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COB 6.7 Cancellation and withdrawal

Application

COB 6.7.1R

COB 6.7 applies to:

  1. (1)

    a product provider except when providing a non-investment insurance contract8;

  2. (1A)

    a CTF provider;9

  3. (2)

    an insurer which provides pure protection contracts which are long-term care insurance contracts8;

  4. (3)

    a firm when acting as an EIS manager, ISA manager, CTF provider or plan manager, or when selling on to a customerunits which the firm has bought or redeemed as principal for that purpose;910

  5. (4)

    a deposit-taking firm, when acting as ISA manager, CTF provider or as the firm responsible for holding deposits in respect of another firm's cash deposit ISA or cash deposit CTF;9

  6. (5)

    the operator of a personal pension scheme or a 12stakeholder pension scheme;5

  7. (6)

    a firm which enters into distance contracts with retail customers, the making or performance of which constitutes, or is part of:5

    1. (a)

      dealing as agent, advising or arranging in relation to designated investments, unless the distance contract is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.10.6 G);5

    2. (b)

      any other designated investment business; or5

    3. (c)

      accepting deposits;5

    but not including a distance contract entered into by an appointed representative as principal.5

COB 6.7.2G

COB 6.7 (Cancellation and withdrawal) does not act to cancel distance contracts entered into by an appointed representative as principal to provide intermediation services to a retail customer. Regulations 9 (Right to cancel) to 13 (Payment for services provided before cancellation) of the Distance Marketing Regulations may apply instead (see regulation 4(3)).578

COB 6.7.3G

5[deleted]42

COB 6.7.4G

COB 6.7.5 G summarises the applicable cancellation and withdrawal rights and the maximum period of reflection. Firms should have regard to the detailed rules and guidance in all cases, particularly for the detailed exemptions.5

COB 6.7.5G

5Cancellable investment agreements.

This table belongs to COB 6.7.4 G

7779777999999999977999999912

Cancellable investment agreements

Post-sale right to cancel?

Pre-sale right to withdraw?

Maximum period of reflection (but see COB 6.7.11 R)

A. Contracts where the right arises regardless of means of sale.

Appropriate personal pension (APP)

Yes5, 67

No

30 days

Cash deposit ISA

Yes5, 67

No

14 days

Life policy (including pension annuity or within ISA or CTF)9 or a personal pension scheme12

12

Yes1, 5, 6, 129

No1

30 days712

Stakeholder pension scheme (SHP)

Yes1, 5, 67

No1

30 days7

Certain variations of existing life policies, personal pension schemes12 and SHP's

12

Yes1, 5, 6, 89

No1

30 days7

B. Contracts where the right arises only if advice is given or if sold by distance contract.

Units in an AUT, recognised scheme or ICVC (within an ISA or PEP)

(1) if sold by distance contract;

No

No

(2) if sold otherwise with advice

Yes4

No4

14 days

Units in an AUT, recognised scheme or ICVC (within a CTF):9

(1) if sold by distance contract9

Yes10, 129

No9

(2) non-stakeholder CTFs not sold by distance contract sold with advice9

Yes11, 129

No9

(3) non-stakeholder CTF not sold by distance contract sold without advice9

No9

No9

(4) stakeholder CTFs not sold by distance contract9

No9

No9

ISA, PEP or CTF not mentioned in any other row9

(1) if sold by distance contract

Yes5, 6, 129

No

14 days

(2) if sold otherwise with advice

No

Yes3, 99

7 days

Units in an AUT, recognised scheme or ICVC (outside an ISA, PEP or CTF)9

(1) if sold by distance contract

No

No

(2) if sold otherwise with advice

Yes

No

14 days

EIS

(1) if sold by distance contract

Yes5, 6

No

14 days

(2) if sold otherwise with advice

No

Yes3

7 days

C. Contracts where the right arises for distance contracts only

Distance contract to accept deposits

Yes5, 6

No

14 days

Distance contract not mentioned in another row the making or performance of which constitutes, or is part of, designated investment business

Yes5, 6, 7

No

14 days

Notes:

1. For a pension annuity or pension transfer (and a relevant variation), the firm can, in certain circumstances, choose to provide the right to cancel, in whole or part, through a right to withdraw in COB 6.7.19 R. A firm may offer a right to withdraw, even where there is no right to cancel.7

72. [Deleted]

3. There is no right to withdraw for a second or subsequent EIS or ISA, or (for an EIS or non-packaged product ISA or PEP) where the firm has previously disclosed to the customer that no such rights will apply.

4. For units in an AUT, recognised scheme or ICVC (within an ISA or PEP), the firm can choose to offer a seven-day pre-sale right to withdraw rather than a post-sale right to cancel (see COB 6.7.14 (1)). There is no right to cancel or withdraw for a second or subsequent ISA.

5. There is no post-sale right to cancel for a distance contract where the price depends on fluctuations in the financial market place outside the firm's control which may occur during the cancellation period.

6. There is no post-sale right to cancel for a distance contract:

(a) where the performance of the distance contract has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel; or

(b) where a firm has an initial service agreement with the customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.11.3 R).9

In the case of life policies held within a CTF sold by distance contract, the right to cancel applies only to any initial service agreement.9

7. For a distance contract to give advice, arrange deals, or deal as agent see COB 1.11.3 R (Distance contracts for intermediation services).

8. There is no right to cancel for variations of life policies held within a CTF.9

9. For contracts relating to a CTF, there is no right to withdraw.9

10. The initial service agreement is cancellable.9

11. The cancellation rules that apply are the same as those that apply to the underlying investments.9

12. Where a right to cancel applies to an agreement relating to a CTF that has been opened, the money may be reinvested but will not be returned to the private customer.98

13. A private customer's right to cancel a contract for a SIPP may lapse in certain circumstances (see COB 6.7.13A R (Right to cancel a personal pension deposit, a personal pension product or a SIPP)).1232

Purpose

COB 6.7.6G

COB 6.7 reinforces Principle 6 (Customers' interests), which requires a firm to pay due regard to the interests of its customers and treat them fairly. In certain circumstances, customers who are entering into an investment agreement will be entitled to a period of reflection during which they can decide whether to proceed with their purchase.

Post-sale right to cancel56

COB 6.7.7R

A retail customer has a right to cancel:56

  1. (1)

    a contract specified in row 1 of COB 6.7.15 R or COB 6.7.17 R, unless the right to cancel is disapplied or replaced by anything in row 2 of COB 6.7.15 R or COB 6.7.17 R;5

  2. (2)

    a contract to join 12a stakeholder pension scheme, a personal pension deposit, a personal pension product or a SIPP12 for which a right to cancel applies under COB 6.7.12 R;5 or COB 6.7.13A R;12

    12
  3. (3)

    a contract for a cash deposit ISA, unless the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R, or a cash deposit CTF if the cash deposit CTF is sold by distance contract;579

  4. (4)

    a variation of a life policy, personal pension scheme12 or stakeholder pension scheme for which a right to cancel applies under COB 6.7.23 R, COB 6.7.23A R and COB 6.7.26A R.46

    12
COB 6.7.8R

The trustees of an occupational pension scheme, the operator of a personal pension scheme12 or the trustees and managers of a stakeholder pension scheme must be treated so far as necessary as a retail customer for the purposes of the cancellation rules , and acquire the same right to cancel as a retail customer.5

COB 6.7.9G
  1. (1)

    COB 6.7.8 R applies, for example,12 when trustees or operators of a personal pension scheme12 purchase life policies or schemes as investments of their pension schemes. Individual members of a personal pension scheme or a 12stakeholder pension scheme12 have a right to cancel initial membership of the scheme and, in some circumstances, a subsequent variation of their contributions.

    12
  2. (2)

    A product provider or operator of a stakeholder pension scheme may be unsure whether any of the situations in row 2 of COB 6.7.17 R applies to the contract in question. In such circumstances the product provider or operator of a stakeholder pension scheme may find it convenient to contract with an intermediary for the provision of documentary evidence needed to confirm the status of customers. However, the responsibility for ensuring compliance with the cancellation rules remains with the product provider or operator of a stakeholder pension scheme.57

5Cancellation period

COB 6.7.10R

When a retail customer has a right to cancel under COB 6.7.7 R, that right must (unless COB 6.7.11 R applies) be exercised:5

  1. (1)

    (in the case of a life policy, personal pension scheme 12or stakeholder pension scheme) within 30 days; or5

    12
  2. (2)

    (in any other case) within 14 days.5

COB 6.7.10AR

5The cancellation period begins on:

  1. (1)

    (other than for distance contracts, cash deposit ISAs and CTFs) the date the customer receives the reminder notice of his right to cancel in accordance with COB 6.7.30;9

  2. (2)

    (for distance contracts , cash deposit ISAs and CTFs) the later of:9

    1. (a)

      (for a life policy ) the day the retail customer is informed that the contract has been concluded; or

    2. (b)

      (for any other contract) the day of the conclusion of the contract; or

    3. (c)

      the day on which the retail customer receives the contractual terms and conditions and other information required by COB 3.9, COB 4.2 or COB 6, as applicable.

COB 6.7.11R

Where the terms of the firm's contract give the retail customer a longer period to cancel (that is, in excess of the 14 or 30 days specified), the firm must disclose in the information about the right to cancel the differences between the retail customer's rights under COB 6.7.10 R and the terms of the contract, which operate independently.5

Right to cancel a stakeholder pension scheme

COB 6.7.12R
  1. (1)

    A retail customer who has entered into a contract for a stakeholder pension scheme has a right to cancel, unless:

    1. (a)

      the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R57; or12

    2. (b)

      the relevant transaction is funded (wholly or partly) by a pension transfer, but only if and to the extent that the right to cancel has been replaced by a right to withdraw (see COB 6.7.17 R (Cancellable contracts and exceptions - non-life)).12

    12
  2. (2)

    When the retail customer has entered into a contract for a stakeholder pension scheme involving recurring contributions to that stakeholder pension scheme, only the first contribution will attract a right to cancel provided that:5

    1. (a)

      the intention or option to make regular contributions has been disclosed in advance of the retail customer entering into the investment agreement; and5

    2. (b)

      the retail customer's intention to make regular contributions is evidenced.5

COB 6.7.13G

For the purposes of COB 6.7.12 R (2)(a), disclosure of the option to make regular contributions may, for example, take place in key features. For the purposes of COB 6.7.12 R (2)(b), a retail customer's intention to make regular contributions could, for example, be demonstrated by the establishment of a direct debit mandate or instructions to an employer to deduct regular contributions from salary.5

Right to cancel a personal pension deposit, a personal pension product or a SIPP12

COB 6.7.13AR

12A retail customer who has entered into a contract to join a personal pension deposit, personal pension product or a SIPP has a right to cancel, unless:

  1. (1)

    the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R (Cancellable contracts and exceptions - non-life);

  2. (2)

    the relevant transaction is funded (wholly or partly) by a pension transfer, but only if and to the extent that the right to cancel has been replaced by a right to withdraw (see COB 6.7.19 R (Cancellation substitute)); or

  3. (3)

    (in the case of a SIPP) the performance of the contract (to join the SIPP) has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel.

COB 6.7.13BG

12If a customer requests that a firm complete a transaction to join a SIPP before the expiry of the cancellation period, the firm should, in having regard to the information needs of the customer, make the customer aware that he will lose his right to cancel and satisfy itself on reasonable grounds that the customer understands the cost and other implications.

Pre-sale right to withdraw5

COB 6.7.14R

A retail customer has a right to withdraw an offer to enter into:5

  1. (1)

    an EIS , ISA or PEP:7

    1. (a)

      following advice on investments;7

    2. (b)

      which is not a distance contract;7

    3. (c)

      unless a right to cancel is offered under COB 6.7.7 R (3), COB 6.7.15 R or COB 6.7.17 R; and7

    4. (d)

      subject to cases 8 and 9 of row 2 COB 6.7.17 R;7

    the right to withdraw procedures are that the offer made by the customer to enter into the contract cannot be accepted by the firm until at least seven days after the offer is made; or57

  2. (2)

    a pension annuity or a pension transfer (or a relevant variation), to the extent that the right to cancel is provided through a right to withdraw under the procedures set out in COB 6.7.19 R.574

COB 6.7.15R

5Cancellable contracts and exceptions - life

This table belongs to COB 6.7.7 R (1).

9779

Cancellable contracts and exceptions- life

Long-term insurance contracts which a retail customer has a right to cancel under COB 6.7.7 R (1) (subject to row 2):

Row 1

A. life policy (whether or not held within an ISA or CTF - see notes 1, 2, 3, 6 and 7 in COB 6.7.16 R) (see COB 6.7.23 R regarding variation of an existing life policy);9

B. appropriate personal pension which is a pension policy;

C. pure protection contract.

Row 2

There is no right to cancel where any one or more of the following cases applies:

1. pension fund management policy (but see note 5 in COB 6.7.16 R);

2. life policy that relates to or is associated with securing benefits under a defined benefits pension scheme (but see note 5 in COB 6.7.16 R);

3. any life policy for a term of six months or less (unless note 3 in COB 6.7.16 R applies) (see also note 5 in COB 6.7.16 R);

3A. A pension policy that is itself a SIPP;12

4. pension policy funded (wholly or in part) from payments derived from:

12

(a)

a pension transfer, to the extent that the right to cancel is provided through the right to withdraw (see COB 6.7.14 R (2)), using the cancellation substitute in COB 6.7.19 R; or7

(b)

compensation or redress paid by a firm following a review undertaken in relation to a complaint;

5. traded life policy;

6. life policy effected by the trustees of an occupational pension scheme or the employer, or the manager or trustees of a stakeholder pension scheme that represents a:

(a)

pension buy-out contract; or

(b)

purchase of a without-profits deferred pension annuity; or

(c)

defined benefits pension scheme or a single premium payment to any occupational pension scheme with a pooled fund (that is, underlying investments are not earmarked for individual scheme members); or

(d)

purchase made to insure and secure members' pension benefits under a money-purchase occupational scheme or stakeholder pension scheme (unless it is the master, first or only policy);

7. pension annuity that is:

(a)

due to commence within a year and a day of the contract, to the extent that the right to cancel is provided through the right to withdraw (see COB 6.7.14 R (2)), using the cancellation substitute in COB 6.7.19 R; or7

(b)

funded (wholly or in part) from compensation or redress paid by a firm following a review undertaken in relation to a complaint;

8. the retail customer, other than an EEAECA recipient , at the time he signs the application, is habitually resident:

(a)

in an EEA State other than the United Kingdom (but see note 4 and note 5 in COB 6.7.16 R); or

(b)

outside the EEA and is not present in the United Kingdom;

9. pure protection contract effected by the trustees of an occupational pension scheme, an employer or a partnership to secure benefits for employees or the partners in the partnership;

10. life policy which is a distance contract where the price depends on fluctuations in the financial market place outside the firm's control which may occur during the cancellation period;

11. the contract is a distance contract where:

(a)

the performance of the distance contract has been fully completed by both parties at the retail customer's express request before the retail customer exercises his right to cancel; or

(b)

a firm has an initial service agreement with the retail customer and the contract is in relation to a successive operation or separate operations of the same nature under that agreement (see COB 1.10.2 G).9821
COB 6.7.16R

Notes to cancellable contracts and exceptions - life5

This table belongs to COB 6.7.15 R

5510855999

Notes to COB 6.7.15R:

1.

Recurring single premium life policy: Under certain conditions, only the first premium in what might be a series of premiums attracts cancellation rights under COB 6.7.7 R (1). The conditions are:

11

(a) the option to make a series of single premium payments is disclosed at outset (for example, in the key features); and

(b) the intention is evidenced (for example, by the retail customer establishing a direct-debit mandate).5

2.

Multiple contracts: Where a retail customer enters into a set of contracts at the same time (for example, the different components held within a maxi-ISA and with the same firm), and that set is being purchased to fulfil one investment objective of the retail customer, the firm may treat the multiple contracts as being one contract for the purposes of COB 6.7. But if it does so, the firm must ensure that the customer retains a right to cancel each contract separately. This note applies also to a group of 10life policies8 which have been established as part of a specific marketing arrangement. Such an arrangement may not have an investment objective.5 The cancellation rights for any non-investment insurance contracts are set out in ICOB 6.108

8

3.

A purchaser of a single premiumpension policy has a right to cancel where the designated retirement date is within six months of the date of the policy , unless the policy falls within case 1, 4 or 7(b) of row 2.5

4.

For a customer , other than an EEA ECA recipient , habitually resident in an EEA State other than the United Kingdom , firms are reminded that they may need to apply cancellation in accordance with the requirements in that EEA State.

5.5

This exemption from giving a right to cancel does not apply for distance contracts.5

6.9

In the case of life policies held within CTFs that are distance contracts, the initial service agreement is cancellable.9

7.9

If the CTF has been opened the life insurer must not cancel the life policy until it has new instructions to deal with the proceeds in accordance with the CTF Regulations.9

8.9

In relation to Revenue allocated accounts, the life insurer must not accept any additional contributions until the cancellation period has expired without the right to cancel being exercised.91
COB 6.7.17R

5Cancellable contracts and exceptions - non-life

This table belongs to COB 6.7.7 R (1) and COB 6.7.14 R (1)

910109109910997

Cancellable contracts and exceptions - non-life

Contracts which a retail customer has a right to cancel under COB 6.7.7 R (1) (subject to row 2):

Row 1

A. pension contract (see notes 1, 2 and 4 in COB 6.7.18 R);

B. appropriate personal pension which is a pension contract (see note 4 in COB 6.7.18 R);

C. subscriptions (but see notes 1, 2 and 5 in COB 6.7.18 R) which can be invested only in units (whether or not held within an ISA, PEP, pension contract, personal pension product or SIPP12) in an AUT , recognised scheme or ICVC purchased from:910

(a)

the operator; or10

(b)

its associate acting as an ISA manager or plan manager;910

D. distance contracts (but see notes 6 and 8 in COB 6.7.18 R) (whether or not held within a CTF ) (other than for a life policy, stakeholder pension scheme, personal pension deposit, personal pension product, SIPP,12 cash deposit ISA, cash deposit CTF or a contract in A, B or C) the making or performance of which by the firm constitutes or is part of:9

(a)

dealing as agent, advising or arranging in relation to designated investments, unless the distance contract is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.9.2 G (3)); or

(b)

any other designated investment business; or

(c)

accepting deposits.

E. subscriptions (but see note 7 in COB 6.7.18 R) which can be invested only in units held within a non-stakeholder CTF (other than a contract contained in D) in an AUT , recognised scheme or ICVC purchased from a CTF provider, where advice is given.9

Row 2

There is no right to cancel where any one or more of the following cases applies:

1. the customer is not a private customer (but see note 5 in COB 6.7.18 R);

2. the contract is entered into with the firm as an execution-only transaction (unless note 4 or note 5 in COB 6.7.18 R applies);510

3. the contract is entered into through a direct offer financial promotion (unless note 4 or note 5 in COB 6.7.18 R applies);

4. the contract represents an exchange of units between sub-funds;

5. the contract represents a defined benefits pension scheme (but see note 5 in COB 6.7.18 R);

6. the contract is entered into under a customer agreement or during negotiations (which are not ISA , PEP or CTF related) intended to lead to a client agreement (unless note 4 or note 5 in COB 6.7.18 R applies);9

7. the contract relates to an ISA or PEP for which the right to cancel is replaced by the right to withdraw (but see COB 6.7.14 R (1) and note 5 in COB 6.7.18 R);

8. the contract relates to an EIS or non-packaged product ISA, PEP or CTF and is entered into, following advice on investments, and following an explanation that neither of the rights specified in case 7 will apply, given to the customer in accordance with COB 3.9.21 R or COB 4 Ann 2E(9)(a) in a direct offer financial promotion , terms of business, or given in EIS particulars (but see note 5 in COB 6.7.18 R);9

9. the contract entered into is a second or subsequent ISA (or EIS) on substantially the same terms (see note 3 in COB 6.7.18 R) as an ISA (or EIS) purchased from the same ISA manager (or EIS manager) in the previous tax year (but see note 5 in COB 6.7.18 R);

10. the contract relates to a change from accumulation units to income units or vice versa, in the same scheme;

11. pension contract funded (wholly or in part) from payments derived from compensation or redress paid by a firm following a review undertaken in relation to a complaint;

12. pension contract funded (wholly or in part) from payments derived from a pension transfer to the extent that the right to cancel is provided through a right to withdraw (see COB 6.7.14 R (2)) using the cancellation substitute in COB 6.7.19 R;7

12

13. the contract relates to a recognised scheme and the agreement is with an operator who is not:

(a)

an authorised person; or

(b)

carrying on business in the United Kingdom;

14. the contract relates or would relate to exported products, that is to say:

(a)

where the customer is not habitually resident in the United Kingdom (or, for a distance contract , EEA) at the date of the offer of the contract; or

(b)

the firm has reasonable grounds for assuming that no advice on investments about the contract was provided by anyone carrying on designated investment business in the United Kingdom (but see note 5 in COB 6.7.18 R;

15. for distance contracts:

(a)

the price depends on fluctuations in the financial market outside the firm's control which may occur during the cancellation period, such as contracts related to:

(i)

foreign exchange; or

(ii)

money market instruments; or

(iii)

transferable securities; or

(iv)

units in collective investment undertakings; or

(v)

financial-futures contracts, including equivalent cash-settled instruments; or

(vi)

forward interest-rate agreements; or

(vii)

interest-rate, currency and equity swaps; or

(viii)

options to acquire or dispose of any instruments in (i) to (vii), including cash-settled instruments and options on currency and on interest rates; or

(b)

the performance of the distance contract has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel; or

(c)

the firm has an initial service agreement with the customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.10.2 G).32
COB 6.7.18R

Notes to cancellable contracts and exceptions - non-life5

This table belongs to COB 6.7.17 R

5105999

Notes to COB 6.7.17R:

1.

Recurring single payment pension contracts and unit savings plans. Under certain conditions, only the first payment in what might be a series of payments attracts cancellation rights under COB 6.7.7 (1). The conditions are:

(a)

the intention or option to make a series of single payments is disclosed at outset (for example, in key features); and

(b)

the intention is evidenced (for example, by the customerestablishing a direct debit mandate) .

2.

Multiple contracts. Where a customer enters into a set of contracts at the same time (for example, regarding different components held within amaxi-ISA) and with the same firm, and that set is being purchased to fulfil one investment objective of the customer, thefirm may treat the contracts as being one contract for the purposes of COB 6.7. But if it does so, the firm must ensure that the customer has a right to cancel each contract separately.105

3.

For example, mini- to mini-ISA or maxi- to maxi-ISA would be regarded in this context as 'on substantially the same terms'.

4.

A customer has a right to cancel an appropriate personal pension or pension contract at the outset and on any subsequent agreement for a variation of a pension contract (seeCOB 6.7.23 regarding variation of an existing contract).

5. 5

This exemption from giving a right to cancel does not apply for distance contracts.5

6.9

In the case of contracts held within CTFs, the initial service agreement is cancellable in all cases.9

7.9

Cancellation rights exist only where the registered contact has received advice. In cases in which cancellation rights apply, they are the same as the cancellation rights that would apply to the underlying units if they were not held within a CTF.9

8.9

In relation to Revenue allocated accounts, the firm must not accept any additional contributions until the cancellation period has expired without the right to cancel being exercised.9
COB 6.7.19R

Cancellation substitute

This table belongs to COB 6.7.12 R, COB 6.7.13A R (2),12COB 6.7.14 R (2), cases 4(a) and 7(a) of row 2 to COB 6.7.15 R, case 12 of row 2 to COB 6.7.17 R, COB 6.7.23 (3) and COB 6.7.26A (2).57

5575755557

Cancellation substitute

The retail customer's right to cancel under COB 6.7.7 R (1); COB 6.7.7 R (4) or COB 6.7.13A R (2) is provided through (see note 2) a right to withdraw only if: 5712

1.

the firm has supplied (or has reasonably relied upon another firm to supply) to the retail customer, at least 14 days before the contract is concluded, a written notice (see note 1) which prominently states: 57

(a)

that the retail customer has a specified period in which to consider his pension options;57

(b)

the dates at which the period begins and ends (which must be, in the case of a pension transfer, before the transfer has been irrevocably effected);

(c)

the pension options available (for example, the open-market option in relation to a pension annuity);

(d)

the steps the retail customer must take in order to exercise a particular pension option;5

(e)

that the retail customer is entitled to key features and is advised to check with thefirm if the key features have not been received;5

(f)

the cost of any advice given to the retail customer in relation to the transaction; and5

2.

the firm has taken sufficient steps (or has reasonably relied upon the samefirm as in 1. to take those steps) to ensure that the customer has been informed and made fully aware of the potential advantages and disadvantages of proceeding and has had an opportunity to consider all other possible alternatives.

Notes:7

1. The notice must be issued separately or feature prominently as part of another document supplied to the customer.57

2. Where the retail customer's right to cancel is provided through a right to withdraw of less than 30 days, a further right to cancel of at least 30 days less the right to withdraw period must be provided in accordance with these rules so that the total period provided is at least 30 days.7
COB 6.7.20R

5[deleted]

Voluntary provisions

COB 6.7.21R

If anything in row 2 of either COB 6.7.15 R or COB 6.7.17 R removes the right to cancel a contract, but a firm voluntarily gives the retail customer a right to cancel in any event, the firm must treat the contract as if it were cancellable under COB 6.7.7 R (1).5

COB 6.7.22G
  1. (1)

    If the firm has any doubt whether a contract or the circumstances of its purchase bring the case within any part of COB 6.7.7 R (1), it should treat the contract as if it were cancellable.5

  2. (2)

    A firm that informs a retail customer that he has a right to cancel where it is not obliged to give a right to cancel will be taken to have voluntarily granted the retail customer a right to cancel (unless, for the purposes of COB 6.7.17 R, there is a relevant client agreement between the firm and the retail customer).5

Variations

COB 6.7.23R
  1. (1)

    After an increase in regular or single premiums or payments (including a pension transfer) to a life policy, personal pension scheme12 or stakeholder pension scheme, a retail customer has a right to cancel (see COB 6.7.7 R (4)) in the following circumstances,13 unless (2) or (2A) apply13:5

    1213
    1. (a)

      any variation, other than a 'pre-selected option' (see COB 6.7.26 G), providing for substantial increases in premium or payment where the increase:

      1. (i)

        is being paid by way of varying the existing contract; or 5

      2. (ii)

        will result in a new contract established on the same terms as the original contract; 5

      and, in each case, represents an increase on the original premium or payments (or the previous highest agreed premium or payment) of more than 25% (see COB 6.7.25 G); or

    2. (b)

      any variation, other than a 'pre-selected option' (see COB 6.7.26 G), that results in a new contract which involves fresh contract terms or imposes additional obligations on the retail customer due to a change in the terms of the original contract; or56

    3. (c)

      any variation where the increase represents the proceeds of a pension transfer; or56

    4. (d)

      the variation of a long-term care insurance contract to provide long-term care benefits.6

  2. (2)

    Paragraph (1) does not apply if:

    1. (a)

      there would have been no right to cancel the original contract under COB 6.7.7 R (1) had that agreement been entered into on the date of the variation; or5

    2. (b)

      the variation arises out of the settlement of a claim for damages or compensation connected with a previous contract; or59

    3. (c)

      the variation is in respect of a life policy held within a CTF.913

  3. (2A)

    13Paragraphs (1)(a), (b) and (d) do not apply if the variation is in respect of a SIPP.

  4. (3)

    A firm may use the cancellation substitute in COB 6.7.19 R in relation to a variation of a contract in any case where that substitute would have been available to it had the contract been entered into on the date of the variation.5

COB 6.7.23AR

6When under a long-term care insurance contract, a new contract is issued to provide for long-term care benefits, a policyholder who is an individual has a right to cancel unless COB 6.7.23 (2) applies.

COB 6.7.24G

For the avoidance of doubt, a right to cancel in relation to COB 6.7.23 R (1) applies to the variation and not the original contract.

COB 6.7.25G

In the case of COB 6.7.23 R (1)(a) and (b), there is no right to cancel where the variation results in an increase in premium or payment of 25% or less. For example, if the first premium paid by the customer (to the same policy) was £1,000, the second was £500, and the third was £900, the customer would have no right to cancel in relation to the third premium. Although £900 is more than 25% greater than £500, it is still below the original premium of £1,000. In this case, therefore, the right to cancel would only arise in circumstances where the premium was increased to over £1,250 (this being more than 25% of the original premium).

COB 6.7.26G

COB 6.7.23 R (1)(a) and (b) do not apply where the increase results from a pre-selected option. Increases of this type (for example, index-linked premiums or pension contributions that increase or decrease as salary fluctuates) will have been previously disclosed (for example, in the key features or terms and conditions) and agreed with the customer at the outset. Any subsequent increases of 25% or more resulting from a pre-selected option will not, therefore, attract fresh disclosure or cancellation rights.

COB 6.7.26AR
  1. (1)

    If a customer who is an individual varies an existing personal pension scheme or stakeholder pension scheme12 by exercising an option to make income withdrawals, he has a right to cancel that first variation.7

    12
  2. (2)

    A firm may use the cancellation substitute in COB 6.7.19 in relation to the right to cancel in (1).74

Electronic communication relating to cancellation and withdrawal

COB 6.7.27G

For electronic transactions (for example, facsimile, e-mail or Internet) firms are referred to the guidance in COB 1.8. The rules in COB 6.7 permit the firm to issue information about a right to cancel and other communications, and to accept notice from customers who are exercising the right to cancel or withdraw, by electronic means. However, a firm should be able to demonstrate that the customer wishes to communicate electronically.5

COB 6.7.28R

5[deleted]

COB 6.7.29G

5[deleted]

Reminding the customer of the right to cancel - contracts other than distance contracts and cash deposit ISAs5

COB 6.7.30R

Other than for distance contracts , cash deposit ISAs and CTFs that are not distance contracts, where there is a right to cancel, the firm which enters into the contract with the customer must send the customer, in writing, a clear and prominent reminder notice of this right:59

  1. (1)

    (for any contract specified in Part II of COB 6.7.57 to which shortfall applies), no later than the end of the eighth day; and5

  2. (2)

    (in any other case) no later than the end of the fourteenth day;5

after the contract is concluded.5

COB 6.7.31R

When the customer is a trustee or an operator of a personal pension scheme 12who is reasonably believed by the firm to be expected to act on the instructions of the individual beneficiary, scheme member12 or purchaser of the policy or contract, the firm must send the notice of the right to cancel in COB 6.7.30 R to:5

  1. (1)

    the trustee or operator, as appropriate12; and

  2. (2)

    the beneficiary, scheme member12 or purchaser;

and must inform the beneficiary, scheme member12 or purchaser of the need to give instructions, within the specified cancellation period, to the trustee or operator12 where the right to cancel is to be exercised.

COB 6.7.32R

5[deleted]

COB 6.7.33G

5[deleted]

COB 6.7.34R

5[deleted]

COB 6.7.35R

5[deleted]

COB 6.7.36R

5[deleted]

COB 6.7.37R

5[deleted]

COB 6.7.38G

5[deleted]

COB 6.7.39R

5[deleted]

COB 6.7.40G

5[deleted]

Failure to give information on cancellation rights5

COB 6.7.41G

If a firm does not give a retail customer information about his cancellation rights in accordance with COB App 1.1.1 R (17), the contract remains cancellable and the retail customer will not be liable for any shortfall (see COB 6.7.56 R (1)). 5

Exercising the right to cancel

COB 6.7.42R

A retail customer who has a right to cancel under COB 6.7.7 R may, without giving any reason, cancel the contract by serving notice upon the firm, before expiry of the relevant cancellation period either:5

  1. (1)

    by post to the firm's last known address; or5

  2. (2)

    in accordance with any other practical instructions for exercising that right provided to the customer in accordance with COB App 1.1.1 R (17)(b). 5

COB 6.7.43R

5[deleted]

COB 6.7.44R

Where the notice of cancellation is in a durable medium and served in accordance with COB 6.7.42, it must be treated as being served on the firm on the date it is despatched by the retail customer.5

COB 6.7.45G

The purpose of COB 6.7.44 R is to identify the relevant day for determining whether the right to cancel was exercised within the relevant period in COB 6.7.10 R.

COB 6.7.46G

In the event of any dispute, unless there is clear written evidence to the contrary, the firm should treat the date cited by the customer as being the date when the notice was given, posted or otherwise sent.5

Record keeping

COB 6.7.47R

Where notice of cancellation or withdrawal has been served on a firm (or its appointed representative or agent), the firm must make and retain records (which include a copy of any receipt of notice issued to the customer and the customer's original notice instructions):

  1. (1)

    indefinitely in the case of a record relevant to a pension transfer, pension opt-out or FSAVC;

  2. (2)

    for a minimum period of:

    1. (a)

      six years in the case of a record relevant to a life policy, personal pension scheme12 or stakeholder pension scheme; and

    2. (b)

      three years in any other case;

and, in each case, the minimum time period runs from the date when the firm first became aware that notice of cancellation had been served.

Cancellation notices served out of time

COB 6.7.48R

If a firm has provided information on cancellation rights in accordance with COB App 1.1.1 R (17), it need not (unless COB 6.7.11 R applies) accept a notice of cancellation if it is served later than the period specified for that contract in COB 6.7.10 R.5

Death of the life assured: cancellation of a pension annuity

COB 6.7.49R

A firm need not accept notice of cancellation of a pension annuity contract if the life (or any of the lives) assured under it has died before notice is given.

Joint policyholders: effecting cancellation of a life policy

COB 6.7.50R

In the case of a life policy, cancellation by one of several policyholders is valid if that policyholder has the right to cancel, irrespective of whether the policyholder is exercising that right alone or jointly on behalf of all of the policyholders.

Effects of cancellation

COB 6.7.51R

By exercising a right to cancel under COB 6.7.7 R (1), (2), (4), (5) or (6)12, the customer withdraws from the contract and:5

12
  1. (1)

    the entire contract; or5

  2. (2)

    the particular ISA component; or5

  3. (3)

    the variation alone (see COB 6.7.23 R (1));

is terminated.5

5Automatic cancellation of an attached distance contract

COB 6.7.51AG

5Regulation 12 (Automatic cancellation of an attached distance contract) of the Distance Marketing Regulations, has the effect that when notice of cancellation is given in relation to a contract, that notice also operates to cancel any attached distance financial services contract which does not fall within one of the exceptions to the right to cancel in regulation 11, unless the retail customer gives notice that cancellation of the main contract is not to operate to cancel the attached contract. So, for example, the attached contract will not be cancelled if the price of the service depends on fluctuations in the financial market outside the firm's control or if performance of the contract has been fully completed by both parties at the consumer's express request.7

7Obligations on cancellation

COB 6.7.52R

Unless the agreement relates to a CTF, when a retail customer exercises a right to cancel under COB 6.7.7 R:59

12
  1. (1)

    the firm must:5

    1. (a)

      pay to the retail customer (or, in the case of a pension transfer or pension annuity , for the benefit of the retail customer) without delay, and no later than 30 days after the date on which the firm received notice of cancellation from the retail customer, any sums which the customer has paid to or for the benefit of the firm in connection with the contract (including sums paid by the retail customer to agents of the firm) except for the amount referred to in (b);5

    2. (b)

      subject to (c), the firm is permitted to require the retail customer to pay for the services it has actually provided in connection with the contract; the amount payable, however, must be in accordance with the sums which the retail customer agreed to pay and must not:5

      1. (i)

        exceed an amount which is in proportion to the extent of the service already provided to the retail customer by the firm; and5

      2. (ii)

        be such that it could be construed as a penalty;5

    3. (c)

      sub-paragraph (b) applies only if:5

      1. (i)

        the contract is a distance contract within COB 6.7.17 R, Row 1, case D (Distance contracts for certain designated investment business or accepting deposits);5

      2. (ii)

        where performance of the contract has commenced before expiry of the cancellation period, this was requested by the retail customer; and5

      3. (iii)

        the firm can demonstrate that the retail customer was provided with details of the amount which he may be required to pay if exercising his right to cancel in accordance with COB App 1.1.1 R (17)(a). 5

  2. (2)

    The firm is entitled to receive without delay, and no later than 30 days after the date on which the customer posted or otherwise sent notice of cancellation to the firm:5

    1. (a)

      any sums or property or both that became the customer's under the contract; and5

    2. (b)

      payment of any shortfall due under COB 6.7.54 R.5

COB 6.7.52AR
  1. (1)

    9When a person exercises a right to cancel a contract in connection with a CTF that has been opened, the CTF provider must ensure that:

    1. (a)

      where the CTF provider and the firm that provides the underlying investment are different persons , any money that was held by the firm that provides the underlying investment in connection with the CTF is returned to the CTF provider as soon as reasonably practicable;

    2. (b)

      any sums which any person has paid to or for the benefit of any firm in connection with the CTF continue to be held in a CTF bank account until the CTF provider receives further instructions regarding the investment of those sums in accordance with the CTF Regulations

    3. (c)

      where a CTF provider holds sums in accordance with COB 6.7.52A, the CTF provider notifies the private customer in writing as soon as reasonably practicable, stating that the money is held awaiting re-investment instructions; and

    4. (d)

      if the CTF bank account is non-interest bearing, the registered contact is informed of that fact as soon as possible after the money has been deposited in the account.

  2. (2)

    When a person exercises the right to cancel a contract in connection with a CTF that has not been opened and the CTF provider holds money awaiting instructions, the CTF provider must comply with the requirements of COB 6.7.52A(1)(b), (c), and (d).

COB 6.7.52BG

9Where cancellation rights are exercisable by a customer in relation to a CTF , the CTF provider will need permission to hold client money to be able to deal with the money from the cancelled contract unless they can take advantage from any exemption from the client money rules.

COB 6.7.53R

Any sum payable under COB 6.7.52 R is owed as a simple contract debt, and any sums payable in respect of the same cancellation may where relevant be set off against each other.

Shortfall57

COB 6.7.54R

Subject to COB 6.7.56 R, the firm is entitled under COB 6.7.52 (3) to charge the retail customer for the market loss (that is, shortfall), calculated in accordance with COB 6.7.58 R, which the firm would incur in cancelling any contract specified in COB 6.7.57 R. 5

Shortfall: worked example

COB 6.7.55G

COB 6.7.58 R illustrates the process that firms need to undertake in order to discover the amount (that is, shortfall) by which the purchase price paid by the retail customer is greater than the purchase price prevailing when the firm becomes aware that the retail customer has cancelled. EXAMPLE: In the case of dual-priced investments , the shortfall on cancellation is calculated on an offer-to-offer basis; for example, 1,000 units are purchased at an offer price of 209.1p and the offer price is (or, in the case of a forward price , is subsequently ascertained to be) 196.2p as at the time when the firm became aware that notice of cancellation had been served by the retail customer. The shortfall on cancellation, therefore, is (209.1 - 196.2) = (12.9p x 1,000) = £129.5

Exceptions to shortfall

COB 6.7.56R

A firm will have no right to charge a retail customer for any shortfall which results from the customer having exercised a right to cancel in any of the following circumstances: 5

  1. (1)

    if the firm does not give the customer notice of his cancellation rights as required by COB 6.7 (17);5

  2. (2)

    if the firm fails to make any prominent mention of shortfall in the information about cancellation;5

  3. (3)

    if the firm has failed to send a reminder notice as required by COB 6.7.30 R (2); 5

  4. (4)

    if the customer has served the cancellation notice before the contract is concluded.5

COB 6.7.57R

Table: Contracts which are subject to shortfall.5

This table belongs to COB 6.7.54 R

555

Investment agreements which are subject to shortfall

Part I: any contract specified in row 1 of COB 6.7.15 R (unless note 1 applies):5

which is:

where the investment agreement is effected as a:

(1) a life policy

(2) a pension policy

(a) single premium life policy; or

(b) single premium pension policy; or

(c) single premium addition to an existing single or regular premium life policy orpension policy.

Part II: any contract specified in COB 6.7.13A R or row 1 of COB 6.7.17 R (unless note 2 applies):512

12

which is:

where the investment agreement is effected as:

(1) a pension contract

(1A) a personal pension product12

(2) a subscription to invest in an AUT

(3) a subscription to invest in an ICVC

(a) a single payment arrangement; or

(b) a single payment addition to an existing single or regular payment pension contract or unit savings plan.

Part III: a single contribution to a stakeholder pension scheme except where the contribution is a recurring contribution or the stakeholder pension scheme has been established at the outset on the basis of regular contributions.

Notes:

Shortfall does not apply to any contract which is established at the outset:5

1. on a regularpremium basis, or as a recurring single premium life policy or pension policy;

2. on a regular payment basis, or as a recurring single payment pension contract or unit savings plan.
COB 6.7.58R

Table: Calculation of shortfall.5

This table belongs to COB 6.7.54 R

55

Calculation of shortfall

A firm must calculateshortfallas at the 'relevant date' (see note 1) as follows:

A.

take the actual payment made, whether only or first payment (see note 2);

B.

take the equivalent payment that would have been quoted (see notes 3, 4 and 5) to the same retail customer assuming an identical purchase was made at the 'relevant date'; 5

C.

add to the figure at B the amount of any income included in the figure at A (but originally excluded from the figure at B for the purposes of distribution to retail customers); and5

D.

deduct the figure at B (as amended by C) from the figure at A; if the resultant figure is zero or negative, there is no shortfall.

Notes:1. The 'relevant date' is the date when thefirm first became aware that notice of cancellation had been served upon it.

2. If the agreement is a variation of a previous contract (see COB 6.7.23), the firmmust treat the increase in premium as the sum in A.5

3. If details of the payments necessary to calculate B (for example, premium rates, investment prices or yields etc) are not publicly available (see note 6) at the 'relevant date', there is noshortfall.

4. If the agreement relates to a life policy or pension annuity on the life of another, the firm must treat the first life assured as the customer for the comparison in B.

5. Where the change is yield and not premiumor price, in order to calculate B thefirmmust convert the change in yield (if an enhancement) into a change inpremium or price.

6. In the case of a forward price, the requirement of public availability is satisfied if both the previous and next relevant prices are published in a national UK newspaper).