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  1. Point in time
    2014-11-30

COBS 22.1 Temporary restrictions on contingent convertible instruments

COBS 22.1.1R
  1. (1)

    1A firm must not

    1. (a)

      sell a contingent convertible instrument to a retail client in the EEA; or

    2. (b)

      do anything that would or might result in the buying of a contingent convertible instrument or of a beneficial interest in a contingent convertible instrument by a retail client in the EEA.

  2. (2)

    The prohibition in (1) does not apply if the firm has taken reasonable steps to ensure that one or more of the exemptions in COBS 22.1.2 R applies.

  3. (3)

    In this section a retail client of the firm includes a person who would be a retail client if he were receiving services from the firm in the course of carrying on a regulated activity.

  4. (4)

    The rules in this section cease to have effect on 1 October 2015.

Exemptions

COBS 22.1.2R

Title

Type of retail client

Additional conditions

Certified high net worth investors

An individual who meets the requirements set out in COBS 4.12.6 R, or a person (or persons) legally empowered to make investment decisions on behalf of such individual.

The firm must consider the contingent convertible instrument is likely to be suitable for that individual, based on a preliminary assessment of that individual's profile and objectives. (See COBS 4.12.5 G (2).)

Exempt persons

An exempt person (other than a person exempted only by section 39 of the Act (Exemption of appointed representatives)) if the activity relates to a regulated activity in respect of which the person is exempt from the general prohibition.

Not applicable.

Certified sophisticated investors

An individual who meets the requirements set out in COBS 4.12.7 R, including an individual who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm's client.

Not applicable.

Self-certified sophisticated investors

An individual who meets the requirements set out in COBS 4.12.8 R, including an individual who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm's client.

The firm must consider the contingent convertible instrument is likely to be suitable for that individual, based on a preliminary assessment of that individual's profile and objectives. (See COBS 4.12.5 G (2).)

Solicited advice

Any retail client.

The prohibition does not apply provided all of the following requirements are met:

(a) there is no financial promotion other than a personal recommendation on the contingent convertible instrument;

(b) the personal recommendation is made following a specific request by that client for advice on the merits of investing in the contingent convertible instrument; and

(c) the client has not previously received a financial promotion or any other communication from the firm (or from a person connected to the firm) which is intended to influence the client in relation to investment in contingent convertible instruments. (See Note 1.)

MiFID or equivalent third country business other than financial promotions

Any retail client.

If the prohibited activities amount to MiFID or equivalent third country business, that rule only applies to the extent that the prohibited activity is the communication or approval of a financial promotion.

Prospectus

Any retail client.

The prohibition does not apply to the distribution of a prospectus required under the Prospectus Directive.

Issuers

Any retail client

To the extent that the firm is acting as issuer of a contingent convertible instrument, the prohibition only applies to the original issuance of the contingent convertible instrument and not to subsequent trading in the secondary market.

Clearing, custodial and processing services

Any retail client

The prohibition does not apply to the extent that the firm's activities relate to clearing, registration or settlement of transactions in contingent convertible instruments (or rights to or interests in such instruments), any back office processing or reporting of such transactions, or custody of contingent convertible instruments.

Indirect investment

Any retail client

The prohibition does not apply in relation to a beneficial interest in a contingent convertible instrument held from participation in a regulated collective investment scheme, investment in a non-mainstream pooled investment, or membership of an occupational pension scheme.

Note 1

A person is connected with a firm if it acts as an introducer or appointed representative for that firm or, if it is any other person, regardless of authorisation status, who has a relevant business relationship with the firm.

Note 2

See COBS 2.4 for rules and guidance on agent as client and reliance on others.
COBS 22.1.3R
  1. (1)

    For the purposes of compliance with this section and with any assessments or certifications required by the exemptions set out in COBS 22.1.2 R, any references in COBS 4.12 provisions to non-mainstream pooled investments must be read as though they are references to contingent convertible instruments.

  2. (2)

    If the firm is relying on the high net worth investor exemption, the sophisticated investor exemption or the self-certified sophisticated investor exemption for the purposes of compliance with COBS 22.1.1 R, the statement the investor must sign should have references to non-mainstream pooled investments replaced with references to contingent convertible instruments.

  3. (3)

    The firm must give the retail client a written copy of any statements that individual has been asked to sign as part of certification as a high net worth, sophisticated or self-certified sophisticated investor for the purposes of compliance with COBS 22.1.1 R.

COBS 22.1.4R

If a firm communicates or approves an invitation or inducement to acquire or underwrite a contingent convertible instrument (or rights to interests in that instrument) which is addressed to, or disseminated in such a way that it is likely to be received by, a retail client, it must comply with the record-keeping requirements in COBS 4.11.1 R, adapted as follows:

  1. (1)

    references to non-mainstream pooled investments should be read as references to contingent convertible instruments; and

  2. (2)

    references to COBS 4.12.3 R should be read as references to COBS 22.1.1 R.