COB 5.2 Know your customer
Application
This section applies to a firm that:
- (1)
gives a personal recommendation concerning a designated investment to a private customer; or
- (2)
acts as an investment manager for a private customer; or
- (3)
arranges a pension opt-out or pension transfer from an occupational pension scheme for a private customer; or3
- (4)
is not an insurer and makes a personal recommendation to take out a life policy to an intermediate customer or a market counterparty; or3
- (5)
is not an insurer and is arranging (but not merely by introducing) a life policy;3
- (6)
is not an insurer and arranges (but not merely by introducing) a life policy for an intermediate customer or a market counterparty3.
A firm that arranges an execution-only transaction for a private customer is not generally required to obtain any personal or financial information about that customer, except when the Money Laundering sourcebook applies. However, the Insurance Mediation Directive requires that a statement of the demands and needs of a client is provided to the client, whether advice is given or not. This is required whatever the status of the client. Accordingly the demands and needs provisions in COB 5.2.12 R to COB 5.2.17 G apply to all circumstances relating to life policies.3
When a firm provides limited adviceon investments to a private customer, the firm should not treat any resulting transaction as an execution-only one.
Purpose
Principle 9 (Customers: relationships of trust) requires a firm to take reasonable care to ensure the suitability of its advice and discretionary decisions. To comply with this, a firm should obtain sufficient information about its private customer to enable it to meet its responsibility to give suitable advice. A firm acting as a discretionary investment manager for a private customer should also ensure that before acting in the exercise of discretion it has sufficient information about its private customer to enable it to act in a way which is suitable for that private customer.
Requirement to know your customer
Before a firm gives a personal recommendation concerning a designated investment to a private customer, or acts as an investment manager for a private customer, it must take reasonable steps to ensure that it is in possession of sufficient personal and financial information about that customer relevant to the services that the firm has agreed to provide.
A firm that advises a private customer, or exercises discretion for a private customer, on a continuing basis should keep its information about that customer under regular review. A firm that acts for a private customer on an occasional basis should undertake such a review whenever that customer seeks advice.
If a private customer declines to provide relevant personal and financial information, a firm should not proceed to provide the services described in COB 5.2.5 R without promptly advising that customer that the lack of such information may affect adversely the quality of the services which it can provide. The firm should consider sending written confirmation of that advice.
The information to be obtained and enquiries made to satisfy COB 5.2.5 R may vary significantly depending on the type of customer concerned. COB 5.2.11 G provides some guidance on the process of collecting personal and financial information.
Record keeping: personal and financial circumstances
- (1)
Unless (2) applies, a firm must make and retain a record of a private customer's personal and financial circumstances that it has obtained in satisfying COB 5.2.5 R. The firm must retain the record for a minimum period after the information is obtained, as follows:5
5- (a)
indefinitely for a record relating to a pension transfer, pension opt-out or free-standing additional voluntary contribution (FSAVC);5
- (b)
six years for a record relating to a life policy, pension contract or stakeholder pension scheme;5 or
- (c)
three years in any other case.5
- (a)
- (2)
A firm need not retain the record where following a personal recommendation to a private customer in connection with a designated investment, the private customer does not proceed with the recommendation or any part of it.15
5 - (3) 5
Record keeping: execution-only pension opt-outs and pension transfers
When a firm arranges a pension opt-out or pension transfer from an OPS for a private customer as an execution-only transaction, the firm must make and retain indefinitely a clear record to evidence that no advice on investments was supplied to the private customer.2
Guidance on the collection of information about a private customer.
This table belongs to COB 5.2.8 G.
Guidance on the collection of personal and financial information about a private customer |
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1 |
COB 5.2.5 R does not prescribe the method of obtaining sufficient personal and financial information about a private customer. A firm may design and use a process suitable for the market in which it transacts business. This process is often described as "fact-finding" and the document which records the information is often known as the "fact-find". |
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(a) |
Information collected from a private customer should, at a minimum provide an analysis of a customer's personal and financial circumstances leading to a clear identification of his needs and priorities so that, combined with attitude to risk, a suitable investment can be recommended. |
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(b) |
A customer information record can be electronic or paper based and it should be readily available and accessible at all times. |
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(c) |
There is no requirement under the regulatory system to obtain the private customer's consent in writing to a customer information record. When a customer is to give consent in writing to an information record, the request for consent should include a prominent warning advising the customer to read the information record in full before giving consent. |
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(d) |
Firms may send a customer a copy of the information record as proof of compliance with COB 5.3.14 R (Suitability letter). Further guidance on the contents of suitability letters is contained in COB 5.3.29 G. |
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Affordability |
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2 |
In assessing whether a private customer can afford an investment, due regard should be given to that customer's current level of income and expenditure, and any likely future changes to his income and expenditure. |
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3 |
When recommending a friendly societylife policy, the premium of which does not exceed £50 a year or, if the premiums are payable weekly, £1 a week, the firm should: |
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(a) |
obtain details of the private customer's (and his dependants') net income and expenditure; and |
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(b) |
keep a record of the reasons why the recommended transaction is considered to be suitable for that individual customer. |
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3Firms are reminded of the record keeping obligations under SYSC 3.2.20 R