10.4 Limitations to Authority, Cancellation Rights and Vulnerable Clients
Key Takeaways
Advice must stay within the firm’s permission, the adviser’s competence and the agreed client service; a recommendation must be suitable for the relevant customer.
MCOB 4.7A.23AR requires an explanation if a recommended regulated mortgage is costlier than another appropriate contract in the firm’s own product range; it does not require comparison with every other firm.
COBS 5 covers distance communications, COBS 14 product information and COBS 15 cancellation. COBS 15 gives 30 days for listed life/pension contracts and 14 days for specified other contracts, subject to scope, start-date and exceptions.
FG21/1 identifies health, life events, resilience and capability as four drivers of vulnerability; support and Equality Act reasonable adjustments depend on the customer’s circumstances.
Principle 12 is in PRIN 2.1, with detailed Consumer Duty rules in PRIN 2A; where it applies, firms must deliver good outcomes and assess support for customers in vulnerable circumstances.
10.4 Authority, Cancellation Rights and Vulnerable Customers
Limits of the advice service
An adviser must work within the firm's regulatory permission, the agreed service and the adviser's competence. A mortgage review does not authorise pension advice. The client should know whether the firm offers an independent or restricted service, the products and providers considered, and whether it is giving a personal recommendation. Client instructions must be followed within the lawful, suitable service; instructions do not authorise a firm to act outside its permission or applicable rules.
For regulated mortgage advice, MCOB 4.7A requires the firm to take reasonable steps to ensure its recommendation is appropriate to the customer's needs and circumstances. If the firm's product range contains more than one appropriate regulated mortgage and it recommends one that is not the cheapest appropriate contract in that range, MCOB 4.7A.23AR requires an explanation of why it recommends it over each cheaper appropriate contract in the firm's range. This is a defined mortgage-cost comparison, not a generic COBS “reasons-why-not” rule requiring every adviser to justify every product at every other firm. The scope of the firm's service and a customer's objectives still matter when evaluating any recommendation.
Product information and cancellation
The COBS chapters address different steps:
| Chapter | Main subject |
|---|---|
| COBS 5 | Distance communications for relevant financial services. |
| COBS 14 | Providing required product information to clients, where the chapter applies. |
| COBS 15 | Rights to cancel specified contracts and how those rights are exercised. |
Under COBS 15.2.1R, listed life and pension contracts, including a contract to join a personal pension scheme, generally have a 30-calendar-day cancellation period. A 14-calendar-day period applies to specified other contracts, including a cash deposit ISA and qualifying non-life/pension investment or distance contracts. A lifetime ISA opened or transferred following advice in a non-distance transaction is a listed 30-day case. Not every retail investment, online transaction or retail client has an automatic cancellation right: the contract must fall within the rule and an Annex 1 exception may apply. If more than one COBS cancellation right applies, the firm should use the longest applicable period.
Under COBS 15.2.3R, the period generally starts when the contract is concluded; for a life policy it starts when the consumer is told the contract is concluded. If the required contractual terms and pre-contract information arrive later, the period starts then. The firm must disclose an applicable right and follow the COBS 15 procedure for a cancellation, including any permitted adjustment to the amount returned. A phone or online contract does not remove a listed pension cancellation right.
Vulnerability and reasonable adjustments
FCA FG21/1 describes four drivers of vulnerability: health, life events, resilience and capability. A customer may have one or more drivers, and vulnerability may be temporary, fluctuating or long term. Firms should understand needs in their target market, equip staff to respond, adapt communications and service, and monitor outcomes for customers in vulnerable circumstances. For example, bereavement may require more time and a different contact method; limited digital capability may require a usable non-digital route.
The Equality Act 2010 separately requires service providers to make reasonable adjustments for disabled customers where the statutory conditions are met. Accessible formats, alternative channels or extra time may be appropriate. A customer should receive the same quality of suitable advice, with the process adjusted to make the service usable.
Principle 12 is in PRIN 2.1, with detailed Consumer Duty rules in PRIN 2A. It requires firms to act to deliver good outcomes for retail customers within its scope, supported by cross-cutting obligations to act in good faith, avoid foreseeable harm and enable customers to pursue their financial objectives. PRIN 2A includes outcomes for products and services, price and value, consumer understanding and consumer support. Firms should consider whether their support gives customers in vulnerable circumstances outcomes as good as those of other customers. Under PRIN 3.2.10R, Principles 6 and 7 do not separately apply to an activity to the extent the Duty applies.
Primary sources: MCOB 4.7A, COBS 5, COBS 14, COBS 15, FG21/1, PRIN 2.1, and PRIN 3.2.
A mortgage firm has two regulated mortgages in its product range that are appropriate for a customer. It recommends the more expensive one. What must it explain under MCOB 4.7A.23AR?
Why it is costlier than every comparable mortgage offered across the whole market
Why the term and repayment method are suitable, without addressing the lower-cost option
Why a generic product disclosure gives enough explanation of the cost difference
Why it recommends this contract rather than the cheaper appropriate contract in its own range
A consumer joins a personal pension scheme through a distance contract. Assuming no applicable exception, what is the COBS 15.2.1R cancellation period?
7 calendar days
14 calendar days
30 calendar days
No cancellation right because the contract was concluded at a distance
Which of the following lists all four drivers of vulnerability identified in FCA FG21/1?
Age, gender, income and education
Health, life events, resilience and capability
Wealth, occupation, family size and geography
Knowledge, experience, frequency and portfolio size
Sections you finish are checked off in the contents.