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       COB                                                                          COB TR4 Transitional Rules for ex−RPB firms




             Conduct of Business
             COB TR4 Transitional Rules for ex−RPB firms

                                                                                                                                                                     COB
                                                                                                                               COB TR4 Transitional Rules for ex−RPB firms
                                                                                                                         FSA Handbook H Release 028 D February 2004




             1                 Table

                     1.0        Application
                     1.1        R        This section applies to firms who are ex–RPB firms.
                     2.0        Purpose
                     2.1        G        The FSA is aware that the introduction of COB will impose an additional com-
                                         pliance burden on firms, even where there is an underlying continuity of policy. The
                                         FSA wishes to lighten that burden in a manner consistent with its statutory objec-
                                         tives and the principles of good regulation under the Act. Transitional measures are
                                         being produced for parts of COB which take three distinct forms. First, firms are in
                                         practical terms being given additional time after the commencement day, until 30
                                         November 2002, to complete their preparations for the impact of certain COB rules.
                                         Secondly, relief is being given in relation to certain rules that require firms to fulfil
                                         obligations to customers at periodic intervals, so as to postpone the impact of the
                                         COB provisions in relation to periods that span N2. Thirdly, firms are being given
                                         relief for an indefinite period after N2 for certain COB provisions so as to allow
                                         firms to continue to use, or rely upon, documentation or compliance work undertak-
                                         en in accordance with rules of their previous regulator in relation to existing custom-
                                         ers at N2.
                     2.2        G        If a firm’s permitted regulated activities are subject to one or more of the transitional
                                         provisions in COB, and were carried on before commencement, those regulated ac-
                                         tivities should be interpreted , where appropriate , as if they were authorised invest-
                                         ment business before commencement.
                     2.3        G        GEN contains some technical transitional provisions that apply throughout the
                                         Handbook and which are designed to ensure a smooth transition at commencement.
                                         These include transitional provisions relevant to record keeping and notification
                                         rules.
                     2.4        G        For the avoidance of doubt, TTP1 at COB TABLE TR4 2.1 overrides paragraph 9
                                         (Time starting before commencement ) of the technical timing provisions in GEN.
                     3.0        Continuity of contracts
                     3.1        G        The FSA is sometimes asked whether a firm should renegotiate contracts to replace
                                         references to its authorisation status under predecessor legislation with reference to
                                         its status under the Act. Clearly, whether a firm should renegotiate its contracts is a
                                         matter for the firm which needs to be considered in the light of the effect of the con-
                                         tractual provision as a whole. As a general rule , however , the FSA would not ex-
                                         pect to see this done for regulatory reasons.
                     3.2        G        Clearly, the interpretation of contractual provisions is a matter for the courts. How-
                                         ever, where a firm continues, as a result of the grandfathering process, to enjoy per-
                                         mission which provides it with authority under the Act to carry on regulated activi-
                                         ties substantially similar to the investment business it could carry on under its autho-
                                         risation under predecessor legislation, the FSA does not view it as necessary to up-
PAGE
 1
                                         date the contractual provisions.
                     4.0        Definitions
                     4.1        R        In these transitional provisions the following words are to have the meaning given
                                         to them below:




       FSA Handbook H Release 028   D   February 2004
COB                                                                            COB TR4 Transitional Rules for ex−RPB firms




                                           ”corresponding rule” means a rule of the previous regulator of a firm that is
                                           substantially similar in purpose and effect to the relevant provision in COB.
                                           ”ex–RPB firm” means a firm which immediately before commencement was
                                           authorised under the Financial Services Act 1986 to carry on investment
                                           business in the United Kingdom by virtue of a certificate from a recognised
                                           professional body under section 16 of the 1986 Act.
    2                Table                   COB Table TR4: COB Transitional Provisions (for ex–RPB firms)

            (1)    (2)               (3)    (4)                                           (5)              (6)
                   Material to              Transitional provision                        Transitional
                                                                                                           Handbook pro-
                   which the                                                              provision: dates
                                                                                                           vision: coming
                   transitional                                                           in force
                                                                                                           into force
                   provision ap-
                   plies: The
                   COB provi-
                   sions in
                   Table COB
                   TR 5 with
                   the label in-
                   dicated
            1.0    Extra time provisions
            1.1    ETP1              R      Transitional Relief                        commencement commencement
                                                                                       to 30 November
                                            An ex–RPB firm will not contravene any
                                                                                       2002
                                            of the provisions labelled ETP1 in Table
                                            COB TR to the extent that, on or after
                                            commencement, it is able to demon-
                                            strate that it has complied with the cor-
                                            responding rule of its previous regulator
                                            or, where applicable, the relevant for-
                                            mer statutory requirement, subject to
                                            any modification, wherever appropri-
                                            ate, to take account of the passing of the
                                            Act.




                                                                                                                             PAGE
                                                                                                                              2




FSA Handbook H Release 028   D     February 2004
       COB                                                                           COB TR4 Transitional Rules for ex−RPB firms




                     (1)    (2)             (3)    (4)                                             (5)              (6)
                            Material to            Transitional provision                          Transitional
                                                                                                                    Handbook pro-
                            which the                                                              provision: dates
                                                                                                                    vision: coming
                            transitional                                                           in force
                                                                                                                    into force
                            provision ap-
                            plies: The
                            COB provi-
                            sions in
                            Table COB
                            TR 5 with
                            the label in-
                            dicated
                     1.2    ETPs 1 to       G      It is for an ex–RPB firm to satisfy itself      commencement        commencement
                            3 (inclu-              that it has complied with the correspond-       to 30 November
                            sive)                  ing rule of its previous regulator or, where    2002 (for ETPs
                                                   applicable, relevant former statutory re-       and TTPs)
                            TTP 1
                                                   quirement. In order to benefit from the
                                                                                                   Indefinitely (for
                            TSPs 1 to 4            relief, a firm must ensure that the rule of
                                                                                                   TSPs)
                            (inclusive)            its previous regulator which it proposes to
                                                   comply with is substantially similar to the
                                                   COB provision to which it relates. For the
                                                   assistance of firms the FSA has compiled
                                                   tables of derivations indicating the rules of
                                                   a firm’s previous regulator that correspond
                                                   to the COB provisions being transitioned.
                                                   Firms may wish to refer to these tables but
                                                   in doing so should understand that they are
                                                   not intended as exhaustive and are pro-
                                                   duced merely by way of a guide. Firms are
                                                   advised that should they wish to take ad-
                                                   vantage of the transitional measures set
                                                   out in this section, the onus is on them to
                                                   be able to demonstrate that in any given
                                                   case they have in fact complied with the
                                                   corresponding rules of their previous regu-
                                                   lators or, as the case may be, former statu-
                                                   tory requirement.


                     1.3    ETPs 1 to       G      Firms will have noted from the wording of       commencement        commencement
                            3 (inclu-              COB TR 1.1 R that they should treat the         to 30 November
                            sive)                  corresponding rules of their previous regu-     2002 (for ETPs
                                                   lator as modified to the extent necessary       and TTPs)
                            TTP 1
                                                   to ensure that the provision can operate
                                                                                                   Indefinitely (for
                            TSPs 1 to 4            effectively notwithstanding the enactment
                                                                                                   TSPs)
                            (inclusive)            of the Act. Firms will need to adopt a com-
                                                   mon sense approach in interpreting the
                                                   corresponding rules of their previous regu-
                                                   lator and should modify them accordingly.
                                                   For example, references in such rules to a
                                                   firm’s previous regulator should be read as
                                                   if they referred to the FSA. Other modifi-
PAGE
                                                   cations may not be as straightforward. In
 3                                                 cases of difficulty, firms are encouraged to
                                                   approach the FSA for its views.
                     1.4    ETP2            R      Financial Promotion                             commencement commencement
                                                                                                   to 30 November
                                                                                                   2002




       FSA Handbook H Release 028   D   February 2004
COB                                                                         COB TR4 Transitional Rules for ex−RPB firms




            (1)    (2)               (3)   (4)                                         (5)              (6)
                   Material to             Transitional provision                      Transitional
                                                                                                        Handbook pro-
                   which the                                                           provision: dates
                                                                                                        vision: coming
                   transitional                                                        in force
                                                                                                        into force
                   provision ap-
                   plies: The
                   COB provi-
                   sions in
                   Table COB
                   TR 5 with
                   the label in-
                   dicated
                                           (1) An ex–RPB firm will not contra-
                                               vene any of the provisions labelled
                                               ETP2 in Table COB TR2 to the ex-
                                               tent that, on or after commence-
                                               ment, it communicates a financial
                                               promotion which, as to its content,
                                               complies with the corresponding
                                               rules of its previous regulator and
                                               which, for that purpose, had been
                                               approved by the firm as complying
                                               with them before commencement.
                                           (2) For the purposes of (1), a financial
                                               promotion will be treated as ap-
                                               proved by an ex–RPB firm for the
                                               purposes of section 21 of the Act if,
                                               as to its content, it complies with
                                               the corresponding rules of the
                                               firm’s previous regulator and, for
                                               that purpose, was approved by the
                                               firm as so complying with them be-
                                               fore commencement.
            1.5    ETP2              G     Firms should take reasonable steps to        commencement     commencement
                                           avoid communicating a non–real time fi-      to 30 November
                                           nancial promotion which, through the pas- 2002
                                           sage of time, has become misleading. In
                                           such circumstances the promotion is un-
                                           likely to be in compliance with the rules of
                                           its previous regulator.
            1.6    ETP3              R     Information about the firm                  commencement      commencement
                                                                                       to 30 November
                                                                                       2002
                                           (1) Subject to (2), an ex–RPB firm will
                                               not contravene any of the provi-
                                               sions labelled ETP3 in Table COB
                                               TR 4 in relation to any written ma-
                                               terial it has produced before com-
                                               mencement to the extent that, on or
                                               after commencement, it is able to
                                               demonstrate that it has provided
                                               information about itself, in any                                           PAGE
                                                                                                                           4
                                               such material, in accordance with
                                               the corresponding rule of its pre-
                                               vious regulator.




FSA Handbook H Release 028   D     February 2004
       COB                                                                        COB TR4 Transitional Rules for ex−RPB firms




                     (1)    (2)             (3)    (4)                                          (5)              (6)
                            Material to            Transitional provision                       Transitional
                                                                                                                 Handbook pro-
                            which the                                                           provision: dates
                                                                                                                 vision: coming
                            transitional                                                        in force
                                                                                                                 into force
                            provision ap-
                            plies: The
                            COB provi-
                            sions in
                            Table COB
                            TR 5 with
                            the label in-
                            dicated
                                                   (2) (1) does not apply to a firm’s ap-
                                                       pointed representative as defined
                                                       under section 44(2) of the Finan-
                                                       cial Services Act 1986.
                     1.7    ETP3            G      The purpose of COB TR 1.6 R is to ensure commencement
                                                   that the firm does not incur unnecessary   to 30 November
                                                   costs by having to withdraw or destroy     2002
                                                   written material produced before com-
                                                   mencement. For the avoidance of doubt,
                                                   where a firm prints a document on or after
                                                   commencement from a precedent held in
                                                   electronic form, ETP3 will apply.
                     2.0    Technical timing provisions
                     2.1    TTP1            R      Periodic statements                       commencement commencement
                                                   An ex–RPB firm will not contravene any to 30 November
                                                   of the provisions labelled TTP1 in Table 2002
                                                   COB TR 4 to the extent that, on or after
                                                   commencement, it is able to demonstrate
                                                   that it has provided its customers with a
                                                   periodic statement required by COB
                                                   8.2.4 R for the period in which com-
                                                   mencement falls, in accordance with the
                                                   corresponding rules of its previous regu-
                                                   lator.
                     2.2    TTP1            G      Firms should note that the technical timing commencement     commencement
                                                   provisions set out at COB TR 2.1R oper-     to 30 November
                                                   ate on a one–off basis. Any future period- 2002
                                                   ic statement relating to a period after the
                                                   initial period in which commencement
                                                   falls will have to be made in accordance
                                                   with the full requirements of the relevant
                                                   provision in COB.
                     3.0    Timeless (saving) provisions
                     3.1    TSP1            R      Confirmation of compliance and ap-           Indefinitely    commencement
                                                   proval
                                                   An ex–RPB firm will not contravene any
                                                   of the provisions labelled TSP1 in Table
PAGE
                                                   COB TR 4 to the extent that it is able to
 5                                                 demonstrate that, on or after com-
                                                   mencement, it has carried out the con-
                                                   firmation exercise referred to in COB
                                                   3.6.2 R (2), for an investment advertise-
                                                   ment issued or approved before com-
                                                   mencement, in accordance with the cor-
                                                   responding rule of its previous regulator.


       FSA Handbook H Release 028   D   February 2004
COB                                                                          COB TR4 Transitional Rules for ex−RPB firms




            (1)    (2)               (3)   (4)                                          (5)              (6)
                   Material to             Transitional provision                       Transitional
                                                                                                         Handbook pro-
                   which the                                                            provision: dates
                                                                                                         vision: coming
                   transitional                                                         in force
                                                                                                         into force
                   provision ap-
                   plies: The
                   COB provi-
                   sions in
                   Table COB
                   TR 5 with
                   the label in-
                   dicated
            3.2    TSP2              R     Terms of business and customer agree-        Indefinitely    commencement
                                           ments
                                           (1) Subject to (2) and (3), an ex–RPB
                                               firm will not contravene any of the
                                               provisions in Table COB TR 4 la-
                                               belled TSP2 to the extent that, on
                                               or after commencement, it is able
                                               to demonstrate that it has contin-
                                               ued to use, or rely upon, terms of
                                               business (including a client agree-
                                               ment) given to, or made with, a cli-
                                               ent in accordance with the corre-
                                               sponding rule of its previous regu-
                                               lator.
                                           (2) If the basis on which an ex–RPB
                                               firm conducts or proposes to con-
                                               duct its designated investment busi-
                                               ness for a client changes after the
                                               commencement day, it must pro-
                                               vide the client with amended terms
                                               of business in accordance with
                                               COB 4.2.13R.
                                           (3) An ex–RPB firm must take reason-
                                               able steps to ensure that a private
                                               customer to whom it has provided
                                               terms of business (including a client
                                               agreement) before commencement
                                               is notified in writing of the matters
                                               set out in COB 4.2.15E (21) and
                                               (22) as soon as practicable after
                                               commencement.
            3.3    TSP2              G     (1) Firms should note that COB 4.2 also Indefinitely         commencement
                                               benefits from an ETP1 extra–time
                                               provision as set out in COB TR 3.1R.
                                               The purpose of this is to allow firms
                                               additional time, after commencement,
                                               to amend their terms of business for
                                               new clients taken on after N2.
                                           (2) Where an ex–RPB firm has started,
                                                                                                                           PAGE
                                               but not concluded, negotiating terms                                         6
                                               of business with a client before com-
                                               mencement, it may rely on COB TR
                                               3.2(1) R even if the terms of business
                                               are not agreed until after commence-
                                               ment.




FSA Handbook H Release 028   D     February 2004
       COB                                                                        COB TR4 Transitional Rules for ex−RPB firms




                     (1)    (2)             (3)    (4)                                          (5)              (6)
                            Material to            Transitional provision                       Transitional
                                                                                                                 Handbook pro-
                            which the                                                           provision: dates
                                                                                                                 vision: coming
                            transitional                                                        in force
                                                                                                                 into force
                            provision ap-
                            plies: The
                            COB provi-
                            sions in
                            Table COB
                            TR 5 with
                            the label in-
                            dicated
                                                   (3) COB TR 3.2(2) R does not require
                                                       the firm to provide a client with
                                                       amended terms of business where the
                                                       change in the terms was contem-
                                                       plated in the original terms of busi-
                                                       ness.
                     3.4    TSP3            R      Know your customer and suitability           Indefinitely    commencement
                                                   (1) Subject to (2), an ex–RPB firm will
                                                       not contravene any of the provi-
                                                       sions labelled TSP3 in Table COB
                                                       TR2 to the extent that it is able to
                                                       demonstrate that, on or after com-
                                                       mencement, it has continued to use,
                                                       or rely upon, a record of a private
                                                       customer’s personal and financial
                                                       circumstances made in accordance
                                                       with the corresponding rules of its
                                                       previous regulator, and in doing so
                                                       has had regard to the guidance set
                                                       out in COB 5.2.6 G.
                                                   (2) The relief in (1) will only apply so
                                                       long as there is no relevant change
                                                       in the customer’s personal and fi-
                                                       nancial circumstances.
                     3.5    TSP4            R      Suitability and customers’ understand-       Indefinitely    commencement
                                                   ing of risk
                                                   An ex–RPB firm will not contravene any
                                                   of the provisions labelled TSP4 in Table
                                                   COB TR2 to the extent that, on or after
                                                   commencement, it uses, or relies upon, a
                                                   suitability letter or, as the case may be,
                                                   a risk warning or disclosure, given to a
                                                   customer in accordance with the corre-
                                                   sponding rule of its previous regulator,
                                                   in relation to a transaction or series of
                                                   transactions executed or arranged prior
                                                   to commencement.
                     3.6    TSP4            G      Firms should note that the requirements in Indefinitely      commencement
PAGE                                               COB 5.2 and COB 5.3 relating to the pro-
 7
                                                   duction of suitability letters and risk warn-
                                                   ing also benefit from an ETP1 provision.
             3              Table       COB Table TR5: COB rules benefiting from transitional relief for
             ex–RPB firms
             This Table belongs to COB TR4 1.1R to COB TR4 4.1R



       FSA Handbook H Release 028   D   February 2004
COB                                                                       COB TR4 Transitional Rules for ex−RPB firms




             COB Rule                                Rule Heading                                Assignation
                                                                                           ETP      TTP         TSP
            CHAPTER 3 FINANCIAL PROMOTION (whole chapter)                                 ETP1
                                                                                          ETP2
            3.6 Confirmation of compliance and approval
            3.6.1R            Confirmation of compliance                                  ETP1                 TSP1
            3.6.2R            Withdrawing confirmation                                    ETP1                 TSP1
            3.6.5R            Communicating a financial promotion where another firm      ETP1                 TSP1
                              has confirmed compliance
            CHAPTER 4 ACCEPTING CUSTOMERS
            4.2 Terms of business and customer agreements                                 ETP1                 TSP2
            CHAPTER 5 ADVISING AND SELLING
            5.2 Know your customer                                                        ETP1                 TSP3
            5.3 Suitability                                                               ETP1                 TSP4
            5.4 Customers’ understanding of risk
            5.4.3R            Requirement for risk warnings                               ETP1                 TSP4
            5.5 Information about the firm                                                ETP3
            CHAPTER 8 REPORTING TO CUSTOMERS
            8.1 Confirmation of transactions
            8.1.3R            Requirement to confirm a transaction                        ETP1
            8.1.6R            Exceptions to the requirements to dispatch a confirmation   ETP1
            8.1.7R                                                                        ETP1
            8.1.8R                                                                        ETP1
            8.1.11R           When a confirmation may omit certain information            ETP1
            8.1.12R           When a transaction is treated as arranged                   ETP1
            8.1.14R           Record keeping requirements                                 ETP1
            8.2 Periodic statements
            8.2.4R            Requirement for a periodic statement                        ETP1     TTP1
            8.2.9R            Record keeping requirements                                 ETP1     TTP1
            CHAPTER 9 CLIENT ASSETS
            9.1 Custody (whole chapter)                                                   ETP1
            9.1.35                                                                                             TSP4
            (3)–(5)R
            9.1.40R                                                                                            TSP4


            9.1.49R           Client agreement                                                                 TSP2


            9.1.51R                                                                                            TSP2


            9.1.54R           Risk disclosures                                                                 TSP4     PAGE
                                                                                                                         8


            9.1.57R                                                                                            TSP4




FSA Handbook H Release 028    D   February 2004
       COB                                                                           COB TR4 Transitional Rules for ex−RPB firms




                         COB Rule                                Rule Heading                                    Assignation
                                                                                                          ETP      TTP           TSP
                     9.1.58R                                                                                                   TSP4


                     9.1.69R            Custodian agreement                                                                    TSP2
                     9.1.74R            Stock lending                                                                          TSP2


             4                 Table                  Miscellaneous Transitional Rules applying to all firms

                      (1)           (2)             (3)                     (4)                        (5)             (6)

                              Material to                        Transitional provision           Transitional      Handbook
                               which the                                                           provision:       provision:
                              transitional                                                          dates in       coming into
                             provision ap-                                                           force            force
                                 plies

                     1      COB                   R       Single pricing and dilution             From 1 Au-     1 August 2002
                            6.5.40R(3)                                                            gust 2002
                            (k) and (l)                   COB 6.5.40R(3)(k) and (l) do not        until 1 Feb-
                                                          take effect until 1 February 2003       ruary 2003
                                                          for an authorised fund in existence
                                                          on 1 August 2002 unless the autho-
                                                          rised fund manager decides to adopt
                                                          a policy enabling it to make a dilu-
                                                          tion adjustment.
                     2      COB 6.5.18R           R       Pension projections                  From 1 No- 1 November
                            and COB 6.6                                                        vember 2002 2002
                                                          A firm will not contravene a rule in to 5 April
                                                          COB 6.5.18R or COB 6.6 provided it 2003
                                                          complies with the version of that
                                                          rule in force on 31 October 2002.

                     3      COB 6.8.26R           R       Fourth Motor Insurance Directive        From 19        19 January
                            and COB                                                               January        2003
                            6.8.28R                       COB 6.8.26R to COB 6.8.28R apply        2003
                                                          only to claims received by a motor
                                                          vehicle liability insurer or a claims
                                                          representative on or after 19 Janu-
                                                          ary 2003.

                     4      COB                           Statutory status disclosure             From 1        1 March 2003
                                                                                                  March 2003
                            3.8.4R (3),                   A firm is not required to comply        until 30 Sep-
                            3.9.7R (1),                   with the amendments to the rules in     tember 2004
                            3.13.4R                       column (2) made by the Statutory
                                                          Status Disclosure Instrument 2003
                                                          until 1 October 2004 in relation to a
                                                          relevant financial promotion that
PAGE                                                      was prepared before 1 March 2003
 9
                                                          or where compliance was confirmed
                                                          before 1 March 2003, provided it is
                                                          communicated no later than 30 Sep-
                                                          tember 2004.




       FSA Handbook H Release 028   D     February 2004
COB                                                                            COB TR4 Transitional Rules for ex−RPB firms




            5      COB                  R,        A firm is not required to comply      From 1           1 March 2003
                                        E,        with the amendments to to the rules March 2003
                   4.2.15E (2),         G         in column (2) made by the Statutory
                   4.3.15E (22),                  Status Disclosure Instrument 2003
                   5.5.3R, 5.5.5E,                until 1 October 2004; to the extent
                   5.5.9R –                       that a firm continues to rely upon
                   5.5.12R                        terms of business (including a client
                                                  agreement) given to or made with a
                                                  client before 1 October 2004, the
                                                  firm does not need to comply with
                                                  the amendments to COB 4.2.15E
                                                  made by that Instrument until the
                                                  firm’s terms of business is next up-
                                                  dated.

            6      COB                  R         The amendments to COB 8.1.15E            From 1        1 March 2003
                   8.1.15E (2),                   (2) and COB 10.6.8E (1) and (8)          March 2003
                   10.6.8E (1)                    made by the Statutory Status Dis-
                                                  closure Instrument 2003 do not ap-
                                                  ply to a firm:

                                                  (1) in relation to a confirmation of a
                                                  transaction under COB 8.1 (Con-
                                                  firmation of transactions); and

                                                  (2) in relation to the scheme docu-
                                                  ments referred to in COB 10.6
                                                  (Scheme documents for an unregu-
                                                  lated collective investment scheme);

                                                  until, as appropriate, the firm’s sys-
                                                  tem for producing confirmations or
                                                  the scheme documents are next up-
                                                  dated by the firm.

            7                                     To Follow
            8                                     To Follow
            9      Rules in the         R         Classification of CISs. If a firm at     From 1 Sep-   Various
                   Handbook                       any time before 1 September 2003         tember 2003
                                                  classified a collective investment
                                                  scheme in accordance with COB 4.1
                                                  (Client classification) as in force at
                                                  that time, it will not contravene any
                                                  of the rules in the Handbook by
                                                  treating the scheme in accordance
                                                  with that classification.
            10     COB 7.1.14           R         UCITS management company COB             From 13       13 February
                                                  7.1.14 R does not take effect in rela-   February      2004
                                                  tion to any discretionary manage-        2004to 12
                                                  ment undertaken in accordance            February
                                                  with a client agreement entered into     2007
                                                  before 12 February 2004.
                                                                                                                             PAGE
                                                                                                                              10




FSA Handbook H Release 028   D    February 2004
       COB                                                                         COB TR4 Transitional Rules for ex−RPB firms




                     11     COB 5.4.4E          R       A firm, which acts as a discretion-      1 January    30   September
                            (6)                         ary investment manager for a private     2004         2004
                                                        customer on 1 January 2004 will not
                                                        contravene this evidential provision
                                                        if it provides the relevant risk warn-
                                                        ing to those customers no later than
                                                        when it provides a statement in ac-
                                                        cordance with COB 8.2.4R provided
                                                        that this is done no later than 9
                                                        months after this rule comes into
                                                        force.
                     12     COB 3.9.13G(3)      G       Until 16 July 2004, a firm may re-       From 20       20 February
                                                        gard the reference in COB                February      2004
                                                        3.9.31G(3) to the FSA’s factsheet en-    2004 until 16
                                                        titled ’Capital at risk products’ as     July 2004
                                                        including the FSA’s factsheet en-
                                                        titled ’High–income products –
                                                        Make sure you understand the
                                                        risks’.




PAGE
 11




       FSA Handbook H Release 028   D   February 2004
       COB 3: Financial promotion                                                               Section 3.2: Application: what?




                                           (f)   sales aids which themselves constitute a financial promotion;

                                           (g)   presentations to groups of individuals;

                                           (h)   tip−sheets; and

                                           (i)   other publications, which may contain non−personal recommendations as to
                                                 the acquisition, retention or disposal of investments of any description.

                                                                                                                                  3
                                     Financial promotions for deposits and contracts of insurance which are not
                                     life policies

             3.2.3                   (1)   To the extent that a financial promotion relates to one or more of
                      20.02.04/002         the following:

                                           (a)   a deposit; or

                                           (b)   a general insurance contract, pure protection contract, or
                                                 reinsurance contract

                                           only H COB 3.1 to H COB 3.5 and H COB 3.8.4 R to H COB 3.8.6 G and H
                                           COB 3.14 apply, unless the financial promotion relates to a cash
                                           deposit ISA in which case H COB 3.9.6 R (1) and H COB 3.9.8 R also
                                           apply; and

                                     (2)   if the financial promotion relates to a structured deposit, the
                                           following will also apply: H COB 3.8.8R, H COB 3.8.9G, H COB 3.8.11R, H
                                           COB 3.8.12G, H COB 3.8.15R and H COB 3.8.16G.




                                     Exemptions

             3.2.4                   This chapter does not apply to a firm in relation to a financial
                      01.12.01/001   promotion of a kind listed in H COB 3.2.5 R, except that:

                                     (1)   if the financial promotion relates to an unregulated collective
                                           investment scheme, H COB 3.11 (Unregulated collective investment
                                           schemes) applies;

                                     (2)   (except where H COB 3.2.3 R applies) if the firm approves the
                                           financial promotion, the following apply:

                                           (a)              H COB 3.1   to H COB 3.5 (Application, General and
                                                 Purpose).
PAGE
 5                                         (b)                                      time financial promotions:
                                                            H COB 3.8.4 R (1)(Non−real
                                                 clear, fair, and not misleading) except if the financial
                                                 promotion is exempt under H COB 3.2.5 R (7);

                                           (c)           H COB 3.12.1 G to H COB 3.12.5 G (Approval of financial
                                                 promotions; No approval of real time financial promotions;


       FSA Handbook H Release 028    D     February 2004                                                           3.2.4
    COB 3: Financial promotion                                                           Section 3.2: Application: what?




                                                Approval of financial promotions when not all the rules
                                                apply); and

                                (3)       (except where H COB 3.2.3 R applies) if the firm:

                                          (a)            approves a specific non−real time financial
                                                promotion relating to an investment or service of an overseas
                                                person; and
3
                                          (b)   the financial promotion is exempt under any of H COB 3.2.5 R (2)
                                                to (6) ;

                                                  H COB 3.12.6 R and H COB 3.12.7 G (Specific non−real time
                                          financial promotions for overseas persons) apply.

        3.2.5                   Table           Exemptions
                 01.03.03/004                   This table belongs to H COB 3.2.4 R

                                 Exemptions
                                 This chapter does not apply to the following:
                                 (1) a financial promotion to a market counterparty or an intermediate
                                      customer, that is a financial promotion which:
                                      (a) is made only to recipients who the firm has taken reason-
                                            able steps to establish are market counterparties or inter-
                                            mediate customers; or
                                      (b) may reasonably be regarded as directed only at recipients
                                            who are market counterparties or intermediate customers;
                                      when a person is classified as an intermediate customer under
                                      COB 4.1.9R (Expert private customer classified as intermediate
                                      customer), this exemption applies only for a financial promotion
                                      that relates to the designated investments or designated investment
                                      business for which he has been so classified;
                                 (2) a financial promotion which can lawfully be communicated by an
                                      unauthorised person without approval;
                                 (3) a financial promotion communicated from outside the United
                                      Kingdom which would be exempt under articles 30, 31, 32 or 33
                                      of the Financial Promotion Order (Overseas communicators) if
                                      the office from which the financial promotion is communicated
                                      were a separate unauthorised person (but see COB 5.5.7R (Over-
                                      seas business for UK private customers) and GEN 4.4 (Business
                                      for private customers from non–UK offices));
                                 (4) a ”one off” non–real time financial promotion or a ”one off” sol-
                                      icited real time financial promotion; if the conditions set out in (a)
                                      to (c) are satisfied, a financial promotion is to be regarded as                     PAGE
                                                                                                                            6
                                      ”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 re-
                                      garded as ”one off” even if none of the conditions are met; the
                                      conditions are that:


    FSA Handbook H Release 028        D     February 2004                                                     3.2.4
       COB 3: Financial promotion                                                           Section 3.2: Application: what?




                                      Exemptions
                                          (a) the financial promotion is communicated only to one recipi-
                                                ent or only to one group of recipients in the expectation that
                                                they would engage in any investment activity jointly;
                                          (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;
                                          (c) the financial promotion is not part of an organised market-                     3
                                                ing campaign;
                                      (5) a financial promotion which contains only one or more of the fol-
                                          lowing:
                                          (a) the name of the firm (or its appointed representative);
                                          (b) the name of an investment;
                                          (c) a contact point (address (including an e–mail address), tele-
                                                phone or facsimile number);
                                          (d) a logo;
                                          (e) a brief, factual description of the firm’s (or its appointed
                                                representative’s) activities;
                                          (f) a brief, factual description of the firm’s (or its appointed
                                                representative’s) fees;
                                          (g) a brief, factual description of the firm’s investment prod-
                                                ucts;
                                          (h) the price or yields of investments and the charges;
                                      (6) a personal quotation or illustration form;
                                      (7) a financial promotion which is subject to the Takeover Code or
                                          the SARs (or exempted from complying with the Takeover Code
                                          or the SARs by that Code, those rules, or by a ruling of the Take-
                                          over Panel) or to the requirements relating to takeovers or related
                                          operations in another EEA State;
                                      (8) a financial promotion in the form of a decision tree for a stakehol-
                                          der pension scheme, provided the text, content and format of the
                                          decision tree comply with the requirements of COB 6.5.8 R.



                                     Combination of exemptions

             3.2.6                   A firm may rely on more than one exemption (and also on H COB 3.3.1
                      01.12.01/001   R (Territorial limitation)) in relation to the same financial promotion.


PAGE
 7
                                     Guidance on the exemptions

             3.2.7                   (1)   Under H COB 3.2.5 R (1) a financial promotion which is communicated only to
                      01.11.02/003         market counterparties or intermediate customers is exempt. See H COB 3.5.6 R
                                           and H COB 3.5.7 R which amplify this exemption. A firm will need to take




       FSA Handbook H Release 028    D     February 2004                                                         3.2.7
    COB 3: Financial promotion                                                                  Section 3.2: Application: what?




                                       particular note of the conditions in H COB 3.5.7 R when designing financial
                                       promotions for trade publications which may be available also to private
                                       customers.

                             (2)       A table summarising some of the main exemptions contained in the Financial
                                       Promotion Order, and therefore relevant to H COB 3.2.5 R (2), is in H COB 3 Ann
                                       1. Guidance on certain exemptions is contained in H AUTH App 1 (Financial
                                       promotion and related activities).

3                            (3)       In H COB 3.2.5 R:

                                       (a)   Item (4) reflects the exemption in article 28 of the Financial Promotion
                                             Order (One off non−real time communications and solicited real time
                                             communications), but goes further, exempting such financial promotions
                                             which relate to deposits and all contracts of insurance. It exempts, amongst
                                             other things, correspondence which is written specifically for a recipient,
                                             whether hard copy or e−mail. A firm should note, however, that such
                                             correspondence will, if personal recommendations are made, be subject to
                                             other obligations such as know your customer and suitability requirements
                                             (see H COB 5.2 and H COB 5.3). It does not exempt financial promotions
                                             communicated in the form of mass mailshots, which may appear to be items
                                             of personalised correspondence but which in fact comprise the same or
                                             virtually the same material sent to a number of recipients, without tailoring
                                             the material to the circumstances of each recipient. Such mailshots must
                                             meet the requirements of this chapter. H AUTH App 1.14.3 G (One−off
                                             financial promotions (articles 28 and 28A)) provides further guidance on
                                             the scope of the exemption in article 28.

                                       (b)   Items (5)(e), (f) and (g) exempt a financial promotion made by a firm which
                                             refers only to its activities in general terms in image advertising. Acceptable
                                             examples include ‘life and pensions’ and ‘life assurance and pensions
                                             business’. In addition a firm or its appointed representative may include its
                                             name, address and telephone number in accordance with items 5(a) and (c).
                                             H AUTH App 1.4.20 G (Image advertising) provides guidance on when image
                                             advertising may involve a financial promotion.

                                       (c)   Item (5)(h) exempts financial promotions which merely comprise lists of
                                             prices published in newspapers, or through the internet, or other electronic
                                             media. In addition a firm may include its name, address and telephone
                                             number in accordance with items (5)(a) and (c). H AUTH App 1.4.13 G
                                             (Publication or broadcast of prices of investments (historic or live)) provides
                                             guidance on when the display of prices may involve a financial promotion.

                                       (d)   Item (8) exempts financial promotions that are decision trees if the decision
                                             tree satisfies the requirements of H COB 6.5.8 R. A decision tree will not be
                                             a financial promotion if it is neither an invitation nor an inducement to
                                             engage in investment activity; for example, when it is prepared for training
                                             or educational purposes.

                             (4)       A company’s annual report and accounts issued in accordance with a
                                       requirement of the Companies Act 1985 (or corresponding Northern Ireland or
                                       EEA provisions) are exempt under item (2) and article 59 of the Financial                  PAGE
                                       Promotion Order. But this exemption does not extend to the report and                       8

                                       accounts of ICVCs, other types of OEIC, and unit trust schemes. H AUTH App
                                       1.21.11 G (Article 59: Annual accounts and directors’ report) provides further
                                       guidance on the scope of the exemption in article 59.




    FSA Handbook H Release 028     D     February 2004                                                                3.2.7
       COB 3: Financial promotion                                                                Section 3.2: Application: what?




                                     (5)   A financial promotion included in a newspaper, magazine or periodical which is
                                           printed and published overseas, but which may be brought into the United
                                           Kingdom and made available to persons in the United Kingdom, will be exempt
                                           provided that the financial promotion is not communicated to persons inside
                                           the United Kingdom (see H COB 3.3 and H AUTH App 1.12.2 G (Financial
                                           promotions to overseas recipients (article 12))).

                                     (6)   This chapter does not apply in relation to a financial promotion the
                                           communication of which by a firm would contravene section 238(1) of the Act
                                           (Restrictions on promotion of unregulated collective investment schemes) (see H         3
                                           COB 3.11.4 R and H AUTH App 1.20 (Additional restriction on the promotion of
                                           collective investment schemes)).



                                     Other Handbook rules relevant to financial promotions

             3.2.8                   (1)   Firms are reminded that financial promotions (including those which are
                      01.12.01/001         exempt) may be subject to more general rules including Principle 7
                                           (Communications with clients), H SYSC 3 (Systems and controls) and H COB
                                           2.1.3 R (Clear, fair and not misleading communication).

                                     (2)           Firms are reminded that if in the course of making a financial
                                           promotion of any kind an adviser (independent or tied) gives specific advice on
                                           investments to a private customer about the suitability of a product for that
                                           individual, the adviser in giving the advice is subject to the rules, as appropriate,
                                           on advising and selling in H COB 5.

                                     (3)           Firms are reminded that this chapter does not apply with respect to the
                                           carrying on of inter−professional business. This means that a financial
                                           promotion communicated to a market counterparty in connection with certain
                                           types of regulated activities is exempt from this chapter; instead, H MAR 3
                                           (Inter−professional conduct) may be relevant. But that exemption does not
                                           apply in relation to the approval of a financial promotion in the course of
                                           inter−professional business.




PAGE
 9




       FSA Handbook H Release 028    D     February 2004                                                               3.2.8
    COB 3: Financial promotion                                                                 Section 3.3: Application: where?




                                                     3.3     Application: where?



3
                                                                                                                       Section 3.3: Application: where?




                                Territorial scope

        3.3.1                   This chapter applies to a firm only in relation to:
                 01.12.01/001

                                (1)       the communication of a financial promotion to a person inside
                                          the United Kingdom;

                                (2)       the communication of an unsolicited real time financial
                                          promotion to a person outside the United Kingdom, unless:

                                          (a)   it is made from a place outside the United Kingdom; and

                                          (b)   it is made for the purposes of a business which is carried on
                                                outside the United Kingdom and which is not carried on in the
                                                United Kingdom; and

                                (3)       the approval of a non−real time financial promotion for
                                          communication to a person inside the United Kingdom;

                                subject to H COB 3.3.3 R.

        3.3.2                   (1)       The application under H COB 3.3.1 R is relevant both when a firm communicates
                 01.11.02/004             a financial promotion itself and when a firm approves a non−real time financial
                                          promotion for communication by others. But see also H COB 3.3.3 R (2)
                                          regarding approvals.

                                (2)       The exemptions in H COB 3.2.5 R (Application: what?; Exemptions) also
                                          incorporate some territorial elements. In particular, the exemption for financial
                                          promotions originating outside the United Kingdom (section 21(3) of the Act
                                          (Restrictions on financial promotion)) (see H COB 3.2.5 R (2) and H AUTH App
                                          1.12.2 G (Financial promotions to overseas recipients (article 12)), the
                                          exemptions for overseas communicators (see H COB 3.2.5 R (3) and H AUTH App
                                          1.14.14 G (Overseas communications (articles 30 to 33)) and the exemption for
                                          incoming electronic commerce communications (see H AUTH App 1.12.38 G
                                          (article 20B)).
                                                                                                                                                          PAGE
                                                                                                                                                           10
                                (3)       The scope of H COB 3 is extended by H ECO 2.2.3R to cover financial
                                          promotions which are outgoing electronic commerce communications, subject
                                          to the lifting of rules in the derogations to the E−Commerce Directive as set out
                                          in H ECO 2.




    FSA Handbook H Release 028        D     February 2004                                                             3.3.2
       COB 3: Financial promotion                                                                  Section 3.8: Form and content
                                                                                                          of financial promotions



                                     (3)   (for pure protection contracts) the ABI Life Insurance (Non−Investment
                                           Business) Selling Code of Practice.



                                     Non−real time financial promotions: guidance on clear, fair and not
                                     misleading

             3.8.7                   (1)   It cannot be assumed that recipients necessarily have an understanding of the
                      01.11.02/002         investment or service being promoted. If a non−real time financial promotion is          3
                                           specially designed for a targeted collection of recipients who are reasonably
                                           believed to have particular knowledge of the investment or service being
                                           promoted, this fact should be made clear.

                                     (2)   (a)   Except in relation to life policies providing guaranteed benefits, or deposits,
                                                 the description of an investment as ‘guaranteed’ should only be used where
                                                 there is a legally enforceable arrangement with a third party to meet the
                                                 claim in full. In such cases sufficient details about the guarantor and the
                                                 guarantee should be provided before a person enters into a transaction
                                                 relating to the investment to enable him to make a fair assessment of the
                                                 value of the guarantee.

                                           (b)   Where the investment is in units of an authorised fund the guarantee should
                                                 be given by a third party other than the authorised fund manager or the
                                                 depositary. Firms should note that H COB 6.5.40R(3)(m)requires specific
                                                 information to be included in the key features of an authorised fund in
                                                 respect of any guarantee or other arrangement intended to result in a
                                                 particular capital or income return from a holding of units or shares in that
                                                 authorised fund and in respect of any investment objective of giving
                                                 protection to the capital value or income return from such a holding. H CIS
                                                 3.5.2R 26 requires similar information to be contained in the prospectus of
                                                 an authorised fund. H CIS 2.7.2Gcontains guidance on when the name of an
                                                 authorised fund should not include the word "guaranteed".

                                           (c)   A guarantee to the directors of a company that issues an EIS share is not a
                                                 guarantee to a person invested in the relevant Enterprise Investment
                                                 Scheme.

                                     (3)   The use of any of the following may mean that a non−real time financial
                                           promotion does not meet the general requirement of H COB 3.8.4 R (1) of being
                                           clear, fair and not misleading:

                                           (a)   a statement such as ‘no initial charges’ or ‘no entry or redemption charges’
                                                 where the bid price is not the same as the offer price (for example there is a
                                                 spread), unless the statement is suitably qualified with information about
                                                 the additional costs of investment;

                                           (b)   the phrase ‘frozen pensions’, which implies that the pension fund will not
                                                 remain invested and the pension benefits may not be subject to the
                                                 possibility of an upward revaluation and will not be upgraded in
                                                 circumstances where this is not the case (the phrase ‘preserved pensions’ is
PAGE                                             recommended as an alternative);
 25

                                           (c)   a statement of the amount of authorised share capital of a company
                                                 without the amount of the issued share capital;




       FSA Handbook H Release 028    D     February 2004                                                                3.8.7
    COB 3: Financial promotion                                                                     Section 3.8: Form and content
                                                                                                          of financial promotions



                                          (d)   a statement of the amount of a company’s total assets without the amount
                                                of its liabilities, or the amount of a company’s total costs, or income or
                                                turnover, without making clear the period to which the statement relates;

                                          (e)   an implication that the assets of a whole group can be drawn on by a
                                                subsidiary when this is not the case;

                                          (f)   a comparison of the performance or the likely performance of an
                                                investment in units in a regulated collective investment scheme with an
3                                               investment in units in an unregulated collective investment scheme.

                                (4)       In relation to quotations of opinion:

                                          (a)   where only part of an opinion is quoted, it should nevertheless be a fair
                                                representation;

                                          (b)   any connection between the holder of the opinion and the firm should be
                                                made clear.

                                (5)                Firms should note that the "return" on an investment is the gain or
                                          profit; it does not include the original capital invested.



                                Specific non−real time financial promotions: general requirements

        3.8.8                   A specific non−real time financial promotion must;
                 01.11.02/002

                                (1)       include a fair and adequate description of:

                                          (a)   the nature of the investment or service;

                                          (b)   the commitment required;

                                          (c)   the risks involved; and

                                (2)       if it relates to an investment or service of a person other than the
                                          firm, contain the name of that person, in addition to the name and
                                          address or contact point of the firm or its appointed
                                          representative (see H COB 3.8.2 R).

        3.8.9                   (1)       A specific non−real time financial promotion should give a fair and balanced
                 20.02.04/002             indication of the requirements in H COB 3.8.8 R (1)(a) to (c), to meet H COB 3.8.4
                                          R (1).

                                (2)       The details of the commitment which is required by H COB 3.8.8 R (1)(b) will
                                          depend on the nature of the investment being promoted. This could be, for
                                          example, the minimum amount which can be invested, minimum or maximum
                                          period of investment or, where it is the case, the fact that it could be some time
                                          before a person may see a return on his investment. Where an investor’s capital
                                                                                                                                    PAGE
                                          would be tied up for more than one month following the last fixed payment due              26
                                          to be made under the contract, this should be made clear in any financial
                                          promotion for that product.

                                (3)       In giving a fair and adequate explanation of the investment or service being
                                          promoted firms should avoid:




    FSA Handbook H Release 028        D     February 2004                                                              3.8.9
       COB 3: Financial promotion                                                                    Section 3.8: Form and content
                                                                                                            of financial promotions



                                          (a)   accentuating the potential benefits of an investment without also giving a
                                                fair indication of the risks;

                                          (b)   failing to describe any benefits under a life policy which are not fixed;

                                          (c)   drawing attention to favourable tax treatment without stating that this
                                                might not continue in the future.

                                          (d)   to follow
                                                                                                                                      3
                                          (e)   using prominent headline rates of return where these rates are unrealistic
                                                and unlikely to be obtained by most investors.

                                    (4)           Guidance on the application of H COB 3.8.4 R to the internet and other
                                          electronic media is provided in H COB 3.14.

                                    (5)   To assist firms’ compliance with H COB 3.8.4 R (1) and H COB 3.8.8R(1) in
                                          relation to a specific non−real time financial promotion further guidance is given
                                          in H COB 3 Ann 4.

                                    (6)   If the financial promotion relates to securities, or to an investment trust savings
                                          scheme for dealing in securities, in respect of which the conditions in (a), (b)
                                          and (c) are satisfied, then the firm should ensure that the risks associated with
                                          the relevant investment approaches in (b) are properly explained. The
                                          conditions are that:

                                          (a)   The securities are

                                                (i)    listed in the United Kingdom under chapter 21 of the listing
                                                       rules(Investment entities); or

                                                (ii)   issued by an investment trust and listed in an EEA State other than the
                                                       United Kingdom;

                                          (b)   the issuer of the securities in (a):

                                                (i)    uses or proposes to use gearing as an investment strategy; or

                                                (ii)   invests or proposes to invest in securities that satisfy the conditions in
                                                       (a) and the issuer of such securities uses or proposes to use gearing as
                                                       an investment strategy; and

                                          (c)   the securities are likely to be subject to fluctuations in value which are
                                                significant compared with the likely fluctuations in value of the underlying
                                                investments.

                                    (7)   In giving a fair and adequate explanation of the risk involved, firms should,
                                          where relevent:

                                          (a)   have regard to the provisions in H COB 5.4.12E and H COB 5.4.13G; and

PAGE                                      (b)   identify where there is a possibility of loss of initial capital invested and
 27
                                                disclose this as one of the main points in the specific non−real time financial
                                                promotion.

                                    (8)          Firms are reminded that, when communicating or approving a financial
                                          promotion relating to a structured capital−at−risk product, H COB 8.2.1R and H
                                          COB 8.2.4R(2) apply.



       FSA Handbook H Release 028   D     February 2004                                                                    3.8.9
    COB 3: Financial promotion                                                                     Section 3.8: Form and content
                                                                                                          of financial promotions



                                Specific non−real time financial promotions: non−packaged products

        3.8.10                  A specific non−real time financial promotion relating to a designated
                 01.12.01/001   investment other than a packaged product must, when it is the case,
                                and if it is known, disclose if the firm or its associate:

                                (1)       has or may have a position or holding in the investment
                                          concerned or in a related investment; or
3
                                (2)       has or may have a material interest in any investment concerned,
                                          and the nature and extent of that interest; or

                                (3)       is or may be the only market maker where the financial
                                          promotion is for a security (excluding units in a collective
                                          investment scheme); or

                                (4)       is or may be providing, or has or may have provided within the
                                          previous 12 months, significant advice or investment services in
                                          relation to the investment concerned or a related investment.



                                Specific non−real time financial promotions: past performance

        3.8.11                  A specific non−real time financial promotion which gives information
                 01.12.01/001   about the past performance of specified investments or of a firm must
                                include:

                                (1)       suitable text:

                                          (a)   that is specifically designed as suitable for the type of financial
                                                promotion being promoted and its target audience; and

                                          (b)   which draws attention to the fact that past performance will
                                                not necessarily be repeated; and

                                (2)       information relating to a relevant and sufficient period of past
                                          performance to provide a fair and balanced indication of the
                                          performance.

        3.8.12                  (1)       The purpose of H COB 3.8.11 R is to:
                 01.12.01/001
                                          (a)   prevent an investment being promoted in such a way as to induce a person
                                                to believe that any previous periods of favourable performance will
                                                necessarily be repeated in the future; and

                                          (b)   to encourage firms to draft warnings which are tailored to fit the design of
                                                the financial promotion and the audience to which they are primarily                PAGE
                                                directed. Therefore, for example, text used in a warning included in a               28

                                                specialist magazine may not be useful in a financial promotion in the
                                                popular press.




    FSA Handbook H Release 028        D     February 2004                                                             3.8.12
       COB 3: Financial promotion                                                                  Section 3.8: Form and content
                                                                                                          of financial promotions



                                     (2)   Any of the following may mean that a specific non−real time financial
                                           promotion does not meet the requirement of H COB 3.8.4 R (1) of being clear,
                                           fair and not misleading:

                                           (a)   an unfair comparison with the performance of another type of investment;

                                           (b)   the selection of an inappropriate or irrelevant investment period;

                                           (c)   the selection of an unreasonably short time period;
                                                                                                                                    3
                                           (d)   the selection of inconsistent time periods for a range of funds;

                                           (e)   a comparison with deposits without an indication in clear terms, and with
                                                 equal prominence, that the investment does not include the security of
                                                 capital which is afforded under a deposit with a bank or building society.

                                     (3)           Firms need to take special care when presenting euro−based information
                                           as new factors should be taken into account in the calculation and/or
                                           comparison of the performance of some products. There may be some
                                           techniques of presenting past performance data which can no longer be used
                                           because when euro conversion is factored into the calculation it produces a
                                           misleading result. Guidance cannot deal with all the circumstances in which
                                           performance data are used, and it is therefore important for firms to look at the
                                           end result and the context in which the information is presented to ensure it
                                           does not breach H COB 3.8.4 R (1) (clear, fair and not misleading).

                                     (4)   Information on the past performance of a conventional with−profits contract
                                           may be relevant to a unitised contract to give potential policyholders access to
                                           information relating to the performance of a contract within the with−profit
                                           fund of a product provider. Any differences between the two systems and any
                                           factors which reduce the relevance of the past performance of the conventional
                                           contract, including differences in bonus policy and the level of charges and
                                           expenses, should be clearly explained.

             3.8.13                  A specific non−real time financial promotion, which refers to past
                      01.12.01/001   performance of a packaged product, must include information about
                                     the performance of the packaged product which covers the previous
                                     five years (or the whole period if the packaged product has been
                                     offered for less than this), ending with the date on which the firm
                                     confirms compliance with the rules in this chapter under H COB 3.6.1 R
                                     (or as near as is reasonably practicable).

             3.8.14                  (1)   The information required by H COB 3.8.13 R should be given on:
                      01.12.01/001
                                           (a)   an offer to bid basis (which should be stated) where there is an actual
                                                 return or comparison of performance with other investments; or

                                           (b)   an offer to offer, or offer to bid basis (which should be stated) where there
                                                 is a comparison of performance with an index or with movements in the
                                                 price of units; or
PAGE
 29
                                           (c)   a single pricing basis with allowance for charges.

                                     (2)   Where the pricing policy of the investment has changed, the prices used to
                                           comply with H COB 3.8.13 R should include such adjustments as are necessary to
                                           remove any distortions resulting from the pricing method.




       FSA Handbook H Release 028    D     February 2004                                                              3.8.14
    COB 3: Financial promotion                                                                  Section 3.8: Form and content
                                                                                                       of financial promotions



                                (3)       Where the performance relates to a different investment vehicle, any material
                                          differences should be stated in the financial promotion.

        3.8.15                  Information about past performance in a specific non−real time
                 01.12.01/001   financial promotion must not be presented in such a manner as to
                                suggest that it constitutes a projection illustrating the possible future
                                value of an investment contract or fund.

3       3.8.16                  In determining whether H COB 3.8.15 R has been satisfied, the FSA will take into
                 01.12.01/001   account:

                                (1)       the way in which the information about past performance has been presented;

                                (2)       how it is positioned in the financial promotion;

                                (3)       the wording which accompanies it.

                                Paragraph headings, or the positioning of information about past performance and
                                current yields next to each other, can sometimes contribute to an overall impression
                                that past performance and future prospects are linked.



                                Specific non−real time financial promotions: projections for life policies or
                                schemes

        3.8.17                  A specific non−real time financial promotion relating to a life policy,
                 01.12.01/001   or a scheme, and which includes a projection must comply with the
                                detailed projection rules in H COB 6.6 (Projections).



                                Specific non−real time financial promotions: projections for EIS shares

        3.8.18                  A specific non−real time financial promotion must not contain a
                 01.12.01/001   projection of the possible investment return on a direct or indirect
                                investment in EIS shares.



                                Specific non−real time financial promotions: provider firms

        3.8.19                  A provider firm must ensure that it does not communicate or
                 01.12.01/001   approve a specific non−real time financial promotion relating to a
                                packaged product and containing or offering advice on investments
                                unless it discloses in the financial promotion that the firm is only able
                                to give advice on investments to private customers about the
                                packaged products of the firm or of its marketing group and (if it is
                                the case) about adopted packaged products.                                                       PAGE
                                                                                                                                  30

        3.8.20                         Firms are reminded that H COB 3.8.19 R does not apply to image advertising
                 01.12.01/001   (see H COB 3.2.5 R (5) (Exemptions) and H COB 3.2.7 G (3)(b) (Guidance on the
                                exemptions)).




    FSA Handbook H Release 028        D    February 2004                                                           3.8.20
       COB 3: Financial promotion                                                            Section 3.8: Form and content
                                                                                                    of financial promotions



                                     Real time financial promotions

             3.8.21                  A firm should note that H COB 3.10.3 R prevents a            firm from communicating
                      01.09.02/002   an unsolicited real time financial promotion other than an exempt financial
                                     promotion (which is outside the scope of this chapter) or where one of H COB 3.10.3
                                     R (1), (2) or (3) applies. Many solicited real time financial promotions will be
                                     exempt financial promotions (and, therefore, outside the scope of this chapter).
                                     Accordingly, H COB 3.8.22 R applies only to solicited real time financial promotions
                                     which are not exempt financial promotions and to unsolicited real time financial
                                     promotions within H COB 3.10.3 R (1), (2) or (3).                                        3
             3.8.22                  A firm must take reasonable steps to ensure that an individual who
                      01.12.01/001   makes a real time financial promotion on the firm’s behalf:

                                     (1)   does so in a way which is clear, fair and not misleading;

                                     (2)   does not make any untrue claims;

                                     (3)   makes clear the purpose (or purposes) of the financial promotion
                                           at the initial point of communication, and identifies himself and
                                           the firm which he represents;

                                     (4)   if the time and method of communication were not previously
                                           agreed by the recipient:

                                           (a)   checks that the recipient wishes him to proceed;

                                           (b)   terminates the communication if the recipient does not wish
                                                 him to proceed (but may ask for another appointment);

                                           (c)   recognises and respects, promptly, the right of the recipient to:

                                                 (i)    end the communication at any time; and

                                                 (ii)   refuse any request for another appointment;

                                     (5)   gives any recipient with whom he arranges an appointment a
                                           contact point;

                                     (6)   does not communicate with a person:

                                           (a)   at an unsocial hour, unless the person has previously agreed to
                                                 such a communication;

                                           (b)   on an unlisted telephone number, unless the person has
                                                 previously agreed to such calls on that number;

PAGE
                                     (7)   if applicable, acts in conformity with the rules in H COB 5.1
 31                                        concerning polarisation and status disclosure.

             3.8.23                  In H COB 3.8.22 R (6)(a) an unsocial hour usually means on a Sunday or before 9am
                      01.12.01/001   or after 9pm on any other day. It could also mean other days of the week or other
                                     times if the firm knows that a particular recipient would not wish to be called on




       FSA Handbook H Release 028    D     February 2004                                                        3.8.23
    COB 3: Financial promotion                                                                   Section 3.8: Form and content
                                                                                                        of financial promotions



                                that day or at that time for reasons of, for example, religious faith or night shift
                                working.

        3.8.24                  The requirements of H COB 3.8.22 R:
                 01.12.01/001
                                (1)       apply in respect of all individuals who initiate the communication, including
                                          advisers, call centre operators and introducers;

                                (2)       apply to all forms of real time financial promotion, including face to face and
3                                         telephone financial promotion;

                                (3)       but do not prevent, for example, a telephone call centre which has received a
                                          call from a person at an hour generally regarded as unsocial, either responding
                                          to that call or asking during the call if the person would like details of other
                                          investment products.

        3.8.25                         H SYSC 3.2.20 R (Records) requires a firm to take reasonable care to make and
                 01.12.01/001   retain certain records. For a telemarketing campaign to which H COB 3.8.22 R
                                applies, those records should include copies of any scripts used.




                                                                                                                                  PAGE
                                                                                                                                   32




    FSA Handbook H Release 028        D    February 2004                                                             3.8.25
       COB 3: Financial promotion                                                                        Section 3.9: Direct offer
                                                                                                            financial promotions




                                                      3.9       Direct offer financial promotions



                                                                                                                                                        3
                                                                                                                            Section 3.9: Direct offer
                                                                                                                               financial promotions




                                     Application

             3.9.1                   This section applies to a firm which communicates or approves a
                      01.12.01/001   direct offer financial promotion.

             3.9.2                   (1)    This section includes provisions which apply to all direct offer financial
                      01.12.01/001          promotions and other provisions which apply only to certain kinds of direct
                                            offer financial promotions. H COB 3.9.3 Gis intended to help firms locate the
                                            paragraphs which are relevant to them.

                                     (2)             H COB 3.8.2 R to H COB 3.8.20 G also apply to direct offer financial
                                            promotions.

                                     (3)    Material communicated as one package, such as by direct mail, may be
                                            regarded as one financial promotion for the purposes of this section.

             3.9.3                   Table      Location of the provisions applicable to direct offer financial promotions
                      01.12.01/001
                                                This table belongs to H COB 3.9.2 G

                                      (1)      Exemptions for deposits, general insurance con-           COB 3.9.4G
                                               tracts, pure protection contracts and reinsurance
                                               contracts
                                      (2)      Prohibited types of direct offer financial promo-         COB 3.9.5R
                                               tions
                                      (3)      Direct offer financial promotions: general re-            COB 3.9.6R to
                                               quirements                                                COB 3.9.7R
                                      (4)      Cash deposit ISAs                                         COB 3.9.8R
                                      (5)      Electronic media                                          COB 3.9.9G
                                      (6)      Packaged products                                         COB 3.9.10R to
                                                                                                         COB 3.9.11G
                                      (7)      Execution–only dealing service                            COB 3.9.12R to
PAGE                                                                                                     COB 3.9.13G
 33
                                      (8)      Potential problem areas                                   COB 3.9.14 G
                                      (9)      Information to be contained in direct offer fi-           COB 3.9.14G
                                               nancial promotions regarding:
                                               (a) investments which can fluctuate in value              COB 3.9.15R



       FSA Handbook H Release 028    D     February 2004                                                               3.9.2
    COB 3: Financial promotion                                                                             Section 3.9: Direct offer
                                                                                                              financial promotions



                                                (b)    life policies                                      COB 3.9.18R
                                                (c)    taxation                                           COB 3.9.19R to
                                                                                                          COB 3.9.20R
                                                (d)    cancellation rights                                COB 3.9.21R to
                                                                                                          COB 3.9.22G
                                                (e)    charges for regulated collective invest-           COB 3.9.23R
                                                       ment schemes
3
                                                (f)    penny shares                                       COB 3.9.24R
                                                (g)    branded funds                                      COB 3.9.25R
                                                (h)    Enterprise Investment Schemes                      COB 3.9.26R to
                                                                                                          COB 3.9.28R
                                                (i)    income withdrawals                                 COB 3.9.29R



                                Exemptions

        3.9.4                                   Firms are reminded that under H COB 3.2.3 R:
                 01.12.01/001
                                (1)                   H COB 3.9 does not apply to a direct offer financial promotion relating
                                          to:

                                          (a)    a deposit (except a cash deposit          ISA); or

                                          (b)    a general insurance contract, pure protection contract, or reinsurance
                                                 contract; and

                                (2)       a direct offer financial promotion relating to a cash deposit          ISA must
                                          comply with H COB 3.9.6 R (1) and H COB 3.9.8 R.



                                Prohibited types of direct offer financial promotion

        3.9.5                   (1)       A direct offer financial promotion must not relate to a broker
                 01.12.01/001             fund.

                                (2)       A direct offer financial promotion must not relate to:

                                          (a)    a derivative; or

                                          (b)    a warrant;

                                          unless the firm itself has adequate evidence to suggest that the
                                          investment may be suitable for the person to whom the promotion
                                          is communicated.                                                                             PAGE
                                                                                                                                        34




    FSA Handbook H Release 028        D     February 2004                                                                 3.9.5
       COB 3: Financial promotion                                                                    Section 3.9: Direct offer
                                                                                                        financial promotions



                                     Direct offer financial promotions: general requirements

             3.9.6                   (1)    A direct offer financial promotion must contain sufficient
                      01.12.01/001          information to enable a person to make an informed assessment of
                                            the investment or service to which it relates.

                                     (2)    In particular, a direct offer financial promotion must contain the
                                            information set out in H COB 3.9.7 R.
                                                                                                                                 3
             3.9.7                   Table      Direct offer financial promotions: particular information required
                      01.03.03/002              This table belongs to H COB 3.9.6 R (2)

                                      Direct offer financial promotions: particular information required
                                      (1) Prominently, the required disclosure statement in GEN 4 Ann 1R
                                           (Statutory status disclosure) that is relevant to the firm which
                                           has communicated or approved the financial promotion.
                                      (2) A prominent statement that, if a person has any doubt about the
                                           suitability of the agreement which is the subject of the financial
                                           promotion, he should contact the firm for advice (or an indepen-
                                           dent financial adviser if the firm does not offer advice).
                                      (3)      The full name and address of the person who is offering the in-
                                               vestment or service being promoted (and, if different, the full
                                               name and address of the firm communicating, or approving, the
                                               financial promotion).
                                      (4)      If the financial promotion is communicated by a firm whose per-
                                               mission includes a requirement that it must not hold client money,
                                               the name of the person to whom payment (if any) should be
                                               made.
                                      (5)      Details of the basis or amount of any charges and expenses which
                                               the private customer will or may bear.
                                      (6)      Details of the basis or amount of any commission or remuner-
                                               ation which might be payable by the firm to another person.



                                     Cash deposit ISAs

             3.9.8                   (1)    A direct offer financial promotion relating to a cash deposit ISA
                      01.12.01/001          must contain the information required by H COB 6.5.42 R.

                                     (2)    Paragraph (1) does not apply to a bank or building society which
                                            subscribes to, and includes in the direct offer financial promotion
                                            the information relating to a cash deposit ISA that is suggested in
                                            the January 2001 edition of the "Guidance for subscribers" to the
PAGE
 35
                                            Banking Code issued by the British Bankers’ Association, the
                                            Building Societies Association and the Association for Payment
                                            Clearing Services.




       FSA Handbook H Release 028    D     February 2004                                                             3.9.8
    COB 3: Financial promotion                                                                    Section 3.9: Direct offer
                                                                                                     financial promotions



                                Electronic media

        3.9.9                          Guidance, including information on direct offer financial promotions on the
                 01.12.01/001   internet and other electronic media, is provided in H COB 3.14 (The internet and
                                other electronic media).



                                Packaged products
3
        3.9.10                  A direct offer financial promotion relating to a packaged product
                 01.12.01/001   must contain the information required by H COB 6.5 (Contents of key
                                features).

        3.9.11                  The information should follow, where possible, the same order as key features. But
                 01.12.01/001   adjustments may be made to the order, where this would assist design and
                                understanding of the material.



                                Execution−only dealing services

        3.9.12                  A direct offer financial promotion relating to an execution−only
                 01.12.01/001   dealing service must in particular, if it is the case, contain a clear
                                statement that:

                                (1)       the firm’s procedures are such that there may be a delay in the
                                          execution of a customer order, including the reason for and the
                                          normal maximum extent of any such delay;

                                (2)               customer orders may on occasion be aggregated (in which
                                          case the statement must comply with H COB 7.7.4 R).

        3.9.13                  The purpose of H COB 3.9.12 R (1) is to ensure that explanations are given when
                 01.12.01/001   firms’ procedures might, for example, involve dealing every hour or at certain times
                                of the day. Details of external factors over which the firm has no control are not
                                required.



                                Potential problem areas for direct offer financial promotions.

        3.9.14                  To assist firms’ compliance with H COB 3.8.4 R (1) and H COB 3.8.8 R (1) in relation
                 01.12.01/001   to a direct offer financial promotion, further guidance is given in H COB 3 Ann 4.



                                Investments which can fluctuate in value

        3.9.15                  (1)       A direct offer financial promotion relating to an investment                        PAGE
                 01.12.01/001             which can fluctuate in value, or which offers income distributions                   36


                                          which may fluctuate, must make this clear in terms which are
                                          likely to be understood by the kind of recipient to whom the
                                          financial promotion is communicated.




    FSA Handbook H Release 028        D    February 2004                                                       3.9.15
       COB 3: Financial promotion                                                                        Section 3.9: Direct offer
                                                                                                            financial promotions



                                     (2)   The explanation given in conformity with (1) must be set out with
                                           due prominence and in a print size no smaller than that used in
                                           the main text of the financial promotion.

             3.9.16                  The FSA will expect the explanation required by H COB 3.9.15 R to be contained
                      01.12.01/001   within the main body of the financial promotion, and not in small print at the very
                                     end. Firms which choose to include it in a separate ‘stand−alone’ statement should
                                     satisfy themselves on reasonable grounds that this is likely to offer the best prospect
                                     of it being seen and read and should record such reasons for the purposes of H COB
                                     3.7 (Records).
                                                                                                                                     3

             3.9.17                  Examples of explanations which could meet H COB 3.9.15 R are:
                      01.12.01/001
                                     (1)             ‘You are not certain to make a profit; you may lose money/make a loss’;

                                     (2)             ‘You may not get back the full amount of your investment’;

                                     (3)   (for investment income): ‘The income is not fixed − it can go up or down’;

                                     (4)   (for contingent liabilities): ‘You could lose all the money you invested and you
                                           may have to pay more later’;

                                     (5)   (for higher volatility funds): ‘This investment may be subject to sudden and
                                           large falls in value, you could get back nothing at all’;

                                     (6)   (for property funds):

                                           (a)              ‘This fund invests in property and land. This can be difficult to
                                                 sell − so you may not be able to sell/cash in this investment when you want
                                                 to. We may have to delay acting on your instructions to sell your
                                                 investment’;

                                           (b)            ‘The value of property is generally a matter of a valuer’s opinion
                                                 rather than fact’;

                                     (7)   (for an Enterprise Investment Scheme):

                                           (a)   ’It may be difficult to sell your investment, or to get accurate information
                                                 about how much it is worth or how risky it is’;

                                           (b)   ’These are unquoted securities which may have more risks than quoted
                                                 securities or shares’;

                                           (c)   ’Investments in unquoted securities may be difficult to sell. Market makers
                                                 may not be prepared to deal in them. This scheme may invest in private
                                                 companies and restrictions may apply to the transfer of these private
                                                 company securities’;

                                           (d)   ’Proper information for working out the current value of investments may
                                                 not be available’;
PAGE
 37                                  (8)   (for property enterprise trusts and Enterprise Zone Property Unit Trusts):

                                           (a)   ’The value of the property in these schemes can go down as well as up. The
                                                 initial price of Enterprise Zone property may be distorted as a result of the
                                                 tax allowances and other benefits available − it may often be necessary to
                                                 pay a higher price for this property compared with other property’;




       FSA Handbook H Release 028    D     February 2004                                                              3.9.17
    COB 3: Financial promotion                                                                            Section 3.9: Direct offer
                                                                                                             financial promotions



                                          (b)   ’There is no established market in this investment’;

                                          (c)   ’This investment is designed to be held for a very long time (normally 25
                                                years). You may have difficulty selling it. You should not invest in this if
                                                you may need to sell early’;

                                          (d)   ’Do not invest in this investment unless you have carefully thought about
                                                whether you can afford it and whether it is right for you’;

3                               (9)       (for non−readily realisable investments): ‘You may have difficulty selling this
                                          investment at a reasonable price and, in some circumstances, it may be difficult
                                          to sell it at any price. Do not invest in this unless you have carefully thought
                                          about whether you can afford it and whether it is right for you’;

                                (10)      (for front end loaded contracts): ‘We take most of our charges in the early years
                                          of this investment. This means that if you withdraw during this time you may
                                          lose money/get back less than you invested’;

                                (11)      (for with−profit life policies): ‘The value of this policy depends on how much
                                          profit we make and how we may decide to distribute this profit’;

                                (12)      (for penny shares): ‘There is an extra risk of losing money when shares are
                                          bought in some smaller companies including penny shares. There is a big
                                          difference between the buying price and the selling price of these shares. If they
                                          have to be sold immediately, you may get back much less than you paid for
                                          them. The price may change quickly and it may go down as well as up’;

                                (13)      (for foreign currency denominated investments): ‘Changes in the rates of
                                          exchange between currencies may cause your investment/the income to go down
                                          or up’;

                                (14)      (for investments where the market is restricted): ‘There is only one market
                                          maker’, and/or ‘the only market maker is the communicator of the financial
                                          promotion or an associate of the issuer;

                                (15)      (for a security or an investment trust savings scheme which satisfies the
                                          conditions specified in H COB 3.8.9G(6)): ’This investment may be subject to
                                          sudden and large falls in value and you could get back nothing at all’.



                                Life policies

        3.9.18                  A direct offer financial promotion which relates to a life policy must
                 01.12.01/001   state:

                                (1)       which benefits (if any) are fixed amounts, and what those
                                          amounts are; and

                                (2)       which benefits are not fixed amounts.
                                                                                                                                      PAGE
                                                                                                                                       38




    FSA Handbook H Release 028        D     February 2004                                                              3.9.18
       COB 3: Financial promotion                                                                   Section 3.9: Direct offer
                                                                                                       financial promotions



                                     Taxation

             3.9.19                  A direct offer financial promotion must include a summary of the
                      01.12.01/001   taxation of any investment to which it relates and the taxation
                                     consequences for investors generally.

             3.9.20                  A firm must include in a direct offer financial promotion:
                      01.12.01/001

                                     (1)   a warning that taxation levels, bases and (if relevant) reliefs can                  3
                                           change;

                                     (2)   the assumed rate of taxation;

                                     (3)   (where taxation reliefs are mentioned) statements:

                                           (a)   distinguishing between reliefs which apply directly to investors
                                                 and anyone else;

                                           (b)   that the reliefs are the ones which currently apply; and

                                           (c)   that the value depends upon the circumstances of the investor;
                                                 and

                                     (4)   where the words ‘free from tax liability’, or similar are used and it
                                           is the case, a statement making clear that this describes the
                                           benefits when paid to the investor, and a statement with equal
                                           prominence that the income is payable out of a fund which has
                                           already paid income tax, corporation tax or capital gains tax
                                           (whichever applies).



                                     Cancellation rights

             3.9.21                  (1)   A direct offer financial promotion which relates to an investment
                      01.12.01/001         which is subject to cancellation or withdrawal rights must describe
                                           those rights and explain:

                                           (a)   the length of the cancellation or withdrawal period, and when
                                                 it will begin;

                                           (b)   whether cancellation or withdrawal is a legal right or
                                                 voluntarily conferred;

                                           (c)   (if it is the case) that there might be a shortfall, or, if
                                                 applicable, a significant shortfall, on cancellation.
PAGE
 39                                  (2)   A direct offer financial promotion which relates to an EIS or
                                           non−packaged product, ISA or PEP for which no right to
                                           withdraw is given under case 8 of column 2, H COB 6.7.17 R, must
                                           include the statement required by that provision.




       FSA Handbook H Release 028    D     February 2004                                                        3.9.21
    COB 3: Financial promotion                                                                    Section 3.9: Direct offer
                                                                                                     financial promotions



        3.9.22                  The description ‘significant shortfall    ’ is appropriate for higher volatility funds
                 01.12.01/001   where a large proportion of the investment may be lost during the cancellation
                                period.



                                Charges for regulated collective investment schemes

        3.9.23                  A direct offer financial promotion relating to a regulated collective
3                01.12.01/001   investment scheme must give an adequate explanation of the charging
                                structure and make clear:

                                (1)       whether all or part of the scheme expenses will be taken out of
                                          capital or income; and

                                (2)       the likely long−term effect on capital or income.



                                Penny shares

        3.9.24                  If an indication of the price of a particular penny share is included in
                 01.12.01/001   a direct offer financial promotion, the bid−offer spread must also be
                                included (based on the best price available in the relevant market at
                                the time for transactions of the largest bid or offer price of that
                                share).



                                Branded funds

        3.9.25                  A direct offer financial promotion relating to a branded fund must
                 01.12.01/001   include a statement that the firm responsible for the promotion does
                                not manage the investments in the branded fund, together with the
                                name and address of the manager.



                                Enterprise Investment Schemes

        3.9.26                  A direct offer financial promotion relating to an Enterprise
                 01.12.01/001   Investment Scheme must contain:

                                (1)       the information specified in H COB 3 Ann 2;

                                (2)       (a)   either a copy of the prospectus; or

                                          (b)   if no prospectus is required by the POS Regulations, the
                                                information specified in H COB 3.9.27 G relating to each company              PAGE
                                                                                                                               40
                                                in which the Enterprise Investment Scheme manager has a
                                                material interest and intends to acquire interests on behalf of
                                                the scheme;




    FSA Handbook H Release 028        D     February 2004                                                      3.9.26
       COB 3: Financial promotion                                                                  Section 3.9: Direct offer
                                                                                                      financial promotions



                                     (3)   a prominent statement that applications may only be made and
                                           accepted subject to the terms and conditions of the Enterprise
                                           Investment Scheme particulars and prospectus (if applicable); and

                                     (4)   a prominent explanation of any right to withdraw (under H COB
                                           6.7) or, where it is the case, that such rights will not apply.

             3.9.27                  To meet the requirements of H COB 3.9.26 R, a direct offer financial promotion
                      01.09.03/002   relating to an Enterprise Investment Scheme should include the following                  3
                                     information about the company issuing the EIS shares:

                                     (1)   assets and liabilities;

                                     (2)   financial position;

                                     (3)   profits and losses;

                                     (4)   prospects; and

                                     (5)   rights attaching to the EIS shares.

             3.9.28                  In addition to the requirements of H COB 3.9.26 R, a direct offer
                      01.12.01/001   financial promotion relating to a private offer of EIS shares must
                                     include the information specified in H COB 3 Ann 3.



                                     Income withdrawal

             3.9.29                  A direct offer financial promotion relating to, or offering a facility
                      01.12.01/001   for, income withdrawals must include the following explanations:

                                     (1)   taking withdrawals may erode the capital value of the fund,
                                           especially if investment returns are poor and a high level of
                                           income is taken; this could result in a lower income when the
                                           annuity is eventually purchased;

                                     (2)   the investment returns may be less than those shown in the
                                           illustrations;

                                     (3)   annuity rates may be at a worse level when annuity purchase
                                           eventually takes place; and

                                     (4)   if the maximum withdrawals permitted by Inland Revenue
                                           regulations are to be taken, high income withdrawals may not be
                                           sustainable during the deferral period.

PAGE
             3.9.30                  To follow
 41                          /001

             3.9.31                  When communicating or approving a direct offer financial
                      20.02.04/001   promotion for a structured capital−at−risk product a firm must ensure
                                     that the following information is included in the mailing pack or
                                     included by a clearly visible electronic link if using email, the Internet
                                     or other electronic media:


       FSA Handbook H Release 028    D     February 2004                                                        3.9.31
    COB 3: Financial promotion                                                                               Section 3.9: Direct offer
                                                                                                                financial promotions



                                (1)       an explanation of the types of capital−at−risk products generally
                                          available and how they would typically work;

                                (2)       an explanation of the risks associated with investing in these
                                          capital−at−risk products;

                                (3)       details of the key issues that consumers should consider before
                                          investing in a capital−at−risk product; and
3
                                (4)       information about how to complain to the firm and how
                                          complaints can subsequently be referred to the Financial
                                          Ombudsman Service.

        3.9.32                  (1)       When a firm complies with its obligations under H COB 3.9.31R it should ensure
                 20.02.04/001             that the information it provides includes in particular the following:

                                          (a)   reference to the different risk profiles of generally available capital−at−risk
                                                products when compared with capital secure products such as deposits;

                                          (b)   reference to the fact that, because of the risk to capital, capital−at−risk
                                                products should only form part of an investment portfolio;

                                          (c)   reference to the fact that, before buying, investors should check they
                                                understand the way the product is priced, the charges involved, the length
                                                of time their money will be tied up and the consequences of cashing in the
                                                product early; and

                                          (d)   contact details for the FSA’s consumer helpline and website.

                                (2)       The FSA would regard a firm that provides a copy of the FSA’s factsheet about
                                          capital−at−risk products entitiled ’Capital−at−risk products’ as complying with its
                                          obligations under H COB 3.9.31R. Firms can obtain copies or buy the artwork by
                                          using the FSA’s online order form at www.fsa.gov.uk/pubs, Consumer
                                          publications.

                                (3)       Where a firm provides a copy of the FSA’s factsheet, it may wish to include the
                                          following wording in its covering literature:

                                          "The enclosed factsheet about capital−at−risk products is from the Financial
                                          Services Authority (FSA), the independent watchdog set up by Parliament.
                                          Please read this document carefully.".




                                                                                                                                         PAGE
                                                                                                                                          42




    FSA Handbook H Release 028        D     February 2004                                                                 3.9.32
       COB 3: Financial promotion                                                          Section 3.10: Unsolicited real
                                                                                               time financial promotions




                                                      3.10   Unsolicited real time financial promotions



                                                                                                                                                  3
                                                                                                                 Section 3.10: Unsolicited real
                                                                                                                    time financial promotions




                                     Meaning of "solicited" and "unsolicited" real time financial promotion

             3.10.1                  (1)   An unsolicited real time financial promotion is a real time
                      01.03.03/002         financial promotion which is not solicited as described in (2).

                                     (2)   A solicited real time financial promotion is a real time financial
                                           promotion which is solicited, that is, it is made in the course of a
                                           personal visit, telephone call or other interactive dialogue if that
                                           call, visit or dialogue:

                                           (a)   was initiated by the recipient of the financial promotion; or

                                           (b)   takes place in response to an express request from the recipient
                                                 of the financial promotion;

                                           and it is clear from all the circumstances when the call, visit or
                                           dialogue is initiated or requested that during the course of the
                                           visit, call or dialogue financial promotions would be made
                                           concerning the kind of controlled activities or controlled
                                           investment to which the financial promotion relates.

                                     (3)   In (2), a person is not to be treated as expressly requesting a call,
                                           visit or dialogue:

                                           (a)   because he omits to indicate that he does not wish to receive
                                                 any or any further visits or calls or to engage in any or any
                                                 further dialogue;

                                           (b)   because he agrees to standard terms that state that such visits,
                                                 calls or dialogues will take place unless he has signified clearly
                                                 that, in addition to agreeing to the terms, he is willing for them
                                                 to take place.
PAGE
 43
                                     (4)   If a real time communication is solicited by a person ("R") it is
                                           treated as also having been solicited by any other person to whom
                                           it is made at the same time as R if that other person is a close
                                           relative of R or is expected to engage in any investment activity
                                           jointly with R.



       FSA Handbook H Release 028    D     February 2004                                                    3.10.1
    COB 3: Financial promotion                                                                Section 3.10: Unsolicited real
                                                                                                  time financial promotions



        3.10.2                  H COB 3.10.1 R is based on article 8 of the Financial Promotion Order. Guidance
                 01.06.02/002   on whether a real time financial promotion is solicited is contained in H AUTH App
                                1.10 (Types of financial promotion).




                                Restriction of unsolicited real time financial promotions

        3.10.3                  A firm must not make an unsolicited real time financial promotion
3                01.12.01/001   unless:

                                (1)       the recipient has an established existing customer relationship
                                          with the firm and the relationship is such that the recipient
                                          envisages receiving unsolicited real time financial promotions; or

                                (2)       the financial promotion relates to a generally marketable
                                          packaged product which is not:

                                          (a)   a higher volatility fund; or

                                          (b)   a life policy with a link (including a potential link) to a higher
                                                volatility fund; or

                                (3)       the financial promotion:

                                          (a)   relates to a controlled activity to be carried on by an
                                                authorised person or exempt person; and

                                          (b)   the only controlled investments involved or which reasonably
                                                could be involved are:

                                                (i)    readily realisable securities (other than warrants); and

                                                (ii)   generally marketable non−geared packaged products.

        3.10.4                  Firms are reminded of the exemptions in H COB 3.2.5 R; H COB 3.10.3 R does not
                 01.12.01/001   prohibit an exempt unsolicited real time financial promotion.




                                                                                                                               PAGE
                                                                                                                                44




    FSA Handbook H Release 028        D     February 2004                                                      3.10.4
       COB 3: Financial promotion                                                        Section 3.11: Unregulated collective
                                                                                                         investment schemes




                                                      3.11     Unregulated collective investment schemes



                                                                                                                                                             3
                                                                                                                      Section 3.11: Unregulated collective
                                                                                                                                      investment schemes




                                     Introduction

             3.11.1                  (1)   Under section 238 of the Act (Restrictions on promotion), an authorised person
                      01.03.03/003         must not communicate an invitation or inducement to participate in an
                                           unregulated collective investment scheme ("the scheme promotion restriction").
                                           This applies in the case of a communication originating outside the United
                                           Kingdom only if the communication is capable of having an effect in the United
                                           Kingdom.

                                     (2)   However, the Financial Services and Markets Act 2000 (Promotion of
                                           Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060)
                                           exempts from the scheme promotion restriction certain types of
                                           communications relating to unregulated collective investment schemes.

                                     (3)   In addition, section 238(5) of the Act gives the FSA power to make rules
                                           exempting from the scheme promotion restriction certain promotions relating to
                                           unregulated collective investment schemes, provided that they are not made to
                                           the general public. The purpose of H COB 3.11.2 R is to make appropriate use of
                                           the power which the FSA has under section 238(5) of the Act.

                                     (4)   Under section 240 of the Act (Restriction on approval of promotion), an
                                           authorised person cannot approve, for the purposes of section 21, the content of
                                           a communication relating to an unregulated collective investment scheme if he
                                           would not have been able, under section 238(1), to communicate it himself.

                                     (5)          H AUTH App 1.20 (Additional restriction on the promotion of collective
                                           investment schemes) provides further guidance on the restriction under section
                                           238(1) of the Act (Restrictions on promotion).



                                     Exemptions from the scheme promotion restriction

             3.11.2                  A firm may communicate an invitation or inducement to participate
                      01.12.01/001   in an unregulated collective investment scheme if the communication
                                     falls within H COB 3 Ann 5.
PAGE
 45          3.11.3                  (1)   A firm may communicate an invitation or inducement to participate in an
                      01.03.03/002         unregulated collective investment scheme, which originates in the United
                                           Kingdom or is capable of having an effect in the United Kingdom, only if
                                           either:

                                           (a)   the communication falls within H COB 3 Ann 5; or



       FSA Handbook H Release 028    D     February 2004                                                          3.11.3
    COB 3: Financial promotion                                                             Section 3.11: Unregulated collective
                                                                                                           investment schemes



                                          (b)   the communication is exempt from the scheme promotion restriction under
                                                the Financial Services and Market Act 2000 (Promotion of Collective
                                                Investment Schemes) (Exemptions) Order 2001.

                                (2)                Firms are reminded that, even if an invitation or inducement is within H
                                          COB 3 Ann 5, other rules in this chapter may still apply.




3                               Limited disapplication of this chapter

        3.11.4                  In relation to the communication by a firm of an invitation or
                 01.03.03/002   inducement to participate in an unregulated collective investment
                                scheme, this chapter applies only if:

                                (1)       the communication is permitted by H COB 3.11.2R;

                                (2)       in the case of a communication originating outside the United
                                          Kingdom, the communication is capable of having an effect in the
                                          United Kingdom; and

                                (3)       the communication is not exempted by the Financial Services and
                                          Markets Act 2000 (Promotion of Collective Investment Schemes)
                                          (Exemptions) Order 2001.

        3.11.5                  The purpose of H COB 3.11.4 R is to give effect to the limitation of the FSA’s
                 01.03.03/002   rule−making power in section 145(3)(b) of the Act (Financial promotion rules). It
                                also ensures that this chapter does not apply to an invitation or inducement
                                communicated by a firm under an exemption from the scheme promotion restriction
                                in the Financial Services and Markets Act 2000 (Promotion of Collective Investment
                                Schemes) (Exemptions) Order 2001.




                                                                                                                                  PAGE
                                                                                                                                   46




    FSA Handbook H Release 028        D    February 2004                                                             3.11.5
       COB 3: Financial promotion                                            Section 3.12: Communicationandapprovaloffinancial promotions
                                                                              for an overseas person or an unauthorised person




                                                      3.12      Communication and approval of financial
                                                                promotions for an overseas person or an
                                                                unauthorised person

                                                                                                                                                                                           3

                                                                                                                       Section 3.12: Communication and approval of financial promotions
                                                                                                                                        for an overseas person or an unauthorised person




                                     Approval of financial promotions

             3.12.1                  (1)   Section 21(1) of the Act (Restrictions on financial promotion) prohibits an
                      01.06.02/002         unauthorised person from communicating a financial promotion, in the course
                                           of business, unless an exemption applies or the financial promotion is approved
                                           by a firm. (An overview of the main exemptions in the Financial Promotion
                                           Order is in H COB 3 Ann 1 and further guidance is provided in H AUTH App 1
                                           (Financial promotion and related activities), in particular, H AUTH App 1.9
                                           (Circumstances where the restriction in section 21 does not apply).

                                     (2)   Most of the rules in this chapter apply when a firm approves a financial
                                           promotion in the same way as when a firm communicates a financial promotion
                                           itself. A firm therefore has a similar responsibility for a financial promotion
                                           that it approves as for one that it communicates. For example, a firm which
                                           approves a non−real time financial promotion must:

                                           (a)   if H COB 3.6.1 R applies, confirm that the financial promotion complies with
                                                 the rules in this chapter; and

                                           (b)   if H COB 3.8.4 R (1) applies, be able to show that it has taken reasonable
                                                 steps to ensure that the financial promotion is clear, fair and not
                                                 misleading.

                                     (3)   A firm may also wish to approve a financial promotion that it communicates
                                           itself. This would ensure that an unauthorised person who then also
                                           communicates the financial promotion to another person will not contravene
                                           the restriction on financial promotion in section 21(1) of the Act (Restrictions
                                           on financial promotion).

                                     (4)   A firm which approves a financial promotion that is exempt under H COB 3.2.5
                                           R (Exemptions) or H COB 3.3.1 R (Application; where?) must still comply with
                                           certain rules in this chapter (see H COB 3.2.4 R (2) and (3) and H COB 3.3.3 R (2)).



PAGE
 47
                                     No approval of real time financial promotions

             3.12.2                  A firm must not approve a real time financial promotion.
                      01.12.01/001




       FSA Handbook H Release 028    D     February 2004                                                                             3.12.2
    COB 3: Financial promotion                                           Section 3.12: Communicationandapprovaloffinancial promotions
                                                                          for an overseas person or an unauthorised person



                                Approval of financial promotions when not all the rules apply

        3.12.3                  If a firm approves a financial promotion in circumstances in which
                 01.12.01/001   one or more of the rules in this chapter, or the prohibition in section
                                240(1) of the Act (Restriction on approval), are expressly disapplied,
                                the approval must be given on terms that it is limited to those
                                circumstances.

3       3.12.4                  For example, if a firm approves a financial promotion relating to an unregulated
                 01.12.01/001   collective investment scheme under one or more of the exemptions in the table in H
                                COB 3 Ann 5, the approval must be limited to communication of the financial
                                promotion to the relevant class of person in the left hand column of the table.
                                Similarly, if a firm approves a financial promotion for communication to market
                                counterparties and intermediate customers (see H COB 3.2.5 R (1)), the approval must
                                be limited to communication to such persons.

        3.12.5                  If an approval is limited in accordance with H COB 3.12.3 R, and an unauthorised
                 01.12.01/001   person communicates the financial promotion to persons not covered by the
                                approval, the unauthorised person may commit an offence under section 21(1) of
                                the Act (Restrictions on financial promotion). A firm giving a limited approval may
                                wish to advise the unauthorised person accordingly.



                                Specific non−real time financial promotions for overseas persons

        3.12.6                  A firm must not communicate or approve a specific non−real time
                 01.12.01/001   financial promotion which relates to an investment or service of an
                                overseas person, unless:

                                (1)       the financial promotion makes clear which firm has approved or
                                          communicated it and, where relevant, explains:

                                          (a)   that the rules made under the Act for the protection of private
                                                customers do not apply;

                                          (b)   the extent and level to which the compensation scheme will be
                                                available, or if the scheme will not be available, a statement to
                                                that effect; and

                                          (c)   if the communicator wishes, the protection or compensation
                                                available under another system of regulation; and

                                (2)       the firm has no reason to doubt that the overseas person will deal
                                          with private customers in the United Kingdom in an honest and
                                          reliable way.

        3.12.7                  In considering which points are relevant for the purposes of H COB 3.12.6 R (1), the
                 01.12.01/001   activities, and the associated products or services of the overseas person will need to                 PAGE
                                                                                                                                         48
                                be separately considered.




    FSA Handbook H Release 028        D     February 2004                                                             3.12.7
       COB 3: Financial promotion                                         Section 3.13: Additional requirements for financial
                                                                                promotions for an overseas long−term insurer




                                                      3.13   Additional requirements for financial
                                                             promotions for an overseas long−term
                                                             insurer

                                                                                                                                                                       3

                                                                                                                 Section 3.13: Additional requirements for financial
                                                                                                                       promotions for an overseas long−term insurer




             3.13.1                  (1)   A firm must not communicate or approve a financial promotion
                      01.12.01/001         to enter into a life policy with a person who is not:

                                           (a)   an authorised person; or

                                           (b)   an exempt person who is exempt in relation to effecting or
                                                 carrying out contracts of insurance of the class to which the
                                                 financial promotion relates; or

                                           (c)   a company which has its head office in an EEA State other
                                                 than the United Kingdom and which is entitled under the law
                                                 of that State to carry on there insurance business of the class
                                                 to which the financial promotion relates; or

                                           (d)   a company which has a branch or agency in an EEA State
                                                 other than the United Kingdom and is entitled under the law
                                                 of that State to carry on there insurance business of the class
                                                 to which the financial promotion relates; or

                                           (e)   a company authorised to carry on insurance business of the
                                                 class to which the financial promotion relates in any country
                                                 or territory which is listed in (2).

                                     (2)   The countries or territories referred to in (1)(e) are:

                                           (a)   the Bailiwick of Guernsey;

                                           (b)   the Isle of Man;

                                           (c)   the Commonwealth of Pennsylvania;

                                           (d)   the State of Iowa; and

PAGE                                       (e)   the Bailiwick of Jersey.
 49


                                     (3)   For the purposes of (1), Gibraltar shall be regarded as if it were an
                                           EEA State.




       FSA Handbook H Release 028    D     February 2004                                                        3.13.1
    COB 3: Financial promotion                                          Section 3.13: Additional requirements for financial
                                                                              promotions for an overseas long−term insurer



        3.13.2                  A financial promotion for an overseas long−term insurer, which has
                 01.12.01/001   no establishment in the United Kingdom, must include:

                                (1)       the full name of the overseas long−term insurer, the country where
                                          it is registered, and, if different, the country where its head office
                                          is situated;

                                (2)       a prominent statement that ‘holders of policies issued by the
3                                         company will not be protected by the Financial Services
                                          Compensation Scheme if the company becomes unable to meet its
                                          liabilities to them’; and,

                                (3)       where any trustee, investment manager or United Kingdom agent
                                          of the overseas long−term insurer is named which is not
                                          independent of the overseas long−term insurer, a prominent
                                          statement of that fact.

        3.13.3                  A financial promotion for an overseas long−term insurer which is
                 01.12.01/001   authorised to carry on long−term insurance business in any country
                                or territory listed in H COB 3.13.1 R (2) must also include:

                                (1)       the full name of any trustee of property of any description which
                                          is retained by the overseas long−term insurer in respect of the
                                          promoted contracts;

                                (2)       an indication whether the investment of such property (or any
                                          part of it) is managed by the overseas long−term insurer or by
                                          another person and the full name of any investment manager;

                                (3)       the registered office of any such trustee and of any investment
                                          manager and of his principal office (if different); and

                                (4)       where any person in the United Kingdom takes, or may take, any
                                          steps on behalf of the overseas long−term insurer to enter into a
                                          promoted contract, the following details about that person:

                                          (a)   the full name of the overseas long−term insurer;

                                          (b)   the registered or head office in the United Kingdom; and,

                                          (c)   if there is more than one such person, the principal or main
                                                person in the United Kingdom.

        3.13.4                  If a financial promotion relates to a life policy with an overseas
                 01.03.03/002   long−term insurer but does not name the overseas long−term insurer
                                by giving its full name or its business name:                                                 PAGE
                                                                                                                               50

                                (1)       it must include the following prominent statement: "This financial
                                          promotion relates to an insurance company which does not, and is
                                          not authorised to, carry on in any part of the United Kingdom the
                                          class of insurance business to which this promotion relates. This
                                          means that the management and solvency of the company are not


    FSA Handbook H Release 028        D     February 2004                                                     3.13.4
       COB 3: Financial promotion                                         Section 3.13: Additional requirements for financial
                                                                                promotions for an overseas long−term insurer



                                           supervised by the Financial Services Authority. Holders of policies
                                           issued by the company will not have the right to complain to the
                                           Financial Ombudsman Service if they have a complaint against the
                                           company and will not be protected by the Financial Services
                                           Compensation Scheme if the company should become unable to
                                           meet its liabilities to them"; and

                                     (2)   if it also refers to other investments it must make this clear.
                                                                                                                                3
             3.13.5                  For the purposes of H COB 3.13.2 R (2) and (3) and H COB 3.13.4 R (1) a prominent
                      01.12.01/001   statement is one that is:

                                     (1)   made immediately after the full name;

                                     (2)   alongside the full name; or

                                     (3)   where the name is stated more than once, the most prominent or the first if
                                           equally prominent.




PAGE
 51




       FSA Handbook H Release 028    D     February 2004                                                          3.13.5
    COB 3: Financial promotion                                                                         Section 3.14: The internet
                                                                                                      and other electronic media




                                                    3.14     The internet and other electronic media



3
                                                                                                                          Section 3.14: The internet
                                                                                                                         and other electronic media




        3.14.1                  This section contains guidance on the use of the internet and other electronic media
                 01.12.01/001   to communicate financial promotions. Firms are also referred to the guidance in H
                                COB 1.8 (Application to electronic media).




                                Approach and general guidance

        3.14.2                  Any material which meets the definition of a financial promotion, including any
                 01.06.02/002   video or moving image material incorporated in any website containing a financial
                                promotion, should comply with the rules in this chapter. See H AUTH App 1.22 (The
                                Internet) for further guidance on financial promotions on the internet, including the
                                treatment of hyperlinks and banners.

        3.14.3                  As indicated in H COB 3.5.4 G for the purposes of the financial promotion rules,
                 01.12.01/001   there are two types of approach to financial promotions communicated via the
                                internet and other electronic media:

                                (1)       real time financial promotions where the communication is in the form, for
                                          example, of a telephone conversation or other form of interactive dialogue; and

                                (2)       non−real time financial promotions, where the recipient may, for example,
                                          choose from reading a description of an investment or service, through to the
                                          completion of a contract via a direct offer financial promotion in a similar way
                                          to browsing through a leaflet rack. The rules in this chapter relating to hard
                                          copy financial promotions such as advertisements in magazines or newspapers
                                          apply equally to such promotions.

                                E−mails, material displayed on a website and sound and television broadcasts are
                                non−real time financial promotions (see H COB 3.5.5 R).

        3.14.4                  (1)       Before using the internet, digital or any other form of interactive television or
                 01.12.01/001             other electronic media to promote its services a firm should refer to legislation
                                          such as the Data Protection Act 1998 and the Computer Misuse Act 1990, as
                                          well as to this chapter.

                                (2)       When designing websites and other electronic media, firms should be aware of
                                          the difficulties that can arise when reproducing certain colours and printing
                                          certain types of text. These difficulties could cause problems with the
                                          presentation and retrieval of required information. Any financial promotion                                  PAGE
                                                                                                                                                        52
                                          communicated by the internet, digital or other forms of interactive television is
                                          subject to the requirements set out in H COB 3.6 to H COB 3.9 as applicable.




    FSA Handbook H Release 028        D    February 2004                                                              3.14.4
       COB 3: Financial promotion                                                                        Section 3.14: The internet
                                                                                                        and other electronic media



                                     Specific guidance

             3.14.5                  (1)   Key features and written contractual terms
                      01.12.01/001
                                           (a)   To meet the requirements of H COB 3.9.10 R, a firm should make it clear
                                                 that the information is available to a recipient of the direct offer financial
                                                 promotion, and easily obtainable, before any application is made.

                                           (b)   It is important that recipients should have the opportunity to view the full
                                                 text of the relevant key features, terms and conditions, customer agreement          3
                                                 and any other applicable risk information required by the rules.

                                           (c)   This can be achieved through the use of a hypertext link, as long as it is not
                                                 hidden away in the body of the text where a recipient could miss it when
                                                 browsing through the pages.

                                           (d)   Local printing of information by the user should be allowed, where feasible.
                                                 Firms should endeavour to provide hard copy on request.

                                     (2)   Application forms

                                           (a)   It is not necessary for access to an application form to be denied until the
                                                 recipient has read key features and other contractual terms, but firms
                                                 should ensure that on the application form, or in the preceding text, they
                                                 draw attention to the existence of this material and the importance of
                                                 reading it, as relevant business will be conducted on the basis of the key
                                                 features and written contractual terms.

                                           (b)   A financial promotion may be a direct offer financial promotion even if the
                                                 firm is unable to provide a copy of the application form electronically.

                                     (3)   Exemptions

                                           H COB 3.2.4 R (Application: what?: Exemptions) and H COB 3.3.1 R (Territorial
                                           scope) contain exemptions from this chapter which depend on a particular
                                           financial promotion being made or directed only at certain persons. H COB 3.5.6
                                           R sets out the meaning of "made" and "directed at" in this context. H COB 3.5.7
                                           R and H COB 3.3.6 R (respectively) set out various conditions relevant for
                                           determining whether a financial promotion will be regarded as directed only at
                                           such persons.

                                     (4)   Unregulated collective investment schemes

                                           A firm which communicates an invitation or inducement to participate in an
                                           unregulated collective investment scheme by means of a website it may take
                                           advantage of the exemptions in H COB 3 Ann 5. But if it does so, it must in
                                           accordance with that annex design the website to reduce, as far as possible, the
                                           risk of participation by persons to whom the invitation or inducement may not
                                           be promoted (as described in H COB 3.11). H COB 3.5.7 R sets out various
                                           conditions relevant for determining whether that test is satisfied.

PAGE                                 (5)   The FSA website
 53

                                           The FSA’s website http://www.fsa.gov.uk contains a wide range of information
                                           including pages of specific relevance to customers. Firms may, if they wish,
                                           include a reference or hyperlink to the FSA’s site; this will not however, replace
                                           any requirements of the financial promotion rules.




       FSA Handbook H Release 028    D     February 2004                                                                3.14.5
    COB 3: Financial promotion                                                                   Section 3.14: The internet
                                                                                                and other electronic media



                             (6)       Record−keeping: continuously updated market information

                                       H COB 3.7.1 R requires a firm to make and retain an adequate record of a
                                       non−real time financial promotion. If the non−real time financial promotion
                                       includes market information that is updated continuously in line with the
                                       relevant market, the record will be adequate without recording that
                                       information. But see H COB 7.12.9 G and H COB 7.12.10 G (Orders received over
                                       the Internet) regarding giving a customer access to such information in
                                       conjunction with the ability to place a customer order by relying on such
3                                      information.




                                                                                                                              PAGE
                                                                                                                               54




    FSA Handbook H Release 028     D    February 2004                                                             3.14.5
       COB 3: Financial promotion                                                                          Annex 4
                                                                                                                                    20.02.04/002




             Additional guidance on particular types of financial
             promotion

                                                                                                                                    COB 3: Financial promotion
                                                                                                                                                   Annex 4
                                                                                                                 FSA Handbook H Release 028 D February 2004
                                                                                                                                                          3




                                                                                                                                                                 3
                    G

             1      This annex forms part of H COB 3.8.9 G (5) and H COB 3.9.14 G. More than one table may
                    be relevant to any one financial promotion.

             2      Table     Contents.

                     Section I : Guidance relevant to specific non–real time financial promotions for
                     particular product types
                        A   AVC Schemes (including FSAVCs)
                        B   Bond Funds
                        C   With–profits bonds
                       D    Pensions – phased retirement
                     Section II : Guidance relevant to direct offer financial promotions for PEP or ISA trans-
                     fers and personal pensions and stakeholder pension schemes
                        E   PEP or ISA transfers
                      F    Personal pensions and stakeholder pension schemes
                     Section III: Guidance relevant to specific non–real time financial promotions for
                     products with identified characteristics
                      G    Guaranteed or protected products
                        H   High income products
                        I   Stock market products
                        J   [deleted]

             3      Table     A.

                              Additional Voluntary Contribution Schemes (including Free Standing Additional Voluntary
                              Contributions)
                              A financial promotion for an AVC scheme or FSAVC contract should contain a prominent warn-
                              ing that as an alternative:
                              (1) (for FSAVC promotions) an AVC exists, and that details can be obtained from the scheme ad-
                              ministrator;
                              (2) (for AVC promotions) FSAVC contracts are available.

             4      Table     B.



PAGE
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                         Bond Funds
                         A firm constructing a financial promotion for corporate bond funds or similar contracts should
                         take account of the following:

                         (1) Clear description of the risk
                         Yields offered by bonds often reflect in part the risk rating of the issuer. Investment in such bonds
                         brings an increased risk of default on repayment and this in turn translates into a risk that the capi-
                         tal value of the fund will be affected. Financial promotions for funds which invest in riskier
                         bonds should clearly explain this point to recipients. The prominence and wording of the ex-
3                        planation should reflect both the risk profile of the portfolio held by the fund, and the prominence
                         given to information about the yield on the fund. The main body of the financial promotion
                         should state that the yield or the capital value of the fund (or both) can fluctuate, as the case may
                         be.

                         (2) Quoting out of date yields
                         Financial promotions often feature prominently the yield on the fund. In some cases the actual
                         yield being paid at the time the promotion is communicated is materially different to the yield
                         quoted. Owing to lead times, inaccuracies can occur if the market is moving rapidly, but yields
                         several weeks or months out of date are misleading. The promotion should quote the date at
                         which the rate applied. It is misleading for financial promotions with a long shelf life to promi-
                         nently feature a rate which may become invalid.

                         (3) Funds not fully invested
                         Yield figures should reflect the overall position of the fund allowing for any monies held in cash.
                         Yields quoted on the assumption that the fund is 100% invested in bonds where a proportion is
                         invested in cash would be misleading.

                         (4) Running and redemption yields
                         If a yield figure is to be quoted, then both the gross redemption yield and the running yield should
                         be mentioned with equal prominence. This is to ensure that a balanced impression is given of both
                         the short–term and the long–term prospects for the fund. When quoting the gross redemption
                         yield, the main body of the financial promotion should also mention the fact that it is a prediction,
                         and is not guaranteed.
                         A firm should take into account, and explain, any material differences between the yield figures.

                         (5) Describing the yield and growth prospects
                         A firm needs to be careful when describing the future yield or growth prospects of a fund. The
                         prominence and tone given to descriptions of future prospects should reflect a reasonable assess-
                         ment of the fund taking into account, for example, the redemption yield, whether charges are tak-
                         en from capital, and the general economic climate.


        5      Table     C.

                         With–profits bonds
                1.       Particular areas of concern about financial promotion of with profit bonds are:
                         (a) failure to make it clear that a whole life with profits bond is unsuitable as a short term
                         investment;
                          (b) unclear statements as to what factors will determine the cash–in value of the bond;
                                                                                                                                       PAGE
                         (c) reservation of the right to adjust the value of the contract by means such as Market Value Ad-             2
                         justment Factors without adequately explaining the significance or likelihood of such a procedure;
                         (d) use of a rate of bonus in a way that implies such a rate will apply;
                         (e) quotation of values based on existing bonus rates to lead recipients to anticipate receiving such
                         amounts;




    FSA Handbook H Release 028   D   February 2004
       COB 3: Financial promotion                                                                               Annex 4
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                              With–profits bonds
                              (f) reference to building society accounts in comparison with the bond without adequately ex-
                              plaining the differences between the two types of investment.

                     2.       Quoting a high initial bonus rate may suggest that it is achievable for all investors, whereas for
                              example, the rate may only be available to investors who make a sizeable investment or who
                              make their investment considerably earlier than the closing date. In addition, initial bonus rates
                              are frequently subject to limiting factors, such as:
                              (a) establishment charges;
                              (b) monthly policy charges;
                                                                                                                                         3
                              (c) fund management or investment charges;
                              (d) early surrender penalties or discontinuance charges;
                              (e) market adjustment factors.
                              Therefore where applicable firms should not include terms such as ’guaranteed’, ’return’ and
                              fixed for the first year’ without making it clear that the bonus rate may not be achievable.

             6      Table     D.

                              Pensions – phased retirement
                     1.       Some promotions for phased retirement pensions tend to emphasise the various advantages but do
                              not give adequate risk warnings, some of the important assumptions, or detail potential disadvan-
                              tages. The following failures are typical:
                              (a) not including risk warnings in respect of performance and value of underlying units.
                              (b) not indicating that future annuity rates are not guaranteed and may be higher or
                              lower.
                              (c) not disclosing any information about additional charges linked to the plan.
                              (d) not making any reference to protected rights being deferred to age 65 or 60 (in illustrations of
                              pensions commencing earlier).
                              (e) not indicating how a surviving spouse is provided for.

                     2.       Four particular areas that need to be made clear are:
                              (a) Mortality
                              Compared with a conventional annuity, phased retirement normally provides higher residual sums
                              on death. For survivors to age 75, this can result in a strain, as annuities will not have been pur-
                              chased at an earlier age. This risk should be made clear.
                              If a spouse’s pension is to be provided, it needs to be made clear whether each annuity is bought
                              on a joint life basis and whether the annuity is bought on death or at age 75.
                              If protected rights pensions at age 65 or 60 are to be provided, it needs to be made clear how these
                              are to be provided.
                              (b) Investment
                              The future investment returns on the residual funds and the future immediate annuity rates are
                              unknown. The risk of this to the investor needs to be made clear.
                              Care needs to be taken to ensure that the impression is not given that postponing the purchase of
                              an annuity will automatically be to the investor’s advantage.
                              (c) Tax
                              Most of the financial advantage in phased retirement derives from utilising tax free cash sums to
                              provide part of the investors pension payment. Therefore the investor does not have the benefit of
                              the tax free cash sum at retirement, which can be a disadvantage. Any comparison with a conven-
                              tional annuity should allow for the use of a purchased life annuity purchased with the tax free
PAGE                          cash, or include a statement that the effect of the option to use the tax free cash to secure a pur-
 3
                              chased life annuity has been ignored.
                              Because the pension will usually constitute most of a investor’s income, it will generally be cor-
                              rect to assume basic rate tax. Where the level of income makes it appropriate, higher rate tax may
                              be allowed for; this can be done assuming an average tax rate or taking account of specific tax
                              bands. If tax thresholds are assumed to increase, the rate must be consistent with the investment
                              return assumed and the rate of increase in the target pension.



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                         Pensions – phased retirement
                         (d) Expenses
                         The costs in operating phased retirement are usually higher than for conventional annuities.
                         These costs need to be disclosed, especially as they are relevant to any comparison with a conven-
                         tional annuity. Particular reference should be made to the level of initial charge and annual man-
                         agement charge on unit–linked funds.

        7      Table     E.

3                        PEP or ISA transfers
                         A direct offer financial promotion for a PEP or ISA transfer should include details of the likely
                         advantages and disadvantages of transferring an existing PEP or ISA holding, including:

                         (1) exit charges and any other costs associated with the transfer;
                         (2) initial set up charges;
                         (3) transaction details (ie are holdings liquidated or transferred intact), as permitted by the terms
                         and conditions;
                         (4) the possibility (and likely effects) of shortfall, following cancellation;
                         (5) potential for loss of income or growth, following a rise in the markets, whilst the PEP or ISA
                         transfer remains pending.

        8      Table     F.

                         Personal pensions and stakeholder pension schemes
                         Firms promoting personal pension schemes through direct offer financial promotions are re-
                         minded of the provisions of COB 5.3.

        9      Table     G.

                         Guaranteed or protected products
                1.       Equal prominence to guaranteed and not guaranteed benefits
                         Firms should give equal prominence to the description of benefits which are guaranteed and of
                         benefits which are not.
                2.       Guaranteed income but not capital
                         (a) A clear statement should be made where relevant benefits are not guaranteed.
                         (b) If any guarantee is given, the guarantor should be named.
                         (c) An equivalent annualised rate of return should be quoted if the cash rate is quoted.
                3.       Guaranteed or protected amount payable at the end of the term
                         The words ’guarantee’, ’protected element’ or similar may be used to describe the minimum
                         amount payable at the end of the term. This is usually provided at some cost to the investor and
                         financial promotions therefore need to make clear what that cost is and how it is imposed.


                4.       Counterparty risk
                         Firms should ensure that financial promotions for products with a protected element to them,
                         which is not guaranteed, include an explanation of the associated risk of counterparty failure.
                         Firms should avoid giving a misleading impression of the capital security.

        10     Table     H.

                         High income products                                                                                         PAGE
                                                                                                                                       4
                1.       Income Term
                          If the word ’income’ is used, it will be difficult for the promotion to avoid being misleading un-
                          less it:
                         (a) is used to indicate payments comprised solely of interest or dividend earnings; or
                         (b) is clearly defined at an early point in the promotion as having a different meaning, and in par-
                         ticular specifies the risk to capital necessary to achieve the payment.


    FSA Handbook H Release 028   D   February 2004
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                              High income products
                     2.       Problem of disclosure of risks
                              (a) If the rate of income available is at some capital risk or at the expense of growth, or the in-
                              come or a portion of it comprises a return of capital, these facts should be clearly explained.
                               (b) If direct or indirect comparison is made with a deposit, there should be a prominent statement
                               that the investment does not include the security of capital which is afforded under a deposit.
                     3.       High income bonds, high income unit trusts and similar types of collective investment
                              schemes
                              (a) Some unit trusts achieve a high income by the use of derivatives such as put and call
                              options. Firms should provide a statement to the effect that the high income is achieved
                                                                                                                                         3
                              at the expense of most of the potential capital gain.
                              (b) If it is claimed that the downside potential is less than that of a conventional unit trust,
                              it should be made clear with equal prominence that if the fund goes down its potential
                              recovery will be less than that of a conventional unit trust.
                              (c) Where an income figure is shown a clear statement should be made that the income
                              is not guaranteed.

             11     Table     I.

                              Stock market products
                              Stock market products are those investments which offer returns linked to the price of equities or
                              an index such as the FTSE 100.
                              (1) Potential for Growth
                              (a) Expressions like ’stock market growth’ or ’the growth of the FTSE 100 Index’ are frequently
                              used and are potentially misleading if the product will not be investing in all the stocks which
                              make up the index.
                              (b) Promotion of a product which is linked to growth in the FTSE 100 index should make clear
                              that it does not include an allowance for any return or reinvestment of dividend income.
                              (c) Promotions should therefore make it clear that references to ’stock market growth’ exclude
                              any form of income payment.
                              (2) Amount invested
                              Some promotions quote returns in excess of the percentage increase in the FTSE 100 index, with-
                              out mentioning that 100% of capital is not invested at outset.
                              (3) Gross returns and tax on underlying fund
                              Promotions showing guaranteed returns against the FTSE 100 index expressed in ’gross’ terms
                              are potentially misleading where the underlying funds of the firm concerned are taxable and the
                              returns quoted are therefore unavailable to the investor because he will receive the benefits after
                              tax has been deducted and which he cannot reclaim.
                              (4) Taxation of investor
                               The tax treatment in the hands of the investor should be made clear, in particular, whether the
                               return will be treated as income or as capital gains where the investor may be entitled to a tax
                               free exemption limit with the added benefit of indexation.
                              (5) Early Encashment
                              (a) The terms for early encashment need to be fully explained.
                              (b) Despite the minimum amount at the end of the specified term, an appropriate risk warning
                              should be included where the value of the investment can fall if an investor wishes to encash the
                              contract before the end of the term.
                              (6) Averaging
                              Contracts are normally based on the assumption that the index being used will rise. The
PAGE
 5
                              use of the average level of the index will reduce the investment potential of the contract.
                              Where the averaging periods cover more than the last six months of the contract term, it
                              should not be implied that averaging is to protect against falls at the end of the term. It
                              should be made clear that investors benefit only from some of the performance of the
                              index and that one effect of averaging is likely to be to constrain the final level of the in-
                              dex used to calculate benefits.




       FSA Handbook H Release 028   D   February 2004
    COB 3: Financial promotion                                                                     Annex 4
                                                                                                          20.02.04/002




                         Stock market products
                         (7) Maximum benefits
                         These should not be promoted as a particular feature if the economic circumstances re-
                         quired to meet those benefits require investment conditions more favourable than those
                         which would need to prevail to achieve the higher of the growth assumptions specified by
                         the FSA.



3




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    FSA Handbook H Release 028   D   February 2004

				
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