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COBS 18.1 Trustee Firms

Application

COBS 18.1.1 R 01/11/2007

(1)
1This section applies to the MiFID or equivalent third country business carried on by a trustee firm.
(2)
It does not apply to a trustee firm when acting as:
1. (a)
  a depositary; or
2. (b)R
  the trustee of a personal pension scheme or stakeholder pension scheme.

Application of COBS to trustee firms

COBS 18.1.2 R 31/12/2012

The provisions of COBS in the table do not apply to a trustee firm to which this section applies:

COBS	Description
26.1A	Adviser charging and remuneration
26.1B	Retail investment product provider requirements relating to adviser charging and remuneration
26.2A	Describing advice services
6.3	Disclosing information about services, fees and commission - packaged products
6.4	Disclosure of charges, remuneration and commission
9.4	Suitability reports
9.6	Special rules for providing basic advice on a stakeholder product
16.3.9	Guidance on contingent liability transaction
16.5	Quotations for surrender values
16.6	Life insurance contracts - communications to clients
16 Annex 1 R (1) 14	Information to be provided in accordance with COBS 16.2.1 R and 16.3

COBS 18.1.3 G 01/11/2007

The provisions of COBS in the table are unlikely to be relevant in relation to a trustee firm to which this section applies:

COBS	Description
5	Distance communications
13	Preparing product information
14.2	Providing product information
15	Cancellation
17	Claims handling for long-term care insurance
18.2	Energy market activity and oil market activity
18.3	Corporate finance business
18.4	Stock lending activity
19	Pensions - supplementary provisions
20	With-profits

Duties of trustee firms under the general law

COBS 18.1.4 G 01/11/2007

To the extent a rule in COBS applies to a trustee firm, that rule:

(1)
applies in addition to any duties or powers imposed or conferred upon a trustee by the general law; and
(2)
does not qualify or restrict the duties or powers that the general law imposes or confers upon a trustee; trustee firms will be under a duty to observe the provisions of their trust instrument; if its provisions conflict with any applicable rule, trustee firms will need to take advice in resolving the conflict.

Considering and complying with applicable COBS rules

COBS 18.1.5 G 01/11/2007

In considering and reaching decisions as to how applicable rules in COBS apply in the context of a particular trust arrangement, a trustee firm should consider the nature of that arrangement and the provisions of the relevant trust instrument.

References to "client" in applicable COBS rules

COBS 18.1.6 G 01/11/2007

Where an applicable rule in COBS requires the doing of any thing in relation to a client, the trustee firm should consider who, in the context of that rule and having regard to the particular trust arrangement, is the most appropriate person to treat as its client. This might, for example, be the beneficiary, another trustee or the trust, depending on the particular circumstances.

COBS 18.2 Energy market activity and oil market activity

Energy market activity and oil market activity - MiFID business

COBS 18.2.1 R 31/12/2012

The provisions of COBS in the table do not apply in relation to any energy market activity or oil market activity carried on by a firm which is MiFID or equivalent third country business:

COBS	Description
3 6.1A	Adviser charging and remuneration
3 6.1B	Retail investment product provider requirements relating to adviser charging and remuneration
3 6.2A	Describing advice services
6.3	Disclosing information about services, fees and commission - packaged products
6.4	Disclosure of charges, remuneration and commission
9.4	Suitability reports
9.6	Special rules for providing basic advice on a stakeholder product
11.6	Use of dealing commission
16.3.9	Guidance on contingent liability transaction
16.5	Quotations for surrender values
16.6	Life insurance contracts - communications to clients
16 Annex 1 R (1) 14	Information to be provided in accordance with COBS 16.2.1 R and 16.3

COBS 18.2.2 G 01/11/2007

The provisions of COBS in the table are unlikely to be relevant to any energy market activity or oil market activity carried on by a firm which is MiFID or equivalent third country business:

COBS	Description
5	Distance communications
7	Insurance mediation
13	Preparing product information
14.2	Providing product information to clients
15	Cancellation
17	Claims handling for long-term care insurance
18.1	Trustee firms' regime
18.3	Corporate finance business
18.4	Stock lending activity
19	Pensions - supplementary provisions
20	With-profits

Energy market activity and oil market activity - non-MiFID business1

COBS 18.2.3 R 06/03/2009

1Only the COBS provisions in the table apply to energy market activity or oil market activity carried on by a firm which is not:

(1)
MiFID or equivalent third country business; or
(2)
energy market activity or oil market activity set out in COBS 18.2.4 R.

COBS	Description
1	Application
2.1.1	Acting honestly, fairly and professionally
2.4	Agent as client and reliance on others
3	Client categorisation
4	Communication to clients including financial promotions, but only in relation to communicating or approving a financial promotion
5.2	E-commerce2
2 11.8	Recording telephone conversations and electronic communications
12	Investment research
16.2	Occasional reporting

Energy market activity and oil market activity - dealings with or through authorised persons1

COBS 18.2.4 R 01/11/2007

1Only the COBS provisions in the table apply to energy market activity or oil market activity carried on by a firm which is not MiFID or equivalent third country business but which, if the firm were not authorised, would not be a regulated activity because of article 16 of the Regulated Activities Order (Dealing in contractually based investments) or article 22 of the Regulated Activities Order (Deals with or through authorised persons etc.).

COBS	Description
1	Application
2.4	Agent as client and reliance on others
4.12	Unregulated collective investment schemes
5.2	E-commerce

Other non-MiFID business related to commodity or exotic derivative instruments1

COBS 18.2.5 R 01/11/2007

1 COBS applies as set out in the table to firms in respect of activities referred to in the general application rule related to:

(1)
commodity futures; or
(2)
commodity options; or
(3)
contracts for differences related to an underlying commodity; or
(4)
other futures or contracts for differences which are not related to commodities, financial instruments or cash;

which is not MiFID or equivalent third country business and energy market activity or oil market activity.

Application of COBS to other non-MiFID business related to commodity derivative instruments
All of COBS applies, except COBS 18.2.6 R to COBS 18.2.9 E applies instead of COBS 11.2 (Best execution)

Best execution for other non-MIFID business related to commodity and exotic derivative instruments1

COBS 18.2.6 R 01/11/2007

1A firm that executes a customer order in the course of carrying out activities referred to in COBS 18.2.5 R must provide best execution.

Exceptions to best execution1

COBS 18.2.7 R 01/11/2007

1The duty to provide best execution does not apply where:

(1)
the firm has agreed with a professional client that it does not owe a duty of best execution to him; or
(2)
the firm relies on another person to whom it passes a customer order for execution to provide best execution, but only if it has taken reasonable care to ensure that he will do so.

Providing best execution1

COBS 18.2.8 R 01/11/2007

1To provide best execution, a firm must:

(1)
take reasonable care to ascertain the price which is the best available for the customer order in the relevant market at the time for transactions of the kind and size concerned; and
(2)
execute the customer order at a price which is no less advantageous to the customer, unless the firm has taken reasonable steps to ensure that it would be in the customer's best interests not to do so.

COBS 18.2.9 E 01/11/2007

(1)
1In order to take reasonable care to ascertain the price which is the best available, a firm:
1. (a)
  should disregard any charges and commission made by it or its agents that are disclosed to the customer under COBS 6.1.9 R (Information about costs and associated charges);
2. (b)
  need not have access to competing exchanges, or to all, or a minimum number of, available price sources; but if a firm can access prices displayed by different exchanges and trading platforms and make a direct and immediate comparison, it should execute the customer order at the best price available to the firm on such exchanges or trading platforms, if this is in the best interests of the customer;
3. (c)
  should pass on to the customer the price at which it executes the transaction to meet the customer order; and
4. (d)
  should not take a mark-up or mark-down from the price at which it executes the customer order.
(2)
Compliance with (1) may be relied on as tending to establish compliance with the requirement to take reasonable care to ascertain the price which is the best available for the customer order (see COBS 18.2.8 R (1))
(3)
Contravention of (1) may be relied on as tending to establish contravention of the requirement to take reasonable care to ascertain the price which is the best available for the customer order (see COBS 18.2.8 R (1))

COBS 18.3 Corporate finance business

Corporate finance business - MiFID business

COBS 18.3.1 R 31/12/2012

The provisions of COBS in the table do not apply in respect of any corporate finance business carried on by a firm which is MiFID or equivalent third country business:

COBS	Description
3 6.1A	Adviser charging and remuneration
3 6.1B	Retail investment product provider requirements relating to adviser charging and remuneration
3 6.2A	Describing advice services
6.3	Disclosing information about services, fees and commission - packaged products
6.4	Disclosure of charges, remuneration and commission
9.4	Suitability reports
9.6	Special rules for providing basic advice on a stakeholder product
11.6	Use of dealing commission
2 11.8	Recording telephone conversations and electronic communications
16.3.9	Guidance on contingent liability transaction
16.5	Quotations for surrender values
16.6	Life insurance contracts - communications to clients
16 Annex 1 R (1) 14	Information to be provided in accordance with COBS 16.2.1 R and 16.3

COBS 18.3.2 G 01/11/2007

The provisions of COBS in the table are unlikely to be relevant to any corporate finance business carried on by a firm which is MiFID or equivalent third country business:

COBS	Description
5	Distance communications, except in relation to distance contracts concluded with consumers
7	Insurance mediation
13	Preparing product information
14.2	Providing product information
15	Cancellation, except cancellation and withdrawal rights in relation to distance contracts concluded with consumers
17	Claims handling for long-term care insurance
18.1	Trustee firms' regime
18.2	Energy market activity and oil market activity
18.4	Stock lending activity
19	Pensions - supplementary provisions
20	With-profits

Corporate finance business - non-MiFID business1

COBS 18.3.3 R 01/11/2007

1Only the provisions of COBS in the table apply to corporate finance business carried on by a firm which is not MiFID or equivalent third country business.

COBS	Description
1	Application
2.1.1	Acting honestly, fairly and professionally
2.3	Inducements
2.4	Agent as client and reliance on others
3	Client categorisation
4	Communication to clients including financial promotions, except COBS 4.5 - COBS 4.111
5.1	The information and other requirements of the Distance Marketing Directive, but only in relation to distance contracts concluded with consumers
5.2	E-commerce
11.7	Personal account dealing
12	Investment research
15	Cancellation, but only in relation to distance contracts concluded with consumers

COBS 18.3.4 G 01/11/2007

COBS 15 (Cancellation) is likely to be of limited application to corporate finance business. Distance contracts concluded with consumers in the course of corporate finance business will be exempt from COBS 15 if the price of the financial service is dependent on fluctuations in the financial market outside the firm's control.

COBS 18.4 Stock lending activity

COBS 18.4.1 R 31/12/2012

The provisions of COBS in the table do not apply in relation to any stock lending activity carried on by a firm which is MiFID or equivalent third country business:

COBS	Subject
1 6.1A	Adviser charging and remuneration
1 6.1B	Retail investment product provider requirements relating to adviser charging and remuneration
1 6.2A	Describing advice services
6.3	Disclosing information about services, fees and commission - packaged products
6.4	Disclosure of charges, remuneration and commission
9.4	Suitability reports
9.6	Special rules for providing basic advice on a stakeholder product
11.6	Use of dealing commission
16.3.9	Guidance on contingent liability transaction
16.5	Quotations for surrender values
16.6	Life insurance contracts - communications to clients
16 Annex 1 R (1) 14	Information to be provided in accordance with COBS 16.2.1 R and 16.3

COBS 18.4.2 G 01/11/2007

The provisions of COBS in the table are unlikely to be relevant in relation to any stock lending activity carried on by a firm which is MiFID or equivalent third country business:

COBS	Description
5	Distance communications, except in relation to distance contracts concluded with consumers
7	Insurance mediation
13	Preparing product information
14.2	Providing product information
15	Cancellation, except cancellation and withdrawal rights in relation to distance contracts concluded with consumers
17	Claims handling for long-term care insurance
18.1	Trustee firms' regime
18.2	Energy market activity and oil market activity
18.3	Corporate finance business
19	Pensions - supplementary provisions
20	With-profits

COBS 18.5 1Operators of collective investment schemes

Application

COBS 18.5.1 R 01/11/2007

1This section applies to a firm which is an operator of a collective investment scheme.

Application or modification of general COBS rules for operators

COBS 18.5.2 R 31/12/2012

An operator when it is carrying on scheme management activity:

(1)
must comply with the COBS rules specified in the table, as modified by this section; and
(2)
need not comply with any other rule in COBS.

Table: Application of conduct of business rules

Application of conduct of business rules

Chapter, section or rule	Description	Modifications
1	Application
2.1.1	Acting honestly, fairly and professionally
2.3	Inducements
2.4	Agent as client and reliance on others
4.2.1 - 4.2.3	Fair, clear and not misleading communications
25.1	Distance communications
5.2	E-Commerce	5
56.1G.2	Re-registration requests: firms acting as registrars
11.2	Best execution	In the case of an unregulated collective investment scheme, COBS 18.5.4R (Modification of best execution) applies instead of COBS 11.2 in the circumstances set out in COBS 18.5.4R.1
11.3	Client order handling
11.5	Record keeping: client orders and decisions to deal
11.6	Use of dealing commission
311.8	Recording telephone conversations and electronic communications
18.5	Operators of collective investment schemes

Additional application of COBS rules for management companies

COBS 18.5.2A R 01/07/2011

4A management company must:

(1)
in addition to complying with the COBS rules specified in COBS 18.5.2 R, comply with COBS 11.7 (Personal account dealing); and
(2)
comply with COBS 2.3 (Inducements) as modified by COBS 2.3.2A R

[Note: article 13(1) to 13(4) of the UCITS implementing Directive]

General modifications

COBS 18.5.3 R 01/11/2007

The COBS rules specified in the table in COBS 18.5.2 R apply to an operator when it is carrying on scheme management activity with the following modifications:

(1)
subject to (2), references to customer or client are to be construed as references to any scheme in respect of which the operator is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on;
(2)
in the case of an unregulated collective investment scheme, when an operator is required by the rules in COBS to provide information to, or obtain consent from, a customer or client, the operator must ensure that the information is provided to, or consent obtained from, a participant or a potential participant in the scheme as the case may be; and
(3)
references to the service of portfolio management in COBS 11.2 and 11.3 and COBS 11.5 (Record keeping: client orders and transactions) are to be construedas references to the management by an operator of financial instruments held for or within the scheme of which it is the operator.

Modification of best execution for operators of unregulated collective investment schemes

COBS 18.5.4 R 01/11/2007

The best execution provisions applying to an operator of a collective investment scheme do not apply in relation to an unregulated collective investment scheme whose scheme documents include a statement that best execution does not apply in relation to the scheme and in which:

(1)
no participant is a retail client; or
(2)
no current participant in the scheme was a retail client on joining the scheme as a participant.

Scheme documents for an unregulated collective investment scheme

COBS 18.5.5 R 01/11/2007

An operator of an unregulated collective investment scheme must not accept a retail client asa participant in the scheme unless it has taken reasonable steps to offer and, if requested, provide to the potential participant scheme documents which adequately describe how the operation of the scheme is governed.

Format and content of scheme documents

COBS 18.5.6 G 01/11/2007

An operator's scheme documents may consist of any number of documents provided that it is clear that collectively they constitute the scheme documents and provided the use of several documents in no way diminishes the significance of any of the statements which are required to be given to the potential participant.

COBS 18.5.7 G 01/11/2007

The scheme documents of an unregulated collective investment scheme (if they exist) should make it clear that if a participant is reclassified as a retail client, this reclassification will not affect certain scheme management activities of the operator of the scheme. In particular, despite such a reclassification, the operator will not be required to comply with the best execution provisions applying to an operator of a collective investment scheme. It should be noted that there is no requirement that scheme documents must be produced for an unregulated collective investment scheme.

COBS 18.5.8 R 01/11/2007

Where the scheme is an unregulated collective investment scheme and no current participant in the scheme was a retail client on joining the scheme as a participant, the scheme documents must include a statement that:

(1)
explains that if a participant is reclassified as a retail client subsequent to joining the scheme as a participant, then the operator may continue to treat all participants in the scheme as though they were not retail clients;
(2)
explains that if a participant is reclassified as a retail client subsequent to joining the scheme as a participant, then the modification of best execution (see COBS 18.5.5 R) will continue to apply to that scheme; and
(3)
explains that, in the event of such a reclassification, the operator will not be required to provide best execution in relation to the scheme.

COBS 18.5.9 G 01/11/2007

The operator will still have to comply with other COBS provisions as a result of the reclassification of a participant as a retail client, for example, the requirement to provide periodic statements to participants who are retail clients in an unregulated collective investment scheme (see the rule on periodic statements for an unregulated collective investment scheme (COBS 18.5.11)).

Adequate information

COBS 18.5.10 E 01/11/2007

(1)
In order to provide adequate information to describe how the operation of the scheme is governed, an operator of an unregulated collective investment scheme should include in the scheme documents a provision about each of the items of relevant information set out in the following table (Content of scheme documents).
(2)
Compliance with (1) may be relied on as tending to establish compliance with COBS 18.5.5 R.
(3)
Contravention of (1) may be relied on as tending to establish contravention of COBS 18.5.5 R.

Table: Content of scheme documents

Content of scheme documents

The scheme documents should include provision about:
(1)	Regulator The firm statutory status in accordance with GEN 4 Annex 1 R (Statutory status disclosure);
(2)	Services the nature of the services that the operator will provide in relation to the scheme;
(3)	Payments for services details of any payment for services payable by the scheme or from the property of the scheme or participants in the scheme to the operator, including where appropriate:
	(a)	the basis of calculation;
	(b)	how it is to be paid and collected;
	(c)	how frequently it is to be paid; and
	(d)	whether or not any other payment is receivable by the operator (or to its knowledge by any of its associates) in connection with any transactions effected by the operator with or for the scheme, in addition to or in lieu of any fees;
(4)	Commencement when and how the operator is appointed;
(5)	Accounting the arrangements for accounting to the scheme or participants in the scheme for any transaction effected;
(6)	Termination method how the appointment of the operator may be terminated;
(7)	Complaints procedure how to complain to the operator and a statement that the participants in the scheme may subsequently complain direct to the Financial Ombudsman Service;
(8)	Compensation whether or not compensation may be available from the compensation scheme should the operator be unable to meet its liabilities, and information about any other applicable compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained;
(9)	Investment objectives the investment objectives for the portfolio of the scheme;
(10)	Restrictions
	(a)	any restrictions on:
		(i)	the types of investments or property which may be included in the portfolio of the scheme;
		(ii)	the markets on which investments or property may be acquired for the portfolio of the scheme;
		(iii)	the amount or value of any one investment or asset, or on the proportion of the portfolio of the scheme which any one investment or asset or any particular kind of investment or asset may constitute; or
	(b)	that there are no such restrictions;
(11)	Holding scheme assets
	(a)	if it is the case, that the operator will:
		(i)	hold money on behalf of the scheme or be the custodian of investments or other property of the scheme; or
		(ii)	arrange for some other person to act in either capacity and, if so, whether that person is an associate of the operator identifying that person and describing the nature of any association; and
	(b)	in either case:
		(i)	how any money is to be deposited;
		(ii)	the arrangements for recording and separately identifying registrable investments of the scheme and, where the registered holder is the operator's own nominee, that the operator will be responsible for the acts and omissions of that person;
		(iii)	the extent to which the operator accepts liability for any loss of the investment of the scheme;
		(iv)	the extent to which the operator or any other person mentioned in (11)(a)(ii), may hold a lien or security interest over investments of the scheme;
		(v)	where investments of the scheme will be registered collectively in the same name, a statement that the entitlements of the scheme may not be identifiable by separate certificates or other physical documents of title, and that, should the operator default, any shortfall in investments of the scheme registered in that name may be shared proportionately among all schemes and any other customers of the operator whose investments are so registered;
		(vi)	whether or not investments or other property of the scheme can be lent to, or deposited by way of collateral with, a third party and whether or not money can be borrowed on behalf of the scheme against the security of those investments or property and, if so, the terms upon which they may be lent or deposited;
		(vii)	the arrangements for accounting to the scheme for investments of the scheme, for income received (including any interest on money and any income earned by lending investments or other property) of the scheme, and for rights conferred in respect of investments or other property of the scheme;
		(viii)	the arrangements for determining the exercise of any voting rights conferred by investments of the scheme; and
		(ix)	where investments of the scheme may be held by an eligible custodian outside the United Kingdom, a general statement that different settlement, legal and regulatory requirements, and different practices relating to the segregation of those investments, may apply;
(12)	Clients' money outside the United Kingdom if it is the case, that the operator may hold the money of the scheme in a client bank account outside the United Kingdom;
(13)	Exchange rates if a liability of the scheme in one currency is to be matched by an asset in a different currency, or if the services to be provided to the operator for the scheme may relate to an investment denominated in a currency other than the currency in which the investments of the scheme are valued, a warning that a movement of exchange rates may have a separate effect, unfavourable or favourable, on the gain or loss otherwise made on the investments of the scheme;
(14)	Stabilised investments if it is the case, that the operator is to have the right under the scheme documents to effect transactions in investments the prices of which may be the subject of stabilisation;
(15)	Conflict of interest and material interest if it is the case, that the operator is to have the right under the agreement or instrument constituting the scheme to effect transactions on behalf of the scheme in which the operator has directly or indirectly a material interest (except for an interest arising solely from the participation of the operator as agent for the scheme), or a relationship of any description with another party which may involve a conflict with the operator's duty to the scheme, together with a disclosure of the nature of the interest or relationship;
(16)	Use of dealing commission if the operator receives goods or services in addition to the execution of its customer orders in accordance with the section on the use of dealing commission, the prior disclosure required by the rule on prior disclosure (see COBS 11.6.2 R);
(17)	Acting as principal if it is the case, that the operator may act as principal in a transaction with the scheme;
(18)	Stock lending if it is the case, that the operator may undertake stock lending activity with or for the scheme specifying the type of assets of the scheme to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the scheme in respect of the lending;
(19)	Transactions involving contingent liability investments
	(a)	if it is the case, that the agreement or instrument constituting the scheme allows the operator to effect transactions involving contingent liability investments for the account of the portfolio of the scheme;
	(b)	if applicable, whether there are any limits on the amount to be committed by way of margin and, if so, what those limits are; and
	(c)	if applicable, that the operator has the authority to effect transactions involving contingent liability investments otherwise than under the rules of a recognised investment exchange or designated investment exchange and in a contract traded thereon;
(20)	Periodic statements
	(a)	the frequency of any periodic statement (this should not be less than once every 12 months) except where a periodic statement is not required (see COBS 18.5.13R); and
	(b)	whether those statements will include some measure of performance, and, if so, what the basis of that measurement will be;
(21)	Valuation the bases on which assets comprised in the portfolio of the scheme are to be valued;
(22)	Borrowings if it is the case, that the operator may supplement the funds in the portfolio of the scheme and, if it may do so:
	(a)	the circumstances in which the operator may do so;
	(b)	whether there are any limits on the extent to which the operator may do so and, if so, what those limits are; and
	(c)	any circumstances in which such limits may be exceeded;
(23)	Underwriting commitments if it is the case, that the operator may for the account of the portfolio of the scheme underwrite or sub-underwrite any issue or offer for sale of securities, and:
	(a)	whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and
	(b)	whether there are any financial limits on the extent of the underwriting and, if so, what these limits are;
(24)	Investments in other collective investment schemes whether or not the portfolio may contain units in a collective investment scheme either operated or advised by the operator or by an associate of the operator or in a collective investment scheme which is not a regulated collective investment scheme;
(25)	Investments in securities underwritten by the operator whether or not the portfolio may contain securities of which any issue or offer for sale was underwritten, managed or arranged by the operator or by an associate of the operator during the preceding 12 months.

Periodic statements for an unregulated collective investments scheme

COBS 18.5.11 R 01/11/2007

An operator of an unregulated collective investment scheme must, subject to the exceptions from the requirement to provide a periodic statement, provide to participants in the scheme, promptly and at suitable intervals, a statement in a durable medium which contains adequate information on the value and composition of the portfolio of the scheme at the beginning and end of the period of the statement.

Promptness, suitable intervals and adequate information

COBS 18.5.12 E 01/11/2007

(1)
An operator should act in accordance with the provisions in the right hand column of the periodic statements table (see COBS 18.5.15E) to fulfil the requirement to prepare and issue periodic statements indicated in the left hand column against these provisions.
(2)
Compliance with (1) may be relied on as tending to establish compliance with the requirement to prepare and issue periodic statements.
(3)
Contravention of (1) may be relied on as tending to establish contravention of the requirement to prepare and issue periodic statements.

Exceptions from the requirement to provide a periodic statement

COBS 18.5.13 R 01/11/2007

(1)
An operator of an unregulated collective investment scheme need not provide a periodic statement:
1. (a)
  1. (i)
    to a participant in the scheme who is a retail client ordinarily resident outside the United Kingdom; or
  2. (ii)
    to a participant in the scheme who is a professional client; if the participant has so requested or the operator has taken reasonable steps to establish that the participant does not wish to receive it; or
2. (b)
  if it would duplicate a statement to be provided by someone else.
(2)
For a firm acting as an outgoing ECA provider, the exemption for retail client participants ordinarily resident outside the United Kingdom applies only to a participant in the scheme who is a retail client ordinarily resident outside the EEA.

Record keeping requirements

COBS 18.5.14 R 01/11/2007

An operator of an unregulated collective investment scheme must make a copy of any periodic statement it has provided in accordance with the requirement to prepare and issue periodic statements to participants in the scheme. The record must be retained for a minimum period of three years.

COBS 18.5.15 E 01/11/2007

Table: Periodic statements

This table belongs to COBS 18.5.12 E.

Periodic statements
Suitable intervals	(1)	A periodic statement should be provided at least:
		(a)	six-monthly; or
		(b)	once in any other period, not exceeding 12 months, which has been mutually agreed between the operator and the participant in the scheme.
Adequate information	(2)	(a)	A periodic statement should contain:
			(i)	(A)	The information set out in the table of general contents of a periodic statement;
				(B)	where the portfolio of the scheme includes uncovered open positions in contingent liability investments, the additional information in the table listing the contents of a periodic statement (see COBS 18.5.15E) in respect of contingent liability investments; or
			(ii)	such information as a participant who is a retail client ordinarily resident outside the United Kingdom, or a professional client, has on his own initiative agreed with the operator as adequate.
		(b)	For a firm acting as an outgoing ECA provider, the words 'United Kingdom' is replaced by 'EEA'

COBS 18.5.16 G 01/11/2007

Examples of uncovered open positions include:

(1)
selling a call option on an investment not held in the portfolio;
(2)
unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable investments denominated in that currency; and
(3)
transactions having the effect of selling an index to an amount greater than the portfolio's holdings of investments included in that index.

COBS 18.5.17 E 01/11/2007

Table: General contents of a periodic statement

This table belongs to COBS 18.5.15 E.

General contents of periodic statements
1	Contents and value
	(a)	As at the beginning of the account period, the total value of the portfolio of the scheme, being either:
		(i)	the value of the assets comprised in the portfolio on the date as at which the statement provided for the immediately preceding period of account is made up; or
		(ii)	in the case of the first periodic statement, the value of the assets comprised in the portfolio on the date on which the operator assumed responsibility for the management of the portfolio.
	(b)	As at the end of the account period:
		(i)	the number, description and value of each investment held on behalf of the scheme;
		(ii)	the amount of cash held on behalf of the scheme; and
		(iii)	the total value of the portfolio of the scheme.
2	Basis of valuation A statement of the basis on which the value of each investment has been calculated and, if applicable, a statement that the basis for valuing a particular investment has changed since the previous periodic statement. Where any investments are shown in a currency other than the usual one used for valuation of the portfolio of the scheme, the relevant currency exchange rates must be shown.
3	Details of any assets loaned or charged
	(a)	A summary of those investments (if any) which were, at the closing date, loaned to any third party and those investments (if any) that were at that date charged to secure borrowings made on behalf of the portfolio of the scheme; and
	(b)	the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during the period.
4	Transactions and changes in composition Except in the case of a portfolio which aims to track the performance of an external index:
	(a)	a statement that summarises the transactions entered into for the portfolio of the scheme during the period; and
	(b)	the aggregate of money and a summary of all investments transferred into and out of the portfolio of the scheme during the period; and
	(c)	the aggregate of any interest payments, dividends and other benefits received by the operator for the portfolio of the scheme during that period.
5	Charges and remuneration If not previously advised in writing, a statement for the account period:
	(a)	of the aggregate charges of the operator and its associates; and
	(b)	of any remuneration received by the operator or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio of the scheme.
6	Movement in value of portfolio A statement of the difference between the value of the portfolio at the closing date and its value at the starting date of the account period, having regard at least, during the account period, to the following:
	(a)	the aggregate of assets received from participants of the scheme and added to the portfolio of the scheme;
	(b)	the aggregate of the value of assets transferred, or of amounts paid, to the scheme;
	(c)	the aggregate income received on behalf of the scheme in respect of the portfolio; and
	(d)	the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio of the scheme.
Notes: For the purposes of Item 1, where the scheme is a property enterprise trust, it will be sufficient for the periodic statement to disclose the number of properties held in successive valuation bands where this is appropriate to the size and composition of the scheme, rather than the value of each asset in the portfolio. The valuation bands of over £10m, £5-£10m, £2.5-£5m, £1-£2.5m and under £1m would be appropriate, unless an operator could show that different bands were justifiable in the circumstances. The statement to be provided under Item 6 is not intended to be an indicator of the performance of the portfolio of the scheme.An operator may wish to distinguish capital and income, and thereby provide more information than referred to in this table. If the statement includes some measure of performance, the basis of measurement should be stated.

COBS 18.5.18 E 01/11/2007

Table: Contents of a periodic statement in respect of contingent liability investments

This table belongs to COBS 18.5.15 E.

Contents of a periodic statement in respect of contingent liability investments
(1)	Changes in value The aggregate of money transferred into and out of the portfolio of the scheme during the account period.
(2)	Open positions In relation to each open position in the portfolio of the scheme at the end of the account period, the unrealised profit or loss to the portfolio of the scheme (before deducting or adding any commission which would be payable on closing out).
(3)	Closed positions In relation to each transaction effected during the account period to close out a position of the scheme, the resulting profit or loss to the portfolio of the scheme after deducting or adding any commission. (Instead of the specific detail required by Items 2 or 3, the statement may show the net profit or loss in respect of the overall position of the scheme in each contract)
(4)	Aggregate of contents The aggregate of each of the following in, or relating to, the portfolio of the scheme at the close of business on the valuation date:
	(a)	cash;
	(b)	collateral value;
	(c)	management fees; and
	(d)	commissions attributable to transactions during the period or a statement that this information has been separately disclosed in writing on earlier statements or confirmations to the participant.
(5)	Option account valuations In respect of each open option comprising the portfolio of the scheme on the valuation date:
	(a)	the share, future, index or other investment or asset involved;
	(b)	(unless the valuation statement follows the statement for the period in which the option was opened) the trade price and date for the opening transaction;
	(c)	the market price of the contract; and
	(d)	the exercise price of the contract.
	Options account valuations may show an average trade price and market price in respect of an option series where a number of contracts within the same series have been purchased on behalf of the scheme.

COBS 18.6 1Lloyd's

Application

COBS 18.6.1 R 01/11/2007

1This section applies to a firm when it carries on Lloyd's market activities.

COBS rules that apply to Lloyd's market activities

COBS 18.6.2 R 01/11/2007

Only COBS 3 (Client categorisation) and the financial promotion rules apply when a firm is carrying out Lloyd's market activities.

COBS 18.6.3 G 01/11/2007

Firms are reminded that syndicate business plans may be used in ways that bring them within the definition of a financial promotion.

Definitions and modifications

COBS 18.6.4 R 01/11/2007

When a firm is carrying on Lloyd's market activities, any reference in COBS to the term:

(1)
designated investment is to be taken to include the following specified investments:
1. (a)
  the underwriting capacity of a Lloyd's syndicate;
2. (b)
  membership of a Lloyd's syndicate; and
3. (c)
  rights to or interests in the specified investments in (a) or (b);
(2)
designated investment business is to be taken to include the following regulated activities:
1. (a)
  advising on syndicate participation at Lloyd's;
2. (b)
  managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's; and
3. (c)
  agreeing to carry on the regulated activities in (a) or (b).

The Principles and Lloyd's market activities

COBS 18.6.5 G 01/11/2007

Whilst COBS has limited application to Lloyd's market activities, firms conducting Lloyd's market activities are reminded that they are required to comply with the Principles.

COBS 18.7 1Depositaries

COBS 18.7.1 R 01/11/2007

1Only the COBS provisions in the table apply to a depositary when acting as such, when carrying on business which is not MiFID or equivalent third country business:

COBS	Description
2.1	Acting honestly, fairly and professionally
2.3	Inducements, except COBS 2.3.1 R (2)(b) and COBS 2.3.2 R
4	Communication to clients including financial promotions, but only in relation to communicating or approving a financial promotion
11.7	Personal account dealing

COBS 18.8 OPS firms - non scope business1

COBS 18.8.1 R 01/11/2007

1 COBS applies to an OPS firm when it carries on business which is not MiFID or equivalent third country business, with the following modifications:

(1)
references to client are to be taken to be references to the OPS or welfare trust, as the case may be, in respect of which the OPS firm is acting or intends to act, and with or for the benefit of whom the relevant business is to be carried on;
(2)
if an OPS firm is required by any COBS rule to provide information to, or obtain consent from, a client, that firm must ensure that the information is provided to, or consent obtained from, each of the trustees of the OPS or welfare trust for whom that firm is acting; and
(3)
COBS is modified by the addition of the rules in the table below:

Additional COBS rules applicable to an OPS firm
COBS	Description
16.2.6R (4)	If an OPS firm carries on OPS activity for an OPS trustee who is a professional client and who is habitually resident in the United Kingdom, it may rely upon the exceptions in COBS 16.2.1 R (2) or COBS 16.2.6 R (1) only if it provides a periodic statement to the professional client containing the information required by COBS 18.8.2R

COBS 18.8.2 R 01/11/2007

Where an OPS firm conducts OPS activity and is obliged to provide a periodic statement, the periodic statement must contain the information in the table below.

Information to be included in a periodic statement provided by an OPS firm conducting OPS activity
(1)	Investment objectives
	A statement of any investment objectives governing the mandate of the portfolio of the occupational pension scheme as at the closing and starting date of the periodic statement.
(2)	Details of any asset loaned or charged
	(a) a summary of any investments that were, at the closing date, lent to a third party and any investments that were at that date charged to secure borrowings made on behalf of the portfolio; and (b) the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during that period and a comparison with the previous period.
(3)	Transactions and changes in composition
	(a) a summary of the transactions entered into for the portfolio during the period and a comparison with the previous period; (b) the aggregate of money and a summary of all investments transferred into and out of the portfolio during the period; and (c) the aggregate of any interest payments, dividends and other benefits received by the firm for the portfolio during that period and a comparison with the previous period.
(4)	Charges and remuneration
	If not previously advised in writing, a statement for the period of account: (a) of the aggregate charges of the firm and its associates; and (b) of any remuneration received by the firm or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio.
(5)	Movement in value of portfolio
	A statement of the difference between the value of the portfolio at the closing date of the period of account and its value at the starting date, having regard, during the period of account, to: (a) the aggregate of assets received from the occupational pension scheme and added to the portfolio; (b) the aggregate of the value of assets transferred, or of amounts paid, to the client; (c) the aggregate income received on behalf of the client in respect of the portfolio; and (d) the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio.

COBS 18.8.3 R 01/11/2007

COBS 8 (Client agreements) does not apply to an OPS firm, where the OPS firm is carrying on designated investment business as part of its OPS activity in relation to an occupational pension scheme of which it is a trustee.

COBS 18.9 1ICVCs

COBS 18.9.1 R 01/07/2011

1 2

(1)
The financial promotion rules in COBS apply to an ICVC, except that COBS 4.13 (UCITS) applies only to an ICVC that is a UCITS scheme.2
(2)
COBS 14.2 (Providing product information to clients) applies to an ICVC that is a UCITS scheme.2

COBS 18.9.2 G 01/11/2007

Firms should note that the operator of an ICVC when it is undertaking scheme management activity will be subject to COBS 18.5.2R.

COBS 18.10 1UCITS qualifiers and service companies

COBS 18.10.1 R 01/11/2007

1The COBS provisions in the table apply to a UCITS qualifier and a service company:

COBS	Description
4	Communications to clients, but only in relation to communicating or approving a financial promotion
5.2	E-Commerce
12.4	Investment Research recommendations: required disclosures

COBS 18.11 1Authorised professional firms

COBS 18.11.1 R 01/11/2007

1 COBS applies to an authorised professional firm, except that its application in relation to non-mainstream regulated activities and financial promotion is modified as set out below.

COBS 18.11.2 R 01/04/2013

COBS does not apply to an authorised professional firm with respect to its non-mainstream regulated activities, except that:

(1)
the fair, clear and not misleading rule applies;
(2)
the financial promotion rules apply as modified below;
(3)
COBS 7 (Insurance mediation) applies but only if the designated professional body of the firm does not have rules approved by the FCA under section 332(5) of the Act that implement articles 12 and 13 of the Insurance Mediation Directive and that apply to the firm;
1
(4)
COBS 8.1.3 R (Client agreements) applies, except for the requirement to provide information on conflicts of interest; and1
1
(5)
COBS 5.2 (E-commerce) applies.1

COBS 18.11.3 R 01/11/2007

The financial promotion rules do not apply to an authorised professional firm in relation to the communication of a financial promotion if:

(1)
the firm's main business is the practice of its profession (see IPRU(INV) 2.1.2R(3));
(2)
the financial promotion is made for the purposes of and incidental to the promotion or provision by the firm of its professional services or its non-mainstream regulated activities; and
(3)
the financial promotion is not communicated on behalf of another person who would not be able lawfully to communicate the financial promotion if he were acting in the course of business;

however, a firm may use the exemptions for promoting unregulated collective investment schemes in COBS 4 (Communicating with clients, including financial promotions) if it wishes.

COBS 18.11.4 G 01/11/2007

The rules on approving financial promotions continue to apply.

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