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COB 4.1 Client classification

Application

COB 4.1.1 R 14/01/2005

(1)
This section applies to a firm intending to conduct, or conducting designated investment business or ancillary business relating to designated investment business.
(2)
For the purposes of COB only, the following provisions in COB 4.1 also apply to a firm intending to carry on, or carrying on, any other regulated activity to which COB applies5:
1. (a)
  COB 4.1.12 R and COB 4.1.13 G (Large intermediate customer classified as a market counterparty); and
2. (b)
  COB 4.1.14 R (Client classified as a private customer).

COB 4.1.2 G 01/12/2001

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

Purpose

COB 4.1.3 G 14/01/2005

(1)
This section requires a firm to classify the persons with or for whom it intends to carry on designated investment business, to achieve appropriate application of the rules in COB and MAR 3 (Inter-professional conduct). Its purpose is to ensure that clients are appropriately categorised so that regulatory protections are focused on those classes of client that need them most, while allowing an appropriately "light-touch" approach for inter-professional business.
(2)
Some of the rules in COB relating to activities other than designated investment business are disapplied if the activity is carried on with or for a market counterparty rather than a customer, for example rules in COB 6.8 (Insurance contracts: life policies5). For guidance on how a firm carrying on these other activities may approach client classification, see PRIN 1.2.4 G (Classification: other activities).
5

Requirement to classify

COB 4.1.4 R 01/12/2001

(1)
Before conducting designated investment business with or for any client, a firm must take reasonable steps to establish whether that client is a private customer, intermediate customer or market counterparty.
(2)
A firm which takes reasonable steps to classify its clients, as required by the rules in this section, and treats a client in accordance with the classification it has established for that purpose, does not breach any other rule in COB to the extent that the breach arises only from inappropriate classification of that client.3

Agent as client

COB 4.1.5 R 15/11/2001

(1)
If a firm ("F") is aware that a person ("C1") with or for whom it is conducting designated investment business, or related ancillary activities, is acting as agent for another person ("C2") in relation to that business, C1, and not C2, is the client of F in respect of that business, if:
1. (a)
  C1 is another firm or an overseas financial services institution; or
2. (b)
  C1 is any other person, provided that avoidance of duties which F would otherwise owe to C2 is not the main purpose of the arrangements between the parties.
(2)
Paragraph (1) does not apply if F has agreed with C1 in writing to treat C2 as its client.
(3)
If there is an agreement under (2) in relation to more than one client (C2) represented by C1, F may discharge any requirement to notify, obtain instructions or consent from, or enter into an agreement with each C2 by sending to, or receiving from, C1, a single communication which is expressed to cover each C2, except that:
1. (a)
  separate risk warnings under COB 5.4 (Customers' understanding of risk);
2. (b)
  confirmations under COB 8.1 (Confirmation of transactions); and
3. (c)
  periodic statements under COB 8.2 (Periodic statements) are required for each C2
are required for each C2.
(4)
If paragraph (1) does not apply, because of the proviso in (1)(b) or an agreement under (2), C2, and not C1, is the client of F in respect of that business.2

COB 4.1.6 G 01/12/2001

Firms are reminded that COB 4.1.5 R:

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

Classification of another firm or an overseas financial services institution

COB 4.1.7 R 01/09/2003

(1)
When a firm ("F") conducts designated investment business, or related ancillary activities, with or for:
1. (a)
  another firm; or
2. (b)
  an overseas financial services institution;3
("C1"), C1 is a market counterparty of F, unless (2), (3) or (4) applies.
(2)
C1 is an intermediate customer of F when the activity carried on by F would be inter-professional business (if C1 were a market counterparty), and:
1. (a)
  C1 is acting for an underlying customer ("C2"); and
2. (b)
  [deleted]
3. (c)
  F and C1 have agreed that F should classify C1 as an intermediate customer when C1 is acting for C2.3
(3)
C1 is an intermediate customer of F when the activity carried on would not be inter-professional business (if C1 were a market counterparty) and:
1. (a)
  C1 has not indicated that it is acting on its own behalf in relation to that activity; or
2. (b)
  C1 is a long-term insurer acting on behalf of its life fund.
(4)
If C1 is a collective investment scheme, C1 is an intermediate customer of F.4
(5)
[deleted]4

Classification of a collective investment scheme

COB 4.1.7A G 01/09/2003

(1)
COB 4.1.7 R, paragraph (1)(b)(iii) of the definition of client and paragraph (1)(j) of the definition of intermediate customer together have the effect that a collective investment scheme, whether it has separate legal personality or not, will always be classified as an intermediate customer, unless classified as a private customer under COB 4.1.14 R or (if an unregulated collective investment scheme) as a market counterparty under COB 4.1.12 R. This means that, for a firm acting as the trustee of a unit trust, for example, the client for these purposes will be the scheme and therefore an intermediate customer.
(2)
The application of COB to an operator, trustee or depositary is governed by COB 10 (Operators of collective investment schemes) and COB 11 (Trustee and depositary activities).
(3)
In many cases, a firm such as an investment manager or custodian will carry on activities with or for an operator, trustee or depositary of the scheme rather than with or for a scheme.4

COB 4.1.8 G 01/09/2002

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

Classification of an exchange or clearing house

COB 4.1.8A R 01/09/2002

3A firm must classify a client which is a recognised investment exchange, designated investment exchange, regulated market or clearing house as either a market counterparty or an intermediate customer.

Expert private customer classified as an intermediate customer

COB 4.1.9 R 01/12/2001

(1)
A firm may classify a client who would otherwise be a private customer as an intermediate customer if:
1. (a)
  the firm has taken reasonable care to determine that the client has sufficient experience and understanding to be classified as an intermediate customer; and
2. (b)
  the firm:
  1. (i)
    has given a written warning to the client of the protections under the regulatory system that he will lose;
  2. (ii)
    has given the client sufficient time to consider the implications of being classified as an intermediate customer; and
  3. (iii)
    has obtained the client's written consent, or is otherwise able to demonstrate that informed consent has been given.
(2)
For the purposes of (1), a client's consent to being classified as an intermediate customer may be limited to one or more types of:
1. (a)
  designated investment; or
2. (b)
  designated investment business.

COB 4.1.10 G 01/12/2001

(1)
To take reasonable care to determine that a client has sufficient experience and understanding to be classified as an intermediate customer for the purposes of COB 4.1.9 R (1)(a), the firm should have regard to:
1. (a)
  the client's knowledge and understanding of the relevant designated investments and markets, and of the risks involved;
2. (b)
  the length of time the client has been active in these markets, the frequency of dealings and the extent to which he has relied on the adviceon investments of the firm;
3. (c)
  the size and nature of transactions that have been undertaken for the client in these markets;
4. (d)
  the client's financial standing, which may include an assessment of his net worth or of the value of his portfolio.
(2)
It is likely that a firm will need to have regard to more than one of these criteria, or to other criteria, before it can be satisfied that a client, who would otherwise be a private customer, is eligible to be classified as an intermediate customer.

COB 4.1.11 E 01/04/2004

(1)
In the written warning required by COB 4.1.9 R (1)(b)(i), a firm should, where relevant:
1. (a)
  advise the client that he will lose the protection afforded by the following rules in COB applicable to private customers:
  1. (i)
    COB 3 (Financial promotion);1
  2. (ii)
    COB 4.3 (Disclosing information about services, fees and commissions - packaged products);6
  3. (iii)
    COB 5.1 (Advising on packaged products);6
  4. (iv)
    COB 5.4 (Customers' understanding of risk);6
  5. (v)
    COB 5.7 (Disclosure of charges, remuneration and commission);6
  6. (vi)
    COB 6.1 (Packaged product and ISA disclosure);6
  7. (vii)
    COB 7.9 (Lending to private customers);6
  8. (viii)
    COB 7.10 (Margin requirements);6
  9. (ix)
    COB 7.11 (Non-exchange traded securities);3 6
2. (b)
  explain any consequences to the client in respect of the following rules in COB which are limited or modified in their application to intermediate customers:
  1. (i)
    COB 8.1 (Confirmation of transactions);6
  2. (ii)
    COB 8.2 (Periodic statements);3 6
3. (c)
  explain possible consequences to the client in respect of the following rules which are capable of modification in their application to intermediate customers:
  1. (i)
    COB 7.5 (Best execution);
  2. (ii)
    CASS 2 (Custody);
  3. (iii)
    CASS 4 (Client money);
4. (d)
  warn the client that he will also lose the right of access to the Financial Ombudsman Service; and
5. (e)
  warn the client that the firm may have regard to his expertise when complying with requirements under the regulatory system that communications must be clear, fair and not misleading.
(2)
Contravention of any part of COB 4.1.11 E (1) may be relied upon as tending to establish contravention of COB 4.1.9 R (1)(b)(i).

Large intermediate customer classified as a market counterparty

COB 4.1.12 R 01/12/2001

A firm may classify a client (other than another firm, regulated collective investment scheme, or an overseas financial services institution) who would otherwise be an intermediate customer as a market counterparty if:4

(1)
the client at the time he is classified is one of the following:
1. (a)
  a body corporate (including a limited liability partnership) which has (or any of whose holding companies or subsidiaries has) called up share capital of at least £10 million (or its equivalent in any other currency at the relevant time);
2. (b)
  a body corporate that meets (or any of whose holding companies or subsidiaries meets) two of the following tests:
  1. (i)
    a balance sheet total of 12.5 million euros (or its equivalent in any other currency at the relevant time);
  2. (ii)
    a net turnover of 25 million euros (or its equivalent in any other currency at the relevant time);
  3. (iii)
    an average number of employees during the year of 250;
3. (c)
  a local authority or public authority;
4. (d)
  a partnership or unincorporated association which has net assets of at least £10 million (or its equivalent in any other currency at the relevant time) (and calculated, in the case of a limited partnership, without deducting loans owing to any of the partners);
5. (e)
  a trustee of a trust (other than an occupational pension scheme, SSAS, personal pension scheme or stakeholder pension scheme) with assets of at least £10 million (or its equivalent in any other currency), calculated by aggregating the value of the cash and designated investments forming part of the trust's assets, but before deducting its liabilities;
6. (f)
  a trustee of an occupational pension scheme, SSAS or stakeholder pension scheme where the trusthas (or has had at any time during the previous two years):
  1. (i)
    at least 50 members; and
  2. (ii)
    assets under management of not less than £10 million (or its equivalent in any other currency at the relevant time); and
(2)
the firm has, before commencing business with the client on a market counterparty basis:
1. (a)
  advised the client in writing that he is being classified as a market counterparty;
2. (b)
  given a written warning to the client that he will lose protections under the regulatory system;
3. (c)
  for a client falling under (1)(a) or (b):
  1. (i)
    taken reasonable steps to ensure that the written notices required by (2)(a) and (b) have been delivered to a person authorised to take such a decision for the client; and
  2. (ii)
    not been notified by the client that the client objects to being classified as a market counterparty;
4. (d)
  for a client falling under (1)(c), (d), (e) or (f):
  1. (i)
    taken reasonable steps to ensure that the written notices required by 2(a) and (b) have been delivered to a person authorised to take such a decision for the client; and
  2. (ii)
    obtained the client's written consent or is otherwise able to demonstrate that consent has been given.

COB 4.1.13 G 01/12/2001

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

Client classified as a private customer

COB 4.1.14 R 01/09/2003

(1)
A firm may classify as a private customer any client (other than a firm, unless it is an ICVC, or an overseas financial services institution) who would otherwise be a market counterparty or an intermediate customer, and must notify any such client accordingly.4
(2)
A notice under (1) must advise the client that he may not necessarily have rights under the Financial Ombudsman Service or the compensation scheme as a result of such classification.

Review of classification

COB 4.1.15 R 01/12/2001

(1)
If a firm classifies:
1. (a)
  a client as an intermediate customer under COB 4.1.9 R (Expert privatecustomer classified as an intermediate customer); or
2. (b)
  a client as a market counterparty under COB 4.1.12 R (Large intermediate customer classified as a market counterparty);
it must review that classification at least annually to ensure that it remains appropriate to the designated investment business which the firm carries on with or for that client, unless (2) applies.
(2)
If a firm has not conducted designated investment business with or for a client during the previous 12 month period, the firm may defer the review referred to in (1) until the firm next conducts designated investment business with or for the client.

Record keeping

COB 4.1.16 R 01/09/2002

(1)
A firm must make a record of the classification established for each client under this section, including sufficient information to support that classification. 3
(2)
A firm must retain the record referred to in (1) for a minimum period after the date on which the firm ceases to carry on business with or for that client, as follows:
1. (a)
  indefinitely, if relevant to a pension transfer, pension opt-out or FSAVC;
2. (b)
  for a period of at least six years, if relevant to a life policy or pension contract;
3. (c)
  for a period of at least three years in any other case.

COB 4.2 Terms of business and client agreements with customers

Application

COB 4.2.1 R 09/10/2004

This section applies to a firm intending to conduct or conducting designated investment business with or for a specific customer.4

4Meaning of 'private customer'

COB 4.2.2 R 09/10/2004

In this section, COB 4.2, references to a 'private customer' include, in relation to the conclusion of a distance contract, a retail customer, and references to 'customer' are to be interpreted accordingly. 4

4Authorised professional firms

COB 4.2.3 G 01/12/2004

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

(1)
terms of business must be provided in accordance with COB 4.2.5 R;4
(2)
with respect to the non-mainstream regulated activity, the terms of business should satisfy COB 4.2 as to content if it contains the disclosure in COB 4 Ann 2E(25); and4
(3)
the Distance Marketing Regulations may apply and require the provision of pre-contractual information in certain circumstances (see PROF 5.4).4 5

Purpose

COB 4.2.4 G 09/10/2004

COB 4.2 amplifies Principle 6 (Customers' interests) and Principle 7 (Communications with clients). These require a firm to pay due regard to the interests of its customers and to their information needs, to treat them fairly and to communicate information to them which is clear, fair and not misleading. A customer needs to know on what basis a firm intends to do business with him. Terms of business or a client agreement set this out. 4

Requirement to provide terms of business to a customer

COB 4.2.5 R 09/10/2004

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

COB 4.2.6 G 09/10/2004

4[deleted]

COB 4.2.6A G 01/12/2004

(1)
Terms of business will be provided in 'good time' for the purposes of COB 4.2.5 R if provided in sufficient time to enable the customer to consider properly the service or investment on offer before he is bound.4
(2)
COB 4.2.5 R does not require the same information to be provided again if the customer already has it (for example through a direct offer financial promotion).4

Requirement to enter into a client agreement with a private customer

COB 4.2.7 R 01/12/2001

(1)
If a firm intends to conduct any of the following designated investment business with or for a private customer:
1. (a)
  managing investments on a discretionary basis;
2. (b)
  designated investment business relating to a contingent liability investment;
3. (c)
  stock lending activity; or
4. (d)
  designated investment business involving underwriting (except in respect of a life policy);
its terms of business for the customer must, unless (2) applies, take the form of a client agreement, and the firm must not enter into this client agreement unless it has taken reasonable care to ensure that the private customer has had a proper opportunity to consider the terms.
(2)
A firm need not enter into a client agreement with a private customer if the private customer is habitually resident outside the United Kingdom and the firm has taken reasonable steps to establish that the private customer does not wish to enter into a client agreement.

COB 4.2.8 G 01/12/2001

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

COB 4.2.9 R 09/10/2004

4[deleted]

Content of terms of business4

COB 4.2.10 R 09/10/2004

A firm must ensure that its terms of business (including a client agreement with a customer) provided in accordance with this section, COB 4.2:4

(1)
set out in adequate detail the basis on which it will conduct designated investment business with the customer; and4
(2)
(in respect of distance contracts with retail customers) include all contractual terms and conditions and the information set out in COB App 1.4

COB 4.2.11 E 01/04/2004

(1)
A firm should, in order to provide adequate detail, include in its terms of business provided to a customer:
1. (a)
  a provision about each item set out in COB 4 Ann 2E and COB 4 Ann 3E; and2 4
2. (b)
  any further or alternative provisions that the customer has asked for and on his own initiative agreed with the firm;
to the extent that each such provision is relevant in the circumstances and that it is practicable to provide it.
(1A)
In relation to a service company, or a firm that is undertaking oil market activity or other energy market activity, that operates an ATS, the references in paragraph (1)(a) to COB 4.2.15 E and COB 4.2.16 E do not apply.2
(2)
Compliance with (1) may be relied on as tending to establish compliance with COB 4.2.10 R (1).4
(3)
Contravention of (1) may be relied on as tending to establish contravention of COB 4.2.10 R (1).4

4Information not available at time of issue of terms of business

COB 4.2.11A R 09/10/2004

4A firm is not required to provide information under COB 4.2.10 R that, by its nature, is unavailable at the time the terms of business are issued. In such circumstances, the firm must notify the customer of any relevant information as soon as practicable after it becomes available and, in the case of a distance contract with a retail customer, in good time before the contract is concluded.

COB 4.2.11B G 09/10/2004

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

4Terms of business provided in more than one document

COB 4.2.12 R 09/10/2004

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

4Contents of terms of business: non-mainstream regulated activities of an authorised professional firm

COB 4.2.12A E 09/10/2004

(1)
4An authorised professional firm should include, in its terms of business, the information in COB 4 Annex 2.
(2)
For an authorised professional firm, with respect to its non-mainstream regulated activities and as to the content only of its terms of business:
1. (a)
  compliance with (1) may be relied on as tending to establish compliance with COB 4.2.5 R; and
2. (b)
  contravention of (1) may be relied on as tending to establish contravention with COB 4.2.5 R.

Amendment of terms of business

COB 4.2.13 R 01/12/2001

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

4Records

COB 4.2.14 R 09/10/2004

(1)
A firm must make a record of each terms of business it provides to a customer, and any amendment to them, as soon as the terms of business come into force.
(2)
A firm must retain each record referred to in (1):
1. (a)
  indefinitely, where the terms of business relate to a pension transfer, pension opt-out or FSAVC;
2. (b)
  for six years, where the terms of business relate to a life policy, pension contract or stakeholder pension scheme; and
3. (c)
  for three years in any other case.
(3)
For the purposes of (2), the appropriate time period runs in each case from the date on which the customer ceases to be a customer of the firm.

COB 4.2.15 E 01/01/2004

[deleted]1 3 4

COB 4.2.16 E 01/12/2001

4[deleted]3

COB 4.2.17 E 01/12/2004

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

Operating an ATS
Additional contents in respect of operating an ATS
An ATS operator should also ensure that the terms of business provided to a customer contain information about the following:
(1)	how the ATS operates, including any order handling and order execution processes;
(2)	the status of other users of the ATS, for example whether market counterparties, intermediate customers or private customers and whether based within or outside the United Kingdom;
(3)	arrangements for the clearing and settlement of transactions, including the respective obligations and responsibilities (if any) of the ATS operator and the customer in relation to clearing and settlement;
(4)	if investments that are not listed are traded on the ATS:
	(a)	that unlisted investments are traded on the ATS; and
	(b)	that the ATS operator will advise the customer on request where publicly available information about such investments can be obtained;
(5)	whether transactions executed using the ATS are reportable transactions;
(6)	trading procedures (if any) that may be adopted in the event of system malfunction;
(7)	the circumstances in which the ATS operator can terminate the customer's access to the ATS;
(8)	procedures (if any) to be adopted in the case of trading errors or disputes; and
(9)	whether investments traded on the ATS are qualifying investments for the purposes of the market abuse regime.

COB 4.3 1Disclosing information about services, fees and commission - packaged products

Application

COB 4.3.1 R 01/12/2004

COB 4.3 applies:

(1)
to a firm when carrying on with or for private customers any of the following in relation to packaged products:
1. (a)
  advising on investments; or
2. (b)
  dealing as agent; or
3. (c)
  arranging;
(2)
to a firm, other than an insurer, that carries on in relation to a life policy any of the activities in (1) with or for an intermediate customer or a market counter-party.

Purpose

COB 4.3.2 G 01/12/2004

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

Disclosure to private customers on first making contact

COB 4.3.3 R 01/12/2004

(1)
1. (a)
  A firm must take reasonable steps to ensure that its representatives on first making contact with a private customer with a view to:
  1. (i)
    advising on investments on packaged products; or
  2. (ii)
    dealing as agent in packaged products; or
  3. (iii)
    arranging (bringing about) deals in packaged product; or
  4. (iv)
    making arrangements with a view to transactions in life policies;
  provide the customer, in a durable medium, with information concerning:
2. (b)
  1. (i)
    the firm and the scope of and nature of its services (an initial disclosure document); and
  2. (ii)
    where (a)(i) applies, the firm's arrangements for charging and receiving fees and commission (a fees and commission statement);
in both cases being information which the firm reasonably considers will be, or is likely to be, appropriate for the customer having regard to the type of service which the firm may provide or business which the firm may conduct.
(2)
A firm must also provide a private customer with an initial disclosure document if, in relation to the amendment of a life policy for that private customer, it:
1. (a)
  advises on investments on packaged products; or
2. (b)
  deals as agent in packaged products; or
3. (c)
  arranges.
(3)
1. (a)
  The requirements in (1) and (2) do not apply:
  1. (i)
    to the extent that the appropriate information has already been given to the customer on a previous occasion and that information is still likely to be accurate and appropriate for the customer; or
  2. (ii)
    if COB 4.3.16 G (initial contact by telephone) applies; or
  3. (iii)
    to a firm when it carries out an execution only transaction in non-life packaged products; or
  4. (iv)
    to an insurer for those customers in respect of which it is not advising on investments.
2. (b)
  A firm that reasonably expects it will not be advising on investments in respect of products falling within any of the product groups set out in Note 14 to COB 4 Annex 6R does not have to comply with the requirements in (1)(b)(ii) but if it does advise on investments on these products the rules will apply to the firm in respect of the fees and commission statement as if it was required by (1)(b)(ii) to provide the statement.
(4)
The requirements in (1) and (2) will apply to:
1. (a)
  a firm that is acting as a discretionary investment manager for private customers; or
2. (b)
  a firm which is effecting execution-only transactions in packaged products for private customers;
only if the firm is carrying on an insurance mediation activity in relation to life policies for those private customers, in which case the requirements in (1) and (2) will only apply to the extent of requiring the firm to provide those private customers with an initial disclosure document.
(5)
A firm which acts for a private customer under a non-discretionary management agreement need not comply with the requirements in (1) above to provide an initial disclosure document or a fees and commission statementif the following are satisfied:
1. (a)
  the firm is remunerated by the customer by the payment of a fee; and
2. (b)
  the agreement provides that the firm may recommend securities as well as packaged products for inclusion in the customer's portfolio and that in respect of packaged products the firm will make selections from the whole market;
but such a firm must, if it is carrying on an insurance mediation activity for a private customer in relation to life policies, comply with the requirements in (1) as to the provision of an initial disclosure document to the private customer.
(6)
A firm which is required in accordance with this rule to provide an initial disclosure document to a private customer may instead provide the customer with a combined initial disclosure document if it has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will, in addition to packaged products, relate to one or more of the following:
1. (a)
  regulated mortgage contracts;
2. (b)
  regulated lifetime mortgage contracts;
3. (c)
  non-investment insurance contracts.
(7)
The information contained in the initial disclosure document may be provided orally if a firm has not made a personal recommendation to a private customer, and:
1. (a)
  the customer requests it; or
2. (b)
  immediate cover is necessary;
but in both cases the firm must provide the initial disclosure document immediately after the conclusion of the contract, in a durable medium.

COB 4.3.4 G 01/12/2004

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

Provision of fees and commission statement on request

COB 4.3.5 R 01/12/2004

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

Firms which charge fees

COB 4.3.6 R 01/12/2004

(1)
A firm must before starting to act for a private customer on the basis of a fee charging arrangement:
1. (a)
  secure the customer's agreement to the particular rate or amount which the firm will charge for its services; and
2. (b)
  provide the customer with a record in a durable medium of the particular fee charging arrangement which will apply unless the firm starts to act for the private customer during a telephone call, in which case this record must be forwarded to the customer on conclusion of the call.
(2)
A firm which charges a private customer a fee must do so on the basis that it will, in respect of any commission which it receives in respect of transactions in packaged products for that customer (and to which the particular fee charging arrangement relates), ensure the value of that commission is transferred to the customer by one or more of the following:
1. (a)
  reducing the amount of its fee;
2. (b)
  arranging for the amount invested by the customer to be increased; or
3. (c)
  refunding the amount of the commission to the customer;
except that this does not prohibit such a firm from agreeing with the customer (in writing) that it will retain an amount or rate of trail or renewal commission up to an amount each year specified in the agreement and so small, relative to the overall amount of fees paid by the customer, that it would be manifestly disproportionate for the firm to be required to account to the customer in one of the ways outlined in (a) to (c).

Ongoing disclosure

COB 4.3.7 R 01/12/2004

(1)
A firm which has started to provide a private customer with services in relation to packaged products following the provision of a fees and commission statement must not (at least until the completion of those services):
1. (a)
  increase the rate or amount of the fees it is charging the customer; or
2. (b)
  subject to (4), arrange to retain any commission which exceeds the maximum amount or rate disclosed ;
without first providing a further appropriate statement and obtaining the customer's prior consent to the proposed alteration in a durable medium.
(2)
A firm which in accordance with (1) secures a private customer's agreement to retain an increased rate or amount of commission must ensure that, if it subsequently provides the customer with a suitability letter, it includes an explanation of why it was necessary for the principal to recommend a packaged product in respect of which the firm will retain such higher commission or fees.
(3)
If a firm decides to provide a private customer with advice on investments on a type of packaged product (which falls within a product group specified in Note 14 to COB 4 Annex 6R) in relation to which the fees and commission statement previously given to the customer does not contain the information required in Note 14 to COB 4 Annex 6R, it must issue a new and appropriate statement to that customer.
(4)
1. (a)
  Notwithstanding (1)(b) a firm is not required to provide a further fees and commission statement for the purposes of (1) if:
  1. (i)
    the maximum amounts or rates disclosed in the statement already provided to the customer only apply to policiesof the example term or age of policyholder given in the fees and commission statement, or to policieswith shorter terms; and
  2. (ii)
    the firm arranges a policyfor a term longer than the example term in the statement (or longer than the term deemed for the example age given) and the increase in the commission which the firm arranges to retain over the maximum disclosed in the statement is not more than an amount that is directly proportional to the increase in the duration of the term of the policy(or to the term deemed from the age of policyholder).
2. (b)
  If requested by a customer, a firm must explain the basis of the higher maximum commission or fees charged in accordance with (4)(a)(ii).

COB 4.3.8 G 01/12/2004

(1)
COB 4.3.7R (4) is intended to allow firms to arrange policies for a longer term than that given as the example in the fees and commission statement without requiring any further disclosure but only if the commissions the firm arranges to retain are directly proportional to the maximum commissions disclosed in the statement having regard to the duration of the policy. For example, if the statement disclosed a maximum commission of 10% on a 10 year policy, then on a 20 year policy the maximum commission the firm could arrange to retain is 20% without further disclosure.
(2)
The maximum commissions that apply to policies of a particular term also apply as the relevant maxima for policies with a shorter duration. The rule is of no application in circumstances where a firm arranges to retain commission exceeding the maximum disclosed in the fees and commission statement if the policy arranged has a term shorter than the example given in the statement.
(3)
Long-term care and whole of life policies, for which the example given in the fees and commission statement refers to the age of the policyholder, are deemed to have a term equal to the difference between the age of the policyholder (at the time that the policy is taken out) and the age of 85.1

Initial disclosure document

COB 4.3.9 R 01/12/2004

(1)
An initial disclosure document must contain the Key facts logo, headings and text in the order shown in COB 4 Annex 4R and in accordance with the Notes.
(2)
A combined initial disclosure document must contain the Key facts logo, headings and text in the order shown in COB 4 Annex 5R and in accordance with the Notes.
(3)
If a private customer so requests, a firm should be able to provide an explanation of the basis on which it has chosen to market the particular packaged products within the range from which advice on investments will be given to that customer including an explanation of why the firm has selected particular product providers.
(4)
Information given in the initial disclosure information about compensation arrangements made by an investment firm must:
1. (a)
  (if it relates to the activities of an establishment in the United Kingdom) be in English; or
2. (b)
  (if it relates to the activities of a branch in another EEA State) be in an official language of that EEA State.
(5)
Information given in the initial disclosure information about the insurance mediation activities of a firm must be in English, unless the customer requests it to be, and the firm agrees to it being, in another language.1

COB 4.3.10 G 01/12/2004

Firms can obtain from the FSA website http://www.fsa.gov.uk a specimen of the initial disclosure document. Subject to COB 4.3.9 R, a firm may produce its initial disclosure document by using its own house style and brand. 1

Fees and commission statement

COB 4.3.11 R 01/12/2004

(1)
A fees and commission statement must contain the Key facts logo, heading and text in the order shown in COB 4 Annex 6R and in accordance with the Notes.
(2)
A firm must maintain as many versions of the fees and commission statement set out at COB 4 Annex 6R as are appropriate to the different bases on which it may conduct business with private customers:
1. (a)
  fee only (version 1);
2. (b)
  commission (or equivalent) only (version 2);
3. (c)
  fee or commission (or equivalent) (version 3);
4. (d)
  fee or commission (or equivalent); or combination of commission (or equivalent) and fee (version 4);
5. (e)
  commission (or equivalent); or combination of commission (or equivalent) and fee(version 5);
6. (f)
  fee; or combination of commission (or equivalent) and fee (version 6).
(3)
A firm must keep its fees and commission statements up to date and keep a record of each fees and commission statement for a period of six years from the date on which it was updated or replaced.
(4)
A firm must maintain a record of each particular fees and commission statement which it provides to a private customer (other than when given merely in response to a request).1

COB 4.3.12 G 01/12/2004

Where, as envisaged in COB 4.3.5 R, a firm is asked to provide a fees and commission statement by a person with whom the firm has had no prior contact it may provide the fees and commission statement which is appropriate for its typical or most prevalent customer type and the business it conducts with them.1

COB 4.3.13 G 01/12/2004

(1)
1COB 4.3.11 R requires a firm to maintain statements showing the amount it may charge its customers by way of fees, or which it may receive from others by way of commission, in either case in respect of the services it provides in relation to the sale of packaged products. Consistent with COB 5.1 and COB 5.5 the basis on which a firm may provide such services may differ from customer to customer (for example as to whether the firm will select from the whole market, or a limited number of product providers).
(2)
A firm may maintain more than one version of the fees and commission statement but if it does, it must take reasonable steps to ensure that the statement provided to each customer in their initial contact is consistent with the description of the services given to the customer in the firm's initial disclosure document (as required by COB 4.3.3 R) and with the record of the range of packaged products which the firm has supplied to the customer or which it would supply on request to the customer in accordance with COB 4.3.15 R.
(3)
If a firm alters the nature of the services it provides for any customer then it may also change the basis or amount by which it will be remunerated whether by fees or commission. A firm proposing to make such a change should first provide the customer with a new fees and commission statement and explain its proposed altered basis for charging and receiving commission and seek the customer's consent to proceeding on that basis. A firm may when conducting further and separate services with a customer seek to do so on the basis of different arrangements for its remuneration.

Record for distribution of range of packaged products

COB 4.3.14 R 01/12/2004

1A firm which operates with a range (or ranges) of packaged products must produce in a durable medium, and in a form which is appropriate for distribution to private customers, the record of its range (or ranges) of packaged products which it maintains for the purposes of COB 5.1.6ER (1).

COB 4.3.15 R 01/12/2004

1A firm must take reasonable steps to ensure that its representatives provide a copy of the appropriate range of packaged products on the request of a private customer having regard to the services it is providing or may provide to the customer.

Key facts information, terms of business and telephone sales

COB 4.3.16 G 01/12/2004

(1)
1COB 4.3.17 R and COB 4.3.18 R enable provision by a firm of an initial disclosure document to a private customer to be taken as compliance also with analogous information provision requirements contained in COB 4.2 (Terms of business and client agreements with customers).
(2)
In cases where firms make initial contact with a customer on the telephone a firm may, in addition, have to take into account and comply with the additional requirements applicable to the conclusion of distance contracts. COB 4.3.18 R expands on the items of information which a firm is required to give in accordance with COB 4 Annex 1 so that where the firm expects to conduct business relating to packaged products adequate information is given during the telephone call about the nature and scope of the services which the firm will or may provide.

COB 4.3.17 R 01/12/2004

(1)
1A firm which complies with COB 4.3.3 R will, in respect of any requirement imposed by COB 4.2 as to the delivery or content of information to be included in its terms of business, be regarded as complying with any such analogous requirement.
(2)
Any information required by COB 4.2 which is not covered by (1) may be satisfied by it being included at the end of an initial disclosure document which is given to a private customer in accordance with COB 4.3.3 R or, if provided at the same time, by way of separate items of information.

COB 4.3.18 R 01/12/2004

(1)
Where a firm's initial contact with a private customer (for a purpose set out in COB 4.3.3R (1)) is by telephone then the following information must be provided and requirements satisfied before proceeding further:
1. (a)
  the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;
2. (b)
  whether the firm offers packaged product from the whole market or from a limited number of companies or from a single company or single group of companies;
3. (c)
  whether the firm will provide the customer with advice on investments on packaged products;
4. (d)
  if the firm does not offer products from the whole market, that the customer can request a copy of the appropriate range of packaged products;
5. (e)
  whether the firm offers a fee based service, a commission based service, a service based on a combination of fee and commission, or a combination of these three types of services, and the consequences for the customer of proceeding with each type of service;
6. (f)
  that the information given under (a) to (e) will subsequently be confirmed in writing.
(2)
A firm which complies with (1) will, subject to (3), satisfy the condition set out in item (1) of COB 4 Annex 1.
(3)
If during the course of a telephone call a firm is to conclude a contract (whether for the provision of a mediation services and/or for the purchase or sale of a packaged product), it must as well as complying with (1) and (2) above satisfy the requirement in COB 4.2.5 R and COB 4 Annex 1.
(4)
If a firm's initial contact with a private customer by telephone is such that COB 4.3.3 R (other than COB 4.3.3R (3)(a)(ii)) applies then, subject to any relevant exclusions, it must send the customer an initial disclosure document and a fees and commission statement as soon as is reasonably practicable following the conclusion of the call.

Intermediate customers and market counterparties (and private customers who are introduced): disclosure before conclusion of the contract or immediately after conclusion of the contract 1

COB 4.3.19 R 14/01/2005

(1)
1COB 4.3.20 R to COB 4.3.25 R apply to a firm, other than an insurer, when it conducts any of the following in relation to life policies with or for an intermediate customer or a market counterparty:
1. (a)
  advising on investments; or
2. (b)
  dealing; or
3. (c)
  arranging.
(2)
COB 4.3.26 R (disclosure by introducers) applies to a firm:
1. (a)
  when it introduces a private customer to another firm;
2. (b)
  other than an insurer when it introduces an intermediate customer or market counterparty to another firm.

COB 4.3.20 R 14/01/2005

(1)
1The information in COB 4.3.21 R must be provided to the client in a durable medium at any time before conclusion of the contract, and if necessary upon amendment or renewal thereof, unless (2) or (4) applies.
(2)
The information in COB 4.3.21 R:
1. (a)
  may be provided orally if:
  1. (i)
    the client requests this; or
  2. (ii)
    the client requires immediate cover;
2. (b)
  need not be provided before conclusion of the contract if the contract is concluded by telephone, but if the client is a retail customer the requirements in COB 4.2.5 R and COB 4 Annex 1 must be satisfied.
(3)
If (2) applies, the client must be provided with the information in COB 4.3.21 R in a durable medium immediately after the conclusion of the contract.
(4)
The requirements in (1) do not apply to the extent that the information has already been given to the client on a previous occasion and that information is still likely to be accurate and up to date.

COB 4.3.21 R 14/01/2005

1Information to be provided before conclusion of the contract or immediately after conclusion of the contract.

This table belongs to COB 4.3.20 R

1.	The name and address of the firm and, where relevant, the name and address of the appointed representative.
2.	The firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory status disclosure)).
3.	That items 1 and 2 can be checked on the FSA Register by visiting the FSA's website www.fsa.gov.uk/register or by contacting the FSA on 0845 606 1234.
4.	Whether the firm or any appointed representative of the firm has any holding, direct or indirect, representing more than 10 per cent of the voting rights or of the capital in an insurance undertaking.
5.	Whether an insurance undertaking or parent of an insurance undertaking has a holding, direct or indirect, representing more than 10 per cent of the voting rights or of the capital in the firm or in any appointed representative of the firm.
6.	In relation to the life policy provided, whether the firm offers the product:
	(a)	on the basis of a fair analysis of the market; or
	(b)	from a limited number of insurance undertakings; or
	(c)	from a single insurance undertaking.
	If (b) or (c) apply, the firm must also disclose whether it is contractually obliged to conduct insurance mediation activity in this way.
7.	If the contract has not been offered on the basis of a fair analysis of the market, that the client can request a copy of the list of the insurance undertakings from which the firm has offered the product.
8.	How to complain to the firm and, where relevant, that complaints may subsequently be referred to a named complaints scheme.
9.	Where relevant, that compensation may be available from a named compensation scheme should the firm be unable to meet its liabilities; the firm must describe the extent and level of cover and how further information can be obtained.

COB 4.3.22 R 14/01/2005

(1)
1A firm must provide the information specified in COB 4.3.21 R:
1. (a)
  (if it relates to the activities of an establishment in the United Kingdom) in English; or
2. (b)
  (if it relates to the activities of a branch in another EEA State) in an official language of that EEA State.
(2)
The information provided by a firm pursuant to COB 4.3.20 R and which relates to the firm's insurance mediation activities, must be in English, unless the customer requests it to be, and the firm agrees to it being, in another language.

COB 4.3.23 G 14/01/2005

1A firm can, subject to COB 4.3.24 G, comply with COB 4.3.20 R by providing the information specified in COB 4.3.21 R in an initial disclosure document or, if appropriate, a combined initial disclosure document.

COB 4.3.24 G 14/01/2005

1A firm that provides the information required by COB 4.3.20 R in an initial disclosure document or combined initial disclosure document may amend or delete sections of the document subject to the following:

(a) the firm must not include the Key facts logo and the heading and text in Section 1 unless it uses the document in full and without altering the text other than that in sections 5, 7 and 8, which may be amended or deleted; and

(b) the firm must still provide the information covered by the amended or deleted sections if required to do so by COB 4.3.20 R

1Information to be provided to clients on request

COB 4.3.25 R 14/01/2005

(1)
1A firm that provides a service of a type described in COB 4.3.21 R must maintain, and keep up to date, for each type of life policy it deals with, a list of insurance undertakings it deals with.
(2)
The information in (1) must be maintained in a form which allows a copy to be provided to a client on request, in accordance with COB 4.3.21 R, in a durable medium.

1Disclosure by introducers

COB 4.3.26 R 14/01/2005

(1)
1A firm that only introduces a client to another firm with a view to a transaction in a life policy, must provide the information in COB 4.3.21 R (1) and (2) at the time it makes initial contact with the client. The information may be provided orally.
(2)
If the information required in (1) is provided orally, the information in COB 4.3.21 R (1) and (2) must be provided in a durable medium immediately after the initial contact between the firm and the client.

Group Personal Pensions

COB 4.3.27 R 01/12/2004

1A firm must take reasonable steps to ensure that its representatives on first making contact with an employee with a view to advising on his employer's group personal pension scheme or stakeholder pension scheme, inform the employee:

(1)
that the firm will be providing advice on investments on group personal pension schemes and/or stakeholder pension schemes provided by the employer;
(2)
whether the employee will be provided with advice on investments:
1. (a)
  that is restricted to the group personal pension scheme or stakeholder pension scheme provided the employer; or
2. (b)
  the matters in (a) and other products;
(3)
the amount and nature (ie fees and/or commission (or equivalent) and/or a combination of fees and commission (or equivalent)) of any payments that the employee will have to pay for the advice on investments.

COB 4 Annex 1 1Exemptions from terms of business requirement

COB 4 Annex 1.1 R 09/10/2004

1Circumstances in which the terms of business requirement in COB 4.2.5 R does not apply and conditions for using the exemption (R)

This table belongs to COB 4.2.5 R

2 2

	Exempted type of firm or transaction or event:	Conditions for using the exemption:
(1)	Voice telephony communications	(a)	At the beginning of the telephone conversation, the firm must provide the customer with the name of the firm and (if the call is initiated by or on behalf of the firm) the commercial purpose of the call;
		(b)	if the customer gives his explicit consent to receiving only limited information about the terms of business, the firm must in good time before the retail customer is bound by a contract or offer on the telephone, provide the customer with at least the following information:2
			(i)	the name of the person in contact with the customer and his link with the firm;
			(ii)	a description of the main characteristics of the service;
			(iii)	the total price to be paid by the customer to the firm for the services, including all related fees, charges and expenses, and all taxes paid through the firm or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the customer to verify it; and notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it;
			(iv)	the existence or absence of a right to cancel under COB 6.7 and, where there is such a right, its duration and the conditions for exercising it, including information on the amount which the customer may be required to pay in accordance with COB 6.7.52 R (1)(b), as well as the consequences of not exercising it; and
			(v)	that other information is available on request and the nature of that information;
		(c)	if the customer does not give his explicit consent to receiving limited information, and the parties wish to proceed by telephone, the firm must in good time before the retail customer is bound by a contract or offer on the telephone, provide all of the information required by COB App 1 orally to the customer; and2
		(d)	in the case of either (b) or (c), the firm must immediately after conclusion of the contract, send the customer a full terms of business
		(See also COB 3.8.21 G (Real time financial promotions) and COB 3.10 (Unsolicited real time financial promotions)).
(2)	The service is being provided exclusively by means of distance communication (other than telephone) which does not enable a terms of business to be provided before a contract is concluded	(a)	The service is provided in this way at the customer's request; and
(2)		(b)	the firm must send the terms of business to the customer immediately after conclusion of the contract
(3)	The firm has an initial service agreement with the customer	The designated investment business to be conducted is a successive operation or separate operation of the same nature to be performed for the customer under that initial agreement (see COB 1.11.3 R)
(4)	The firm has no initial service agreement with the customer but the designated investment business to be conducted is a successive operation or separate operation of the same nature for the customer (see COB 1.11.3 R)	The firm has performed an operation of the same nature for the customer within the last year
(5)	Life insurer	The firm is effecting a life policy issued or to be issued by it as principal
(6)	Operator of a collective investment scheme	The firm is:
		(a)	conducting any designated business as part of scheme management activity; or
		(b)	providing any service to the trustee or depositary of the scheme which is not part of the operator's scheme management activity; or
		(c)	selling or purchasing as principal units in a scheme except a sale or purchase of units in an unregulated collective investment scheme under a distance contract with a retail customer
(7)	Trustee or depositary	The firm is acting as a trustee of a unit trust or depositary of an ICVC
(8)	Operator of investment trust savings scheme	The firm is:
		(a)	bringing about a transaction in the shares of any investment trust that is the subject of the scheme; or
		(b)	conducting any designated investment business as part of its activities as such (except a distance contract not within (a) with a retail customer)
(9)	Supplier of a published recommendation	The firm is supplying a published recommendation
(10)	OPS firms who are trustees of an OPS	The firm is carrying on any designated investment business as part of its OPS activity in relation to an occupational pension scheme of which it is trustee
(11)	Advising during preparation of terms of business	The advice on investments or information is provided solely for the purpose of preparing terms of business or entering into a client agreement
(12)	Designated investment business performed after termination of terms of business	The firm is acting for the purposes only of fulfilling any obligations still outstanding under the terms of business
(13)	Execution-only transactions	The firm is entering into or bringing about any execution-only transaction except:
		(a)	a transaction in a contingent liability investment with or for a private customer; or
		(b)	where the firm is entering into a distance contract with a retail customer, unless the contract:
			(i)	relates solely to dealing as agent, advising or arranging by the firm; and
			(ii)	is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.11.3 R)
(14)	Direct offer financial promotion	The firm is concluding a contract with a customer as a result of a direct offer financial promotion to which COB 3.9 (Direct offer financial promotions) applies. (COB 4.2.5 R (Requirement to provide terms of business to a customer) may therefore apply for a contract concluded as a result of a direct offer financial promotion communicated to a person outside the United Kingdom.)
(15)	The customer is an intermediate customer and not a retail customer	The firm must provide terms of business within a reasonable period of the firm beginning to conduct business with or for the customer

COB 4 Annex 2 1Terms of business content - general

COB 4 Annex 2.1 E 01/12/2004

1Content of terms of business provided to a customer: general requirements

This table belongs to COB 4.2.11 E

A firm's terms of business (including a client agreement) provided to a customer should, where relevant, include some provision about:
(1)	Commencement of the terms of business When and how the terms of business are to come into force.
(2)	Regulator The firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory Status Disclosure)).
(3)	Investment objectives The customer's investment objectives.
(4)	Restrictions
	(a)	Any restrictions on:
		(i)	the types of designated investment in which the customer wishes to invest; and
		(ii)	the markets on which the customer wishes transactions to be executed; or
	(b)	that there are no such restrictions.
(5)	Services The services the firm will provide.
(6)	Payments for services Details of any payment for services payable by the customer to the firm, including where appropriate:
	(a)	the basis of calculation;
	(b)	how it is to be paid and collected; and
	(c)	how frequently it is to be paid;
	whether or not any other payment is receivable by the firm (or to its knowledge by any of its associates) in connection with any transaction executed by the firm, with or for the customer, in addition to or in lieu of any fees.
(7)	Investment manager If the firm is to act as an investment manager:
	(a)	the arrangements for giving instructions to the firm and acknowledging those instructions;
	(b)	the initial value of the managed portfolio;
	(c)	the initial composition of the managed portfolio; and
	(d)	the period of account for which statements of the portfolio are to be provided in accordance with COB 8.2.4 (Requirement for a periodic statement) (where periodic statements are required).
(8)	Accounting The arrangements for accounting to the customer for any transaction executed on his behalf.
(9)	Cancellation and withdrawal
	(a)	In the case of a non-packaged product ISA, PEP or CTF, an explanation of any right to withdraw (see COB 6.7 (Cancellation and withdrawal)) or, if it is the case, a statement that such rights will not apply.3
	(b)	(In the case of ISAs), information about:
		(i)	the options available on cancellation;
		(ii)	how cancellation will operate in circumstances where the account forms part of, for example, a maxi-ISA which contains other components; and
		(iii)	a statement that the effect of cancelling the last component has the effect of cancelling the entire ISA agreement and may also (where it is the case) delay the customer from entering into another ISA agreement until the next tax year.
(10)	Unsolicited real time financial promotion In the case of a private customer, the circumstances, if any, in which the firm or its representative or employees may communicate an unsolicited real time financial promotion to the private customer.
(11)	Acting as principal That the firm may act as principal in a transaction with the customer, if this is the case.
(12)	Conflict of interest and material interest When a material interest or conflict of interest may or does arise, the manner in which the firm will ensure fair treatment of the customer as required by COB 7.1.3 R (Fair treatment).
(13)	Broker fund adviser If the firm acts as a broker fund adviser for a private customer, a statement explaining the nature of the firm's dual role as adviser to the customer and adviser to the life office or operator in question.
(14)	Use of soft commission agreements If the firm is to be authorised under the terms of business to undertake transactions with or through the agency of another person with whom the firm has a soft commission agreement, the prior disclosure required by COB 2.2.16 R (Prior disclosure).
(15)	Customer's understanding of risk When a firm chooses to fulfil its obligations under COB 5.4.3 R (Requirement for risk warnings) in the terms of business in relation to any of the following:
	(a)	warrants or derivatives;
	(b)	non-readily realisable investment;
	(c)	penny shares;
	(d)	securities which may be subject to stabilisation;
	(e)	stock lending activity;
	(f)2	a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6);2
	the relevant risk warning.
(16)	Unregulated collective investment scheme That the services to be provided by the firm will or may include advice on investments relating to, or executing transactions in units in unregulated collective investment schemes, if this is the case.
(17)	Underwriting That the firm may enter into transactions for the customer, either generally or subject to specified limitations, when the customer will incur obligations as an underwriter or sub-underwriter, if this is the case.
(18)	Stock lending In the case of a private customer, that the firm may undertake stock lending activity with or for the private customer (if this is the case), specifying the assets to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the private customer in respect of the lending.
(19)	Right to realise a private customer's assets The information required by COB 7.8.3 R (Contractual rights to realise a private customer's assets), if applicable.
(20)	Complaints procedure How to complain to the firm, and a statement, if relevant, that the customer may subsequently complain directly to the Financial Ombudsman Service.
(21)	Compensation Whether or not compensation may be available from the compensation scheme, should the firm be unable to meet its liabilities, and information about any other applicable named compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained. (See the example in COB 5.5.11 G (Investment firms: compensation information)).
(22)	Termination method How the terms of business may be terminated, including a statement:
	(a)	That termination will be without prejudice to the completion of transactions already initiated, if this is the case;
	(b)	That the customer may terminate the terms of business by written notice to the firm and when this may take effect;
	(c)	That if the firm has the right to terminate the terms of business, it may do so by notice given to the customer, and specifying the minimum notice period, if any; and
	(d)	of any agreed time after which, or any agreed event on which, the terms of business will terminate.
(23)	Termination consequences The way in which transactions in progress are to be dealt with upon termination.
(24)	Contracting out of best execution When the obligation to provide best execution can be and is to be waived, a statement:
	(a)	that the firm does not owe a duty of best execution; or
	(b)	the circumstances in which it does not owe such a duty.
(25)	Authorised professional firms If the firm is an authorised professional firm and may conduct a non-mainstream regulated activity with or for the customer (whether with or without any other regulated activity for the same customer), an explanation, with respect to that activity, of:
	(a)	how to complain to the firm, where the customer may subsequently complain and the mechanisms that operate in respect of such a subsequent complaint; and
	(b)	what, if any, compensation arrangements are available to the customer if the firm is unable to meet any of its liabilities, or the availability of an explanation describing those arrangements.

COB 4 Annex 3 1Terms of business content - managing investments

COB 4 Annex 3.1 E 01/12/2004

1Content of terms of business provided to a customer: managing investments on a discretionary basis

This table belongs to COB 4.2.11 E.

Managing investments on a discretionary basis
Additional contents in respect of discretionary management In respect of discretionary management, terms of business (including a client agreement) provided to a customer should, in addition, include some provision about each of:
(1)	Extent of discretion
	(a)	the extent of the discretion to be exercised by the firm, including any restrictions on:
		(i)	the value of any one investment; and
		(ii)	the proportion of the portfolio which any one investment or any particular kind of investment may constitute; or
	(b)	that there are no such restrictions.
(2)	Periodic statements
	(a)	The frequency of any periodic statements, except when a periodic statement is not required by COB 8.2.7 (Promptness, suitable intervals and adequate information); and
	(b)	whether those statements will include some measure of performance, and if so, what the basis of that measurement will be.
(3)	Valuation
(3)	The basis on which assets comprised in the portfolio are to be valued.
(4)	Borrowings
	That the firm may commit the customer to supplement the funds in the portfolio, including borrowing on his behalf, if this is the case, and, if it may:
	(a)	the circumstances in which the firm may do so;
	(b)	whether there are any limits on the extent to which the firm may do so and, if so, what those limits are; and
	(c)	any circumstances in which such limits may be exceeded.
(5)	Underwriting commitments
	If it is the case, that the firm may commit the customer to any obligation to underwrite or sub-underwrite any issue or offer for sale of securities, and:
	(a)	whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and
	(b)	whether there are any financial limits on the extent of the underwriting and, if so, what these limits are.

COB 4 Annex 4 1Initial disclosure document required by COB 4.3.9R(1) ("IDD")

COB 4 Annex 4.1 R 01/12/2004

This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

COB 4 Annex 5 1Combined initial disclosure document required by COB 4.3.9R(2) ("CIDD")Combined initial disclosure document ("CIDD")

R 01/12/2004

This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

COB 4 Annex 6 1Fees and Commission Statement template and completion notes

COB 4 Annex 6.1 R 01/12/2004

This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

COB 4 Annex 7R 1Identifying the maximum rate of commission (or equivalent), the market average and the example

COB 4 Annex 7.1 R 01/12/2004

Identifying and describing the maximum rate of commission (or equivalent), the market average and the Example
1.	A firm must state in each fees and commission statement it issues:
	(a)	its maximum rate of commission (or equivalent) for each product group in the statement;
	(b)	the market average rate for each product group;
	(c)	an illustration in the example column of an amount of commission (or equivalent) calculated by reference to its maximum rate for each product group in the statement and the example contribution levels stated in the tables (ie eg £100 per month or £10,000 lump sum).
Maximum rate of commission (or equivalent)
2.	The maximum rate of commission (or equivalent) specified by a firm must be the maximum amount that the firm decides to retain.
3.	If the maximum commission (or equivalent) is not apparent from the rates supplied by a product provider then a firm must adopt the net present value comparison method set out below.
4.	For any product group, the maximum rate of commission (or equivalent) must not be more than a firm could reasonably expect to receive from any product provider.
Identifying a maximum rate of commission - comparison of net present value
5.	A firm must use the assumptions set out in paragraphs 8-12 below when calculating the maximum commission figures to be inserted into its fees and commission statement. Where a firm uses a tool provided by the FSA for this express purpose (for example a calculator provided by the FSA on a cd-rom for the purpose of calculating the maximum commission figures), the calculations can be presumed to have used these assumptions.
6.	The net present value for each commission (or equivalent) rate must be calculated as the sum of the discounted values of each commission (or equivalent) payment that the firm may retain for that commission (or equivalent) rate, using the assumptions set out in paragraphs 8-12 below.
7.	For any product group, the firm's maximum rate of commission (or equivalent) is the commission (or equivalent) rate in that product group with the highest net present value.
8.	A firm must use the assumptions outlined in Table 1 when calculating net present values.

Table of assumptions to be used in calculating net present values.

	a)	b)	c)	d)	e)
Product	Discount Rate	Net growth rate	Lapse rate (per annum)	Assumed Term	Withdrawal rate (per annum)
Regular premiums/contributions
Collective investment scheme	Net growth rate + 3%	6%	6%	10 years
Endowment	Net growth rate + 3%	6%	6%	Maturity
Personal Pensions / SHP	Net growth rate + 3%	6%	12% for 5 years then 5%	Maturity
Whole of Life	Net growth rate + 3%	6%	6%	37 years
Single premiums/contributions
Annuities	Net growth rate + 3%	6%	0%	16 years
Bonds	Net growth rate + 3%	6%	2.5%	7 years	5%
Collective investment scheme	Net growth rate + 3%	6%	6%	7 years
Personal Pensions / SHP	Net growth rate + 3%	6%	2.5%	10 years
Income withdrawals	Net growth rate + 3%	6%	0%	10 years	6%

Commission (or equivalent) payments must be assumed to be payable as outlined in

The timing of commission (or equivalent) payments

Type of commission (or equivalent payment)	When payable
Initial / indemnified commission	immediately at outset of the contract
Commission as a % of premiums	at the time of payment of the relevant monthly premium
Commission as a % of fund value	at the end of each policy month, immediately after any withdrawals and lapses, at a monthly rate of 1/12th of the annual % of the fund value

10.	Withdrawals must be assumed to occur monthly at a rate that is 1/12th of the assumed annual withdrawal rate.
11.	Lapses must be assumed to occur monthly, at a rate that is 1/12th of the assumed annual lapse rate. In calculating the net present value, no commission should be assumed to be payable on the proportion of policies that are assumed to have lapsed.
12.	Mortality rates must be ignored.
Describing the maximum rate of commission (or equivalent)
13.	Subject to paragraph 14, a firm must use each appropriate description in (ie one or more) to describe the maximum rates of commission (or equivalent) in its fees and commission statement.

COB 4 Annex 7R Table 3

Type of commission (or equivalent)	Descriptions
Regular premium or contributions	i. "X% of the first 12 month's payments"
	ii. "X % of each of the first n month's payments"
	iii. "Y% of all payments"
	iv. "Y% of all payments from month p"
	v. "Z% of your fund value each year from year q".
Lump sums	i. "X% of the amount you invest"
	ii. "Z% of your fund value each year from year q"

14.	A firm must adapt any of the descriptions prescribed by Tables 3 so that its fees and commission statements adequately describe the particular characteristics of a firm's commission (or equivalent) arrangements. For example, a firm can and should re-express the percentage figure, in the description taken from Table 3, in a "shape" (that is a description of the pattern of payments) that it considers to be typical of the way in which it retains commission (or equivalent). This may differ from the shape in which the particular maximum rate of commission (or equivalent) is actually payable. Another example of the way in which a firm should adapt the descriptions in Table 3 is if the commission received by a firm is payable as a fixed cash amount per policy then alternative wording should be used by the firm to adequately describe the fixed nature of the payment in its description of the rate of commission.
15.	A firm that uses more than one of the descriptions in must make it clear that it has used more than one description (eg by inserting the word "plus" in between each description).
16.	The maximum rate of commission (or equivalent) must be rounded to the nearest 0.1% unless the commission (or equivalent) is a multiple of 0.25% of a fund value in which case it should be shown rounded to the nearest 0.25%.
Identifying and describing the market average
17.	The FSA will publish the net present value of market average rates on its website from time to time.
18.	A firm must express the market average rate in the shape or pattern of payments which most closely corresponds to the number, frequency and nature of payments in the shape or pattern of payments used to describe the firm's maximum commission (or equivalent).
19.	A firm can use any suitable tool or method to re-express the market average in its fees and commission statements, as long as that method uses the assumptions set out in 8-12 above (for example a calculator contained on a cd-rom of the type referred to in paragraph 5).
20.	The market average rate shown in the fees and commission statement must be a re-expression of the published net present value of the market average using the assumptions set out in 8-12 above. Subject to any rounding in the final description, this re-expression should have the same net present value as the published market average.
21.	A firm must describe the market average rate using the most appropriate description in the Descriptions column in Table 3. The market average may be equivalently expressed by adopting the method set out in the worked example in COB 4 Annex 9G below, used in conjunction with tables of net present value factors that will be made available by the FSA. These factors will be calculated using the assumptions set out above. Alternatively, the market average expression may be expressed using such other tools, systems or methods as the FSA may make available from time to time.
Changes in the market average
22.	A firmmust ensure that its fees and commission statement are revised to take account of changes in the market average rates published by the FSA by not later than:
	(a)	2 months from the date on which the FSA prescribes amended market average rates if the effect of the amendment is to reduce any of the averages for a relevant product group by 4% or more of the previous average; and
	(b)	in all other cases at such time as the firm has occasion to revise its statements.
The example
23.	Subject to paragraph 25, a firm must use, in the example in its fees and commission statement, the description in Table 4 that corresponds to description(s) of the maximum rate of the commission (or equivalent) that appears in its fees and commission statement.

COB 4 Annex 7 R Table 4

Type of commission (or equivalent )	Description of the maximum rate of commission (or equivalent )	Corresponding description to be used in the example
Regular premium or contributions	i. "X% of the first 12 month's payments"	i. "£X initially"
	ii. "X % of each of the first n month's payments"	ii. "£X spread evenly over the first n months"
	iii. "Y% of all payments"	iii. "£Y each year"
	iv. "Y% of all payments from month p"	iv."£Y each year from month p"
	v. "Z% of your fund value each year from year q".	v. "£Z in year p, £Z + A in year p + 1, and so on (the actual amounts will vary in line with your fund value)"
Lump sums	i. "X% of the amount you invest"	"£X initially"
	ii. "Z% of your fund value each year from year q"	"£Z each year from year p (The actual amounts will vary in line with your fund value)"

24.	A firm that uses more than one of the descriptions in Table 4 must make it clear that it has used more than one description (eg by inserting the word "plus" in between each description).
25.	A firm must adapt any of the descriptions prescribed by Tables 3 and 4 as are necessary to ensure that a fees and commission statement adequately describes the particular characteristics of a firm's commission (or equivalent) arrangement. Examples of the way in which the descriptions could be adapted are provided in paragraph 14 above.

COB 4 Annex 8 1Worked example of commission disclosure in a fees and commission statement

COB 4 Annex 8.1 G 01/12/2004

This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

COB 4 Annex 9 1Example of a completed fees and commission statement

COB 4 Annex 9.1 G 01/12/2004

This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

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