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Status: You are viewing the version of the handbook as on 2005-06-30.

COB 7.9 Lending to private customers

Application

COB 7.9.1R

This section applies to a firm when it lends money or grants credit to a private customer or arranges for any other person to do so, in the courseof, or in connection with, its designated investment business.

Purpose

COB 7.9.2G

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section seeks to ensure that a firm lends money or grants credit to a private customer only in appropriate circumstances, and only if the customer has given prior consent in full knowledge of any resulting interest and fees.

Restrictions on lending to private customers

COB 7.9.3R

A firm, subject to the exceptions in COB 7.9.5 R, must not lend money or grant credit to a private customer (or arrange for any other person to do so) in the course of, or in connection with, its designated investmentbusiness unless:

  1. (1)

    the firm has made and recorded an assessment of the private customer's financial standing, based on information disclosed by the private customer;

  2. (2)

    the firm has taken reasonable steps to ensure that the arrangements for the loan or credit and the amount concerned are suitable, based on the information disclosed by the private customer, for the type of investment agreement proposed or which the private customer is likely to enter into; and

  3. (3)

    the private customer has given his prior written consent to both the maximum amount of the loan or credit and the amount or basis of any interest or fees to be levied in connection with the loan or credit.

COB 7.9.4G

When the provisions of the Consumer Credit Act 1974 apply, the firm should ensure that it has an appropriate licence under that Act and that it complies with all that Act's requirements (details are available from the Office of Fair Trading).

Exceptions

COB 7.9.5R

COB 7.9.3 R does not apply when:

  1. (1)

    a firm settles a securities transaction of the private customer because he has failed to pay or has paid late; or

  2. (2)

    a firm covers a margin call made on a private customer for a period of no longer than five business days; or

  3. (3)

    a long-term insurer lends money or grants credit to a private customer, or arranges for any other person to do so, in connection with a life policy. 1

COB 7.9.6G

A firm should consider whether the circumstances mentioned in COB 7.9.5 R give rise to any obligations under the client moneyrules to maintain adequate client money resources.

Record keeping requirements

COB 7.9.7R

A firm must make a record of the information about the private customer's financial standing upon which the assessment required by COB 7.9.3 R (1) was made, including the date on which the information was last updated or checked, and retain the record for three years from the date on which the credit arrangements ceased.