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COBS 18.1 Trustee Firms

Application

COBS 18.1.1 R RP
  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.

Application of COBS to trustee firms

COBS 18.1.2 R RP

The provisions of COBS in the table do not apply to a trustee firm to which this section applies:

COBS

Description

26.1A

Adviser charging and remuneration

26.1B

Retail investment product provider requirements relating to adviser charging and remuneration

4

2

4

3

3

6.4

Disclosure of charges, remuneration and commission

4

4

9.6

Special rules for providing basic advice on a stakeholder product

16A.4.54

Guidance on contingent liability transactions

4

4

4

4

4

4

COBS 18.1.2A G

4This section applies to the MiFID, equivalent third country or optional exemption business carried on by a trusteefirm. As such, the list in COBS 18.1.2R above does not include any provisions in COBS which do not apply to MiFID, equivalent third country or optional exemption business.

COBS 18.1.3 G RP

The provisions of COBS in the table are unlikely to be relevant in relation to a trustee firm to which this section applies:

COBS

Description

5

Distance communications

13

Preparing product information

14.2

Providing product information

15

Cancellation

17

Claims handling for long-term care insurance

18.2

Energy market activity and oil market activity

18.3

Corporate finance business

18.4

Stock lending activity

19

Pensions - supplementary provisions

20

With-profits

Duties of trustee firms under the general law

COBS 18.1.4 G RP

To the extent a rule in COBS applies to a trustee firm, that rule:

  1. (1)

    applies in addition to any duties or powers imposed or conferred upon a trustee by the general law; and

  2. (2)

    does not qualify or restrict the duties or powers that the general law imposes or confers upon a trustee; trustee firms will be under a duty to observe the provisions of their trust instrument; if its provisions conflict with any applicable rule, trustee firms will need to take advice in resolving the conflict.

Considering and complying with applicable COBS rules

COBS 18.1.5 G RP

In considering and reaching decisions as to how applicable rules in COBS apply in the context of a particular trust arrangement, a trustee firm should consider the nature of that arrangement and the provisions of the relevant trust instrument.

References to "client" in applicable COBS rules

COBS 18.1.6 G RP

Where an applicable rule in COBS requires the doing of any thing in relation to a client, the trustee firm should consider who, in the context of that rule and having regard to the particular trust arrangement, is the most appropriate person to treat as its client. This might, for example, be the beneficiary, another trustee or the trust, depending on the particular circumstances.

COBS 18.2 Energy market activity and oil market activity

Energy market activity and oil market activity - MiFID business

COBS 18.2.1 R RP

The provisions of COBS in the table do not apply in relation to any energy market activity or oil market activity carried on by a firm which is MiFID or equivalent third country business:

COBS

Description

3 6.1A

Adviser charging and remuneration

3 6.1B

Retail investment product provider requirements relating to adviser charging and remuneration

COBS 6.2B 5

3

Describing advice services

4

4

6.4

Disclosure of charges, remuneration and commission

9.4

Suitability reports

9.6

Special rules for providing basic advice on a stakeholder product

5

5

16.3.9

Guidance on contingent liability transaction

16.5

Quotations for surrender values

16.6

Life insurance contracts - communications to clients

16 Annex 1 R (1) 14

Information to be provided in accordance with COBS 16.2.1 R and 16.3

COBS 18.2.2 G RP

The provisions of COBS in the table are unlikely to be relevant to any energy market activity or oil market activity carried on by a firm which is MiFID or equivalent third country business:

COBS

Description

5

Distance communications

7

Insurance distribution6

13

Preparing product information

14.2

Providing product information to clients

15

Cancellation

17

Claims handling for long-term care insurance

18.1

Trustee firms' regime

18.3

Corporate finance business

18.4

Stock lending activity

19

Pensions - supplementary provisions

20

With-profits

Energy market activity and oil market activity - non-MiFID business1

COBS 18.2.3 R RP

1Only the COBS provisions in the table apply to energy market activity or oil market activity carried on by a firm which is not:

  1. (1)

    MiFID or equivalent third country business; or

  2. (2)

    energy market activity or oil market activity set out in COBS 18.2.4 R.

  3. COBS

    Description

    1

    Application

    2.1.1

    Acting honestly, fairly and professionally

    2.4

    Agent as client and reliance on others

    3

    Client categorisation

    4

    Communication to clients including financial promotions, but only in relation to communicating or approving a financial promotion

    5.2

    E-commerce2

    5

    2

    5

    12

    Investment research and non-independent research5

    16.2

    Occasional reporting

Energy market activity and oil market activity - dealings with or through authorised persons1

COBS 18.2.4 R RP

1Only the COBS provisions in the table apply to energy market activity or oil market activity carried on by a firm which is not MiFID or equivalent third country business but which, if the firm were not authorised, would not be a regulated activity because of article 16 of the Regulated Activities Order (Dealing in contractually based investments) or article 22 of the Regulated Activities Order (Deals with or through authorised persons etc.).

COBS

Description

1

Application

2.4

Agent as client and reliance on others

4.12

Unregulated collective investment schemes

5.2

E-commerce

Other non-MiFID business related to commodity or exotic derivative instruments1

COBS 18.2.5 R RP

1 COBS applies as set out in the table to firms in respect of activities referred to in the general application rule related to:

  1. (1)

    commodity futures; or

  2. (2)

    commodity options; or

  3. (3)

    contracts for differences related to an underlying commodity; or

  4. (4)

    other futures or contracts for differences which are not related to commodities, financial instruments or cash;

which is not MiFID or equivalent third country business and energy market activity or oil market activity.

Application of COBS to other non-MiFID business related to commodity derivative instruments

All of COBS applies, except COBS 18.2.6 R to COBS 18.2.9 E applies instead of COBS 11.2 (Best execution)

Best execution for other non-MIFID business related to commodity and exotic derivative instruments1

COBS 18.2.6 R RP

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.

Exceptions to best execution1

COBS 18.2.7 R RP

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.

Providing best execution1

COBS 18.2.8 R RP

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.

COBS 18.2.9 E RP
  1. (1)

    1In order to take reasonable care to ascertain the price which is the best available, a firm:

    1. (a)

      should disregard any charges and commission made by it or its agents that are disclosed to the customer under COBS 6.1.9 R (Information about costs and associated charges);

    2. (b)

      need not have access to competing exchanges, or to all, or a minimum number of, available price sources; but if a firm can access prices displayed by different exchanges and trading platforms and make a direct and immediate comparison, it should execute the customer order at the best price available to the firm on such exchanges or trading platforms, if this is in the best interests of the customer;

    3. (c)

      should pass on to the customer the price at which it executes the transaction to meet the customer order; and

    4. (d)

      should not take a mark-up or mark-down from the price at which it executes the customer order.

  2. (2)

    Compliance with (1) may be relied on as tending to establish compliance with the requirement to take reasonable care to ascertain the price which is the best available for the customer order (see COBS 18.2.8 R (1))

  3. (3)

    Contravention of (1) may be relied on as tending to establish contravention of the requirement to take reasonable care to ascertain the price which is the best available for the customer order (see COBS 18.2.8 R (1))

COBS 18.3 Corporate finance business

Corporate finance business - MiFID business

COBS 18.3.1 R RP

The provisions of COBS in the table do not apply in respect of any corporate finance business carried on by a firm which is MiFID or equivalent third country business:

COBS

Description

3 6.1A

Adviser charging and remuneration

3 6.1B

Retail investment product provider requirements relating to adviser charging and remuneration

COBS 6.2B 6

3

Describing advice services

4

4

6.4

Disclosure of charges, remuneration and commission

9.4

Suitability reports

9.6

Special rules for providing basic advice on a stakeholder product

6

6

6

2

6

COBS 16.3.7 6

Guidance on contingent liability transaction

16.5

Quotations for surrender values

16.6

Life insurance contracts - communications to clients

16 Annex 1 R (1) 14

Information to be provided in accordance with COBS 16.2.1 R and 16.3

COBS 18.3.2 G RP

The provisions of COBS in the table are unlikely to be relevant to any corporate finance business carried on by a firm which is MiFID or equivalent third country business:

COBS

Description

5

Distance communications, except in relation to distance contracts concluded with consumers

7

Insurance distribution8

13

Preparing product information

14.2

Providing product information

15

Cancellation, except cancellation and withdrawal rights in relation to distance contracts concluded with consumers

17

Claims handling for long-term care insurance

18.1

Trustee firms' regime

18.2

Energy market activity and oil market activity

18.4

Stock lending activity

19

Pensions - supplementary provisions

20

With-profits

Corporate finance business - non-MiFID business1

COBS 18.3.3 R RP

1Only the provisions of COBS in the table apply to corporate finance business carried on by a firm which is not MiFID or equivalent third country business or MIFID optional exemption business7.

COBS

Description

1

Application

2.1.1

Acting honestly, fairly and professionally

COBS 2.3A 6

Inducements

2.4

Agent as client and reliance on others

3

Client categorisation

4

Communication to clients including financial promotions, except COBS 4.5 - COBS 4.111

5.1

The information and other requirements of the Distance Marketing Directive, but only in relation to distance contracts concluded with consumers

5.2

E-commerce

COBS 11.7A 6

Personal account dealing

5 11A.2

Prohibition of future service restrictions

12

Investment research and non-independent research6

15

Cancellation, but only in relation to distance contracts concluded with consumers

Corporate finance business – optionally exempt business

COBS 18.3.3A R

6Only the provisions of COBS in the table apply to corporate finance business which is MiFID optional exemption business.

COBS

Description

1

Application

2.1.1

Acting honestly, fairly and professionally

2.2A

Information disclosures before providing services

2.3A

Inducements

2.4

Agent as client and reliance on others

3

Client categorisation

4

Communication to clients including financial promotions, except COBS 4.5-COBS 4.6 and COBS 4.8 - COBS 4.11

5.1

The information and other requirements of the Distance Marketing Directive, but only in relation to distance contracts concluded with consumers

5.2

E-commerce

6.1A

Information about the firm, its services and remuneration

6.2B

Describing advice services

8A

Client agreements

9A

Suitability

11.7A

Personal account dealing

12

Investment research

14.3.1A

Information about financial instruments

15

Cancellation, but only in relation to distance contracts concluded with consumers

16A

Reporting information to clients

COBS 18.3.4 G RP

COBS 15 (Cancellation) is likely to be of limited application to corporate finance business. Distance contracts concluded with consumers in the course of corporate finance business will be exempt from COBS 15 if the price of the financial service is dependent on fluctuations in the financial market outside the firm's control.

COBS 18.4 Stock lending activity

COBS 18.4.1 R RP

The provisions of COBS in the table do not apply in relation to any stock lending activity carried on by a firm3:

COBS

Subject

1 6.1A

Adviser charging and remuneration

1 6.1B

Retail investment product provider requirements relating to adviser charging and remuneration

COBS 6.2B 3

1

Describing advice services

2

2

6.4

Disclosure of charges, remuneration and commission

9.4

Suitability reports

9.6

Special rules for providing basic advice on a stakeholder product

3

3

COBS 16A.4.5 3

Guidance on contingent liability transaction

16.5

Quotations for surrender values

16.6

Life insurance contracts - communications to clients

16 Annex 1 R (1) 14

Information to be provided in accordance with COBS 16.2.1 R and 16.3

COBS 18.4.2 G RP

The provisions of COBS in the table are unlikely to be relevant in relation to any stock lending activity carried on by a firm3:

COBS

Description

5

Distance communications, except in relation to distance contracts concluded with consumers

7

Insurance distribution4

13

Preparing product information

14.2

Providing product information

15

Cancellation, except cancellation and withdrawal rights in relation to distance contracts concluded with consumers

17

Claims handling for long-term care insurance

18.1

Trustee firms' regime

18.2

Energy market activity and oil market activity

3

3

19

Pensions - supplementary provisions

20

With-profits

COBS 18.5 6Residual CIS operators and small authorised UK AIFMs

Application

COBS 18.5.1 R RP

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

6 9 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 18.5.1A R RP
COBS 18.5.1B R RP

[deleted]12

Application or modification of general COBS rules

COBS 18.5.2 R RP

A firm6 when it is carrying on scheme management activity or, for an AIFM, AIFM investment management functions6:

6
  1. (1)

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

  2. (2)

    need not comply with any other rule in COBS.

    12Table: Application of conduct of business rules

    Chapter, section, rule

    Small authorised UK AIFM and a residual CIS operator

    1 (Application)

    Applies

    2.1.1R (The client’s best interests rule)

    Applies

    2.3 (Inducements relating to business other than MiFID, equivalent third country or optional exemption business)

    Applies

    2.3B (Inducements and research)

    Applies, as modified by COBS 18 Annex 1

    2.4 (Agent as client and reliance on others)

    Applies

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

    Applies

    5.2 (E-commerce)

    Applies

    11.2 (Best execution for AIFMs and residual CIS operators)

    Applies to a small authorised UK AIFM of an authorised AIF. Applies (as modified by COBS 18.5.4R) to a small authorised UK AIFM of an unauthorised AIF or residual CIS operator.

    11.3 (Client order handling)

    Applies

    16.3 (Periodic reporting)

    Applies to a small authorised UK AIFM of an unauthorised AIF which is not a collective investment scheme, as modified by COBS 18.5.4BR. Otherwise does not apply.

    18.5 (Residual CIS operators and small authorised UK AIFMs)

    Applies

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

    Applies (subject to COBS 18.5.3CR)

    18 Annex 2 (Record keeping: client orders and transactions)

    Applies

6 6
COBS 18.5.2-A G RP

[deleted]12

6
COBS 18.5.2-B G
  1. (1)

    12For activities which are not scheme management activity or, for an AIFM, AIFM investment management functions, the COBSrules 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 fund and marketing.

COBS 18.5.2A R RP

[deleted]12

4

General modifications

COBS 18.5.3 R RP

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

6 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
COBS 18.5.3A G
  1. (1)

    12COBS 1.2 (Markets in Financial Instruments Directive) contains modifications to the text of the MiFID Org Regulation where this is applied as rules to firms that are not subject to those provisions directly.

  2. (2)

    These modifications apply to COBS 11.3 (Client order handling), which is applied in the table at COBS 18.5.2R.

Research and inducements

COBS 18.5.3B R

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.

COBS 18.5.3C R

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.

Modification of best execution

COBS 18.5.4 R RP

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:

6 6 6 6
  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
COBS 18.5.4A R RP

[deleted]12

6

Modification of periodic reporting requirements

COBS 18.5.4B R RP

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.

COBS 18.5.4C R RP

[deleted]12

7
COBS 18.5.4D G RP

[deleted]12

7

Scheme documents for an unauthorised fund

COBS 18.5.5 R RP

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.

6 6 6

Distance marketing

COBS 18.5.5A G RP

6 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.

Format and content of fund documents

COBS 18.5.6 G RP

The fund documents required under COBS 18.5.5 R6 may consist of any number of documents provided that it is clear that collectively they constitute the fund6 documents and provided the use of several documents in no way diminishes the significance of any of the statements which are required to be given to the potential investor.6

6 6 6
COBS 18.5.6A G

11Where a small authorised UK AIFM of an unauthorised AIF or a residual CIS operator is required to publish a key information document, only information that is additional to that contained in the key information document needs be disclosed under COBS 18.5.5R.

COBS 18.5.7 G RP

The fund documents of an unauthorised fund managed by a small authorised UK AIFM or a residual CIS operator (if those fund documents6 exist) should make it clear that if an investor6 is reclassified as a retail client, this reclassification will not affect certain activities of the firm6. In particular, despite such a reclassification, the firm6 will not be required to comply with the best execution provisions. It should be noted that there is no requirement that fund6 documents must be produced by a small authorised UK AIFM of an unauthorised fund or a residual CIS operator unless they are required to prepare a key information document under the PRIIPs Regulation11.

6 6 6 6 6 6 6 6
COBS 18.5.8 R RP

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:

6 6 6 6 6
  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
COBS 18.5.9 G RP

A small authorised UK AIFM of an unauthorised AIF or a residual CIS operator will still have to comply with other COBS provisions as a result of the reclassification of an investor6 as a retail client. For example, the firm must6 provide periodic statements to investors6 who are retail clients in an unauthorised fund6 (see the rule on periodic statements for an unauthorised fund6 (COBS 18.5.11 R6)).

6 6 6 6 6 6

Adequate information

COBS 18.5.10 E RP
  1. (1)

    In order to provide adequate information to describe how the fund6 is governed, a small authorised UK AIFM of an unauthorised AIF or a residual CIS operator6 should include in the fund6 documents a provision about each of the items of relevant information set out in the following table (Content of fund6 documents).

    666
  2. (2)

    Compliance with (1) may be relied on as tending to establish compliance with COBS 18.5.5 R.

  3. (3)

    Contravention of (1) may be relied on as tending to establish contravention of COBS 18.5.5 R.

Table: Content of fund6 documents

6 6 6

Thefund6 documents should include provision about:

6

(1)

Regulator

The firm statutory status in accordance with GEN 4 Annex 1 R (Statutory status disclosure);

(2)

Services

the nature of the services that the firm will provide6;

6

(3)

Payments for services

details of any payment for services payable by the fund or from the property of the fund6 or investors in the fund to the firm6, including where appropriate:

6 6

(a)

the basis of calculation;

(b)

how it is to be paid and collected;

(c)

how frequently it is to be paid; and

(d)

whether or not any other payment is receivable by the firm6 (or to its knowledge by any of its associates) in connection with any transactions effected by the firm6 with or for the fund6, in addition to or in lieu of any fees;

6 6 6

(4)

Commencement

when and how the firm6 is appointed;

6

(5)

Accounting

the arrangements for accounting to the fund or investors in the fund6 for any transaction effected;

6

(6)

Termination method

how the appointment of the firm6 may be terminated;

6

(7)

Complaints procedure

how to complain to the firm6 and a statement that the investors in the fund6 may subsequently complain direct to the Financial Ombudsman Service;

6 6

(8)

Compensation

whether or not compensation may be available from the compensation scheme should the firm6 be unable to meet its liabilities, and information about any other applicable compensation scheme; and, for each applicable compensation6 scheme, the extent and level of cover and how further information can be obtained;

6

(9)

Investment objectives

the investment objectives for the portfolio of the fund6;

6

(10)

Restrictions

(a)

any restrictions on:

(i)

the types of investments or property which may be included in the portfolio of the fund6;

6

(ii)

the markets on which investments or property may be acquired for the portfolio of the fund6;

6

(iii)

the amount or value of any one investment or asset, or on the proportion of the portfolio of the fund6 which any one investment or asset or any particular kind of investment or asset may constitute; or

6

(b)

that there are no such restrictions;

(11)

Holding fund6 assets

6

(a)

if it is the case, that the firm6 will:

6

(i)

hold money on behalf of the fund6 or be the custodian of investments or other property of the fund6; or

6 6

(ii)

arrange for some other person to act in either capacity and, if so, whether that person is an associate of the firm6 identifying that person and describing the nature of any association; and

6

(b)

in either case:

(i)

how any money is to be deposited;

(ii)

the arrangements for recording and separately identifying registrable investments of the fund6 and, where the registered holder is the firm's6 own nominee, that the firm6 will be responsible for the acts and omissions of that person;

6 6 6

(iii)

the extent to which the firm6 accepts liability for any loss of the investment of the fund6;

6 6

(iv)

the extent to which the firm6 or any other person mentioned in (11)(a)(ii), may hold a lien or security interest over investments of the fund6;

6 6

(v)

where investments of the fund6 will be registered collectively in the same name, a statement that the entitlements of the fund6 may not be identifiable by separate certificates or other physical documents of title, and that, should the firm6 default, any shortfall in investments of the fund6 registered in that name may be shared proportionately among all fund6 and any other customers of the firm6 whose investments are so registered;

6 6 6 6 6 6

(vi)

whether or not investments or other property of the fund6 can be lent to, or deposited by way of collateral with, a third party and whether or not money can be borrowed on behalf of the fund6 against the security of those investments or property and, if so, the terms upon which they may be lent or deposited;

6 6

(vii)

the arrangements for accounting to the fund6 for investments of the fund6, for income received (including any interest on money and any income earned by lending investments or other property) of the fund6, and for rights conferred in respect of investments or other property of the fund6;

6 6 6

(viii)

the arrangements for determining the exercise of any voting rights conferred by investments of the fund6; and

6

(ix)

where investments of the fund6 may be held by an eligible custodian outside the United Kingdom, a general statement that different settlement, legal and regulatory requirements, and different practices relating to the segregation of those investments, may apply;

6

(12)

Clients' money outside the United Kingdom

if it is the case, that the firm6 may hold the money of the fund6 in a client bank account outside the United Kingdom;

6 6

(13)

Exchange rates

if a liability of the fund6 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 fund6 may relate to an investment denominated in a currency other than the currency in which the investments of the fund6 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 investments of the fund6;

6 6 6 6

(14)

Stabilised investments

if it is the case, that the firm6 is to have the right under the fund6documents to effect transactions in investments the prices of which may be the subject of stabilisation;

6 6

(15)

Conflict of interest and material interest

if it is the case, that the firm6 is to have the right under the agreement or instrument constituting the fund6 to effect transactions on behalf of the fund6 in which the firm6 has directly or indirectly a material interest (except for an interest arising solely from the investment of the firm6 as agent for the fund6), or a relationship of any description with another party which may involve a conflict with the firm6 duty to the fund6, together with a disclosure of the nature of the interest or relationship;

6 6 6 6 6 6 6 6

(16)

Research and inducements12

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 account12;

6 6

(17)

Acting as principal

if it is the case, that the firm6 may act as principal in a transaction with the fund6;

6 6

(18)

Stock lending

if it is the case, that the firm6 may undertake stock lending activity with or for the fund6 specifying the type of assets of the fund6 to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the fund6 in respect of the lending;

6 6 6 6

(19)

Transactions involving contingent liability investments

(a)

if it is the case, that the agreement orinstrument constituting the fund6 allows the firm6 to effect transactions involving contingent liability investments for the account of the portfolio of the fund6;

6 6 6

(b)

if applicable, whether there are any limits on the amount to be committed by way of margin and, if so, what those limits are; and

(c)

if applicable, that the firm6 has the authority to effect transactions involving contingent liability investments otherwise than under the rules of a recognised investment exchange and in a contract traded thereon;

6 8

(20)

Periodic statements

(a)

the frequency of any periodic statement (this should not be less than once every 12 months) except where a periodic statement is not required (see COBS 18.5.13R); and

(b)

whether those statements will include some measure of performance, and, if so, what the basis of that measurement will be;

(21)

Valuation

the bases on which assets comprised in the portfolio of the fund6 are to be valued;

6

(22)

Borrowings

if it is the case, that the firm6 may supplement the funds in the portfolio of the fund6 and, if it may do so:

6 6

(a)

the circumstances in which the firm6 may do so;

6

(b)

whether there are any limits on the extent to which the firm6 may do so and, if so, what those limits are; and

6

(c)

any circumstances in which such limits may be exceeded;

(23)

Underwriting commitments

if it is the case, that the firm6 may for the account of the portfolio of the fund6 underwrite or sub-underwrite any issue or offer for sale of securities, and:

6 6

(a)

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

(b)

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

(24)

Investments in other funds6

whether or not the portfolio may invest in fund either managed or advised by the firm6 or by an associate of the firm or in a fund6 which is not a regulated collective investment scheme;

6 6 6

(25)

Investments in securities underwritten by the firm6

whether or not the portfolio may contain securities of which any issue or offer for sale was underwritten, managed or arranged by the firm6 or by an associate of the firm6 during the preceding 12 months.

6 6 6
COBS 18.5.10A R RP

[deleted]12

6
COBS 18.5.10B G

[deleted]12

11

Periodic statements for an unauthorised fund

COBS 18.5.11 R RP

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.

6 6 6

Promptness, suitable intervals and adequate information

COBS 18.5.12 E RP
  1. (1)

    A small authorised UK AIFM of an unauthorised AIF or a residual CIS operator6 should act in accordance with the provisions in the right hand column of the periodic statements table (see COBS 18.5.15E) to fulfil the requirement to prepare and issue periodic statements indicated in the left hand column against these provisions.

    6
  2. (2)

    Compliance with (1) may be relied on as tending to establish compliance with the requirement to prepare and issue periodic statements.6

    6
  3. (3)

    Contravention of (1) may be relied on as tending to establish contravention of the requirement to prepare and issue periodic statements.6

    6

Exceptions from the requirement to provide a periodic statement

COBS 18.5.13 R RP
  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

Record keeping requirements

COBS 18.5.14 R RP

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.

6 6
COBS 18.5.15 E RP

Table: Periodic statements

This table belongs to COBS 18.5.12 E.

Periodic statements

Suitable intervals

(1)

A periodic statement should be provided at least:

(a)

six-monthly; or

(b)

once in any other period, not exceeding 12 months, which has been mutually agreed between the firm and the investor in the fund.6

6

Adequate information

(2)

(a)

A periodic statement should contain:

(i)

(A)

The information set out in the table of general contents of a periodic statement;

(B)

where the portfolio of the fund6 includes uncovered open positions in contingent liability investments, the additional information in the table listing the contents of a periodic statement (see COBS 18.5.18 E6) in respect of contingent liability investments; or

6 6

(ii)

such information as an investor6 who is a retail client ordinarily resident outside the United Kingdom, or a professional client, has on his own initiative agreed with the firm6 as adequate.

6 6

(b)

For a firm acting as an outgoing ECA provider, the words 'United Kingdom' is replaced by 'EEA'

COBS 18.5.16 G RP

Examples of uncovered open positions include:

  1. (1)

    selling a call option on an investment not held in the portfolio;

  2. (2)

    unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable investments denominated in that currency; and

  3. (3)

    transactions having the effect of selling an index to an amount greater than the portfolio's holdings of investments included in that index.

COBS 18.5.17 E RP

Table: General contents of a periodic statement

This table belongs to COBS 18.5.15 E.

General contents of periodic statements

1

Contents and value

(a)

As at the beginning of the account period, the total value of the portfolio of the fund6, being either:

6

(i)

the value of the assets comprised in the portfolio on the date as at which the statement provided for the immediately preceding period of account is made up; or

(ii)

in the case of the first periodic statement, the value of the assets comprised in the portfolio on the date on which the firm6 assumed responsibility for the management of the portfolio.

6

(b)

As at the end of the account period:

(i)

the number, description and value of each investment held on behalf of the fund6;

6

(ii)

the amount of cash held on behalf of the fund6; and

6

(iii)

the total value of the portfolio of the fund6.

6

2

Basis of valuation

A statement of the basis on which the value of each investment has been calculated and, if applicable, a statement that the basis for valuing a particular investment has changed since the previous periodic statement. Where any investments are shown in a currency other than the usual one used for valuation of the portfolio of the fund6, the relevant currency exchange rates must be shown.

6

3

Details of any assets loaned or charged

(a)

A summary of those investments (if any) which were, at the closing date, loaned to any third party and those investments (if any) that were at that date charged to secure borrowings made on behalf of the portfolio of the fund6; and

6

(b)

the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during the period.

4

Transactions and changes in composition

Except in the case of a portfolio which aims to track the performance of an external index:

(a)

a statement that summarises the transactions entered into for the portfolio of the fund6 during the period; and

6

(b)

the aggregate of money and a summary of all investments transferred into and out of the portfolio of the fund6 during the period; and

6

(c)

the aggregate of any interest payments, dividends and other benefits received by the firm6 for the portfolio of the fund6 during that period.

6 6

5

Charges and remuneration

If not previously advised in writing, a statement for the account period:

(a)

of the aggregate charges of the firm6 and its associates; and

6

(b)

of any remuneration received by the firm6 or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio of the fund6.

6 6

6

Movement in value of portfolio

A statement of the difference between the value of the portfolio at the closing date and its value at the starting date of the account period, having regard at least, during the account period, to the following:

(a)

the aggregate of assets received from investors of the fund6 and added to the portfolio of the fund6;

6 6

(b)

the aggregate of the value of assets transferred, or of amounts paid, to thefund;6

6

(c)

the aggregate income received on behalf of the fund6 in respect of the portfolio; and

6

(d)

the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio of the fund6.

6

Notes:

For the purposes of Item 1, where the fund6 is a property enterprise trust, it will be sufficient for the periodic statement to disclose the number of properties held in successive valuation bands where this is appropriate to the size and composition of the fund6, rather than the value of each asset in the portfolio. The valuation bands of over £10m, £5-£10m, £2.5-£5m, £1-£2.5m and under £1m would be appropriate, unless a firm6 could show that different bands were justifiable in the circumstances.

The statement to be provided under Item 6 is not intended to be an indicator of the performance of the portfolio of the fund.6

A firm6 may wish to distinguish capital and income, and thereby provide more information than referred to in this table. If the statement includes some measure of performance, the basis of measurement should be stated.

6 6 6
COBS 18.5.18 E RP

Table: Contents of a periodic statement in respect of contingent liability investments

This table belongs to COBS 18.5.15 E.

Contents of a periodic statement in respect of contingent liability investments

(1)

Changes in value

The aggregate of money transferred into and out of the portfolio of the fund6 during the account period.

6

(2)

Open positions

In relation to each open position in the portfolio of the fund6 at the end of the account period, the unrealised profit or loss to the portfolio of the fund6 (before deducting or adding any commission which would be payable on closing out).

6 6

(3)

Closed positions

In relation to each transaction effected during the account period to close out a position of the fund6, the resulting profit or loss to the portfolio of the fund6 after deducting or adding any commission.

(Instead of the specific detail required by Items 2 or 3, the statement may show the net profit or loss in respect of the overall position of the fund6 in each contract)

6 6

(4)

Aggregate of contents

The aggregate of each of the following in, or relating to, the portfolio of the fund6 at the close of business on the valuation date:

6

(a)

cash;

(b)

collateral value;

(c)

management fees; and

(d)

commissions attributable to transactions during the period or a statement that this information has been separately disclosed in writing on earlier statements or confirmations to the investor.6

6

(5)

Option account valuations

In respect of each open option comprising the portfolio of the fund6 on the valuation date:

6

(a)

the share, future, index or other investment or asset involved;

(b)

(unless the valuation statement follows the statement for the period in which the option was opened) the trade price and date for the opening transaction;

(c)

the market price of the contract; and

(d)

the exercise price of the contract.

Options account valuations may show an average trade price and market price in respect of an option series where a number of contracts within the same series have been purchased on behalf of the fund.6

6

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

Application

R

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.2 R

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.3 R

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

  1. (1)

    must comply with the COBSrules 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.4 G
  1. (1)

    For activities that are not AIFM investment management functions, the COBSrules 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.5 R

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.

Research and inducements

COBS 18.5A.6 R

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.7 R

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.8 R

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.9 R

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.10 G

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.11 R

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.

COBS 18.5A.12 G

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.

COBS 18.5B UCITS management companies

Application

COBS 18.5B.1 R

1This section applies to a UCITS management company.

Application or modification of general COBS rules

COBS 18.5B.2 R

A firm when it is carrying on scheme management activity:

  1. (1)

    must comply with the COBSrules 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

UCITS management company

1 (Application)

Applies

2.1.1 (The client’s best interests rule)

Applies

2.3 (Inducements relating to business other than MiFID, equivalent third country or optional exemption business)

Applies, as modified by COBS 2.3.1AR and COBS 2.3.2AR

2.3B (Inducements and research)

Applies, as modified by COBS 18 Annex 1

2.4 (Agent as client and reliance on others)

Applies

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

Applies

5.2 (E-commerce)

Applies

11.2B (Best execution for UCITS management companies)

Applies

11.3 (Client order handling)

Applies

11.7 (Personal account dealing)

Applies

11 Annex 1EU (Regulatory technical standard 28)

Applies as rules

18.5B (UCITS management companies)

Applies

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

Applies

COBS 18.5B.3 G
  1. (1)

    For activities which are not scheme management activity, the COBSrules 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 and marketing of the scheme.

General modifications

COBS 18.5B.4 R

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.

COBS 18.5B.5 G
  1. (1)

    COBS 1.2 (Markets in Financial Instruments Directive) contains modifications to the text of the MiFID Org Regulation where this is applied as rules to firms that are not subject to those provisions directly.

  2. (2)

    These modifications apply to the following sections that are applied in the table in COBS 18.5B.2R:

    1. (a)

      COBS 11.3 (Client order handling); and

    2. (b)

      COBS 11 Annex 1EU (Regulatory technical standard 28).

Research and inducements

COBS 18.5B.6 R

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.

Distance marketing

COBS 18.5B.7 G

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.

COBS 18.6 1Lloyd's

Application

COBS 18.6.1 R RP

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

COBS rules that apply to Lloyd's market activities

COBS 18.6.2 R RP

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

COBS 18.6.3 G RP

Firms are reminded that syndicate business plans may be used in ways that bring them within the definition of a financial promotion.

Definitions and modifications

The Principles and Lloyd's market activities

COBS 18.6.5 G RP

Whilst COBS has limited application to Lloyd's market activities, firms conducting Lloyd's market activities are reminded that they are required to comply with the Principles.

COBS 18.6A Insurance Special Purpose Vehicles (ISPVs)

Application

COBS 18.6A.1 R

1This section applies to UK ISPVs.

COBS rules that apply to insurance risk transformation and activities directly arising from insurance risk transformation

COBS 18.6A.2 R

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.

Definitions and modifications

COBS 18.6A.3 R

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.

COBS 18.6A.4 G

1For the avoidance of doubt, the remainder of COBS 3.2 and COBS 3.6 applies.

Communications with clients

COBS 18.6A.5 R

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.

COBS 18.6A.6 R

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.

COBS 18.6A.7 G

1For the avoidance of doubt, COBS 18.6A.5R and COBS 18.6A.6R do not exhaust or restrict the scope of Principle 7.

COBS 18.7 1Depositaries

COBS 18.7.1 R RP

1Only the COBS provisions in the table apply to a depositary when acting as such, when carrying on business which is not MiFID or equivalent third country business:

COBS

Description

2.1

Acting honestly, fairly and professionally

2.3

Inducements, except COBS 2.3.1 R (2)(b) and COBS 2.3.2 R

4

Communication to clients including financial promotions, but only in relation to communicating or approving a financial promotion

11.7

Personal account dealing

COBS 18.8 OPS firms - non scope business1[deleted]2

2

COBS 18.8A OPS firms

Application

COBS 18.8A.1 R

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.

Interpretation and general modifications

COBS 18.8A.2 R

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.

General rule

COBS 18.8A.3 R

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

Client categorisation

COBS 18.8A.4 R

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.

Inducements in relation to OPS activity that is advising on investments in relation to a financial instrument or providing portfolio management services

COBS 18.8A.5 R

The COBS provisions in Table 1 apply:

  1. (1)

    to an OPS firm when it carries on OPS activity which is:

    1. (a)

      advising on investments in relation to a financial instrument; or

    2. (b)

      providing portfolio management services; and

  2. (2)

    as modified by COBS 18.8A.6R.

  3. Table 1

    COBS

    Description

    2.1.1R

    The client’s best interests rule.

    2.3A.16R except (1)

    Inducements relating to the provision of independent advice and portfolio management services to retail clients outside the United Kingdom or to professional clients.

    2.3A.18G

    Guidance relating to fees, commission, and non-monetary benefits paid or provided by a person on behalf of a client.

    2.3A.19R

    Acceptable minor non-monetary benefits.

    2.3A.20G

    Guidance about determining whether a fee, commission or non-monetary benefit is capable of enhancing the quality of the service provided to the client.

    2.3A.21G

    Guidance about when a non-monetary benefit might impair compliance with the duty to act in the client’s best interest.

    2.3A.22G

    Guidance relating to acceptable minor non-monetary benefits.

    2.3A.30G

    Guidance on inducements.

    2.3A.31G

    Guidance on inducements.

Modification of inducement rules specified in Table 1

COBS 18.8A.6 R

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.

Inducements in relation to OPS activity not within the scope of COBS 18.8A.5R

COBS 18.8A.7 R

The COBS provisions in Table 2 apply:

  1. (1)

    to an OPS firm when it carries on any OPS activity other than that to which COBS 18.8A.5R applies; and

  2. (2)

    as modified by COBS 18.8A.8R.

  3. Table 2

    COBS

    Description

    2.1.1R

    The client’s best interests rule

    2.3.1R, other than (2)(b)(i) to (iii)

    Rule on inducements

    2.3.2R

    Disclosure obligation

Modification of inducement rules specified in Table 2

COBS 18.8A.8 R

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.

Inducements and research

COBS 18.8A.9 R

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.

Suitability

COBS 18.8A.10 R

The COBS provisions in Table 3 apply:

  1. (1)

    to an OPS firm when it carries on OPS activity which is:

    1. (a)

      making a personal recommendation in relation to a designated investment; or

    2. (b)

      managing investments; and

  2. (2)

    as modified by COBS 18.8A.11R.

  3. Table 3

    COBS

    Description

    2.1.1R

    Client’s best interests rule

    9.2.1R

    Assessing suitability: the obligations

    9.2.2R

    Assessing suitability: the obligations

    9.2.3R

    Assessing suitability: the obligations

    9.2.4R

    Assessing suitability: the obligations

    9.2.5R

    Reliance on information

    9.2.6R

    Insufficient information

    9.2.7G

    Insufficient information

    9.3.1G

    Guidance on assessing suitability

    9.3.2G

    Churning and switching

    9.5.1G

    Record keeping and retention periods for suitability records

Modification of suitability rules

COBS 18.8A.11 R

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.”.

Professional clients

COBS 8.8A.12 R
  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).

Best execution

COBS 18.8A.13 R

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.

COBS 18.8A.14 R

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.

Modification of best execution rules

COBS 18.8A.15 R
  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.

Client order handling

COBS 18.8A.16 R
  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).

Personal account dealing

COBS 18.8A.17 R

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

Client reporting

COBS 18.8A.18 R
  1. (1)

    The provisions in COBS 16.2 (Occasional reporting) and COBS 16.3 (Periodic reporting) apply to an OPS firm, as modified by this rule.

  2. (2)

    In COBS 16.2.6R (Special cases) add the following paragraph after COBS 16.2.6R(3):

    “(4) the firm is an OPS firm and carries on OPS activity for an occupational pension scheme trustee who is a professional client and who is habitually resident in the United Kingdom. In this case, the OPS firm may rely upon the exceptions in COBS 16.2.1R(2) or COBS 16.2.6R(1) only if it provides a periodic statement to the professional client containing the information required by COBS 18.8A.18R(3).”.

  3. (3)

    Where an OPS firm carries on OPS activity and is obliged to provide a periodic statement, the periodic statement must contain the information in the table below.

  4. Information to be included in a periodic statement provided by an OPS firm conducting OPS activity

    (a)

    Investment objectives

    A statement of any investment objectives governing the mandate of the portfolio of the occupational pension scheme as at the closing and starting date of the periodic statement.

    (b)

    Details of any asset loaned or charged

    (i) a summary of any investments that were, at the closing date, lent to a third party and any investments that were at that date charged to secure borrowings made on behalf of the portfolio; and

    (ii) the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during that period and a comparison with the previous period.

    (c)

    Transactions and changes in composition

    (i) a summary of the transactions entered into for the portfolio during the period and a comparison with the previous period;

    (ii) the aggregate of money and a summary of all investments transferred into and out of the portfolio during the period; and

    (iii) the aggregate of any interest payments, dividends and other benefits received by the firm for the portfolio during that period and a comparison with the previous period.

    (d)

    Charges and remuneration

    If not previously advised in writing, a statement for the period of account:

    (i) of the aggregate charges of the firm and its associates; and

    (ii) of any remuneration received by the firm or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio.

    (e)

    Movement in value of portfolio

    A statement of the difference between the value of the portfolio at the closing date of the period of account and its value at the starting date, having regard, during the period of account, to:

    (i) the aggregate of assets received from the occupational pension scheme and added to the portfolio;

    (ii) the aggregate of the value of assets transferred, or of amounts paid, to the client;

    (iii) the aggregate income received on behalf of the client in respect of the portfolio; and

    (iv) the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio.

Record keeping: general

COBS 18.8A.19 G

An OPS firm should ensure that it keeps a record of its compliance with the requirements in this section in accordance with SYSC 9.1.1R (General requirements) which contains general record-keeping requirements that apply to an OPS firm.

Record keeping: suitability

COBS 18.8A.20 R
  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.

Record keeping: client orders and transactions

COBS 18.8A.21 R

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

COBS 18.9 1ICVCs

COBS 18.9.1 R RP
1 2
  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

COBS 18.9.2 G RP

Firms should note that the operator of an ICVC when it is undertaking scheme management activity will be subject to:3

  1. (1)

    3COBS 18.5.2R if the operator is a small authorised UK AIFM; or

  2. (2)

    3COBS 18.5A.3R if the operator is a full-scope UK AIFM or an incoming EEA AIFM branch; or

  3. (3)

    3COBS 18.5B.2R if the operator is a UCITS management company.

COBS 18.11 1Authorised professional firms

COBS 18.11.1 R RP

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 18.11.1A G

2In certain respects, the application of COBS to an authorised professional firm will be determined by the firm’s status as a MiFID investment firm, a MiFID optional exemption firm or a firm to which MiFID does not apply.

COBS 18.11.2 R RP

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

COBS 18.11.2A G

3For COBS 18.11.2R(3) if a rule implements a requirement of the IDD, a note (“Note:”) follows the rule indicating which provision is being implemented.

COBS 18.11.3 R RP

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.

COBS 18.11.4 G RP

The rules on approvingfinancial promotions continue to apply.

COBS 18 Annex 1 Research and inducements for collective portfolio managers

11

Application

1.1

G

This section applies to:

(1)

a small authorised UK AIFM and a residual CIS operator, in accordance with COBS 18.5.2R;

(2)

a full-scope UK AIFM and an incoming EEA AIFM branch, in accordance with COBS 18.5A.3R;

(3)

a UCITS management company, in accordance with COBS 18.5B.2R.

1.2

G

In accordance with COBS 18.5.3CR and COBS 18.5A.7R, this section does not apply in relation to an AIF or CIS which in accordance with its core investment policy:

(1)

does not generally invest in financial instruments that can be:

(a)

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

(b)

physically delivered to the depositary; or

(2)

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

2

Rule on research and inducement

2.1

R

When executing orders, or placing orders with other entities for execution, that relate to financial instruments for, or on behalf of, the fund, a firm must not:

(1)

accept and retain any fees, commissions or monetary benefits; or

(2)

accept any non-monetary benefits,

where these are paid or provided by any third party or a person acting on behalf of a third party.

2.2

R

A firm must:

(1)

return to the fund as soon as reasonably possible after receipt any fees, commissions or any monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the services provided to that fund; and

(2)

inform the investors in the fund about the fees, commissions or any monetary benefits transferred to them (see paragraph 2.4G).

2.3

R

Paragraph 2.1R does not apply to:

(1)

minor non-monetary benefits that are:

(a)

capable of enhancing the quality of service provided to the fund (see paragraph 3.1R); and

(b)

of a scale and nature such that they could not be judged to impair the firm’s compliance with its duty to act honestly, fairly and professionally in the best interests of the fund; and

(2)

research if the requirements of COBS 2.3B (Inducements and research) as modified by paragraph 4 are met.

2.4

G

A firm may inform investors in the fund about the fees, commissions or monetary benefits transferred to them through:

(1)

the periodic reporting statements provided to participants in an unregulated collective investment scheme in accordance with COBS 18.5.11R for a small authorised UK AIFM or a residual CIS operator; or

(2)

the annual reports provided on request to investors, for a small authorised UK AIFM in relation to an authorised AIF, a full-scope UK AIFM, an incoming EEA AIFM branch or a UCITS management company.

3

Acceptable minor non-monetary benefits

3.1

R

A firm must not accept a non-monetary benefit unless it is a minor non-monetary benefit which is reasonable, proportionate and of a scale that is unlikely to influence the firm’s behaviour in any way that is detrimental to the interests of the fund, and which consists of:

(1)

information or documentation relating to a financial instrument that is generic in nature; or

(2)

written material from a third party that:

(a)

is either:

(i)

commissioned and paid for by a corporate issuer or potential issuer to promote a new issuance by the company; or

(ii)

produced on an ongoing basis, where the third party is contractually engaged and paid by the issuer;

(b)

clearly discloses the relationship between the third party and the issuer; and

(c)

is made available at the same time to any firm wishing to receive it, or to the general public; or

(3)

participation in conferences, seminars and other training events on the benefits and features of a specific financial instrument; or

(4)

hospitality of a reasonable de minimis value, such as food and drink during a business meeting or another training event mentioned under (3); or

(5)

research relating to an issue of shares, debentures, warrants or certificates representing certain securities by an issuer, which is:

(a)

produced by a person that is providing underwriting or placing services to the issuer on that issue;

(b)

made available to prospective investors in the issue; and

(c)

disseminated before the issue is completed; or

(6)

free sample research provided for a limited trial period where:

(a)

the trial period lasts no longer than three months;

(b)

the trial period is not commenced with a provider within 12 months from the termination of an arrangement for the provision of research (including a previous trial period) with that provider;

(c)

the research provider offering the free trial has no existing relationship with the recipient firm for the provision of research or execution services; and

(d)

the recipient firm keeps records of the dates of any trial periods, and sufficient records to demonstrate compliance with the conditions in (a) to (c) above.

3.2

G

An acceptable minor non-monetary benefit consisting of information or documentation relating to a financial instrument that is generic in nature may include material provided by a third party that:

(1)

consists of:

(a)

short term market commentary on the latest economic statistics; or

(b)

company results or information on upcoming releases or events;

(2)

contains only a brief unsubstantiated summary of the third party’s own opinion on such information; and

(3)

does not include any substantive analysis (for example, where the third party simply reiterates a view based on an existing recommendation or substantive research).

3.3

G

A non-monetary benefit that involves a third party allocating valuable resources to the firm is not a minor non-monetary benefit.

4

Inducements and research

4.1

R

A firm must comply with COBS 2.3B, as modified by this section, when executing orders, or placing orders with other entities for execution, that relate to financial instruments for, or on behalf of, the fund.

General modifications

4.2

R

The application provision in COBS 2.3B.1R (Application) and associated guidance in COBS 2.3B.2G do not apply.

4.3

R

Where COBS 2.3B applies to a firm, the following modifications apply:

(1)

in COBS 2.3B.3R:

(a)

the reference to “providing investment services or ancillary services to clients” is to be construed as a reference to “executing orders, or placing orders with other entities for execution, that relate to financial instruments for, or on behalf of, the fund”; and

(b)

the reference to “COBS 2.3A.5R, COBS 2.3A.15R or COBS 2.3A.16R” is to be construed as a reference to COBS 18 Annex 1 2.1R ;

(2)

in COBS 2.3B.4R(1)(a), the reference to “third party research in respect of investment services rendered to its clients” is to be construed as a reference to “third party research in respect of scheme management activity or, for an AIFM, AIFM investment management functions”;

(3)

in COBS 2.3B.11R(3)(b)(ii), the reference to “the firm’s policy for using third party research established under COBS 2.3B.12R” is to be construed as a reference to “the firm’s written statement made in accordance with COBS 18 Annex 1 4.8R”;

(4)

in COBS 2.3B.22G:

(a)

the reference to “COBS 2.3A.19R or COBS 2.3A” is to be construed as a reference to “COBS 18 Annex 1 3.1R or COBS 18 Annex 1 3.2G”; and

(b)

the reference to “COBS 2.3A.15R or COBS 2.3A” is to be construed as a reference to “COBS 18 Annex 1 2.1R”; and

(5)

in COBS 2.3B.24G, the reference to COBS 11.2A is to be construed as a reference to:

(a)

COBS 11.2 for small authorised UK AIFMs, residual CIS operators, full-scope UK AIFMs and incoming EEA AIFM branches; and

(b)

COBS 11.2B for UCITS management companies.

4.4

R

COBS 2.3B.8R(1) and the reference to “agreeing the research charge with its clients” in COBS 2.3B.4R(2)(a) only apply if the fund has its own governing body which is independent of the firm.

4.5

G

(1)

An example of a fund that has its own governing body which is independent of the firm is a fund that is a body corporate where the firm is not a director of the fund.

(2)

An example of a fund that does not have its own governing body which is independent of the firm is a fund that is a body corporate where the firm is the sole director of the fund.

4.6

G

In accordance with COBS 18.5.3R(1), COBS 18.5A.5R and COBS 18.5B.4R(1), references to client are to be construed as references to any fund in respect of which the firm is acting or intends to act.

Disapplication of disclosure provisions

4.7

R

The following provisions do not apply and references to them in COBS 2.3B are to be ignored:

(1)

COBS 2.3B.5R ;

(2)

COBS 2.3B.6G ;

(3)

COBS 2.3B.8R(2) ;

(4)

COBS 2.3B.9G ;

(5)

COBS 2.3B.12R ; and

(6)

COBS 2.3B.20R .

Prior disclosure of the research account to investors

4.8

R

A firm using a research payment account must set out in writing:

(1)

how the firm will comply with the elements of COBS 2.3B.4R(4);

(2)

how research purchased through the research payment account may benefit the fund, taking into account its investment objective, policy and strategy;

(3)

the approach the firm will take to allocate the costs of research fairly among the funds it manages;

(4)

the manner in which, and the frequency at which, the research charge will be deducted from the assets of the fund; and

(5)

a statement as to where up-to-date information on the matters covered in COBS 18 Annex 1 4.11R can be obtained.

4.9

R

An authorised fund manager of an authorised fund must publish the information in paragraph 4.8 in the fund’sprospectus.

4.10

G

(1)

A full-scope UK AIFM of an unauthorised AIF may wish to publish the information in paragraph 4.8 with the information to be made available about AIFs in accordance with FUND 3.2.2R(9) (Prior disclosure of information to investors).

(2)

A small authorised UK AIFM of an unauthorised AIF or a residual CIS operator may wish to publish the information in paragraph 4.8 with the information to be made available about AIFs in accordance with COBS 18.5.5R (Scheme documents for an unauthorised fund).

4.11

R

(1)

A firm using a research payment account must publish:

(a)

the budgeted amount for research; and

(b)

the amount of the estimated research charge for each fund.

(2)

a firm must not increase its research budget or research charge unless it has provided clear information about the increase in good time before it is to take effect.

(3)

The information in (1) and (2) must be made available to investors and potential investors in the fund.

Periodic disclosure of the research payment account to investors

4.12

R

A firm using a research payment account must, for each fund it manages, provide information to investors on the total costs the fund has incurred for third-party research in the most recent annual accounting period.

4.13

R

An authorised fund manager of an authorised fund must publish the information in paragraph 4.12 in the annual long report of the authorised fund.

4.13

G

A full-scope UK AIFM of an unauthorised AIF may wish to publish the information in paragraph 4.12 with the information to be made available about AIFs in accordance with FUND 3.3 (Annual report of an AIF).

4.14

R

A firm using a research payment account must, on request, make available a summary of the following information to investors for the most recent annual accounting period:

(1)

the providers paid from the account;

(2)

the total amount each provider was paid;

(3)

the benefits and services received by the firm; and

(4)

how the total amount spent from the account compares to the budget set by the firm, noting any rebate or carry-over if residual monies are held in the account.

COBS 18 Annex 2 Record keeping: client orders and transactions

1

Application

1.1

R

This section applies to:

(1)

a firm in respect of non-MiFID business related to commodity derivative instruments;

(2)

a small authorised UK AIFM and a residual CIS operator;

(3)

an OPS firm when it carries on business which is not MiFID or equivalent third country business; and

(4)

an authorised professional firm with respect to activities other than non-mainstream regulated activities.

1.2

G

In accordance with COBS 18.5.3R(1), references to client in relation to a small authorised UK AIFM or a residual CIS operator are to be construed as references to any fund in respect of which the firm is acting or intends to act.

2

Record keeping of client orders and decisions to deal

2.1

R

(1)

A firm must immediately make a record of the details in (2), to the extent they are applicable to the order or decision to deal in question, in relation to:

(a)

every order received from a client;

(b)

every decision to deal taken in providing the service of portfolio management; and

(c)

for a small authorised UK AIFM and residual CIS operator, every decision to deal taken in managing financial instruments held for or within a fund.

(2)

The details referred to in (1) are:

(a)

the name or other designation of the client;

(b)

the name or other designation of any relevant person acting on behalf of the client;

(c)

the details specified in points (3), (4), and in points (5) to (8), of the table in 4.1;

(d)

the nature of the order if other than buy or sell;

(e)

the type of the order;

(f)

any other details, conditions and particular instructions from the client that specify how the order must be carried out; and

(g)

the date and exact time of the receipt of the order, or of the decision to deal by the firm.

3

Record-keeping of transactions

3.1

R

Immediately after executing a client order, or, in the case of firms that transmit orders to another person for execution, immediately after receiving confirmation that an order has been executed, firms must record the following details of the transaction in question:

(1)

the name or other designation of the client;

(2)

the details specified in points (1) to (10) of the table in 4.1R;

(3)

the total price, being the product of the unit price and the quantity;

(4)

the nature of the transaction if other than buy or sell; and

(5)

the natural person who executed the transaction or who is responsible for the execution.

3.2

R

If a firm transmits an order to another person for execution, the firm must immediately record the following details after making the transmission:

(1)

the name or other designation of the client whose order has been transmitted;

(2)

the name or other designation of the person to whom the order was transmitted;

(3)

the terms of the order transmitted; and

(4)

the date and exact time of transmission.

4

Details to be recorded

4.1

R

(1)

Trading day

The trading day on which the transaction was executed.

(2)

Trading time

The time at which the transaction was executed, reported in the local time of the competent authority to which the transaction will be reported, and the basis in which the transaction is reported expressed as Co-ordinated Universal Time (UTC) +/- hours.

(3)

Buy/sell indicator

Identifies whether the transaction was a buy or sell from the perspective of the reporting firm or, in the case of a report to a client, of the client.

(4)

Instrument identification

This must consist of:

a unique code to be decided by the competent authority (if any) to which the report is made identifying the financial instrument which is the subject of the transaction; and

if the financial instrument in question does not have a unique identification code, the name of the instrument or, in the case of a derivative contract, the characteristics of the contract.

(5)

Unit price

The price per security or derivative contract excluding commission and (where relevant) accrued interest. In the case of a debt instrument, the price may be expressed either in terms of currency or as a percentage.

(6)

Price notation

The currency in which the price is expressed. If, in the case of a bond or other form of securitised debt the price is expressed as a percentage, that percentage must be included.

(7)

Quantity

The number of units of the financial instruments, the nominal value of bonds, or the number of derivative contracts included in the transaction.

(8)

Quantity notation

An indication as to whether the quantity is the number of units of financial instruments, the nominal value of bonds or the number of derivative contracts.

(9)

Counterparty

Identification of the counterparty to the transaction.

(a)

Where the counterparty is an investmentfirm, that identification must consist of a unique code for that firm, to be determined by the competent authority (if any) to which the report is made; where the counterparty is a regulated market, an MTF or an entity acting as its central counterparty, the unique harmonised identification code for that market, MTF or entity acting as central counterparty, as specified in the list published by the competent authority of the home Member State of that entity.

(b)

Where the counterparty is not an investmentfirm, a regulated market, an MTF or an entity acting as central counterparty, it should be identified as ‘customer/client’ of the investmentfirm which executed the transaction.

(10)

Venue identification

Identification of the venue where the transaction was executed.

That identification must consist of: where the venue is a trading venue, its unique harmonised identification code; otherwise, the code ‘OTC’.