COB 3 Annex 5 Permitted promotion of unregulated collective investment schemes and qualified investor schemes. (R)

1

This annex forms part of COB 3.11.2 R and COB 3.11.6 R.

2

Where the left-hand column in the table refers to promotion to a category of person, this means that the invitation or inducement:

(a)

is made only to recipients who the firm has taken reasonable steps to establish are persons in that category; or

(b)

is directed at recipients in a way that may reasonably be regarded as designed to reduce, so far as possible, the risk of participation in the collective investment scheme by persons who are not in that category;

and see COB 3.5.6 R and COB 3.5.7 R, which amplify this paragraph.

3

A firm may rely on more than one exemption in relation to the same invitation or inducement.

Category 1 person

(1) aperson who is already a participant in an unregulated collective investment schemeor aqualified investor scheme; or

(2) a person who has been, in the last 30 months, a participant in an unregulated collective investment scheme or a qualified investor scheme

A. that collective investment scheme; or

B. any other collective investment scheme whose underlying property and risk profile are both 'substantially similar' (see Note 1) to those of that collective investment scheme; or

C. a collective investment scheme which is intended to absorb or take over the assets of that collective investment scheme; or

D. a collective investment scheme, units in which are being offered by its operator as an alternative to cash on the liquidation of that collective investment scheme

Category 2 person

(1) a person

(a) for whom the firm has taken reasonable steps to ensure that investment in the collective investment scheme is suitable; and

(b) who is an 'established' or 'newly accepted'customer of the firm or of a person in the samegroup as thefirm (see Notes 2 & 3).

Any collective investment scheme

Category 3 person:

a person who iseligible to participate in a scheme constituted under:

(1) the Church Funds Investment Measure 1958;

(2) section 24 of the Charities Act 1993; or

(3) section 25 of the Charities Act (Northern Ireland) 1964.

Any such collective investment scheme

Category 4 person:

An eligible employee, that is, aperson who is:

(1) an officer,

(2) an employee,

(3) a former officer or employee, or

1. A collective investment scheme the instrument constituting which:A. restricts the property of thescheme, apart from cash and near cash, to

(1) (where the employer is a company) shares in and debentures of company or any other connected company (see Note 4)

(4) a member of the immediate family of any of (1)-(3) of an employer which is (or is in the same group as) the firm, or which has accepted responsibility for the activities of thefirm in carrying out the designated investment business in question

(2) (in any case), any property, provided that the scheme takes the form of:

(i) a limitedpartnership, under the terms of which the employer (or connected company) will be the unlimited partner and the eligible employees will be some or all of the limited partners; or

(ii) a trust which the firm reasonably believes not to contain any risk that any eligible employee may be liable to make any further payments (other than charges) for investment transactions earlier entered into, which the eligible employee was not aware of at the time he entered into them; andB. (in a case falling within A(1) above) restricts participation in the scheme to eligible employees, the employer and any connected company.2. Any collective investment scheme provided that the participation of eligible employees is to facilitate their co-investment: (i) with one or morecompanies in the samegroup as their employer (which may include the employer) and/or(ii) with one or more clients of such acompany

Category 5 person

A person admitted to membership of theSociety of Lloyd's or any person by law entitled or bound to administer his affairs

A scheme in the form of a limitedpartnership which is established for the sole purpose of underwriting insurance business at Lloyd's

Category 6 person An exempt person (other than a person exempted only by section 39 of the Act (Exemption of appointed representatives)) if the financial promotion relates to a regulated activity in respect of which the person is exempt from the general prohibition

Any collective investment scheme

Category 7 person A market counterparty or an intermediate customer.

Any collective investment scheme

Note 1.

The property of a collective investment scheme is 'substantially similar' to that of another collective investment scheme if in both cases the objective is to invest in the same one of the following sectors:

(a)

on-exchange derivatives or warrants;

(b)

on-exchange (or quoted) securities;

(c)

the property market (whether in security of property companies or in property itself);

(d)

collectable items of a particular description (such as works of art, antique vehicles, etc);

(e)

artistic productions (such as films, television, opera, theatre or music);

(f)

unlisted investments (including unlisted debt securities).

The risk profile of a scheme will be substantially similar to that of another scheme only if there is such similarity in relation to both liquidity and volatility.

Note 2.

A person is an 'established customer' of another person if he has been and remains an actual customer of that person in relation to designated investment business done with or through that other person.

Note 3.

A person is a 'newly accepted'customer of a firm if:

a written agreement relating to designated investment business exists between the customer and the firm (or, if the customer is normally resident outside the United Kingdom, an oral or written agreement); and

that agreement has been obtained without any contravention of section 238 or 240 of the Act, or of any rule in COB applying to the firm or (as far as the firm is reasonably aware) any other authorised person.

Note 4.

A company is 'connected' with another company if:

(a)

they are in the same group; or

(b)

one company is entitled either alone or with another company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to the share capital, which are exercisable in all circumstances at any general meeting of the other company or of its holding company.

Note 5.

The controlled activities specified in Note 1 carried out in relation to either:

(1)

life policies (paragraph 13); or

(2)

stakeholder pension schemes (paragraph 20).

In both cases, only where relating to a group personal pension scheme or stakeholder pension scheme that the employer is promoting to his employees.

Note 6.

The controlled activities specified in Note 1 carried out in relation to either:

(1)

life policies (paragraph 13); or

(2)

qualifying credit (paragraph 26); or

(3)

shares (paragraph 14); or

(4)

debentures (paragraph 15); or

(5)

government and public securities (paragraph 16; or)

(6)

units (paragraph 19) in a collective investment scheme; or

(7)

any combination of (1) to (6).

In the case of (3), (4), (5) and (6), only where held under a Child Trust Fund (CTF).3