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COBS 4.5 Communicating with retail clients

Application

COBS 4.5.1RRP

  1. (1)

    Subject to (2) and (3), this section applies to a firm in relation to:

    1. (a)

      the provision of information in relation to its designated investment business; and

    2. (b)

      the communication or approval of a financial promotion;

    where such information or financial promotion is addressed to, or disseminated in such a way that it is likely to be received by, a retail client.

  2. (2)

    If3 a communication relates to a firm's3 MiFID or equivalent third country business, this section does not apply:3

    1. (a)

      to the extent that it is a third party prospectus;

      3
    2. (b)

      if it is image advertising.

  3. (3)

    If3 a communication relates to a firm's business that is not3 MiFID or equivalent third country business, this section does not apply:3

    1. (a)

      to the extent that it is an excluded communication;

    2. (b)

      to the extent that it is a prospectus advertisement to which PR 3.3 applies;

    3. (c)

      if it is image advertising.

General rule

COBS 4.5.2RRP

A firm must ensure that information:

  1. (1)

    includes the name of the firm;

  2. (2)

    is accurate and in particular does not emphasise any potential benefits of relevant business or a relevant investment without also giving a fair and prominent indication of any relevant risks;

  3. (3)

    is sufficient for, and presented in a way that is likely to be understood by, the average member of the group to whom it is directed, or by whom it is likely to be received; and

  4. (4)

    does not disguise, diminish or obscure important items, statements or warnings.

[Note: article 27(2) of the MiFID implementing Directive]

COBS 4.5.3GRP

The name of the firm may be a trading name or shortened version of the legal name of the firm, provided the retail client can identify the firm communicating the information.

COBS 4.5.4GRP

In deciding whether, and how, to communicate information to a particular target audience, a firm should take into account the nature of the product or business, the risks involved, the client's commitment, the likely information needs of the average recipient, and the role of the information in the sales process.

COBS 4.5.5GRP

When communicating information, a firm should consider whether omission of any relevant fact will result in information being insufficient, unclear, unfair or misleading.

Comparative information

COBS 4.5.6RRP

  1. (1)

    If information compares relevant business, relevant investments, or persons who carry on relevant business, a firm must ensure that:

    1. (a)

      the comparison is meaningful and presented in a fair and balanced way; and

    2. (b)

      in relation to MiFID or equivalent third country business;

      1. (i)

        the sources of the information used for the comparison are specified; and

      2. (ii)

        the key facts and assumptions used to make the comparison are included.

  2. (2)

    In this rule, in relation to MiFID or equivalent third country business,1 ancillary services are to be regarded as relevant business.

[Note: article 27(3) of the MiFID implementing Directive]

Referring to tax

COBS 4.5.7RRP

  1. (1)

    If any information refers to a particular tax treatment, a firm must ensure that it prominently states that the tax treatment depends on the individual circumstances of each client and may be subject to change in future.

    [Note: article 27(7) of the MiFID implementing Directive]

  2. (2)

    This rule applies in relation to MiFID or equivalent third country business or, otherwise, to a financial promotion financial promotion. However, it does not apply to a financial promotion to the extent that it relates to:

    1. (a)

      [deleted]2

      2
    2. (b)

      a pure protection contract that is a long-term care insurance contract.

Consistent financial promotions

COBS 4.5.8RRP

  1. (1)

    A firm must ensure that information contained in a financial promotion is consistent with any information the firm provides to a retail client in the course of carrying on designated investment business or, in the case of MiFID or equivalent third country business, ancillary services.

    [Note: article 29(7) of the MiFID implementing Directive]

  2. (2)

    This rule does not apply to a financial promotion to the extent that it relates to:

    1. (a)

      [deleted]2

      2
    2. (b)

      a pure protection contract that is a long-term care insurance contract.

Innovative finance ISA

COBS 4.5.9GRP

4Examples of information about relevant risks (COBS 4.5.2R) that a firm should give a retail client in relation to an innovative finance ISA include:

  1. (1)

    an explanation of the tax consequences if:

    1. (a)

      the innovative finance component is a P2P agreement that is not repaid; and

    2. (b)

      an operator of an electronic system in relation to lending which facilitates a P2P agreement fails;

  2. (2)

    the procedure for, timing and tax consequences of:

    1. (a)

      withdrawing a P2P agreement from the innovative finance ISA; and

    2. (b)

      a request for transfer of all or part of the innovative finance components in the innovative finance ISA; and

  3. (3)

    a warning, as relevant, that it may, or will, not be possible to sell or trade P2P agreements at market value on a secondary market.

COBS 4.5.10GRP

4Operators of electronic systems in relation to lending and firms which advise on P2P agreements should also have regard to the guidance in COBS 14.3.7AG and COBS 14.3.7BG regarding the types of information they should provide to clients to explain the specific nature and risks of P2P agreements.