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COBS 14.3 Information about designated investments (non-MiFID provisions)

Application

COBS 14.3.1 R RP

This section applies to a firm in relation to:

  1. (1)

    [deleted]8

  2. (2)

    any of8 the following regulated activities when carried on for a retail client:

    1. (a)

      making a personal recommendation about a designated investment6;5 or

    2. (b)

      managing investments that are designated investments (other than a P2P agreement);5 or

    3. (c)

      arranging (bringing about) or executing a deal in a warrant, non-readily realisable security4speculative illiquid security,12 or derivative; or

    4. (d)

      engaging in stock lending activity; or4

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    5. (e)

      operating an electronic system in relation to lending, but only in relation to facilitating a person becoming a lender under a P2P agreement.4

    8except to the extent that the carrying on of such a regulated activity constitutes MiFID, equivalent third country or optional exemption business.

  3. (3)

    12Where a rule in this chapter applies to a firm which is arranging (bringing about) or executing a deal in a speculative illiquid security, the rule also applies to:

    1. (a)

      a TP firm (to the extent that the rule does not already apply to such a TP firm as a result of GEN 2.2.26R); and

    2. (b)

      a Gibraltar-based firm (having the same meaning as in the Gibraltar Order) to the extent that the rule does not already apply to such a Gibraltar-based firm as a result of GEN 2.3.1R).

COBS 14.3.1A G

8A firm carrying on MiFID, equivalent third country or optional exemption business should consider whether the requirements in articles 46 and 48 of the MiFID Org Regulation apply; see COBS 14.3A (Information about financial instruments (MiFID provisions)).

Providing a description of the nature and risks of designated investments

COBS 14.3.2 R RP

A firm must provide a client with a general description of the nature and risks of designated investments, taking into account, in particular, the client's categorisation as a retail client or a professional client. That description must:

  1. (1)

    explain the nature of the specific type of designated investment concerned, as well as the risks particular to that specific type of designated investment, in sufficient detail to enable the client to take investment decisions on an informed basis; and

  2. (2)

    include, where relevant to the specific type of designated investment concerned and the status and level of knowledge of the client, the following elements:

    1. (a)

      the risks associated with that type of designated investment including an explanation of leverage and its effects and the risk of losing the entire investment;

    2. (b)

      the volatility of the price of designated investments and any limitations on the available market for such investments;

    3. (c)

      the fact that an investor might assume, as a result of transactions in such designated investments, financial commitments and other additional obligations, including contingent liabilities, additional to the cost of acquiring the designated investments; and

    4. (d)

      any margin requirements or similar obligations, applicable to designated investments of that type.

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COBS 14.3.3 R RP

If a firm provides a retail client with information about a designated investment that is the subject of a current offer to the public and a prospectus has been published in connection with that offer in accordance with the Prospectus Regulation, that firm must inform the retail client where that prospectus is made available to the public.11

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COBS 14.3.4 R RP

Where the risks associated with a designated investment composed of two or more different designated investments or services are likely to be greater than the risks associated with any of the components, a firm must provide an adequate description of the components of that designated investment and the way in which its interaction increases the risks.

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COBS 14.3.5 R RP

In the case of a designated investment that incorporates a guarantee by a third party, the information about the guarantee must include sufficient detail about the guarantor and the guarantee to enable the retail client to make a fair assessment of the guarantee.

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Satisfying the provision rules

COBS 14.3.6 G RP

[deleted]8

COBS 14.3.7 G RP

Firms advising on P2P agreements

COBS 14.3.7A G RP

4Examples of information a firm advising on P2P agreements or P2P portfolios10 should provide to explain the specific nature and risks of a P2P agreement or a P2P portfolio10 include:

  1. (1)

    expected and actual default rates in line with the requirements in COBS 4.6 on past and future performance;

  2. (2)

    a summary of the assumptions used in determining expected future default rates;

  3. (3)

    a description of how loan risk is assessed, including a description of the criteria that must be met by the borrower before the operator of the electronic system in relation to lending6 considers the borrower eligible for a P2P agreement;

  4. (4)

    where lenders have the choice to invest in specific P2P agreements, details of the creditworthiness assessment of the borrower carried out;

  5. (5)

    whether the P2P agreement benefits from any security and if so, what;

  6. (6)

    a fair description of the likely actual return, taking into account fees, default rates and taxation;

  7. (7)

    an explanation of how any tax liability for lenders arising from investment in P2P agreements would be calculated;

  8. (8)

    an explanation of the operator of the electronic system in relation to lending's6 procedure for dealing with a loan in late payment or default;

  9. (9)

    the procedure for a lender to access their money before the term of the P2P agreement has expired; and6

  10. (10)

    an explanation of what would happen if the operator of the electronic system in relation to lending6 fails, including confirmation that there is no recourse to the Financial Services Compensation Scheme.

COBS 14.3.7B G RP

10When complying with the information requirements set out in this chapter and other parts of the FCA Handbook, firms advising on a P2P agreement or a P2P portfolio may also wish to consider providing to retail clients any other information that an operator of an electronic system in relation to lending must disclose in accordance with COBS 18.12.

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COBS 14.3.7C G RP

6 Firms providing information to clients, and communicating information, about an innovative finance ISA should also have regard to the guidance in COBS 4.5.9G.

Product information: form

COBS 14.3.8 R RP

The documents and information provided in accordance with the rules in this section must be in a durable medium or available on a website (where that does not constitute a durable medium) that meets2 the website conditions.

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The timing rules

COBS 14.3.9 R RP

  1. (1)

    The information to be provided in accordance with the rules in this section must be provided in good time before a firm carries on designated investment business8 with or for a retail client.

  2. (2)

    A firm may provide that information immediately after it begins to carry on that business if:

    1. (a)

      the firm was unable to comply with (1) because, at the request of the client, the agreement was concluded using a means of distance communication which prevented the firm from complying with that rule; and

    2. (b)

      in any case where the rule on voice telephony communications (COBS 5.1.12 R) does not otherwise apply, the firm complies with that rule as if the client was a consumer.

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Keeping the client up-to-date

COBS 14.3.10 R RP

A firm must notify a client in good time about any material change to the information provided under the rules in this section which is relevant to a service that the firm is providing to that client. That notification must be given in a durable medium if the information to which it relates is given in a durable medium.

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Information about UCITS schemes

COBS 14.3.11 R RP

If a firm provides a client with a key investor information document or EEA key investor information document3 that meets all of9 the requirements applying in relation to that document9, it will have provided appropriate information for the purpose of the requirement to disclose information on:

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  1. (1)

    designated investments and investment strategies (COBS 2.2.1R (1)(b)); and

  2. (2)

    costs and associated charges (COBS 2.2.1R (1)(d) and COBS 6.1.9 R1;

in relation to the costs and associated charges in respect of the UCITS scheme itself, including the exit and entry commissions.

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Information about KII-compliant NURS

COBS 14.3.11A R

7If a firm provides a client with a NURS-KII document it will have provided appropriate information for the requirement to disclose information on:

  1. (1)

    designated investments and investment strategies (COBS 2.2.1R(1)(b)); and

  2. (2)

    costs and associated charges (COBS 2.2.1R(1)(d) and COBS 6.1.9R);

in relation to the costs and associated charges for the KII-compliant NURS itself, including the exit and entry commissions.

Distributor disclosure requirements for UCITS or KII-compliant NURS

COBS 14.3.12 G RP

A key investor information document and EEA key investor information document or a NURS-KII document7 provide3 sufficient information in relation to the costs and associated charges in respect of the UCITS3 or KII-compliant NURS7 itself. However, a firm distributing units3 in a UCITS3 or KII-compliant NURS7 should also inform a client about all of the other costs and associated charges related to the provision of its services in relation to units in the UCITS or KII-compliant NURS7.

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