COBS 4.10 Approving and confirming compliance of financial promotions

Systems and controls

COBS 4.10.1GRP

The rules in SYSC 3 (and also for Solvency II firms, the PRA Rulebook: Solvency II firms: Conditions Governing Business)1 and SYSC 4 require a firm that communicates with a client in relation to designated investment business, or communicates or approves a financial promotion, to put in place systems and controls or policies and procedures, or an effective internal control system,1 in order to comply with the rules in this chapter.

Approving financial promotions

COBS 4.10.1AG

3The purpose of COBS 4.10.2R is to ensure that a firm that approves a financial promotion for communication by an unauthorised person:

  1. (1)

    satisfies itself of the compliance of that financial promotion with the financial promotion rules; and

  2. (2)

    having approved that financial promotion, takes appropriate steps to ensure that the financial promotion remains compliant for the lifetime of its communication.

COBS 4.10.1BG
  1. (1)

    5The effect of section 55NA of the Act is that7 a firm is unable to approve a financial promotion unless:

    1. (a)

      the firm is a permitted approver in relation to the financial promotion; or

    2. (b)

      an approver permission exemption applies.

  2. (2)

    SUP 6A contains guidance on applying for approver permission.

  3. (3)

    The requirements in this section that apply to a firm after it has approved a financial promotion continue to apply even where the firm ceases to be entitled to approve that financial promotion, for example because it ceases to be a permitted approver in respect of that financial promotion. This includes the requirement to monitor continuing compliance of the financial promotion. In such a scenario, if the firm became aware that the financial promotion no longer complied with the financial promotion rules, it could withdraw its approval but could not approve amendments to the financial promotion.

COBS 4.10.2RRP

  1. (1)

    Before a firm approves a financial promotion for communication by an unauthorised person, it must confirm that the financial promotion complies with the financial promotion rules.

  2. (1A)

    After a firm has complied with (1), and for as long as the financial promotion is communicated, the firm must take reasonable steps to monitor the continuing compliance of that financial promotion with the financial promotion rules.3

    [Note: for the FCA’s guidance on ‘Ongoing monitoring’ see: https://www.fca.org.uk/firms/financial-promotions-and-adverts/approving-financial-promotions]3

  3. (1B)

    A firm that has approved a financial promotion issued, and for communication by, an unauthorised person must require from that person, a written quarterly attestation that there has been no material change:3

    1. (a)

      to the financial promotion; or3

    2. (b)

      in circumstances which might affect the continuing compliance of the financial promotion with the financial promotion rules.3

  4. (1C)

    For the purpose of (1B), a firm must:3

    1. (a)

      require the first attestation no less than 3 months after it approves the financial promotion; and3

    2. (b)

      thereafter, require attestations at least once every 3 months for as long as the financial promotion is communicated.3

  5. (2)

    If, at any time after a firm has complied with (1), a firm becomes aware that a financial promotion no longer complies with the financial promotion rules, it must withdraw its approval and notify any person that it knows to be relying on its approval as soon as reasonably practicable.3

  6. (3)

    When approving a financial promotion, the firm must confirm compliance with the financial promotion rules that would have applied if the financial promotion had been communicated by a firm other than in relation to MiFID or equivalent third country business.3

COBS 4.10.2AR
  1. (1)

    3This rule applies to a firm that approves:

    1. (a)

      a direct offer financial promotion relating to a restricted mass market investment; or

    2. (b)

      a financial promotion relating to a non-mass market investment,

    for communication to a retail client.

  2. (2)

    A firm must take reasonable steps to ensure, on a continuing basis:

    1. (a)

      that the conditions specified in:

      1. (i)

        COBS 4.12A.15R(1)(b) are being satisfied in relation to each communication of the direct offer financial promotion relating to the restricted mass market investment;

      2. (ii)

        COBS 4.12B.10R(2)(b) are being satisfied in relation to each communication of the financial promotion relating to the non-mass market investment; and

    2. (b)

      if the firm will not itself carry out the appropriateness assessment required by COBS 4.12A.28R, that the appropriateness assessments undertaken comply with the rules specified in COBS 4.12A.28R.

  3. (3)

    If the firm is not satisfied that the relevant conditions are being satisfied or that the appropriateness assessments undertaken comply with the relevant rules then it must withdraw its approval of the financial promotion in accordance with COBS 4.10.2R(2).

COBS 4.10.2BG

3COBS 4.11.6R requires a firm that approves a direct offer financial promotion relating to a restricted mass market investment for communication to a retail client to take reasonable steps to ensure that it is provided with, or has ready access to, information relating to the communication of the direct offer financial promotion. These records should assist the firm in complying with COBS 4.10.2AR.

COBS 4.10.2CG

6A firm is reminded of its obligations under ESG 4.3.1R when it communicates or approves a financial promotion that makes reference to the sustainability characteristics of a product or service.

COBS 4.10.3GRP

  1. (1)

    Section 21(1) of the Act (Restrictions on financial promotion) prohibits an unauthorised person from communicating a financial promotion, in the course of business, unless an exemption applies or the financial promotion is approved by a firm. Many of the rules in this chapter apply when a firm approves a financial promotion in the same way as when a firm communicates a financial promotion itself.

  2. (2)

    A firm may also wish to approve a financial promotion that it communicates itself. This would ensure that an unauthorised person who then also communicates the financial promotion to another person will not contravene the restriction on financial promotion in the Act (section 21).

  3. (3)

    Approving a financial promotion for communication by an unauthorised person is not MiFID, equivalent third country or optional exemption business2.

  4. (4)

    A firm may not approve a financial promotion relating to an unregulated collective investment scheme unless the firm would be able to communicate the promotion without breaching section 238(1) of the Act (see section 240 of the Act). The exemptions from that section in the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (as amended from time to time) are relevant.

  5. (5)

    The rules in COBS 4.12B prevent a firm from approving a financial promotion for a non-mass market investment for communication to retail clients unless an exemption applies. Where an exemption requires a preliminary assessment of suitability, the effect of COBS 4.12B.7R is that this assessment must be undertaken by the firm approving the financial promotion.3

  6. (6)

    For the purposes of COBS 4.10.2R(1B), a financial promotion should be considered to be issued by an unauthorised person where that unauthorised person is responsible for the overall contents of the financial promotion (see also PERG 8.6.1G).3

  7. (7)

    The effect of COBS 4.10.2R(1A) and (2) and COBS 4.10.2AR(3) is that where a firm identifies that a financial promotion that it has approved is no longer compliant with the financial promotion rules, the firm must withdraw its approval.3

  8. (8)

    4A registered person is not able to approve a financial promotion.

COBS 4.10.3AG

3If a firm:

  1. (1)

    is unable to obtain an attestation required by COBS 4.10.2R(1B), that firm should consider whether to withdraw its approval;

  2. (2)

    in response to a request to provide an attestation, is informed of changes which indicate that the financial promotion no longer complies with the financial promotion rules, it must withdraw its approval,

in each case in accordance with COBS 4.10.2R(2).

COBS 4.10.4RRP

A firm must not approve a financial promotion to be made in the course of a personal visit, telephone conversation or other interactive dialogue.

COBS 4.10.5RRP

If a firm approves a financial promotion in circumstances in which one or more of the financial promotion rules, or the prohibition on approval of promotions for collective investment schemes in section 240(1) of the Act (Restriction on approval), are expressly disapplied, the approval must be given on terms that it is limited to those circumstances.

COBS 4.10.6GRP

For example, if a firm approves a financial promotion for communication to a professional client or an eligible counterparty, the approval must be limited to communication to such persons.

COBS 4.10.7GRP

If an approval is limited, and an unauthorised person communicates the financial promotion to persons not covered by the approval, the unauthorised person may commit an offence under the restriction on financial promotion in the Act (section 21). A firm giving a limited approval may wish to notify the unauthorised person accordingly.

COBS 4.10.7AG

3An approved financial promotion that is addressed to, or disseminated in such a way that it is likely to be received by, a retail client is required to include the name of the firm that approved it and the date on which it was approved (COBS 4.5.2R).

Communicating financial promotions

COBS 4.10.8GRP

If a firm continues to communicate a financial promotion when the financial promotion no longer complies with the rules in this chapter, it will breach those rules.

COBS 4.10.9GRP

A financial promotion which is clearly only relevant at a particular date will not cease to comply with the financial promotion rules merely because the passage of time has rendered it out-of-date; an example would be a dated analyst's report.

Competence and expertise

COBS 4.10.9AR
  1. (1)

    3A firm must not communicate or approve a financial promotion unless the individual or individuals responsible for the compliance of the financial promotion with the financial promotion rules has or have appropriate competence and expertise.

  2. (2)

    Appropriate competence and expertise for the purposes of (1) means competence and expertise in the investment or financial service to which the financial promotion relates. It does not necessarily, for example, require competence or expertise in the day-to-day commercial activities of a company issuing securities for the purposes of raising capital.

  3. (3)

    If a firm (A) determines that it lacks appropriate competence and expertise in relation to a financial promotion, it must:

    1. (a)

      have another firm (B) confirm that the financial promotion complies with the financial promotion rules before A communicates that financial promotion; or

    2. (b)

      decline to approve that financial promotion.

  4. (4)

    4A registered person is not permitted to confirm the compliance of a financial promotion for the purpose of COBS 4.10.9AR(3).

COBS 4.10.9BR
  1. (1)

    3A firm must not confirm the compliance of a financial promotion for the purpose of COBS 4.10.9AR(3)(a) unless:

    1. (a)

      it is satisfied that the financial promotion complies with the financial promotion rules; and

    2. (b)

      the individual or individuals responsible for providing that confirmation has or have appropriate competence and expertise.

  2. (2)

    A firm must not confirm the compliance of a financial promotion to be made in the course of a personal visit, telephone conversation or other interactive dialogue.

Relying on another firm's confirmation of compliance

COBS 4.10.10RRP

  1. (1)

    A firm (A) will not contravene any of the financial promotion rules if it communicates a financial promotion which has been produced by another person and:

    1. (a)

      A takes reasonable care to establish that another firm (B) has confirmed that the financial promotion complies with the financial promotion rules;

    2. (b)

      A takes reasonable care to establish that it communicates the financial promotion only to recipients of the type for whom it was intended at the time B carried out the confirmation exercise;5

    3. (c)

      so far as A is, or ought reasonably to be, aware:

      1. (i)

        the financial promotion has not ceased to be fair, clear and not misleading since that time; and

      2. (ii)

        B has not withdrawn the financial promotion; and5

    4. (d)

      5A takes reasonable care to establish that B did not breach the approver permission requirement in the context of confirming compliance.

  2. (2)

    This rule does not apply in relation to MiFID, equivalent third country or optional exemption business2.

COBS 4.10.11GRP

A firm should inform anyone relying on its confirmation of compliance if it becomes aware that the financial promotion no longer complies with the rules in this chapter.

Conflicts of interest

COBS 4.10.12R
  1. (1)

    3This rule applies to a firm that:

    1. (a)

      approves a financial promotion for communication by an unauthorised person; or

    2. (b)

      confirms the compliance of a financial promotion for the purposes of COBS 4.10.9AR(3)(a).

  2. (2)

    A firm must take all appropriate steps to identify and to prevent or manage conflicts of interest between the firm, including its managers, employees and appointed representatives (or, where applicable, tied agents), or any person directly or indirectly linked to them by control, and a person for whom the firm:

    1. (a)

      approves a financial promotion; or

    2. (b)

      confirms the compliance of a financial promotion.