# = pounds sterlingHM Treasury
218/98 22 December 1998
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INDIVIDUAL SAVINGS ACCOUNT:
CAT STANDARDS
An expanded version of the voluntary CAT standards for
individual savings accounts (ISAs) was published today by the
Treasury.
This revised definition was issued following queries from a
number of firms seeking clarification of some points in the
standards. In order to make sure that all firms considering
providing ISAs have the same information at their disposal in
designing CAT standard ISAs, the Treasury has now published an
expanded text.
The new text answers queries raised by firms. There are no
significant changes to the substance of the definition.
On 1 October, Patricia Hewitt MP, Economic Secretary to the
Treasury, announced voluntary standards for individual savings
accounts (ISAs). These are designed to help inexperienced
savers recognise products which they will find easy to
understand, and which should give them a fair deal.
NOTES TO EDITORS
1. The CAT standards define ISAs which entail:
reasonable charges
easy access
fair terms.
Hence the acronym CAT.
2. There is a CAT standard for each kind of ISA:
cash
insurance
stocks and shares.
3. The CAT standards are voluntary. ISAs which meet the
standards will be identified as such in the marketing
literature regulated by the Financial Services Authority.
4. If you have access to the Internet, you can find this
news release and other Treasury information at
http://www.hm-treasury.gov.uk CAT standards
for individual savings accounts
Individual savings accounts (ISAs) offer certain tax reliefs to
people saving up to given limits in a given tax year in certain
financial vehicles. Details are set out in Inland Revenue
regulations.
2. This document defines voluntary standards for Charges,
Access and Terms for certain kinds of ISA. ISAs which meet
these may be described in marketing and other promotional
literature as CAT standard. The term CATmark should be avoided
as it may mislead savers by implying that there is an associated
logo.
Status of the CAT standards
3. This document defines minimum standards. ISAs which
better the standards are also CAT standard. For example, an ISA
which pays a bonus in certain circumstances (such as a minimum
number of transactions) will be CAT standard provided that the
CAT standard terms can be available through that ISA in other
circumstances.
4. The standards are additional to the requirements in Inland
Revenue regulations and the regulatory requirements about
marketing. For example, all insurance ISAs must be single
premium products. Similarly, there is only one set of annual
limits for savings through ISAs: there is no separate limit for
CAT standard ISAs.
5. The CAT standards are designed to identify a range of
straightforward savings products which are simple, clear and fair
so that savers should feel confident about choosing them. These
products will not however be suitable for all savers. Nor is
their performance guaranteed. Accordingly, literature about CAT
standard ISAs should not imply in any way:
that they are always suitable for savers; nor
that their performance is guaranteed; nor
that CAT standard ISAs are in some way Government
approved.
Mini and maxi ISAs
6. Any ISA can achieve the CAT standard, whether it is a mini
ISA or a component within a maxi ISA:
a mini ISA meets the CAT standard if its features
meet or better the specification for the relevant
component set out below;
a maxi ISA meets the CAT standard if each of its
components meets or betters the relevant CAT standard
in its own right;
a component of a maxi ISA meets the CAT standard if
its features meet or better the specification for the
relevant component, taking account of the effect, if
any, of any features (such as charges)of the ISA
wrapper itself. Where appropriate, the effect of the
wrapper should be apportioned among the components of
the ISA in proportion to the value of the savings held
in each.
7. An ISA manager may sell maxi ISAs which contain both
component(s) which are CAT standard and component(s) which are
not. A maxi ISA which contains such a mixture of components is
not itself CAT standard.
8. A mini ISA, or a component of a maxi ISA, may contain more
than one financial product. For these ISAs, the combined effect
of the products should be measured against the appropriate
standard to determine whether the ISA is CAT standard.
9. A product designed to be held in an ISA may also be CAT
standard in its own right. In this case the relevant CAT
standard must be met (or bettered) when the minimum subscription
specified in the standard is held in the ISA wrapper. This will
allow some providers to give savers the choice of holding a mix
of CAT standard and other products in a single ISA.
Common features
10. Providers of ISAs are responsible for establishing
whether their ISAs meet the CAT standards. Neither the Treasury
nor the regulators will test ISAs before launch. There will be
no formal certification of CAT standard ISAs. The financial
services regulators will take account of any false claims that
ISAs meet the CAT standards in supervising the ISA providers and
managers.
11. Providers of CAT standard ISAs must be committed to
treating customers saving through these products fairly. This
includes use of plain English, together with generally avoiding
complex or misleading features in product design. So far as
possible CAT standard ISAs should be simple, clear and fair.
11. CAT standard ISAs must be available for sale on their
own. Customers should not be obliged to buy some other product
with a CAT standard ISA.
12. Providers of CAT standard ISAs must be committed to
continuing to provide the product to existing customers. After
giving at least a month's notice, they may stop taking new
subscriptions from existing customers. Providers may also stop
offering a CAT standard ISA to new customers.
Changes
13. Despite initial commitment to continue to provide a CAT
standard ISA for existing customers, it may occasionally happen
that a provider decides that this is no longer possible. In
these unusual circumstances, the provider should where possible
give existing customers at least 3 months' notice. Such
providers should also try to arrange for easy transfer of
existing holdings in CAT standard ISAs to other ISAs offering
equivalent or better terms. Where possible, transfers in these
circumstances should entail no charges to be paid by existing
savers.
14. Similar notice should apply to product mergers or
reconstructions involving CAT standard ISAs, eg where a manager
proposes to bring two investment funds together into a single
fund.
15. Only in special cases should these standards of notice
be disregarded. This might happen, for instance, if the
regulator uses its powers of intervention; in insolvency; or in
extreme market conditions. If an ISA provider cannot give 3
months' notice of stopping offering a CAT standard product, it
should immediately notify its customers, with an explanation,
including whether the change is expected to be permanent or
temporary.
16. In future the Treasury may adjust the CAT standards.
Where possible, the Treasury will consult about any changes which
are being considered. Any statement adjusting the standards will
specify what, if anything, the change it brings about will mean
for existing ISAs which have been sold as CAT standard. In
general, the goal will be that savers in existing CAT standard
ISAs should not be worse off unless there is some unavoidable
external change such as in taxation.
Cash ISAs
17. The minimum standard for cash ISAs is set out in the
table below.
18. The interest rate quoted is the annual rate, accrued
daily by simple interest. So 1/365th of the annual rate is added
each day, and interest of n/365 of the annual rate should be
credited to holdings of n days (where n is less than 365).
19. There are no requirements about whether CAT standard cash
ISA accounts should have particular features, eg cheque books or
ATM cards. All kinds of accounts are eligible, providers using
high street outlets as well as those operating postal and
telephone operated accounts.
20. Only accounts with credit institutions opened in the name
of the saver are eligible for the CAT standard for cash ISAs.
For example, there is no CAT standard for cash unit trusts.
CAT standard for cash ISA
Charge
s
No one-off or regular charges of any kind, eg no
charge for withdrawals or for any regular service
(such as use of ATMs), except that charges for
replacements (eg duplicate statements, lost cards)
are permitted.
Access
Minimum transaction size no greater than œ10.
Withdrawals within 7 working days or less.
Terms
Interest rate no lower than 2 percentage points
below base rate.
Upward interest rate changes to reflect base rate
movements within a calendar month. Downward changes
may be slower.
No other conditions, eg no limits on frequency of
withdrawals.
Insurance ISA
21. The minimum standard for insurance policies eligible for
inclusion in CAT standard ISAs is set out below.
CAT standard for insurance ISA
Charge
s
Annual charge no more than 3% of the value of the
fund.
No other charges (eg no separate charge for the
guarantee on surrender values).
Access
Minimum premium no greater than œ250 lump sum a
year, or œ25 a month.
Terms
Surrender values should reflect, over time, the
value of the underlying assets of the fund.
No specific surrender penalties.
After 3 years, and thereafter, surrender values
should at least return the premium.
22. The charge quoted is the maximum annual charge, accrued
daily.
23. The annual charge covers all the costs of running the
ISA. There are to be no additional charges paid by the saver.
The cost of transactions in the assets of the fund underlying
the insurance ISA (ie dealing costs including stamp duty) should
be taken into account in setting the value of the fund.
24. A CAT standard insurance ISA may hold one or more
insurance policies. If the ISA wrapper itself entails any
additional features (eg additional charges), these should be
taken into account in measuring the ISA against the CAT standard.
25. Any kind of insurance policy which qualifies under the
ISA regulations is eligible for the CAT standards, provided it
meets the criteria in the table. The value of the fund is to be
determined, where appropriate, by the appointed actuary.
26.
With profits policies can qualify for the CAT standard
provided:
charging arrangements ensure that there are no double
charges, eg bonuses declared gross before the single
charge (within the limit) is applied;
there are no explicit surrender penalties (this does
not rule out lower allocation of bonuses in the early
years).
27. A CAT standard insurance ISA may permit lump sum savings,
or regular savings, or intermittent savings, or any combination
of these, provided that the other requirements of the standard
set out in the table are met.
28. Where a series of insurance ISA policies is sold, the
surrender value underpin applies to each policy separately.
29. Where a sequence of premium payments is made into a
single insurance ISA, the surrender value requirement applies to
each premium separately. For example, if there are monthly
premium payments, the surrender value after 3 years must be no
less than the first premium (plus the surrender value without
underpin for the other 35 premiums paid); the surrender value
after 3 years and a month must be no less than the first 2
monthly premiums (plus the surrender value without underpin for
the other 35 premiums paid); and so on.
30. Where a policy has received several premium payments and
is partially surrendered, the surrender value guarantee applies
to the first set of premium(s) paid, ie first in first out. For
example, if a saver has paid regular annual premiums for four
years, and on the fifth anniversary of the first payment decides
to surrender half the policy, the part surrendered should be the
first two payments, to both of which the surrender value underpin
applies.
Stocks and shares ISA
31. Pooled funds eligible for inclusion in CAT standard
stocks and shares ISAs are defined in the table below.
CAT standard for stocks and shares ISA
Charge
s
Total charge no more than 1% of net asset value per
year.
No other charges to be paid by the saver.
Access
Minimum saving no more than œ500 lump sum a year or
œ50 a month.
Terms
Authorised unit trust, oeic or investment trust as
defined below.
Fund at least 50% invested in shares and securities
(satisfying the requirements in the tax regulations)
which are listed on EU stock exchanges.
Units and shares to be single priced as in FSA
regulations for authorised funds.
Investment risk highlighted in literature.
32. Charges are annual rates, accrued daily in accordance
with FSA rules.
33. A stocks and shares ISA may offer facilities for lump sum
savings, or for regular savings, or for intermittent savings, or
for any combination of these, provided that the other
requirements in the standard are met.
34. A CAT standard stocks and shares ISA may hold units or
shares in one or more funds which meet the requirements in the
table above. If the ISA wrapper itself entails any additional
features (eg additional charges), these should be taken into
account in measuring the ISA against the CAT standard.
35. A CAT standard stocks and shares ISA may hold units in
eligible unit trusts and/or shares in eligible oeics and/or
eligible investment trusts (as defined in Inland Revenue
regulations, ie including those foreign funds which may be
marketed in the UK). If the ISA wrapper itself entails any
additional features (eg additional charges), these should be
taken into account in measuring the ISA against the CAT standard.
36. The method of single pricing to be used is as permitted
in FSA's regulations for authorised collective investment
schemes. The unit or share price reflects the value of the
underlying fund, which bears dealing costs and stamp duty on
transactions in the fund assets. These dealing costs are not to
be scored against the annual charge limit.
37. The total annual charge specified is the limit on all
charges borne by the saver. Where dilution levy or stamp duty
on dealings in units or shares is charged, the annual charge must
cover these additional cost(s). The saver must pay nothing
extra.
38. CAT standard funds authorised in 1999 or later must make
only a single annual charge; there must be no other charges on
the fund. Funds authorised before 1999 may meet the CAT standard
provided that the total of all expenses charged to the fund is
within the limit in the table.
39. For investment trust companies, the following conditions
apply:
investments must be spread and limited in the same way
as the FSA rules for authorised unit trusts and oeics;
gearing must not exceed 10% of the fund's net asset
value;
no split share classes;
single pricing as in FSA's rules for collective
investment schemes
stamp duty charged on purchase of shares is to be met
out of the annual charge.
The regulator will treat investment trust ISAs as packaged
products.
40. Both actively and passively managed funds are eligible
provided the conditions in the table above are met.
41. Gilt and bond funds are eligible, provided that all the
other criteria are met. In the case of bond funds, this may rule
out funds invested in shorter dated assets.
Financial Services
H M Treasury
December 1998