COBS 4.14 Restrictions on the promotion of speculative illiquid securities to retail clients

1. (1)

   1A firm must not communicate or approve a financial promotion in relation to a speculative illiquid security where that financial promotion is addressed to or disseminated in such a way that it is likely to be received by a retail client.

2. (2)

   The restriction in (1) is subject to COBS 4.14.3R.

1Subject to COBS 4.14.2R and COBS 4.14.3R, a firm must not communicate or approve a financial promotion which relates to a speculative illiquid security unless it contains:

1. (1)

   a risk warning that complies with COBS 4.14.6R;

2. (2)

   if applicable, the date on which the financial promotion was approved; and

3. (3)

   statements that comply with COBS 4.14.9R disclosing all costs, charges and commission.

1The relevant risk warning in COBS 4.14.6R must be:

1. (1)

   prominent;

2. (2)

   contained within its own border and with bold text as indicated;

3. (3)

   if provided on a website or via a mobile application, statically fixed and visible at the top of the screen even when the retail client scrolls up or down the webpage; and

4. (4)

   if provided on a website, included on each linked webpage on the website.

1For the purposes of COBS 4.14.5R(3) the financial promotion must contain:

1. (1)

   a statement which expresses as a percentage the total amount of the capital raised by the issue of the speculative illiquid security which will be paid out in costs, fees, charges and commissions and other expenses to any third party;

2. (2)

   a statement which expresses as a cash sum the percentage referred to in (1) above; and

3. (3)

   in addition to the statements in (1) and (2) above, a statement which provides a breakdown of the actual or potential expenditure to be paid out of an investor’s capital and details of the third party (or parties) who will receive it.

1The statements providing the percentage figure in COBS 4.14.9R(1) and the cash sum in COBS 4.14.9R(2) must be:

1. (1)

   prominent;

2. (2)

   contained together within their own border and with bold text;

3. (3)

   immediately follow the most prominent reference to the expected return on the speculative illiquid security; and

4. (4)

   published so that they are clearly legible against a neutral background.

1A high net worth investor is an individual who has signed, within the period of twelve months ending on the day on which the communication is made, a statement in the following terms:

1. “HIGH NET WORTH INVESTOR STATEMENT

   I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of speculative illiquid securities. The exemption relates to high net worth investors and I declare that I qualify as such because at least one of the following applies to me:

   I had, throughout the financial year immediately preceding the date below, an annual income to the value of £100,000 or more. Annual income for these purposes does not include money withdrawn from my pension savings (except where the withdrawals are used directly for income in retirement).

   I held throughout the financial year immediately preceding the date below, net assets to the value of £250,000 or more. Net assets for these purposes do not include:

   1. (a) the property which is my primary residence or any money raised through a loan secured on that property; or

   2. (b) any rights of mine under a qualifying contract of insurance; or

   3. (c) any benefits (in the form of pensions or otherwise) which are payable on the termination of my service or on my death or retirement and to which I am (or my dependants are), or may be, entitled; or

   4. (d) any withdrawals from my pension savings (except where the withdrawals are used directly for income in retirement).

   I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me to seek advice from an authorised person who specialises in advising on speculative illiquid securities.

   Signature:

   Date:

1A certified sophisticated investor is an individual who:

1. (1)

   has a written certificate signed within the last 36 months by a firm confirming he has been assessed by that firm as sufficiently knowledgeable to understand the risks associated with engaging in investment activity in speculative illiquid securities; and

2. (2)

   has signed, within the period of twelve months ending with the day on which the communication is made, a statement in the following terms:

   1. “SOPHISTICATED INVESTOR STATEMENT

      I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of speculative illiquid securities. The exemption relates to certified sophisticated investors and I declare that I qualify as such.

      I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me to seek advice from an authorised person who specialises in advising on speculative illiquid securities.

      Signature:

      Date: ”

1A self-certified sophisticated investor is an individual who has signed, within the period of twelve months ending with the day on which the communication is made, a statement in the following terms:

1. “I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of speculative illiquid securities. I understand that this means:

   1. (i) I can receive promotional communications made by a person who is authorised by the Financial Conduct Authority which relate to investment activity in speculative illiquid securities;

      (ii) the investments to which the promotions will relate may expose me to a significant risk of losing all of the property invested.

2. I am a self-certified sophisticated investor because at least one of the following applies:

   1. (a) I am a member of a network or syndicate of business angels and have been so for at least the last six months prior to the date below;

   2. (b) I have made more than one investment in an unlisted company in the two years prior to the date below;

   3. (c) I am working, or have worked in the two years prior to the date below, in a professional capacity in the private equity sector, or in the provision of finance for small and medium enterprises;

   4. (d) I am currently, or have been in the two years prior to the date below, a director of a company with an annual turnover of at least £1 million.

   I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on speculative illiquid securities.

   Signature:

   Date: ”

1For the purposes of this section, and subject to COBS 4.14.18R, a speculative illiquid security is a debenture or preference share which:

1. (1)

   has a denomination or minimum investment of £100,000 or less; and

2. (2)

   has been issued, or is to be issued, in circumstances where the issuer or a member of the issuer’s group uses, will use or purports to use some or all of the proceeds of the issue directly or indirectly for one or more of the following:

   1. (a)

      the provision of loans or finance to any person other than a member of the issuer’s group;

   2. (b)

      buying or acquiring investments (whether they are to be held directly or indirectly);

   3. (c)

      buying property or an interest in property (whether it is to be held directly or indirectly);

   4. (d)

      paying for or funding the construction of property.

1A debenture or preference share is not a speculative illiquid security where one or more of the exemptions in (1), (3) or (4) below applies.

1. (1)

   This exemption applies where:

   1. (a)

      the issuer or a member of the issuer’s group uses or purports to use the proceeds of the issue for the purpose of the activities in COBS 4.14.17R(2)(c) or (d) (buying or constructing property); and

   2. (b)

      the relevant property is or will be used by the issuer or a member of the issuer’s group for a general commercial or industrial purpose which it carries on.

2. (2)

   The exemption in (1) will not apply if the ability of the issuer to pay in relation to the debenture or preference share:

   1. (a)

      any coupon or other income; and/or

   2. (b)

      capital at maturity

   is wholly or predominantly linked to, contingent on, sensitive to or dependent on a return generated as a result of the matters referred to in COBS 4.14.17R(2)(c) or (d).

3. (3)

   This exemption applies where the debenture or preference share is:

   1. (a)

      issued, or to be issued, by a credit institution;

   2. (b)

      a non-mainstream pooled investment;

   3. (c)

      a readily realisable security; or

   4. (d)

      a P2P agreement.

4. (4)

   This exemption applies where the issuer is a property holding vehicle.

1. (1)

   1For the purposes of COBS 4.14.18R(1)(b), a general commercial or industrial purpose includes the following:

   1. (a)

      a commercial activity, involving the purchase, sale and/or exchange of goods or commodities and/or the supply of services (other than property development or construction services); or

   2. (b)

      an industrial activity involving the production of goods; or

   3. (c)

      a combination of (a) and (b).

2. (2)

   For the purposes of COBS 4.14.18R(1)(b), a general commercial or industrial purpose does not include investment to generate a pooled return.