DISC 6.4 One-off and ongoing costs

1. (1) One-off costs are costs or charges that meet the criteria in either (2) or (3) and:
   1. (a) are deducted from a payment due to the retail investor;
   2. (b) are deducted from the value of or invested amount in the retail investor's consumer composite investment;
   3. (c) in relation to funds, are borne by the retail investor and not deducted from the assets of the fund; or
   4. (d) are paid directly by the retail investor.
2. (2) A one-off cost in (1) is a one-off entry cost if it is incurred or paid upfront or upon or shortly after the retail investor purchasing or otherwise entering the investment in the consumer composite investment.
3. (3) A one-off cost in (1) is a one-off exit cost if it is incurred or paid upon or shortly after the retail investor selling or otherwise disposing of the investment in the consumer composite investment.

For the avoidance of doubt, the following are one-off entry costs: 

1. (1) in relation to consumer composite investments other than an investment in a fund or an insurance-based investment product:
   1. (a) structuring costs, including market-making costs and settlement costs;
   2. (b) costs for capital guarantees;
   3. (c) implicit premiums paid to the issuer; and
   4. (d) stamp duty or similar tax.
2. (2) in relation to insurance-based investment products, the full or cost part of any biometric risk premium (see DISC 6.4.6R).

For the avoidance of doubt, in relation to a consumer composite investment other than an investment in a fund and an insurance-based investment product, the following are one-off exit costs:

1. (1) proportional fees;
2. (2) bid-mid spread to sell the product and any explicit costs, charges or other penalties for early exit; 
3. (3) costs or charges relating to a contract for differences, such as:
   1. (a) commissions charged by contract for differences providers; or
   2. (b) contract for differences trading such as bid-ask spreads, daily and overnight financing costs, account management fees and taxes;
4. (4) for derivative-based consumer composite investments, exchange fees, clearing fees and settlement fees; and
5. (5) where relevant, exit penalties depending on the holding period of the consumer composite investment and the exact moment when the consumer composite investment is cashed in.

1. (1) Ongoing costs are direct or indirect costs or charges that are regularly deducted from:
   1. (a) for a consumer composite investment other than an investment in a fund or an insurance-based investment product, payments due to the retail investor, the amount invested or the value of the consumer composite investment;
   2. (b) for a consumer composite investment that is an investment in a fund, the assets of the fund, or any amount payable to the retail investor under distribution or equivalent arrangements; and
   3. (c) for insurance-based investment products, all payments from or owed to the retail investor, or from the amount invested, or amounts that are not allocated to the retail investor according to a profit-sharing mechanism.
2. (2) Subject to (3), ongoing costs include in particular:
   1. (a) expenses incurred in the operation of the consumer composite investment; and
   2. (b) any payments, including remunerations, to any party connected with the consumer composite investment or providing services in relation to it.
3. (3) The following are not ongoing costs and need not be disclosed as part of the costs and charges information:
   1. (a) costs incurred in the maintenance and commercial operation of real assets – that is, tangible assets such as infrastructure, transport and real estate, with inherent value reflecting their physical utility; or
   2. (b) debt servicing or gearing costs.

For the avoidance of doubt, the following are ongoing costs for the purposes of DISC 6.4.4R:

1. (1) in relation to funds:
   1. (a) where a fund invests its assets in one or more other funds, any costs and charges for each of the investee funds which the fund will incur itself as an investor in the investee funds; or
   2. (b) where a fund invests in a consumer composite investment other than another fund, or in any other investment product, any costs and charges which the fund will incur itself as an investor in such other consumer composite investment.
2. (2) in relation to insurance-based investment products:
   1. (a) the full or cost part of any biometric risk premium;
   2. (b) any amount implicitly charged on the amount invested, including the costs incurred for the management of the investments of the insurance company; and
   3. (c) where any part of the assets of the insurance-based investment product are invested in a fund, in a consumer composite investment other than a fund or in an investment product other than a consumer composite investment, DISC 6.4.5R(1)(a) or (b), respectively, must be applied.

1. (1) For the purposes of DISC 6.4.5R, the cost part of a biometric risk premium is the difference between the biometric risk premium charged to the retail investor and the fair value of the biometric risk premiums.
2. (2) A biometric risk premium is a premium paid directly by the retail investor or deducted from the amounts credited to the mathematical reserve or from the participation bonus of the insurance policy and which is intended to cover the statistical risk of benefit payments from insurance coverage.
3. (3) The fair value of the biometric risk premium is the expected present value, assuming a standardised net performance equivalent to the rate of SONIA (or any other equivalent risk-free rate) over the relevant period, of the future benefit payment from insurance coverage, taking into account the following:
   1. (a) best estimate assumptions on these benefit payments derived from the individual risk profile of the portfolio of the individual manufacturer; and
   2. (b) other payoffs related to insurance cover (for example, rebates on biometric risk premiums paid back to the retail investors, increase of benefit payments and/or reduction of future premiums) resulting from profit sharing mechanisms.
4. (4) Best estimate assumptions on future benefit payments from insurance coverage for the purposes of (3)(a) must:
   1. (a) be set in a reasonable manner by a manufacturer;
   2. (b) for a manufacturer which is a Solvency II firm, be consistent with the assumptions used for the calculation of technical provisions; and

   3. (c) not include prudency margins or costs for the management of the insurance cover.