      if no prospectus is required under Part VI of the Act, the information specified in 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. (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. (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.

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.

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

1. (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. (2)

   the investment returns may be less than those shown in the illustrations;

3. (3)

   annuity rates may be at a worse level when annuity purchase eventually takes place; and

4. (4)

   if the maximum withdrawals permitted by HM Revenue and Customs11 regulations are to be taken, high income withdrawals may not be sustainable during the deferral period.

   11

9A direct offer financial promotion relating to a CTF must contain the information referred to in COB 6.5.40 R (7).

5When 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. (1)

   an explanation of the types of capital-at-risk products generally available and how they would typically work;

2. (2)

   an explanation of the risks associated with investing in these capital-at-risk products;

3. (3)

   details of the key issues that consumers should consider before investing in a capital-at-risk product; and

4. (4)

   information about how to complain to the firm and how complaints can subsequently be referred to the Financial Ombudsman Service.