FSA introduces new rules on "cooling-off" - Rule releases 180/181/182

United Kingdom
In September 1997, the (then) SIB issued Consultative Paper 111 which sought views on proposals to simplify the rules relating to "cooling-off" (see FS Brief 29 page 10). The intention was to allow firms to get across the "cooling-off" message in a number of different ways, and give them more flexibility as to the way in which investors could be repaid if they choose to cancel.

The proposed rules have now been adopted, introducing a much less prescriptive regime and largely allowing firms to decide whether to continue with their current arrangements or to take advantage of the new flexibility. However, in relation to the extension of cooling-off rights to OEICs, new mandatory requirements have been introduced.

Content of notification

Firms now have a discretion over the words used to convey the "cooling-off" right. As a minimum, the firm must explain:

  • That there is a right to cancel.

  • The duration of that right.

  • The steps the investor must take.

  • The consequences of cancellation.

  • Any costs which the investor will have to bear if the investment suffers a market loss ("shortfall").

In addition, these rules are subject to general principles of:

  • Clarity.

  • Prominence.

  • Timeliness.

  • Comprehensives.