COBS 4.7 Direct offer financial promotions and promotions of non-readily realisable securities and P2P agreements

1. (1)

   COBS 4.7.-1AUK12 to COBS 4.7.1R contain provisions on the communication of direct offer financial promotions.

   11
2. (2)

   In broad terms:

   1. (a)

      COBS 4.7.-1AUK12 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.-1AUK12 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.

The effect of GEN 2.2.22AR is that provisions in this section marked “UK”12 also apply in relation to the equivalent business of a third country investment firm as if they were rules.

For the purposes of COBS 4.7.-1AUK12, the provisions of articles 47 to 50 of the MiFID Org Regulation can be found reproduced in COBS 6.1ZA and COBS 14.3A.

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.

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.

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.

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

4 COBS 4.13.2 R (Marketing communications relating to UCITS schemes12) 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 scheme12

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

18 19 Firms are reminded of the prohibitions in relation to the marketing, distribution and sale of cryptoasset derivatives and cryptoasset exchange traded notes in COBS 22.6.

1. (1)

   21Reference in COBS 4.7.6ER(5)(b)(i)(B) to the ‘provision’ of an investment is to a person developing, managing or packaging an investment such as an operator. It does not refer to persons involved in distributing, or intermediating the sale of, an investment such as a financial adviser, a person arranging investments or an operator of an electronic system in relation to lending.

2. (2)

   A firm relying on COBS 4.7.6ER(5) should consider obtaining external legal advice (from legal advisers with relevant expertise and experience) on the appropriateness of omitting the words in that rule from a risk warning. Any such advice should be recorded as part of the firm’s compliance with COBS 4.7.6ER(5)(c).

1. (1)

   21Even where it is not possible to provide a risk warning in a durable medium (for example, because the financial promotion is a real time financial promotion), the recipient of the financial promotion must still ordinarily be provided with an appropriate risk summary in a durable medium at or around the time that the financial promotion is communicated (COBS 4.7.6ER(4)(b)).

2. (2)

   It is unlikely to be possible to comply with COBS 4.7.6ER(4)(b) where the financial promotion is communicated by means of (without limitation) a television or radio broadcast. In such a case, the financial promotion must still include the relevant risk warning specified in COBS 4.7.6ER(1).

21The FCA expects firms to take account of the latest version of the international Web Content Accessibility Guidelines (WCAG) accessibility standard when designing how the risk warning will be displayed: https://www.w3.org/WAI/WCAG21/quickref/

21For the purposes of COBS 4.7.6JR, design features which might reduce the visibility or prominence of a risk warning or risk summary include, but are not limited to:

1. (1)

   using a font size for the risk warning or risk summary that is smaller than the standard size used in the financial promotion;

2. (2)

   using a background colour that does not sufficiently contrast the text or makes it difficult for the client to read the text;

3. (3)

   fading the text of the risk warning or risk summary;

4. (4)

   placing the risk warning or risk summary at the bottom of the promotion or embedding it within other standard information, for example legal information or the firm’s contact details;

5. (5)

   requiring additional links to be clicked in order for the full text of the risk warning to be seen;

6. (6)

   using a font or background in the risk warning or risk summary in the same colours as the firm’s brand, or using a font or background in the same colours as the rest of the financial promotion; and

7. (7)

   using a font or background in the risk warning or risk summary in the same colour as other forms of disclosure and standard information; the colour of the font and background should distinguish the risk warning or risk summary from other forms of information.

21The FCA expects firms to take account of the latest version of the international Web Content Accessibility Guidelines (WCAG) accessibility standard when designing how the risk summary will be displayed: https://www.w3.org/WAI/WCAG21/quickref/

21For the purposes of COBS 4.7.6NR, design features which might reduce the visibility or prominence of a risk summary include, but are not limited to:

1. (1)

   using a font size for the risk summary that is smaller than the standard size used in the financial promotion;

2. (2)

   using a background colour that does not sufficiently contrast the text or makes it difficult for the retail client to read the text;

3. (3)

   fading the text of the risk summary;

4. (4)

   placing the risk summary at the bottom of the promotion or embedding it within other standard information, for example legal information or the firm’s contact details;

5. (5)

   requiring additional actions to be taken by the retail client, such as requiring additional links to be clicked in order for the full text of the risk summary to be seen;

6. (6)

   using a font or background in the risk warning in the same colours as the firm’s brand, or using a font or background in the same colours as the rest of the financial promotion; and

7. (7)

   using a font or background in the risk warning in the same colour as other forms of disclosure and standard information; the colour of the font and background should distinguish the risk summary from other forms of information.

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.

20 COBS 4.7.7R does not apply to speculative illiquid securities. Firms, TP firms and Gibraltar-based firms (having the same meaning as in the Gibraltar Order) are reminded of the restrictions on financial promotions in relation to speculative illiquid securities in COBS 4.14.

13Where a firm communicates or approves direct offer financial promotions relating to both non-readily realisable securities and P2P agreements or P2P portfolios, the condition in COBS 4.7.7R(2) may be satisfied by the retail client signing a combined statement that meets the requirements in COBS 4.7.9R or COBS 4.7.10R, as applicable, in respect of both non-readily realisable securities and P2P agreements or P2P portfolios.

13In relation to a P2P agreement or a P2P portfolio, a firm may communicate to a retail client information about a P2P agreement or a P2P portfolio before needing to satisfy the conditions in COBS 4.7.7R(2) and (3), provided that the defining elements of a direct offer financial promotion are not present in that communication. This information may comprise, without limitation, mandatory disclosures applicable to that firm, such as those set out in COBS 18.12.24R to 18.12.28R, including information about:

1. (1)

   the identity of the borrower(s);

2. (2)

   the price or target rate, provided they are accompanied by a fair description of the anticipated actual return, taking into account fees, default rates and taxation;

3. (3)

   the term;

4. (4)

   the risk categorisation; and

5. (5)

   a description of any security interest, insurance, guarantee or other risk mitigation measures adopted by the firm.

21For the purposes of COBS 4.7.14R(2), the following reasons are considered to be valid:

1. (1)

   the relevant part of the risk summary in COBS 4 Annex 1R would be misleading in relation to the particular investment;

2. (2)

   the relevant part of the risk summary in COBS 4 Annex 1R would be irrelevant in relation to the particular investment;

3. (3)

   the risk summary in COBS 4 Annex 1R does not include a risk that is relevant to the particular investment and it is appropriate for that further risk to be included;

4. (4)

   the sole purpose of the relevant statement in the risk summary is to include a hyperlink to a webpage and the medium of communication does not permit the incorporation of a link.

This list is not exhaustive.