Part

COB Conduct of Business

Chapter

Accepting customers

Printed on: 03/07/2024

Rulebook at: 01/01/2007

COB 4

Accepting
customers

COB 4.1

Client classification

  • 01/12/2004

Application

COB 4.1.1

handbook-rule
  1. (1) This section applies to a firm intending to conduct, or conducting designated investment business or ancillary business relating to designated investment business (but not to a firm which in relation to any customer intends only to provide basic advice on a stakeholder product).
  2. (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 applies:
    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).
  • 06/04/2005

COB 4.1.2

handbook-guidance
  • 01/12/2001

Purpose

COB 4.1.3

handbook-guidance
  1. (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. (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 policies). For guidance on how a firm carrying on these other activities may approach client classification, see PRIN 1.2.4 G (Classification: other activities).
  • 14/01/2005

Requirement to classify

COB 4.1.4

handbook-rule
  1. (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. (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.
  • 01/12/2001

Agent as client

COB 4.1.5

handbook-rule
  1. (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. (2) Paragraph (1) does not apply if F has agreed with C1 in writing to treat C2 as its client.
  3. (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
  4. are required for each C2.
  5. (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.
  • 15/11/2001

COB 4.1.6

handbook-guidance

Firms are reminded that COB 4.1.5 R:

  1. (1) [deleted]
  2. (2) is not relevant to the question of who is the firm's counterparty for the purposes of the Interim Prudential sourcebook; and
  3. (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.
  • 01/03/2006

Classification of another firm or an overseas financial services institution

COB 4.1.7

handbook-rule
  1. (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;
  2. ("C1"), C1 is a market counterparty of F, unless (2), (3) or (4) applies.
  3. (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.
  4. (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.
  5. (4) If C1 is a collective investment scheme, C1 is an intermediate customer of F.
  6. (5) [deleted]
  • 01/09/2003

Classification of a collective investment scheme

COB 4.1.7A

handbook-guidance
  1. (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. (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. (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.
  • 01/09/2003

COB 4.1.8

handbook-guidance
  1. (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. (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. (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. (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. (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. (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.
  • 01/09/2002

Classification of an exchange or clearing house

COB 4.1.8A

handbook-rule
  • 01/09/2002

Expert private customer classified as an intermediate customer

COB 4.1.9

handbook-rule
  1. (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. (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.
  • 01/12/2001

COB 4.1.10

handbook-guidance
  1. (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 advice on 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. (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.
  • 01/12/2001

COB 4.1.11

handbook-evidential-provisions
  1. (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);
      2. (ii) COB 4.3 (Disclosing information about services, fees and commissions - packaged products);
      3. (iii) COB 5.1 (Advising on packaged products);
      4. (iv) COB 5.4 (Customers' understanding of risk);
      5. (v) COB 5.7 (Disclosure of charges, remuneration and commission);
      6. (vi) COB 6.1 (Packaged product and ISA disclosure);
      7. (vii) COB 7.9 (Lending to private customers);
      8. (viii) COB 7.10 (Margin requirements);
      9. (ix) COB 7.11 (Non-exchange traded securities);
    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);
      2. (ii) COB 8.2 (Periodic statements);
    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. (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).
  • 01/04/2004

Large intermediate customer classified as a market counterparty

COB 4.1.12

handbook-rule

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:

  1. (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 trust has (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. (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.
  • 01/12/2001

COB 4.1.13

handbook-guidance
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.)
  • 01/12/2001

Client classified as a private customer

COB 4.1.14

handbook-rule
  1. (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.
  2. (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.
  • 01/09/2003

Review of classification

COB 4.1.15

handbook-rule
  1. (1) If a firm classifies:
    1. (a) a client as an intermediate customer under COB 4.1.9 R (Expert private customer 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);
  2. 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.
  3. (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.
  • 01/12/2001

Record keeping

COB 4.1.16

handbook-rule
  1. (1) A firm must make a record of the classification established for each client under this section, including sufficient information to support that classification.
  2. (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.
  • 01/09/2002

COB 4.2

Terms of business and client agreements with customers

  • 01/12/2004

Application

COB 4.2.1

handbook-rule
This section applies to a firm intending to conduct or conducting designated investment business with or for a specific customer.
  • 09/10/2004

Meaning of 'private customer'

COB 4.2.2

handbook-rule
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.
  • 09/10/2004

Authorised professional firms

COB 4.2.3

handbook-guidance

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:

  1. (1) terms of business must be provided in accordance with COB 4.2.5 R;
  2. (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); and
  3. (3) the Distance Marketing Regulations may apply and require the provision of pre-contractual information in certain circumstances (see PROF 5.4).
  • 01/12/2004

Purpose

COB 4.2.4

handbook-guidance
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.
  • 09/10/2004

Requirement to provide terms of business to a customer

COB 4.2.5

handbook-rule
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.
  • 09/10/2004

COB 4.2.6A

handbook-guidance
  1. (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.
  2. (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).
  • 01/12/2004

Requirement to enter into a client agreement with a private customer

COB 4.2.7

handbook-rule
  1. (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);
  2. 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.
  3. (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.
  • 01/12/2001

COB 4.2.8

handbook-guidance
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).
  • 01/12/2001

Content of terms of business

COB 4.2.10

handbook-rule

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:

  1. (1) set out in adequate detail the basis on which it will conduct designated investment business with the customer; and
  2. (2) (in respect of distance contracts with retail customers) include all contractual terms and conditions and the information set out in COB App 1.
  • 09/10/2004

COB 4.2.11

handbook-evidential-provisions
  1. (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; and
    2. (b) any further or alternative provisions that the customer has asked for and on his own initiative agreed with the firm;
  2. to the extent that each such provision is relevant in the circumstances and that it is practicable to provide it.
  3. (1A) [deleted]
  4. (2) Compliance with (1) may be relied on as tending to establish compliance with COB 4.2.10 R (1).
  5. (3) Contravention of (1) may be relied on as tending to establish contravention of COB 4.2.10 R (1).
  • 01/01/2006

Information not available at time of issue of terms of business

COB 4.2.11A

handbook-rule
A 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.
  • 09/10/2004

COB 4.2.11B

handbook-guidance
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.
  • 09/10/2004

Terms of business provided in more than one document

COB 4.2.12

handbook-rule
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.
  • 09/10/2004

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

COB 4.2.12A

handbook-evidential-provisions
  1. (1) An authorised professional firm should include, in its terms of business, the information in COB 4 Annex 2.
  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.
  • 09/10/2004

Amendment of terms of business

COB 4.2.13

handbook-rule
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.
  • 01/12/2001

Records

COB 4.2.14

handbook-rule
  1. (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. (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. (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.
  • 09/10/2004

COB 4.2.17

handbook-evidential-provisions

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

  • 01/12/2004

COB 4.3

Disclosing information about services, fees and commission - packaged products

  • 01/12/2004

Application

COB 4.3.1

handbook-rule
  1. (1) COB 4.3 applies:
    1. (a) to a firm when carrying on with or for private customers any of the following in relation to packaged products:
      1. (i) advising; or
      2. (ii) dealing as agent; or
      3. (iii) arranging;
    2. (b) 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 counterparty.
  2. (2) COB 4.3, other than COB 4.3.7R (1) and (2), does not apply to a firm when providing basic advice on a stakeholder product.
  • 06/04/2005

Purpose

COB 4.3.2

handbook-guidance
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.
  • 01/12/2004

Disclosure to private customers on first making contact

COB 4.3.3

handbook-rule
  1. (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;
    2. provide the customer, in a durable medium, with information concerning:
    3. (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);
    4. 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. (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. (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. (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;
  5. 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.
  6. (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 statement if 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;
  7. 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.
  8. (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.
  9. (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;
  10. but in both cases the firm must provide the initial disclosure document immediately after the conclusion of the contract, in a durable medium.
  • 01/12/2004

COB 4.3.4

handbook-guidance
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.
  • 01/12/2004

Provision of fees and commission statement on request

COB 4.3.5

handbook-rule
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.
  • 01/12/2004

Firms which charge fees

COB 4.3.6

handbook-rule
  1. (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. (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;
  3. 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).
  • 01/12/2004

Ongoing disclosure

COB 4.3.7

handbook-rule
  1. (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 ;
  2. without first providing a further appropriate statement and obtaining the customer's prior consent to the proposed alteration in a durable medium.
  3. (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.
  4. (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.
  5. (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 policies of the example term or age of policyholder given in the fees and commission statement, or to policies with shorter terms; and
      2. (ii) the firm arranges a policy for 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).
  • 01/11/2006

COB 4.3.8

handbook-guidance
  1. (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. (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. (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.
  • 01/12/2004

Initial disclosure document

COB 4.3.9

handbook-rule
  1. (1) An initial disclosure document must contain the keyfacts logo, headings and text in the order shown in COB 4 Annex 4R and in accordance with the Notes.
  2. (2) A combined initial disclosure document must contain the keyfacts logo, headings and text in the order shown in COB 4 Annex 5R and in accordance with the Notes.
  3. (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. (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. (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.
  • 01/12/2004

COB 4.3.10

handbook-guidance
Further requirements regarding the use of the logo and the location of specimens are set out in GEN 5.1 and GEN 5 Annex 1 G. Subject to COB 4.3.9 R, a firm may produce its initial disclosure document by using its own house style and brand.
  • 06/11/2006

Fees and commission statement

COB 4.3.11

handbook-rule
  1. (1) A fees and commission statement must contain the keyfacts logo, heading and text in the order shown in COB 4 Annex 6R and in accordance with the Notes.
  2. (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. (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. (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).
  • 01/12/2004

COB 4.3.12

handbook-guidance
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.
  • 01/12/2004

COB 4.3.13

handbook-guidance
  1. (1) COB 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. (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. (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.
  • 01/12/2004

Record for distribution of range of packaged products

COB 4.3.14

handbook-rule
A 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).
  • 01/12/2004

COB 4.3.15

handbook-rule
A 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.
  • 01/12/2004

keyfacts information, terms of business and telephone sales

COB 4.3.16

handbook-guidance
  1. (1) COB 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. (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.
  • 01/12/2004

COB 4.3.17

handbook-rule
  1. (1) A 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. (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.
  • 01/12/2004

COB 4.3.18

handbook-rule
  1. (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. (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. (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. (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

  • 01/12/2004

COB 4.3.19

handbook-rule
  1. (1) COB 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. (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.
  • 14/01/2005

COB 4.3.20

handbook-rule
  1. (1) The 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. (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. (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. (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.
  • 14/01/2005

COB 4.3.21

handbook-rule

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

This table belongs to COB 4.3.20 R

  • 14/01/2005

COB 4.3.22

handbook-rule
  1. (1) A 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. (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.
  • 14/01/2005

COB 4.3.23

handbook-guidance
A 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.
  • 14/01/2005

COB 4.3.24

handbook-guidance

A 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:

  1. (a) the firm must not include the keyfacts 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
  2. (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
  • 14/01/2005

Information to be provided to clients on request

COB 4.3.25

handbook-rule
  1. (1) A 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. (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.
  • 14/01/2005

Disclosure by introducers

COB 4.3.26

handbook-rule
  1. (1) A 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. (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.
  • 14/01/2005

Group Personal Pensions

COB 4.3.27

handbook-rule

A 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. (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. (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. (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.
  • 01/12/2004

COB 4 Annex 1

Exemptions from terms of business requirement

  • 01/12/2004

COB 4 Annex 1.1

handbook-rule

Circumstances 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

  • 09/10/2004

COB 4 Annex 2

Terms of business content - general

  • 01/12/2004

COB 4 Annex 2.1

handbook-evidential-provisions

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

This table belongs to COB 4.2.11 E

  • 01/07/2006

COB 4 Annex 3

Terms of business content - managing investments

  • 01/12/2004

COB 4 Annex 3.1

handbook-evidential-provisions

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

This table belongs to COB 4.2.11 E.

  • 01/12/2004

COB 4 Annex 4

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

  • 01/12/2004

COB 4 Annex 4.1

handbook-rule
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.
  • 06/11/2006

COB 4 Annex 5

Combined initial disclosure document required by COB 4.3.9R(2) ("CIDD")Combined initial disclosure document ("CIDD")

  • 01/12/2004

handbook-rule
  • 06/11/2006

COB 4 Annex 6

Fees and Commission Statement template and completion notes

  • 01/12/2004

COB 4 Annex 6.1

handbook-rule
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.
  • 06/12/2006

COB 4 Annex 7R

Identifying the maximum rate of commission (or equivalent), the market average and the example

  • 01/12/2004

COB 4 Annex 7.1

handbook-rule
  • 01/12/2004

COB 4 Annex 8

Worked example of commission disclosure in a fees and commission statement

  • 01/12/2004

COB 4 Annex 8.1

handbook-guidance
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.
  • 01/12/2004

COB 4 Annex 9

Example of a completed fees and commission statement

  • 01/12/2004

COB 4 Annex 9.1

handbook-guidance
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.
  • 01/12/2004