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COBS 4.2 Fair, clear and not misleading communications

The fair, clear and not misleading rule

COBS 4.2.1RRP

  1. (1)

    A firm must ensure that a communication or a financial promotion is fair, clear and not misleading.

  2. (2)

    This rule applies in relation to:

    1. (a)

      a communication by the firm to a customer6 in relation to designated investment business which is not MiFID, equivalent third country or optional exemption business,7 other than a third party prospectus;

    2. (aa)

      6a communication to an eligible counterparty that is in relation to MiFID or equivalent third country business, other than a third party prospectus;

    3. (ab)

      7a communication by the firm to a customer in relation to MiFID, equivalent third country or optional exemption business, other than a third party prospectus;

    4. (b)

      a financial promotion communicated by the firm that is not:

      1. (i)

        an excluded communication;

      2. (ii)

        a non-retail communication;

      3. (iii)

        a third party prospectus; and

    5. (c)

      a financial promotion approved by the firm.

  3. (3)

    6As part of complying with (1), a firm must take into account the nature of the client.

[Note: ,3article 24(3) and article 30(1) of MiFID6 and article 77 of the UCITS Directive]3

COBS 4.2.2GRP
  1. (1)

    1The fair, clear and not misleading rule applies in a way that is appropriate and proportionate taking into account the means of communication,6 the information the communication is intended to convey and the nature of the client and of its business, if any6. So a communication addressed to a professional client or an eligible counterparty6 may not need to include the same information, or be presented in the same way, as a communication addressed to a retail client.

  2. (2)

    COBS 4.2.1R(2)(b)1 does not limit the application of the fair, clear and not misleading rule under COBS 4.2.1R (2) (a). So, for example, a communication in relation to designated investment business that is both a communication to a professional client and a financial promotion, will still be subject to the fair, clear and not misleading rule.

6[Note: article 30(1) of MiFID and recital 65 to the MiFID Org Regulation]

COBS 4.2.3GRP

Part 7 (Offences relating to Financial Services) of the Financial Services Act 2012 creates criminal offences relating to certain misleading statements and practices.

Fair, clear and not misleading financial promotions

COBS 4.2.4GRP

A firm should ensure that a financial promotion:

  1. (1)

    for a product or service that places a client's capital at risk makes this clear;

  2. (2)

    that quotes a yield figure gives a balanced impression of both the short and long term prospects for the investment;

  3. (3)

    that promotes an investment or service whose charging structure is complex, or in relation to which the firm will receive more than one element of remuneration, includes the information necessary to ensure that it is fair, clear and not misleading and contains sufficient information taking into account the needs of the recipients;

  4. (4)

    that names the FCA, PRA or both as its regulator and refers to matters not regulated by either the FCA, PRA or both makes clear that those matters are not regulated by the FCA, PRA or either;

  5. (5)

    that offers packaged products or stakeholder products not produced by the firm, gives a fair, clear and not misleading impression of the producer of the product or the manager of the underlying investments.

COBS 4.2.5GRP

2A communication or a financial promotion should not describe a feature of a product or service as “guaranteed”, “protected” or “secure”, or use a similar term unless:

24
  1. (1)

    that term is capable of being a fair, clear and not misleading description of it; and

  2. (2)

    the firm communicates all of the information necessary, and presents that information with sufficient clarity and prominence, to make the use of that term fair, clear and not misleading.45

The reasonable steps defence to an action for damages

COBS 4.2.6RRP

1If, in relation to a particular communication or financial promotion, a firm takes reasonable steps to ensure it complies with the fair, clear and not misleading rule, a contravention of that rule does not give rise to a right of action under section 138D of the Act.