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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); or8

      8
    4. (d)

      a financial promotion in relation to a credit agreement, a consumer hire agreement or a credit-related regulated activity.8

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.

  3. (3)

    In this chapter “financial promotion” and “direct offer financial promotion” include communications that are marketing communications for the purposes of the UCITS Directive.5

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 an EEA key investor information document but will, for example, apply to a firm (including an EEA UCITS management company) when marketing in the United Kingdom the units of an EEA UCITS scheme that is a recognised scheme.5

    5
  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 other than to the extent COBS 4.12 (Restrictions on the promotion of non-mainstream pooled investments) applies.7

    7
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,3 recital 52 to the MiFID implementing Directive and article 77 of the UCITS Directive]3

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

Part 7 (Offences relating to Financial Services) of the Financial Services Act 2012 creates criminal offences 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 FCA, PRA or both as its regulator and refers to matters not regulated by either the FCA, PRA or both makes clear that those matters are not regulated by the FCA, PRA or either;

  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

2A communication or a financial promotion should not describe a feature of a product or service as “guaranteed”, “protected” or “secure”, or use a similar term unless:

2 4
  1. (1)

    that term is capable of being a fair, clear and not misleading description of it; and

  2. (2)

    the firm communicates all of the information necessary, and presents that information with sufficient clarity and prominence, to make the use of that term fair, clear and not misleading.45

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 138D 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 and article 77 of the UCITS Directive]3

  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
  4. (4)

    In the case of a marketing communication that relates to a UCITS scheme or an EEA UCITS scheme,

    (2) and (3) do not limit the application of this rule.3

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, key investor information document4 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

[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);

    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 4.7.7 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 firm 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) 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) 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) 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.

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 4.8 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 Conduct Authority or the Prudential Regulation 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. (2A)

    If a firmcommunicates or approves an invitation or inducement to participate in, acquire, or underwrite a non-mainstream pooled investment which is addressed to or disseminated in such a way that it is likely to be received by a retail client:5

    1. (a)

      the person allocated the compliance oversight function in the firm must make a record at or near the time of the communication or approval6 certifying that the6 invitation or inducement complies with the restrictions set out in section 238 of the Act and in COBS 4.12.3 R, as applicable;5

    2. (b)

      the making of the record required in (a) may be delegated to one or more employees of the firm who report to and are supervised by the person allocated the compliance oversight function, provided the process for certification of compliance has been reviewed and approved by the person allocated the compliance oversight function no more than 12 months before the date of the 6invitation or inducement;5

    3. (c)

      when making the record required in (a), 6the firm must make a record of which exemption was relied on for the purposes of the invitation or inducement, together with the reason why the firm is satisfied that that exemption applies;5

    4. (d)

      where the firm relies on an exemption that requires investor certification and warnings to investors, 56the record required in (a) must include a record of any certificate or investor statement (as signed by the investor) and of any warnings or indications required by the exemption;5

    5. (e)

      if the exemption relied on is that for an excluded communication under COBS 4.12.4R (5), the firm must identify in the record required in (a)6 which type of financial promotion defined as an excluded communication corresponds to the 6invitation or inducement6being made, including, where applicable, which article in the Financial Promotion Order or in the Promotion of Collective Investment Schemes Order was relied on for the purposes of the invitation or inducement6, together with the reason why the firm is satisfied that the exemption applies;5

  4. (3)

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

    1. (a)

      a pension transfer, pension conversion, 7pension 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.

  5. (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

  6. (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 Restrictions on the promotion of non-mainstream pooled investments6

Restrictions on the promotion of non-mainstream pooled investments

COBS 4.12.3 R RP
  1. (1)

    3A firm must not communicate or approve an invitation or inducement to participate in, acquire, or underwrite a non-mainstream pooled investment where that invitation or inducement is addressed to or disseminated in such a way that it is likely to be received by a retail client.

  2. (2)

    The restriction in (1) is subject to COBS 4.12.4 R and does not apply to units in unregulated collective investment schemes, which are subject to a statutory restriction on promotion in section 238 of the Act.

Exemptions from the restrictions on the promotion of non-mainstream pooled investments

COBS 4.12.4 R RP
  1. (1)

    3The restriction in COBS 4.12.3 R does not apply if the promotion falls within an exemption in the table in (5) below.

  2. (2)

    A 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 (5) below.

  3. (3)

    Where the middle column in the table in (5) 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, acquisition or underwriting of the non-mainstream pooled investment by persons who are not in that category.

  4. (4)

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

  5. (5)

    Title of Exemption

    Promotion to:

    Promotion of a non-mainstream pooled investment which is:

    1. Replacement products and rights issues

    A person who already participates in, owns, holds rights to or interests in, a non-mainstream pooled investment that is being liquidated or wound down or which is undergoing a rights issue. [See Note 1.]

    1. A non-mainstream pooled investment which is intended by the operator or manager to absorb or take over the assets of that non-mainstream pooled investment, or which is being offered by the operator or manager of that non-mainstream pooled investment as an alternative to cash on its liquidation;

    or

    2. Securities offered by the existing non-mainstream pooled investment as part of a rights issue.

    2. Certified high net worth investors

    An individual6 who meets the requirements set out in COBS 4.12.6 R, or a person (or persons) legally empowered to make investment decisions on behalf of such individual6.

    Any non-mainstream pooled investment the firm considers is likely to be suitable for that individual6, based on a preliminary assessment of the client's profile and objectives.

    [See COBS 4.12.5G (2).]

    3. Enterprise and charitable funds

    A person who is eligible to participate or invest in an arrangement constituted under:

    (1) the Church Funds Investment Measure 1958;

    (2) section 96 5or 100 of the Charities Act 2011;

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

    (4) the Regulation on European Venture Capital Funds (‘EuVECAs’); or

    (5) the Regulation on European Social Entrepreneurship Funds (‘EuSEFs’).

    Any non-mainstream pooled investment which is such an arrangement.

    4. Eligible employees

    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 non-mainstream pooled investment, the instrument constituting which:

    A. restricts the property of the non-mainstream pooled investment, apart from cash and near cash, to:

    (1) (where the employer is a company) shares in and debentures of the company or any other connected company; [See Note 2.]

    (2) (in any case), any property, provided that the non-mainstream pooled investment 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 non-mainstream pooled investment to eligible employees, the employer and any connected company.

    2. Any non-mainstream pooled investment, 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.

    5. Members of the Society of Lloyd’s

    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.

    6. Exempt persons

    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 non-mainstream pooled investment.

    7. Non-retail clients

    An eligible counterparty or a professional client.

    Any non-mainstream pooled investment in relation to which the client is categorised as a professional client or eligible counterparty.

    [See Note 4.]

    8. Certified sophisticated investors

    An individual6 who meets the requirements set out in COBS 4.12.7 R, including an individual who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm'sclient6.

    Any non-mainstream pooled investment.

    9. Self-certified sophisticated investors

    An individual6 who meets the requirements set out in COBS 4.12.8 R, including an individual who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm'sclient6.

    Any non-mainstream pooled investment the firm considers is likely to be suitable for that client, based on a preliminary assessment of the client's profile and objectives.

    [See COBS 4.12.5G (2)]

    10. Solicited advice

    Any person.

    Any non-mainstream pooled investment, provided the communication meets all of the following requirements:

    (a) the communication only amounts to a financial promotion because it is a personal recommendation on a non-mainstream pooled investment;

    (b) the personal recommendation is made following a specific request by that client for advice on the merits of investing in the non-mainstream pooled investment; and

    (c) the client has not previously received a financial promotion or any other communication from the firm (or from a person connected to the firm) which is intended to influence the client in relation to that non-mainstream pooled investment. [See Note 3.]

    11. Excluded communications

    Any person.

    Any non-mainstream pooled investment, provided the financial promotion is an excluded communication.

    [See COBS 4.12.12 G and COBS 4.12.13 G.]

    12. Non-recognised UCITS

    Any person.

    Any EEA UCITS scheme which is not a recognised scheme, provided the following requirements are met:

    (1) the firm considers it is likely to be suitable for that client based on a preliminary assessment of the client's profile and objectives; and

    (2) the firm provides that client with the same product information as it would be required to provide by COBS 14.2 if the scheme was a recognised scheme.

    [See COBS 4.12.5G (2).]

    13. US persons

    A person who is classified as a United States person for tax purposes under United States legislation or who owns a US qualified retirement plan.

    Any investment company registered and operated in the United States under the Investment Company Act 1940.

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

    Note 1

    Promotion of non-mainstream pooled investments to a category of person includes any nominee company acting for such a person.

    Note 2

    A company is 'connected' with another company if:

    • they are both in the same group; or
    • 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 3

    A person is connected with a firm if it acts as an introducer or appointed representative for that firm or if it is any other person, regardless of authorisation status, who has a relevant business relationship with the firm.

    Note 4

    In deciding whether a promotion is permitted under the rules of this section or under section 238 of the Act, 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 carrying on a MiFID activity at the same time as or following the promotion.)

Advice and preliminary assessment of suitability

COBS 4.12.5 G RP
  1. (1)

    3Where a firm communicates any promotion of a non-mainstream pooled investment in the context of advice, it should have regard to and comply with its obligations under COBS 9. Firms should also be mindful of the appropriateness requirements in COBS 10 which apply to a wide range of non-advised services.

  2. (2)
    1. (a)

      A firm which wishes to rely on exemptions 2 (certified high net worth investors), 9 (self-certified sophisticated investors) or 12 (non-recognised UCITS), as provided under COBS 4.12.4R (5), should note that these exemptions require a preliminary assessment of suitability before promotion of the non-mainstream pooled investment to clients (in addition to other requirements).

    2. (b)

      There is no duty to communicate the preliminary assessment of suitability to the client. If the firm does so, it must not do so in a way that amounts to making a personal recommendation unless it complies with the rules in COBS 9 on suitability.

    3. (c)

      The requirement for a preliminary assessment of suitability does not extend to a full suitability assessment, unless advice is being offered in relation to the non-mainstream pooled investment being promoted, in which case the requirements in COBS 9 apply. However, it requires that the firm take reasonable steps to acquaint itself with the client's profile and objectives in order to ascertain whether the non-mainstream pooled investment under contemplation is likely to be suitable for that client. The firm should not promote the non-mainstream pooled investment to the client if it does not consider it likely to be suitable for that client following such preliminary assessment.

Definition of sophisticated and high net worth investors

COBS 4.12.6 R RP

3A certified high net worth 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:

“HIGH NET WORTH INVESTOR STATEMENT

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:

  • I had, throughout the financial year immediately preceding the date below, an annual income to the value of £100,000 or more ;
  • I held, throughout the financial year immediately preceding the date below, net assets to the value of £250,000 or more. Net assets for these purposes do not include:

  1. (a)

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

  2. (b)

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

  3. (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.

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-mainstream pooled investments.

Signature:

Date: ”

COBS 4.12.7 R RP

A certified sophisticated investor is an individual:

  1. (1)

    who has a written certificate signed within the last 36 months by a firm confirming he has been assessed by that firm as sufficiently knowledgeable to understand the risks associated with engaging in investment activity in non-mainstream pooled investments; and

  2. (2)

    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:

    “SOPHISTICATED INVESTOR STATEMENT

    I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified sophisticated investors and I declare that I qualify as such.

    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-mainstream pooled investments.

    Signature:

    Date: ”

COBS 4.12.8 R RP

3A 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 following terms:

“SELF-CERTIFIED SOPHISTICATED INVESTOR STATEMENT

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

  1. (i)

    I can receive promotional communications made by a person who is authorised by the Financial Conduct Authority which relate to investment activity in non-mainstream pooled investments;

  2. (ii)

    the investments to which the promotions will relate may expose me to a significant risk of losing all of the property invested.

I am a self-certified sophisticated investor because at least one of the following applies:

  1. (a)

    I am a member of a network or syndicate of business angels and have been so for at least the last six months prior to the date below;

  2. (b)

    I have made more than one investment in an unlisted company in the two years prior to the date below;

  3. (c)

    I am working, or have worked in the two years prior to the date below, in a professional capacity in the private equity sector, or in the provision of finance for small and medium enterprises;

  4. (d)

    I am currently, or have been in the two years prior to the date below, a director of a company with an annual turnover of at least £1 million.

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 seek advice from someone who specialises in advising on non-mainstream pooled investments.

Signature:

Date: ”

Sophisticated and high net worth investors: guidance on certification by authorised person and reliance on self-certification

COBS 4.12.9 G RP
  1. (1)

    3A firm which wishes to rely on any of the certified high net worth investor exemptions (see Part I of the Schedule to the Promotion of Collective Investment Schemes Order, Part I of Schedule 5 to the Financial Promotions Order and COBS 4.12.6 R) should have regard to its duties under the Principles and the client's best interests rule. In particular, the firm should take reasonable steps to ascertain that the retail client does, in fact, meet the income and net assets criteria set out in the relevant statement for certified high net worth investors.

  2. (2)

    In addition, the firm should consider whether the promotion of the non-mainstream pooled investment is in the interests of the retail client and whether it is fair to make the promotion to that client on the basis that the client is a certified high net worth investor, having regard to the generally complex nature of non-mainstream pooled investments. A retail client who meets the criteria for a certified high net worth investor but not for a certified sophisticated investor may be unable to properly understand and evaluate the risks of the non-mainstream pooled investment in question.

COBS 4.12.10 G RP
  1. (1)

    3A firm which is asked to or proposes to assess and certify a retail client as a certified sophisticated investor (see article 23 of the Promotion of Collective Investment Schemes Order, article 50 of the Financial Promotions Order and COBS 4.12.7 R) should have regard to its duties under the Principles and the client's best interests rule. In particular, the firm should carry out that assessment with due skill, care and diligence, having regard to the generally complex nature of non-mainstream pooled investments and the level of experience, knowledge and expertise the retail client being assessed must possess in order to be fairly and reasonably assessed and certified as a sophisticated investor.

  2. (2)
    1. (a)

      For example, a retail client whose investment experience is limited to mainstream investments such as securities issued by listedcompanies, life policies or units in regulated collective investment schemes (other than qualified investor schemes) is generally unlikely to possess the requisite knowledge to adequately understand the risks associated with investing in non-mainstream pooled investments.

    2. (b)

      In exceptional circumstances, however, the retail client may have acquired the requisite knowledge through means other than his own investment experience, for example, if the retail client is a professional of several years’ experience with the design, operation or marketing of complex investments such as options, futures, contracts for differences or non-mainstream pooled investments.

COBS 4.12.11 G RP
  1. (1)

    3A firm which wishes to rely on any of the self-certified sophisticated investor exemptions (see Part II of the Schedule to the Promotion of Collective Investment Schemes Order, Part II of Schedule 5 to the Financial Promotions Order and COBS 4.12.8 R) should have regard to its duties under the Principles and the client's best interests rule. In particular, the firm should consider whether the promotion of the non-mainstream pooled investment is in the interests of the client and whether it is fair to make the promotion to that client on the basis of self-certification.

  2. (2)

    For example, it is unlikely to be appropriate for a firm to make a promotion under any of the self-certified sophisticated investor exemption without first taking reasonable steps to satisfy itself that the investor does in fact have the requisite experience, knowledge or expertise to understand the risks of the non-mainstream pooled investment in question. A retail client who meets the criteria for a self-certified sophisticated investor but not for a certified sophisticated investor may be unable to properly understand and evaluate the risks of a non-mainstream pooled investment which invests wholly or predominantly in assets other than shares in or debentures of unlisted companies.

One-off promotions

COBS 4.12.12 G RP
  1. (1)

    3A firm which wishes to rely on one of the one-off promotion exemptions provided by the Promotion of Collective Investment Schemes or the Financial Promotion Order to promote a non-mainstream pooled investment to a retail client should have regard to its duties under the Principles and the client's best interests rule. In particular, the firm should consider whether the promotion of the non-mainstream pooled investment is in the interests of the client and whether it is fair to make the promotion to that client on the basis of a one-off promotion exemption.

  2. (2)

    The one-off promotion exemptions permit the promotion of investments to clients under certain conditions (see PERG 8.14.3 G to PERG 8.14.13 G for guidance on the scope of the one-off exemptions in the Financial Promotion Order). Firms should note that, in the FCA's view, promotion of a non-mainstream pooled investment to a retail client who is not a certified high net worth investor, a certified sophisticated investor or a self-certified sophisticated investor is unlikely to be appropriate or in that client's best interests.

Qualified investor schemes

COBS 4.12.13 G RP
  1. (1)

    3A firm which wishes to rely on the excluded communications exemption in COBS 4.12.4R (5) to promote units in a qualified investor scheme to a retail client should have regard to its duties under the Principles and the client's best interests rule.

  2. (2)

    As explained in COLL 8.1, qualified investor schemes are intended only for professional clients and retail clients who are sophisticated investors. Firms should note that, in the FCA's view, promotion of units in a qualified investor scheme to a retail client who is not a certified sophisticated investor or a self-certified sophisticated investor is unlikely to be appropriate or in that client’s best interests.

COBS 4.13 UCITS

Application

COBS 4.13.1 R RP
  1. (1)

    1This section applies to a firm in relation to a communication to a client, including an excluded communication, that is a marketing communication within the meaning of the UCITS Directive.

  2. (2)

    This section does not apply to:

    1. (a)

      image advertising; or

    2. (b)

      the instrument constituting the fund2, the prospectus, the key investor information (or alternatively the simplified prospectus or EEA simplified prospectus) or the periodic reports and accounts of either a UCITS scheme or an EEA UCITS scheme.

      2

[Note: recital (58) of the UCITS Directive]

Marketing communications relating to UCITS schemes or EEA UCITS schemes

COBS 4.13.2 R RP
  1. (1)

    A firm must ensure that a marketing communication that comprises an invitation to purchase units in a UCITS scheme or EEA UCITS scheme and that contains specific information about the scheme:

    1. (a)

      makes no statement that contradicts or diminishes the significance of the information contained in the prospectus and the key investor information document or EEA key investor information document for the scheme;

    2. (b)

      indicates that a prospectus exists for the scheme and that the key investor information document or EEA key investor information document is available; and

    3. (c)

      specifies where and in which language such information or documents may be obtained by investors or potential investors or how they may obtain access to them.

  2. (2)

    Where a UCITS scheme or an EEA UCITS scheme may invest more than 35% of its scheme property in transferable securities and money market instruments issued or guaranteed by an EEA State, one or more of its local authorities, a third country or a public international body to which one or more EEA States belong, the firm must ensure that a marketing communication relating to the scheme contains a prominent statement drawing attention to the investment policy and indicating the particular EEA States, local authorities, third countries or public international bodies in the securities of which the scheme intends to invest or has invested more than 35% of its scheme property.

  3. (3)

    Where a UCITS scheme or EEA UCITS scheme invests principally in units in collective investment schemes, deposits or derivatives, or replicates a stock or debt securities index in accordance with COLL 5.2.31 R (Schemes replicating an index) or equivalent national measures implementing article 53 of the UCITS Directive, the firm must ensure that a marketing communication relating to the scheme contains a prominent statement drawing attention to the investment policy.

  4. (4)

    Where the net asset value of a UCITS scheme or EEA UCITS scheme has, or is likely to have, high volatility owing to its portfolio composition or the portfolio management techniques that are or may be used, the firm must ensure that a marketing communication relating to the scheme contains a prominent statement drawing attention to that characteristic.

[Note: articles 54(3), 70(2), 70(3) and 77 of the UCITS Directive]

Marketing communications relating to a feeder UCITS

COBS 4.13.3 R RP

A firm must ensure that a marketing communication (other than a key investor information document or EEA key investor information document) relating to a feeder UCITS contains a statement that the feeder UCITS permanently invests at least 85% in value of its assets in units of its master UCITS.

[Note: article 63(4) of the UCITS Directive]