COBS 6.4 Disclosure of charges, remuneration and commission
Application
1This section applies to a firm carrying on designated investment business with a retail client.
Under the territorial application rules in COBS 1, the rules in this section apply to:
- (1)
a UK firm's business carried on from an establishment in an EEA State other than the United Kingdom for a retail client in the United Kingdom unless, if the office from which the activity is carried on were a separate person, the activity:
- (a)
would fall within the overseas persons exclusion in article 72 of the Regulated Activities Order; or
- (b)
would not be regarded as carried on in the United Kingdom.
- (a)
- (2)
a firm's business carried on from an establishment in the United Kingdom carried on for a client in an other EEA state.
Disclosure of commission (or equivalent) for packaged products
- (1)
If a firm sells, personally recommends or arranges the sale of a packaged product to a retail client, and subsequently if the retail client requests it, the firm must disclose to the client in cash terms:
- (a)
any commission receivable by it or any of its associates in connection with the transaction;
- (b)
if the firm is also the product provider, any commission or commission equivalent payable in connection with the transaction; and
- (c)
if the firm or any of its associates is in the same immediate group as the product provider, any commission equivalent in connection with the transaction.
- (a)
- (2)
Disclosure "in cash terms" in relation to commission does not include the value of any indirect benefits listed in the table at COBS 2.3.15 G.
- (3)
In determining the amount to be disclosed as commission equivalent, a firm must put a proper value on the cash payments, benefits and services provided to its representatives in connection with the transaction.
- (4)
This rule does not apply if:
- (a)
the firm is acting as an investment manager; or
- (b)
the retail client is not present in the EEA at the time of the transaction; or
- (c)
the firm provides the client with a key features document, a simplified prospectus, a key investor information document or EEA key investor information document,4 in accordance with COBS 14, provided that the firm discloses to the client the actual amount or value of commission or equivalent within five business days of effecting the transaction.
4
- (a)
- (5)
If the terms of a packaged product are varied in a way that results in a material increase in commission or commission equivalent, a firm must disclose to a retail client in writing any consequent increase in commission or equivalent receivable by it in relation to that transaction.
Where a firm is required to disclose the value of commission equivalent, the value will be at least as high as the amount of any commission.
- (1)
A firm must make the disclosure required by the rule on disclosure of commission or equivalent (COBS 6.4.3 R) as close as practicable to the time that it sells, personally recommends or arranges the sale of a packaged product.
- (2)
The firm must make the disclosure:
- (a)
in a durable medium; or
- (b)
when a retail client does not make a written application to enter into a transaction, orally. In these circumstances, the firm must give written confirmation as soon as possible after the date of the transaction, and in any event within five business days.
- (a)
- (1)
When determining the value of cash payments, benefits and services under the rule on disclosure of commission equivalent (COBS 6.4.3 R), a firm should follow the provisions of COBS 6 Annex 6.
- (2)
Compliance with this evidential provision may be relied on as tending to establish compliance with COBS 6.4.3 R; and
- (3)
Contravention of this evidential provision may be relied on as tending to establish contravention of COBS 6.4.3 R.
Guidance on disclosure requirements for packaged products.
A firm must not enter into an arrangement to pay commission other than to the firm responsible for a sale, unless:
- (1)
the firm responsible for the sale has passed on its right to receive the commission to the recipient; or
- (2)
another firm has given a personal recommendation to the same retail client after the sale; or
- (3)
the commission is paid following the sale of a packaged product by the firm in response to a financial promotion communicated by that firm to a client of the recipient firm; or
- (4)
the arrangement is with a firm in the same immediate group.
A disclosure made under this section should indicate the timing of any payment. For example, if a firm exchanges its right to future commission payments for a lump sum, whether by way of a loan or other commercial arrangement, it should disclose the amount of commission receivable by it that has been exchanged for the lump sum.
The rules in this section build on the disclosure of fees, commissions and non-monetary benefits made under the rule on inducements (COBS 2.3.1 R). However the rules in this section do not require disclosures before the firm makes a personal recommendation.
If the precise rate or value of commission or equivalent is not known in advance, the firm should estimate the rate likely to apply to the representative in respect of the transaction.
Commission or equivalent disclosure statements: content and wording |
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A firm should consider including the following in its written statement of commission: |
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(1) |
Amounts or values of commission rounded as appropriate to help the client understand the document (for example, large amounts might be rounded to three significant figures). |
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(2) |
The names of the firms involved in paying and receiving commission or commission equivalent. |
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(3) |
A plain language description of whether remuneration takes the form of commission or commission equivalent. Commission equivalent could, for example, be described as "remuneration and services received from XYZ Ltd". |
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(4) |
The timing of payments and period over which they are paid. |
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(5) |
For payments relating to the client's fund, examples of how much money might be taken, such as: |
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(a) |
where the commission or equivalent is on an increasing basis, the amount to be taken in the first and tenth year in which it is paid; or |
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(b) |
where the commission or equivalent is a percentage of the fund, the amount that would taken if the fund was worth a certain value and the amount that would be taken if the fund was worth twice that value. |
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