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. (1)

   financial promotions for deposits, general insurance contracts, pure protection contracts, reinsurance contracts and regulated mortgage contracts2;2

2. (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. (3)

   financial promotions to persons outside the United Kingdom.

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)).

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.

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

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).

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.

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

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, rules on advising and selling in COB 512.

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.

1. (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. (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)). 24

3. (3)

   3The 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.

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).1

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:

   1. (a)

      he is an authorised person; or

   2. (b)

      the content of the financial promotion is approved by an authorised person.

2. (2)

   However, the Financial Promotion Order exempts from the restriction created by section 21(1) of the Act certain types of financial promotion.

3. (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).1

1. (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.1

2. (2)

   This chapter amplifies, for activities within its scope:

   1. (a)

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

   2. (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.

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.

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

1. (1)

   the codes adopted or issued from time to time by the Advertising Standards Authority and Office of Communications (OFCOM);3

2. (2)

   regulations from any overseas regulator (where relevant) if the firm intends to market from the United Kingdom into any other country;

3. (3)

   the POS Regulations and;

4. (4)

   the Privacy and Electronic Communications (EC Directive) Regulations (SI 2003/2426).3

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).2

1. (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. (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.

1. (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. (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. (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.

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. (1)

   the name of the individual or individuals who confirmed that the financial promotion complied with the rules in this chapter;

2. (2)

   the date of confirmation and (where appropriate) approval;

3. (3)

   details of the medium for which the financial promotion was authorised;

4. (4)

   the evidence supporting any material factual statement about an investment matter in the financial promotion.

1. (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. (2)

   Records which should be retained include:

   1. (a)

      any written financial promotion used by a representative;2

   2. (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. (3)

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

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.1

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.

1. (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 Gis intended to help firms locate the paragraphs which are relevant to them.

2. (2)

   COB 3.8.2 R to COB 3.8.20 G also apply to direct offer financial promotions.

3. (3)

   Material communicated as one package, such as by direct mail, may be regarded as one financial promotion for the purposes of this section.

Firms are reminded that under COB 3.2.3 R:

1. (1)

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

   1. (a)

      a deposit (except a cash deposit ISA or cash deposit CTF); or9

   2. (b)

      a pure protection contract which is a long-term care insurance contract8 or reinsurance contracts8; and

      8
2. (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.

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).

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.

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.

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.5

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).

Examples of explanations which could meet COB 3.9.15 R are:

1. (1)

   'You are not certain to make a profit; you may lose money/make a loss';

2. (2)

   'You may not get back the full amount of your investment';

3. (3)

   (for investment income): 'The income is not fixed - it can go up or down';

4. (4)

   (for contingent liabilities): 'You could lose all the money you invested and you may have to pay more later';

5. (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. (6)

   (for property funds):

   1. (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';

   2. (b)

      'The value of property is generally a matter of a valuer's opinion rather than fact';

7. (7)

   (for an Enterprise Investment Scheme):

   1. (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';

   2. (b)

      'These are unquoted securities which may have more risks than quoted securities or shares';

   3. (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';

   4. (d)

      'Proper information for working out the current value of investments may not be available';

8. (8)

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

   1. (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';

   2. (b)

      'There is no established market in this investment';

   3. (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';

   4. (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. (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. (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. (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. (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. (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. (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;4

15. (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'.4

10 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.

6[Deleted]

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:3

1. (1)

   assets and liabilities;

2. (2)

   financial position;

3. (3)

   profits and losses;

4. (4)

   prospects; and

5. (5)

   rights attaching to the EIS shares.

1. (1)

   5When 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:

   1. (a)

      reference to the different risk profiles of generally available capital-at-risk products when compared with capital secure products such as deposits;

   2. (b)

      reference to the fact that, because of the risk to capital, capital-at-risk products should only form part of an investment portfolio;

   3. (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

   4. (d)

      contact details for the FSA's consumer helpline and website.

2. (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. (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.".

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).2

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.

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.3

2. (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. (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. (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. (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).2

1. (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:3

   1. (a)

      the communication falls within COB 3 Annex 5 R; or

   2. (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. (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.1

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 2001.3

4 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.

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).1

2. (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:

   1. (a)

      if COB 3.6.1 R applies, confirm that the financial promotion complies with the rules in this chapter; and

   2. (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. (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. (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)).

For example, if a firmapproves 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 firmapproves 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.

If an approval is limited in accordance with COB 3.12.3 R, and an unauthorised personcommunicates 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.

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.

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. (1)

   made immediately after the full name;

2. (2)

   alongside the full name; or

3. (3)

   where the name is stated more than once, the most prominent or the first if equally prominent.

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

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.1

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. (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. (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).

1. (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. (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.

1. (1)

   Key features, initial disclosure document and written contractual terms2

   1. (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.

   2. (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.2

   3. (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.

   4. (d)

      Local printing of information by the user should be allowed, where feasible. Firms should endeavour to provide hard copy on request.

2. (2)

   Application forms

   1. (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.

   2. (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. (3)

   ExemptionsCOB 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. (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. (5)

   The FSA websiteThe 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. (6)

   Record-keeping: continuously updated market informationCOB 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.