Related provisions for COBS 9.1.9
1 - 20 of 111 items.
2(1) With-profits business, by virtue of its nature and the extent of discretion applied by firms in its operation, involves numerous potential conflicts of interest that might give rise to the unfair treatment of policyholders. Potential conflicts of interest may arise between shareholders and with-profits policyholders, between with-profits policyholders and non-profit policyholders within the same fund, between with-profits policyholders and the members of mutually-owned firms,
(1) 2Notwithstanding that there may not be a rule in the remainder of this section addressing a particular aspect of a firm's operating practices, firms will need to ensure that they take reasonable care to ensure that all aspects of their operating practice comply with COBS 20.2.1A R.(2) For the avoidance of doubt COBS 20.2.1A R does not exhaust or restrict the scope of Principle 6. Firms will in any event need to ensure that their operating practices are consistent with Principle
(1) Unless a firm cannot reasonably compare a maturity payment with a calculated asset share, it must:(a) set a target range for the maturity payments that it will make on:(i) all of its with-profits policies; or(ii) each group of its with-profits policies;(b) ensure that each target range:(i) is expressed as a percentage of unsmoothed asset share; and(ii) includes 100% of unsmoothed asset share; and(c) manage its with-profits business, and the business of each with-profit fund,
Notwithstanding that a firm must aim to make maturity payments that fall within the relevant target range, a firm may make a maturity payment that falls outside the target range if it has a good reason to believe that at least 90% of maturity payments on with-profits policies in that group have fallen, or will fall, within the relevant target range.
If it is not fair or reasonable to calculate or assess a maturity payment using the prescribed asset share methodology, a firm may use another methodology to set bonus rates, if that methodology properly reflects its representations to with-profits policyholders and it applies that methodology consistently.
If a firm has approved a plan to make deductions from asset share, it must ensure that its planned deductions do not change unless justified by changes in the business or economic environment, or changes in the nature of the firm's liabilities as a result of policyholders exercising options in their policies.
A firm may use its own methodology to calculate surrender payments, but it should have good reason to believe that its methodology produces a result which, in aggregate across all similar policies, is not less than the result of the prescribed asset share methodology. A firm might, for example, test the surrender payments on a suitable range of specimen with-profits policies.
Amounts that might be deducted include:(1) the firm's unrecovered costs, including any financing costs incurred in effecting or carrying out the surrendered with-profits policy to the date of surrender, including the costs that might have been recovered if the policy had remained in force;(2) costs that would fall on the with-profits fund, if the surrender value is calculated by reference to an assumed market value of assets which exceeds the true market value of those assets;(3)
A firm must not, in so far as is reasonably practicable,2 make a market value reduction to the face value of the units of an accumulating with-profits policy unless:(1) the market value of the with-profits assets in the relevant with-profits fund is, or is expected to be, less than the assumed value of the assets on which the face value of the units of the policy has been based; and222(2) the market value reduction is no greater than is necessary to reflect the impact of the difference
2If a firm is able to satisfy COBS 20.2.16R (1), then the volume of surrenders, transfers, or other exits from the with-profits fund that there has been, or is expected to be, is a factor that a firm may take into account when it is considering whether to make a market value reduction, and if so, its amount, subject to the limit in COBS 20.2.16R (2).
A firm must:2(1) not make a distribution from a with-profits fund, unless the whole of the cost of that distribution can be met without eliminating the regulatory surplus in that with-profits fund; and2(2) ensure that the amount distributed to policyholders from a with-profits fund, taking into account any adjustments required by COBS 20.2.17A R,2 is not less than the required percentage of the total amount distributed.22
(1) 2Where a firm adjusts the amounts distributed to policyholders, either by market value reduction or otherwise, in a way that would result in a distribution to policyholders of less than the required percentage, taking both the relevant distributions and the adjustment into account, then the firm must apply a proportionate adjustment to amounts distributed to shareholders so that the distribution to policyholders will not be less than the required percentage.(2) The adjustments
2An example of the application of COBS 20.2.17A R, without limitation to its scope generally, is where a firm reduces, for any reason, the amounts of a bonus or of bonus units added to policies in force. The firm should treat this as effectively a ‘negative distribution’, calculated by making the same assumptions regarding discount rates and other relevant factors as would be used for positive bonus additions. The amount so calculated should then be taken into account in ensuring
A realistic basis life firm must not make a distribution from a with-profits fund to any person who is not a with-profits policyholder, unless the whole of the cost of that distribution (including the cost of any obligations that will or may arise from the decision to make a distribution) can be met from the excess of the realistic value of assets over the realistic value of liabilities in that with-profits fund.
If, on a distribution, a firm incurs a tax liability on a transfer to shareholders, it must not attribute that tax liability to a with-profits fund, unless:(1) the firm can show that attributing the tax liability to that with-profits fund is consistent with its established practice;(2) that established practice is explained in the firm's PPFM; and(3) that liability is not charged to asset shares.
At least once a year (or, in the case of a non-directive friendly society, at least once in every three years) and whenever a firm is seeking to make a reattribution of its inherited estate,2 a firm'sgoverning body must determine whether the firm'swith-profits fund, or any of the firm'swith-profits fund, has an excess surplus.
(1) If a with-profits fund has an excess surplus, and to retain that surplus would be a breach of Principle 6 (Customers' interests), the firm should make a distribution from that with-profits fund.22(2) Compliance with (1) may be relied on as tending to establish compliance with Principle 6 (Customers' interests).(3) Contravention of (1) may be relied on as tending to establish a contravention of Principle 6 (Customers' interests).
A mutual may pay compensation or redress due to a policyholder, or formerpolicyholder, from a with-profits fund, but may only pay from assets that would otherwise be attributable to asset shares if, in the reasonable opinion of the firm'sgoverning body, the compensation or redress cannot be paid from any other assets in the with-profits fund. 1
A payment or transfer of liabilities made to correct an error and which has the effect of restoring a policyholder, or former policyholder, and the with-profits fund to the position they would have been in if the error had not occurred (a “rectification payment”), is not a payment of compensation or redress for the purposes of COBS 20.2.24 R.1
Rectification payments may include, for example, a payment to a policyholder or former policyholder to correct an erroneous underpayment of policy proceeds, or a reimbursement of premiums overpaid. The effect of COBS 20.2.25B R is that a firm may make rectification payments using assets in a with-profits fund.1
A proprietary firm must not charge to a with-profits fund any amounts paid or payable to a skilled person in connection with a report under section 166 of the Act (Reports by skilled persons) if the report indicates that the firm has, or may have, materially failed to satisfy its obligations under the regulatory system1.1
A firm must not effect new contracts of insurance in an existing with-profits fund unless:22(1) the firm'sgoverning body is satisfied, so far as it reasonably can be, and can demonstrate, having regard to the analysis in (2), that the terms on which each type of contract is to be effected are likely to have no adverse effect on the interests of the with-profits policyholders whose policies are written into that fund; and2(2) the firm has:(a) carried out or obtained appropriate
(1) 2Writing new insurance business into a with-profits fund is not, of itself, automatically adverse to the interests of with-profits policyholders. For example, new insurance business which defers the emergence or distribution of surplus to a limited extent for a number of policyholders, or which leads to a marginal change in the equity backing ratio, may, subject to satisfying the guidance in COBS 20.2.60 G and COBS 20.2.29 G, reasonably be considered not to have an adverse
In some circumstances, it may be difficult or impossible for a firm to mitigate the risk of an2 adverse effect on its existing, or new, with-profits policyholders, unless it establishes a new bonus series or with-profits fund. Circumstances that might cause a firm to establish a new bonus series or with-profits fund include:2(1) where the firm has a high level of guarantees or options in its existing with-profits policies, which might place an excessive burden on new with-profits
2(1) When a firm prices the new insurance business that it proposes to effect in an existing with-profits fund, it should estimate the volume of new insurance business that it is likely to effect and then build in adequate margins that will allow it to recover any acquisition costs to be charged to the with-profits fund.2(2) COBS 20.2.28 R requires firms to obtain appropriate analysis and evidence and this should include at least a profitability analysis on a marginal cost ba
When a firm sets a target volume for new insurance business in an existing with-profits fund, it should pay particular attention to the risk of disadvantage to existing with-profits policyholders. Those policyholders might be disadvantaged, for example, by the need to retain additional capital to support a rapid growth in new business, when that capital might have been distributed in the ordinary course of the firm's existing business.
A firm carrying on with-profits business must not:(1) make a loan to a connected person using assets in a with-profits fund; or(2) give a guarantee to, or for the benefit of, a connected person, where the guarantee will be backed using assets in a with-profits fund;unless that loan or guarantee:(3) will be on commercial terms;(4) will, in the reasonable opinion of the firm's senior management, be beneficial to the with-profits policyholders in the relevant with-profits fund; and(5)
(1) If a firm, or a connected person, provides support to a with-profits fund (for example, by a contingent loan), no reliance should be placed on that support when the firm assesses the with-profits fund's financial position unless there are clear and unambiguous criteria governing any repayment obligations to the support provider.(2) The degree of reliance placed on that support should depend on the subordination of the support to the fair treatment of with-profits policyholders
Where assets from outside a with-profits fund are made available to support that fund (and there is no ambiguity in the criteria governing any repayment obligations to the support provider), a firm should manage the fund disregarding the liability to repay those assets, at least in so far as that is necessary for its policyholders to be treated fairly.
When a firm determines its investment strategy, and the acceptable level of risk within that strategy, it should take into account:(1) the extent of the guarantee in its with-profits policies;(2) any representation that it has made to its with-profits policyholders;(3) its established practice; and(4) the amount of capital support available.
A firm must not:2(1) use with-profits assets to finance the purchase of a strategic investment, directly or by or through a connected person; or2(2) retain an investment referred to in (1);2unless its governing body is satisfied, so far as it reasonably can be, and can demonstrate, that the purchase or retention is likely to have no adverse effect on the interests of its with-profits policyholders whose policies are written into the relevant fund.22
(1) 2In order for a firm to comply with COBS 20.2.36 R, a firm'sgoverning body should consider:(a) the size of the investment in relation to the with-profits fund;(b) the expected rate of return on the investment;(c) the risks associated with the investment, including, but not limited to, liquidity risk, the capital needs of the acquired business or investment and the difficulty of establishing fair value (if any);(d) any costs that would result from divestment;(e) whether the
2A firm must contact the FSA as soon as is reasonably practicable to make arrangements to discuss what actions may be required to ensure the fair treatment of with-profits policyholders if, in relation to any with-profits fund it operates:(1) the firm reasonably expects, or if earlier, there has been, a sustained and substantial fall in either the volume of new non-profit insurance contracts, or in the volume of new with-profits policies (effected other than by reinsurance), or
(1) 2The aim of the discussions in COBS 20.2.41A R is to:(a) allow the FSA to comment on the adequacy of the firm's planning; and(b) seek agreement with the firm on any other appropriate actions to ensure with-profits policyholders are treated fairly.(2) If the firm is no longer effecting a material volume of new with-profits policies (other than by reinsurance) into a with-profits fund; or if it is ceding by way of reinsurance most or all of the new with-profits policies which
A firm that is seeking to make a reattribution of its inherited estate must:(1) first discuss with the FSA (as part of its determination under COBS 20.2.21 R):22(a) its projections for capital required to support existing business, which must include an assessment of:2(i) the firm's future risk appetite for the with-profits fund and other relevant business; and2(ii) how much of the margin for prudence can be identified as excessive and removed from the projected capital requirements;
The firm should include an independent element in the policyholder advocate selection process, which may include consulting representative groups of policyholders or using the services of a recruitment consultant. When considering an application for approval of a nominee to perform the policyholder advocate role, the FSA will have regard to the extent to which the firm has involved others in the selection process.
The precise role of the policyholder advocate in any particular case will depend on the nature of the firm and the reattribution proposed. A firm will need to discuss, with a view to agreeing,2 with the FSA the precise role of the policyholder advocate in a particular case (COBS 20.2.45 R). However, the role of the policyholder advocate should include:(1) negotiating with the firm, on behalf of the relevant with-profits policyholders, the benefits to be offered to them in exchange
A firm must:(1) notify the FSA of the terms on which it proposes to appoint a policyholder advocate (whether or not the candidate was nominated by the FSA); and(2) ensure that the terms of appointment for the policyholder advocate:(a) include a description of the role of the policyholder advocate as agreed with the FSA under COBS 20.2.44 G;2(aA) stress the independent nature of the policyholder advocate's appointment and function, and are consistent with it;2(b) define the relationship
A firm may include, within the policyholder advocate's terms of appointment, arrangements for the policyholder advocate to be indemnified in respect of certain claims that may be made against him in connection with the performance of his functions. If such indemnity is included, it should not include protection against any liability arising from acts of bad faith.
Where a firm is not otherwise required to appoint an independent expert, it must:(1) appoint a reattribution expert to undertake an objective assessment of its reattribution proposals, who must be:(a) nominated or approved by the FSA before he is appointed; and(b) free from any conflicts of interest that may, or may appear to, undermine his independence or the quality of his report;(2) ensure that the reattribution expert's terms of appointment allow him to communicate freely
A reattribution expert's report should comply with the applicable rules on expert evidence. The scope and content of the report should be substantially similar to that of the report required of an independent expert under SUP 18.2 (Insurance business transfers), as if (where appropriate) a reference to:(1) the 'scheme report' was a reference to the 'reattribution expert's report';(2) the 'independent expert' was a reference to the 'reattribution expert'; and(3) the 'scheme' was
A firm must ensure that every policyholder that may be affected by the proposed reattribution is sent appropriate and timely information about:(1) the reattribution process, including the role of the policyholder advocate, the independent expert or reattribution expert, as the case may be, and other individuals appointed to perform particular functions;(2) the reattribution proposals and how they affect the relevant policyholders, including an explanation of any benefits they
A firm must give relevant with-profits policyholders the option to:(1) individually accept or reject the final proposals for the reattribution; or(2) (if the legal process to be followed allows the majority of policyholders to bind the minority) vote on whether the firm should go ahead with those proposals.
(1) Reattribution and insurance business transfer costs (excluding policyholder advocate costs) should be met from shareholder funds. A firm may present alternative arrangements if it can show good reasons for doing so.(2) Shareholders should pay a reasonable proportion of the policyholder advocate's costs.(3) If a reattribution proposal is not successful, the FSA would expect the costs of the policyholder advocate to be met by the person initiating the proposal. That will usually
A firm will be taken to have ceased to effect new contracts of insurance in a with-profits fund:(1) when any decision by the governing body to cease to effect new contracts of insurance takes effect; or(2) where no such decision is made, when the firm is no longer:(a) actively seeking to effect new contracts of insurance in that fund; or(b) effecting new contracts of insurance in that fund, except by increment; or2(3) if the firm:2(a) (i) is no longer effecting a material volume
When a firm tells its with-profits policyholders that it has ceased to effect new contracts of insurance in a with-profits fund, it should also explain:(1) why it has done so;(2) what changes it has made, or proposes to make, to the fund's investment strategy (if any);(3) how closure may affect with-profits policyholders (including any reasonably foreseeable effect on future bonus prospects);(4) the options available to with-profits policyholders and an indication of the potential
A firm may not be able to provide its with-profits policyholders with all of the information described above until it has prepared the run-off plan. In those circumstances, the firm should:(1) tell its with-profits policyholders that that is the case;(2) explain what is missing and give a time estimate for its supply; and(3) provide the missing information as soon as possible, and within the time estimate given.
(1) If non-profit insurance business is written in a with-profits fund, a firm should take reasonable steps to ensure that the economic value of any future profits expected to emerge on the non-profit insurance business is available for distribution during the lifetime of the with-profits business.(1A) Where a with-profits fund contains assets which may not be readily realisable, the firm should take reasonable steps to ensure that the economic value of those assets is made available
(1) 1This section applies to a firm which makes a personal recommendation to a retail client in relation to a retail investment product.personal recommendations to retail clients in relation to retail investment products.(2) This section does not apply to a firm giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme.2
8Guidance on the regulated activity of advising in relation to a new or existing investment can be found in PERG 8.24 to PERG 8.29. Although the guidance in PERG 8.29.7 G relates to advising on investments under article 53 of the Regulated Activities Order, exactly the same answers apply to a personal recommendation because the examples given relate to the relationship between a firm and a particular client and advice given to that specific client. A firm wishing to know when
Except as specified in COBS 6.1A.4A R and COBS 6.1A.4B R, a firm must:6(1) only be remunerated for the personal recommendation (and any other related services provided by the firm) by adviser charges; and(2) not solicit or accept (and ensure that none of its associates solicits or accepts) any other commissions, remuneration or benefit of any kind in relation to the personal recommendation or any other related service, regardless of whether it intends to refund the payments or
6A firm and its associates may:(1) solicit and accept a commission, remuneration or benefit of any kind in the circumstances set out in COBS 6.1A.4 R if:(a) the personal recommendation was made on or before 30 December 2012;(b) the solicitation and acceptance of the commission, remuneration or benefit of any kind was permitted by the rules in force on 30 December 2012;(c) the contract under which the right to receive the commission, remuneration or benefit of any kind was entered
(1) 8A firm may continue to accept a commission, remuneration or benefit of any kind after 30 December 2012 if there is a clear link between the payment and an investment in a retail investment product which was made by the retail client following a personal recommendation made, or a transaction executed, on or before 30 December 2012. This is the case even if the firm makes a personal recommendation to the same retail client after 30 December 2012 to the extent that the continued
6If a retail client chooses to become a client of a firm and that firm or its associate enters into an arrangement in COBS 6.1A.4AR (2), the firm must:(1) before the arrangement is entered into, disclose to the retail client that the transfer of the commission, remuneration or benefit of any kind will be requested by the firm or its associate;(2) throughout the period during which the firm or its associate receives the commission, remuneration or benefit of any kind, provide the
7‘Related service(s)’ for the purposes of COBS 6.1A includes:(1) arranging or executing a transaction which has been recommended to a retail client by the firm, an associate or another firm in the same group or conducting administrative tasks associated with that transaction; or(2) managing a relationship between a retail client (to whom the firm provides personal recommendations on retail investment products) and a discretionary investment manager or providing a service to such
Examples of payments and benefits that should not be accepted under the requirement to be paid through adviser charges include:(1) a share of the retail investment product charges or platform service provider's charges, or5retail investment product provider’s or platform service provider's5 revenues or profits; and5(2) a commission set and payable by a retail investment product provider in any jurisdiction.
An adviser charge is likely to be reasonably representative of the services associated with making the personal recommendation if:(1) the expected long term costs associated with making a personal recommendation and distributing the retail investment product do not include the costs associated with manufacturing and administering the retail investment product;(2) the allocation of costs and profit to adviser charges and product charges is such that any cross-subsidisation is not
In determining its charging structure and adviser charges a firm should have regard to its duties under the client's best interests rule. Practices which may indicate that a firm is not in compliance with this duty include:(1) varying its adviser charges inappropriately according to provider or, for substitutable and competing retail investment products, the type of retail investment product; or(2) allowing the availability or limitations of services offered by third parties
A firm is likely to be viewed as operating a charging structure that conceals the amount or purpose of its adviser charges if, for example:(1) it makes arrangements for amounts in excess of its adviser charges to be deducted from a retail client's investments from the outset, in order to be able to provide a cash refund to the retail client later; or(2) it provides other services to a retail client (for example, advising on a home finance transaction or advising on an equity release
In order to meet its responsibilities under the client's best interests rule and Principle 6 (Customers’ interests), a firm should consider whether the personal recommendation or any other related service7 is likely to be of value to the retail client when the total charges the retail client is likely to be required to pay are taken into account.
In order to meet the requirement in the rule on information disclosure before providing services (COBS 2.2.1 R), a firm should ensure that the disclosure of its charging structure is in clear and plain language and, as far as is practicable, uses cash terms. If a firm's charging structure is in non-cash terms, examples in cash terms should be used to illustrate how the charging structure will be applied in practice.
A firm is unlikely to meet its obligations under the fair, clear and not misleading rule and the client's best interests rule unless it ensures that:(1) the charging structure it discloses reflects, as closely as is practicable, the total adviser charge to be paid; for example, the firm should avoid using a wide range; and(2) if using hourly rates in its charging structure, it states whether the rates are indicative or actual hourly rates, provides the basis (if any) upon which
A firm must not use an adviser charge which is structured to be payable by the retail client over a period of time unless (1) or (2) applies:(1) the adviser charge is in respect of an ongoing service for the provision of personal recommendations or related services and: (a) the firm has disclosed that service along with the adviser charge; and6(b) the retail client is provided with a right to cancel the ongoing service, which must be reasonable in all the circumstances, without
6To comply with the rule on providing a retail client with the right to cancel an ongoing service for the provision of personal recommendations or related services without penalty (COBS 6.1A.22R (1)(b)) a firm should:(1) ensure that any notice period of the retail client's right of cancellation is reasonable; (2) not make any charge in respect of cancellation of the ongoing service except for an amount which is in proportion to the extent of the service already provided by the
(1) A firm must agree with and disclose to a retail client the total adviser charge payable to it or any of its associates by a retail client.(2) A disclosure under (1) must:(a) be in cash terms (or convert non-cash terms into illustrative cash equivalents);(b) be as early as practicable;(c) be in a durable medium or through a website (if it does not constitute a durable medium) if the website conditions are satisfied; and(d) if there are payments over a period of time, include
3If the price of the retail investment product may vary as a result of fluctuations in the financial markets and the adviser charge is expressed as a percentage of that price, a firm need not disclose to the retail client the total adviser charge payable to the firm or any of its associates by the retail client until after execution of the transaction, provided it then does so promptly.
To comply with the rule on disclosure of total adviser charges (COBS 6.1A.24 R) and the fair, clear and not misleading rule, a firm's disclosure of the total adviser charge should:(1) provide information to the retail client as to which particular service an adviser charge applied to;(2) include information as to when payment of the adviser charge is due; (3) inform the retail client if the total adviser charge varies materially from the charge indicated for that service in the
A firm must keep a record of:(1) its charging structure;(2) the total adviser charge payable by each retail client; and(3) if the total adviser charge paid by a retail client has varied materially from the charge indicated for that service in the firm's charging structure, the reasons for that difference.
A firm must take all reasonable steps to obtain, when executing orders, the best possible result for its clients taking into account the execution factors. [Note: article 21(1) of MiFID and article 25(2) first sentence of the UCITS implementing Directive]2[Note: The Committee of European Securities Regulators (CESR) has issued a Question and Answer paper on best execution under MiFID. This paper also incorporates the European Commission's response to CESR's questions regarding
2A management company must, in relation to each UCITS scheme or EEA UCITS scheme it manages, act in the best interests of the scheme when executing decisions to deal on its behalf in the context of the management of its portfolio, and COBS 11.2.1 R applies in relation to all such decisions.[Note: article 25(1) of the UCITS implementing Directive]
If a firm provides a quote to a client and that quote would meet the firm's obligations to take all reasonable steps to obtain the best possible result for its clients if the firm executed that quote at the time the quote was provided, the firm will meet those same obligations if it executes its quote after the client accepts it, provided that, taking into account the changing market conditions and the time elapsed between the offer and acceptance of the quote, the quote is not
The obligation to deliver the best possible result when executing client orders applies in relation to all types of financial instruments. However, given the differences in market structures or the structure of financial instruments, it may be difficult to identify and apply a uniform standard of and procedure for best execution that would be valid and effective for all classes of instrument. Best execution obligations should therefore be applied in a manner that takes into account
(1) 2A management company should, for each UCITS scheme or EEA UCITS scheme it manages, act in the best interests of the scheme when directly executing orders to deal on its behalf or when transmitting those orders to third parties.(2) When executing orders on behalf of any such scheme it manages, a management company is expected to take all reasonable steps to obtain the best possible result for the scheme on a consistent basis, taking into account price, costs, speed, likelihood
When executing a client order, a firm must take into account the following criteria for determining the relative importance of the execution factors:(1) the characteristics of the client including the categorisation of the client as retail or professional;(2) the characteristics of the client order;(3) the characteristics of financial instruments that are the subject of that order;(4) the characteristics of the execution venues to which that order can be directed; and2(5) for
Where a firm executes an order on behalf of a retail client, the best possible result must be determined in terms of the total consideration, representing the price of the financial instrument and the costs related to execution, which must include all expenses incurred by the client which are directly related to the execution of the order, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order.
For the purposes of ensuring that a firm obtains the best possible result for the client when executing a retail client order in the absence of specific client instructions, the firm should take into consideration all factors that will allow it to deliver the best possible result in terms of the total consideration, representing the price of the financial instrument and the costs related to execution. Speed, likelihood of execution and settlement, the size and nature of the order,
A firm's execution policy should determine the relative importance of each of the execution factors or establish a process by which the firm will determine the relative importance of the execution factors. The relative importance that the firm gives to those execution factors must be designed to obtain the best possible result for the execution of its client orders. Ordinarily, the FSA would expect that price will merit a high relative importance in obtaining the best possible
For the purposes of delivering best execution for a retail client where there is more than one competing venue to execute an order for a financial instrument, in order to assess and compare the results for the client that would be achieved by executing the order on each of the execution venues listed in the firm's order execution policy that is capable of executing that order, the firm's own commissions and costs for executing the order on each of the eligible execution venues
The obligation to deliver best execution for a retail client where there are competing execution venues is not intended to require a firm to compare the results that would be achieved for its client on the basis of its own execution policy and its own commissions and fees, with results that might be achieved for the same client by any other firm on the basis of a different execution policy or a different structure of commissions or fees. Nor is it intended to require a firm to
A firm would be considered to structure or charge its commissions in a way which discriminates unfairly between execution venues if it charges a different commission or spread to clients for execution on different execution venues and that difference does not reflect actual differences in the cost to the firm of executing on those venues. [Note: recital 73 to the MiFID implementing Directive]
A firm must establish and implement effective arrangements for complying with the obligation to take all reasonable steps to obtain the best possible result for its clients. In particular, the firm must establish and implement an order execution policy to allow it to obtain, for its client orders, the best possible result in accordance with that obligation. [Note: article 21(2) of MiFID and article 25(3) first paragraph of the UCITS implementing Directive]2
The order execution policy must include, in respect of each class of financial instruments, information on the different execution venues where the firm executes its client orders and the factors affecting the choice of execution venue. It must at least include those execution venues that enable the firm to obtain on a consistent basis the best possible result for the execution of client orders. [Note: paragraph 1 of article 21(3) of MiFID]
(1) When establishing its execution policy, a firm should determine the relative importance of the execution factors, or at least establish the process by which it determines the relative importance of these factors, so that it can deliver the best possible result to its clients.(2) In order to give effect to that policy, a firm should select the execution venues that enable it to obtain on a consistent basis the best possible result for the execution of client orders.(3) A firm
The provisions of this section which provide that costs of execution include a firm's own commissions or fees charged to the client for the provision of an investment service should not apply for the purpose of determining what execution venues must be included in the firm's execution policy. [Note: recital 72 to the MiFID implementing Directive]
The provisions of this section as to execution policy are without prejudice to the general obligation of a firm to monitor the effectiveness of its order execution arrangements and policy and assess the execution venues in its execution policy on a regular basis. [Note: recital 74 to the MiFID implementing Directive]
(1) Whenever there is a specific instruction from the client, the firm must execute the order following the specific instruction.[Note: article 21(1) of MiFID](2) A firm satisfies its obligation under this section to take all reasonable steps to obtain the best possible result for a client to the extent that it executes an order, or a specific aspect of an order, following specific instructions from the client relating to the order or the specific aspect of the order. [Note: article
When a firm executes an order following specific instructions from the client, it should be treated as having satisfied its best execution obligations only in respect of the part or aspect of the order to which the client instructions relate. The fact that the client has given specific instructions which cover one part or aspect of the order should not be treated as releasing the firm from its best execution obligations in respect of any other parts or aspects of the client order
A firm should not induce a client to instruct it to execute an order in a particular way, by expressly indicating or implicitly suggesting the content of the instruction to the client, when the firm ought reasonably to know that an instruction to that effect is likely to prevent it from obtaining the best possible result for that client. However, this should not prevent a firm inviting a client to choose between two or more specified trading venues, provided that those venues
(1) A firm must provide a retail client with the following details on its execution policy in good time prior to the provision of the service:(a) an account of the relative importance the firm assigns, in accordance with the execution criteria, to the execution factors, or the process by which the firm determines the relative importance of those factors;(b) a list of the execution venues on which the firm places significant reliance in meeting its obligation to take all reasonable
2(1) A firm (other than a management company providing collective portfolio management services for a UCITS scheme or an EEA UCITS scheme) must obtain the prior consent of its clients to the execution policy.2(2) In the case of a management company providing collective portfolio management services for an ICVC that is a UCITS scheme, or for an EEA UCITS scheme that is structured as an investment company, the management company must obtain the prior consent of the ICVC or investment
A firm must obtain the prior express consent of its clients before proceeding to execute their orders outside a regulated market or an MTF. The firm may obtain this consent either in the form of a general agreement or in respect of individual transactions. [Note: paragraph 3 of article 21(3) of MiFID]
A firm must monitor the effectiveness of its order execution arrangements and execution policy in order to identify and, where appropriate, correct any deficiencies. In particular, it must assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether it needs to make changes to its execution arrangements. The firm must notify clients of any material changes to their order execution
(1) A firm must review annually its execution policy, as well as its order execution arrangements.(2) This review must also be carried out whenever a material change occurs that affects the firm's ability to continue to obtain the best possible result for the execution of its client orders on a consistent basis using the venues included in its execution policy. [Note: article 46(1) of the MiFID implementing Directive and article 25(4) second paragraph of the UCITS implementing
2(1) A firm other than a management company must be able to demonstrate to its clients, at their request, that it has executed their orders in accordance with its execution policy.2(2) A management company must be able to demonstrate that it has executed orders on behalf of any UCITS scheme or EEA UCITS scheme it manages in accordance with its execution policy.2 [Note: article 21(5) of MiFID and article 25(5) of the UCITS implementing Directive]2
A firm must, when providing the service of portfolio management or, for a management company, collective portfolio management,2 comply with the obligation to act in accordance with the best interests of its clients when placing orders with other entities for execution that result from decisions by the firm to deal in financial instruments on behalf of its client. [Note: article 45(1) of MiFID implementing Directive and article 26(1) of the UCITS implementing Directive]2
In order to comply with the obligation to act in accordance with the best interests of its clients when it places an order with, or transmits an order to, another entity for execution, a firm must:[Note: article 45(3) of the MiFID implementing Directive and article 26(1) of the UCITS implementing Directive]2(1) take all reasonable steps to obtain the best possible result for its clients taking into account the execution factors. The relative importance of these factors must be
This section is not intended to require a duplication of effort as to best execution between a firm which provides the service of reception and transmission of orders or portfolio management and any firm to which that firm transmits its orders for execution. [Note: recital 75 to the MiFID implementing Directive]
The provisions applying to a firm which places orders with, or transmits orders to, other entities for execution (see COBS 11.2.30 R to COBS 11.2.33 G) will not apply when the firm which provides the service of portfolio management or collective portfolio management2 and/or service of reception and transmission of orders also executes the orders received or the decisions to deal on behalf of its client's portfolio. In those cases the requirements of this section for firms who
An operator when it is carrying on scheme management activity:
Table: Application of conduct of business rules
Application of conduct of business rules
Chapter, section or rule |
Description |
Modifications |
1 |
Application |
|
2.1.1 |
Acting honestly, fairly and professionally |
|
2.3 |
Inducements |
|
2.4 |
Agent as client and reliance on others |
|
4.2.1 - 4.2.3 |
Fair, clear and not misleading communications |
|
25.1 |
Distance communications |
|
5.2 |
E-Commerce |
|
56.1G.2 |
Re-registration requests: firms acting as registrars |
|
11.2 |
Best execution |
In the case of an unregulated collective investment scheme, COBS 18.5.4R (Modification of best execution) applies instead of COBS 11.2 in the circumstances set out in COBS 18.5.4R.1 |
11.3 |
Client order handling |
|
11.5 |
Record keeping: client orders and decisions to deal |
|
11.6 |
Use of dealing commission |
|
311.8 |
Recording telephone conversations and electronic communications |
|
18.5 |
Operators of collective investment schemes |
The COBSrules specified in the table in COBS 18.5.2 R apply to an operator when it is carrying on scheme management activity with the following modifications:(1) subject to (2), references to customer or client are to be construed as references to any scheme in respect of which the operator is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on;(2) in the case of an unregulated collective investment scheme, when an operator
The best execution provisions applying to an operator of a collective investment scheme do not apply in relation to an unregulated collective investment scheme whose scheme documents include a statement that best execution does not apply in relation to the scheme and in which:(1) no participant is a retail client; or(2) no current participant in the scheme was a retail client on joining the scheme as a participant.
An operator of an unregulated collective investment scheme must not accept a retail client asa participant in the scheme unless it has taken reasonable steps to offer and, if requested, provide to the potential participant scheme documents which adequately describe how the operation of the scheme is governed.
An operator's scheme documents may consist of any number of documents provided that it is clear that collectively they constitute the scheme documents and provided the use of several documents in no way diminishes the significance of any of the statements which are required to be given to the potential participant.
The scheme documents of an unregulated collective investment scheme (if they exist) should make it clear that if a participant is reclassified as a retail client, this reclassification will not affect certain scheme management activities of the operator of the scheme. In particular, despite such a reclassification, the operator will not be required to comply with the best execution provisions applying to an operator of a collective investment scheme. It should be noted that there
Where the scheme is an unregulated collective investment scheme and no current participant in the scheme was a retail client on joining the scheme as a participant, the scheme documents must include a statement that:(1) explains that if a participant is reclassified as a retail client subsequent to joining the scheme as a participant, then the operator may continue to treat all participants in the scheme as though they were not retail clients; (2) explains that if a participant
The operator will still have to comply with other COBS provisions as a result of the reclassification of a participant as a retail client, for example, the requirement to provide periodic statements to participants who are retail clients in an unregulated collective investment scheme (see the rule on periodic statements for an unregulated collective investment scheme (COBS 18.5.11)).
- (1)
In order to provide adequate information to describe how the operation of the scheme is governed, an operator of an unregulated collective investment scheme should include in the scheme documents a provision about each of the items of relevant information set out in the following table (Content of scheme documents).
- (2)
Compliance with (1) may be relied on as tending to establish compliance with COBS 18.5.5 R.
- (3)
Contravention of (1) may be relied on as tending to establish contravention of COBS 18.5.5 R.
Table: Content of scheme documents
Content of scheme documents
The scheme documents should include provision about: |
|||
(1) |
Regulator The firm statutory status in accordance with GEN 4 Annex 1 R (Statutory status disclosure); |
||
(2) |
Services the nature of the services that the operator will provide in relation to the scheme; |
||
(3) |
Payments for services details of any payment for services payable by the scheme or from the property of the scheme or participants in the scheme to the operator, including where appropriate: |
||
(a) |
the basis of calculation; |
||
(b) |
how it is to be paid and collected; |
||
(c) |
how frequently it is to be paid; and |
||
(d) |
whether or not any other payment is receivable by the operator (or to its knowledge by any of its associates) in connection with any transactions effected by the operator with or for the scheme, in addition to or in lieu of any fees; |
||
(4) |
Commencement when and how the operator is appointed; |
||
(5) |
Accounting the arrangements for accounting to the scheme or participants in the scheme for any transaction effected; |
||
(6) |
Termination method how the appointment of the operator may be terminated; |
||
(7) |
Complaints procedure how to complain to the operator and a statement that the participants in the scheme may subsequently complain direct to the Financial Ombudsman Service; |
||
(8) |
Compensation whether or not compensation may be available from the compensation scheme should the operator be unable to meet its liabilities, and information about any other applicable compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained; |
||
(9) |
Investment objectives the investment objectives for the portfolio of the scheme; |
||
(10) |
Restrictions |
||
(a) |
any restrictions on: |
||
(i) |
the types of investments or property which may be included in the portfolio of the scheme; |
||
(ii) |
the markets on which investments or property may be acquired for the portfolio of the scheme; |
||
(iii) |
the amount or value of any one investment or asset, or on the proportion of the portfolio of the scheme which any one investment or asset or any particular kind of investment or asset may constitute; or |
||
(b) |
that there are no such restrictions; |
||
(11) |
Holding scheme assets |
||
(a) |
if it is the case, that the operator will: |
||
(i) |
hold money on behalf of the scheme or be the custodian of investments or other property of the scheme; or |
||
(ii) |
arrange for some other person to act in either capacity and, if so, whether that person is an associate of the operator identifying that person and describing the nature of any association; and |
||
(b) |
in either case: |
||
(i) |
how any money is to be deposited; |
||
(ii) |
the arrangements for recording and separately identifying registrable investments of the scheme and, where the registered holder is the operator's own nominee, that the operator will be responsible for the acts and omissions of that person; |
||
(iii) |
the extent to which the operator accepts liability for any loss of the investment of the scheme; |
||
(iv) |
the extent to which the operator or any other person mentioned in (11)(a)(ii), may hold a lien or security interest over investments of the scheme; |
||
(v) |
where investments of the scheme will be registered collectively in the same name, a statement that the entitlements of the scheme may not be identifiable by separate certificates or other physical documents of title, and that, should the operator default, any shortfall in investments of the scheme registered in that name may be shared proportionately among all schemes and any other customers of the operator whose investments are so registered; |
||
(vi) |
whether or not investments or other property of the scheme can be lent to, or deposited by way of collateral with, a third party and whether or not money can be borrowed on behalf of the scheme against the security of those investments or property and, if so, the terms upon which they may be lent or deposited; |
||
(vii) |
the arrangements for accounting to the scheme for investments of the scheme, for income received (including any interest on money and any income earned by lending investments or other property) of the scheme, and for rights conferred in respect of investments or other property of the scheme; |
||
(viii) |
the arrangements for determining the exercise of any voting rights conferred by investments of the scheme; and |
||
(ix) |
where investments of the scheme may be held by an eligible custodian outside the United Kingdom, a general statement that different settlement, legal and regulatory requirements, and different practices relating to the segregation of those investments, may apply; |
||
(12) |
Clients' money outside the United Kingdom if it is the case, that the operator may hold the money of the scheme in a client bank account outside the United Kingdom; |
||
(13) |
Exchange rates if a liability of the scheme in one currency is to be matched by an asset in a different currency, or if the services to be provided to the operator for the scheme may relate to an investment denominated in a currency other than the currency in which the investments of the scheme are valued, a warning that a movement of exchange rates may have a separate effect, unfavourable or favourable, on the gain or loss otherwise made on the investments of the scheme; |
||
(14) |
Stabilised investments if it is the case, that the operator is to have the right under the schemedocuments to effect transactions in investments the prices of which may be the subject of stabilisation; |
||
(15) |
Conflict of interest and material interest if it is the case, that the operator is to have the right under the agreement or instrument constituting the scheme to effect transactions on behalf of the scheme in which the operator has directly or indirectly a material interest (except for an interest arising solely from the participation of the operator as agent for the scheme), or a relationship of any description with another party which may involve a conflict with the operator's duty to the scheme, together with a disclosure of the nature of the interest or relationship; |
||
(16) |
Use of dealing commission if the operator receives goods or services in addition to the execution of its customer orders in accordance with the section on the use of dealing commission, the prior disclosure required by the rule on prior disclosure (see COBS 11.6.2 R); |
||
(17) |
Acting as principal if it is the case, that the operator may act as principal in a transaction with the scheme; |
||
(18) |
Stock lending if it is the case, that the operator may undertake stock lending activity with or for the scheme specifying the type of assets of the scheme to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the scheme in respect of the lending; |
||
(19) |
Transactions involving contingent liability investments |
||
(a) |
if it is the case, that the agreement or instrument constituting the scheme allows the operator to effect transactions involving contingent liability investments for the account of the portfolio of the scheme; |
||
(b) |
if applicable, whether there are any limits on the amount to be committed by way of margin and, if so, what those limits are; and |
||
(c) |
if applicable, that the operator has the authority to effect transactions involving contingent liability investments otherwise than under the rules of a recognised investment exchange or designated investment exchange and in a contract traded thereon; |
||
(20) |
Periodic statements |
||
(a) |
the frequency of any periodic statement (this should not be less than once every 12 months) except where a periodic statement is not required (see COBS 18.5.13R); and |
||
(b) |
whether those statements will include some measure of performance, and, if so, what the basis of that measurement will be; |
||
(21) |
Valuation the bases on which assets comprised in the portfolio of the scheme are to be valued; |
||
(22) |
Borrowings if it is the case, that the operator may supplement the funds in the portfolio of the scheme and, if it may do so: |
||
(a) |
the circumstances in which the operator may do so; |
||
(b) |
whether there are any limits on the extent to which the operator may do so and, if so, what those limits are; and |
||
(c) |
any circumstances in which such limits may be exceeded; |
||
(23) |
Underwriting commitments if it is the case, that the operator may for the account of the portfolio of the scheme underwrite or sub-underwrite any issue or offer for sale of securities, and: |
||
(a) |
whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and |
||
(b) |
whether there are any financial limits on the extent of the underwriting and, if so, what these limits are; |
||
(24) |
Investments in other collective investment schemes whether or not the portfolio may contain units in a collective investment scheme either operated or advised by the operator or by an associate of the operator or in a collective investment scheme which is not a regulated collective investment scheme; |
||
(25) |
Investments in securities underwritten by the operator whether or not the portfolio may contain securities of which any issue or offer for sale was underwritten, managed or arranged by the operator or by an associate of the operator during the preceding 12 months. |
||
An operator of an unregulated collective investment scheme must, subject to the exceptions from the requirement to provide a periodic statement, provide to participants in the scheme, promptly and at suitable intervals, a statement in a durable medium which contains adequate information on the value and composition of the portfolio of the scheme at the beginning and end of the period of the statement.
(1) An operator should act in accordance with the provisions in the right hand column of the periodic statements table (see COBS 18.5.15E) to fulfil the requirement to prepare and issue periodic statements indicated in the left hand column against these provisions.(2) Compliance with (1) may be relied on as tending to establish compliance with the requirement to prepare and issue periodic statements.(3) Contravention of (1) may be relied on as tending to establish contravention
(1) An operator of an unregulated collective investment scheme need not provide a periodic statement:(a) (i) to a participant in the scheme who is a retail client ordinarily resident outside the United Kingdom; or(ii) to a participant in the scheme who is a professional client; if the participant has so requested or the operator has taken reasonable steps to establish that the participant does not wish to receive it; or(b) if it would duplicate a statement to be provided by someone
Table: Periodic statements
This table belongs to COBS 18.5.12 E.
Periodic statements |
|||||
Suitable intervals |
(1) |
A periodic statement should be provided at least: |
|||
(a) |
six-monthly; or |
||||
(b) |
once in any other period, not exceeding 12 months, which has been mutually agreed between the operator and the participant in the scheme. |
||||
Adequate information |
(2) |
(a) |
A periodic statement should contain: |
||
(i) |
(A) |
The information set out in the table of general contents of a periodic statement; |
|||
(B) |
where the portfolio of the scheme includes uncovered open positions in contingent liability investments, the additional information in the table listing the contents of a periodic statement (see COBS 18.5.15E) in respect of contingent liability investments; or |
||||
(ii) |
such information as a participant who is a retail client ordinarily resident outside the United Kingdom, or a professional client, has on his own initiative agreed with the operator as adequate. |
||||
(b) |
For a firm acting as an outgoing ECA provider, the words 'United Kingdom' is replaced by 'EEA' |
||||
Examples of uncovered open positions include:(1) selling a call option on an investment not held in the portfolio;(2) unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable investments denominated in that currency; and (3) transactions having the effect of selling an index to an amount greater than the portfolio's holdings of investments included in that index.
Table: General contents of a periodic statement
This table belongs to COBS 18.5.15 E.
General contents of periodic statements |
|||
1 |
Contents and value |
||
(a) |
As at the beginning of the account period, the total value of the portfolio of the scheme, being either: |
||
(i) |
the value of the assets comprised in the portfolio on the date as at which the statement provided for the immediately preceding period of account is made up; or |
||
(ii) |
in the case of the first periodic statement, the value of the assets comprised in the portfolio on the date on which the operator assumed responsibility for the management of the portfolio. |
||
(b) |
As at the end of the account period: |
||
(i) |
the number, description and value of each investment held on behalf of the scheme; |
||
(ii) |
the amount of cash held on behalf of the scheme; and |
||
(iii) |
the total value of the portfolio of the scheme. |
||
2 |
Basis of valuation A statement of the basis on which the value of each investment has been calculated and, if applicable, a statement that the basis for valuing a particular investment has changed since the previous periodic statement. Where any investments are shown in a currency other than the usual one used for valuation of the portfolio of the scheme, the relevant currency exchange rates must be shown. |
||
3 |
Details of any assets loaned or charged |
||
(a) |
A summary of those investments (if any) which were, at the closing date, loaned to any third party and those investments (if any) that were at that date charged to secure borrowings made on behalf of the portfolio of the scheme; and |
||
(b) |
the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during the period. |
||
4 |
Transactions and changes in composition Except in the case of a portfolio which aims to track the performance of an external index: |
||
(a) |
a statement that summarises the transactions entered into for the portfolio of the scheme during the period; and |
||
(b) |
the aggregate of money and a summary of all investments transferred into and out of the portfolio of the scheme during the period; and |
||
(c) |
the aggregate of any interest payments, dividends and other benefits received by the operator for the portfolio of the scheme during that period. |
||
5 |
Charges and remuneration If not previously advised in writing, a statement for the account period: |
||
(a) |
of the aggregate charges of the operator and its associates; and |
||
(b) |
of any remuneration received by the operator or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio of the scheme. |
||
6 |
Movement in value of portfolio A statement of the difference between the value of the portfolio at the closing date and its value at the starting date of the account period, having regard at least, during the account period, to the following: |
||
(a) |
the aggregate of assets received from participants of the scheme and added to the portfolio of the scheme; |
||
(b) |
the aggregate of the value of assets transferred, or of amounts paid, to the scheme; |
||
(c) |
the aggregate income received on behalf of the scheme in respect of the portfolio; and |
||
(d) |
the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio of the scheme. |
||
Notes: For the purposes of Item 1, where the scheme is a property enterprise trust, it will be sufficient for the periodic statement to disclose the number of properties held in successive valuation bands where this is appropriate to the size and composition of the scheme, rather than the value of each asset in the portfolio. The valuation bands of over £10m, £5-£10m, £2.5-£5m, £1-£2.5m and under £1m would be appropriate, unless an operator could show that different bands were justifiable in the circumstances. The statement to be provided under Item 6 is not intended to be an indicator of the performance of the portfolio of the scheme.An operator may wish to distinguish capital and income, and thereby provide more information than referred to in this table. If the statement includes some measure of performance, the basis of measurement should be stated. |
|||
Table: Contents of a periodic statement in respect of contingent liability investments
This table belongs to COBS 18.5.15 E.
Contents of a periodic statement in respect of contingent liability investments |
||
(1) |
Changes in value The aggregate of money transferred into and out of the portfolio of the scheme during the account period. |
|
(2) |
Open positions In relation to each open position in the portfolio of the scheme at the end of the account period, the unrealised profit or loss to the portfolio of the scheme (before deducting or adding any commission which would be payable on closing out). |
|
(3) |
Closed positions In relation to each transaction effected during the account period to close out a position of the scheme, the resulting profit or loss to the portfolio of the scheme after deducting or adding any commission. (Instead of the specific detail required by Items 2 or 3, the statement may show the net profit or loss in respect of the overall position of the scheme in each contract) |
|
(4) |
Aggregate of contents The aggregate of each of the following in, or relating to, the portfolio of the scheme at the close of business on the valuation date: |
|
(a) |
cash; |
|
(b) |
collateral value; |
|
(c) |
management fees; and |
|
(d) |
commissions attributable to transactions during the period or a statement that this information has been separately disclosed in writing on earlier statements or confirmations to the participant. |
|
(5) |
Option account valuations In respect of each open option comprising the portfolio of the scheme on the valuation date: |
|
(a) |
the share, future, index or other investment or asset involved; |
|
(b) |
(unless the valuation statement follows the statement for the period in which the option was opened) the trade price and date for the opening transaction; |
|
(c) |
the market price of the contract; and |
|
(d) |
the exercise price of the contract. |
|
Options account valuations may show an average trade price and market price in respect of an option series where a number of contracts within the same series have been purchased on behalf of the scheme. |
||
(1) 1This section applies to a firm that gives advice, or provides services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme.(2) Without prejudice to (1), this section does not apply to a firm that makes a personal recommendation to a retail client in relation to a retail investment product.
In this section ‘giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme’ includes:(1) giving advice or assistance to an employer on the operation of such a scheme;(2) taking, or helping the employer to take, the steps that must be taken to enable an employee of the employer to become a member of such a scheme; and(3) giving advice to an employee, pursuant to an agreement between the employer and
COBS 6.1C.1 (Application - Who? What?) and COBS 6.1C.3 (Interpretation) mean (for example) that the cost of any advice given to an employee pursuant to an agreement between the employer and the adviser about the benefits that are, or might be, available to the employee if he is, or if he becomes, a member of a group personal pension scheme or group stakeholder pension scheme are subject to the rules in this section, not the rules on adviser charging (COBS 6.1A).
Except as specified in COBS 6.1C.5A R and COBS 6.1C.5B R,3 a firm must:(1) only be remunerated for giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme by consultancy charges or by a fee payable by the employer;(2) not solicit or accept (and ensure that none of its associates solicits or accepts) any other commissions, remuneration or benefit of any kind in relation to that advice, or those
3A firm and its associates may:(1) solicit and accept a commission, remuneration or benefit of any kind in the circumstances set out in COBS 6.1C.5 R if:(a) the employer’s part of the relevant scheme was established on or before 30 December 2012; and(b) the solicitation and acceptance of the commission, remuneration or benefit of any kind was permitted by the rules in force on 30 December 2012; and(2) enter into an arrangement under which the right to receive the commission, remuneration
3If an employer chooses to appoint a firm to provide advice or services in connection with a group personal pension scheme or a group stakeholder pension scheme and that firm or its associate enters into an arrangement in COBS 6.1C.5AR (2), the firm must:(1) before the arrangement is entered into, disclose to the employer that the transfer of the commission, remuneration or benefit of any kind will be requested by the firm or its associate;(2) throughout the period during which
Examples of payments and benefits that should not be accepted under the requirement only to be paid through consultancy charges include:(1) a share of the charges applied to a group personal pension scheme, group stakeholder pension scheme or the scheme provider’s revenues or profits (except if the firm providing the advice to an employer in relation to such a scheme is the scheme provider);(2) a commission set and payable by a retail investment product provider in any jurisdiction.Requirements
If the firm or its associate is the group personal pension scheme or group stakeholder pension scheme provider, the firm must ensure that the level of its consultancy charges is at least reasonably representative of the cost associated with giving the advice to the employer in relation to the relevant scheme.
A consultancy charge is likely to be reasonably representative of the services associated with giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme if:(1) the expected long term costs associated with advising the employer in relation to the group personal pension scheme or group stakeholder pension schemedo not include the costs associated with establishing and operating that scheme;(2) the
(1) In determining its charging structure and consultancy charges a firm should have regard to the best interests of the employer and the employer’s employees.(2) A firm may not be acting in the best interests of the employer and the employer’s employees if it:(a) varies its consultancy charges inappropriately according to product provider; or(b) allows the availability or limitation of services offered by third parties to facilitate the payment of consultancy charges to influence
A firm is likely to be viewed as operating a charging structure that conceals the amount or purpose of its consultancy charges if, for example, it makes arrangements for amounts in excess of its consultancy charges to be deducted from an employee’s investments from the outset, in order to be able to provide a cash payment to the employer or employee later.
A firm should ensure that the disclosure of its charging structure is in clear and plain language and, as far as is practicable, uses cash terms. If a firm's charging structure is in non-cash terms, examples in cash terms should be used to illustrate how the charging structure will be applied in practice.
(1) A firm must agree with and disclose to an employer the total consultancy charge payable to it or any of its associates.(2) A disclosure under (1) must:(a) be in cash terms (or convert non-cash terms into illustrative cash equivalents);(b) be made as early as practicable and, in any event, before the employer: (i) selects a particular group personal pension scheme or group stakeholder pension scheme for the benefit of its employees; or(ii) if applicable, reviews its group personal
To comply with the rule on disclosure of total consultancy charges payable (COBS 6.1C.18R) and the fair, clear and not misleading rule, a firm's disclosure of the total consultancy charge should:(1) provide information to the employer as to which particular service a consultancy charge applies;(2) include information as to when payment of the consultancy charge is due;(3) if an ongoing consultancy charge is expressed as a percentage of funds under management, clearly reflect in
When an employer asks a firm to provide advice to the employer’s employees, the firm:(1) may make a consultancy charge for the cost of preparing and giving advice to each employee who chooses to accept his employer’s offer of advice;(2) must not make a consultancy charge for the cost of preparing or giving advice to an employee who chooses not to accept the offer of advice; (3) (if the firm prepares generic advice to be given to more than one employee) must not make more than
A firm must keep a record of:(1) its charging structure;(2) the consultancy charges payable by each employer and each of the employer’s employees; and(3) if the consultancy charge for a particular service has varied materially from that indicated in the firm's charging structure, the reasons for that difference.
This section applies to a firm that acts as an investment manager when it executescustomer orders that relate to:(1) shares; and(2) (a) warrants;(b) certificates representing certain securities;(c) options; and(d) rights to or interests in investments of the nature referred to in (a) to (c);to the extent that they relate to shares.
(1) An investment manager must not accept goods or servicesin addition to the execution of its customer orders if it:(a) executes its customer orders through a broker or another person;(b) passes on the broker's or other person'scharges to its customers; and(c) is offered goods or services in return for the charges referred to in (b).(2) This prohibition does not apply if the investment manager has reasonable grounds to be satisfied that the goods or services received in return
(1) Where the goods or services relate to the execution of trades, an investment manager should have reasonable grounds to be satisfied that the requirements of the rule on use of dealing commission (COBS 11.6.3 R) are met if the goods or services are:(a) linked to the arranging and conclusion of a specific investment transaction (or series of related transactions); and (b) provided between the point at which the investment manager makes an investment or trading decision and the
(1) Where the goods or services relate to the provision of research, an investment manager will have reasonable grounds to be satisfied that the requirements of the rule on use of dealing commission (COBS 11.6.3 R) are met if the research:(a) is capable of adding value to the investment or trading decisions by providing new insights that inform the investment manager when making such decisions about its customers' portfolios;(b) whatever form its output takes, represents original
Examples of goods or services that relate to the provision of research that the FSA does not regard as meeting the requirements of the rule on use of dealing commission (COBS 11.6.3 R) include price feeds or historical price data that have not been analysed or manipulated to reach meaningful conclusions.
Examples of goods or services that relate to the execution of trades or the provision of research that the FSA does not regard as meeting the requirements of either evidential provisions COBS 11.6.4 E or COBS 11.6.5 E include:(1) services relating to the valuation or performance measurement of portfolios;(2) computer hardware; (3) connectivity services such as electronic networks and dedicated telephone lines; (4) seminar fees;(5) subscriptions for publications;(6) travel, accommodation
The reference to research in the rule on use of dealing commission (COBS 11.6.3 R) is not confined to investment research as defined in the Glossary. The FSA's view is that research can include, for example, the goods or services encompassed by investment research, provided that they are directly relevant to and are used to assist in the management of investments on behalf of customers. In addition, any goods or services that relate to the provision of research that the FSA regards
This section applies only to arrangements under which an investment manager receives from brokers or other persons goods or services that relateto the execution of trades or the provision of research. It has no application in relation to execution and research generated internally by an investment manager itself.
An investment manager that enters into arrangements under this section must make adequate prior disclosure to customers concerning the receipt of goods or services that relate to the execution of trades or the provision of research. This prior disclosure should form part of the summary form disclosure under the rule on inducements (COBS 2.3.1 R).
(1) The prior disclosure required by this section should include an adequate disclosure of the firm's policy relating to the receipt of goods or services that relate to the execution of trades or the provision of research in accordance with the rule on use of dealing commission (COBS 11.6.3 R).(2) The prior disclosure should explain generally why the firm might find it necessary or desirable to use dealing commission to purchase goods or services, bearing in mind the practices
In assessing the adequacy of prior and periodic disclosures made by an investment manager under this section, the FSA will have regard to the extent to which the investment manager adopts disclosure standards developed by industry associations such as the Investment Management Association, the National Association of Pension Funds and the London Investment Banking Association.
In this section:(1) ‘intended retirement date’ means:(a) the date (according to the most recent recorded information available to the provider) when the scheme member intends to retire, or to bring the benefits in the scheme into payment, whichever is the earlier; or(b) if there is no such date, the scheme member's state pension age;(2) ‘open market option’ means the option to use the proceeds of a personal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity
(1) If a retail client asks a firm for a retirement quotation more than four months before the client’s intended retirement date, the firm must give the client an open market option statement with or as part of its reply, unless the firm has given the client such a statement in the last 12 months.(2) If a firm does not receive such a request, it must provide a retail client with an open market option statement between four and six months before the client’s intended retirement
If a retail client with an open market option tells a firm that he is considering, or has decided:(1) to discontinue an income withdrawal arrangement; or(2) to take a further sum of money from his pension to buy an annuity as part of a phased retirement, the firm must give the client an open market option statement, unless the firm has given the client such a statement in the last 12 months.
6In this section ‘giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme’ includes:(1) giving advice or assistance to an employer on the operation of such a scheme;(2) taking, or helping the employer to take, the steps that must be taken to enable an employee to become a member of such a scheme; and(3) giving advice to an employee, pursuant to an agreement between the employer and the adviser,
A firm must not pay or accept any fee or commission, or provide or receive any non-monetary benefit, in relation to designated investment business or, in the case of its MiFID or equivalent third country business, another ancillary service, carried on for a client other than:(1) a fee, commission or non-monetary benefit paid or provided to or by the client or a person on behalf of the client; or(2) a fee, commission or non-monetary benefit paid or provided to or by a third party
7COBS 2.3.1 R applies to a UK UCITS management company and EEA UCITS management company when providing collective portfolio management services, as if:(1) references to a client, were references to any UCITS it manages; and(2) in (2)(b) and (c) and (3) of that rule, references to MiFID or equivalent third country business were also references to the collective portfolio management activities of investment management and administration for the scheme.[Note: article 29(1) of the
A firm will satisfy the disclosure obligation under this section if it:(1) discloses the essential arrangements relating to the fee, commission or non-monetary benefit in summary form;(2) undertakes to the client that further details will be disclosed on request; and(3) honours the undertaking in (2).[Note: article 26 of the MiFID implementing Directive and article 29(2) of the UCITS implementing Directive]7
For the purposes of this section, the receipt by an investment firm of a commission in connection with a personal recommendation or a general recommendation, in circumstances where the advice or recommendation is not biased as a result of the receipt of commission, should be considered as designed to enhance the quality of the recommendation to the client. [Note: recital 39 of MiFID implementing Directive]
5COBS 6.1A (Adviser charging and remuneration), COBS 6.1B (Retail investment product provider requirements relating to adviser charging and remuneration), COBS 6.1C (Consultancy charging and remuneration) and COBS 6.1D (Product provider requirements relating to consultancy charging and remuneration) set out specific requirements as to when it is acceptable for a firm to pay or receive commissions, fees or other benefits:6(1) relating to the provision of a personal recommendation
The rule on inducements is applicable to a firm and those acting on behalf of a firm in relation to the provision of an investment service or ancillary service to a client. Small gifts and minor hospitality received by an individual in their personal capacity below a level specified in the firm's conflict's of interest policy, will not be relevant for the purpose of the rule on inducements.
(1) 1If a firm is required to disclose commission (see COBS 6.4) to a client in relation to the sale of a packaged product (other than in relation to arrangements between firms that are in the same immediate group) the firm should not enter into any of the following:(a) volume overrides, if commission paid in respect of several transactions is more than a simple multiple of the commission payable in respect of one transaction of the same kind; and(b) an agreement to indemnify
(1) 1If a firm enters into an arrangement with another firm under which it makes or receives a payment of commission in relation to the sale of a packaged product that is increased in excess of the amount disclosed to the client, the firm is likely to have breached the rules on disclosure of charges, remuneration and commission (see COBS 6.4) and, where applicable, the rule on inducements in COBS 2.3.1R (2)(b), unless the increase is attributable to an increase in the premiums
(1) 1This evidential provision applies in relation to a holding in, or the provision of credit to, a firm which holds itself out as making personal recommendations to retail clients on retail investment products,5 except where the relevant transaction is between persons who are in the same immediate group.5(2) A retail investment product provider5 should not take any step which would result in it:5(a) having a direct or indirect holding of the capital or voting power of a firm
5Where a retail investment product provider, or its associate, provides credit to a retail client of a firm making personal recommendations in relation to retail investment products or giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme6, this may create an indirect benefit for the firm and, to the extent that this is relevant, the provider of retail investment products may need to consider
(1) 1In relation to the sale of retail investment products,5 the table on reasonable non-monetary benefits (COBS 2.3.15 G) indicates the kind of benefits which are capable of enhancing the quality of the service provided to a client and, depending on the circumstances, are capable of being paid or received without breaching the client's best interests rule. However, in each case, it will be a question of fact whether these conditions are satisfied. 5(2) The guidance in the table
1This table belongs to COBS 2.3.14 G.
Reasonable non-monetary benefits |
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Gifts, Hospitality and Promotional Competition Prizes |
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1 |
A retail investment product provider5 giving and a firm receiving gifts, hospitality and promotional competition prizes of a reasonable value. 5 |
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Promotion |
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2 |
A retail investment product provider5 assisting another firm to promote its retail investment products5 so that the quality of its service to clients is enhanced. Such assistance should not be of a kind or value that is likely to impair the recipient firm's ability to pay due regard to the interests of its clients, and to give advice on, and recommend, retail investment products5 available from the recipient firm's whole range or ranges. 555 |
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Joint marketing exercises |
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3 |
A retail investment product provider5 providing generic product literature (that is, letter heading, leaflets, forms and envelopes) that is suitable for use and distribution by or on behalf of another firm if: 5 |
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(a) |
the literature enhances the quality of the service to the client and is not primarily of promotional benefit to the retail investment product provider;5 and 5 |
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(b) |
the total costs (for example, packaging, posting, mailing lists) of distributing such literature to its client are borne by the recipient firm. |
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4 |
A retail investment product provider5 supplying another firm with 'freepost' envelopes, for forwarding such items as completed applications, medical reports or copy client agreements. 5 |
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5 |
A retail investment product provider5 supplying product specific literature (for example, key features documents, minimum information) to another firm if: 5 |
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(a) |
the literature does not contain the name of any other firm; or |
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(b) |
if the name of the recipient firm is included, the literature enhances the quality of the service to the client and is not primarily of promotional benefit to the recipient firm. |
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6 |
A retail investment product provider5 supplying draft articles, news items and financial promotions for publication in another firm's magazine, only if in each case any costs paid by the product provider for placing the articles and financial promotions are not more than market rate, and exclude distribution costs. 5 |
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Seminars and conferences |
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7 |
A retail investment product provider5 taking part in a seminar organised by another firm or a third party and paying toward the cost of the seminar, if: 5 |
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(a) |
its participation is for a genuine business purpose; and |
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(b) |
the contribution is reasonable and proportionate to its participation and by reference to the time and sessions at the seminar when its staff play an active role. |
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Technical services and information technology |
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8 |
A retail investment product provider5 supplying a 'freephone' link to which it is connected. 5 |
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9 |
A retail investment product provider5 supplying another firm with any of the following: 5 |
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(a) |
quotations and projections relating to its retail investment products5 and, in relation to specific investment transactions (or for the purpose of any scheme for review of past business), advice on the completion of forms or other documents; 5 |
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(b) |
access to data processing facilities, or access to data, that is related to the retail investment product provider’s5 business; 5 |
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(c) |
access to third party electronic dealing or quotation systems that are related to the retail investment product provider's5 business; and 5 |
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(d) |
software that gives information about the retail investment product provider's retail investment products5 or which is appropriate to its business (for example, for use in a scheme for review of past business or for producing projections or technical product information). 5 |
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10 |
A retail investment product provider5 paying cash amounts or giving other assistance to a firm not in the same immediate group for the development of software or other computer facilities necessary to operate software supplied by the retail investment product provider,5 but only to the extent that by doing so it will generate equivalent cost savings to itself or clients. 55 |
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11 |
A retail investment product provider5 supplying another firm with information about sources of mortgage finance. 5 |
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12 |
A retail investment product provider5 supplying another firm with generic technical information in writing, not necessarily related to the product provider's business, when this information states clearly and prominently that it is produced by the product provider or (if different) supplying firm. 5 |
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Training |
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13 |
A retail investment product provider5 providing another firm with training facilities of any kind (for example, lectures, venue, written material and software). 5 |
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Travel and accommodation expenses |
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14 |
A retail investment product provider5 reimbursing another firm's reasonable travel and accommodation expenses when the other firm: 5 |
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(a) |
participates in market research conducted by or for the retail investment product provider;5 5 |
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(b) |
attends an annual national event of a United Kingdom trade association, hosted or co-hosted by the retail investment product provider;5 5 |
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(c) |
participates in the retail investment product provider’s5 training facilities (see 13); 5 |
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(d) |
visits the retail investment product provider’s5United Kingdom office in order to: 5 |
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(i) |
receive information about the retail investment product provider's5 administrative systems; or 5 |
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(ii) |
attend a meeting with the retail investment product provider5 and an existing or prospective client of the receiving firm. 5 |
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1In interpreting the table of reasonable non-monetary benefits, retail investment product providers5 should be aware that where a benefit is made available to one firm and not another, this is more likely to impair compliance with the client's best interests rule and that, where any benefits of substantial size or value (such as adviser training programmes or significant software) are made available to firms that are subject to the rules on adviser charging and remuneration (COBS
5In interpreting the table of reasonable non-monetary benefits, a firm that provides a personal recommendation in relation to a retail investment product to a retail client or gives advice, or provides a service, to an employer in connection with a group personal pension scheme or a group stakeholder pension scheme6 should be aware that acceptance of benefits on which the firm will have to rely for a period of time is more likely to impair compliance with the client's best interests
(1) A firm must make a record of the information disclosed to the client in accordance with COBS 2.3.1R (2)(b)4 and must keep that record for at least five years from the date on which it was given.4(2) A firm must also 4make a record of each benefit given to another firm which does not have to be disclosed to the client4in accordance with COBS 2.3.1R (2)(b)(ii),4 and must keep that record for at least five years from the date on which it was given.14 [Note: see article 51(3)
A range of stakeholder products:1(1) may include more than one deposit-based stakeholder product;1(2) may include the stakeholder products of more than one stakeholder product provider;1(3) must not include any more than one:1(a) CISstakeholder product or linked life stakeholder product; or1(b) stakeholder CTF; or1(c) stakeholder pension scheme.1
When a firm provides basic advice it must:1(1) explain why it chose the stakeholder products and stakeholder product providers that appear in the relevant range; and1(2) give the client a list of the stakeholder products and stakeholder product providers that appear in that range;1if the client asks it do so.1
When a firm first has contact with a retail client with a view to giving basic advice on a stakeholder product, it must give the retail client:1(1) the basic advice initial disclosure information (COBS 9 Annex 1), in a durable medium, together with an explanation of that information, unless:1(a) it has already done so and the basic advice initial disclosure information is likely still to be accurate and appropriate; or1(b) the contact is not face to face and is using a means of
(1) A firm may give a retail client the basic advice initial disclosure information (COBS 9 Annex 1) as part of :12(a) a services and costs disclosure document;2 or 1(b) a combined initial disclosure document if it has reasonable grounds to believe that it will provide services relating to a stakeholder product and a non-investment insurance contract, a regulated mortgage contract, an equity release transaction or a home purchase plan.1(2) If a firm provides a services and costs
For the purposes of GEN 5, a firm may not use the Key facts logo in relation to any document that is designed to comply with rules in COBS 9.6 or COBS 7 unless it is a services and costs disclosure document or a2combined initial disclosure document produced in accordance with the templates and notes in the annexes to COBS 6.122
If a firm's first contact with a retail client is not face to face, it must:1(1) inform the client at the outset:1(a) (if the communication is initiated by or on behalf of a firm), of the name of the firm and the commercial purpose of the communication;1(b) [deleted]33(c) that the firm will provide the retail client with basic advice without carrying out a full assessment of the retail client's needs and circumstances; and1(d) that such information will be confirmed in writing;
When a firm gives basic advice it must not:1(1) describe or recommend a stakeholder product outside the firm'srange; or1(2) describe or recommend a smoothed linked long term stakeholder product; or1(3) describe fund choice, or recommend a particular fund, if a stakeholder product offers a choice of funds; or1(4) recommend the level of contributions required to be made to a stakeholder pension scheme to achieve a specific income in retirement; or1(5) recommend or agree that a client
(1) If a firm starts the sales process for a stakeholder product that is not a deposit-based stakeholder product, it must not depart from that process unless it has advised the retail client that it will not provide basic advice on stakeholder products during the period of departure. A firm that does that must not provide basic advice during the departure period.1(2) Before a firm returns to the sales process for stakeholder products, it must tell the retail client that that process
1A firm must only recommend a stakeholder product to a retail client if:(1) it has taken reasonable steps to assess the client's answers to the scripted questions and any other facts, circumstances or information disclosed by the client during the sales process;(2) (unless the relevant product is a deposit-based stakeholder product) having done so, it has reasonable grounds for believing that the stakeholder product is suitable for the client; and(3) the firm reasonably believes
1If a firm giving basic advice recommends to a retail client to acquire a stakeholder product, it must ensure that, before the conclusion of the contract, its representative:(1) (unless the relevant product is a deposit-based stakeholder product) explains to the client, if necessary in summary form, but always in a way that will allow the client to make an informed decision about the firm's recommendation:(a) the nature of the stakeholder product; and(b) the "aims", "commitment"
1Notwithstanding COBS 9.6.14R (2) a firm may provide the summary sheet (COBS 9.6.14R (2)) as soon as reasonably practicable after the conclusion of the contract if the client asks it to do so, or the contract will be concluded using a means of distance communication that does not enable the provision of the summary sheet in a durable medium before the conclusion of the contract, but only if the firm:(1) reads the summary sheet to the client before it concludes the contract; and(2)
1A firm must ensure that none of its representatives:(1) is likely to be influenced by the structure of his or her remuneration to give unsuitable basic advice on stakeholder products to a retail client; or(2) refers a retail client to another firm in circumstances which would amount to the provision of any fee, commission or non-monetary benefit.
(1) 1A firm must make an up-to-date record of:(a) its scope of basic advice, and the scope of basic advice used by its appointed representatives (if any); and(b) its range (or ranges) of stakeholder products, and the range (or ranges) used by its appointed representatives (if any).(2) Those records must be retained for five years from the date on which they are replaced by a more up-to-date record.
3(1) This section applies to a firm that carries on any distance marketing activity from an establishment in the United Kingdom, with or for a consumer in the United Kingdom or another EEA State.3(2) If a firm is an intermediary rather than the supplier under the distance contract, references to 'firm' in COBS 5 Annex 1 R and COBS 5 Annex 2 R are to be interpreted as referring to the supplier except for references to 'firm' in COBS 5 Annex 1 R (2), (4) and (18).3
A firm must ensure that the distance marketing information, the commercial purpose of which must be made clear, is provided in a clear and comprehensible manner in any way appropriate to the means of distance communication used, with due regard, in particular, to the principles of good faith in commercial transactions, and the legal principles governing the protection of those who are unable to give their consent, such as minors. [Note: article 3(2) of the Distance Marketing
A firm must ensure that information on contractual obligations to be communicated to a consumer during the pre-contractual phase is in conformity with the contractual obligations which would result from the law presumed to be applicable to the distance contract if that contract is concluded. [Note: article 3(4) of the Distance Marketing Directive]
A firm must communicate to the consumer all the contractual terms and conditions and the information referred to in the distance marketing disclosure rules (COBS 5.1.1 R to COBS 5.1.4 R) on a durable medium available and accessible to the consumer in good time before the consumer is bound by any distance contract or offer. [Note: article 5(1) of the Distance Marketing Directive]
In the case of a distance contract comprising an initial service agreement, followed by successive operations or a series of separate operations of the same nature performed over time, the rules in this section only apply to the initial agreement. [Note: article 1(2) of the Distance Marketing Directive]
If there is no initial service agreement but the successive operations or separate operations of the same nature performed over time are performed between the same contractual parties, the distance marketing disclosure rules (COBS 5.1.1 R to COBS 5.1.4 R) will only apply: (1) when the first operation is performed; and(2) if no operation of the same nature is performed for more than a year, when the next operation is performed (the next operation being deemed the first in a new
In this section:(1) 'initial service agreement' includes the opening of a bank account and the concluding of a portfolio management contract;(2) 'operations' includes transactions made within the framework of a portfolio management contract; and5(3) adding new elements to an initial service agreement, such as the ability to use an electronic payment instrument together with one's existing bank account, does not constitute an 'operation' but an additional contract to which the
In the FSA's view, other examples of:(1) 'initial service agreement' include:(a) subscribing to an investment trust savings scheme; or(b) concluding a life policy, personal pension scheme or stakeholder pension scheme that includes a pre-selected option providing for future increases or decreases in regular premiums or payments; and(2) 'operations' include:(a) successive purchases or sales of shares under an investment trust savings scheme; and(b) subsequent index-linked changes
In the case of a voice telephony communication, and subject to the explicit consent of the consumer, only the abbreviated distance marketing information (COBS 5 Annex 2R ) needs to be provided during that communication. However, a firm must still provide the distance marketing information (COBS 5 Annex 1R ) on a durable medium available and accessible to the consumer in good time before the consumer is bound by any distance contract or offer, unless another exception applies.
A firm may provide the distance marketing information (COBS 5 Annex 1R ) and the contractual terms and conditions in a durable medium immediately after the conclusion of a distance contract, if the contract has been concluded at a consumer's request using a means of distance communication that does not enable the provision of that information in that form in good time before the consumer is bound by any distance contract or offer. [Note: article 5(2) of the Distance Marketing
4Where a distance contract is also a contract for payment services to which the Payment Services Regulations apply, a firm is required to provide to the consumer only the information specified in rows 7 to 12, 15, 16 and 20 of COBS 5 Annex 1 R. [Note: article 4(5) of the Distance Marketing Directive]
4Where a distance contract covers both payment services and non-payment services, this exception applies only to the payment services aspects of the contract. A firm taking advantage of this exception will need to comply with the information requirements in Part 5 of the Payment Services Regulations.
If, at any time during the contractual relationship, a consumer that is a party to a distance contract asks a firm:(1) for a paper copy of the terms and conditions of that contract; or(2) to change the means of distance communication used;the firm must provide that paper copy or change the means of distance communication used, unless (in the latter case) that would be incompatible with the contract or the nature of the service provided. [Note: article 5(3) of the Distance Marketing
(1) A firm must not enforce, or seek to enforce, any obligations under a distance contract against a consumer, in the event of an unsolicited supply of services, the absence of reply not constituting consent.(2) This rule does not apply to the tacit renewal of a distance contract. [Note: article 9 of the Distance Marketing Directive]
If a firm proposes to enter into a distance contract with a consumer that will be governed by the law of a country outside the EEA, the firm must ensure that the consumer will not lose the protection created by the rules in this section if the distance contract has a close link with the territory of one or more EEA States. [Note: articles 12 and 16 of the Distance Marketing Directive]
(1) 1This section applies to a firm that either:(a) makes a personal recommendation to a retail client in relation to a retail investment product; or(b) provides basic advice to a retail client.(2) This section does not apply to a firm when it makes a personal recommendation or provides basic advice to an employee, if that recommendation or advice is provided under the terms of an agreement between the firm and that employee’s employer which is subject to the rules on consultancy
(1) A firm must not hold itself out to a retail client as acting independently unless the only personal recommendations in relation to retail investment products it offers to that retail client are:(a) based on a comprehensive and fair analysis of the relevant market; and(b) unbiased and unrestricted.(2) Paragraph (1) does not apply to group personal pension schemes if a firm discloses information to a client in accordance with the rule on group personal pension schemes (COBS
(1) A firm that provides both independent advice and restricted advice should not hold itself out as acting independently for its business as a whole. However, a firm may hold itself out as acting independently in respect of its services for which it provides independent advice or advice which meets other independence requirements for particular investments. For example, a firm that provides independent advice on regulated mortgage contracts in accordance with MCOB but restricted
5In complying with COBS 6.2A.3 R, a firm which: (1) holds itself out to a retail client as acting independently; and(2) relies upon a single platform service to facilitate the majority of its personal recommendations in relation to retail investment products;must take reasonable steps to ensure that, as appropriate, the platform service provider bases its selection of retail investment products on a comprehensive, fair and unbiased analysis of the relevant market.
5When a firm considers whether a platform service provider's selection of retail investment products is based on an unbiased analysis of the relevant market, a firm should take into account any fees, commission or non-monetary benefits the platform service provider receives in relation to those retail investment products.
(1) A firm must include the term “independent advice” or “restricted advice” or both, as relevant, in the disclosure.(2) If a firm provides independent advice in respect of a relevant market that does not include all retail investment products, a firm must include in the disclosure an explanation of that market, including the types of retail investment products which constitute that market.(3) If a firm provides restricted advice, its disclosure must explain the nature of the
A firm may meet the disclosure requirements in the rule on describing the breadth of a firm's advice service (COBS 6.2A.5 R) and the rule on content and wording of disclosure (COBS 6.2A.6R) by using a services and costs disclosure document or a combined initial disclosure document (COBS 6.3 and COBS 6 Annex 1G or COBS 6 Annex 2).
A relevant market can be limited by the investment needs and objectives of the retail client. For example, ethical and socially responsible investments or Islamic financial products could both be relevant markets. However, a firm would be expected to consider all retail investment products within those investment parameters.
In order to satisfy the rule on firms holding themselves out as independent (COBS 6.2A.3 R) a firm should ensure that it is not bound by any form of agreement with a retail investment product provider that restricts the personal recommendation the firm can provide or imposes any obligation that may limit the firm's ability to provide a personal recommendation which is unbiased and unrestricted.
A firm may be owned by, or own in whole or part, or be financed by or provide finance to, a retail investment product provider without contravening the ‘unbiased, unrestricted’ requirement provided the firm ensures that that ownership or finance does not prevent the firm from providing a personal recommendation which is unbiased and unrestricted.
In providing unrestricted advice a firm should consider relevant financial products other than retail investment products which are capable of meeting the investment needs and objectives of a retail client, examples of which could include national savings and investments products and cash deposit ISAs.
A firm may provide a personal recommendation on a comprehensive and fair analysis basis required by the rule on firms holding themselves out as independent (COBS 6.2A.3 R) by using ‘panels’. A firm would need to ensure that any panel is sufficiently broad in its composition to enable the firm to make personal recommendations based on a comprehensive and fair analysis, is reviewed regularly, and that the use of the panel does not materially disadvantage any retail client.
If a firm chooses to use a third party to conduct a fair and comprehensive analysis of its relevant market, the firm is responsible for ensuring the criteria used by the third party are sufficient to meet the requirement. For example, criteria which selected retail investment product providers on the basis of payment of a fee (or facilitation of adviser charges), whilst excluding those not paying a fee (or such a facilitation) would not meet the comprehensive and fair analysis
(1) Firms are reminded of the systems and controls requirements in SYSC.(2) A firm providing restricted advice should take reasonable care to establish and maintain appropriate systems and controls to ensure that if there is no retail investment product in the firm's range of products which meets the investment needs and objectives of the retail client, no personal recommendation should be made.(3) A firm specialising in a relevant market should take reasonable care to establish
(1) 1This section applies to:24(a) a firm which is a retail investment product provider; and4(b) in relation to COBS 6.1B.9 R, COBS 6.1B.10 G and COBS 6.1B.11 G, a platform service provider;4in circumstances where a retail client receives a personal recommendation in relation to a retail investment product .4(2) This section does not apply to a retail investment product provider in circumstances where a firm gives advice or provides services to an employer in connection with a
Except as specified in COBS 6.1B.5A R,5 a firm must not offer or pay (and must ensure that none of its associates offers or pays) any commissions, remuneration or benefit of any kind to another firm, or to any other third party for the benefit of that firm, in relation to a personal recommendation (or any related services), except those that facilitate the payment of adviser charges from a retail client's investments in accordance with this section.
5A firm and its associates may:(1) offer and pay a commission, remuneration or benefit of any kind in the circumstances set out in COBS 6.1B.5 R if:(a) the personal recommendation was made on or before 30 December 2012;(b) the offer and payment was permitted by the rules in force on 30 December 2012;(c) the contract under which the right to receive the commission, remuneration or benefit of any kind was entered into on or before 30 December 2012; (d) the terms of that contract
8A firm may continue paying commission, remuneration or benefits of any kind to another firm in relation to a personal recommendation made by that other firm in circumstances where that other firm may accept that commission, remuneration or benefit of any kind (see COBS 6.1A.4A R and COBS 6.1A.4AA G).
A firm must:(1) take reasonable steps to ensure that its retail investment product charges are not structured so that they could mislead or conceal from a retail client the distinction between those charges and any adviser charges payable in respect of its retail investment products; and(2) not include in any marketing materials in respect of its retail investment products or facilities for collecting adviser charges any statements about the appropriateness of levels of adviser
A firm that offers to facilitate, directly or through a third party, the payment of adviser charges, including6 by means of a platform service must:4(1) obtain and validate instructions from a retail client in relation to an adviser charge;(2) offer sufficient flexibility in terms of the adviser charges it facilitates; and(3) not pay out or advance adviser charges to the firm to which the adviser charge is owed over a materially different time period, or on a materially different
6A firm may facilitate the payment of adviser charges for the purposes of COBS 6.1B.9 R by:(1) selling all or part of the retail client'sretail investment product to pay the adviser charge; or(2) disposing of or reducing all or part of the retail client's rights under the retail investment product (for example, by way of a part disposal which creates benefits under a life policy) to pay the adviser charge; or(3) separating out an amount or amounts for the payment of the adviser
COBS 6.1B.9R(3) does not prevent a firm, if this is in the retail client's best interests, from entering into an agreement with another firm which is providing a personal recommendation to a retail client, or with a retail client of such a firm, to provide it with credit separately in accordance with the rules on providing credit and other benefits to firms that advise on retail investment products (COBS 2.3.12 E and COBS 2.3.12A G).
This section applies to a firm in relation to:(1) MiFID or equivalent third country business; and(2) the following regulated activities when carried on for a retail client:(a) making a personal recommendation about a designated investment; or(b) managing investments that are designated investments; or(c) arranging (bringing about) or executing a deal in a warrant or derivative; or(d) engaging in stock lending activity.
A firm must provide a client with a general description of the nature and risks of designated investments, taking into account, in particular, the client's categorisation as a retail client or a professional client. That description must:(1) explain the nature of the specific type of designated investment concerned, as well as the risks particular to that specific type of designated investment, in sufficient detail to enable the client to take investment decisions on an informed
If a firm provides a retail client with information about a designated investment that is the subject of a current offer to the public and a prospectus has been published in connection with that offer in accordance with the Prospectus Directive, that firm must inform the retail client where that prospectus is made available to the public. [Note: article 31(3) of the MiFID implementing Directive]
Where the risks associated with a designated investment composed of two or more different designated investments or services are likely to be greater than the risks associated with any of the components, a firm must provide an adequate description of the components of that designated investment and the way in which its interaction increases the risks. [Note: article 31(4) of the MiFID implementing Directive]
In the case of a designated investment that incorporates a guarantee by a third party, the information about the guarantee must include sufficient detail about the guarantor and the guarantee to enable the retail client to make a fair assessment of the guarantee. [Note: article 31(5) of the MiFID implementing Directive]
[deleted](1) A firm need not treat each of several transactions in respect of the same type of financial instrument as a new or different service and so does not need to comply with the provision rules (COBS 14.3.2 R to COBS 14.3.5 R) in relation to each transaction.(2) But a firm should ensure that the client has received all relevant information in relation to a transaction, such as details of product charges that differ from those already disclosed. [Note: in respect of (1),
(1) The information to be provided in accordance with the rules in this section must be provided in good time before a firm carries on designated investment business or ancillary services with or for a retail client.(2) A firm may provide that information immediately after it begins to carry on that business if:(a) the firm was unable to comply with (1) because, at the request of the client, the agreement was concluded using a means of distance communication which prevented the
A firm must notify a client in good time about any material change to the information provided under the rules in this section which is relevant to a service that the firm is providing to that client. That notification must be given in a durable medium if the information to which it relates is given in a durable medium. [Note: article 29(6) of the MiFID implementing Directive]
If a firm provides a client with a key investor information document or EEA key investor information document3 that meets the requirements of articles 78 and 793 of the UCITS Directive (see COLL 4.7 (Key investor information and marketing communications)) and the KII Regulation,3 it will have provided appropriate information for the purpose of the requirement to disclose information on:33(1) designated investments and investment strategies (COBS 2.2.1R (1)(b)); and(2) costs and
A key investor information document and EEA key investor information document provide3 sufficient information in relation to the costs and associated charges in respect of the UCITS3 itself. However, a firm distributing units3 in a UCITS3 should also inform a client about all of the other costs and associated charges related to the provision of its services in relation to units in the UCITS.333333 [Note: recital 55 to the MiFID implementing Directive]
A firm must: (1) compare the benefits likely (on reasonable assumptions) to be paid under a defined benefits pension scheme with the benefits afforded by a personal pension scheme or stakeholder pension scheme , before it advises a retail client to transfer out of a defined benefits pension scheme;(2) ensure that that comparison includes enough information for the client to be able to make an informed decision;(3) give the client a copy of the comparison, drawing the client's
In particular, the comparison should: (1) take into account all of the retail client's relevant circumstances;(2) have regard to the benefits and options available under the ceding scheme and the effect of replacing them with the benefits and options under the proposed scheme; 3(3) explain the assumptions on which it is based and the rates of return that would have to be achieved to replicate the benefits being given up; and3(4) be illustrated on rates of return which take into
When a firm compares the benefits likely to be paid under a defined benefits pension scheme with the benefits afforded by a personal pension scheme or stakeholder pension scheme (COBS 19.1.2R (1)), it must:
- (1)
assume that:
(a) the annuity interest rate is the intermediate rate of return appropriate for a level or fixed rate of increase annuity in (2COBS 13 Annex 2 3.1R(6))2) unless COBS 19.1.4B R applies3 or the rate for annuities in payment (if less);3
(b) the retail prices index is
2.5%
(c) the average earnings index and the rate for section 21 orders is
4.0%
(d) the pre-retirement limited price indexation revaluation is
2.5%
(e) the annuity rate for3 post-retirement limited price increases with maximum increases less than or equal to 3.5% or with minimum increases more than or equal to 3.5% is the rate in (a) above; otherwise it is the rate in (f) below;3
33 (f) the index linked pensions rate is the intermediate rate of return in 2COBS 13 Annex 2 3.1 R (6)2 for annuities linked to the retail prices index unless COBS 19.1.4B R applies;3
(g) the mortality rate used to determine the annuity is based on the year of birth rate derived from each of the Institute and Faculty of Actuaries’ Continuous Mortality Investigation tables PCMA00 and PCFA00 and including mortality improvements derived from each of the male and female annual mortality projections models, in equal parts;3
or use more cautious assumptions;
- (2)
calculate the interest rate in deferment; and
- (3)
have regard to benefits which commence at difference times.
When advising a retail client who is, or is eligible to be, a member of a defined benefits occupational pension scheme whether to transfer or opt-out, a firm should start by assuming that a transfer or opt-out will not be suitable. A firm should only then consider a transfer or opt-out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer or opt-out is in the client's best interests.
3When giving a personal recommendation about a pension transfer, a firm should clearly inform the retail client about the loss of the fixed benefits and the consequent transfer of risk from the defined benefits pension scheme to the retail client, including:(1) the extent to which benefits may fall short of replicating those in the defined benefits pension scheme ;(2) the uncertainty of the level of benefit that can be obtained from the purchase of a future annuity and the
In this section ‘giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme' includes:(1) giving advice or assistance to an employer on the operation of such a scheme;(2) taking, or helping the employer to take, the steps that must be taken to enable an employee of the employer to become a member of such a scheme; and(3) giving advice to an employee, pursuant to an agreement between the employer and
(1) Except as specified in COBS 6.1D.6A R,1 a firm must not offer or pay (and must ensure that none of its associates offers or pays) any commissions, remuneration or benefit of any kind to another firm, an employee benefit consultant or to any other third party for the benefit of that firm, employee benefit consultant or third party in relation to the sale or purchase of: (a) a group personal pension scheme or group stakeholder pension scheme, whether or not that sale or purchase
1A firm and its associates may:(1) offer and pay a commission, remuneration or benefit of any kind in the circumstances set out in COBS 6.1D.4 R if:(a) the employer’s part of the relevant scheme was established on or before 30 December 2012; and(b) the offer or payment was permitted by the rules in force on 30 December 2012; and(2) enter into an arrangement under which the right to receive the commission, remuneration or benefit of any kind in (1) is transferred to another firm
A firm must:(1) take reasonable steps to ensure that its group personal pension scheme and group stakeholder pension scheme charges are not structured so that they could mislead or conceal from an employer the distinction between those charges and any consultancy charges payable in respect of the scheme; and(2) not include in any marketing materials in respect of its group personal pension schemes or group stakeholder pension schemes any statements about the appropriateness of
A firm that offers to facilitate, directly or through a third party, the payment of consultancy charges must:2(1) obtain and validate instructions from the relevant employer in relation to the consultancy charge; (2) offer sufficient flexibility in terms of the consultancy charges it facilitates;(3) not pay out or advance consultancy charges to the firm to which the consultancy charge is owed over a materially different time period, or on a materially different basis to that in
2A firm facilitates the payment of consultancy charges for the purposes of COBS 6.1D.9 R by:(1) selling all or part of, or rights under, the employee’s investment in a group personal pension scheme or group stakeholder pension scheme to pay the consultancy charge; or(2) disposing of or reducing all or part of the employee’s rights under the group personal pension scheme or group stakeholder pension scheme (for example, by way of a part disposal which creates benefits under a life
A firm should consider whether the flexibility in levels of consultancy charges it offers to facilitate is sufficient so as not to unduly influence or restrict the charging structure and consultancy charges that the firm providing advice to an employer in relation to a group personal pension scheme or group stakeholder pension scheme can use.
To comply with COBS 6.1D.11R, a firm's disclosure should be in cash terms (or convert non-cash terms into illustrative cash equivalents) and should:(1) include information as to the period over which the consultancy charge is payable;(2) provide information on the implications for the employee if the employee leaves the employer’s service or their contributions to the group personal pension scheme or group stakeholder pension scheme are cancelled before the consultancy charge
(1) 1If, in relation to a retail investment product, a platform service providerarranges to accept a fee or commission paid by a third party or a person acting on behalf of a third party, it must clearly disclose the amount of that fee or commission to the professional client or retail client in a durable medium in good time before the provision of designated investment business.(2) In the event that it is not possible to make the disclosure in (1) in good time before the provision
If a platform service provideraccepts a fee or commission referred to in COBS 6.1E.1 R, it should pay due regard to its obligations under Principle 6 (Customers’ interests), Principle 7 (Communications with clients) and the client's best interests rule, and ensure that it presents retail investment products toprofessional clients and retail clients without bias.
1A firm that sells:(1) a packaged product to a retail client, must provide a key features document and a key features illustration2 to that client (unless the packaged product is a unit in a UCITS scheme,7simplified prospectus scheme or an EEA UCITS scheme which is a recognised scheme);77(2) a life policy that is not a reinsurance contract to a client, must provide the Consolidated Life Directive information to that client;(3) the variation of a life policy or personal pension
(1) 7This rule applies to an authorised fund manager of a UCITS scheme that is either an authorised unit trust or an ICVC, and an ICVC that is a UCITS scheme.(2) An authorised fund manager and an ICVC in (1) that sells units in a UCITS scheme directly, or through another natural or legal person who acts on its behalf and under its full and unconditional responsibility, must ensure that investors are provided with the key investor information document for the scheme.(3) An authorised
(1) A firm that personally recommends that a retail client holds a particular asset in a SIPP must provide that client with sufficient information for the client to be able to make an informed decision about whether to buy or invest.(2) This rule does not apply if the asset is described in COBS 14.2.1 R.
A firm is not required to provide:(1) a document, if the firm produces the product and the rules in this section require another firm to provide the document;(2) a key features document or key features illustration2, if another person is required to provide the distance marketing information by the rules of another EEA State; (3) the Consolidated Life Directive information, if another person is required to provide that information by the rules of another EEA State;(4) a simplified
A firm is not required to provide a key features document or a key features illustration2for: (1) a key features scheme if it provides a simplified prospectus instead;(2) a life policy that is not a reinsurance contract if:(a) the firm is operating from an establishment in another EEA State and the sale is by distance contract; or(b) the client is habitually resident outside the United Kingdom and the sale is not by distance contract.(3) a traded life policy.[Note: in respect
A firm is not required to provide a key features document or a key features illustration2, if:(1) the client is buying or investing in response to a direct offer financial promotion without receiving a personal recommendation to buy or invest; and(2) the firm provides materially the same information in some other way.
A firm is not required to provide a , a key features illustration2 or a simplified prospectus for a key features scheme or simplified prospectus scheme if:(1) the client is habitually resident outside the EEA and not present in the EEA when the relevant application is signed; or(2) the purchase is by a discretionary investment manager on behalf of a retail client; or(3) the sale is arranged or personally recommended by an investment manager and the client has agreed that a key
7For the purposes of the provision rules in relation to a key investor information document, a firm: (1) may satisfy the requirement to provide the document to the investor by providing it to a person who has written authority to make investment decisions on that investor’s behalf; and(2) is not required to consider as a new transaction:(a) a subscription to units in a UCITS scheme or an EEA UCITS scheme in which the client already holds units; or(b) a series of connected transactions
7(1) Although a firm is not always required to provide a simplified prospectus to a client (COBS 14.2.9 R), the obligation to offer the prospectus to the client (COBS 14.2.1R (5)) remains.7(2) The FSA would regard a decision to subscribe to a regular monthly savings plan as a single investment decision for the purpose of COBS 14.2.9AR (2)(a). However, a subsequent decision by the client to increase the amount of the regular contributions to be invested in units of a particular
A firm may provide a single document, which describes more than one key features scheme or7simplified prospectus scheme, or any combination of those schemes, if:77(1) the schemes are offered through a platform service;88(2) the document clearly describes the difference between the relevant schemes; and(3) (in the case of a simplified prospectus scheme) the firm also offers a copy7 of the relevant prospectus7 to the client.7
If there is no initial service agreement but the successive operations or separate operations of the same nature performed over time are performed between the same contractual parties, the rules in this section only apply:(1) when the first operation is performed; and(2) if no operation of the same nature is performed for more than a year, when the next operation is performed (the next operation being deemed to be the first in a new series of operations).
When the rules in this section require a firm to:(1) offer a simplified prospectus to a client, that prospectus must be offered free of charge before the conclusion of the contract; or7(2) provide a key features document, a simplified prospectus, or any other document or information to a client, the document or information must be provided free of charge and in good time before the firm carries on the relevant business; or77(3) provide a key investor information document or EEA
7(1) A firm may provide a document, or the information required to be provided by the rules in this section, in a durable medium immediately after the conclusion of a distance contract, if the contract has been concluded at a client's request using a means of distance communication that does not enable the document or information to be provided in that form in good time before the client is bound by the contract.7(2) The exception in (1) does not apply in relation to the provision
7(1) Where the rules in this section require a document or information to be provided, in the case of a voice telephony communication, a firm must:77(a) if the client gives explicit consent to receiving only limited information, provide the abbreviated distance marketing disclosure information () orally to the client;7(b) if the client does not give explicit consent to only receiving limited information, and the parties wish to proceed by voice telephony communication, provide
4If a firm makes a personal recommendation to a retail client in relation to a packaged product and uses the services and costs disclosure document or combined initial disclosure document to make the disclosures required under the rule on describing the breadth of a firm's advice service (COBS 6.2A.5 R) and the rule on content and wording of disclosure (COBS 6.2A.6 R), it may also use these documents for its disclosures in respect of any other retail investment products.
(1) In the FSA's opinion, a firm may3 comply with the rules referred to in (4) of which (a) to (g) are derived from the Single Market Directives and the Distance Marketing Directive4 by ensuring3 that in good time before:3343(a) a retail client is bound by an agreement for the provision of a personal recommendation on packaged products; or (b) the firm performs an act preparatory to the provision of a personal recommendation;(c) (3in relation to the amendment of a life policy
For the purposes of GEN 5, a firm may not use the Key facts logo in relation to any document that is designed to comply with rules in COBS 5, 6.1 or COBS 7 unless it is a services and costs disclosure document or a 3combined initial disclosure document produced in accordance with the templates and Notes in the annexes to this chapter. 33
Each of the services and costs disclosure document and3combined initial disclosure document that a firm provides to a client should be documents which the firm reasonably considers will be, or are likely to be, appropriate for the client having regard to the type of service which the firm may provide or business which the firm may conduct. 33
(1) A services and costs disclosure document3 is a document that contains the Key facts logo, headings and text in the order shown in COBS 6 Annex 1 and in accordance with the Notes.3(2) A combined initial disclosure document is a document that contains the Key facts logo, headings and text in the order shown in COBS 6 Annex 2 and in accordance with the Notes.
A firm may include, in a services and costs disclosure document or a combined initial disclosure document,3 information required by COBS or by the rule on disclosing a tied agent's capacity (SUP 12.6.13 R) and which is not in the template for the services and costs disclosure document or combined initial disclosure document,3if the information would be sufficiently prominent. For example, a firm may wish to use those documents to satisfy:333333(1) the parts of the rule on information
Firms can obtain from the FSA website http://www.fsa.gov.uk a specimen of the services and costs disclosure document and the combined initial disclosure document.3 A firm may produce its services and costs disclosure document or combined initial disclosure document3by using its own house style and brand. Electronic tools to help firms to construct their own versions of these documents 3 are available from the FSA website.3333
A firm would be unlikely to comply with the client's best interests rule and the fair, clear and not misleading rule, 3if:33(1) the services and costs disclosure document or the combined initial disclosure document that it provided initially did not reflect the relevant adviser charge or 4expected commission arrangements; or34(2) the firm arranged to retain any commission which exceeded the amount or rate disclosed without first providing further appropriate inducements information
(1) In accordance with the rule on information disclosure before providing services (COBS 2.2.1 R), if a firm's initial contact with a retail client with a view to providing a personal recommendation on packaged products is by telephone then the following information should be provided before proceeding further:(a) the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;(b) whether the firm provides independent advice or
A firm must take reasonable steps to ensure that its representatives,5 when making contact with an employee with a view to giving a personal recommendation on his employer's group personal pension scheme or group stakeholder pension scheme,5 inform the employee:555(1) that the firm will be providing a personal recommendation on a group personal pension scheme5 and/or a group stakeholder pension scheme5 provided by the employer;(2) whether the employee will be provided with a personal
This section applies to a firm which produces, or arranges for the
production of, investment research that
is intended or likely to be subsequently disseminated to clients of
the firm or to the public, under
its own responsibility or that of a member of its group. [Note: article 25(1) of the MiFID
implementing Directive]
A firm must
ensure the implementation of all of the measures for managing conflicts of
interest in SYSC 10.1.11 R in relation to the financial
analysts involved in the production of investment
research and other relevant
persons whose responsibilities or business interests may conflict
with the interests of the persons to
whom investment research is
disseminated. [Note: article 25 (1) of the MiFID
implementing Directive]
Persons whose
responsibilities or business interests may reasonably be considered to conflict
with the interests of the persons to
whom investment research is
disseminated include corporate finance personnel and persons involved
in sales and trading on behalf of clients or
the firm. [Note: recital 30 of the MiFID
implementing Directive]
A firm must
have in place arrangements designed to ensure that the following conditions
are satisfied:(1) if a financial
analyst or other relevant person has
knowledge of the likely timing or content of investment
research which is not publicly available or available to clients and cannot readily be inferred from
information that is so available, that financial
analyst or other relevant person must
not undertake personal transactions
or trade on behalf of any other person,
including
Knowledge by a financial
analyst or other relevant person that
the firm intends to produce
or disseminate investment research to
its clients or to the public
(including in circumstances where research material has not yet been written)
could constitute knowledge of the likely timing and content of investment research under COBS 12.2.5 R (1).
For the purposes of COBS 12.2.5 R (2):(1) current recommendations should
be considered to be those recommendations contained in investment
research which have not been withdrawn and which have not lapsed;
and[Note: recital
34 of the MiFID implementing Directive](2) exceptional circumstances in which financial analysts and other relevant persons may, with prior written
approval, undertake personal transactions
in financial instruments to
which investment research relates
should
Small gifts or minor hospitality
below a level specified in the firm'sconflicts of interest policy and mentioned
in the description of that policy that is made available to clients in
accordance with COBS 6.1.4 R (8) should not be considered as inducements for the
purposes of COBS 12.2.5 R (3). [Note: recital 32 of the MiFID
implementing Directive]
A financial
analyst should not become involved in activities other than
the preparation of investment research where
such involvement is inconsistent with the maintenance of the financial analysts objectivity. The following
should ordinarily be considered as inconsistent with the maintenance of a financial analyst's objectivity:(1) participating in investment banking
activities such as corporate finance business and underwriting; or(2) participating in 'pitches' for
new business
A firm which
disseminates investment research produced
by another person to the public
or to clients is exempt from
complying with the requirements in COBS 12.2.3 R and COBS 12.2.5 R if
the following criteria are met:(1) the person that
produces the investment research is
not a member of the group to
which the firm belongs;(2) the firm does
not substantially alter the recommendations within the investment
research;(3) the firm does
not present the investment research as
having
The FSA would expect a firm'sconflicts of interest policy to provide
for investment research to be
published or distributed to its clients in
an appropriate manner. For example, the FSA considers it will be:(1) appropriate for a firm to take reasonable steps to ensure that
its investment research is published
or distributed only through its usual distribution
channels; and(2) inappropriate for an employee (whether or not a financial
analyst) to communicate the substance of any
The FSA would expect a firm to
consider whether or not other business activities of the firm could
create the reasonable perception that its investment
research may not be an impartial analysis of the market in,
or the value or prospects of, a financial
instrument. A firm would
therefore be expected to consider whether its conflicts
of interest policy should contain any restrictions on the timing
of the publication of investment research.
For example, a firm might consider
whether
The FSA considers that the significant
conflicts of interest which could arise are likely to mean it is inappropriate
for a financial analyst or
other relevant person to prepare investment research which is intended firstly
for internal use for the firm's
own advantage, and then for later publication to its clients (in
circumstances in which it might reasonably be expected to have a material
influence on its clients' investment
decisions).