COBS 4.12 Unregulated collective investment schemes

Category 1 person

(1) a person who is already a participant in an unregulated collective investment scheme; or

(2) A person who has been, in the last 30 months, a participant in an unregulated collective investment scheme.

A. that collective investment scheme; or

B. any other collective investment scheme whose underlying property and risk profile are both 'substantially similar' (see Note 1) to those of that collective investment scheme; or

C. a collective investment scheme which is intended to absorb or take over the assets of that collective investment scheme; or

D. a collective investment scheme, units in which are being offered by its operator as an alternative to cash on the liquidation of that collective investment scheme.

Category 2 person

(1) A person:

(a) for whom the firm has taken reasonable steps to ensure that investment in the collective investment scheme is suitable; and

(b) who is an 'established' or 'newly accepted' client of the firm or of a person in the same group as the firm (see Notes 2 & 3).

That collective investment scheme

Category 3 person

A person who is eligible to participate in a scheme constituted under:

(1) the Church Funds Investment Measure 1958;

(2) section 96 of the Charities Act 2011; or2

(3) section 25 of the Charities Act (Northern Ireland) 1964.

Any such collective investment scheme

Category 4 person

An eligible employee, that is, a person who is:

(1) an officer;

(2) an employee;

(3) a former officer or employee; or

(4) a member of the immediate family of any of (1) - (3),

of an employer which is (or is in the same group as) the firm, or which has accepted responsibility for the activities of the firm in carrying out the designated investment business in question.

1. A collective investment scheme the instrument constituting which:

A. restricts the property of the scheme, apart from cash and near cash, to:

(1) (where the employer is a company) shares in and debentures of company or any other connected company (see Note 4);

(2) (in any case), any property, provided that the scheme takes the form of:

(i) a limited partnership, under the terms of which the employer (or connected company) will be the unlimited partner and the eligible employees will be some or all of the limited partners; or

(ii) a trust which the firm reasonably believes not to contain any risk that any eligible employee may be liable to make any further payments (other than charges) for investment transactions earlier entered into, which the eligible employee was not aware of at the time he entered into them; and

B. (in a case falling within A(1) above) restricts participation in the scheme to eligible employees, the employer and any connected company.

2. Any collective investment scheme provided that the participation of eligible employees is to facilitate their co-investment:

(i) with one or more companies in the same group as their employer (which may include the employer); or

(ii) with one or more clients of such a company.

Category 5 person

A person admitted to membership of the Society of Lloyd's or any person by law entitled or bound to administer his affairs.

A scheme in the form of a limited partnership which is established for the sole purpose of underwriting insurance business at Lloyd's.

Category 6 person

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

Any collective investment scheme.

Category 7 person

An eligible counterparty or a professional client.

Any collective investment scheme in relation to which the client is categorised as a professional client or eligible counterparty (see Note 5).

Category 8 person

A person:

(1) in relation to whom the firm has undertaken an adequate assessment of his expertise, experience and knowledge and that assessment gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the person is capable of making his own investment decisions and understanding the risks involved;

(2) to whom the firm has given a clear written warning that this will enable the firm to promote unregulated collective investment schemes to the client; and

(3) who has stated in writing, in a document separate from the contract, that he is aware of the fact the firm can promote certain unregulated collective investment schemes to him.

Any collective investment scheme covered by the assessment.

The following Notes explain certain words and phrases used in the table above.

Note 1

The property of a collective investment scheme is 'substantially similar' to that of another collective investment scheme if in both cases the objective is to invest in the same one of the following sectors:

(a)

on-exchange derivatives or warrants;

(b)

on-exchange (or quoted) securities;

(c)

the property market (whether in security of property companies or in property itself);

(d)

collectable items of a particular description (such as works of art, antique vehicles, etc);

(e)

artistic productions (such as films, television, opera, theatre or music);

(f)

unlisted investments (including unlisted debt securities).

The risk profile of a scheme will be substantially similar to that of another scheme only if there is such similarity in relation to both liquidity and volatility.

Note 2

A person is an 'established client' of another person if he has been and remains an actual client of that person in relation to designated investment business done with or through that other person.

Note 3

A person is a 'newly accepted' client of a firm if:

(a)

a written agreement relating to designated investment business exists between the client and the firm (or, if the client is normally resident outside the United Kingdom, an oral or written agreement); and

(b)

that agreement has been obtained without any contravention of section 238 or 240 of the Act, or of any rule in COBS applying to the firm or (as far as the firm is reasonably aware) any other authorised person.

Note 4

A company is 'connected' with another company if:

(a)

they are in the same group; or

(b)

one company is entitled either alone or with another company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to the share capital, which are exercisable in all circumstances at any general meeting of the other company or of its holding company.

Note 5

Firms may use the client categorisation regime that applies to business other than MiFID or equivalent third country business. [This is the case even if the firm will be within the scope of MiFID when it makes the promotion.]