- (1)
3The restriction in COBS 4.12.3 R does not apply if the promotion falls within an exemption in the table in (5) below in accordance with (3)13.
- (2)
A firm13 may communicate an invitation or inducement to participate in an unregulated collective investment scheme without breaching the restriction on promotion in section 238 of the Act if the promotion falls within an exemption in the table in (5) below in accordance with (3)13.
- (3)
A promotion falls within an exemption in the table in (5) below if13:
- (a)
it is made to or directed at only those recipients whom the firm has taken reasonable steps to establish are persons in the middle column of the table; and13
- (b)
where the third column of the table refers to the need for a preliminary assessment of suitability, that assessment is undertaken before the promotion is made to or directed at the recipient13.
- (a)
- (4)
A firm may rely on more than one exemption in relation to the same invitation or inducement.
- (5)
Title of Exemption
Promotion to:
Promotion of a non-mainstream pooled investment which is:
1. Replacement products and rights issues
A person who already participates in, owns, holds rights to or interests in, a non-mainstream pooled investment that is being liquidated or wound down or which is undergoing a rights issue. [See Note 1.]
1. A non-mainstream pooled investment which is intended by the operator or manager to absorb or take over the assets of that non-mainstream pooled investment, or which is being offered by the operator or manager of that non-mainstream pooled investment as an alternative to cash on its liquidation;
or
2. Securities offered by the existing non-mainstream pooled investment as part of a rights issue.
2. Certified high net worth investors
An individual6 who meets the requirements set out in COBS 4.12.6 R, or a person (or persons) legally empowered to make investment decisions on behalf of such individual6.
Any non-mainstream pooled investment the firm considers is likely to be suitable for that individual6, based on a preliminary assessment of the client's profile and objectives.
[See COBS 4.12.5G (2).]
3. Enterprise and charitable funds
A person who is eligible to participate or invest in an arrangement constituted under:
(1) the Church Funds Investment Measure 1958;
(2) section 96 5or 100 of the Charities Act 2011;
(3) section 25 of the Charities Act (Northern Ireland) 1964;
(4) the Regulation on European Venture Capital Funds (‘EuVECAs’) or the RVECA Regulation (‘RVECAs’)1112; or
(5) the Regulation on European Social Entrepreneurship Funds (‘EuSEFs’) or the SEF Regulation (‘SEFs’)1112.
Any non-mainstream pooled investment which is such an arrangement.
4. Eligible employees
An eligible employee, that is, a person who is:
(1) an officer;
(2) an employee;
(3) a former officer or employee; or
(4) a member of the immediate family of any of (1) - (3), of an employer which is (or is in the same group as) the firm, or which has accepted responsibility for the activities of the firm in carrying out the designated investment business in question.
1. A non-mainstream pooled investment, the instrument constituting which:
A. restricts the property of the non-mainstream pooled investment, apart from cash and near cash, to:
(1) (where the employer is a company) shares in and debentures of the company or any other connected company; [See Note 2.]
(2) (in any case), any property, provided that the non-mainstream pooled investment takes the form of:
(i) a limited partnership, under the terms of which the employer (or connected company) will be the unlimited partner and the eligible employees will be some or all of the limited partners; or
(ii) a trust which the firm reasonably believes not to contain any risk that any eligible employee may be liable to make any further payments (other than charges) for investment transactions earlier entered into, which the eligible employee was not aware of at the time he entered into them; and
B. (in a case falling within A(1) above) restricts participation in the non-mainstream pooled investment to eligible employees, the employer and any connected company.
2. Any non-mainstream pooled investment, provided that the participation of eligible employees is to facilitate their co-investment:
(i) with one or more companies in the same group as their employer (which may include the employer); or
5. Members of the Society of Lloyd’s
A person admitted to membership of the Society of Lloyd's or any person by law entitled or bound to administer his affairs.
A scheme in the form of a limited partnership which is established for the sole purpose of underwriting insurance business at Lloyd's.
6. Exempt persons
An exempt person (other than a person exempted only by section 39 of the Act (Exemption of appointed representatives)) if the financial promotion relates to a regulated activity in respect of which the person is exempt from the general prohibition.
7. Non-retail clients
An eligible counterparty or a professional client.
Any non-mainstream pooled investment in relation to which the client is categorised as a professional client or eligible counterparty.
[See Note 4.]
8. Certified sophisticated investors
An individual6 who meets the requirements set out in COBS 4.12.7 R, including an individual who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm'sclient6.
9. Self-certified sophisticated investors
An individual6 who meets the requirements set out in COBS 4.12.8 R, including an individual who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm'sclient6.
Any non-mainstream pooled investment the firm considers is likely to be suitable for that client, based on a preliminary assessment of the client's profile and objectives.
[See COBS 4.12.5G (2)]
10. Solicited advice
Any person.
Any non-mainstream pooled investment, provided the communication meets all of the following requirements:
(a) the communication only amounts to a financial promotion because it is a personal recommendation on a non-mainstream pooled investment;
(b) the personal recommendation is made following a specific request by that client for advice on the merits of investing in the non-mainstream pooled investment; and
(c) the client has not previously received a financial promotion or any other communication from the firm (or from a person connected to the firm) which is intended to influence the client in relation to that non-mainstream pooled investment. [See Note 3.]
11. Excluded communications
Any person.
Any non-mainstream pooled investment, provided the financial promotion is an excluded communication.[See COBS 4.12.12G, COBS 4.12.13G and COBS 4.12.13AG14.]
12. [deleted]11
13. US persons
A person who is classified as a United States person for tax purposes under United States legislation or who owns a US qualified retirement plan.
Any investment company registered and operated in the United States under the Investment Company Act 1940.
The following Notes explain certain words and phrases used in the table above.
Note 1
Promotion of non-mainstream pooled investments to a category of person includes any nominee company acting for such a person.
Note 2
A company is 'connected' with another company if:
- they are both in the same group; or
- one company is entitled, either alone or with another company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to the share capital, which are exercisable in all circumstances at any general meeting of the other company or of its holding company.
Note 3
A person is connected with a firm if it acts as an introducer or appointed representative for that firm or if it is any other person, regardless of authorisation status, who has a relevant business relationship with the firm.
Note 4
In deciding whether a promotion is permitted under the rules of this section or under section 238 of the Act, firms may use the client categorisation regime that applies to business other than MiFID or equivalent third country business. (This is the case even if the firm will be carrying on a MiFID activity at the same time as or following the promotion.)
Related provisions for TC 2.1.2
1Activity |
Products/Sectors |
Is there an appropriate qualification4requirement? 4 |
|
Designated investment business carried on for a retail client |
|||
Providing basic advice |
1. |
Stakeholder products excluding a deposit-based stakeholder product |
No |
Advising or giving personal recommendations (as relevant)13 |
2. |
Giving personal recommendations on securities13 which are not stakeholder pension schemes, personal pension schemes7 or broker funds |
Yes |
3. |
Giving personal recommendations on derivatives13 |
Yes2 |
|
4. |
Giving personal recommendations on retail investment products13 which are not broker funds 66 |
Yes2 |
|
5. |
Giving personal recommendations on13Friendly Societylife policies where the employee is not reasonably expected to receive a remuneration of greater than £1000 a year in respect of such sales |
No2 |
|
6. |
Giving personal recommendations on13Friendly Society tax-exempt policies (other than Holloway sickness policies where the Holloway policy special application conditions are met)5 |
Yes2 |
|
7. |
Giving personal recommendations on long-term care insurance contracts13 |
Yes2 |
|
8. |
Giving personal recommendations on investments13 in the course of corporate finance business |
Yes2 |
|
9. |
Yes2 |
||
129A. |
Yes |
||
Undertaking the activity in column 2 |
10. |
Yes |
|
11. |
Yes2 |
||
Giving personal recommendations13 and dealing |
12. |
Giving personal recommendations on and dealing in securities13 which are not stakeholder pension schemes, personal pension schemes7 or broker funds |
Yes |
13. |
Giving personal recommendations on and dealing in derivatives13 |
Yes2 |
|
4Dealing |
13A.8 |
Securities which are not stakeholder pension schemes, personal pension schemes7 or broker funds |
No |
No |
|||
13C15 |
No15 |
||
8 | 14 | ||
Managing |
14. |
Yes |
|
Overseeing on a day-to-day basis |
15. |
Operating a collective investment scheme or undertaking the activities of a trustee or depositary of a collective investment scheme |
Yes |
16. |
Safeguarding and administering investments or holding client money |
Yes2 |
|
17. |
Administrative functions in relation to managing investments |
Yes2 |
|
18. |
Administrative functions in relation to effecting or carrying out contracts of insurance which are life policies |
Yes2 |
|
19. |
Administrative functions in relation to the operation of stakeholder pension schemes |
Yes2 |
|
Mortgage Activity10 and reversion activity carried on for a customer 10 |
|||
910Advising; arranging (bringing about) an execution-only sale, excluding variations to an existing home finance transaction except where the effect is to change all or part of the home finance transaction from one interest rate to another. See Note 3, which for the avoidance of doubt forms part of this rule. |
20 |
Regulated mortgage contracts for a non-business purpose |
Yes |
20A |
Regulated mortgage contracts for a business purpose |
No |
|
21 |
Yes |
||
9Designing scripted questions for execution-only sales |
21A |
Regulated mortgage contracts for a non-business purpose |
Yes |
21B |
Regulated mortgage contracts for a business purpose |
No |
|
22 |
Yes |
||
Overseeing execution-only sales on a day-to-day basis9 9 |
23. |
Yes |
|
11MCD credit agreement activities carried on for consumers |
|||
11manufacturing |
23A |
No |
|
11entering into a regulated mortgage contract or entering into a regulated credit agreement as lender |
23B |
No |
|
11arranging (bringing about) regulated mortgage contracts or acting as an MCD credit broker |
23C |
No |
|
11advising on a regulated mortgage contract or advising on a regulated credit agreement for the acquisition of land |
23D |
No |
|
11directly managing or supervising employees who carry on any of the MCD credit agreement activities 23A to 23D |
23E |
No |
|
Non-investment insurance business carried on for a consumer |
|||
Giving personal recommendations13 |
24. |
Giving personal recommendations on non-investment insurance contracts13 |
No |
3Regulated sale and rent back activity carried on for a customer |
|||
Advising |
25. |
No |
|
Overseeing an execution-only sale10 on a day-to-day basis 10 |
26. |
No |
|
16Regulated funeral plan activity carried on for a customer |
|||
27 |
No |
||
28 |
No |
||
16Making arrangements with a view to transactions in investments |
29 |
No |
|
30 |
No |
||
31 |
No |
||
32 |
No |
||
33 |
No |
||
34 |
No |
||
35 |
No |
||
36 |
No |
||
37 |
No |
||
Notes: |
|||
1. |
In the Appendix the heading and types of business specified in the headings are to be read in conjunction with the paragraphs appearing beneath them. |
||
2. |
Thus, for example, paragraph 24,13 consistent with the heading above it, refers only to personal recommendations given in relation to13non-investment insurance contracts given to a consumer.10 33 |
||
122A. |
In relation to activity number 9A, see TC 2.1.5HR and TC 2.1.6R(2). There is no qualification for this activity in the list of qualifications set out in TC Appendix 4E. However, the effect of TC 2.1.5HR is that an employeeadvising on P2P agreements must be qualified to the same standard as if that employee were providing investment advice to retail clients on retail investment products. |
||
103. |
For the purpose of product numbers 20, 20A and 21 the activity of arranging (bringing about) referred to in the activity column: (a) includes activity which would be arranging (bringing about) but for the exclusion in article 28A of the Regulated Activities Order; and (b) does not include activities which taken on their own would not fall within the definition of that activity. For these purposes no account should be taken of the fact that for an activity to be a regulated activity it must be carried on by way of business (see PERG 4.3). |
||
4. |
In this Appendix, paragraphs 23A, 23B, 23C, 23D and 23E relate to the implementation of article 9(1) of the MCD. The specified activities do not, in and of themselves, attract a qualification requirement. However, where those activities overlap with those specified under the heading "mortgage activity and reversion activity carried on for a customer", qualification requirements may apply. |
Frequently asked questions about allocation of functions in SYSC 4.4.5 R
Question |
Answer |
|
1 |
Does an individual to whom a function is allocated under SYSC 4.4.5 R need to be an approved person13? 8 |
Yes. They13 will be performing the limited scope function13. However, the limited scope function does not apply to an EEA SMCR firm (except claims management and funeral plan 16firms) or an authorised professional firm that is a core SMCR firm.1313 171717178 |
2 |
If the allocation is to more than one individual, can they perform the functions, or aspects of the functions, separately? |
If the functions are allocated to joint chief executives under SYSC 4.4.5 R, column 2, they are expected to act jointly. If the functions are allocated to an individual under SYSC 4.4.5 R, column 2, in addition to individuals under SYSC 4.4.5 R, column 3, the former may normally be expected to perform a leading role in relation to the functions that reflects his position. Otherwise, yes. |
3 |
What is meant by "appropriately allocate" in this context? |
The allocation of functions should be compatible with delivering compliance with Principle 3, SYSC 4.4.3 R and SYSC 4.1.1 R. The FCA13 considers that allocation to one or two individuals is likely to be appropriate for most firms. |
4 |
If a committee of management governs a firm or group, can the functions be allocated to every member of that committee? |
Yes, as long as the allocation remains appropriate (see Question 3). If the firm also has an individual as chief executive, then the functions must be allocated to that individual as well under SYSC 4.4.5 R, column 2 (see Question 7). |
5 |
Does the definition of chief executive include the possessor of equivalent responsibilities with another title, such as a managing director or managing partner? |
Yes. |
6 |
Is it possible for a firm to have more than one individual as its chief executive? |
Although unusual, some firms may wish the responsibility of a chief executive to be held jointly by more than one individual. In that case, each of them will be a chief executive and the functions must be allocated to all of them under SYSC 4.4.5 R, column 2 (see also Questions 2 and 7). |
7 |
If a firm has an individual as chief executive, must the functions be allocated to that individual? |
Normally, yes, under SYSC 4.4.5 R, column 2. But if the firm is a body corporate and a member of a group, the functions may, instead of being allocated to the firm'schief executive, be allocated to a director or senior manager from the group responsible for the overall management of the group or of a relevant group division, so long as this is appropriate (see Question 3). Such individuals may nevertheless require approval under section 59 (see Question 1). If the firm chooses to allocate the functions to a director or senior manager responsible for the overall management of a relevant group division, the FCA13 would expect that individual to be of a seniority equivalent to or greater than a chief executive of the firm for the allocation to be appropriate. See also Question 14. |
8 |
If a firm has a chief executive, can the functions be allocated to other individuals in addition to the chief executive? |
Yes. SYSC 4.4.5 R, column 3, permits a firm to allocate the functions, additionally, to the firm's (or where applicable the group's) directors and senior managers as long as this is appropriate (see Question 3). |
9 |
What if a firm does not have a chief executive? |
Normally, the functions must be allocated to one or more individuals selected from the firm's (or where applicable the group's) directors and senior managers under SYSC 4.4.5 R, column 3. But if the firm: (1) is a body corporate and a member of a group; and (2) the group has a director or senior manager responsible for the overall management of the group or of a relevant group division; then the functions must be allocated to that individual (together, optionally, with individuals from column 3 if appropriate) under SYSC 4.4.5 R, column 2. |
10 |
What do you mean by "group division within which some or all of the firm's regulated activities fall"? |
A "division" in this context should be interpreted by reference to geographical operations, product lines or any other method by which the group's business is divided. If the firm's regulated activities fall within more than one division and the firm does not wish to allocate the functions to its chief executive, the allocation must, under SYSC 4.4.5 R, be to: (1) a director or senior manager responsible for the overall management of the group; or (2) a director or senior manager responsible for the overall management of one of those divisions; together, optionally, with individuals from column 3 if appropriate. (See also Questions 7 and 9.) |
11 |
How does the requirement to allocate the functions in SYSC 4.4.5 R apply to an overseas SMCR firm13 which is not an EEA SMCR firm13? |
The firm must appropriately allocate those functions to one or more individuals, in accordance with SYSC 4.4.5 R, but: (1) The responsibilities that must be apportioned and the systems and controls that must be overseen are those relating to activities carried on from a UK establishment with certain exceptions (see SYSC 1 Annex 1 2.15R13). (2) The chief executive of an overseas firm is the person responsible for the conduct of the firm's business within the United Kingdom (see the definition of "chief executive"). This might, for example, be the manager of the firm'sUK establishment, or it might be the chief executive of the firm as a whole, if he has that responsibility. 13(3) SYSC 4.4 does not apply to such a firm if it does not have a branch in the United Kingdom. |
12 |
How does the requirement to allocate the functions in SYSC 4.4.5 R apply to an EEA SMCR firm other than a claims management or funeral plan 16firm13? |
(1) Such a firm is not required to allocate the function of dealing with apportionment in SYSC 4.4.5R (1). (2) Such a firm is required to allocate the function of oversight in SYSC 4.4.5R (2). 15 (3) Such a firm need not allocate the function of oversight to its chief executive; it must allocate it to one or more directors and senior managers of the firm or the firm'sgroup under SYSC 4.4.5 R, row (2). (4) SYSC 4.4 does not apply to an EEA PTV firm if it does not have a branch in the United Kingdom15. See also Question 1.15 1313 |
13 |
What about a firm that is a partnership or a limited liability partnership? |
The FCA13 envisages that most if not all partners or members will be either directors or senior managers, but this will depend on the constitution of the partnership (particularly in the case of a limited partnership) or limited liability partnership. A partnership or limited liability partnership may also have a chief executive (see Question 5). A limited liability partnership is a body corporate and, if a member of a group, will fall within SYSC 4.4.5 R, row (1) or (2). |
14 |
What if generally accepted principles of good corporate governance recommend that the chief executive should not be involved in an aspect of corporate governance? |
The Note to SYSC 4.4.5 R provides that the chief executive or other executive director or senior manager need not be involved in such circumstances. For example, the UK Corporate Governance Code5 recommends that the board of a listed company should establish an audit committee of independent,9 non-executive directors to be responsible (among other things) for overseeing the effectiveness9 of the audit process and the objectivity and independence of the external auditor9. That aspect of the oversight function may therefore be allocated to the members of such a committee without involving the chief executive. Such individuals may require approval under section 59 in relation to that function (see Question 1). 5 |
15 |
[deleted]15 |
13 |