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1. (1)

   The Banking Conduct of Business sourcebook (BCOBS) sets out rules and guidance for firms on how they should conduct their business with their customers.7

2. (2)

   In particular there are rules and guidance relating to communications with banking customers and financial promotions (BCOBS 2), distance communications (BCOBS 3), information to be communicated to banking customers (BCOBS 4), post sale requirements (BCOBS 5), and cancellation (BCOBS 6).

3. (3)

   Except as provided for in (4), the Conduct of Business sourcebook (COBS) does not apply to accepting deposits.

4. (4)

   COBS 4.6 (Past, simulated past and future performance), COBS 4.7.1 R (Direct offer financial promotions), COBS 4.10 (Systems and controls and approving and communicating financial promotions), COBS 13.1 (Preparing product information) and COBS 14.2 (Providing product information to clients) apply to accepting deposits as set out in those sections.

5. (5)

   BCOBS 5.1.13 R does not apply to credit unions (BCOBS 1.1.5 R).

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).

BCOBS 3.2 7 (E-Commerce)6 contains rules 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.

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4A credit union which acts as a CTF provider needs to be aware of the requirements relating to CTFs in COBS6, in particular COBS6Chapters 3,4, and 9 Annex 1, 10, 13, 14 and 156SUP 15, where relevant, IPRU(INV) Chapter 8 and 5MIPRU5.

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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.

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1. (1)

   Where a financial promotion relates to a retail banking serviceBCOBS 2 applies.3

2. (2)

   Except as provided for in (3) the Conduct of Business sourcebook (COBS) does not apply to a firm with respect to the activity of accepting deposits.3

3. (3)

   COBS 4.6 (Past, simulated past and future performance), COBS 4.7.1 R (Direct offer financial promotions), COBS 4.10 (Systems and controls and approving and communicating financial promotions), COBS 13 (Preparing product information) and COBS 14 (Providing product information to clients) apply to a firm with respect to the activity of accepting deposits as set out in those provisions, COBS 4.1 and BCOBS.

In addition to the limited application ofthe financial promotion rules2, a number of exemptions within the defined term excluded communication are relevant. In particular, paragraphs (a) and (e) of the definition provide further limitations on the application of the financial promotion rules in relation to credit unions2:

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1. (1)

   Exemption (a2): A financial promotion that would benefit from an exemption in the Financial Promotion Order if it were communicated by an unauthorised person, or which originates outside the United Kingdom and is not capable of having an effect in the United Kingdom.2

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2. (2)

   Exemption (e2): A "one off" financial promotion that is not a cold call2. 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:

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   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)

   [deleted]2

   2

In addition to the rules and guidance contained in BCOBS3 and the exemptions mentioned in CRED 11.2.4 G, financial promotions (including those which are exempt) may be subject to more general rules including Principle 7 (Communications with clients) and 2SYSC 3 (Systems and controls) and the fair, clear and not misleading rule2.

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The requirement on a firm under BCOBS 2.23 is that it must 2ensure that a financial promotion is fair, 2clear and not misleading. This is supported by further detailed rules includingBCOBS 2.3.1 R:

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1. (1)

   A firm must ensure that information for a retail client:2

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   1. (a)

      includes the name of the firm;

   2. (b)

      is accurate and in particular does not emphasise any potential benefits of a retail banking service3 without also giving a fair and prominent indication of any relevant risks;

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   3. (c)

      is sufficient for, and presented in a way that is likely to be understood by, the average member of the group to whom it is directed, or by whom it is likely to be received; and

   4. (d)

      does not disguise, diminish or obscure important items, statements or warnings.

2. (2)

   [deleted]2

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 BCOBS5that relate to distance contracts for accepting deposits will have limited application to a 4credit union. This is because the Distance Marketing Directive4 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 BCOBS5 provisions.1

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For those credit unions to which the provisions in BCOBS5 will apply, the provisions which are of particular relevance concern the distance communications4provisions (BCOBS 3),5 pre-contract information (BCOBS 4)5, cancellation rights (BCOBS 6)5 and the financial promotion rules4(discussed at CRED 11.2). If the credit union provides cash deposit ISAs or cash deposit CTFs4further rules may apply.1

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BCOBS 3.1 5 sets out the basic requirements5 that apply5 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 consumer4 in good time in a durable medium, before the retail customer is bound by the distance contract or offer,5 unless certain exemptions apply.1

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The required information is the contractual terms and conditions and the other information set out inBCOBS 3 Annex 1 R5, 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

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The exemptions referred to in CRED 11.4.3 G are set out in BCOBS 3.15. They are relevant:12

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1. (1)

   where the contract is concluded by telephone and the consumer4 gives explicit consent to receiving a more limited range of information BCOBS 3.1.11 R5 sets out the information to be provided in such cases;12

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2. (2)

   where a means of communication is used at the consumer's request5which does not enable provision of required information in a durable medium before the consumer is bound by any distance contract or offer5; in this case full information must also be provided in a durable medium immediately after conclusion of the distance contractBCOBS 3.1.12 R;512

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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 (BCOBS 3.1.9 R to BCOBS 3.1.10 R)

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A consumer4has a right to cancel a contract5 for a retail banking service5 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 (BCOBS 6.1.1 R)5.1

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

1. (1)

   a contract (other than a cash deposit ISA) where the rate or rates of interest payable on the deposit are fixed for a period of time following conclusion of the contract; or5

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2. (2)

   a contract whose price depends on fluctuations in the financial market outside the firm's control that may occur during the cancellation period; or5

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3. (3)

   a cash deposit CTF (other than a distance contract).5

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The effects of cancellation are set out inBCOBS 6.3 (Effects of cancellation)5. Unless the contract relates to a a cash deposit ISA or a cash deposit CTF,5 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 or if the credit union starts performance of the contract before expiry of the cancellation period 5 without the customer's prior consent.13

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This guidance is not a substitute for, and should be read in conjunction with, the requirements contained in the relevant parts of BCOBS5.1

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