COBS 18.5A Full-scope UK AIFMs and incoming EEA AIFM branches

Application

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1Subject to COBS 18.5A.2R, this section applies to a firm which is:

  1. (1)

    a full-scope UK AIFM of:

    1. (a)

      a UK AIF;

    2. (b)

      an EEA AIF; and

    3. (c)

      a non-EEA AIF; or

  2. (2)

    an incoming EEA AIFM branch.

COBS 18.5A.2R

The adequate information provisions in COBS 18.5A.11R do not apply to a full-scope UK AIFM of:

  1. (1)

    a UK ELTIF or an EEA ELTIF; or

  2. (2)

    an unauthorised AIF which is not a collective investment scheme.

Application or modification of general COBS rules

COBS 18.5A.3R

A firm when it is carrying on AIFM investment management functions:

  1. (1)

    must comply with the COBS rules specified in the table, as modified by this section; and

  2. (2)

    need not comply with any other rule in COBS.

Table: Application of conduct of business rules

Chapter, section, rule

Full-scope UK AIFM

Incoming EEA AIFM branch

1 (Application)

Applies

Applies

2.1.4R (AIFMs best interest rule)

Applies

Applies

2.3B (Inducements and research)

Applies, as modified by COBS 18 Annex 1

Applies, as modified by COBS 18 Annex 1

4.2.1R, 4.2.2G and 4.2.3G (The fair, clear and not misleading rule)

Applies

Applies

5.2 (E-commerce)

Applies

Applies

11.2 (Best execution for AIFMs and residual CIS operators)

Applies as modified by COBS 18.5A.8R

Applies as modified by COBS 18.5A.8R

18.5A (Full-scope AIFMs and incoming EEA AIFM branches)

Applies as modified by COBS 18.5A.2R

Applies

18 Annex 1 (Research and inducements for collective portfolio managers)

Applies (subject to COBS 18.5A.7R)

Applies (subject to COBS 18.5A.7R)

COBS 18.5A.4G
  1. (1)

    For activities that are not AIFM investment management functions, the COBS rules apply under the general application rule, as modified in COBS 1 Annex 1.

  2. (2)

    This may include, for example, activities relating to the administration of the AIF, marketing and activities related to the assets of the AIF.

General modifications

COBS 18.5A.5R

Where COBS rules specified in the table in COBS 18.5A.3R apply to a firm carrying on AIFM investment management functions, references to customer or client are to be construed as references to any AIF for which the firm is acting or intends to act.

Research and inducements

COBS 18.5A.6R

Subject to COBS 18.5A.7R, a firm must comply with COBS 18 Annex 1 (Research and inducements for collective portfolio managers) when executing orders, or placing orders with other entities for execution, that relate to financial instruments for, or on behalf of, the fund.

COBS 18.5A.7R

COBS 18 Annex 1 does not apply in relation to an AIF which in accordance with its core investment policy:

  1. (1)

    does not generally invest in financial instruments that can be:

    1. (a)

      registered in a financial instruments account opened in the books of a depositary; or

    2. (b)

      physically delivered to the depositary; or

  2. (2)

    generally invests in issuers or non-listed companies to potentially acquire control over such companies either individually or jointly with other funds.

Modification of best execution

COBS 18.5A.8R

Only the following provisions in COBS 11.2 apply:

  1. (1)

    COBS 11.2.5G;

  2. (2)

    COBS 11.2.17G;

  3. (3)

    COBS 11.2.23AR;

  4. (4)

    COBS 11.2.24R;

  5. (5)

    COBS 11.2.25R(1) and COBS 11.2.26R, but only where an AIF itself has a governing body which can provide prior consent; and

  6. (6)

    COBS 11.2.27R, but only regarding the obligation on an AIFM to notify the AIF of any material changes to its order execution arrangements or execution policy.

COBS 18.5A.9R

References to the service of portfolio management in COBS 11.2 (Best execution for AIFMs and residual CIS operators) are to be read as references to the management by a firm of financial instruments held for or within the AIF.

Distance marketing

COBS 18.5A.10G

Firms should also be aware that if they are carrying on distance marketing activity from an establishment in the UK, with or for a consumer in the UK or another EEA State, COBS 5.1 applies specific requirements for that activity.

Adequate information

COBS 18.5A.11R

A full-scope UK AIFM that markets an unauthorised AIF to a retail client must, in addition to providing the information in FUND 3.2 (Investor information), take reasonable steps to offer and, if requested, provide to that potential investor information about the following items:

  1. (1)

    regulator – the firm’s statutory status in accordance with GEN 4 Annex 1R (Statutory status disclosure);

  2. (2)

    commencement – when and how the firm is appointed;

  3. (3)

    accounting – the arrangements for accounting to the AIF or investors in the AIF for any transaction effected;

  4. (4)

    termination method – how the appointment of the firm may be terminated;

  5. (5)

    complaints procedure – how to complain to the firm and a statement that the investors in the AIF may subsequently complain directly to the Financial Ombudsman Service;

  6. (6)

    compensation – whether or not compensation may be available from the compensation scheme should the firm be unable to meet its liabilities, and information about any other applicable compensation scheme; and for each applicable compensation scheme, the extent and level of cover and how further information can be obtained;

  7. (7)

    exchange rates – if a liability of the AIF in one currency is to be matched by an asset in a different currency, or if the services to be provided to the firm for the AIF may relate to an investment denominated in a currency other than the currency in which the investments of the AIF 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 portfolio of the AIF;

  8. (8)

    stabilised investments – if it is the case, that the firm will have the right under the AIF documents to effect transactions in investments, the prices of which may be the subject of stabilisation;

  9. (9)

    research and inducements – how the firm intends to pay for research. For example, whether the firm proposes to pay for research directly or to use a research payment account;

  10. (10)

    acting as principal – if it is the case, that the firm may act as principal in a transaction with the AIF;

  11. (11)

    underwriting commitments – if it is the case, that the firm may for the account of the portfolio of the AIF underwrite or sub-underwrite any issue or offer for sale of securities, and:

    1. (a)

      whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and

    2. (b)

      whether there are any financial limits on the extent of the underwriting and, if so, what these limits are;

  12. (12)

    investments in other funds – whether or not the AIF may invest in funds either managed or advised by the firm or by an associate of the firm or in a fund which is not a regulated collective investment scheme; and

  13. (13)

    investments in securities underwritten by the firm – whether or not the portfolio of the AIF may contain securities of which any issue or offer for sale was underwritten, managed or arranged by the firm or by an associate of the firm during the preceding 12 months.

COBS 18.5A.12G

Where a full-scope UK AIFM is required to publish a key information document, only information that is additional to that contained in the key information document needs to be disclosed under COBS 18.5A.11R.