COBS 15

Cancellation

COBS 15.1

Application

COBS 15.1.1

See Notes

handbook-guidance

This chapter is relevant to a firm that enters into a contract cancellable under this chapter. In summary, this means it is relevant to:

  1. (1) most providers of retail financial products that are based on deposits or designated investments; and
  2. (2) firms that enter into distance contracts with consumers that relate to accepting deposits or designated investment business.

COBS 15.2

The right to cancel

Cancellable contracts

COBS 15.2.1

See Notes

handbook-rule

A consumer has a right to cancel any of the following contracts with a firm:



[Note: article35 of the Consolidated Life Directive, article 6(1) of the Distance Marketing Directive]

COBS 15.2.2

See Notes

handbook-guidance
  1. (1) If the same transaction attracts more than one right to cancel, the firm should apply the longest cancellation period applicable.
  2. (2) A firm may provide longer or additional cancellation rights voluntarily, but if it does these should be on terms at least as favourable to the consumer as those in this chapter, unless the differences are clearly explained.
  3. (3) If the right to cancel applies to a wrapper or pension wrapper and underlying investments, the firm may give the consumer the option of cancelling individual components separately if it wishes.

Start of cancellation period

COBS 15.2.3

See Notes

handbook-rule

The cancellation period begins:

  1. (1) either from the day of the conclusion of the contract, except in respect of contracts relating to life policies where the time limit will begin from the time when the consumer is informed that the contract has been concluded; or
  2. (2) from the day on which the consumer receives the contractual terms and conditions and any other pre-contractual information required under this sourcebook, if that is later than the date referred to above.

[Note: article 35 of the Consolidated Life Directive, article 6(1) of the Distance Marketing Directive]

COBS 15.2.4

See Notes

handbook-guidance
If a firm does not give a consumer the required information about the right to cancel and other matters, the contract remains cancellable and the consumer will not be liable for any shortfall.

Disclosing a right to cancel or withdraw

COBS 15.2.5

See Notes

handbook-rule
  1. (1) The firm must disclose to the consumer:
    1. (a) in good time before or, if that is not possible, immediately after the consumer is bound by a contract that attracts a right to cancel or withdraw; and
    2. (b) in a durable medium;
  2. the existence of the right to cancel or withdraw, its duration and the conditions for exercising it including information on the amount which the consumer may be required to pay, the consequences of not exercising it and practical instructions for exercising it indicating the address to which the notification of cancellation or withdrawal should be sent.
  1. (2) This rule applies only where a consumer would not otherwise receive similar information under a rule in this sourcebook from the firm or another authorised person (such as under the distance marketing disclosure rules (COBS 5.1.1 R to 5.1.4 R) or COBS 14 (Providing product information)).

COBS 15.3

Exercising a right to cancel

Notice of exercise

COBS 15.3.1

See Notes

handbook-rule

If a consumer exercises his right to cancel he must, before the expiry of the relevant deadline, notify this following the practical instructions given to him. The deadline shall be deemed to have been observed if the notification, if in a durable medium available and accessible to the recipient, is dispatched before the deadline expires.

[Note: article 6 (6) of the Distance Marketing Directive]

COBS 15.3.2

See Notes

handbook-rule

A consumer need not give any reason for exercising his right to cancel.

[Note: article 6(1) of the Distance Marketing Directive]

COBS 15.3.3

See Notes

handbook-guidance
The firm should accept any indication that the consumer wishes to cancel as long as it satisfies the conditions for notification. In the event of any dispute, unless there is clear written evidence to the contrary, the firm should treat the date cited by the consumer as the date when the notification was dispatched.

Record keeping

COBS 15.3.4

See Notes

handbook-rule

The firm must make adequate records concerning the exercise of a right to cancel or withdraw and retain them:

  1. (1) indefinitely in relation to a pension transfer, pension opt-out or FSAVC;
  2. (2) for at least five years in relation to a life policy, pension contract, personal pension scheme or stakeholder pension scheme; and
  3. (3) for at least three years in any other case.

COBS 15.4

Effects of cancellation

Termination of contract

COBS 15.4.1

See Notes

handbook-rule
By exercising a right to cancel, the consumer withdraws from the contract and the contract is terminated.

Payment for the service provided before cancellation

COBS 15.4.2

See Notes

handbook-rule
  1. (1) This rule applies in relation to a distance contract that is not a life policy, personal pension scheme, cash deposit ISA or CTF.
  2. (2) When the consumer exercises his right to cancel he may be required to pay, without any undue delay, for the service actually provided by the firm in accordance with the contract. The performance of the contract may only begin after the consumer has given his approval. The amount payable must not:
    1. (a) exceed an amount which is in proportion to the extent of the service already provided in comparison with the full coverage of the contract;
    2. (b) in any case be such that it could be construed as a penalty.
  3. (3) The firm may not require the consumer to pay any amount on the basis of this rule unless it can prove that the consumer was duly informed about the amount payable, in conformity with the distance marketing disclosure rules. However, in no case may the firm require such payment if it has commenced the performance of the contract before the expiry of the cancellation period without the consumer's prior request.

[Note: article 7(1), (2) and (3) of the Distance Marketing Directive]

Shortfall

COBS 15.4.3

See Notes

handbook-rule
  1. (1) The firm may require the consumer to pay for any loss under a contract caused by market movements that the firm would reasonably incur in cancelling it. The period for calculating the loss shall end on the day on which the firm receives the notification of cancellation.
  2. (2) This rule:
    1. (a) does not apply for a distance contract or for a contract established on a regular or recurring premium or payment basis; and
    2. (b) only applies if the firm has complied with its obligations to disclose information concerning the right to cancel.

Obligations on cancellation

COBS 15.4.4

See Notes

handbook-rule

The firm must, without any undue delay and no later than within 30 calendar days, return to the consumer any sums it has received from him in accordance with the distance contract, except for any amount that the consumer may be required to pay under this section. This period shall begin from the day on which the firm receives the notification of cancellation.

[Note: article 7(4) of the Distance Marketing Directive]

COBS 15.4.5

See Notes

handbook-rule

The firm is entitled to receive from the consumer any sums and/or property he has received from the firm without any undue delay and no later than within 30 calendar days. This period shall begin from the day on which the consumer dispatches the notification of cancellation.

[Note: article 7(5) of the Distance Marketing Directive]

COBS 15.4.6

See Notes

handbook-rule
Any sums payable under this section on cancellation of a contract are owed as simple contract debts and may be set off against each other.

COBS 15.5

Special situations

Contracts with trustees and operators of pension schemes

COBS 15.5.1

See Notes

handbook-rule

In this chapter:

  1. (1) references to a consumer include the trustees of an occupational pension scheme and the trustees or operator of a personal pension scheme or stakeholder pension scheme; and
  2. (2) any contract with such persons is to be treated as a non-distance contract.

Other legislation including for child trust funds

COBS 15.5.2

See Notes

handbook-rule
This chapter applies as modified to the extent necessary for it to be compatible with any enactment.

COBS 15.5.3

See Notes

handbook-guidance

For example:

  1. (1) the Child Trust Fund Regulations contain provisions relevant to cancellation rights; in particular they provide that any uninvested sums held in connection with a CTF should be held in a designated bank account; and the effect of conditions 4(a) and (b) in regulation 5 of the Child Trust Fund Regulations (applicable to non-HMRC allocated CTF) is that a CTF opened by way of distance contract has a cancellable management agreement in all cases and the CTF cannot be opened until the cancellation period has expired, therefore the price fluctuation exemption is not engaged;
  2. (2) where legislation does not permit sums within a personal pension scheme or CTF to be returned to a consumer, the requirement to do so on cancellation is modified to permit payment to another provider on behalf of the consumer; the firm should notify him, where relevant, as soon as possible that it holds money awaiting re-investment instructions; if that money is held in a non-interest bearing account this should be drawn to his attention.

Automatic cancellation of an attached distance contract

COBS 15.5.4

See Notes

handbook-guidance
When a consumer cancels a distance contract under this chapter, his notice may also operate to cancel any attached contract which is also a distance financial services contract unless the consumer gives notice that cancellation of the main contract is not to operate to cancel the attached contract (see regulation 12 of the Distance Marketing Regulations). Where relevant, this should be disclosed to the consumer along with other information on cancellation.

Appointed representatives

COBS 15.5.5

See Notes

handbook-guidance
This chapter does not act to cancel distance contracts entered into by an appointed representative or where applicable, by a tied agent, as principal such as a distance contract to provide advisory services, but the Distance Marketing Regulations (regulations 9 to 13, see regulation 4(3)) may have this effect.

Maxi-ISAs

COBS 15.5.6

See Notes

handbook-guidance
Where a life policy or unit bought on opening or transferring an ISA is cancellable, the right to cancel, or substitute right to withdraw, applies to the entire arrangement. For example, a maxi-ISA comprising a life policy in the stocks and shares component and a cash component would be cancellable as a whole with a cancellation period of 30 calendar days. However, a firm is free to give the consumer the option of cancelling individual components separately with the same cancellation period if it wishes.

COBS 15 Annex 1

Exemptions from the right to cancel