The Conduct of Business sourcebook (COB) sets out rules and guidance for firms on how they should conduct their business with their customers.

1. (1)

   The rules and guidance set out in COB mainly apply to designated investment businesses and, as stated in COB 1.3.2 G (2), have limited application to deposits.3

2. (2)

   The only parts of COB that set out rules and guidance on deposits, other than for a cash deposit ISA, are those relating tofinancial promotion in COB 3 and those relating to distance contracts for accepting deposits in COB 2.6 (General provisions related to distance contracts), COB 6.7 (Cancellation and withdrawal), COB 6.4.25 R (Entering into a distance contract for accepting deposits). Guidance on the way in which those requirements apply to credit unions is set out in CRED 11.4 (Entering into a distance contract for accepting deposits).31

2 1The General provisions module of the Handbook (GEN) contains rules and guidance in GEN 4 (Statutory status disclosure) relating to disclosure of statutory status. These are summarised in CRED 11.3 (Statutory status disclosure).

2 1The FSA logo is a registered mark, is subject to copyright and is the property of the FSA. Credit unions are permitted to use the FSA logo in limited circumstances. Any credit union which wishes to use the FSA logo should refer to GEN 5 (FSA logo).

1The E-CommerceDirective sourcebook (ECO) contains rules and guidance applicable to a credit union which carries on an electronic commerce activity; that is, a credit union which accepts deposits, or carries on certain other activities, by way of an information society service. An information society service is, generally speaking and subject to certain exclusions, a service that:

1. (1)

   is normally provided for remuneration;

2. (2)

   is provided at a distance;

3. (3)

   is so provided by means of electronic equipment for the processing (including digital compression) and storage of data; and

4. (4)

   is so provided at the individual request of a recipient of the service.

1In particular, a credit union which carries on an electronic commerce activity needs to be aware of the minimum information requirements in ECO 3.2 (Minimum information requirements).

4A credit union which acts as a CTF provider needs to be aware of the requirements relating to CTFs in COB, in particular COB Chapters 3,4,5,6 and 8, and SUP 15, where relevant, IPRU(INV) Chapter 8 and 5MIPRU5.

Financial promotion is defined as an invitation or inducement to engage in investment activity.1

Financial promotions can be real time or non-real time. A real time financial promotion is communicated in the course of a personal visit, telephone conversation or interactive dialogue. A non-real time financial promotion is not a real time financial promotion. It includes a financial promotion made by letter, e-mail or contained in a newspaper, journal, magazine, other periodical publication, website, television or radio programme or teletext service.

Where a financial promotion relates to a deposit (other than a cash deposit ISA) only certain parts of COB 3 apply. These are COB 3.1COB 3.5 and COB 3.8.4 R to COB 3.8.6 G and COB 3.14.

In addition to the limited application of COB 3, a number of exemptions from the rules and guidance on financial promotions are listed in COB 3.2.5 R. Some exemptions are particularly relevant to credit unions namely exemptions (2), (4) and (5):

1. (1)

   Exemption (2): A financial promotion which can lawfully be communicated by an unauthorised communicator without approval.

2. (2)

   Exemption (4): A "one off" non-real time financial promotion or a "one off" solicited real time financial promotion . If the conditions set out in (a) to (c) are satisfied, a financial promotion is to be regarded as "one off"; if not, the fact that any one or more of these conditions is met is to be taken into account in determining if a financial promotion is "one off", but a financial promotion may be regarded as "one off" even if none of the conditions are met; the conditions are that:

   1. (a)

      the financial promotion is communicated only to one recipient or only to one group of recipients in the expectation that they would engage in any investment activity jointly;

   2. (b)

      the identity of the product or service to which the financial promotion relates has been determined having regard to the particular circumstances of the recipient;

   3. (c)

      the financial promotion is not part of an organised marketing campaign.

3. (3)

   Exemption (5): A financial promotion which contains only one or more of the following:

   1. (a)

      the name of the firm;

   2. (b)

      the name of an investment;

   3. (c)

      a contact point (address including an e-mail address, telephone or facsimile number);

   4. (d)

      a logo;

   5. (e)

      a brief, factual description of the firm's activities;

   6. (f)

      a brief, factual description of the firm's fees;

   7. (g)

      a brief, factual description of the firm'sinvestment products;

   8. (h)

      the price of yield of investments and the charges.

Despite the limited application of COB to deposits and the exemptions mentioned in CRED 11.2.4 G,COB 3.2.8 G(1) reminds firms that financial promotions (including those which are exempt) may be subject to more general rules including Principle 7 (Communications with clients) SYSC 3 (Systems and controls) and COB 2.1.3 R (Clear, fair and not misleading communication)).

The requirement on a firm under COB 3.8.4 R (1) is that it should be able to show that it has taken reasonable steps to ensure that a non-real time financial promotion is clear, fair and not misleading. This is supported by further detailed rules includingan evidential provision COB 3.8.5 E):

1. (1)

   A firm should take reasonable steps to ensure that, for a non-real time financial promotion:

   1. (a)

      its promotional purpose is not in any way disguised or misrepresented;

   2. (b)

      any statement of fact, promise or prediction is clear, fair and not misleading and discloses any relevant assumptions;

   3. (c)

      any statement of opinion is honestly held and, unless consent is impracticable, given with the consent of the person concerned;

   4. (d)

      the facts on which any comparison of contrast is made are verified, or, alternatively, that relevant assumptions are disclosed and that the comparison or contrast is presented in a fair and balanced way, which is not misleading and includes all factors which are relevant to the comparison or contrast;

   5. (e)

      it does not contain any false indications, in particular as to:

      1. (i)

         the firm's independence; or

      2. (ii)

         the firm's resources and scale of activities; or

      3. (iii)

         the scarcity of any investment of service;

   6. (f)

      the design, content or format does not disguise, obscure or diminish the significance of any statement, warning or other matter which the financial promotion is required by this chapter to contain;

   7. (g)

      it does not include any reference to approval by the FSA or any government body, unless such approval has been obtained in writing from the FSA or that body (see also GEN 1.2 (Referring to approval by the FSA));

   8. (h)

      it does not omit any matters the omission of which causes the financial promotion not to be clear, fair and not misleading; and

   9. (i)

      the accuracy of all material statements of fact in it can be substantiated.

2. (2)
   1. (a)

      Compliance with COB 3.8.5 E(1) may be relied on as tending to show compliance with COB 3.8.4 R(1).

   2. (b)

      Contravention of COB 3.8.5 E(1) may be relied on as tending to show contravention of COB 3.8.4 R(1).

1This section summarises the requirements of GEN 4 (Statutory status disclosure) in the context of credit unions which do not have overseas offices.

1 GEN 4.3 (Letter disclosure) requires a credit union to take reasonable care to state that it is "authorised and regulated by the Financial Services Authority" in every letter and e-mail which it sends to a depositor or potential depositor on or after 1 March 2004.

Those parts of COB that relate to distance contracts for accepting deposits will have limited application to credit union. This is because the DMD only applies where there is "an organised distance sales or service-provision scheme run by the supplier" (Article 2(a)). If, therefore, the credit union normally operates face to face and has not set up facilities to enable customers to deal with it at a distance, such as facilities for a customer to deal with it purely by post, telephone, fax of the Internet, the provisions will not be relevant. A one-off transaction dealt with by distance means in order to deal with a particular contingency or emergency will not fall under the COB provisions.1

For those credit unions to which the provisions in COB will apply, the provisions which are of particular relevance concern the generalprovisions (COB 2.6), pre-contract information (COB 6.4.25 R), cancellation rights (COB 6.7) and financial promotion(discussed at CRED 11.2). If the credit union provides cash deposit ISAs further rules may apply.1

COB 6.4.25 R sets out the basic requirement that applies before a credit union enters into a distance contract for accepting deposits. The credit union has to ensure that the terms on which it will conduct business, including, in particular, certain required information, is provided to a retail customer (which means an individual, acting for purposes which are outside his trade, business or profession) in good time (that is, in sufficient time to enable a customer to consider properly the services on offer) in a durable medium, before the retail customer is bound by the distance contract, unless certain exemptions apply.1

The required information is the contractual terms and conditions and the other information set out in COB App 1, and covers basic information about the credit union, the main characteristics of the service on offer, the price, details about any distance contract such as its duration, cancellation rights and any other early termination rights and penalties, and information about out-of-court complaints and compensation arrangements.1

The exemptions referred to in CRED 11.4.3 G are set out in COB 6.4.27 R to COB 6.4.31 R. They are relevant:12

1. (1)

   where the contract is concluded by telephone and the retail customer gives explicit consent to receiving a more limited range of information. COB 6.4.27 R (1) sets out the information to be provided in such cases. Full information has to be provided, in a durable medium, immediately after conclusion of the distance contract (COB 6.4.27 R (2));12

2. (2)

   where a means of communication (other than telephone) is used which does not enable provision of required information in a durable medium before conclusion of the contract; in this case full information must also be provided in a durable medium immediately after conclusion of the distance contract (COB 6.4.29 R);12

3. (3)

   where there is an initial service agreement and the contract is in relation to a successive or separate operation of the same nature under that agreement

   , or there is no initial service agreement and the contract is in relation to a successive or separate operation of the same nature and is being performed no more than one year from the date of performance of the last operation (COB 6.4.30 R to COB 6.4.31 R; and see COB 1.10.2 G).12

The other provisions in COB which relate to the disclosure requirements and are of relevance to credit unions entering into a distance contract for accepting deposits are in COB 2.6 (General provisions related to distance contracts).12

A retail customer has a right to cancel a distance contract for accepting deposits without giving any reasons and without penalty. The right to cancel has to be exercised within 14 days of the day of the conclusion of the contract or the day on which he received the contractual terms and conditions, if later (COB 6.7.10).1

The only exemptions from the right to cancel are when:1

1. (1)

   the price of the service depends on fluctuations in the financial market outside the credit union's control which may occur during the cancellation period; or1

2. (2)

   the contract has already been fully performed with the retail customer's consent before he exercises his right to cancel; or1

3. (3)

   the credit union has an initial service agreement with the retail customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.9.2 G (3))1

The effects of cancellation are set out in COB 6.7.51 to COB 6.7.52. Unless the contract relates to a CTF, the credit union has to return, no later than 30 days after the date it received notice of cancellation, any sums paid by the customer in connection with the contract. The customer can be required to pay for any services provided up to the date of cancellation, provided that the sums are in proportion to the extent of the services actually provided and could not be construed as a penalty. No payment can be required if the credit union cannot prove that a customer was told the amount that would be payable as part of the pre-contract information or if the credit union starts performance of the contract without the customer's prior consent.13

If there are other ancillary distance contracts related to the first, those ancillary contracts may also be cancelled automatically when a retail customer exercises a right to cancel (see COB 6.7.51)1

This guidance is not a substitute for, and should be read in conjunction with, the requirements contained in the relevant parts of COB.1