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COBS 4.1 Application

Who? What?

COBS 4.1.1 R RP

1This chapter applies to a firm:

  1. (1)

    communicating with a client in relation to its designated investment business;

  2. (2)

    communicating or approving a financial promotion other than:

    1. (a)

      a financial promotion of qualifying credit, a home purchase plan or a home reversion plan; or

    2. (b)

      a financial promotion in respect of a non-investment insurance contract; or

    3. (c)

      a promotion of an unregulated collective investment scheme that would breach section 238(1) of the Act if made by an authorised person (firms may not communicate or approve such promotions).

COBS 4.1.1A R RP

6 COBS 4.4.3R applies to a firm with respect to the activity of issuing electronic money.

COBS 4.1.2 G RP
  1. (1)

    4This chapter applies in relation to an authorised professional firm in accordance with COBS 18 (Specialist regimes).

  2. (2)

    This chapter applies, to a limited extent, in relation to communicating or approving a financial promotion that relates to a deposit if the deposit is a structured deposit, cash deposit ISA or cash deposit CTF.

COBS 4.1.3 G RP

A firm is required to comply with the financial promotion rules in relation to a financial promotioncommunicated by its appointed representative even where the financial promotion does not require approval because of the exemption in article 16 of the Financial Promotion Order (Exempt persons).

[Note: see section 39 of the Act]

COBS 4.1.4 G RP
  1. (1)

    In COBS 4.3.1 R, COBS 4.5.8 R and COBS 4.7.1 R, the defined terms "financial promotion" and "direct offer financial promotion" include, in relation to MiFID or equivalent third country business, all communications that are marketing communications within the meaning of MiFID.

  2. (2)

    In the case of MiFID or equivalent third country business, certain requirements in this chapter are subject to an exemption for the communication of a third party prospectus in certain circumstances. This has a similar effect to the exemption in article 70(1)(c) of the Financial Promotion Order, which is referred to in the definition of an excluded communication.

COBS 4.1.5 G RP

  1. (1)

    A firm communicating with an eligible counterparty2 should have regard to the application of COBS to eligible counterparty business (COBS 1 Annex 1 Part 1).

  2. (2)

    This chapter does not apply in relation to communicating with an eligible counterparty other than the section on compensation information (see COBS 4.4) 2but elements of the requirements in PRIN may apply.

COBS 4.1.6 G RP

Approving a financial promotion without communicating it (which includes causing it to be communicated)3 is not MiFID or equivalent third country business. Communicating a financial promotion to a person, such as a corporate finance contact or a venture capital contact, who is not a client within the meaning of COBS 3.2.1 R (1), COBS 3.2.1 R (2) or COBS 3.2.1 R (4) in respect of the MiFID or equivalent third country business to which the financial promotion relates,3 is also not MiFID or equivalent third country business. Further guidance on what amounts to MiFID business may be found in PERG 13.

2 3
COBS 4.1.7 G RP

A reference in this chapter to MiFID or equivalent third country business includes a reference to communications that occur before an agreement to perform services in relation to MiFID or equivalent third country business.

[Note: see recital 82 to the MiFID implementing Directive]

Where? General position

COBS 4.1.8 R RP

  1. (1)

    In relation to communications by a firm to a client in relation to its designated investment business this chapter applies in accordance with the general application rule and the rule on business with UKclients from an overseas establishment (COBS 1 Annex 1 Part 2 paragraph 2.1R).

  2. (2)

    In addition, the financial promotion rules apply to a firm in relation to:

    1. (a)

      the communication of a financial promotion to a person inside the United Kingdom;

    2. (b)

      the communication of a cold call to a person outside the United Kingdom, unless:

      1. (i)

        it is made from a place outside the United Kingdom; and

      2. (ii)

        it is made for the purposes of a business which is carried on outside the United Kingdom and which is not carried on in the United Kingdom; and

    3. (c)

      the approval of a financial promotion for communication to a person inside the United Kingdom.

Where? Modifications to comply with EU law

COBS 4.1.9 G RP

  1. (1)

    The EEA territorial scope rule modifies the general territorial scope of the rules in this chapter to the extent necessary to be compatible with European law. This means that in a number of cases, the rules in this chapter will apply to communications made by UK firms to persons located outside the United Kingdom and will not apply to communications made to persons inside the United Kingdom by EEA firms. Further guidance on this is located in COBS 1 Annex 1.

  2. (2)

    One effect of the EEA territorial scope rule is that the rules in this chapter will not generally apply to a simplified prospectus that relates to a simplified prospectus scheme from another EEA State.

  3. (3)

    The financial promotion rules do not apply to incoming communications in relation to the MiFID business of an investment firm from another EEA State that are, in its home member state, regulated under MiFID in another EEA State. For the purpose of article 36 of the Financial Promotion Order the FSA does not make any rules in relation to such incoming communications.

COBS 4.1.10 G RP

Firms should note the territorial scope of this chapter is also affected by:

  1. (1)

    the disapplication for financial promotions originating outside the United Kingdom that are not capable of having an effect within the United Kingdom (section 21(3) of the Act (Restrictions on financial promotion)) (see the defined term “excluded communication”);

  2. (2)

    the exemptions for overseas communicators (see the defined term “excluded communication”); and

  3. (3)

    the rules on financial promotions with an overseas element (see COBS 4.9).

COBS 4.2 Fair, clear and not misleading communications

The fair, clear and not misleading rule

COBS 4.2.1 R RP

  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 client in relation to designated investment business other than a third party prospectus;

    2. (b)

      a financial promotioncommunicated by the firm that is not:

      1. (i)

        an excluded communication;

      2. (ii)

        a non-retail communication;

      3. (iii)

        a third party prospectus; and

    3. (c)

      a financial promotion approved by the firm.

[Note:

article 19(2) of MiFID and recital 52 to the MiFID implementing Directive]

COBS 4.2.2 G RP
  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 and the information the communication is intended to convey. So a communication addressed to a professional client 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.

COBS 4.2.3 G RP

Section 397 of the Act creates a criminal offence relating to certain misleading statements and practices.

Fair, clear and not misleading financial promotions

COBS 4.2.4 G RP

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 FSA as its regulator and refers to matters not regulated by the FSA makes clear that those matters are not regulated by the FSA;

  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 4.2.5 G RP

[deleted]2

2

The reasonable steps defence to an action for damages

COBS 4.2.6 R RP

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 150 of the Act.

COBS 4.3 Financial promotions to be identifiable as such

COBS 4.3.1 R RP

  1. (1)

    A firm must ensure that a financial promotion addressed to a client is clearly identifiable as such.

    [Note: article 19(2) of MiFID]

  2. (2)

    If2 a financial promotion relates to a2firm'sMiFID or equivalent third country business, this rule does not apply to the extent that the2financial promotion is a third party prospectus.

    2
  3. (3)

    If2 a financial promotion relates2 to a 2 firm's business that is not 2MiFID or equivalent third country business, this rule applies to communicating or approving the2financial promotion but does not apply:

    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;

    4. (d)

      if it is a non-retail communication;

    5. (e)

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

      1

COBS 4.4 Compensation information

COBS 4.4.1 R RP

A firm must ensure that any reference in advertising to an investor compensation scheme established under the Investor Compensation Directive is limited to a factual reference to the scheme.

[Note: article 10(3) of the Investor Compensation Directive]

COBS 4.4.2 G

[deleted]1

1
COBS 4.4.3 R RP

2To ensure that a firm pays due regard to the information needs of its clients, and communicates information to them in a way which is clear, fair and not misleading with respect to the activity of issuing electronic money, a firm must ensure that, in good time before the firm issues electronic money to a person, it has been communicated to that person on paper or in another durable medium that the compensation scheme does not cover claims made in connection with issuing electronic money.

COBS 4.5 Communicating with retail clients

Application

COBS 4.5.1 R RP

  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's3MiFID 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 not3MiFID 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 4.5.2 R RP

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 4.5.3 G RP

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 4.5.4 G RP

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 4.5.5 G RP

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 4.5.6 R RP

  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,1ancillary services are to be regarded as relevant business.

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

Referring to tax

COBS 4.5.7 R RP

  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 promotionfinancial 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 4.5.8 R RP

  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.

COBS 4.6 Past, simulated past and future performance

Application

COBS 4.6.1 R RP

  1. (1)

    Subject to (2) and (3), this section applies to a firm in relation to:1

    1. (a)

      1the provision of information in relation to its MiFID or equivalent third country business;2

      22
    2. (b)

      the communication or approval of a financial promotion;1

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.1

  1. (2)

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

    1. (a)

      to the extent that the communication is a third party prospectus;

      3
    2. (b)

      if it is image advertising.

  2. (3)

    3If a communication relates to 3a firm's business that is not3MiFID 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;

    4. (d)

      to the extent that it relates to a deposit that is not a structured deposit;

    5. (e)

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

Past performance

COBS 4.6.2 R RP

A firm must ensure that information that contains an indication of past performance of relevant business, a relevant investment or a financial index, satisfies the following conditions:

  1. (1)

    that indication is not the most prominent feature of the communication;

  2. (2)

    the information includes appropriate performance information which covers at least the immediately preceding five years, or the whole period for which the investment has been offered, the financial index has been established, or the service has been provided if less than five years, or such longer period as the firm may decide, and in every case that performance information must be based on and show complete 12-month periods;

  3. (3)

    the reference period and the source of information are clearly stated;

  4. (4)

    the information contains a prominent warning that the figures refer to the past and that past performance is not a reliable indicator of future results;

  5. (5)

    if the indication relies on figures denominated in a currency other than that of the EEA State in which the retail client is resident, the currency is clearly stated, together with a warning that the return may increase or decrease as a result of currency fluctuations;

  6. (6)

    if the indication is based on gross performance, the effect of commissions, fees or other charges is disclosed.

[Note: article 27(4) of the MiFID implementing Directive]

COBS 4.6.3 G RP

The obligations relating to describing performance should be interpreted in the light of their purpose and in a way that is appropriate and proportionate taking into account the means of communication and the information the communication is intended to convey. For example, a periodic statement in relation to managing investments that is sent in accordance with the rules on reporting information to clients (see COBS 16) may include past performance as its most prominent feature.

COBS 4.6.4 G RP

If a financial promotion includes information referring to the past performance of a packaged product that is not a financial instrument2, a firm will comply with the rule on appropriate performance information (COBS 4.6.2R (2)) if the financial promotion includes, in the case of a scheme, unit-linked life policy, unit-linked personal pension scheme or unit-linked stakeholder pension scheme (other than a unitised with-profits life policy or stakeholder pension scheme) past performance information calculated and presented in accordance with the table in COBS 4.6.4A G.

COBS 4.6.4A G

This Table belongs to COBS 4.6.4 G

Percentage growth

[Fund name]

Quarter/Year - Quarter/Year

Quarter/Year - Quarter/Year

Quarter/ Year - Quarter/Year

Quarter/ Year - Quarter/Year

Quarter/ Year - Quarter/ Year

pgr%

pgr%

pgr%

pgr%

pgr%

Notes:

  • The table should show performance information for five (or if performance information for fewer than five is available, all) complete 12-month periods, the most recent of which ends with the last full quarter preceding the date on which the firm first communicates or approves the financial promotion.
  • For products with performance data for fewer than five 12-month periods, firms should clearly indicate that performance data does not exist for the relevant periods.
  • No allowance should be made for tax recoveries on income for pension contracts, ISAs or PEPs.
  • pgr is the percentage growth rate for the year, where: pgr = ((P1 - P0)/PO)*100 and rounded to the nearest 0.1%, with exact 0.05% rounded to the nearest even 0.1%; and where P0 is the price at the start of the 12-month period and P1 is the price on the same day in the following 12-month period.
  • The prices should allow for any net distributions to be reinvested.
  • The price at P1 must be adjusted for any charges since the date of P0 which are based on a proportion of the fund and are levied by the cancellation of units.
  • The firm should use single pricing, or (if this is not available) bid to bid prices, unless the firm has reasonable grounds to be satisfied that another basis would better reflect the past performance of the fund.
COBS 4.6.4B G RP

  1. (1)

    The firm should present the information referred to in COBS 4.6.4 G no less prominently than any other past performance information.

  2. (2)

    This guidance does not apply to a prospectus or simplified prospectus drawn up in accordance with COLL.

COBS 4.6.5 G RP

  1. (1)

    In relation to a packaged product (other than a scheme, a unit-linked life policy, unit-linked personal pension scheme or a unit-linked stakeholder pension scheme (that is not a unitised with-profits life policy or stakeholder pension scheme)), the information should be given on:

    1. (a)

      an offer to bid basis (which should be stated) if there is an actual return or comparison of performance with other investments; or

    2. (b)

      an offer to offer, bid to bid or offer to bid basis (which should be stated) if there is a comparison of performance with an index or with movements in the price of units; or

    3. (c)

      a single pricing basis with allowance for charges.

  2. (2)

    If the pricing policy of the investment has changed, the prices used should include such adjustments as are necessary to remove any distortions resulting from the pricing method.

Simulated past performance

COBS 4.6.6 R RP

A firm must ensure that information that contains an indication of simulated past performance of relevant business, a relevant investment or a financial index, satisfies the following conditions:

  1. (1)

    it relates to an investment or a financial index;

  2. (2)

    the simulated past performance is based on the actual past performance of one or more investments or financial indices which are the same as, or underlie, the investment concerned;

  3. (3)

    in respect of the actual past performance, the conditions set out in paragraphs (1) to (3), (5) and (6) of the rule on past performance (COBS 4.6.2 R) are complied with; and

  4. (4)

    the information contains a prominent warning that the figures refer to simulated past performance and that past performance is not a reliable indicator of future performance.

[Note: article 27(5) of the MiFID implementing Directive]

Future performance

COBS 4.6.7 R RP

  1. (1)

    A firm must ensure that information that contains an indication of future performance of relevant business, a relevant investment, a structured deposit or a financial index, satisfies the following conditions:

    1. (a)

      it is not based on and does not refer to simulated past performance;

    2. (b)

      it is based on reasonable assumptions supported by objective data;

    3. (c)

      it discloses the effect of commissions, fees or other charges if the indication is based on gross performance; and

    4. (d)

      it contains a prominent warning that such forecasts are not a reliable indicator of future performance.

  2. (2)

    Other than in relation to MiFID or equivalent third country business, this rule only applies to financial promotions that relate to a financial instrument (or a financial index that relates exclusively to financial instruments) or a structured deposit.

[Note: article 27(6) of the MiFID implementing Directive]

COBS 4.6.8 G RP

A firm should not provide information on future performance if it is not able to obtain the objective data needed to comply with the rule on future performance. For example, objective data in relation to EIS shares may be difficult to obtain.

COBS 4.6.9 R RP
  1. (1)

    1A firm that communicates to a client a projection for a packaged product which is not a financial instrument2must ensure that the projection complies with the projectionsrules in COBS 13.4, COBS 13.5 and COBS 13 Annex 2.

    2
  2. (2)

    A firm must not communicate a projection for a highly volatile product to a client unless the product is a financial instrument.

COBS 4.7 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)

      such of the 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; and

      [Note: article 29(8) of the MiFID implementing Directive, the rules listed implement Articles 30 to 33 of the MiFID implementing Directive]

    2. (b)

      if it does not relate to MiFID or equivalent third country business, additional 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)

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

    1. (a)

      to the extent that it is a third party prospectus;

    2. (b)

      if it is image advertising.

  4. (4)

    3If a communication relates to a firm's business that is not 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;

    4. (d)

      to the extent that it relates to a deposit that is not a cash deposit ISA or cash deposit CTF;

    5. (e)

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

  5. (5)

    In this rule, in relation to MiFID or equivalent third country business,2ancillary services are to be regarded as relevant business.

Guidance

COBS 4.7.2 G

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

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

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 packaged product 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

1COLL 4.6.12R requires an authorised fund manager to ensure that its financial promotions, which contain an invitation to purchase the units in a UCITS scheme, indicate that a simplified prospectus and a full prospectus exist, and the places where they may be obtained by the public or how the public may have access to them.

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);

    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 4.8 Cold calls and other promotions that are not in writing

Application

COBS 4.8.1 R RP

This section applies to a firm in relation to the communication of 3a financial promotion that is not in writing, but it does not apply:

  1. (1)

    to the extent that the financial promotion is an excluded communication;

  2. (2)

    if the financial promotion is image advertising;

  3. (3)

    if the financial promotion is a non-retail communication;1

  4. (4)

    [deleted]2

    2
  5. (5)

    to the extent that the financial promotion relates to a pure protection contract that is a long-term care insurance contract.1

Restriction on cold calling

COBS 4.8.2 R RP

A firm must not make a cold call unless:

  1. (1)

    the recipient has an established existing client relationship with the firm and the relationship is such that the recipient envisages receiving cold calls; or

  2. (2)

    the cold call relates to a generally marketable packaged product which is not:

    1. (a)

      a higher volatility fund; or

    2. (b)

      a life policy with a link (including a potential link) to a higher volatility fund; or

  3. (3)

    the cold call relates to a controlled activity to be carried on by an authorised person or exempt person and the only controlled investments involved or which reasonably could be involved are:

    1. (a)

      readily realisable securities (other than warrants); and

    2. (b)

      generally marketable non-geared packaged products.

Promotions that are not in writing

COBS 4.8.3 R RP

A firm must not communicate a solicited or unsolicited financial promotion that is not in writing, to a client3 outside the firm's premises, unless the personcommunicating it:

  1. (1)

    only does so at an appropriate time of the day;

  2. (2)

    identifies himself and the firm he represents at the outset and makes clear the purpose of the communication;

  3. (3)

    clarifies if the client would like to continue with or terminate the communication, and terminates the communication at any time that the client requests it; and

  4. (4)

    gives a contact point to any client with whom he arranges an appointment.

COBS 4.9 Financial promotions with an overseas element

Application

COBS 4.9.1 R RP

  1. (1)

    4Subject to (2) and (3), this section applies to a firm in relation to the communication or approval of a financial promotion that relates to the business of an overseas person.4

  2. (2)

    This section does not apply to a firm in relation to its MiFID or equivalent third country business.

  3. (3)

    4If a communication relates to a firm's business that is not MiFID or equivalent third country business, this section does not apply:4

    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;

    4. (d)

      if it is a non-retail communication;1

    5. (e)

      [deleted]3

      23
    6. (f)

      to the extent that it relates to a pure protection contract that is a long-term care insurance contract.1

Financial promotions for the business of an overseas person

COBS 4.9.3 R RP

A firm must not communicate or approve a financial promotion which relates to a particular relevant investment or relevant business of an overseas person, unless:

  1. (1)

    the financial promotion makes clear which firm has approved or communicated it and, where relevant, explains:

    1. (a)

      that the rules made under the Act for the protection of retail clients do not apply;

    2. (b)

      the extent and level to which the compensation scheme will be available, or if the scheme will not be available, a statement to that effect; and

    3. (c)

      if the communicator wishes, the protection or compensation available under another system of regulation; and

  2. (2)

    the firm has taken reasonable steps to satisfy itself4 that the overseas person will deal with retail clients in the United Kingdom in an honest and reliable way.

Financial promotions for an overseas long-term insurer

COBS 4.9.4 R RP

A firm may only2communicate or approve a financial promotion to enter into a life policy with a person who is:

2 2
  1. (1)

    an authorised person; or

  2. (2)

    an exempt person who is exempt in relation to effecting or carrying out contracts of insurance of the class to which the financial promotion relates; or

  3. (3)

    an overseas long-term insurer that is entitled under the law of its home country or territory to carry on there insurance business of the class to which the financial promotion relates.

COBS 4.9.5 R RP

A financial promotion for an overseas long-term insurer, which has no establishment in the United Kingdom, must include:

  1. (1)

    the full name of the overseas long-term insurer, the country where it is registered, and, if different, the country where its head office is situated;

  2. (2)

    a prominent statement that 'holders of policies issued by the company will not be protected by the Financial Services Compensation Scheme if the company becomes unable to meet its liabilities to them'; and

  3. (3)

    if any trustee, investment manager or United Kingdom agent of the overseas long-term insurer is named which is not independent of the overseas long-term insurer, a prominent statement of that fact.

COBS 4.9.6 R RP

A financial promotion for an overseas long-term insurer which is authorised to carry on long-term insurance business in any country or territory listed in paragraph (c) of the Glossary definition of overseas long-term insurer must also include:

  1. (1)

    the full name of any trustee of property of any description which is retained by the overseas long-term insurer in respect of the promoted contracts;

  2. (2)

    an indication whether the investment of such property (or any part of it) is managed by the overseas long-term insurer or by another person and the full name of any investment manager;

  3. (3)

    the registered office of any such trustee and of any investment manager and of his principal office (if different); and

  4. (4)

    where any person in the United Kingdom takes, or may take, any steps on behalf of the overseas long-term insurer to enter into a promoted contract, the following details:

    1. (a)

      the full name of the overseas long-term insurer;

    2. (b)

      the registered office, head office or principal place of business of that person in the United Kingdom; and

    3. (c)

      if there is more than one such person, the principal or main person in the United Kingdom.

COBS 4.9.7 R RP

If a financial promotion relates to a life policy with an overseas long-term insurer but does not name the overseas long-term insurer by giving its full name or its business name:

  1. (1)

    it must include the following prominent statement: "This financial promotion relates to an insurance company which does not, and is not authorised to, carry on in any part of the United Kingdom the class of insurance business to which this promotion relates. This means that the management and solvency of the company are not supervised by the Financial Services Authority. Holders of policies issued by the company will not have the right to complain to the Financial Ombudsman Service if they have a complaint against the company and will not be protected by the Financial Services Compensation Scheme if the company should become unable to meet its liabilities to them"; and

  2. (2)

    if it also refers to other investments, it must make this clear.

COBS 4.10 Systems and controls and approving and communicating financial promotions

Systems and controls

COBS 4.10.1 G RP

The rules in SYSC 3 and SYSC 4 require a firm that communicates with a client in relation to designated investment business, or communicates or approves a financial promotion, to put in place systems and controls or policies and procedures in order to comply with the rules in this chapter.

Approving financial promotions

COBS 4.10.2 R RP

  1. (1)

    Before a firmapproves a financial promotion for communication by an unauthorised person, it must confirm that the financial promotion complies with the financial promotion rules.

  2. (2)

    If, at any time after a firm has complied with (1), a firm becomes aware that a financial promotion no longer complies with the financial promotion rules, it must withdraw its approval and notify any person that it knows to be relying on its approval as soon as reasonably practicable.

  3. (3)

    When approving a financial promotion, the firm must confirm compliance with the financial promotion rules that would have applied if the financial promotion had been communicated by a firm other than in relation to MiFID or equivalent third country business.

COBS 4.10.3 G RP

  1. (1)

    Section 21(1) of the Act (Restrictions on financial promotion) prohibits an unauthorised person from communicating a financial promotion, in the course of business, unless an exemption applies or the financial promotion is approved by a firm. Many of the rules in this chapter apply when a firmapproves a financial promotion in the same way as when a firmcommunicates a financial promotion itself.

  2. (2)

    A firm may also wish to approve a financial promotion that it communicates itself. This would ensure that an unauthorised person who then also communicates the financial promotion to another person will not contravene the restriction on financial promotion in the Act (section 21).

  3. (3)

    Approving a financial promotion for communication by an unauthorised person is not MiFID or equivalent third country business.

  4. (4)

    A firm may not approve a financial promotion relating to an unregulated collective investment scheme unless the firm would be able to communicate the promotion without breaching section 238(1) of the Act (see section 240 of the Act). The exemptions from that section in the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (as amended from time to time) are relevant.

COBS 4.10.4 R RP

A firm must not approve a financial promotion to be made in the course of a personal visit, telephone conversation or other interactive dialogue.

COBS 4.10.5 R RP

If a firmapproves a financial promotion in circumstances in which one or more of the financial promotion rules, or the prohibition on approval of promotions for collective investment schemes in section 240(1) of the Act (Restriction on approval), are expressly disapplied, the approval must be given on terms that it is limited to those circumstances.

COBS 4.10.6 G RP

For example, if a firmapproves a financial promotion for communication to a professional client or an eligible counterparty, the approval must be limited to communication to such persons.

COBS 4.10.7 G RP

If an approval is limited, and an unauthorised personcommunicates the financial promotion to persons not covered by the approval, the unauthorised person may commit an offence under the restriction on financial promotion in the Act (section 21). A firm giving a limited approval may wish to notify the unauthorised person accordingly.

Communicating financial promotions

COBS 4.10.8 G RP

If a firm continues to communicate a financial promotion when the financial promotion no longer complies with the rules in this chapter, it will breach those rules.

COBS 4.10.9 G RP

A financial promotion which is clearly only relevant at a particular date will not cease to comply with the financial promotion rules merely because the passage of time has rendered it out-of-date; an example would be a dated analyst's report.

Relying on another firm's confirmation of compliance

COBS 4.10.10 R RP

  1. (1)

    A firm (A) will not contravene any of the financial promotion rules if it communicates a financial promotion which has been produced by another person and:

    1. (a)

      A takes reasonable care to establish that another firm (B) has confirmed that the financial promotion complies with the financial promotion rules;

    2. (b)

      A takes reasonable care to establish that it communicates the financial promotion only to recipients of the type for whom it was intended at the time B carried out the confirmation exercise; and

    3. (c)

      so far as A is, or ought reasonably to be, aware:

      1. (i)

        the financial promotion has not ceased to be fair, clear and not misleading since that time; and

      2. (ii)

        B has not withdrawn the financial promotion.

  2. (2)

    This rule does not apply in relation to MiFID or equivalent third country business.

COBS 4.10.11 G RP

A firm should inform anyone relying on its confirmation of compliance if it becomes aware that the financial promotion no longer complies with the rules in this chapter.

COBS 4.11 Record keeping: financial promotion

COBS 4.11.1 R RP

  1. (1)

    A firm must make an adequate record of any financial promotion it communicates or approves, other than a financial promotion made in the course of a personal visit, telephone conversation or other interactive dialogue.

  2. (2)

    For a telemarketing campaign, a firm must make an adequate record of copies of any scripts used.

  3. (3)

    A firm must retain the record in relation to a financial promotion relating to:

    1. (a)

      a pension transfer, pension opt-out or FSAVC, indefinitely;

    2. (b)

      a life policy, occupational pension scheme1, SSAS, personal pension scheme or stakeholder pension scheme, for six years;

    3. (c)

      MiFID or equivalent third country business, for five years; and

    4. (d)

      any other case, for three years.

  4. (4)

    4If a communication relates to a firm'sMiFID or equivalent third country business, this section does not apply:4

    1. (a)

      to the extent that the communication is a third party prospectus;2

    2. (b)

      if it is image advertising;2

    3. (c)

      if it is a non-retail communication.2

  5. (5)

    4If a communication relates to a firm's business that is not MiFID or equivalent third country business, this section does not apply:4

    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;

    4. (d)

      if it is a non-retail communication;2

    5. (e)

      [deleted]3

      3
    6. (f)

      to the extent that it relates to a pure protection contract that is a long-term care insurance contract2.

[Note: see article 51(3) of the MiFID implementing Directive]

COBS 4.11.2 G RP

A firm should consider maintaining a record of why it is satisfied that the financial promotion complies with the financial promotion rules.

COBS 4.11.3 G RP

If the financial promotion includes market information that is updated continuously in line with the relevant market, the record-keeping rules do not require a firm to record that information.

COBS 4.12 Unregulated collective investment schemes

COBS 4.12.1 R
  1. (1)

    1A firm may communicate an invitation or inducement to participate in an unregulated collective investment scheme without breaching the restriction on promotion in section 238 of the Act if the promotion falls within an exemption in the table in (4), as explained further in the Notes.

  2. (2)

    Where the left-hand column in the table in (4) refers to promotion to a category of person, this means that the invitation or inducement:

    1. (a)

      is made only to recipients who the firm has taken reasonable steps to establish are persons in that category; or

    2. (b)

      is directed at recipients in a way that may reasonably be regarded as designed to reduce, so far as possible, the risk of participation in the collective investment scheme by persons who are not in that category.

  3. (3)

    A firm may rely on more than one exemption in relation to the same invitation or inducement.

  4. (4)

    Promotion to:

    Promotion of an unregulated collective investment scheme which is:

    Category 1 person

    (1) a person who is already a participant in an unregulated collective investment scheme; or

    (2) A person who has been, in the last 30 months, a participant in an unregulated collective investment scheme.

    A. that collective investment scheme; or

    B. any other collective investment scheme whose underlying property and risk profile are both 'substantially similar' (see Note 1) to those of that collective investment scheme; or

    C. a collective investment scheme which is intended to absorb or take over the assets of that collective investment scheme; or

    D. a collective investment scheme, units in which are being offered by its operator as an alternative to cash on the liquidation of that collective investment scheme.

    Category 2 person

    (1) A person:

    (a) for whom the firm has taken reasonable steps to ensure that investment in the collective investment scheme is suitable; and

    (b) who is an 'established' or 'newly accepted' client of the firm or of a person in the same group as the firm (see Notes 2 & 3).

    That collective investment scheme

    Category 3 person

    A person who is eligible to participate in a scheme constituted under:

    (1) the Church Funds Investment Measure 1958;

    (2) section 24 of the Charities Act 1993; or

    (3) section 25 of the Charities Act (Northern Ireland) 1964.

    Any such collective investment scheme

    Category 4 person

    An eligible employee, that is, a person who is:

    (1) an officer;

    (2) an employee;

    (3) a former officer or employee; or

    (4) a member of the immediate family of any of (1) - (3),

    of an employer which is (or is in the same group as) the firm, or which has accepted responsibility for the activities of the firm in carrying out the designated investment business in question.

    1. A collective investment scheme the instrument constituting which:

    A. restricts the property of the scheme, apart from cash and near cash, to:

    (1) (where the employer is a company) shares in and debentures of company or any other connected company (see Note 4);

    (2) (in any case), any property, provided that the scheme takes the form of:

    (i) a limited partnership, under the terms of which the employer (or connected company) will be the unlimited partner and the eligible employees will be some or all of the limited partners; or

    (ii) a trust which the firm reasonably believes not to contain any risk that any eligible employee may be liable to make any further payments (other than charges) for investment transactions earlier entered into, which the eligible employee was not aware of at the time he entered into them; and

    B. (in a case falling within A(1) above) restricts participation in the scheme to eligible employees, the employer and any connected company.

    2. Any collective investment scheme provided that the participation of eligible employees is to facilitate their co-investment:

    (i) with one or more companies in the same group as their employer (which may include the employer); or

    (ii) with one or more clients of such a company.

    Category 5 person

    A person admitted to membership of the Society of Lloyd's or any person by law entitled or bound to administer his affairs.

    A scheme in the form of a limited partnership which is established for the sole purpose of underwriting insurance business at Lloyd's.

    Category 6 person

    An exempt person (other than a person exempted only by section 39 of the Act (Exemption of appointed representatives)) if the financial promotion relates to a regulated activity in respect of which the person is exempt from the general prohibition.

    Any collective investment scheme.

    Category 7 person

    An eligible counterparty or a professional client.

    Any collective investment scheme in relation to which the client is categorised as a professional client or eligible counterparty (see Note 5).

    Category 8 person

    A person:

    (1) in relation to whom the firm has undertaken an adequate assessment of his expertise, experience and knowledge and that assessment gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the person is capable of making his own investment decisions and understanding the risks involved;

    (2) to whom the firm has given a clear written warning that this will enable the firm to promote unregulated collective investment schemes to the client; and

    (3) who has stated in writing, in a document separate from the contract, that he is aware of the fact the firm can promote certain unregulated collective investment schemes to him.

    Any collective investment scheme covered by the assessment.

    The following Notes explain certain words and phrases used in the table above.

    Note 1

    The property of a collective investment scheme is 'substantially similar' to that of another collective investment scheme if in both cases the objective is to invest in the same one of the following sectors:

    (a)

    on-exchangederivatives or warrants;

    (b)

    on-exchange (or quoted) securities;

    (c)

    the property market (whether in security of property companies or in property itself);

    (d)

    collectable items of a particular description (such as works of art, antique vehicles, etc);

    (e)

    artistic productions (such as films, television, opera, theatre or music);

    (f)

    unlisted investments (including unlisted debt securities).

    The risk profile of a scheme will be substantially similar to that of another scheme only if there is such similarity in relation to both liquidity and volatility.

    Note 2

    A person is an 'established client' of another person if he has been and remains an actual client of that person in relation to designated investment business done with or through that other person.

    Note 3

    A person is a 'newly accepted' client of a firm if:

    (a)

    a written agreement relating to designated investment business exists between the client and the firm (or, if the client is normally resident outside the United Kingdom, an oral or written agreement); and

    (b)

    that agreement has been obtained without any contravention of section 238 or 240 of the Act, or of any rule in COBS applying to the firm or (as far as the firm is reasonably aware) any other authorised person.

    Note 4

    A company is 'connected' with another company if:

    (a)

    they are in the same group; or

    (b)

    one company is entitled either alone or with another company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to the share capital, which are exercisable in all circumstances at any general meeting of the other company or of its holding company.

    Note 5

    Firms may use the client categorisation regime that applies to business other than MiFID or equivalent third country business. [This is the case even if the firm will be within the scope of MiFID when it makes the promotion.]

COBS 4.12.2 G

Guidance on the regulatory system as it applies to unregulated collective investment schemes appears at PERG 8.20.