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 applies6:

   1. (a)

      in relation to designated investment business carried on6 for a retail client; 7

   2. (b)

      in relation to MiFID, equivalent third country or optional exemption business5, for any6client; and7

   3. (c)

      in relation to insurance distribution, for any client.7

3. (3)

   For a management company, this rule applies in relation to any UCITS scheme8the firm manages.23

5In relation to its eligible counterparty business, a firm must act honestly, fairly and professionally, taking into account the nature of the eligible counterparty and its business.

[Note: article 30(1) of MiFID]

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 AIFM8must, 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)

   [deleted]5

   1
2. (2)

   This section applies in relation to5designated investment business (6other than MiFID, equivalent third country or optional exemption business or insurance distribution activities)6, carried on for a retail client:

   5
   1. (a)

      in relation to a derivative, a warrant, a non-readily realisable security, a speculative illiquid security,7 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
3. (3)

   7Where a rule in this section applies to a firm carrying on designated investment business in relation to 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).

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.

1This section applies to a firm:2

1. (1)

   in relation to its MiFID, equivalent third country or optional exemption business;2

2. (2)

   carrying on insurance distribution activities in relation to:2

   1. (a)

      an insurance-based investment product for any client; and/or2

   2. (b)

      any other life policy for a retail client but as regards the matters in COBS 2.2A.2R(1)(a) and (d) only.2

1. (1)

   A firm must provide appropriate information in good time to a client with regard to:

   1. (a)

      the firm and its services;

   2. (b)

      (for financial instruments)2 the financial instruments,2 proposed investment strategies and execution venues2;

   3. (c)

      (for insurance-based investment products) the distribution of insurance-based investment products including at least appropriate guidance on, and warnings of, the risks associated with the insurance-based investment product or in respect of particular investment strategies proposed2; and

   4. (d)

      all costs and related charges.

[Note: article 24(4) of MiFID and article 29(1)(b) of the IDD2]

1. (2)

   That information may be provided in a standardised format.

2For an insurance-based investment product, a firm must provide the information in good time prior to the conclusion of the contract.

[Note: first paragraph of article 29(1) of the IDD]2

1. (1)

   A firm must provide the information required by this section in a comprehensible form in such a manner that a client is reasonably able to understand the nature and risks of the investment service and of the specific type of financial instrument or life policy2 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.

[Note: article 24(5) of MiFID and last paragraph of article 29(1) the IDD2]

A firm must comply with the rule in COBS 2.2.3R (Disclosure of commitment to the Financial Reporting Council’s Stewardship Code).

1This section applies to:

1. (1)

   a UKMiFID investment firm that provides portfolio management services to investors;

2. (2)

   a third country investment firm that provides portfolio management services to investors;

3. (3)

   a UK UCITS management company;

4. (4)

   an ICVC that is a UCITS scheme without a separate management company; and

5. (5)

   a full-scope UK AIFM.

[Note: article 2(f) of SRD]

This section applies to the extent that the firm is investing (or has invested) on behalf of investors in shares traded on a regulated market.

1. (1)

   This section applies in relation to activities carried on by a firm from an establishment in the United Kingdom.

2. (2)

   [deleted]2

A firm must either:

1. (1)
   1. (a)

      develop and publicly disclose an engagement policy that meets the requirements of COBS 2.2B.6R (an “engagement policy”); and

   2. (b)

      publicly disclose on an annual basis how its engagement policy has been implemented in a way that meets the requirements of COBS 2.2B.7R; or

2. (2)

   publicly disclose a clear and reasoned explanation of why it has chosen not to comply with any of the requirements imposed by (1).

[Note: article 3g(1) and (1)(a) of SRD]

The engagement policy must describe how the firm:

1. (1)

   integrates shareholder engagement in its investment strategy:

2. (2)

   monitors investee companies on relevant matters, including:

   1. (a)

      strategy;

   2. (b)

      financial and non-financial performance and risk;

   3. (c)

      capital structure; and

   4. (d)

      social and environmental impact and corporate governance;

3. (3)

   conducts dialogues with investee companies;

4. (4)

   exercises voting rights and other rights attached to shares;

5. (5)

   cooperates with other shareholders;

6. (6)

   communicates with relevant stakeholders of the investee companies; and

7. (7)

   manages actual and potential conflicts of interests in relation to the firm’s engagement.

[Note: article 3g(1)(a) of SRD]

1. (1)

   The annual disclosure must include a general description of voting behaviour, an explanation of the most significant votes and reporting on the use of the services of proxy advisors.

2. (2)
   1. (a)

      Subject to (b), a firm must publicly disclose how it has cast votes in the general meetings of companies in which it holds shares.

   2. (b)

      A firm is not required to disclose votes that are insignificant due to the subject matter of the vote or the size of the holding in the company.

[Note: article 3g(1)(b) of SRD]

The applicable disclosures or information referred to in COBS 2.2B.5R to COBS 2.2B.7R must be made available free of charge on the firm’s website.

[Note: article 3g(2) of SRD]

1. (1)

   This rule applies where a firm invests on behalf of an SRD institutional investor, whether on a discretionary client-by-client basis or through a collective investment undertaking.

2. (2)

   The firm must disclose to the relevant SRD institutional investor, on an annual basis, how its investment strategy and the implementation of it:

   1. (a)

      complies with the arrangement referred to in (1); and

   2. (b)

      contributes to the medium- to long-term performance of the assets of the SRD institutional investor or of the fund.

3. (3)

   The disclosure must include reporting on:

   1. (a)

      the key material medium- to long-term risks associated with the investments;

   2. (b)

      portfolio composition;

   3. (c)

      turnover and turnover costs;

   4. (d)

      the use of proxy advisors for the purpose of engagement activities;

   5. (e)

      the firm’s policy on securities lending and how that policy is applied to supports the firm’s engagement activities if applicable, particularly at the time of the general meeting of the investee companies;

   6. (f)

      whether and, if so, how, the firm makes investment decisions based on evaluation of medium- to long-term performance of an investee company, including non-financial performance; and

   7. (g)

      whether and, if so, which conflicts of interests have arisen in connection with engagement activities and how the firm has dealt with these conflicts.

[Note: article 3i(1) of SRD]

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.

12This section does not apply to:

1. (1)

   12giving 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; 13

2. (2)

   12a firm in relation to MiFID, equivalent third country or optional exemption business (but see COBS 2.3A (Inducements relating to MiFID, equivalent third country or optional exemption business and insurance-based investment products)); or13

3. (3)

   a firm carrying on an insurance distribution activity in relation to an insurance-based investment product.13

A firm must not pay or accept any fee or commission, or provide or receive any non-monetary benefit, in relation to designated investment business12 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 the carrying on by a UKUCITS management company14of the collective portfolio management activities of investment management and administration for the relevant scheme12 if it includes10:

         1. (A)

            10giving a personal recommendation in relation to a retail investment product, pension transfer, pension conversion, pension opt-out15 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 the carrying on by a UKUCITSmanagement company14of the collective portfolio management activities of investment management and administration for the relevant scheme12, 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 the carrying on by a UK UCITS management company or EEA UCITS management company14 of the collective portfolio management activities of investment management and administration for the relevant scheme12 or when carrying on a regulated activity in relation to a retail investment product or a pension transfer, pension conversion or pension opt-out15 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

      83
3. (3)

   proper fees which enable or are necessary for the provision of designated investment business12, 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; or15

4. (4)

   an employer or trustee funded pension advice charge.15

7 COBS 2.3.1 R applies to a UK UCITS management company14when providing collective portfolio management services, as if references to a client, were references to any UCITS it manages

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 company14when providing collective portfolio management services, as if references to a client were references to a Unitholder of the scheme.

12The guidance on reasonable non-monetary benefits in COBS 2.3.14G to COBS 2.3.16AG does not apply to a firm which:

1. (1)

   makes personal recommendations to retail clients in relation to retail investment products, pension transfers, pension conversions, pension opt-outs15 or P2P agreements, and to which COBS 6.1A (Adviser charging and remuneration) applies; or

2. (2)

   is a retail investment product provider, a platform service provider or a firm which is an operator of an electronic system in relation to lending to which COBS 6.1B (Retail investment product provider, operator of an electronic system relating to lending, and platform service provider requirements relating to adviser charging and remuneration) applies.

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

1This section applies to a firm:4

1. (1)

   in relation to its MiFID, equivalent third country or optional exemption business; and4

2. (2)

   carrying on insurance distribution activities in relation to an insurance-based investment product.4

1. (1)

   Except where COBS 2.3A.6R applies, a firm must not:4

   1. (a)

      pay to or accept from any party (other than the client or a person on behalf of the client) any fee or commission; or4

   2. (b)

      provide to or receive from any party (other than the client or a person on behalf of the client) any non-monetary benefit.4

2. (2)

   (1)(a) and (b) only apply in relation to fees, commissions or non-monetary benefits paid or accepted, or provided or received, in connection with:4

   1. (a)

      the provision of an investment service or an ancillary service; or4

   2. (b)

      the distribution of an insurance-based investment product or an ancillary service.4

[Note: article 24(9) of MiFID, articles 22(3), 29(2) and 29(3) of the IDD4]

1. (1)

   COBS 2.3A.5R does not apply to:

   1. (a)

      a fee, commission or non-monetary benefit which:

      1. (i)

         is designed to enhance the quality of the relevant service to the client (see COBS 2.3A.8R and, also for an insurance-based investment product, COBS 2.3A.9AUK6); and

         4
      2. (ii)

         does not impair compliance with the firm’s duty to act honestly, fairly and professionally in the best interests of the client;

   2. (b)

      a payment or benefit which enables or is necessary for the provision of an investment service, or the distribution of an insurance-based investment product,4 by the firm, such as custody costs, settlement and exchange fees, regulatory levies or legal fees and which, by its nature, cannot give rise to conflicts with the firm’s duty to act honestly, fairly and professionally in the best interests of the client; or

   3. (c)

      (in relation to MiFID, equivalent third country or optional exemption business)4 third party research received in accordance with COBS 2.3B (see COBS 2.3B.3R).

2. (2)

   Where a firm pays, provides, accepts or receives, a fee, commission or non-monetary benefit which falls within (1)(a), the firm must clearly disclose to the client:

   1. (a)

      the existence and nature of the payment or benefit; and

   2. (b)

      the amount of the payment or benefit or, where the amount cannot be ascertained, the method for calculating that amount.

3. (3)

   That information must be disclosed:

   1. (a)

      prior to the provision of the relevant service; and

   2. (b)

      in a manner that is comprehensive, accurate and understandable (see also COBS 2.3A.10R (Disclosure of payments or benefits received from, or paid to, third parties)).

4. (4)

   Where applicable, a firm must inform a client of the mechanisms for transferring to the client the fee, commission, monetary or non-monetary benefit received in relation to the provision of the relevant service.

[Note: article 24(9) of MiFID, article 22(3) and 29(3) of the IDD4]

A firm which fails to comply with COBS 2.3A.5R is to be regarded as not fulfilling its obligations in relation to:

1. (1)

   conflicts of interest (see SYSC 3.3 (for insurers and managing agents) and SYSC 10 (for other firms)4); and

2. (2)

   acting honestly, fairly and professionally in accordance with the best interests of its clients (see COBS 2.1.1R).

[Note: article 24(9) of MiFID, article 29(2) and 29(3) of the IDD4

1. (1)

   For the purposes of COBS 2.3A.6R(1)(a)(i), a fee, commission or non-monetary benefit is designed to enhance the quality of the relevant service to a client only if :

   1. (a)

      it is justified by the provision of an additional or higher level service to the client and is proportional to the level of inducements received;

   2. (b)

      it does not directly benefit the recipient firm, its shareholders or employees without tangible benefit to the client;

   3. (c)

      it is justified by the provision of an ongoing benefit to the client in relation to an ongoing inducement; and

   4. (d)

      the provision of the service by the firm to the client is not biased or distorted as a result of the fee, commission or non-monetary benefit.

2. (2)

   A firm must fulfil these conditions on an ongoing basis as long as the firm continues to pay or receive the fee, commission or non-monetary benefit.

[Note: article 11(2) and (3) of the MiFID Delegated Directive]

A fee, commission or non-monetary benefit may be justified for the purposes of COBS 2.3A.8R(1)(a) where, for example, the firm provides:

1. (1)

   restricted advice on, and access to, a wide range of suitable financial instruments or insurance-based investment products5 including an appropriate number of financial instruments or insurance-based investment products5 from third party product providers having no close links with the firm; or

   44
2. (2)

   restricted advice combined with:

   1. (a)

      an offer to the client, at least on an annual basis, to assess the continuing suitability of the financial instruments or insurance-based investment products5 in which the client has invested; or

      4
   2. (b)

      another ongoing service that is likely to be of value to the client such as advice about the suggested optimal asset allocation of the client; or

3. (3)

   access, at a competitive price, to a wide range of financial instruments or insurance-based investment products5 that are likely to meet the needs of the client, including an appropriate number of financial instruments or insurance-based investment products5 from third party product providers having no close links with the firm, together with either the provision of added-value tools, such as objective information tools helping the client to take investment decisions or enabling the client to monitor, model and adjust the range of financial instruments or insurance-based investment products5 in which they have invested, or providing periodic reports of the performance and costs and charges associated with the financial instruments or insurance-based investment products5.

   4444

[Note: article 11(2) of the MiFID Delegated Directive]

2

COBS 2.3A.9AUK 6 applies as if it was a rule to firms in relation to insurance distribution activities to which the IDD Regulation does not apply.

1. (1)

   Prior to the provision of the relevant service, the firm must disclose to the client the information set out in COBS 2.3A.6R(2) and, where applicable, COBS 2.3A.6R(4).

2. (2)

   For these purposes, minor non-monetary benefits may be described in a generic way, but other non-monetary benefits received or paid by the firm in connection with a service provided to the client must be priced and disclosed separately.

[Note: article 11(5)(a) of the MiFID Delegated Directive]

Where a firm is unable to ascertain on an ex-ante basis the amount of any payment or benefit to be received or paid, and instead discloses to the client the method of calculating the relevant amount, the firm must also inform the client of the exact amount of the payment or benefit received or paid on an ex-post basis.

[Note: article 11(5)(b) of the MiFID Delegated Directive]

1. (1)

   Where inducements are received by the firm on an ongoing basis in relation to an investment service provided or in relation to the distribution of an insurance-based investment product4 to a client, the firm must inform, at least annually, that client about the actual amount of payments or benefits received.

2. (2)

   For these purposes, minor non-monetary benefits may be described in a generic way.

[Note: article 11(5)(c) of the MiFID Delegated Directive]

In implementing the requirements of COBS 2.3A.10R to COBS 2.3A.12R, a firm must take into account the costs and charges rules in6:

1. (1)

   (for MiFID, equivalent third country or optional exemption business) 4COBS 6.1ZA.11R and COBS 6.1ZA.12R6 and article 50 of the MiFID Org Regulation (see COBS 6.1ZA.14UK6); and

   4
2. (2)

   (for insurance-based investment products) 6COBS 6.1ZA.11R to COBS 6.1ZA.13R and COBS 6.1ZA.15AR.4

[Note: article 11(5) of the MiFID Delegated Directive]

Each firm involved in a distribution channel which provides an investment service, an ancillary service or distributes an insurance-based investment product4 must comply with its obligations to make disclosures to its clients.

[Note: article 11(5) of the MiFID Delegated Directive]

1. (1)

   This rule applies where a firm provides a retail client in the United Kingdom with:

   1. (a)

      independent advice; or

   2. (b)

      restricted advice; or

   3. (c)

      portfolio management services.

2. (2)

   The firm must not accept any fees, commission, monetary or non-monetary benefits which are paid or provided by:

   1. (a)

      any third party; or

   2. (b)

      a person acting on behalf of a third party,

   in relation to the provision of the relevant service to the client.

3. (2A)

   3Where the firm provides independent advice or restricted advice, the rule in (2) applies in connection with:

   1. (a)

      the firm’s business of advising; or

   2. (b)

      any other related service, where ‘related service’ has the same meaning as in COBS 6.1A.6R.

4. (3)

   Paragraph (2) does not apply to:

   1. (a)

      acceptable minor non-monetary benefits (see COBS 2.3A.19R in relation to the provision of investment services and COBS 6.1A.5AR in relation to the distribution of an insurance-based investment product4); or

   2. (b)

      third party research received in accordance with COBS 2.3B (see COBS 2.3B.3R).

[Note: see articles 24(7)(b) and 24(8) of MiFID; article 12(2) of the MiFID Delegated Directive]

1. (1)

   This rule applies where a firm provides independent advice or portfolio management services to:

   1. (a)

      a retail client outside the United Kingdom; or

   2. (b)

      (for investment services)4 a professional client.

2. (2)

   In relation to the provision of the relevant service to the client, the firm must not:

   1. (a)

      accept and retain any fees, commission or monetary benefits; or

   2. (b)

      accept any non-monetary benefits other than acceptable minor non-monetary benefits (see COBS 2.3A.19R and, in relation to the distribution of an insurance-based investment product, COBS 6.1A.5AR4) or third party research received in accordance with COBS 2.3B (see COBS 2.3B.3R),

   where these are paid or provided by any third party or a person acting on behalf of a third party.

3. (3)

   With regard to paragraph (2), the firm must:

   1. (a)

      return to the client as soon as reasonably possible after receipt any fees, commission or any monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the services provided to that client;

   2. (b)

      transfer in full to the client all fees, commission or monetary benefits received from third parties in relation to the services provided to the client;

   3. (c)

      establish and implement a policy to ensure that any fees, commission or any monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the services to the client are allocated and transferred to that client; and

   4. (d)

      inform the client about the fees, commission or any monetary benefits transferred to them, such as through the periodic reporting statements provided to the client.

[Note: articles 24(7)(b) and 24(8) of MiFID; article 12(1) and (2) of the MiFID Delegated Directive]

An acceptable minor non-monetary benefit is one which:

1. (1)

   is clearly disclosed prior to the provision of the relevant service to the client, which the firm may describe in a generic way (where applicable, in accordance with COBS 2.3A.10R)6;

2. (2)

   is capable of enhancing the quality of service provided to the client;

3. (3)

   is of a scale and nature that it could not be judged to impair the firm’s compliance with its duty to act honestly, fairly and professionally in the best interests of the client;

4. (4)

   is reasonable, proportionate and of a scale that is unlikely to influence the firm’s behaviour in any way that is detrimental to the interests of the relevant client; and

5. (5)

   consists of:

   1. (a)

      information or documentation relating to a financial instrument or an investment service, that is generic in nature or personalised to reflect the circumstances of an individual client;

   2. (b)

      written material from a third party that is commissioned and paid for by a corporate issuer or potential issuer to promote a new issuance by the company, or where the third party firm is contractually engaged and paid by the issuer to produce such material on an ongoing basis, provided that the relationship is clearly disclosed in the material and that the material is made available at the same time to any firms wishing to receive it, or to the general public;

   3. (c)

      participation in conferences, seminars and other training events on the benefits and features of a specific financial instrument or an investment service;

   4. (d)

      hospitality of a reasonable de minimis value, such as food and drink during a business meeting or a conference, seminar or other training events mentioned under paragraph (c);

   5. (e)

      research relating to an issue of shares, debentures, warrants or certificates representing certain securities by an issuer, which is:

      1. (i)

         produced:

         1. (A)

            prior to the issue being completed; and

         2. (B)

            by a person that is providing underwriting or placing services to the issuer on that issue; and

      2. (ii)

         made available to prospective investors in the issue; or

   6. (f)

      research that is received so that the firm may evaluate the research provider’s research service, provided that:

      1. (i)

         it is received during a trial period that lasts no longer than three months;

      2. (ii)

         no monetary or non-monetary consideration is due (whether during the trial period, before or after) to the research provider for providing the research during the trial period;

      3. (iii)

         the trial period is not commenced with the research provider within 12 months from the termination of an arrangement for the provision of research (including any previous trial period) with the research provider; and

      4. (iv)

         the firm makes and retains a record of the dates of any trial period accepted under this rule, as well as a record of how the conditions in (i) to (iii) were satisfied for each such trial period.

[Note: articles 24(7)(b) and 24(8) of MiFID; article 12(2) and (3) of the MiFID Delegated Directive and article 72(3) of the MiFID Org Regulation]

A firm must hold evidence that any fees, commission or non-monetary benefits paid or received by the firm are designed to enhance the quality of the relevant service to the client by:

1. (1)

   keeping an internal list of all fees, commission and non-monetary benefits received by the firm from a third party in relation to the provision of the service; and

2. (2)

   recording how the fees, commission and non-monetary benefits paid or received by the firm, or that the firm intends to use, enhance the quality of the services provided to the relevant clients and the steps taken in order not to impair the firm’s compliance with the duty to act honestly, fairly and professionally in the best interests of the client.

[Note: article 11(4) of the MiFID Delegated Directive]

In relation to the equivalent business of a third country investment firm and MiFID optional exemption business, information disclosed to the client in accordance with COBS 2.3A.6R(2), (3) and (4) and COBS 2.3A.10R to COBS 2.3A.12R must be retained in a medium that allows the storage of information in a way accessible for future reference by the FCA, and in such a form and manner that:

1. (1)

   the FCA is able to access it readily and to reconstitute each key stage of the processing of each transaction;

2. (2)

   it is possible for any corrections or other amendments, and the contents of the records prior to such corrections or amendments, to be easily ascertained;

3. (3)

   it is not possible for the records otherwise to be manipulated or altered;

4. (4)

   it can be exploited through information technology or any other efficient method of exploitation when analysis of the data cannot be easily carried out due to the volume and nature of the data; and

5. (5)

   the firm’s arrangements comply with the record keeping requirements irrespective of the technology used.

1This section applies to a firm carrying on MiFID, equivalent third country or optional exemption business.

Third party research that is received by a firm providing investment services or ancillary services to clients will not be an inducement under COBS 2.3A.5R, COBS 2.3A.15R or COBS 2.3A.16R if it is received in return for either of the following:

1. (1)

   direct payments by the firm out of its own resources; or

2. (2)

   payments from a separate research payment account controlled by the firm, provided that the firm meets the requirements in COBS 2.3B.4R relating to the operation of the account.

[Note: article 13(1)(a) and (b)(excl. (i) – (iv)) of the MiFID Delegated Directive]

The requirements referred to in COBS 2.3B.3R(2) for the operation of a research payment account are:

1. (1)

   the research payment account must only be funded by a specific research charge to clients, which must:

   1. (a)

      only be based on a research budget set by the firm for the purpose of establishing the amount needed for third party research in respect of investment services rendered to its clients; and

   2. (b)

      not be linked to the volume or value of transactions executed on behalf of clients;

2. (2)
   1. (a)

      the firm must set and regularly assess a research budget as an internal administrative measure as part of establishing a research payment account and agreeing the research charge with its clients; and

   2. (b)

      the research budget must comply with COBS 2.3B.7R, COBS 2.3B.8R(2) and COBS 2.3B.11R;

3. (3)

   the firm must be fully responsible for the research payment account; and

4. (4)

   the firm must regularly assess the quality of the research purchased, based on robust quality criteria, and its ability to contribute to better investment decisions for the clients who pay the research charge.

[Note: article 13(1)(b)(i-iv) and (2)(a) and (b) of the MiFID Delegated Directive]

A firm using a research payment account must provide the following information to clients:

1. (1)

   before the provision of an investment service or ancillary service to clients, information about the budgeted amount for research and the amount of the estimated research charge for each of them; and

2. (2)

   annual information on the total costs that each of them has incurred for third party research.

[Note: article 13(1) second subparagraph of the MiFID Delegated Directive]

A firm must ensure that:

1. (1)

   the total amount of research charges collected from clients under COBS 2.3B.4R(1) does not exceed the research budget established under COBS 2.3B.4R(2) (and, where relevant, amended under COBS 2.3B.8R(2)); and

2. (2)

   the research budget and research payment account are not used to fund research generated internally by the firm itself.

[Note: article 13(4) and (6) of the MiFID Delegated Directive]

1. (1)

   A firm must agree with clients, in the firm’s investment management agreement or general terms of business:

   1. (a)

      the research charge as budgeted by the firm; and

   2. (b)

      the frequency with which the specific research charge will be deducted from the resources of the client over the year.

2. (2)

   A firm must not increase its research budget unless it has provided, in advance, clear information to relevant clients about such intended increases.

3. (3)

   If there is a surplus in a research payment account at the end of a period, the firm must have a process to:

   1. (a)

      rebate those funds to relevant clients; or

   2. (b)

      offset it against the research budget and charge for relevant clients calculated for the following period.

   [Note: article 13(5) of the MiFID Delegated Directive]

4. (4)

   In calculating a rebate or offset as set out in (3), a firm must take reasonable steps to maintain a fair allocation of costs between clients.

For the purposes of COBS 2.3B.4R(2), a firm must ensure that:

1. (1)

   the research budget is managed solely by the firm and is based on a reasonable assessment of the need for third party research;

2. (2)

   the allocation of the research budget to purchase third party research is subject to appropriate controls and senior management oversight to ensure it is managed and used in the best interests of the firm’sclients; and

3. (3)

   the controls under (2) include a clear audit trail of:

   1. (a)

      payments made to research providers; and

   2. (b)

      how the amounts paid were determined with reference to:

      1. (i)

         the quality criteria required by COBS 2.3B.4R(4); and

      2. (ii)

         the firm’s policy for using third party research established under COBS 2.3B.12R.

[Note: article 13(6) of the MiFID Delegated Directive]

1. (1)

   A firm using a research payment account must establish a written policy that sets out how the firm will:

   1. (a)

      comply with all elements of COBS 2.3B.4R(4); and

   2. (b)

      address the extent to which research purchased through the research payment account may benefit clients’ portfolios, including, where relevant, by taking into account investment strategies applicable to various types of portfolios, and the approach the firm will take to allocate such costs fairly to the various clients’ portfolios.

2. (2)

   A firm must provide the policy established under (1) to their clients.

[Note: article 13(8) of the MiFID Delegated Directive]

If a firm uses an operational arrangement for the collection of the charge under COBS 2.3B.4R(1) where that charge is not collected separately but alongside a transaction commission, the firm must still indicate a separately identifiable research charge and ensure that the arrangements comply fully with the conditions in COBS 2.3B.4R and COBS 2.3B.5R.

[Note: article 13(3) of the MiFID Delegated Directive]

For the purposes of COBS 2.3B.3R and COBS 2.3B.4R, a firm may delegate the administration of the research payment account to a third party, provided that the arrangement facilitates payments to research providers, in the name of the firm, for the purchase of third party research, without any undue delay and in accordance with the firm’s instruction.

[Note: article 13(7) of the MiFID Delegated Directive]

1. (1)

   Where a firm operates a research payment account, it must provide on request to its clients a summary of:

   1. (a)

      the providers paid from this account;

   2. (b)

      the total amount they were paid over a defined period;

   3. (c)

      the benefits and services received by the firm; and

   4. (d)

      how the total amount spent from the account compares to the budget set by the firm for that period, noting any rebate or carry-over if residual funds remain in the account.

2. (2)

   A firm must also be able to provide the information in paragraph (1) to the FCA on request for all research payment accounts.

[Note: article 13(2) of the MiFID Delegated Directive]

A firm must only use monies in a research payment account established under COBS 2.3B.3R(2) to pay for research or to pay a rebate to clients in accordance with COBS 2.3B.8R(3)(a).

1This section applies to an investment firm providing execution services to:

1. (1)

   a firm carrying on MiFID, equivalent third country or optional exemption business; or

2. (2)

   an investment firm authorised under the UK provisions which implemented3MiFID that is not within (1); or

3. (3)

   a UCITS management company; or

4. (4)

   a full-scope UK AIFM; or

5. (5)

   a small authorised UK AIFM; or

6. (6)

   a residual CIS operator; or

7. (7)

   [deleted]3

   2
8. (8)

   2an OPS firm.

A firm providing execution services must:

1. (1)

   identify separate charges for its execution services that only reflect the cost of executing the transaction;

2. (2)

   subject each other benefit or service (other than an acceptable minor non-monetary benefit in COBS 2.3A.19R) which it provides to persons listed in COBS 2.3C.1R(1) to (6) to a separately identifiable charge; and

3. (3)

   ensure that the supply of, and charges for, other benefits or services under (2) is not influenced or conditioned by levels of payment for execution services.

[Note: article 13(9) of the MiFID Delegated Directive]

A firm providing both execution and research services must price and supply them separately.

This section applies to a firm that is conducting designated investment business or ancillary activities or, in the case of MiFID, equivalent third country or optional exemption business3, 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 16.2 or COBS 16A.33); 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 provide3 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 firm5; 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 suitability3 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.

4Where a firm carrying on insurance distribution activities in relation to an insurance-based investment product is required to perform an appropriateness assessment under COBS 10A, it may rely upon:

1. (1)

   a suitability assessment performed by another firm, if that other firm was subject to the requirements for assessing suitability in COBS 9A5; or

2. (2)

   an appropriateness assessment performed by another firm, if that other firm was subject to the requirements for assessing appropriateness in COBS 10A.25,

in performing that assessment.

[Note: article 30(2) of the IDD]

1. (1)

   This rule applies if the applicable4rule on reliance on other investment firms or insurance distributors (COBS 2.4.4 R and COBS 2.4.5AR4) 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.