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COB 6.2 Provisions of key features or simplified prospectus8

Application

COB 6.2.1 R

COB 6.2 applies to a firm in accordance with COB 6.1.1 R.

Medium for provision of key features3

COB 6.2.2 R

The key features or information which the rules in COB 6.2, COB 6.2 and COB 6.4 require a firm to provide to a private customer in relation to a packaged product, cash deposit ISA or cash deposit CTF must be provided by the firm in a durable medium.356

COB 6.2.3 G

For detailed guidance on electronic provision please refer to COB 1.8 (Application to electronic media) and COB 3.14 (The internet and other electronic media).

COB 6.2.4 G

Firms are reminded that any key features, simplified prospectus8 or other information required by COB 6.2 to 8COB 6.5 is a form of financial promotion and therefore the financial promotion rules contained in COB 3 apply (subject to the application provisions in COB 3.1 to COB 3.3).3

8
COB 6.2.5 G

COB 3.7 requires a firm to keep records of non-real time financial promotions to private customers for certain periods of time. These periods are: indefinitely for a record relevant to a pension transfer or pension opt out; six years for a record relevant to a life policy, pension contract or stakeholder pension scheme; and three years in any other case.

COB 6.2.5A G

Where this chapter requires key features, a simplified prospectus8 or other information to be given, it does not require the same information to be provided again if the private customer already has it.3

Life policies

COB 6.2.6 G

COB 6.2.7 R - COB 6.2.18 R are disapplied by COB 6.2.21 R in relation to certain customers resident outside the United Kingdom.

COB 6.2.7 R

When a firm sells, personally recommends or arranges the sale of a life policy to a private customer, the private customer must be provided with appropriate key features before the private customer completes an application for the policy, subject to COB 6.2.9 R (Sales through intermediaries) and COB 6.4.27 R to COB 6.4.31 R5 (telephone sales3 and other exemptions).5

COB 6.2.8 G

Where a private customer has responded to a direct offer financial promotion, the mailing package or financial promotion will have included example-based key features - there is no requirement to provide a further set of key features to such a private customer in respect of the same transaction.

3Exception for life policies: sales through intermediaries

COB 6.2.9 R

COB 6.2.7 R does not apply to a product provider when its life policy is sold on the personal recommendation of, or arranged to be sold by, another person, provided that other person:3

  1. (1)

    is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or3

  2. (2)

    is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the life policy in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.37

COB 6.2.10 G

3[Deleted]

COB 6.2.11 G

3[Deleted]7

Life policies: pre-completion variations

COB 6.2.12 R
  1. (1)

    Where key features have already been provided by a firm to a private customer in accordance with COB 6.2.7 and the terms for the proposed life policy are subsequently altered before the private customer completes an application form, the firm must ensure that the private customer is provided with revised key features, unless the alteration is one or more of the following:3

    1. (a)

      the amount of the premium is changed;3

    2. (b)

      the amount of any commission or remuneration payable is reduced;3

    3. (c)

      a rider benefit is added, removed or amended.3

  2. (2)

    If (1)(a) to (c) apply, then, subject to COB 6.4.27 to COB 6.4.31 (telephone sales and other exemptions), if the contract is to be a distance contract with a retail customer, the retail customer must be provided with details of such changes in a durable medium in good time before the contract is concluded.35

COB 6.2.13 G

COB 6.2.12 R is intended to allow simple changes to be made before a private customer commits himself without further packaged product disclosure information being provided. Changes in the amount of premium alone, of whatever size, will not require revised key features if the underlying purpose of the proposed contract is unchanged. So, for example, an increase in the proposed regular premium for a personal pension policy, will not require revised key features; nor will a change in premium and sum assured under a mortgage policy if the loan has to be increased before the house sale is finalised. However, changes to the type of packaged product or the underlying purpose would require revised key features - examples being a change from regular to single premiums under a personal pension policy, or a change from maximum life cover to balanced or standard protection under a flexible whole-life policy, with or without a change in premium. Revised key features would be required where the rate or basis of commission or remuneration was increased, but not where the amount increased simply because of a change in premium.

COB 6.2.14 R

Where key features have already been provided to a private customer by a firm, and the terms of the proposed life policy are materially altered after the private customer completes an application form, the private customer must be provided with details of the change in a durable medium as soon as practicable and offered revised key features.3

COB 6.2.15 G

What constitutes 'materially altered' requires consideration of the facts in the circumstances of each case. Changes which lead to an increase in the proposed premium of 25 per cent or less can be regarded as not material and can be ignored, so long as the underlying policy terms and conditions are the same. Other changes to the terms of the proposed contract, such as an increase in the rate or basis of commission, a different charges structure or an extension of the policy term should be regarded as material.3

Variations to existing life policies

COB 6.2.16 R

When a policyholder applies to vary a life policy issued on or after 1 January 1995 (or is recommended to do so) and the variation of the policy gives rise to a right to cancel under COB 6.7.7 R, the policy holder must be provided with:3

  1. (1)

    the information required by COB 6.5.15 R to COB 6.5.19 R, COB 6.5.23 R to COB 6.5.25 R, COB 6.5.27 R to COB 6.5.28 R and COB 6.5.38 R; and3

  2. (2)

    in the case of a variation which results in a new distance contract, all the contractual terms and conditions and the information in COB App 1;3

in a durable medium by the firm personally recommending, arranging or effecting the variation in good time before it is put into effect, unless COB 6.2.19 R (sales through intermediaries) or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.35

COB 6.2.16A R
  1. (1)

    4When a long-term care insurance contract which is

    1. (a)

      not a pure protection contract and which was issued on or after 1 January 1995; or

    2. (b)

      a pure protection contract and which was issued on or after 31 October 2004;

    is varied so as to bring into effect provisions for long-term care benefits, the firm must provide the private customer with appropriate key features in good time sufficient to enable the private customer to consider them before the variation takes effect.

  2. (2)

    If the circumstances of the variation, whether by the exercise of an option or otherwise, make it impossible to provide the key features before the variation takes effect, the firm must do so as soon as possible afterwards.

COB 6.2.17 G

Key features were introduced for new policies sold from 1 January 1995. One way of meeting the requirements of COB 6.2.16 R is by providing a complete set of new key features to the policyholder.3

COB 6.2.18 R
  1. (1)

    4When a policyholder applies to vary:4

    1. (a)

      a life policy issued before 1 January 1995; or4

    2. (b)

      a pure protection contract issued before 31 October 2004 and which would after 30 October 2004 be a long-term care insurance contract;4

    (or is personally recommended to do so) and the variation of the policy gives rise to a right to cancel under COB 6.7.7 R, information must be given to the policyholder by the firm that is personally recommending, arranging or effecting the variation before it is put into effect, unless COB 6.2.19 R or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.

  2. (2)

    When giving the information in (1), the firm must:35

    1. (a)

      believe on reasonable grounds that the information given is sufficient to enable the policyholder to understand the consequences of the variation; and3

    2. (b)

      in the case of a variation which results in a new distance contract, in good time before the variation is put into effect, provide all the contractual terms and conditions and the information in COB App 1.3

COB 6.2.19 R

COB 6.2.16 R and COB 6.2.18 R do not apply to a product provider when the variation to its life policy is effected on the personal recommendation of or arranged by another person, provided that other person:3

  1. (1)

    is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or3

  2. (2)

    is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the variation to the life policy in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.37

COB 6.2.20 G

3[Deleted]

Exception for life policies: non-UK customers3

COB 6.2.21 R

There is no requirement for key features to be provided for a new life policy or a variation to an existing policy if, at the time that the private customer signs the application, he is habitually resident:3

  1. (1)

    (except for distance contracts with retail customers) in an EEA State other than the United Kingdom; or3

  2. (2)

    outside the EEA and he is not present in the United Kingdom.13

6Exceptions for life policies: variations held within a CTF

COB 6.2.21A R

COB 6.2.7 does not apply to a CTF provider in relation to a variation to an existing policy held within a CTF, if:

  1. (1)

    the terms and conditions, including all charges, are the same as applied at the time of the purchase, or the most recent purchase or payment, of the existing policy; and

  2. (2)

    key features outlining those terms and conditions were issued to the customer in respect of that previous purchase.6

Provision of key features: schemes7

COB 6.2.22 R
8
  1. (1)

    When a firm sells, personally recommends or arranges for the sale of a scheme to a private customer, unless COB 6.2.24 R (exceptions) or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies, the private customer must be provided with appropriate key features for the scheme before he completes an application for the scheme holding.8

  2. (2)

    (1) does not apply where the operator of the scheme has elected that the scheme will comply with COB 6.2.26 R to instead of the provisions in COB 6 that relate to key features.8

  3. (3)

    (2) does not apply to an investment trust.8

COB 6.2.23 G
  1. (1)

    COB 6.2.22 R applies not just to new purchases but also to any recommendation or application to transfer the value of a particular fund holding within a scheme to a different fund within the same scheme.

  2. (2)

    Where a private customer has responded to a direct offer financial promotion, the mailing package or direct offer financial promotion should have included example-based key features - there is no requirement to provide a further set of key features to such a private customer in respect of the same transaction.37

Exceptions from the requirement to provide key features for schemes

COB 6.2.24 R

A firm need not provide key features to a private customer in respect of a scheme if:

  1. (1)

    the firm is a product provider and the scheme holding is sold on the personal recommendation of, or arranged to be sold by another person, provided that other person:3

    1. (a)

      is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or3

    2. (b)

      is operating from an establishment in an EEA State whose law imposes obligations on the person to provide information about the scheme holding in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive; or3

  2. (2)

    at the time he signs the application, the private customer is habitually resident outside the EEA and is not present in the United Kingdom; or

  3. (3)

    (except for distance contracts with retail customers) the scheme holding is purchased by a private customer on an execution-only basis; or3

  4. (4)

    the scheme holding is purchased on behalf of a private customer by an investment manager exercising discretion; or

  5. (5)

    the sale of the scheme holding is arranged or recommended by an investment manager who is not exercising discretion and the private customer has agreed, either in relation to that specific holding or generally, that key features need not be provided; or

  6. (6)

    a private customer is making a purchase of a scheme holding (whether or not held within a CTF) in a fund in which he already has a scheme holding and has already been provided with appropriate key features covering the purchase; or36

  7. (7)

    a private customer is transferring from accumulation units to income units of the same scheme (or vice versa) and has already been supplied with key features which cover the transfer.83

    8
COB 6.2.24A R

3[Deleted]

COB 6.2.25 R

3[Deleted]27

Purpose of the COB 6 provisions on the simplified prospectus8

COB 6.2.25A G

8The purpose of COB 6.2.26 R (Production and publication of simplified prospectus), COB 6.2.27 R (Revision of simplified prospectus) to COB 6.2.32 R (Offering a simplified prospectus), COB 6.2.37 R (Table: Contents of the simplified prospectus), COB 6 Annex 2 R (Total expenses ratio) and COB 6 Annex 3 R (Portfolio turnover rate) is to give effect to the provisions of the Management Company Directive (2001/107/EC) which amended the UCITS Directive, in so far so as it imposes a series of obligations on Member States in relation to the simplified prospectus. The simplified prospectus is a pre-sale marketing document which contains sufficient information about a simplified prospectus scheme to enable an investor to make an informed decision about whether to acquire units in the scheme to which it relates.

8
COB 6.2.26 R
  1. (1)

    An operator of a simplified prospectus scheme must, for each simplified prospectus scheme in respect of which it is the operator, produce and publish a simplified prospectus in accordance with the rules in this section and ensure that it contains in summary form each of the matters referred to in COB 6.2.37 R.

    28
  2. (2)

    A simplified prospectus must be incorporated in a written document or in any durable medium.

  3. (3)

    An operator of a simplified prospectus scheme must be satisfied on reasonable grounds that each simplified prospectus which it produces:

    1. (a)

      includes all such information as is necessary to enable an investor to make an informed decision about whether to acquire units in the scheme;

    2. (b)

      does not omit any key item of information;

    3. (c)

      wherever possible is written in plain language which avoids technical language and jargon; and

    4. (d)

      adopts a format and style of presentation which is clear and attractive to the average reader, so that it can be easily understood by him.

  4. (4)

    The simplified prospectus may be attached to the full prospectus as a removable part of it.

  5. (5)

    Where the simplified prospectus scheme is an umbrella or has more than one class of units, the operator may at its option produce and publish either a composite simplified prospectus covering all the sub-funds that comprise the umbrella or all the classes of units, as applicable, or a separate simplified prospectus for each sub-fund comprising the umbrella or for each class of units, as the case may be.

  6. (6)

    Where in accordance with (5) an operator produces and publishes separate simplified prospectuses for the sub-funds of an umbrella or, as the case may be, for each class of units, references in COB 6.2.26 R to COB 6.2.45 R to "scheme" or "simplified prospectus scheme" should be taken as referring to the relevant sub-fund or class, as applicable.

Revision of simplified prospectus

COB 6.2.27 R

8An operator of a simplified prospectus scheme must, for each simplified prospectus scheme of which it is the operator, keep its simplified prospectus up-to-date and must revise it immediately on the occurrence of any material change.

COB 6.2.28 G

8It is the FSA's view that any change to a simplified prospectus scheme that would be likely to influence the average investor in deciding whether to invest in the scheme or realise his investment in it should be regarded as a material change for the purposes of COB 6.2.27 R. Examples would be changes to the scheme's objectives or investment policy. The FSA would expect a simplified prospectus to be updated at least annually.

Filing requirements

COB 6.2.29 R

8A UCITS management company must for each UCITS scheme it manages file the scheme's initial simplified prospectus, together with each revision to it, with:

  1. (1)

    the FSA; and

  2. (2)

    the competent authority of each EEA state in which its units are to be marketed in the exercise of an EEA right.

UK firms exercising passporting rights in respect of UCITS scheme

COB 6.2.30 R
  1. (1)

    8A UCITS management company must for each UCITS scheme it manages and in respect of which it is marketing units in another EEA State in the exercise of an EEA right, produce a simplified prospectus for the scheme drawn up in accordance with the requirements contained in this section.

  2. (2)

    The simplified prospectus must be drawn up in the, or one of the, official languages of the EEA State for which it was prepared or in a language approved by the competent authority of that State.

  3. (3)

    The simplified prospectus may, without alteration, be used for marketing purposes in the EEA State for which it was prepared and in which the units of the simplified prospectus scheme are to be sold.

COB 6.2.31 G
  1. (1)

    8In translating the simplified prospectus from English into the or one or more of the official languages of the EEA State in which the simplified prospectus scheme is to be marketed, or into a language approved by the competent authority of that State, it is permissible under article 28.3 of the UCITS Directive, as amended, in the FSA's view, for figures expressed in pounds sterling to be converted into the appropriate local currency such as euros. It is not necessary, for example, for the simplified prospectus of a scheme that is to be marketed across the EEA in the exercise of an EEA right, to have to refer to each amount in pounds sterling, in euros and additionally in every other local currency of an EEA State in which units of the scheme are to be marketed that has not adopted the euro as its currency.

  2. (2)

    Operators considering marketing the units of their simplified prospectus schemes in another EEA State in the exercise of an EEA right should have regard to the local marketing legislation of such country. In this regard the attention of firms is drawn to COB 6.2.38 R (2) (Reduction in yield), under which an operator when it is producing a simplified prospectus for a simplified prospectus scheme whose units are to be marketed in another EEA State, need not provide the reduction in yield information or format for that simplified prospectus. Inclusion of such information and format might be confusing for investors in such countries who are unlikely to be familiar with them. The simplified prospectus that is to be marketed in the United Kingdom must, however, include the reduction in yield information and format. Likewise there is no requirement for a projection under COB 6.2.43 R (1) to have to be included in a simplified prospectus which is being used for marketing purposes in another EEA State.

Offering a simplified prospectus

COB 6.2.32 R
  1. (1)

    8When a firm sells, personally recommends or arranges (brings about) for the sale of a simplified prospectus scheme, it must offer the scheme's up-to-date simplified prospectus free of charge to any person who may become a subscriber to the scheme before a contract for the sale of units is concluded.

  2. (2)

    The requirement in (1) will be met by a firm in relation to a private customer if it or any other firm provides him with a copy of the simplified prospectus in accordance with COB 6.2.33 R (1).

Obligation on a firm to provide a simplified prospectus

COB 6.2.33 R
  1. (1)

    8When a firm sells, personally recommends or arranges (brings about) for the sale of a simplified prospectus scheme to a private customer in the United Kingdom, the firm must provide him with the up-to-date simplified prospectus for the scheme before he completes an application for the scheme holding unless COB 6.2.35 R or COB 6.2.36 R or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) apply.

  2. (2)

    (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.

COB 6.2.34 G
  1. (1)

    8COB 6.2.33 R applies not just to new purchases but also to any recommendation or application to transfer the value of a particular fund holding within a scheme to a different sub-fund within the same scheme.

  2. (2)

    Where a private customer has responded to a direct offer financial promotion, the mailing package or direct offer financial promotion should have included the simplified prospectus for the scheme, in which case there is no requirement to provide a further simplified prospectus to such a private customer in respect of the same transaction.

  3. (3)

    COB 6.2.33 R may apply to either the operator or the distributor of a simplified prospectus scheme depending on how units in the scheme are to be sold.

  4. (4)

    Where one of the exceptions in COB 6.2.35 R or COB 6.2.36 R applies, firms should bear in mind that they must still comply with COB 6.2.32 R (Offering a simplified prospectus) which represents an absolute requirement of the UCITS Directive and as such, cannot be made subject to any exclusions. For example, a firm offering a funds supermarket service which is entitled to the benefit of the exception in COB 6.2.36 R must ensure that every private customer is offered the simplified prospectus of each relevant simplified prospectus scheme before a contract for the sale of units is concluded.

Exceptions from the requirement to provide the simplified prospectus

COB 6.2.35 R

8A firm need not, unless a private customer specifically requests it, provide a simplified prospectus to a private customer for a simplified prospectus scheme if:

  1. (1)

    the firm is a product provider and the scheme holding is sold on the personal recommendation of, or arranged to be sold on the personal recommendation of, or arranged to be sold by another person, provided that other person:

    1. (a)

      is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or

    2. (b)

      is operating from an establishment in an EEA State whose law imposes obligations on the person to provide information about the scheme holding in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive; or

  2. (2)

    at the time the private customer signs the application, the private customer is habitually resident outside the EEA and is not present in the United Kingdom; or

  3. (3)

    (except for distance contracts with retail customers) the scheme holding is purchased by the private customer in the course of an execution-only transaction; or

  4. (4)

    the scheme holding is purchased on behalf of the private customer by an investment manager exercising discretion; or

  5. (5)

    the sale of the scheme holding is arranged or recommended by an investment manager who is not exercising discretion and the private customer has agreed, either in relation to that specific holding or generally, that the simplified prospectus need not be provided; or

  6. (6)

    a private customer is making a purchase of a scheme holding (whether or not held within a CTF) in a scheme in which he already has a scheme holding and has already been provided with the up-to-date simplified prospectus which covers the purchase; or

  7. (7)

    a private customer is transferring from accumulation units to income units of the same scheme (or vice versa) and has already been supplied with the up-to-date simplified prospectus of the scheme which covers the transfer.

Exception from the requirement to offer a simplified prospectus: firms offering a funds supermarket service

COB 6.2.36 R
  1. (1)

    8A firm to which COB 6.2.33 R (Obligation on a firm to provide a simplified prospectus) applies thatis offering a funds supermarket service, need not, unless a private customer requests it, provide a private customer with a simplified prospectus for any simplified prospectus scheme to which its funds supermarket service relates provided it complies with the condition in (2).

  2. (2)

    The condition is that the firm must instead provide the private customer with a composite key features document that meets the requirements of COB 6.5 (Content of key features) which covers each of the key features schemes and simplified prospectus schemes to which its funds supermarket service relates.

COB 6.2.37 R

Contents of the simplified prospectus

8This table belongs to COB 6.2.26 R (1)

Contents of simplified prospectus

Note:

This table sets out the required contents of the simplified prospectus. It reproduces Schedule C (Contents of the simplified prospectus) of the Management Company Directive (2001/107/EC), as amplified by the Commission Recommendation (2004/384/EC).

This Table also includes, and cross-refers to, other material which the FSA considers should be included.

Brief presentation of the simplified prospectus scheme (in this Table referred to as "the scheme").Where a scheme comprises an umbrella or has more than one class of units and the operator in accordance with COB 6.2.26 R (5) is producing a separate simplified prospectus for each sub-fund or, as the case may be, for each class of units, references in this Table to scheme should be taken, wherever appropriate, as referring to the relevant sub-fund or class, as applicable.

(1)

when the scheme was created and an indication of the EEA State where the scheme has been registered or incorporated;

(2)

in the case of a scheme having different investment compartments (sub-funds), the indication of this circumstance;

(3)

the name and contact details of the operator (when applicable);

(4)

the expected period of existence of the scheme (when applicable);

(5)

the name and contact details of the depositary;

(6)

the name and contact details of the auditors;

(7)

the name and brief details of the financial group (e.g. a bank) promoting the scheme;

Investment information

(8)

a short description of the scheme's objectives including:

(a)

a concise and appropriate description of the outcomes sought for any investment in the scheme;

(b)

a clear statement of any guarantees offered by third parties to protect investors and any restrictions on those guarantees; and

(c)

a statement, where relevant, that the scheme is intended to track an index or indices, and sufficient information to enable investors both to identify the relevant index or indices and to understand the extent or degree of tracking pursued;

Notes:

1.

Information on (8)(a) should include a statement as to whether there is any arrangement intended to result in a particular capital or income return from the units or any investment objective of giving protection to their capital value or income return and, if so, details of that arrangement or protection.

2.

The information disclosed under (8)(b) should include an explanation of what is to happen when an investment is encashed before the expiry of any related guarantee or protection.

(9)

the scheme's investment policy, including:

(a)

the main categories of eligible financial instruments which are the object of investment;

(b)

whether the scheme has a particular strategy in relation to any industrial, geographic or other market sectors or specific classes of assets, e.g. investments in emerging countries' financial instruments;

(c)

where relevant, a warning that, whilst the actual portfolio composition is required to comply with the broad legal and statutory rules and limits, risk-concentration may occur in regard of certain tighter asset classes, economic and geographic sectors;

(d)

if the scheme invests in bonds, an indication of whether they are corporate or government, their duration and the ratings requirements;

(e)

if the scheme uses financial derivative instruments, an indication of whether this is done in pursuit of the scheme's objectives, or for hedging purposes only;

(f)

whether the scheme's management style makes some reference to a benchmark; and in particular whether the scheme has an 'index tracking' objective, with an indication of the strategy to be pursued to achieve this; and

(g)

whether the scheme's management style is based on a tactical asset allocation with high frequency portfolio adjustments;

provided the information is material and relevant;

Note:

The information referred to in paragraphs (8) and (9) may be set out as a single item in the simplified prospectus (e.g. for the information on index tracking), provided that the information so combined does not lead to confusion of the objectives and policies of the scheme. The order of the information items may be adapted to reflect the scheme's specific investment objectives and policy.

(10)

a brief assessment of the scheme's risk profile by investment compartment or sub-fund, including:

(a)

overall structure of the information provided:

(i)

a statement to the effect that the value of investments may fall as well as rise and that investors may get back less than they put in;

(ii)

a statement that details of all the risks actually mentioned in the simplified prospectus may be found in the full prospectus;

(iii)

a description in words of any risk investors have to face in relation to their investment, but only where such risk is relevant and material, based on risk impact and probability; and

(b)

details regarding the description (in words) of the following risks:

(i)

specific risks:

The description referred to in paragraph (10)(a)(iii) should include a brief and understandable explanation of any specific risk arising from particular investment policies or strategies or associated with specific markets or assets relevant to the scheme such as:

A

the risk that the entire market of an asset class will decline thus affecting the prices and values of the assets (market risk);

B

the risk that an issuer or a counterparty will default (credit risk);

C

only where strictly relevant, the risk that a settlement in a transfer system does not take place as expected because a counterparty does not pay or deliver on time or as expected (settlement risk);

D

the risk that a position cannot be liquidated in a timely manner at a reasonable price (liquidity risk);

E

the risk that the investment's value will be affected by changes in exchange rates (exchange or currency risk);

F

only where strictly relevant, the risk of loss of assets held in custody that could result from the insolvency, negligence or fraudulent action of the custodian or of a subcustodian (custody risk); and

G

risks related to a concentration of assets or markets; and

(ii)

horizontal risk factors:

The description referred to in paragraph (10)(a)(iii) should also mention, where relevant and material, the following factors that may affect the product:

A

performance risk, including the variability of risk levels depending on individual fund selections, and the existence, absence of, or restrictions on any guarantees given by third parties;

B

risks to capital, including potential risk of erosion resulting from withdrawals/cancellations of units and distributions in excess of investment returns;

C

exposure to the performance of the provider/third-party guarantor, where investment in the product involves direct investment in the provider, rather than assets held by the provider;

D

inflexibility, both within the product (including early surrender risk) and constraints on switching to other providers;

E

inflation risk; and

F

lack of certainty that environmental factors, such as a tax regime, will persist;

(iii)

possible prioritisation of information disclosure:

In order to avoid conveying a misleading image of the relevant risks, the information items should be presented so as to prioritise, based on scale and materiality, the risks so as to better highlight the individual risk profile of the scheme;

(11)

the historical performance of the scheme (where applicable) and a warning that this is not an indicator of future performance (which may be either included in or attached to the simplified prospectus), including:

(a)

disclosure of past performance:

(i)

the scheme's past performance, as presented using a bar chart showing annual returns for the last ten full consecutive years. If the scheme has been in existence for fewer than ten years but at least for a period of one year, it is recommended that the annual returns, calculated net of tax and charges, be given for as many years as are available; and

(ii)

if a scheme is managed according to a benchmark or if its cost structure includes a performance fee depending on a benchmark, the information on the past performance of the scheme should include a comparison with the past performance of the benchmark according to which the scheme is managed or the performance fee is calculated;

Note:

Comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison.

(b)

disclosure of cumulative performance:

Disclosure should be made of the cumulative performance of the scheme over the ten year period referred to in paragraph (11)(a)(i). A comparison should also be made with the cumulative performance (where relevant) of a benchmark, when comparison to a benchmark is required in accordance with paragraph (11)(a)(ii);

Note:

Where the scheme has been in existence for fewer than ten years but at least for a period of one year, disclosure of the past cumulative performance should be made for as many years as are available.

(c)

exclusion of subscription and redemption fees, subject to appropriate disclosure:

A statement should be made that past performance of the scheme does not include the effect of subscription and redemption fees.

Notes:

1.

Where a comparison is being made with the cumulative performance of a benchmark as required by paragraph (11)(b), the comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison.

2.

The scheme's historical performance may be produced as a separate attachment to the simplified prospectus.

(12)

a profile of the typical investor the scheme is designed for;

Economic information

(13)

the scheme's applicable tax regime, including:

(a)

the tax regime applicable to the scheme in the UK; and

(b)

a statement which explains that the regime of taxation of the income or capital gains received by individual investors depends on the tax law applicable to the personal situation of each individual investor and/or to the place where the capital is invested and that if investors are unclear as to their fiscal position, they should seek professional advice or information from local organisations, where available;

Note:

This information should include a statement in relation to SDRT provision, explaining how the scheme may suffer stamp duty reserve tax as a result of transactions in units and whether the operator's policy is such that an SDRT provision may be imposed.

(14)

details of any entry and exit commissions relating to the scheme and details of the scheme's other possible expenses or fees, distinguishing between those to be paid by the Unitholder and those to be paid from the scheme's or the sub-fund's assets, including:

(a)

overall contents of the information provided:

(i)

disclosure of a total expense ratio (TER), calculated as indicated in COB 6 Annex 2 R, except for a newly created fund where a TER cannot yet be calculated;

(ii)

on an ex ante basis, disclosure of the expected cost structure, that is an indication of all costs available according to the list set forth in COB 6 Annex 2 R so as to provide investors, in so far as possible, with a reasonable estimate of expected costs;

(iii)

all entry and exit commissions and other expenses directly paid by the investor;

(iv)

an indication of all the other costs not included in the TER, including disclosure of transaction costs;

(v)

as an additional indicator of the importance of transaction costs, the portfolio turnover rate, calculated as shown in COB 6 Annex 3 R; and

(vi)

an indication of the existence of fee-sharing agreements and soft commissions;

Notes:

1.

In explaining the function of the TER to the reader, appropriate wording should be used in the simplified prospectus. For example, TER might be explained in the following terms:

"The TER shows the annual operating expenses of the scheme - it does not include transaction expenses. All European funds highlight the TER to help you compare the annual operating expenses of different schemes."

2.

It is the FSA's understanding that the disclosure of a reasonable estimate of expected costs on an ex ante basis, as required by paragraph (14)(a)(ii), only applies to new schemes where a TER cannot yet be calculated. Where a TER can be calculated for a simplified prospectus scheme, there is no need to have to disclose a reasonable estimate of expected costs on an ex ante basis in accordance with paragraph (14)(a)(ii), in addition to the TER.

3.

In disclosing details of all entry and exit commissions relating to the fund and details of the scheme's other possible expenses or fees, the firm must present the information in the format required by COB 6.2.38 R (1) (Reduction in yield). Compliance with this rule will ensure that the information is presented in the form of an impact of charges table based on reduction in yield figures, so as to assist the comprehension of the reader.

4.

Paragraph (14)(a)(vi)) should not be interpreted as a general validation of the compliance of any individual agreement or commission with the provisions of the Handbook . Taking into account current market practice, consideration should be given as to how far the scheme's existing fee-sharing agreements and comparable fee arrangements are for the exclusive benefit of the scheme.

5.

The simplified prospectus should make a reference to the full prospectus for detailed information on these kinds of arrangements, which should allow any investor to understand to whom expenses are to be paid and how possible conflicts of interest will be resolved in his/her best interest. The information provided in the simplified prospectus should remain concise in this respect.8

(b)

information about 'fee sharing agreements' and 'soft commissions':8

(i)

identification of 'fee-sharing agreements';

Note:

For the purposes of paragraph (14)(b)(i), fee-sharing agreements should be taken as those agreements whereby a party remunerated, either directly or indirectly, out of the assets of a scheme agrees to split its remuneration with another party and which result in that other party meeting expenses through this fee-sharing agreement that should normally be met, either directly or indirectly, out of the assets of the scheme.8

(ii)

identification of soft commissions;

Note:

For the purposes of paragraph (14) (b) (ii), soft commissions should be regarded as any economic benefit, other than clearing and execution services, that an asset manager receives in connection with the scheme's payment of commissions on transactions that involve the scheme's portfolio securities. Soft commissions are typically obtained from, or through, the executing broker.8

(c)

presentation of TER and portfolio turnover rate;8

Note:

Both the TER and the portfolio turnover rate may be either included in or attached to the simplified prospectus in the same paper as information on past performance.

Commercial information

(15)

how to buy the units;

Note:

This should include an explanation of any relevant right to cancel or withdraw from the purchase, or, where it is the case, that such rights do not apply.

(16)

how to sell the units;

(17)

in the case of a scheme having different investment compartments (sub-funds), an explanation of how to switch from one investment compartment into another and any charges applicable in such cases;

(18)

when and how dividends on units or shares of the scheme (if applicable) are distributed;

(19)

when and where prices of units are published or made available;

Additional information

(20)

a statement that, on request, the full prospectus and the annual and half-yearly reports of the scheme may be obtained free of charge before the conclusion of the contract and afterwards, together with details of how they may be obtained or how a person may gain access to them;

(21)

the name and contact details of the FSA as being the competent authority which has authorised or registered the scheme;

(22)

details of a contact point (person or department, and, if appropriate the times of day etc.) where additional information may be obtained if needed;

(23)

the date of publication of the simplified prospectus.

General Note:

In making the disclosures required by paragraphs (8) to (19) of this Table, the information must be presented in the form of questions and answers. This format is designed to assist the comprehension of the reader. This requirement will not apply in relation to a simplified prospectus that is to be used to market the units of the scheme in another EEA state 8

Reduction in yield

COB 6.2.38 R
  1. (1)

    8In disclosing the information required by paragraph (14) of COB 6.2.37 R (Table: Contents of the simplified prospectus), a firm should set out the information in the format required by, and include the contents of, COB 6.5.30 R (Table for schemes) to COB 6.5.35 R (Calculation method for "effect of charges to date" for schemes) and COB 6.5.38 R (Commission and commission equivalent for life policies, schemes and stakeholder pension schemes), as if such provisions applied to simplified prospectus schemes, as modified by COB 6.2.39 R (Table).

  2. (2)

    Where the units of a simplified prospectus scheme are to be marketed and sold in another EEA State, the operator of the scheme need not comply with the requirements in (1) for the simplified prospectus that is to be used to market the scheme in that EEA State.

  3. (3)

    Note 3 to paragraph (14) of COB 6.2.37 R (Table: Contents of the simplified prospectus) and COB 6.2.38 R to COB 6.2.40 G cease to have effect on 30 June 2009, unless re-made.

COB 6.2.39 R

Application of COB 6.5.30R to COB 6.5.35R, and COB 6.5.38R

8This table belongs to COB 6.2.38R

Application of COB 6.5.30 R to COB 6.5.35 R, and COB 6.5.38 R

Rule

Description

Modification

COB 6.5.31 R

Table

Substitute "COB 6.2.43 R (1)" for the reference to COB 6.5.15 R (2).

COB 6.5.32 R (1) , (2) and (3)

Scheme projections

Substitute "COB 6.2.43 R (1)" for the references to COB 6.5.15 R (2).

COB 6.5.32 R (3) and COB 6.5.32 R (7)(a)

Scheme projections

Substitute "client" for the references to "private customer".

COB 6.2.40 G

8The FSA intends to review the operation of COB 6.2.38 R and COB 6.2.39 R in 2008 and will re-examine these RIY requirements from first principles at that time. This will be done with a view to determining whether the retention of the RIY information and format, in addition to the disclosure of the European TER standard, remains appropriate in the light of the then prevailing circumstances, including consumer understanding of the issues. Should the result of that review indicate that these RIY requirements should be retained or otherwise changed, the FSA will consult publicly on its proposals in accordance with section 155(1) of the Act.

Distance contracts for the sale of simplified prospectus schemes

COB 6.2.41 R

8When a firm sells, personally recommends or arranges (brings about) for the sale of a simplified prospectus scheme to a retail customer in circumstances where a distance contract is being concluded, it must ensure that the retail customer is provided in good time with all the contractual terms and conditions and the information in COB App 1.1 before the contract for the scheme holding is concluded.

COB 6.2.42 G

8 Firms should bear in mind the guidance at COB 6.2.5A G. Where a simplified prospectus is provided to a retail customer in circumstances where a distance contract is being concluded, this chapter does not require the same information to be provided again to the customer as a result of COB 6.2.41 R. Firms should note, however, that while the contents of a simplified prospectus and the contractual terms and conditions and the information required by COB App 1.1 substantially overlap, there are differences between them. Consequently it is necessary for firms additionally to provide the contractual terms and conditions and the information required by COB App 1.1 to the extent that such information is not covered by the contents of the simplified prospectus. This additional information may accompany, but should not form part of, the simplified prospectus itself.

Projection for simplified prospectus scheme

COB 6.2.43 R
  1. (1)

    8When a firm sells, personally recommends or arranges for the sale of a simplified prospectus scheme to a private customer and the proposed transaction is for a scheme:

    1. (a)

      which relates to an election to make income withdrawals; or

    2. (b)

      where the private customer's primary objective is to acquire:

      1. (i)

        a specified sum of money on a specified date; or

      2. (ii)

        a specified sum of money on death; or

      3. (iii)

        an annuity of a specified amount payable as from a specified date;

    the firm must provide the private customer with a projection, illustrating how the principal terms of the proposed transaction apply to him.

  2. (2)

    (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.

  3. (3)

    (1) does not apply to a direct offer financial promotion in relation to units in a simplified prospectus scheme.

COB 6.2.44 G

8A projection may be provided by a firm for a simplified prospectus scheme where COB 6.2.43 R (1) does not require one, at a firm's discretion. Likewise it is at the firm's discretion to decide whether it is appropriate to include the projection, whether or not required by COB 6.2.43 R (1), as part of the simplified prospectus.

PEP and ISA investments

COB 6.2.45 R
  1. (1)

    8When a firm sells, personally recommends or arranges for the sale of a unit in a simplified prospectus scheme to a private customer which is to be held within a PEP or ISA, it must provide him with the following additional information:

    1. (a)

      a description of the nature of the services the firm will provide for the private customer in relation to the PEP or ISA;

    2. (b)

      [deleted]8

    3. (c)

      [deleted]8

    4. (d)

      a statement that the favourable tax treatment of ISAs may not be maintained;

    5. (e)

      how and when statements (if any) will be sent;

    6. (f)

      an explanation how the ISA or plan may be terminated or transferred to another ISA or PEP manager;

    7. (g)

      whether the ISA is a mini or maxi-ISA agreement and an explanation of the differences between the two; and

    8. (h)

      whether the private customer has a choice to reinvest income, where uninvested money will be held and whether interest is paid on such money.

  2. (2)

    (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.

  3. (3)

    (1) does not apply to the extent that a private customer is making a purchase of a scheme holding in a simplified prospectus scheme in which he already has a scheme holding and has already been provided with the information set out at (1)(a) to (h) which remains up-to-date.

UCITS Directive: requirement to offer a simplified prospectus for section 264 schemes

COB 6.2.46 R
  1. (1)

    8When a firm sells, personally recommends or arranges (brings about) for the sale of a UCITS scheme which is a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) to a client, it must offer the client free of charge a copy of the scheme's most recent simplified prospectus before an application for the scheme holding is completed.

  2. (2)

    The simplified prospectus must meet the requirements of the UCITS Directive necessary for the scheme to enjoy the rights conferred by the Directive.

  3. (3)

    When the scheme holding is purchased on behalf of a client by an investment manager exercising discretion, the requirement in (1) will be satisfied by the investment manager being offered the simplified prospectus free of charge before the application form for a scheme holding is completed.

  4. (4)

    A firm must not carry on any of the activities referred to in (1) in relation to a UCITS scheme which is a recognised scheme under section 264 of the Act unless it is satisfied on reasonable grounds that:

    1. (a)

      the scheme'ssimplified prospectus9 has been sent to the FSA before any units in the scheme are marketed in the UK; and

    2. (b)

      the information contained in the simplified prospectus is up-to-date and is not in need of revision;

    and that any subsequent amendments thereto have been sent to the FSA.

Sale of a section 264 scheme by distance contract

COB 6.2.47 R

8If the sale in COB 6.2.46 R (1) is by way of a distance contract, to a retail customer, the firm must provide all the contractual terms and conditions and the information in COB App 1.1.