COBS 8A.1 Client agreements (MiFID, equivalent third country or optional exemption business)
Application and purpose provisions
1This chapter applies to a firm in relation to its MiFID, equivalent third country or optional exemption business.
Provisions in this chapter marked “UK”2 apply to MiFID optional exemption firms as if they were rules.
In order to provide legal certainty and enable clients to better understand the nature of the services provided, investment firms that provide investment or ancillary services to clients should enter into a written basic agreement with the client, setting out the essential rights and obligations of the firm and the client.
[Note: recital 90 to the MiFID Org Regulation]
Providing a client agreement: retail and professional clients
2Investment firms providing any investment service or the ancillary service referred to in paragraph 1 of Part 3A of Schedule 2 to the Regulated Activities Order to a client after the date of application of this Regulation shall enter into a written basic agreement with the client, in paper or another durable medium, with the client setting out the essential rights and obligations of the firm and the client. Investment firms providing investment advice shall comply with this obligation only where a periodic assessment of the suitability of the financial instruments or services recommended is performed.
(a) a description of the services, and where relevant the nature and extent of the investment advice, to be provided;
(b) in case of portfolio management services, the types of financial instruments that may be purchased and sold and the types of transactions that may be undertaken on behalf of the client, as well as any instruments or transactions prohibited; and
(c) a description of the main features of any services referred to in paragraph 1 of Part 3A of Schedule 2 to the Regulated Activities Order to be provided, including where applicable the role of the firm with respect to corporate actions relating to client instruments and the terms on which securities financing transactions involving client securities will generate a return for the client.
[Note: article 58 of the MiFID Org Regulation]
General requirement for information to clients
246(1) Investment firms shall, in good time before a client or potential client is bound by any agreement for the provision of investment services or ancillary services or before the provision of those services, whichever is the earlier to provide that client or potential client with the following information:
(a) the terms of any such agreement;
(b) the information required by Article 47 relating to that agreement or to those investment or ancillary services.
[Note: article 46(1) of the MiFID Org Regulation]
246(2) Subject to paragraph 2A, investment firms must3, in good time before the provision of investment services or ancillary services to clients or potential clients, to provide the information required under Articles 47 to 50.
46(2A) Where the agreement to buy or sell a financial instrument is concluded using a means of distance communication, which prevents the delivery of the information on costs and charges before that conclusion:3
(a) the investment firm must give the client or potential client the option of receiving the information on costs and charges over the telephone before the conclusion of the transaction; and3
(b) subject to meeting the conditions referred to in paragraph 2B(a) and (b), the investment firm may provide the information on costs and charges to clients in:3
46(2B) The conditions referred to in paragraph 2A(b) are:3
(a) the client or potential client has requested and consented to receiving the information without undue delay after the conclusion of the transaction; and3
(b) the investment firm has given the client or potential client the option of delaying the conclusion of the transaction until the client has received the information.3
[Note: article 46(2), (2A) and (2B)3 of the MiFID Org Regulation]
246(3) The information referred to in paragraphs 1 to 2B3 shall be provided in a durable medium or by means of a website (where it does not constitute a durable medium) provided that the conditions specified in Article 3(2) are satisfied.
[Note: article 46(3) of the MiFID Org Regulation]
Avoiding duplicate information
- (1)
Articles 47 to 50 of the MiFID Org Regulation require a firm to provide a client with information about:
- (2)
Provided the information referred to in (1) is communicated to a client in good time before the provision of the service, a firm does not need to provide it either separately or by incorporating it in a client agreement.
- (3)
The requirements for firms to provide clients with the information referred to in (1) are set out at COBS 6.1ZA.
[Note: recital 84 to MiFID]
Record keeping: client agreements
273 Records which set out the respective rights and obligations of the investment firm and the client under an agreement to provide services, or the terms on which the firm provides services to the client, shall be retained for at least the duration of the relationship with the client.
[Note: article 73 of the MiFID Org Regulation]
When considering its approach to client agreements, a firm should be aware of other obligations in the Handbook which may be relevant. These include the fair, clear and not misleading rule, the rules on disclosure of information to a client before providing services (principally in COBS 2.2A, 6.1ZA and 13) and the provisions on record keeping (principally in SYSC 9).