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COBS 4.7 Direct offer financial promotions

Application

COBS 4.7.-2 R

16This section (other than COBS 4.7.-1AEU to COBS 4.7.-1DG) does not apply in relation to a communication:

  1. (1)

    to the extent that it is an excluded communication;

  2. (2)

    to the extent that it is a prospectus advertisement to which article 22 of the Prospectus Regulation applies;

  3. (3)

    if it is image advertising;

  4. (4)

    to the extent that it relates to a deposit that is not a cash deposit ISA, cash-only lifetime ISA or cash deposit CTF;

  5. (5)

    to the extent that it relates to a pure protection contract that is a long-term care insurance contract.

COBS 4.7.-1 G
  1. (1)

    11COBS 4.7.-1AEU to COBS 4.7.1R contain provisions on the communication of direct offer financial promotions.

  2. (2)

    In broad terms:

    1. (a)

      COBS 4.7.-1AEU is relevant to a firm communicating a direct offer financial promotion in relation to its MiFID, equivalent third country or optional exemption business; 16

    2. (b)

      COBS 4.7.1R is relevant to a firm communicating a direct offer financial promotion that does not relate to its MiFID, equivalent third country or optional exemption business; and16

    3. (c)

      16the application of the other operative provisions in this section is not affected by reference to MiFID, equivalent third country or optional exemption business.

  3. (3)

    However, a MiFID investment firm, third country investment firm or MiFID optional exemption firm which is subject to the requirements in COBS 4.7.-1AEU may be subject to the rule in COBS 4.7.1R to the extent that it communicates a direct offer financial promotion:

    1. (a)

      which is not a marketing communication; or

    2. (b)

      which does not relate to its MiFID, equivalent third country or optional exemption business.

Direct offer financial promotions relating to MiFID, equivalent third country or optional exemption business

COBS 4.7.-1A EU

1146(6) Marketing communications containing an offer or invitation of the following nature and specifying the manner of response or including a form by which any response may be made, shall include such of the information referred to in Articles 47 to 50 as is relevant to that offer or invitation:

(a) an offer to enter into an agreement in relation to a financial instrument or investment service or ancillary service with any person who responds to the communication;

(b) an invitation to any person who responds to the communication to make an offer to enter into an agreement in relation to a financial instrument or investment service or ancillary service.

However, the first subparagraph shall not apply if, in order to respond to an offer or invitation contained in the marketing communication, the potential client must refer to another document or documents, which, alone or in combination, contain that information.

[Note: article 46(6) of the MiFID Org Regulation]

Effect of provisions marked “EU” for third country investment firms and MiFID optional exemption firms

COBS 4.7.-1B R

Provisions in this section marked “EU” apply in relation to MiFID optional exemption business as if they were rules (see COBS 1.2.2G).

COBS 4.7.-1C G

The effect of GEN 2.2.22AR is that provisions in this section marked “EU” also apply in relation to the equivalent business of a third country investment firm as if they were rules.

COBS 4.7.-1D G

For the purposes of COBS 4.7.-1AEU, the provisions of articles 47 to 50 of the MiFID Org Regulation can be found reproduced in COBS 6.1ZA and COBS 14.3A.

Other direct offer financial promotions

COBS 4.7.1 R RP

  1. (1)

    Subject to (3) and (4), a firm must ensure that a direct offer financial promotion that is addressed to, or disseminated in such a way that it is likely to be received by, a retail client contains:

    1. (a)

      11the information referred to in the rules on information disclosure (COBS 6.1.4 R, COBS 6.1.6 R, COBS 6.1.7 R, COBS 6.1.9 R, COBS 14.3.2 R, COBS 14.3.3 R, COBS 14.3.4 R and COBS 14.3.5 R) as is relevant to that offer or invitation; and11

    2. (b)

      11additional appropriate information about the relevant business and relevant investments so that the client is reasonably able to understand the nature and risks of the relevant business and relevant investments and consequently to take investment decisions on an informed basis.

  2. (2)

    This rule does not require the information in (1) to be included in a direct offer financial promotion if, in order to respond to an offer or invitation contained in it, the retail client must refer to another document or documents, which, alone or in combination, contain that information.

  3. (3)

    This rule16 does not apply in relation to a marketing11 communication that11 relates to a firm's MiFID, equivalent third country or optional exemption business11

    33
  4. (4)

    [deleted]16

    311311
  5. (5)

    [deleted]11

    2

Guidance

COBS 4.7.2 G

Although COBS 4.7.1R (1)(b) does not apply in relation to MiFID, equivalent third country or optional exemption business11, similar requirements may apply under COBS 2.2A11.

COBS 4.7.2A G
  1. (1)

    6BCOBS 2A contains rules and guidance about the inclusion of a summary box in a direct offer financial promotion relating to a cash deposit ISA or cash deposit CTF provided by a firm other than a credit union.

  2. (2)

    Where BCOBS 2A applies, COBS 4.7.1R(1)(b) does not require a firm to include information outside a summary box in a direct offer financial promotion to the extent that this would simply repeat information included in a summary box in the same financial promotion.

COBS 4.7.3 G
  1. (1)

    COBS 4.7.1R (2) allows a firm to communicate a direct offer financial promotion that does not contain all the information required by COBS 4.7.1R (1), if the firm can demonstrate that the client has referred to the required information before the client makes or accepts an offer in response to the direct offer financial promotion.

  2. (2)

    A firmcommunicating or approving a direct offer financial promotion may also be subject to:10

    1. (a)

      the rules on providing product information in COBS 14.2, including the exceptions in COBS 14.2.5R to 14.2.9R; and10

    2. (b)

      the requirement in the PRIIPs Regulation to provide a key information document10.

COBS 4.7.4 G RP

In order to enable a client to make an informed assessment of a relevant investment or relevant business, a firm may wish to include in a direct offer financial promotion:

  1. (1)

    a summary of the taxation of any investment to which it relates and the taxation consequences for the average member of the group to whom it is directed or by whom it is likely to be received;1

  2. (2)

    a statement that the recipient should seek a personal recommendation if he has any doubt about the suitability of the investments or services being promoted; and1

  3. (3)

    (in relation to a promotion for a non-PRIIP packaged product10 that is not a financial instrument) a key features illustration, in which a generic projection may generally be used.1

COBS 4.7.5 G

[deleted]4

4
COBS 4.7.5A G RP

4 COBS 4.13.2 R (Marketing communications relating to UCITS schemes or EEA UCITS schemes) and COBS 4.13.3 R (Marketing communications relating to feeder UCITS) contain additional disclosure requirements for firms in relation to marketing communications (other than key investor information) that concern particular investment strategies of a UCITS scheme or EEA UCITS scheme.

Warrants and derivatives5

COBS 4.7.6 R RP
  1. (1)

    2A firm must not communicate or approve a direct offer financial promotion:

    1. (a)

      relating to a warrant or derivative;

    2. (b)

      to or for communication to a retail client; and

    3. (c)

      where the firm will not itself be required to comply with the rules on appropriateness (see COBS 10 and 10A11);

    unless the firm has adequate evidence that the condition in (2) is satisfied.

  2. (2)

    The condition is that the person who will arrange or deal in relation to the derivative or warrant will comply with the rules on appropriateness or equivalent requirements for any application or order that the person is aware, or ought reasonably to be aware, is in response to the direct offer financial promotion.

COBS 4.7.6A G

14 Firms are reminded of their obligations in relation to the marketing, distribution and sale of restricted speculative investments in COBS 22.5.

COBS 4.7.7 R RP
  1. (1)

    5Unless permitted by COBS 4.7.8 R, a firm must not communicate or approve a direct-offer financial promotion relating to a non-readily realisable security to or for communication to a retail client without the conditions in (2) and (3) being satisfied.

  2. (2)

    The first condition is that the retail client recipient of the direct-offer financial promotion is one of the following:

    1. (a)

      certified as a ‘high net worth investor’ in accordance with COBS 4.7.9 R;

    2. (b)

      certified as a ‘sophisticated investor’ in accordance with COBS 4.7.9 R;

    3. (c)

      self-certified as a ‘sophisticated investor’ in accordance with COBS 4.7.9 R;

    4. (d)

      certified as a ‘restricted investor’ in accordance with COBS 4.7.10 R.

  3. (3)

    The second condition is that the11firm itself or the person who will arrange or deal in relation to the non-readily realisable security will comply with the rules on appropriateness (see COBS 10 and 10A11) or equivalent requirements for any application or order that the person is aware, or ought reasonably to be aware, is in response to the direct offer financial promotion.

COBS 4.7.8 R RP

5A firm may communicate or approve a direct-offer financial promotion relating to a non-readily realisable security to or for communication to a retail client if:

  1. (1)

    the firm itself will comply with the suitability rules (COBS 9 and 9A11) in relation to the investment promoted; or

  2. (2)

    the retail client has confirmed before the promotion is made that they are a retail client of another firm that will comply with the suitability rules (COBS 9 and 9A11) in relation to the investment promoted; or

  3. (3)

    the retail client is a corporate finance contact or a venture capital contact.

COBS 4.7.9 R RP

5A certified high net worth investor, a certified sophisticated investor or a 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 terms set out in the applicable rule listed below, substituting “non-readily realisable securities” for “non-mainstream pooled investments”:

  1. (1)

    certified high net worth investor: COBS 4.12.6 R;

  2. (2)

    certified sophisticated investor: COBS 4.12.7 R;

  3. (3)

    self-certified sophisticated investor: COBS 4.12.8 R.

COBS 4.7.10 R RP

5A certified restricted 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:

“RESTRICTED INVESTOR STATEMENT

I make this statement so that I can receive promotional communications relating to non-readily realisable securities as a restricted investor. I declare that I qualify as a restricted investor because:

(a)

in the twelve months preceding the date below, I have not invested more than 10% of my net assets in non-readily realisable securities; and

(b)

I undertake that in the twelve months following the date below, I will not invest more than 10% of my net assets in non-readily realisable securities.

Net assets for these purposes do not include:

(a)

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

(b)

any rights of mine under a qualifying contract of insurance; or

(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; or7

7 (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 non-readily realisable securities.

Signature:

Date:”
COBS 4.7.11 G

8 COBS 4.7.7R does not apply in relation to credit union subordinated debt or to deferred shares issued by a credit union. Firms are reminded that CREDS 3A contains requirements regarding the retail distribution and financial promotion of these instruments.