Related provisions for COBS 11.7.2
5A certified restricted investor is an individual who has signed, within the period of twelve months ending with the day on which the communication is made, a statement in the following terms:
“RESTRICTED INVESTOR STATEMENT I make this statement so that I can receive promotional communications relating to non-readily realisable securities as a restricted investor. I declare that I qualify as a restricted investor because: |
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(a) |
in the twelve months preceding the date below, I have not invested more than 10% of my net assets in non-readily realisable securities; and |
(b) |
I undertake that in the twelve months following the date below, I will not invest more than 10% of my net assets in non-readily realisable securities. |
Net assets for these purposes do not include: |
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(a) |
the property which is my primary residence or any money raised through a loan secured on that property; |
(b) |
any rights of mine under a qualifying contract of insurance; or |
(c) |
any benefits (in the form of pensions or otherwise) which are payable on the termination of my service or on my death or retirement and to which I am (or my dependants are), or may be entitled; or7 |
7 (d) |
any withdrawals from my pension savings (except where the withdrawals are used directly for income in retirement). |
I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me to seek advice from an authorised person who specialises in advising on non-readily realisable securities. Signature: Date:” |
3This sourcebook applies7 to a firm with respect to activities7 carried on in relation to deposits7 from an establishment maintained by it, or its appointed representative, in the United Kingdom only as follows:7
67Section / chapter |
Application in relation to deposits |
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(1) |
Rules in this sourcebook which implement articles 24, 25, 26, 28 and 30 of MiFID (and related provisions of the MiFID Delegated Directive) (see COBS 1.1.1ADG). |
A MiFID investment firm, a third country investment firm and a MiFID optional exemption firm when selling, or advising a client in relation to, a structured deposit. |
(2) |
COBS 4.6 (Past, simulated past and future performance) |
Communication or approval of a financial promotion relating to a structured deposit that is addressed to, or disseminated in such a way that it is likely to be received by, a retail client. |
(3) |
COBS 4.7 (Direct offer financial promotions) |
Communication or approval of a financial promotion relating to a cash deposit ISA, cash-only lifetime ISA or cash deposit CTF that is addressed to, or disseminated in such a way that it is likely to be received by, a retail client. |
(4) |
COBS 4.10 (Systems and controls and approving and communicating financial promotions) |
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(5) |
COBS 13 (Preparing product information) |
Producing a cash-deposit ISA, cash-only lifetime ISA or cash-deposit CTF. |
(6) |
COBS 14 (Providing product information to clients) |
Selling, personally recommending or arranging the sale of a cash-deposit ISA, cash-only lifetime ISA or cash-deposit CTF to a retail client. |
(7) |
COBS 15 (Cancellation) |
Table
A key features document for a non-PRIIP packaged product8 must: |
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(1) |
Include the title: ‘key features of the [name of product]’; |
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(2) |
describe the product in the order of the following headings, and by giving the following information under those headings: |
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Heading |
Information to be given |
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‘Its aims’ |
A brief description of the product’s aims |
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‘Your commitment’ or ‘Your investment’ |
What a retail client is committing to or investing in and any consequences of failing to maintain the commitment or investment |
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‘Risks’ |
The material risks associated with the product, including a description of the factors that may have an adverse effect on performance or are material to the decision to invest |
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‘Questions and Answers’ |
(in the form of questions and answers) the principle terms of the product, what it will do for a retail client and any other information necessary to enable a retail client to make an informed decision. |
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5[Note: in respect of ‘Risks’, article 185(4) of the Solvency II Directive] |
1Each of the exemptions listed below applies only if the retail client is of the type described for the exemption and provided any additional conditions for the exemption are met.
Title |
Type of retail client |
Additional conditions |
(a) An individual who meets the requirements set out in COBS 4.12.6R; or (b) an individual in an EEA State other than the UK who meets requirements which are broadly equivalent to those set out in COBS 4.12.6R; or (c) a person (or persons) legally empowered to make investment decisions on behalf of an individual who meets the earnings or net asset requirements in (a) or (b) above |
The firm must consider that the investment is likely to be suitable for that individual, based on a preliminary assessment of that individual’s profile and objectives (see COBS 4.12.5G(2)). |
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(a) An individual who meets the requirements set out in COBS 4.12.7R; or (b) an individual in an EEA State other than the UK who meets requirements which are broadly equivalent to those set out in COBS 4.12.7R; or (c) an individual who meets the requirements for either (a) or (b) above and who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm's client. |
Not applicable. |
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(a) An individual who meets the requirements set out in COBS 4.12.8R; or (b) an individual in an EEA State other than the UK who meets requirements which are broadly equivalent to those set out in COBS 4.12.8R; or (c) an individual who meets the requirements for either (a) or (b) above and who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm's client. |
The firm must consider that the investment is likely to be suitable for that individual, based on a preliminary assessment of that individual’s profile and objectives (see COBS 4.12.5G(2)). |
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Solicited advice |
Any retail client. |
The restrictions do not apply provided all of the following requirements are met: (a) there is no invitation or inducement to participate in, acquire or underwrite the investment other than a personal recommendation on the investment; (b) the personal recommendation is made following a specific request by that client for advice on the investment; and (c) the client has not previously received any other communication (whether or not a financial promotion) from the firm or from a person connected to the firm which is intended to influence the client in relation to the investment. (See Note 1) |
MiFID or equivalent third country business other than financial promotions |
Any retail client. |
COBS 22.3.1R(2)(a) does not apply to MiFID or equivalent third country business (see COBS 9.3.5G). |
Prospectus |
Any retail client. |
The restrictions do not apply to the distribution of a prospectus required under the Prospectus Regulation3. |
Issuers |
Any retail client |
To the extent that the firm is acting as issuer of a contingent convertible instrument, the restrictions only apply to the original issuance of the contingent convertible instrument and not to subsequent trading in the secondary market. |
Indirect investment |
Any retail client |
The restrictions do not apply in relation to a beneficial interest in a contingent convertible instrument acquired through participation in a regulated collective investment scheme, investment in a non-mainstream pooled investment (provided it is not a CoCo fund), or membership of an occupational pension scheme. |
Note 1 |
A person is connected with a firm if it acts as an introducer or appointed representative for that firm or if it is any other person, regardless of authorisation status, who has a relevant business relationship with the firm. |
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Note 2 |
See COBS 2.4 for rules and guidance on agent as client and reliance on others. |
A consumer has a right to cancel any of the following contracts with a firm:
Cancellable contract |
Cancellation period |
Supplementary provisions |
Life and pensions: |
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• a life policy (including a pension annuity, a pension policy or within a wrapper) • a contract to join a personal pension scheme or a stakeholder pension scheme • a pension contract • a contract for a pension transfer • a contract to vary an existing personal pension scheme or stakeholder pension scheme by exercising, for the first time, an option to make income withdrawals6 |
30 calendar days |
For a life policy effected when opening or transferring a wrapper, the 30 calendar day right to cancel applies to the entire arrangement For a contract to buy a unit in a regulated collective investment scheme within a pension wrapper, the cancellation right for 'non-life/pensions (advised but not at a distance)' below may apply Exemptions may apply (see COBS 15 Annex 1 ) |
6Lifetime ISAs (advised but not at a distance): |
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6• a non-distance contract to open or transfer a lifetime ISA |
30 calendar days |
These rights arise only following a personal recommendation of the contract (by the firm or any other person). Exemptions may apply (see COBS 15 Annex 1) |
Cash deposit ISAs: |
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• a contract for a cash deposit ISA |
14 calendar days |
Exemptions may apply (see COBS 15 Annex 1 ) |
Non-life/pensions (advised but not at a distance): a non-distance contract:6 |
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• to buy a unit in a regulated collective investment scheme (including within a wrapper or pension wrapper) • to open or transfer a child trust fund (CTF) • to open or transfer an ISA (other than a lifetime ISA)6 • for an Enterprise Investment Scheme 2 |
14 calendar days |
These rights arise only following a personal recommendation of the contract (by the firm or any other person).2 For a unit bought when opening or transferring a wrapper or pension wrapper, the 14 calendar day right to cancel applies to the entire arrangement.2 Exemptions may apply (see COBS 15 Annex 1 ).2 |
Non-life/pensions (at a distance): a distance contract, relating to:6 |
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14 calendar days |
Exemptions may apply (see COBS 15 Annex 1 ) |
[Note: article186 of the Solvency II Directive and5 article 6(1) of the Distance Marketing Directive]
5Table: Issues to be covered in PPFM
Subject |
Issues |
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(1) |
Amount payable under a with-profits policy |
(a) |
Methods used to guide determination of the amount that is appropriate to pay individual with-profits policyholders, including: |
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(i) |
the aims of the methods and approximations used; |
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(ii) |
how the current methods, including any relevant historical assumptions used and any systems maintained to deliver results of particular methods, are documented; and |
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(iii) |
the procedures for changing the current method or any assumptions or parameters relevant to a particular method. |
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(b) |
Approach to setting bonus rates. |
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(c) |
Approach to smoothing maturity payments and surrender payments, including: |
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(i) |
the smoothing policy applied to each type of with-profits policy; |
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(ii) |
the limits (if any) applied to the total cost of, or excess from, smoothing; and |
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(iii) |
any limits applied to any changes in the level of maturity payments between one period to another. |
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(2) |
Investment strategy |
Significant aspects of the firm's investment strategy for its with-profits business or, if different, any with-profits fund, including: |
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(a) |
the degree of matching to be maintained between assets relevant to with-profits business and liabilities to with-profits policyholders and other creditors; |
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(b) |
the firm's approach to assets of different credit or liquidity quality and different volatility of market values; |
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(c) |
the presence among the assets relevant to with-profits business of any assets that would not normally be traded because of their importance to the firm, and the justification for holding such assets; and |
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(d) |
the firm's controls on using new asset or liability instruments and the nature of any approval required before new instruments are used. |
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(3) |
Business risk |
The exposure of the with-profits business to business risks (new and existing), including the firm's: |
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(a) |
procedures for deciding if the with-profits business may undertake a particular business risk; |
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(b) |
arrangements for reviewing and setting a limit on the scale of such risks; and |
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(c) |
procedures for reflecting the profits or losses of such business risks in the amounts payable under with-profits policies. |
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(4) |
Charges and expenses |
(a) |
The way in which the firm applies charges and apportions expenses to its with-profits business, including, if material, any interaction with connected firms. |
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(b) |
The cost apportionment principles that will determine which costs are, or may be, charged to a with-profits fund and which costs are, or may be, charged to the other parts of its business of its shareholders. |
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(5) |
Management of inherited estate |
Management of any inherited estate and the uses to which the firm may put that inherited estate. |
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(6) |
Volumes of new business and arrangements on stopping taking new business |
If a firm'swith-profits fund is accepting new with-profits business, its practice for review of the limits on the quantity and type of new business and the actions that the firm would take if it ceased to take on new business of any significant amount. |
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(7) |
Equity between the with-profits fund and any shareholders |
The way in which the interests of with-profits policyholders are, or may be, affected by the interests of any shareholders of the firm. |
Table: Guidance on with-profits principles and practices
Reference to PPFM issues (COBS 20.3.6R) |
With-profits principles |
With-profits practices |
(1) Amount payable under a with-profits policy |
General (a) Circumstances under which any historical assumptions or parameters, relevant to methods used to determine the amount payable, may be changed; |
General (e) For each major class of with-profits policy, methods establishing the main assumptions or parameters that decide the output of methods that determine the amount payable; (f) Degree of approximation allowed when assumptions or parameters are applied across generations of with-profits policyholders or across different types or classes of with-profits policies; (g) Formality with which the methods, parameters or assumptions used are documented; (h) Target range, or target ranges, that have been set for maturity payments; (i) Factors likely to be regarded as relevant to address policyholders' interests or security when determining excess surplus; and Investment return, expenses or charges and tax (j) How investment return, expenses or charges and tax are brought into account and how the impact of those items is determined on the amount payable. In particular:
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Bonus rates (b) General aims in setting bonus rates and the constraints to which the firm may be subject in changing economic circumstances; (c) How the range of with-profits policies or generations of with-profits policies over which the firm believes a single bonus rate would be appropriate is determined and the circumstances under which it believes a new bonus series would be necessary; and |
Bonus rates (k) Current approach to setting bonus rates, including the weight given to recent economic experience. For final bonus rates, the description should include any distinctions made between with-profits policies that remain in force until contractual dates, or dates on which no market value reduction applies (for example, maturity or retirement dates) and policies that are surrendered or transferred at other dates; (l) Frequency at which bonus rates are re-set or expected to be re-set and the circumstances under which changes in the economic environment would cause the time between re-setting to change; (m) Maximum amount by which annual bonuses would alter if annual bonus rates were reset; (n) Approach to setting any interim bonus rates before the next declaration of annual bonus rates; (o) Relationship or interaction between final bonus rates and any market value reductions, if both can apply at the same time; (p) How final bonus rates influence the value of with-profits policies that have formulaic surrender or transfer bases (for example, older conventional policies rather than unitised policies); and |
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Smoothing (d) Statement as to whether smoothing is intended to be neutral over time. |
Smoothing (q) Any differences in approach for:
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(2) Investment strategy |
(a) How the types, classes or mix of assets are determined; and (b) Strategy in respect of derivatives and other instruments. |
(c) Whether and to what extent there is hypothecation of assets; (d) Period between formal reviews of investment strategy; (e) Approach to investment in different asset classes, and assets of different credit or liquidity quality, including assets not normally traded; and (f) Details of any external support available to the with-profits fund and how this affects the investment strategy. |
(3) Business risk |
(a) Where a firm explicitly excludes business risk from a class of with-profits policies but there are residual risks, clarification where these risks such as guarantee and smoothing costs are borne; and (b) Define where compensation costs from a business risk would be borne. |
(c) Current limits which apply to the taking on of business risk; and (d) Whether and to what extent particular generations of with-profits policyholders or classes of with-profits policies bear or might bear particular business risks, including for example, crystallised or contingent guarantees to other classes of policyholders or whether the out-turn from all business risk is pooled across all with-profits policies. |
(4) Charges and expenses |
(a) Factors that would drive any change to the basis on which the firm applies charges to or apportions its actual expenses amongst with-profits policies, or exercises any discretion to apply charges to particular with-profits policies. |
(b) Charges currently applied and the expenses currently apportioned to major classes of with-profits policies; (c) Relationship between the firm's actual charges and expenses, as applied to determine the amounts payable under with-profits policies, and the charges and expenses borne by the with-profits fund; (d) Circumstances under which expenses will be charged to the with-profits fund at an amount other than cost, and the reasons why; and (e) Interval for reviewing any arrangements for out-sourced services, including those provided by connected parties, giving a broad indication of the terms for termination. |
(5) Management of inherited estate |
(a) Preferred size or scale of inherited estate and implications for the values of the with profits policies; and (b) Any existing division of the inherited estate between with-profits funds; and (c) Any constraints on the freedom to deal with the inherited estate as a result of previous dealings. |
(d) How the inherited estate is used, for example, in meeting costs; (e) Whether the investment strategy for the inherited estate differs from the rest of the with-profits fund; and (f) Any current guidelines in place as to the size or scale of the inherited estate or as to how and over what time period the inherited estate would be managed, if it becomes too large or too small. |
(6) Equity between the with-profits fund and any shareholders |
(a) Arrangements for, and any changes to, profit sharing between shareholders and with-profits policyholders. |
(b) Current basis on which profit between with-profits policyholders and shareholders is divided; and (c) Whether the pricing of any policies being written, and particular policies open to new business, appear to be significantly and systematically reducing the inherited estate if the shareholder transfer is taken into account. |