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COBS 4.5 Communicating with retail clients (non-MiFID provisions)

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)

    This section does not apply to a firm communicating in relation to its MiFID, equivalent third country or optional exemption business.6

    333
  3. (3)

    This6 section does not apply in relation to a communication6:

    333
    1. (a)

      to the extent that it is an excluded communication;

    2. (b)

      to the extent that it is a prospectus advertisement to which article 22 of the Prospectus Regulation9 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 (and also, where relevant, the name of the firm that has confirmed the compliance of the financial promotion for the purposes of COBS 4.10.9AR(3)(a));12

  2. (1A)

    where relevant, includes the date on which the financial promotion was approved;12

  3. (2)

    is accurate and always gives a fair and prominent indication of any relevant risks when referencing6 any potential benefits of relevant business or a relevant investment6;

  4. (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;6

  5. (4)

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

  6. (5)

    6uses a font size in the indication of relevant risks that is at least equal to the predominant font size used throughout the information provided, as well as a layout that ensures that such indication is prominent;

  7. (6)

    6is consistently presented in the same language throughout all forms of information and marketing materials that are provided to each client, unless the client has agreed to receive information in more than one language; and

  8. (7)

    6is up-to-date and relevant to the means of communication used.

COBS 4.5.2AR
  1. (1)

    12This rule applies:

    1. (a)

      to a financial promotion communicated by way of a website, mobile application or other digital medium; and

    2. (b)

      where the format is such that, where relevant:

      1. (i)

        the name of the firm that approved or confirmed the compliance of the financial promotion; or

      2. (ii)

        the date on which the financial promotion was approved,

      cannot reasonably be included in the financial promotion.

  2. (2)

    The information in (1)(b) may be provided on a webpage to which a link is clearly provided in the financial promotion.

  3. (3)

    The link in (2) must be in the format: ‘Approver FRN [firm reference number of the firm that approved or confirmed the compliance of the financial promotion]'.

COBS 4.5.3GRP
  1. (1)

    The effect of COBS 4.5.2R(1) is that, where relevant and subject to COBS 4.5.2AR, the name of the firm that approved or confirmed the compliance of a financial promotion must be included in that financial promotion.12

  2. (2)

    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 and, if different, the firm that approved or confirmed the compliance of the financial promotion.12

  3. (3)

    The name of the firm (and any link provided pursuant to COBS 4.5.2AR) should be given sufficient prominence to enable the retail client to easily identify the firm responsible for the compliance of the financial promotion with applicable rules.12

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 the6 information being insufficient, unclear, unfair or misleading. When considering whether a fact should be included in the communication or omitted from it, a firm should bear in the mind the guidance in COBS 4.2.2G to provide information which is appropriate and proportionate.7

Comparative information

COBS 4.5.6RRP

6If information compares relevant business, relevant investments, or persons who carry on relevant business, a firm must ensure that the comparison is meaningful and presented in a fair and balanced way

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.6

  2. (2)

    This rule applies in relation to a financial promotion except6 to the extent that it relates to6 6a pure protection contract that is a long-term care insurance contract6.

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 business6.6

  2. (2)

    This rule does not apply to a financial promotion to the extent that it relates 6a 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; 12

  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; and12

  4. (4)

    an express warning that holding an investment within an innovative finance ISA does not reduce the risks associated with that investment or guarantee returns and that it is possible to lose all of the money invested. This warning should be additional to any more general warning that a product or service places a client’s capital at risk (COBS 4.2.4G(1)).12

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.

Lifetime ISA

COBS 4.5.11G

5Information about relevant risks (COBS 4.5.2R) that a firm should give a retail client in relation to a lifetime ISA may include:

  1. (1)

    an explanation of:

    1. (a)

      a retail client’s eligibility to subscribe to a lifetime ISA (including annual subscription limits) and to claim the lifetime ISA government bonus;

    2. (b)

      the lifetime ISA government withdrawal charge and the circumstances in which it might arise; and

    3. (c)

      the process by which a retail client can transfer a lifetime ISA; and

  2. (2)

    warnings that, if the retail client:

    1. (a)

      incurs a lifetime ISA government withdrawal charge, the retail client may get back less than they paid in to a lifetime ISA;

    2. (b)

      saves in a lifetime ISA instead of enrolling in, or contributing to a qualifying scheme, occupational pension scheme, or personal pension scheme:

      1. (i)

        the retail client may lose the benefit of contributions by an employer (if any) to that scheme; and

      2. (ii)

        the retail client’s current and future entitlement to means tested benefits (if any) may be affected.

Authorised fund managers’ communications in relation to benchmarks

COBS 4.5.11AR

11The rules in COBS 4.5.12R to COBS 4.5.15R apply to:

  1. (1)

    a financial promotion relating to an authorised fund;

  2. (2)

    a communication which contains a statement referring to or concerning the past performance of an authorised fund; and

  3. (3)

    any other communication about an authorised fund that refers in any way to the aims of the fund or describes the benefits or risks of investing in it.

COBS 4.5.11BG

11As a result of COBS 4.5.11AR, COBS 4.5.12R to COBS 4.5.15R would not normally be expected to apply to administrative communications if those communications do not refer in any way to the aims of an authorised fund or describe the benefits or risks of investing in it. Examples of such communications might include contract notes that simply set out details of the unitholder’s purchase or redemption of units, statements of income distributions or accumulations, and confirmations of a change of unitholder registration details.

COBS 4.5.12R

8Subject to COBS 4.5.13R, an authorised fund manager must include in any communication about an authorised fund to which this rule11 applies:

  1. (1)

    a short explanation, in terms consistent with the relevant prospectus, of the choice and use of every target benchmark, constraining benchmark or comparator benchmark used in relation to the scheme; or

  2. (2)

    where no target benchmark, constraining benchmark or comparator benchmark is referred to in the prospectus, a statement to that effect and a short explanation of how investors can assess the performance of the scheme.

COBS 4.5.13R

8Where an authorised fund manager includes, in any communication about an authorised fund to which this rule11 applies, an indication of past performance for any authorised fund it manages, it must (in addition to complying with COBS 4.6.2R where applicable):

  1. (1)

    include the corresponding past performance record of any target benchmark or constraining benchmark referred to in the prospectus of the scheme; and

  2. (2)

    not include an indication of past performance for any index, indices or similar factor that is not referred to in the prospectus of the scheme.

COBS 4.5.14R
  1. (1)

    8Subject to paragraph (2), if a communication to which COBS 4.5.13R applies includes information comparing past performance of the scheme against one or more comparator benchmarks, the authorised fund manager must, for the period specified in paragraph (3) and in every subsequent communication it makes that is also subject to COBS 4.5.13R:

    1. (a)

      include a comparison against the same comparator benchmark or comparator benchmarks; and

    2. (b)

      not include a comparison against any other benchmark.

  2. (2)

    Paragraph (1) does not apply if such a comparison would not be compliant with COBS 4.5.13R as a result of a change to the prospectus of the scheme.

  3. (3)

    The period specified for the purposes of paragraph (1) is:

    1. (a)

      twelve months after a one-off communication is made; or

    2. (b)

      for as long as the communication remains available to the public in a durable medium and has not been superseded by a revised version.

COBS 4.5.15R

8COBS 4.5.12R to COBS 4.5.14R do not apply in respect of any reference to a comparator benchmark that is not identified in the prospectus of the relevant scheme when that reference appears in a communication that is:

  1. (1)

    used exclusively in the course of a personal visit, telephone conversation or other interactive dialogue; or

  2. (2)

    in response to a specific unsolicited request by a client for past performance to be compared with a particular comparator benchmark.

Funds investing in inherently illiquid assets (FIIAs)

COBS 4.5.16R
  1. (1)

    10This rule applies to any financial promotion relating to a FIIA except the FIIA’s prospectus.

  2. (2)

    A firm must ensure that the following risk warning is given:

    1. “[Name of fund] invests in assets that may at times be hard to sell. This means that there may be occasions when you experience a delay or receive less than you might otherwise expect when selling your investment. For more information on risks, see the prospectus and key investor information document.”

  3. (3)

    If the financial promotion is a non-real time financial promotion, a firm must ensure that the risk warning is prominently placed in the financial promotion in a font size that is at least equal to the predominant font size used throughout the communication.

COBS 4.5.17G

10The rules in COBS 4.5 do not apply to the form or content of a NURS-KII document (see COBS 4.1.7AR (Modification relating to the KII Regulation)).