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SIFA 9.6 Terms of business

SIFA 9.6.1G

You are required to provide written terms of business to your customers to explain the terms and conditions on which you intend to conduct business with them; and to set out particular issues such as the complaints procedure and payment for services.

Why do you need to provide terms of business?

SIFA 9.6.2G

When you provide terms of business to a client it is a useful record for both your client and your firm. It offers protection to clients if they think that a firm did not provide the services that they agreed to, and it offers the firm protection if a client incorrectly queries the services that it has provided to them.

SIFA 9.6.3G

The requirement to provide terms of business is in line with Principle 7 (Communications with clients).

When do you need to provide terms of business?

SIFA 9.6.4G

You need to give a terms of business document to each customer and you should provide one before conducting any designated investment business with a private customer. However, the length of time you have to provide one depends on both the category of customer and the type of product that forms part of the transaction ( COB 4.2.5 R). Please see the summary below:

SIFA 9.6.5G

Type of customer

When to provide terms of business

Private customer

Before conducting any designated investment business, unless:

The customer has made an oral offer to enter into an investment agreement relating to an ISA or stakeholder pension scheme; in which case you need to provide it within five days of the offer.

Intermediate customer

Within a reasonable period of the firm bringing to conduct designated investment business.
SIFA 9.6.6G

Please note that conducting designated investment business includes advising on investments as well as arranging and entering into transactions (for a complete definition see the Handbook glossary).

What should you include in terms of business?

SIFA 9.6.7G

You must ensure that your terms of business sets out the basis on which you will conduct business with your customer in adequate detail (COB 4.2.10 R and COB 4.2.11 E).

SIFA 9.6.8G

The terms of business information does not have to be contained in only one document because you might not know a private customer's investment objectives before you provide him with your terms of business (see COB 4.2.12 R). However, you should ensure that:

  1. (1)

    your customers are aware that any separate terms of business documents you give to them are collectively the terms of business; and

  2. (2)

    the content is still easy to understand.

SIFA 9.6.9G

We will not approve the content or layout of your terms of business. You should follow the rules and guidance in COB 4.2 (Terms of business and client agreements with customers) when designing the content. In particular, see the Table at COB 4.2.15 E.

Where is the relevant information in the Handbook?

SIFA 9.6.10G

Information is available as follows:

  1. (1)

    Our requirements for terms of business and client agreements: COB Chapter 4.2.

  2. (2)

    A list of the general requirements for the content of terms of business is given in the Table under COB 4.2.15 E. The following sections will be particularly relevant to a small personal investment firm: sections 1-7, 9-11, 13, 14, 15-17, 21-25.

Other considerations

SIFA 9.6.11G

There are the following other considerations:

  1. (1)

    There are times when you need to issue a client agreement (which the client has to sign before it comes into force) instead of a terms of business : COB 4.2.7 R.

  2. (2)

    There are occasions when you are not required to provide terms of business: COB 4.2.1 R and Table at COB 4.2.9 R.

  3. (3)

    If the terms of business provided to a customer allow you to amend the terms of business without your customer's consent you must give the customer at least 10 business days notice before conducting business on the amended terms ( COB 4.2.13 R).

  4. (4)

    There are two transitional provisions that apply to terms of business. COB Table TR1 contains the following: ETP1 located in Section 1.1. (1) of the Table; andTSP2 located in Section 3.3 of the Table.The transitional provisions are applicable to firms that were grandfathered across to the FSA from the PIA at N2. The Table can be found under COB section TP1 'COB TR 1 Transitional Rules for pre-N2 and ex-Section 43 firms'.

  5. (5)

    A firm can continue to rely on terms of business issued to an existing client under the rules of its previous regulator. If any amendments need to be made or there is a new client, the firm must issue a new terms of business that complies with COB 4.2.13 R.

Record keeping requirements

SIFA 9.6.12G

You must make a record of each terms of business you provide as soon as it comes into force ( COB 4.2.14 R).

SIFA 9.6.13G

Listed below are details of how long you must keep records of the terms of business letters to meet our requirements; each period of retention starts from when the customer ceases to be a customer of your firm (COB 4.2.4 G).

Period of retention:

When terms of business relates to:

Indefinitely

Pension transfer, pension opt-out or FSAVC.

Six years

Life policy, pension contract or stakeholder pension scheme.

Three years

In any other case.
SIFA 9.6.14G

The following sections are also relevant:

•'Client classification' - Chapter 9.5 of this Overview;

•'Know your customer' - Chapter 9.8 of this Overview;

•'Suitability' - Chapter 9.9 of this Overview; and

•PRIN 2.1 in the Handbook.