1. (1)

   1A firm must act honestly, fairly and professionally in accordance with the best interests of its client (the client's best interests rule).

2. (2)

   This rule applies in relation to designated investment business carried on:

   1. (a)

      for a retail client; and

   2. (b)

      in relation to MiFID or equivalent third country business, for any other client.

3. (3)

   For a management company, this rule applies in relation to any UCITS scheme or EEA UCITS scheme the firm manages.23

A firm must not, in any communication relating to designated investment business seek to:

1. (1)

   exclude or restrict; or

2. (2)

   rely on any exclusion or restriction of;

any duty or liability it may have to a client under the regulatory system.

3A full-scope UK AIFM and an incoming EEA AIFM branch must, for all AIFs it manages:

1. (1)

   act honestly, fairly and with due skill care and diligence in conducting their activities;

2. (2)

   act in the best interests of the AIF it manages or the investors of the AIF it manages and the integrity of the market;

3. (3)

   treat all investors fairly; and

4. (4)

   not allow any investor in an AIF to obtain preferential treatment, unless such preferential treatment is disclosed in the relevant AIF'sinstrument constituting the fund.

1. (1)

   1This section applies in relation to MiFID or equivalent third country business.

2. (2)

   This section applies in relation to other designated investment business carried on for a retail client:

   1. (a)

      in relation to a derivative, a warrant, a non-readily realisable security, a P2P agreement,4 or stock lending activity, but as regards the matters in COBS 2.2.1R (1)(b) only; and

   2. (b)

      in relation to a retail investment product2, but as regards the matters in COBS 2.2.1R (1)(a) and (d) only.

      2

1. (1)

   A firm must provide appropriate information in a comprehensible form to a client about:

   1. (a)

      the firm and its services;

   2. (b)

      designated investments and proposed investment strategies; including appropriate guidance on and warnings of the risks associated with investments in those designated investments or in respect of particular investment strategies;

   3. (c)

      execution venues; and

   4. (d)

      costs and associated charges;

   so that the client is reasonably able to understand the nature and risks of the service and of the specific type of designated investment that is being offered and, consequently, to take investment decisions on an informed basis.

2. (2)

   That information may be provided in a standardised format.

3. (3)

   [deleted]1

   1
4. (4)

   [deleted]1

   1

3A firm, other than a venture capital firm, which is managing investments for a professional client that is not a natural person must disclose clearly on its website, or if it does not have a website in another accessible form:

1. (1)

   the nature of its commitment to the Financial Reporting Council’s Stewardship Code; or

2. (2)

   where it does not commit to the Code, its alternative investment strategy.

6In this section ‘giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme’ includes:

1. (1)

   giving advice or assistance to an employer on the operation of such a scheme;

2. (2)

   taking, or helping the employer to take, the steps that must be taken to enable an employee to become a member of such a scheme; and

3. (3)

   giving advice to an employee, pursuant to an agreement between the employer and the adviser, about the benefits that are, or might be, available to the employee as an actual or potential member of such a scheme.

This section does not apply to giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme where that scheme is a qualifying scheme.

A firm must not pay or accept any fee or commission, or provide or receive any non-monetary benefit, in relation to designated investment business or, in the case of its MiFID or equivalent third country business, another ancillary service, carried on for a client other than:

1. (1)

   a fee, commission or non-monetary benefit paid or provided to or by the client or a person on behalf of the client; or

2. (2)

   a fee, commission or non-monetary benefit paid or provided to or by a third party or a person acting on behalf of a third party, if:

   1. (a)

      the payment of the fee or commission, or the provision of the non-monetary benefit does not impair compliance with the firm's duty to act in the best interests of the client; and

   2. (b)

      the existence, nature and amount of the fee, commission or benefit, or, where the amount cannot be ascertained, the method of calculating that amount, is clearly disclosed to the client, in a manner that is comprehensive, accurate and understandable, before the provision of the service;1

      1. (i)

         this requirement only applies to business other than MiFID or equivalent third country business if it includes10:

         1. (A)

            10giving a personal recommendation in relation to a retail investment product or P2P agreement;10 or

         2. (B)

            10giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme;

         556
      2. (ii)

         where this requirement applies to business other than MiFID or equivalent third country business, a firm is not required to make a disclosure to the client in relation to a non-monetary benefit permitted under (a) and which falls within the table of reasonable non-monetary benefits in COBS 2.3.15 G as though that table were part of this rule for this purpose only;1

      3. (iii)

         this requirement does not apply to a firm giving basic advice; and31

         3
   3. (c)

      in relation to MiFID or equivalent third country business or when carrying on a regulated activity in relation to a retail investment product,8 or when advising on P2P agreements, 10the payment of the fee or commission, or the provision of the non-monetary benefit is designed to enhance the quality of the service to the client; or31

      3
3. (3)

   proper fees which enable or are necessary for the provision of designated investment business or ancillary services, such as custody costs, settlement and exchange fees, regulatory levies or legal fees, and which, by their nature, cannot give rise to conflicts with the firm's duties to act honestly, fairly and professionally in accordance with the best interests of its clients.

7 COBS 2.3.1 R applies to a UK UCITS management company and EEA UCITS management company when providing collective portfolio management services, as if:

1. (1)

   references to a client, were references to any UCITS it manages; and

2. (2)

   in (2)(b) and (c) and (3) of that rule, references to MiFID or equivalent third country business were also references to the collective portfolio management activities of investment management and administration for the scheme.

A firm will satisfy the disclosure obligation under this section if it:

1. (1)

   discloses the essential arrangements relating to the fee, commission or non-monetary benefit in summary form;

2. (2)

   undertakes to the client that further details will be disclosed on request; and

3. (3)

   honours the undertaking in (2).

7 COBS 2.3.2 R applies to a UK UCITS management company and EEA UCITS management company when providing collective portfolio management services, as if references to a client were references to a Unitholder of the scheme.

1. (1)

   A firm must make a record of the information disclosed to the client in accordance with COBS 2.3.1R (2)(b)4 and must keep that record for at least five years from the date on which it was given.

   4
2. (2)

   A firm must also 4make a record of each benefit given to another firm which does not have to be disclosed to the client4in accordance with COBS 2.3.1R (2)(b)(ii),4 and must keep that record for at least five years from the date on which it was given.1

   4

This section applies to a firm that is conducting designated investment business or ancillary activities or, in the case of MiFID or equivalent third country business, other ancillary services.

1. (1)

   If a firm (F) is aware that a person (C1) with or for whom it is providing services is acting as agent for another person (C2) in relation to those services, C1, and not C2, is the client of F in respect of that business.

2. (2)

   Paragraph (1) does not apply if:

   1. (a)

      F has agreed with C1 in writing to treat C2 as its client; or

   2. (b)

      C1 is neither a firm nor an overseas financial services institution1 and the main purpose of the arrangements between the parties is the avoidance of duties that F would otherwise owe to C2.

   If this is the case, C2 is the client of F in respect of that business and C1 is not.

3. (3)

   If there is an agreement under (2)(a) in relation to more than one C2 represented by C1, F may discharge any requirement to notify, obtain consent from, or enter into an agreement with each C2 by sending to, or receiving from, C1 a single communication expressed to cover each C2, except that the following will be required for each C2:

   1. (a)

      separate risk warnings required under this sourcebook;

   2. (b)

      separate confirmations under the requirements on occasional reporting (COBS 16.3); and

   3. (c)

      separate periodic statements.

1. (1)

   This rule applies if a firm (F1), in the course of performing MiFID or equivalent third country business, receives an instruction to perform an investment or ancillary service on behalf of a client (C) through another firm (F2), if F2 is:

   1. (a)

      a MiFID investment firm or a third country investment firm; or

   2. (b)

      an investment firm that is:

      1. (i)

         a firm or authorised in another EEA State; and

      2. (ii)

         subject to equivalent relevant requirements.

2. (2)

   F1 may rely upon:

   1. (a)

      any information about C transmitted to it by F2; and

   2. (b)

      any recommendations in respect of the service or transaction that have been provided to C by F2.

3. (3)

   F2 will remain responsible for:

   1. (a)

      the completeness and accuracy of any information about C transmitted by it to F1; and

   2. (b)

      the appropriateness for C of any advice or recommendations provided to C.

4. (4)

   F1 will remain responsible for concluding the services or transaction based on any such information or recommendations in accordance with the applicable requirements under the regulatory system.

1. (1)

   This rule applies if the rule on reliance on other investment firms (COBS 2.4.4 R) does not apply.

2. (2)

   A firm will be taken to be in compliance with any rule in this sourcebook that requires it to obtain information to the extent it can show it was reasonable for it to rely on information provided to it in writing by another person.

Any information that a rule in COBS or CASS requires to be sent to a client may be sent to another person on the instruction of the client so long as the recipient is not connected to the firm.

In the case of business that is not MiFID or equivalent third country business, if a rule in COBS or CASS requires information to be sent to a client, a firm need not send that information so long as it takes reasonable steps to establish that it has been or will be supplied by another person.

1. (1)

   1A firm must not enter into an agreement with a client under which a charge is, or may become, payable for an optional additional product unless the client has actively elected to obtain that specific product.

2. (2)

   A firm must not impose a charge on a client for an optional additional product under an agreement entered into on or after 1 April 2016 unless the client has actively elected to obtain that specific product before becoming bound to pay the charge.

3. (3)

   A firm must not invite or induce a client to obtain an optional additional product for which a charge will be, or may become, payable if the firm knows or has reasonable cause to suspect that:

   1. (a)

      a contravention of (1) or (2) will take place with respect to the product; or

   2. (b)

      the person supplying the optional additional product will act in a way that would contravene (1) or (2) if that person were a firm.

4. (4)

   An omission by a client is not to be regarded as an active election for the purposes of this rule.

5. (5)

   It is immaterial for the purposes of (3) whether or not the firm would or might be a party to the agreement for the optional additional product.

6. (6)

   A charge includes a financial consideration of any kind, whether payable to the firm or any other person.

7. (7)

   An optional additional product is a good, service or right of any description, whether or not financial in nature, that a client may obtain (or not, as the case may be) at his or her election in connection with, or alongside, a designated investment.

8. (8)

   If the client is required to obtain the additional product as a condition of the transaction related to the designated investment, then that product is an optional additional product if the client is given a choice:

   1. (a)

      as to the seller or supplier of that product; or

   2. (b)

      which specific product to obtain.

9. (9)

   It is immaterial for the purposes of (7) and (8) whether the optional additional product is obtained from the firm or another person.

10. (10)
    1. (a)

       If, under the terms and conditions of an optional additional product, there is to be an automatic renewal of the agreement on substantially the same terms, it suffices for the purposes of (1) to (3) if the client actively elected before entering into the initial agreement or a preceding renewal to obtain the product.

    2. (b)

       An automatic renewal of the agreement is not to be regarded as being on substantially the same terms if, following the renewal, a charge will or may become payable for the optional additional product for the first time (in which case, (1) to (3) apply at the time of the renewal).

    3. (c)

       Except as set out in (b), changes in the level of charges for an optional additional product are to be disregarded in determining whether an automatic renewal of an agreement is on substantially the same terms.

11. (11)

    A client may make an active election for the purposes of this rule through an intermediary in the sales process and through a person acting on behalf of the firm.