1. (1)

   1This section applies to the MiFID, equivalent third country or optional exemption business4 carried on by a trustee firm.

2. (2)

   It does not apply to a trustee firm when acting as:

   1. (a)

      a depositary; or

   2. (b)R

      the trustee of a personal pension scheme or stakeholder pension scheme.

1A firm that executes a customer order in the course of carrying out activities referred to in COBS 18.2.5 R must provide best execution.

1The duty to provide best execution does not apply where:

1. (1)

   the firm has agreed with a professional client that it does not owe a duty of best execution to him; or

2. (2)

   the firm relies on another person to whom it passes a customer order for execution to provide best execution, but only if it has taken reasonable care to ensure that he will do so.

1To provide best execution, a firm must:

1. (1)

   take reasonable care to ascertain the price which is the best available for the customer order in the relevant market at the time for transactions of the kind and size concerned; and

2. (2)

   execute the customer order at a price which is no less advantageous to the customer, unless the firm has taken reasonable steps to ensure that it would be in the customer's best interests not to do so.

1Subject to COBS 18.5.1A R12, this6 section applies to a firm which is:6

1. (1)

   [deleted]12

   6
2. (2)

   [deleted]12

   6
3. (3)

   a small authorised UK AIFM; 6or12

4. (4)

   a residual CIS operator.12

   6
5. (5)

   [deleted]12

   6

COBS 18.5.3 R (2) and COBS 18.5.5 R to COBS 18.5.18 E do not apply to a small authorised UK AIFM of an unauthorised AIF which is not a collective investment scheme.

Where6COBSrules specified in the table in COBS 18.5.2 R apply to a firm carrying on scheme management activity12 or, for an AIFM, AIFM investment management functions, the following modifications apply:6

1. (1)

   subject to (2), references to customer or client are to be construed as references to any fund6for12 which the firm6 is acting or intends to act12;

   66
2. (2)

   in the case of a small authorised UK AIFM of an unauthorised AIF or a residual CIS operator6, when a firm6 is required by the rules12 in COBS to provide information to, or obtain consent from, a customer or client, the firm6 must ensure that the information is provided to, or consent obtained from, an investor6 or a potential investor in the fund6 as the case may be; and12

   666666
3. (3)

   references to the service of portfolio management in COBS 11.2 (Best execution for AIFMs and residual CIS operators12) and1211.3 (Client order handling)12 are to be read6as references to the management by a firm of financial instruments held for or within thefund.12

   66666
4. (4)

   [deleted]12

   6

12Subject to COBS 18.5.3CR, 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.

12 COBS 18 Annex 1 does not apply in relation to an AIF or CIS 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.

The best execution provisions in COBS 11.2 (Best execution for AIFMs and residual CIS operators) do not apply12 to a small authorised UK AIFM of an unauthorised AIF or a residual CIS operator6 of12 a fund6 whose fund6 documents include a statement that best execution does not apply in relation to the fund6 and in which:

1. (1)

   no investor6 is a retail client; or

   6
2. (2)

   no current investor in the fund6 was a retail client when it invested in the fund.6

   66

6A small authorised UK AIFM of an unauthorised AIF which is not a collective investment scheme must comply with COBS 16.3 (Periodic reporting) with references to managing investments to be construed as providing AIFM investment management functions.

A small authorised UK AIFM of an unauthorised AIF or a residual CIS operator6 must not accept a retail client as an investor in the fund6 unless it has taken reasonable steps to offer and, if requested, provide to the potential investor, fund6 documents which adequately describe how thefund6 is governed.

Where the fund is an unauthorised fund managed by a small authorised UK AIFM or a residual CIS operator6 and no current investor6 in the fund6 was a retail client when it invested in the fund6, the fund6 documents must include a statement that:

1. (1)

   explains that if an investor6 is reclassified as a retail client subsequent to investing in the fund6, then the firm6 may continue to treat all investors in the fund6 as though they were not retail clients;

   6666
2. (2)

   explains that if an investor6 is reclassified as a retail client subsequent to investing in the fund6, then the modification of best execution (see COBS 18.5.4 R6) will continue to apply to that fund6; and

   6666
3. (3)

   explains that, in the event of such a reclassification, the firm6 will not be required to provide best execution in relation to the fund6.

   66

A small authorised UK AIFM of an unauthorised AIF or a residual CIS operator6 must, subject to the exceptions from the requirement to provide a periodic statement, provide to investors in the fund6, 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 fund6 at the beginning and end of the period of the statement.

1. (1)

   A small authorised UK AIFM of an unauthorised AIF or a residual CIS operator6 need not provide a periodic statement:

   6
   1. (a)
      1. (i)

         to an investor in the fund6 who is a retail client ordinarily resident outside the United Kingdom; or

         6
      2. (ii)

         to an investor in the fund6 who is a professional client; if the investor6 has so requested or the firm6 has taken reasonable steps to establish that the investor6 does not wish to receive it; or

         6666
   2. (b)

      if it would duplicate a statement to be provided by someone else.

2. (2)

   For a firm acting as an outgoing ECA provider, the exemption for retail client investors6 ordinarily resident outside the United Kingdom applies only to an investor in the fund6 who is a retail client ordinarily resident outside the EEA.

   66

A small authorised UK AIFM of an unauthorised AIF or a residual CIS operator6 must make a copy of any periodic statement it has provided in accordance with the requirement to prepare and issue periodic statements to investors in the fund6. The record must be retained for a minimum period of three years.

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.

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.

Where COBSrules 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.

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 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.

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.

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.

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 AIFdocuments 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.

1This section applies to a UCITS management company.

Where COBSrules specified in the table in COBS 18.5B.2R apply to a firm carrying on scheme management activities, the following modifications apply:

1. (1)

   subject to (2), references to customer or client are to be construed as references to any scheme in respect of which the firm is acting or intends to act; and

2. (2)

   references to the service of portfolio management in COBS 11.3 (Client order handling) are to be read as references to collective portfolio management.

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.

1This section applies to a firm when it carries on Lloyd's market activities.

Only COBS 3 (Client categorisation) and the financial promotion rules apply when a firm is carrying out Lloyd's market activities.

When a firm is carrying on Lloyd's market activities, any reference in COBS to the term:

1. (1)

   designated investment is to be taken to include the following specified investments:

   1. (a)

      the underwriting capacity of a Lloyd's syndicate;

   2. (b)

      membership of a Lloyd's syndicate; and

   3. (c)

      rights to or interests in the specified investments in (a) or (b);

2. (2)

   designated investment business is to be taken to include the following regulated activities:

   1. (a)

      advising on syndicate participation at Lloyd's;

   2. (b)

      managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's; and

   3. (c)

      agreeing to carry on the regulated activities in (a) or (b).

1This section applies to UK ISPVs.

1 COBS 3 applies (subject to COBS 18.6A.3R) when a firm is carrying on insurance risk transformation and/or activities directly arising from insurance risk transformation.

1When a firm is carrying on insurance risk transformation and/or activities directly arising from insurance risk transformation:

1. (1)

   The general definition of client in COBS 3.2.1R is modified as set out in COBS 18.6A.3R(2) below.

2. (2)

   Any reference to the term client is to be taken to include:

   1. (a)

      a person to whom the firm provides, intends to provide or has provided a service in the course of carrying on activities directly arising from insurance risk transformation (including the offer of investments issued by the firm); or

   2. (b)

      (in DISP only) a person who is holding or has held an investment issued by the firm.

3. (3)

   COBS 3.6.1R(2) does not apply. A client can be an eligible counterparty in relation to insurance risk transformation and activities directly arising from insurance risk transformation.

1Before an investment issued by an ISPV is sold to a client (that is not an eligible counterparty), the ISPV must ensure that the client is informed that compensation will not be available from the FSCS if the ISPV cannot meet its liabilities.

1A statement that compensation will not be available from the FSCS must be included in any brochure or other written communication by which an ISPV offers investments to clients.

1This section applies to an OPS firm when it carries on OPS activity:

1. (1)

   from an establishment maintained by it in the United Kingdom; and

2. (2)

   which is not MiFID, equivalent third country or optional exemption business.

Where a COBSrule specified in this section applies to an OPS firm, the following modifications apply:

1. (1)

   a reference to:

   1. (a)

      “client” is to be construed as a reference to the occupational pension scheme or welfare trust, as the case may be, in respect of which the OPS firm is acting or intends to act, and with or for the benefit of whom the relevant business is to be carried on; and

   2. (b)

      “investment firm” is to be construed as a reference to an OPS firm;

2. (2)

   if an OPS firm is required by a COBSrule specified in this section to provide information to, or obtain consent from, a client, that firm must ensure that the information is provided to, or consent obtained from, each of the trustees of the occupational pension scheme or welfare trust for whom that firm is acting; and

3. (3)

   subject to the modifications in COBS 18.8A.6 R, COBS 18.8A.15R(4) and COBS 18.8A.16R(4), COBS 1.2.3R (References in COBS to the MiFID Org Regulation) applies where a COBS provision marked “EU” applies to an OPS firm.

Except as specified in this section, the provisions of COBS do not apply to an OPS firm in relation to its OPS activity.

COBS 3 (Client categorisation) applies to an OPS firm but only for the purpose of determining the client categorisation of an occupational pension scheme or welfare trust.

Where a provision of COBS specified in Table 1 applies, a reference to “investment service” is to be construed as a reference to the relevant OPS activity falling within the scope of COBS 18.8A.5R.

In COBS 2.3.1R, a reference to “designated investment business” is to be construed as a reference to any OPS activity that does not fall within the scope of COBS 18.8A.5R.

The provisions in COBS 2.3B (Inducements and research) apply to an OPS firm with the following modifications:

1. (1)

   COBS 2.3B.1R does not apply;

2. (2)

   for the guidance in COBS 2.3B.2G substitute the following guidance:

   “(1) An OPS firm is prohibited from receiving inducements (other than acceptable minor non-monetary benefits) in relation to OPS activity falling within the scope of COBS 18.8A.5R. Compliance with COBS 2.3B (Inducements and research) allows such a firm to receive third party research (relating to OPS activity falling within the scope of COBS 18.8A.5R) without breaching the prohibition in COBS 2.3A.16R.

   (2) An OPS firm may receive third party research in relation to OPS activity falling within the scope of COBS 18.8A.7R without subjecting that research to an assessment under the inducement rule in COBS 2.3.1R if the research is acquired in accordance with COBS 2.3B as such research will not constitute an inducement.”;

3. (3)

   the reference in COBS 2.3B.3R to “COBS 2.3A.5R” should be construed as a reference to COBS 2.3.1R (Rule on inducements);

4. (4)

   in relation to an OPS firm carrying out OPS activity falling within the scope of COBS 18.8A.5R, for the guidance in COBS 2.3B.22G substitute:

   “An OPS firm should also consider whether the goods or services it is looking to receive are acceptable minor non-monetary benefits under COBS 2.3A.19R or COBS 2.3A.22G, which can be received without breaching the inducement rule in COBS 2.3A.16R(2).”;

5. (5)

   COBS 2.3B.22G does not apply to an OPS firm that is carrying on OPS activity falling within the scope of COBS 18.8A.7R; and

6. (6)

   a reference to “ancillary services” or “investment services” in COBS 2.3B.3R, COBS 2.3B.4R and COBS 2.3B.5R is to be construed as a reference to, as applicable, either:

   1. (a)

      OPS activity that falls within the scope of COBS 18.8A.5R; or

   2. (b)

      OPS activity that falls within the scope of COBS 18.8A.7R.

In COBS 9.2.7G for that part which states,

“…The firm should also bear in mind the client’s best interests rule and any other obligation it may have under the rules relating to appropriateness when providing the different service (see COBS 10, Appropriateness (for non-advised services)) and COBS 10A, Appropriateness (for non-advised services) (MiFID provisions)).”,

substitute,

“The firm should bear in mind any other obligation it may have under the rules relating to the different service being requested by the client.”.

1. (1)

   If an OPS firm makes a personal recommendation to a per se professional client the firm is entitled to assume that the client is able financially to bear any related investment risks consistent with the client’s investment objectives for the purposes of COBS 9.2.2R(1)(b).

2. (2)

   If an OPS firm makes a personal recommendation or manages investments for a professional client it is entitled to assume that, in relation to the products, transactions and services for which the professional client is so classified, the client has the necessary level of experience and knowledge for the purposes of COBS 9.2.2R(1)(c).

The provisions in COBS 11.2A (Best execution – MiFID provisions) apply:

1. (1)

   to an OPS firm when it carries on OPS activity which is executing an order for a client in relation to a financial instrument; and

2. (2)

   as modified by COBS 18.8A.15R.

The provisions in COBS 11.2A (Best execution – MiFID provisions) marked “EU” and COBS 11 Annex 1EU (Regulatory Technical Standard 28) apply to an OPS firm to which (1) applies as if they were rules.

1. (1)

   The reference to the inducement requirements in COBS 11.2A.19R is to be construed as a reference to, as applicable, the inducement requirements applying to an OPS firm pursuant to either:

   1. (a)

      COBS 18.8A.5R; or

   2. (b)

      COBS 18.8A.7R.

2. (2)

   The requirement in COBS 11.2A.34EU (see article 65(6) of the MiFID Org Regulation) to make public for each class of financial instruments:

   1. (a)

      the top five investment firms used by an OPS firm to executeclient orders; and

   2. (b)

      information on the quality of execution obtained,

   applies in accordance with (3).

3. (3)

   The information to be made public under (2) must:

   1. (a)

      be published for the first time no later than 30 April 2019 and then annually no later than 30 April of each subsequent year; and

   2. (b)

      relate to the calendar year immediately preceding the year in which the information is being made public.

4. (4)

   In COBS 11.2A, a reference to:

   1. (a)

      “investment service” is to be construed as a reference to any OPS activity falling within the scope of COBS 18.8A.13R;

   2. (b)

      “portfolio management” in COBS 11.2A.34EU (see article 65(1) of the MiFID Org Regulation) is to be construed as a reference to OPS activity falling within the scope of COBS 18.8A.13R and which involves the OPS firm placing orders with other entities for execution that result from decisions by the OPS firm to deal in financial instruments on behalf of its client; and

   3. (c)

      “reception and transmission of orders” is to be construed as a reference to OPS activity falling within the scope of COBS 18.8A.13R and which involves the transmission of client orders to other entities for execution.

1. (1)

   The COBS provisions in COBS 11.3 (Client order handling) apply to an OPS firm, as modified by this rule.

2. (2)

   The provisions in COBS 11.3 (Client order handling) marked “EU” apply to an OPS firm as if they were rules.

3. (3)

   A rule in COBS 11.3 which applies only to a UCITS management company or a management company does not apply to an OPS firm.

4. (4)

   A reference to “financial instrument” is to be construed as a reference to a designated investment (other than a P2P agreement).

The provisions in COBS 11.7 (Personal account dealing), other than COBS 11.7.2R(1), apply to an OPS firm.

1. (1)

   An OPS firm must retain its records relating to suitability for a minimum period of three years.

2. (2)

   The requirement in (1) does not apply if the client does not proceed with the recommendation.

The rules in COBS 18 Annex 2 (Record keeping: client orders and transactions) apply to an OPS firm.

1. (1)

   The financial promotion rules in COBS apply to an ICVC, except that COBS 4.13 (UCITS) applies only to an ICVC that is a UCITS scheme.2

2. (2)

   COBS 14.2 (Providing product information to clients) applies to an ICVC that is a UCITS scheme.2

2 COBS 4 and COBS 12.4 apply to an AIFM qualifier.

1 COBS applies to an authorised professional firm, except that its application in relation to non-mainstream regulated activities and financial promotion is modified as set out below.

COBS does not apply to an authorised professional firm with respect to its non-mainstream regulated activities, except that:

1. (1)

   the fair, clear and not misleading rule applies;

2. (2)

   the financial promotion rules apply as modified below;

3. (3)

   the rules in the following parts of COBS which implement the IDD apply in relation to insurance distribution activities:3

   1. (a)

      COBS 2.1.1R, COBS 2.2A and COBS 2.3A (Conduct of business obligations);3

   2. (b)

      COBS 4 (Communicating with clients, including financial promotions);3

   3. (c)

      COBS 6.1ZA (Information about the firm and compensation information (MiFID and insurance distribution provisions));3

   4. (d)

      COBS 7 (Insurance distribution);3

   5. (e)

      COBS 8 (Client agreements);3

   6. (f)

      COBS 9 (Suitability (including basic advice) (other than MiFID and insurance-based investment products provisions)) and COBS 9A (Suitability (MiFID and insurance-based investment products provisions));3

   7. (g)

      COBS 10A (Appropriateness (for non-advised services));3

   8. (h)

      COBS 14.2 (Providing product information to clients); and3

   9. (i)

      COBS 16A.2 (General client reporting and record keeping requirements),

   but only if the designated professional body of the firm does not have rules approved by the FCA under section 332(5) of the Act that implement articles 1(4), 17, 18, 19, 20, 23, 24(1) to (4) and (6), 29, and 30 of the IDD3 and that apply to the firm;

   1
4. (4)

   COBS 8.1.3 R (Client agreements) applies, except for the requirement to provide information on conflicts of interest; and1

   1
5. (5)

   COBS 5.2 (E-commerce) applies.1

The financial promotion rules do not apply to an authorised professional firm in relation to the communication of a financial promotion if:

1. (1)

   the firm's main business is the practice of its profession (see IPRU(INV) 2.1.2R(3));

2. (2)

   the financial promotion is made for the purposes of and incidental to the promotion or provision by the firm of its professional services or its non-mainstream regulated activities; and

3. (3)

   the financial promotion is not communicated on behalf of another person who would not be able lawfully to communicate the financial promotion if he were acting in the course of business;

however, a firm may use the exemptions for promoting unregulated collective investment schemes in COBS 4 (Communicating with clients, including financial promotions) if it wishes.