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COBS 1.1 General application

7

Designated investment business and long-term insurance business in relation to life policies

COBS 1.1.1 R RP

1This sourcebook applies to a firm with respect to the following activities carried on from an establishment maintained by it, or its appointed representative, in the United Kingdom:

  1. (1)

    [deleted]3

    3
  2. (2)

    designated investment business;

  3. (3)

    long-term insurance business in relation to life policies;

and activities connected with them.

Deposits (including structured deposits)

COBS 1.1.1A R RP

3This sourcebook applies7 to a firm with respect to activities7 carried on in relation to deposits7 from an establishment maintained by it, or its appointed representative, in the United Kingdom only as follows:7

6

7 Section / chapter

Application in relation to deposits

(1)

Rules in this sourcebook which implemented9 articles 24, 25, 26, 28 and 30 of MiFID (and related provisions of the MiFID Delegated Directive) (see COBS 1.1.1ADG)9.

A MiFID investment firm, a third country investment firm and a MiFID optional exemption firm when selling, or advising a client in relation to, a structured deposit.

(2)

COBS 4.6 (Past, simulated past and future performance)

Communication or approval of a financial promotion relating to a structured deposit that is addressed to, or disseminated in such a way that it is likely to be received by, a retail client.

(3)

COBS 4.7 (Direct offer financial promotions)

Communication or approval of a financial promotion relating to a cash deposit ISA, cash-only lifetime ISA or cash deposit CTF that is addressed to, or disseminated in such a way that it is likely to be received by, a retail client.

(4)

COBS 4.10 Approving and confirming compliance of financial promotions)12

To the extent that other rules in COBS 4 apply.

(5)

COBS 13 (Preparing product information)

Producing a cash-deposit ISA, cash-only lifetime ISA or cash-deposit CTF.

(6)

COBS 14 (Providing product information to clients)

Selling, personally recommending or arranging the sale of a cash-deposit ISA, cash-only lifetime ISA or cash-deposit CTF to a retail client.

(7)

COBS 15 (Cancellation)

A cancellable contract between a consumer and a firm.

Structured deposits: further provisions

COBS 1.1.1AA R

7Except in COBS 6.2B, in the rules referred to in COBS 1.1.1AR(1) (and in any related guidance), references to:

  1. (1)

    investment services and designated investment business include selling, or advising clients in relation to, structured deposits; and

  2. (2)

    financial instruments and designated investments include structured deposits.

COBS 1.1.1AB UK

9Article 1(2) of the MiFID Org Regulation specifies how its provisions should be read where they apply to firms selling, or advising on, structured deposits.

  1. 1(2) References to investment firms shall encompass credit institutions and references to financial instruments shall encompass structured deposits in relation to all the requirements (so far as relevant) in Chapters II to IV of this Regulation.

COBS 1.1.1AC R

7A third country investment firm and a MiFID optional exemption firm must also comply with the provisions of the MiFID Org Regulation which relate to the rules which implemented the9 articles of MiFID referred to in COBS 1.1.1AR(1)8, as modified by article 1(2) of the MiFID Org Regulation, when selling, or advising a client in relation to, a structured deposit.

COBS 1.1.1AD G

7The rules which implemented the9 provisions of MiFID and the MiFID Delegated Directive referred to in COBS 1.1.1AR(1)8 can be found in the chapters of COBS in the following table and are followed by a ‘Note:’.

7 COBS chapter

Description

COBS 2

Conduct of business obligations

COBS 3

Client categorisation

COBS 4

Communicating with clients, including financial promotions

COBS 6

Information about the firm, its services and remuneration

COBS 8A

Client agreements

COBS 9A

Suitability (MiFID provisions)

COBS 10A

Appropriateness (for non-advised services) (MiFID provisions)

COBS 11

Dealing and managing

COBS 14

Providing product information to clients

COBS 16A

Reporting information to clients (MiFID provisions)

7[Note: article 1(4) of MiFID]

Electronic money

COBS 1.1.1B R RP

4 COBS 4.4.3 R , COBS 5 (Distance communications), COBS 15.2 (The right to cancel), COBS 15.3 (Exercising a right to cancel), COBS 15.4 (Effects of cancellation) and COBS 15 Annex 1 (Exemptions from the right to cancel) apply to a firm with respect to the activity of issuing electronic money as set out in those provisions.

Application to TP firms and Gibraltar-based firms

COBS 1.1.1C R RP

10In addition to the application rules in COBS as relevant, TP firms and Gibraltar-based firms carrying on business from an establishment in the United Kingdom must also comply with the provisions in:

  1. (1)

    COBS 16.6.7AR10 (drawdown pensions: annual statements) and COBS 16.6.8R to COBS 16.6.13G (income withdrawals – annual statements);

  2. (2)

    COBS 19.1010 (Drawdown, investment pathways and cash warnings).

  3. (3)

    COBS TP 210 paragraphs 2.8G to 2.8J (Other Transitional Provisions)

COBS 1.1.1D G

10Unless the contrary intention appears, a reference to Gibraltar-based firm in COBS 1.1.1CR has the same meaning as in the Gibraltar Order.

Auction regulation bidding

COBS 1.1.1E R

11 COBS 5 (Distance communications) applies to a firm in relation to its carrying on of auction regulation bidding.

COBS 1.1.1C R RP

[deleted]9

5 7 7 7

Modifications to the general application rule

COBS 1.1.2 R RP

The application of this sourcebook7 is modified in COBS 1 Annex 1 according to the activities of a firm (Part 1) and2 its location (Part 2)2.

COBS 1.1.3 R RP

The application of this sourcebook7 is also modified in the chapters to this sourcebook for particular purposes, including those relating to the type of firm, its activities or location, and for purposes relating to connected activities.

Guidance

COBS 1.1.4 G RP

Guidance on the application provisions is in COBS 1 Annex 1 (Part 3).

COBS 1.1.5 G

9 PERG 13 contains general guidance on the persons and businesses to which the UK provisions which implemented MiFID apply.

COBS 1.1.6 G

9 PERG 16 contains general guidance on the businesses to which the UK provisions which implemented AIFMD apply. FUND 1 contains guidance on the types of AIFM.

COBS 1.2 Markets in Financial Instruments Directive

References in COBS to the MiFID Org Regulation

COBS 1.2.1 G
  1. (1)

    1This sourcebook contains a number of provisions which transposed MiFID. A rule transposed a provision of MiFID if it is followed by a ‘Note:’ indicating the article of MiFID or the MiFID Delegated Directive which it transposed2.

  2. (2)

    In order to help firms which are subject to those requirements which implemented2MiFID to understand the full extent of those requirements, this sourcebook also reproduces a number of provisions of the 2MiFID Org Regulation, marked with the status letters “UK”2.

  3. (3)

    This sourcebook does not reproduce the MiFID Org Regulation in its entirety. A firm to which provisions of the MiFID Org Regulation applies should refer to Commission Delegated Regulation (EU) 2017/565 as published in2 the electronic version of the Official Journal of the European Union and as amended by the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018.2

COBS 1.2.2 G
  1. (1)

    In some cases, this sourcebook applies provisions of the MiFID Org Regulation to firms in relation to business other than their MiFID business as if those provisions were rules.

  2. (2)

    Third country investment firms should also have regard to the rule in GEN 2.2.22AR which concerns the application of the MiFID Org Regulation to such firms.

COBS 1.2.3 R
  1. (1)

    Where this sourcebook, or the rule in GEN 2.2.22AR, applies provisions of the MiFID Org Regulation as if they were rules, (2) applies to enable firms to correctly interpret and understand the application of those provisions.

  2. (2)

    In this sourcebook, a word or phrase found in a provision marked “UK”2 and referred to in column (1) of the table below has the meaning indicated in the corresponding row of column (2) of the table.

    (1)

    (2)

    “ancillary services”

    ancillary service

    “client” and “potential client”

    client

    “competent authority”

    FCA

    “conditions specified in Article 3(2)”

    website conditions

    “derivative”

    those financial instruments referred to in paragraphs 4 to 10 of Part 1 of Schedule 2 to the Regulated Activities Order2

    “Directive 2009/65/EC”

    UCITS Directive

    “Directive 2014/65/EU”

    MiFID

    “distributing units in collective investment undertakings”

    distributing units in a UCITS

    “durable medium”

    durable medium

    “eligible counterparty”

    eligible counterparty

    “financial analyst”

    financial analyst

    “financial instrument”

    financial instrument and (if the context requires) designated investment and structured deposit

    “funds”

    client money that a firm receives or holds for, or on behalf of, a client in the course of, or in connection with, its MiFID business and (if the context requires) its equivalent business of a third country investment firm.

    “group”

    as defined in section 421 of the Act2

    “investments”

    financial instrument and (if the context requires) designated investment and structured deposit

    “investment advice”

    personal recommendation

    “investment firm” and “firm”

    firm

    “investment research”

    investment research

    “investment service” and “investment services and activities”

    investment service and investment services and/or activities or (if the context requires) designated investment business

    “market maker”

    market maker

    “periodic statement”

    periodic statement

    “PRIIPs KID”

    key information document

    “portfolio management” and “portfolio management service”

    portfolio management

    “professional client”

    professional client

    “professional client covered by Part 2 of Schedule 1 to Regulation (EU) No 600/2014”2

    per se professional client

    “professional client in accordance with Part 3 of Schedule 1 to Regulation (EU) No 600/2014”2

    elective professional client

    “Regulation (EU) No. 1286/2014”

    PRIIPs Regulation

    “relevant person”

    relevant person

    “retail client”

    retail client

    “shall”

    must

    “tied agent”

    tied agent

    “UCITS KIID”

    key investor information document

  3. (3)

    In this sourcebook, where a reproduced provision of an article of the MiFID Org Regulation refers to another part of the MiFID Org Regulation, that other provision must also be read with reference to the table in (2).

COBS 1.2.4 G

Firms to which provisions of the MiFID Org Regulation are applied as if they were rules should use the text of any preamble to the relevant provision marked “UK”2 to assist in interpreting any such references or cross-references.

Interpretation – “in good time”

COBS 1.2.5 G
  1. (1)

    Certain of the provisions in this sourcebook which implemented2MiFID require firms to provide clients with information “in good time”.

  2. (2)

    In determining what constitutes the provision of information “in good time”, a firm should take into account, having regard to the urgency of the situation, the client’s need for sufficient time to read and understand the information before taking an investment decision.

  3. (3)

    A client is likely to require more time to review information given on a complex or unfamiliar product or service, or a product or service a client has no experience with, than a client considering a simpler or more familiar product or service, or where the client has relevant prior experience.

[Note: recital 83 of MiFID]

ESMA Guidelines

[Note: ESMA has issued a number of guidelines under article 16(3) of the ESMA Regulation in relation to certain aspects of MiFID. These include:

guidelines on certain aspects of the MiFID suitability requirements which also include guidelines on conduct of business obligations

, 28 May 2018/ESMA35-43-869 (EN);2

guidelines on cross-selling practices, 11 July 2016/ESMA/2016/574 (EN)2; and

guidelines on complex debt instruments and structured deposits, 4 February 2016/ESMA/2015/1787 (EN)2].

COBS 1.3 Insurance distribution

[deleted]3

COBS 1.3.1 G

[deleted]3

COBS 1.3.2 G

[deleted]3

1
COBS 1.3.3 R

[deleted]3

COBS 1.3.4 G

[deleted]3

1 2

Interpretation – “in good time”

COBS 1.3.5 G
  1. (1)

    1Certain provisions in this sourcebook require firms to provide clients with information “in good time”,3 for example, COBS 6.1ZA.19AR.

    2
  2. (2)

    In determining what constitutes the provision of information “in good time”, a firm should take into account, having regard to the urgency of the situation, the client’s need for sufficient time to read and understand the information before taking an investment decision.

  3. (3)

    A client is likely to require more time to review information given on a complex or unfamiliar product or service, or a product or service a client has no experience with, than a client considering a simpler or more familiar product or service, or where the client has relevant prior experience.

COBS 1 Annex 1 Application (see COBS 1.1.2R)

Part 1: What?

Modifications to the general application of COBS 12 according to activities

1.

Eligible counterparty business

1.1

10

R

The COBS provisions shown below do not apply to eligible counterparty business except, where the eligible counterparty business is in scope of the IDD, those provisions which implemented16 the IDD continue to apply15.2

COBS provision

Description

COBS 2 (other than COBS 2.1.1AR, COBS 2.2A and12COBS 2.4)

Conduct of business obligations

COBS 4 (other than COBS 4.2,12COBS 4.4.1 R, COBS 4.5A.9UK and COBS 4.7.-1AUK16)

12 1

Communicating with clients including financial promotions

COBS 6.1

Information about the firm, its services and remuneration (non-MiFID and non insurance distribution15 provisions)12

12 COBS 6.1ZA.16R 13

12Information about costs and charges of different services or products (MiFID provisions)

12 COBS 6.1ZA.22R 13

12Compensation information (MiFID provisions)

COBS 8

Client agreements (non-MiFID provisions)12

12 COBS 8A (other than COBS 8A.1.5UK16 to COBS 8A.1.8G)

12Client agreements (MiFID provisions)

COBS 10

Appropriateness (for non-MiFID12 and non-insurance-based investment products15 non-advised services) (non-MiFID and non-insurance-based investment products provisions)15

12 COBS 10A

12Appropriateness (for non-advised services) (MiFID and insurance-based investment products15 provisions)

COBS 11.2A 12, COBS 11.2B and12COBS 11.3

Best execution, quality of execution and12 client order handling12

COBS 12.2.18UK 16

12

Labelling of non-independent research

COBS 14.3

Information about designated investments (non-MiFID provisions)12

COBS 16

Reporting information to clients (non-MiFID provisions)12

[Note: paragraphs 1 and 2 of article 30(1)12 of MiFID]

2.

Transactions between an MTF operator and its users

2.1

10

R

The COBS provisions (applicable to MiFID business) shown below12 do not apply to a transaction between an operator of an MTF and a member or participant in relation to the use of the MTF.

12 COBS provision

12 Description

12 COBS 2 (other than COBS 2.4)

12Conduct of business obligations

12 COBS 4 (other than COBS 4.4.1R)

12Communicating with clients, including financial promotions

12 COBS 6.1ZA

12Information about the firm and compensation information (MiFID provisions)

12 COBS 8A

12Client agreements (MiFID provisions)

12 COBS 10A

12Appropriateness (for non-advised services) (MiFID provisions)

12 COBS 11.2A , COBS 11.2B, COBS 11.3 and COBS 11.4

12Best execution, quality of execution, client order handling and client limit orders

12 COBS 14.3A

12Information about financial instruments (MiFID provisions)

12 COBS 16A

12Reporting information to clients (MiFID provisions)

[Note: article 19(4)12 of MiFID]

3.

Transactions concluded on an MTF

3.1

10

R

The COBS provisions in paragraph 2.1R12 do not apply to transactions concluded under the rules governing an MTF between members or participants of the MTF2. However, the member or participant must comply with those provisions in respect of its clients if, acting on its clients behalf, it is executing their orders on an MTF.

[Note: article 19(4)12 of MiFID]

12 3A.

12 Operators of OTFs

123A.1

12G

12A firm which operates an organised trading facility should refer to MAR 5A.3.9R which specifies how the provisions in this sourcebook apply to that activity.

4.

Transactions concluded on a regulated market

4.1

10

R

In relation to transactions concluded on a regulated market2, members and participants of the regulated market are not required to apply to each other the COBS provisions in paragraph 2.1R12. However, the member or participant must comply with those provisions in respect of its clients if, acting on its clients behalf, it is executing their orders on a regulated market.

[Note: article 53(4)12 of MiFID]

5.

Consumer credit products

5.1

10

R

If a firm, in relation to its MiFID business, offers an investment service as part of a financial product that is subject to other provisions of EU-derived16 law12 related to credit institutions and consumer credits with respect to12 information requirements, that service is not subject to the rules in this sourcebook that implemented16 articles 24(3), (4) and (5)12 of MiFID.

5 5

[Note: article 24(6)12 of MiFID]

5.2

10

G

This exclusion for consumer credit products is intended to apply on a narrow basis in relation to cases in which the investment service is a part of another financial product. It does not apply where the investment service is the essential or leading part of the financial product. It also does not apply where the service provided is a combination of an investment service and an ancillary service (for example, granting a credit for the execution of an order where the credit is instrumental to the buying or the selling of a financial instrument.) The exclusion also does not apply in relation to the sale of a financial instrument for the purpose of enabling a client to invest money to repay his obligations under a loan, mortgage or home reversion1.

12 5A.

Mortgages and mortgage bonds

125A.1

12R

12The rule in paragraph 5A.2R applies in relation to an MCD credit agreement with a consumer which is subject to the provisions concerning the creditworthiness assessment of consumers in Chapter 6 of the MCD (which were16 transposed in MCOB 11 and MCOB 11A).

125A.2

12R

12If an agreement with a consumer within paragraph 5A.1R has as a pre-requisite the provision to that same consumer of an investment service in relation to mortgage bonds satisfying the conditions in paragraph 5A.3R in order for the loan to be payable, refinanced or redeemed, that investment service is not subject to the rules in this sourcebook which implemented16 article 25 of MiFID.

125A.3

12R

12The conditions in paragraph 5A.2R are that the mortgage bonds:

12(1)

12are specifically issued to secure the financing of the MCD credit agreement in paragraph 5A.1R; and

12(2)

12have terms which are identical to the MCD credit agreement in paragraph 5A.1R.

[Note: article 25(7) of MiFID]

6. 10

2

Use of third party processors in life insurance distribution 15 activities

6.12

10

R

If a firm (or its appointed representative or, where applicable, its tied agent) outsources insurance distribution activities15 to a third party processor:

2

(1)

the firm must accept responsibility for the acts and omissions of that third party processor conducting those outsourced activities; and

2

(2)

any COBSrule requiring the third party processor's identity to be disclosed to clients must be applied as a requirement to disclose the firm's identity;

2

unless the third party processor is giving personal recommendations in relation to advising on investments (except P2P agreements)14.

7. 10

7

Modified meaning of regulated activities for UK AIFMs and UK UCITS management companies 7

7.17

10

R

In determining whether a provision in COBS applies to a UK AIFM or a UK UCITS management company, an activity carried on by the firm which would be a regulated activity but for article 72AA (Managers of UCITS and AIFs) of the Regulated Activities Order, must be treated as a regulated activity carried on by the firm.7

11 8.

PRIIPs Regulation [deleted]16

16

11

Part 2: Where?

Modifications to the general application according to location

1.

EEA territorial scope rule: compatibility with European law [deleted]16

16

10

10

2.

Business with UK clients from overseas establishments

2.1

10

R

(1)

This sourcebook applies to a firm which carries on business with a client in the United Kingdom from an establishment overseas.

(2)

But the sourcebook does not apply to those activities if the office from which the activity is carried on were a separate person and the activity:

(a)

would fall within the overseas persons exclusions in article 72 of the Regulated Activities Order; or

(b)

would not be regarded as carried on in the United Kingdom.

2.2

10

G

[deleted]16

Part 3: Guidance

1.

The main extensions, modifications and restrictions to the general application

1.1

10

G

The general application of this sourcebook12 is modified in Parts 1 and 2 2of Annex 1 and in certain chapters of the Handbook. The modification may be an extension of the general application12. For example, COBS 4 (Communicating with clients, including financial promotions) has3 extended the general12 application12.

3

1.2

10

G

[deleted]16

12 12

121.3

12G

Certain16 chapters of this sourcebook apply only to firms in relation to their MiFID, equivalent third country or optional exemption business and, in some of these chapters, specified insurance distribution activities (sometimes only in relation to insurance-based investment products)15 while others apply only to firms’ designated investment business which is not MiFID, equivalent third country or optional exemption business or, in some of these chapters, certain insurance distribution activities15.

12

121.4

12G

12 COBS 18 (Specialist regimes) contains specialist regimes which modify the application of the provisions in this sourcebook for particular types of firm and business. To the extent that they are in conflict, the rules in COBS 18 on the application of the provisions in this sourcebook should be understood as overriding any other provision (whether in COBS 1 or an individual chapter) on the application of COBS. 16

2.

The Single Market Directives and other directives [deleted]16
16 10
10 2
2
2
2
2 12
10

3.

MiFID: effect on territorial scope [deleted]16

16

10
10 12
10 12
10 12
10 12 12
12 12 12

4.

Insurance Distribution Directive 15 : effect on territorial scope [deleted]16

16

10 		15 15
15 15
15

5.

Solvency II Directive: effect on territorial scope 9 [deleted]16

9

16

10

6.

Distance Marketing Directive: effect on territorial scope [deleted]16

16

10 		1

7.

Electronic Commerce Directive: effect on territorial scope [deleted]16

16

10

8.

Investor Compensation Directive [deleted]16

16

10 		3 3

9.

UCITS Directive: effect on territorial scope [deleted]16

16

10

7 10.

10

AIFMD: effect on territorial scope [deleted]16

16

7

17 11.

SRD: effect on territorial scope [deleted] 18