COBS 2.3A Inducements relating to MiFID, equivalent third country or optional exemption business and insurance-based investment products4

Application

COBS 2.3A.1 R

1This section applies to a firm:4

  1. (1)

    in relation to its MiFID, equivalent third country or optional exemption business; and4

  2. (2)

    carrying on insurance distribution activities in relation to an insurance-based investment product.4

Relationship with the adviser charging, product provider and platform service provider rules in COBS 6.1A, COBS 6.1B and COBS 6.1E

COBS 2.3A.2 G

A firm which makes a personal recommendation to a retail client in the United Kingdom in relation to:4

  1. (a)

    a retail investment product in the course of carrying on MiFID, equivalent third country or optional exemption business with or for that client; or 4

  2. (b)

    an insurance-based investment product,4is also required to comply with the rules in COBS 6.1A (Adviser charging and remuneration).4

COBS 2.3A.3 G

COBS 6.1A provides, amongst other things, that a firm must only be remunerated for a personal recommendation (and any other related services provided by the firm) by adviser charges.

COBS 2.3A.4 G

Where:

  1. (1)

    the firm:

    1. (a)

      is a retail investment product provider or a platform service provider; and

    2. (b)

      carries on MiFID, equivalent third country or optional exemption business, or carries on insurance distribution activities,4in relation to those activities; and

  2. (2)

    the client is a retail client in the United Kingdom,

    the firm is required to comply with the rules in this section and in COBS 6.1B (Retail investment product provider, operator of an electronic system relating to lending, and platform service provider requirements relating to adviser charging and remuneration) and, where relevant, COBS 6.1E (Platform services: platform charges using a platform service for advising).

Rules on inducements

COBS 2.3A.5 R
  1. (1)

    Except where COBS 2.3A.6R applies, a firm must not:4

    1. (a)

      pay to or accept from any party (other than the client or a person on behalf of the client) any fee or commission; or4

    2. (b)

      provide to or receive from any party (other than the client or a person on behalf of the client) any non-monetary benefit.4

  2. (2)

    (1)(a) and (b) only apply in relation to fees, commissions or non-monetary benefits paid or accepted, or provided or received, in connection with:4

    1. (a)

      the provision of an investment service or an ancillary service; or4

    2. (b)

      the distribution of an insurance-based investment product or an ancillary service.4

[Note: article 24(9) of MiFID, articles 22(3), 29(2) and 29(3) of the IDD4]

COBS 2.3A.6 R
  1. (1)

    COBS 2.3A.5R does not apply to:

    1. (a)

      a fee, commission or non-monetary benefit which:

      1. (i)

        is designed to enhance the quality of the relevant service to the client (see COBS 2.3A.8R and, also for an insurance-based investment product, COBS 2.3A.9AEU4); and

      2. (ii)

        does not impair compliance with the firm’s duty to act honestly, fairly and professionally in the best interests of the client;

    2. (b)

      a payment or benefit which enables or is necessary for the provision of an investment service, or the distribution of an insurance-based investment product,4 by the firm, such as custody costs, settlement and exchange fees, regulatory levies or legal fees and which, by its nature, cannot give rise to conflicts with the firm’s duty to act honestly, fairly and professionally in the best interests of the client; or

    3. (c)

      (in relation to MiFID, equivalent third country or optional exemption business)4 third party research received in accordance with COBS 2.3B (see COBS 2.3B.3R).

  2. (2)

    Where a firm pays, provides, accepts or receives, a fee, commission or non-monetary benefit which falls within (1)(a), the firm must clearly disclose to the client:

    1. (a)

      the existence and nature of the payment or benefit; and

    2. (b)

      the amount of the payment or benefit or, where the amount cannot be ascertained, the method for calculating that amount.

  3. (3)

    That information must be disclosed:

    1. (a)

      prior to the provision of the relevant service; and

    2. (b)

      in a manner that is comprehensive, accurate and understandable (see also COBS 2.3A.10R (Disclosure of payments or benefits received from, or paid to, third parties)).

  4. (4)

    Where applicable, a firm must inform a client of the mechanisms for transferring to the client the fee, commission, monetary or non-monetary benefit received in relation to the provision of the relevant service.

[Note: article 24(9) of MiFID, article 22(3) and 29(3) of the IDD4]

COBS 2.3A.7 E

A firm which fails to comply with COBS 2.3A.5R is to be regarded as not fulfilling its obligations in relation to:

  1. (1)

    conflicts of interest (see SYSC 3.3 (for insurers and managing agents) and SYSC 10 (for other firms)4); and

  2. (2)

    acting honestly, fairly and professionally in accordance with the best interests of its clients (see COBS 2.1.1R).

[Note: article 24(9) of MiFID, article 29(2) and 29(3) of the IDD4

Fees, commissions or non-monetary benefits which are designed to enhance the quality of a service

COBS 2.3A.8 R
  1. (1)

    For the purposes of COBS 2.3A.6R(1)(a)(i), a fee, commission or non-monetary benefit is designed to enhance the quality of the relevant service to a client only if :

    1. (a)

      it is justified by the provision of an additional or higher level service to the client and is proportional to the level of inducements received;

    2. (b)

      it does not directly benefit the recipient firm, its shareholders or employees without tangible benefit to the client;

    3. (c)

      it is justified by the provision of an ongoing benefit to the client in relation to an ongoing inducement; and

    4. (d)

      the provision of the service by the firm to the client is not biased or distorted as a result of the fee, commission or non-monetary benefit.

  2. (2)

    A firm must fulfil these conditions on an ongoing basis as long as the firm continues to pay or receive the fee, commission or non-monetary benefit.

[Note: article 11(2) and (3) of the MiFID Delegated Directive]

COBS 2.3A.9 R

A fee, commission or non-monetary benefit may be justified for the purposes of COBS 2.3A.8R(1)(a) where, for example, the firm provides:

  1. (1)

    restricted advice on, and access to, a wide range of suitable financial instruments or insurance-based investment products5 including an appropriate number of financial instruments or insurance-based investment products5 from third party product providers having no close links with the firm; or

    44
  2. (2)

    restricted advice combined with:

    1. (a)

      an offer to the client, at least on an annual basis, to assess the continuing suitability of the financial instruments or insurance-based investment products5 in which the client has invested; or

      4
    2. (b)

      another ongoing service that is likely to be of value to the client such as advice about the suggested optimal asset allocation of the client; or

  3. (3)

    access, at a competitive price, to a wide range of financial instruments or insurance-based investment products5 that are likely to meet the needs of the client, including an appropriate number of financial instruments or insurance-based investment products5 from third party product providers having no close links with the firm, together with either the provision of added-value tools, such as objective information tools helping the client to take investment decisions or enabling the client to monitor, model and adjust the range of financial instruments or insurance-based investment products5 in which they have invested, or providing periodic reports of the performance and costs and charges associated with the financial instruments or insurance-based investment products5.

    4444

[Note: article 11(2) of the MiFID Delegated Directive]

2

Additional requirements for the assessment of inducements: insurance-based investment products

COBS 2.3A.9A EU
  1. 48(1) An inducement or inducement scheme shall be considered to have a detrimental impact on the quality of the relevant service to the customer where it is of such a nature and scale that it provides an incentive to carry out insurance distribution activities in a way that is not in compliance with the obligation to act honestly, fairly and professionally in accordance with the best interests of the customer.

  2. 8(2) For the purposes of assessing whether an inducement or inducement scheme has a detrimental impact on the quality of the relevant service to the customer, insurance intermediaries and insurance undertakings shall perform an overall analysis taking into account all relevant factors which may increase or decrease the risk of detrimental impact on the quality of the relevant service to the customer, and any organisational measures taken by the insurance intermediary or insurance undertaking carrying out distribution activities to prevent the risk of detrimental impact.

    They shall, in particular, consider the following criteria:

    1. (a) whether the inducement or inducement scheme could provide an incentive to the insurance intermediary or insurance undertaking to offer or recommend a particular insurance product or a particular service to the customer despite the fact that the insurance intermediary or insurance undertaking would be able to offer a different insurance product or service which would better meet the customer's needs;

    2. (b) whether the inducement or inducement scheme is solely or predominantly based on quantitative commercial criteria or whether it takes into account appropriate qualitative criteria, reflecting compliance with applicable regulations, the quality of services provided to customers and customer satisfaction;

    3. (c) the value of the inducement paid or received in relation to the value of the product and the services provided;

    4. (d) whether the inducement is entirely or mainly paid at the moment of the conclusion of the insurance contract or extends over the whole term of that contract;

    5. (e) the existence of an appropriate mechanism for reclaiming the inducement in case the product lapses or is surrendered at an early stage or in case the interests of the customer have been harmed;

    6. (f) the existence of any form of variable or contingent threshold or any other kind of value accelerator which is unlocked by attaining a target based on volume or value of sales.

  3. 2(2) ‘inducement’ means any fee, commission, or any non-monetary benefit provided by or to such an intermediary or undertaking in connection with the distribution of an insurance-based investment product, to or by any party except the customer involved in the transaction in question or a person acting on behalf of that customer;

  4. 2(3) ‘inducement scheme means a set of rules governing the payment of inducements, including the conditions under which the inducements are paid.

[Note: articles 2(2), 2(3) and 8 of the IDD Regulation]

COBS 2.3A.9B R

COBS 2.3A.9AEU 5applies as if it was a rule to firms in relation to insurance distribution activities to which the IDD Regulation does not apply.

4

Disclosure of payments or benefits received from, or paid to, third parties

COBS 2.3A.10 R
  1. (1)

    Prior to the provision of the relevant service, the firm must disclose to the client the information set out in COBS 2.3A.6R(2) and, where applicable, COBS 2.3A.6R(4).

  2. (2)

    For these purposes, minor non-monetary benefits may be described in a generic way, but other non-monetary benefits received or paid by the firm in connection with a service provided to the client must be priced and disclosed separately.

[Note: article 11(5)(a) of the MiFID Delegated Directive]

COBS 2.3A.11 R

Where a firm is unable to ascertain on an ex-ante basis the amount of any payment or benefit to be received or paid, and instead discloses to the client the method of calculating the relevant amount, the firm must also inform the client of the exact amount of the payment or benefit received or paid on an ex-post basis.

[Note: article 11(5)(b) of the MiFID Delegated Directive]

COBS 2.3A.12 R
  1. (1)

    Where inducements are received by the firm on an ongoing basis in relation to an investment service provided or in relation to the distribution of an insurance-based investment product4 to a client, the firm must inform, at least annually, that client about the actual amount of payments or benefits received.

  2. (2)

    For these purposes, minor non-monetary benefits may be described in a generic way.

[Note: article 11(5)(c) of the MiFID Delegated Directive]

COBS 2.3A.13 R

In implementing the requirements of COBS 2.3A.10R to COBS 2.3A.12R, a firm must take into account the costs and charges rules set out:4

2
  1. (1)

    (for MiFID, equivalent third country or optional exemption business)4 in article 24(4)(c) of MiFID and article 50 of the MiFID Org Regulation (see COBS 6.1ZA.11R to COBS 6.1ZA.13R and COBS 6.1ZA.14EU); and4

  2. (2)

    (for insurance-based investment products) in COBS 6.1ZA.11R to COBS 6.1ZA.13R and COBS 6.1ZA.15AR.4

[Note: article 11(5) of the MiFID Delegated Directive]

COBS 2.3A.14 R

Each firm involved in a distribution channel which provides an investment service, an ancillary service or distributes an insurance-based investment product4 must comply with its obligations to make disclosures to its clients.

[Note: article 11(5) of the MiFID Delegated Directive]

Inducements relating to the provision of independent advice, restricted advice and portfolio management services to retail clients in the United Kingdom

COBS 2.3A.15 R
  1. (1)

    This rule applies where a firm provides a retail client in the United Kingdom with:

    1. (a)

      independent advice; or

    2. (b)

      restricted advice; or

    3. (c)

      portfolio management services.

  2. (2)

    The firm must not accept any fees, commission, monetary or non-monetary benefits which are paid or provided by:

    1. (a)

      any third party; or

    2. (b)

      a person acting on behalf of a third party,

    in relation to the provision of the relevant service to the client.

  3. (2A)

    3Where the firm provides independent advice or restricted advice, the rule in (2) applies in connection with:

    1. (a)

      the firm’s business of advising; or

    2. (b)

      any other related service, where ‘related service’ has the same meaning as in COBS 6.1A.6R.

  4. (3)

    Paragraph (2) does not apply to:

    1. (a)

      acceptable minor non-monetary benefits (see COBS 2.3A.19R in relation to the provision of investment services and COBS 6.1A.5AR in relation to the distribution of an insurance-based investment product4); or

    2. (b)

      third party research received in accordance with COBS 2.3B (see COBS 2.3B.3R).

[Note: see articles 24(7)(b) and 24(8) of MiFID; article 12(2) of the MiFID Delegated Directive]

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

COBS 2.3A.16 R
  1. (1)

    This rule applies where a firm provides independent advice or portfolio management services to:

    1. (a)

      a retail client outside the United Kingdom; or

    2. (b)

      (for investment services)4 a professional client.

  2. (2)

    In relation to the provision of the relevant service to the client, the firm must not:

    1. (a)

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

    2. (b)

      accept any non-monetary benefits other than acceptable minor non-monetary benefits (see COBS 2.3A.19R and, in relation to the distribution of an insurance-based investment product, COBS 6.1A.5AR4) or third party research received in accordance with COBS 2.3B (see COBS 2.3B.3R),

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

  3. (3)

    With regard to paragraph (2), the firm must:

    1. (a)

      return to the client as soon as reasonably possible after receipt any fees, commission 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 client;

    2. (b)

      transfer in full to the client all fees, commission or monetary benefits received from third parties in relation to the services provided to the client;

    3. (c)

      establish and implement a policy to ensure that any fees, commission 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 provision of the services to the client are allocated and transferred to that client; and

    4. (d)

      inform the client about the fees, commission or any monetary benefits transferred to them, such as through the periodic reporting statements provided to the client.

[Note: articles 24(7)(b) and 24(8) of MiFID; article 12(1) and (2) of the MiFID Delegated Directive]

COBS 2.3A.17 G

SYSC 4.1 (General requirements) sets out further organisational requirements relating to firms.

Fees, commission, and non-monetary benefits paid or provided by a person on behalf of the client

COBS 2.3A.18 G

Fees, commission or non-monetary benefits paid or provided by a person on behalf of the client are acceptable only if that person is aware that such payments have been made on that client’s behalf and the amount and frequency of any payment is agreed between the client and the firm and not determined by a third party. This could be the case where:

  1. (1)

    a client pays a firm’s invoice directly or it is paid by an independent third party who has no connection with the firm regarding the investment service provided to the client and is acting only on the instructions of the client; or

  2. (2)

    cases where the client negotiates a fee for a service provided by a firm and pays that fee.

This would generally be the case for accountants or lawyers acting under a clear payment instruction from the client or where a person is acting as a mere conduit for the payment.

[Note: recital 75 to MiFID]

Acceptable minor non-monetary benefits

COBS 2.3A.19 R

An acceptable minor non-monetary benefit is one which:

  1. (1)

    is clearly disclosed prior to the provision of the relevant service to the client, which the firm may describe in a generic way (where applicable, in accordance with article 11(5)(a) of the MiFID Delegated Directive (see COBS 2.3A.10R));

  2. (2)

    is capable of enhancing the quality of service provided to the client;

  3. (3)

    is of a scale and nature that it 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 client;

  4. (4)

    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 relevant client; and

  5. (5)

    consists of:

    1. (a)

      information or documentation relating to a financial instrument or an investment service, that is generic in nature or personalised to reflect the circumstances of an individual client;

    2. (b)

      written material from a third party that is commissioned and paid for by a corporate issuer or potential issuer to promote a new issuance by the company, or where the third party firm is contractually engaged and paid by the issuer to produce such material on an ongoing basis, provided that the relationship is clearly disclosed in the material and that the material is made available at the same time to any firms wishing to receive it, or to the general public;

    3. (c)

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

    4. (d)

      hospitality of a reasonable de minimis value, such as food and drink during a business meeting or a conference, seminar or other training events mentioned under paragraph (c);

    5. (e)

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

      1. (i)

        produced:

        1. (A)

          prior to the issue being completed; and

        2. (B)

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

      2. (ii)

        made available to prospective investors in the issue; or

    6. (f)

      research that is received so that the firm may evaluate the research provider’s research service, provided that:

      1. (i)

        it is received during a trial period that lasts no longer than three months;

      2. (ii)

        no monetary or non-monetary consideration is due (whether during the trial period, before or after) to the research provider for providing the research during the trial period;

      3. (iii)

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

      4. (iv)

        the firm makes and retains a record of the dates of any trial period accepted under this rule, as well as a record of how the conditions in (i) to (iii) were satisfied for each such trial period.

[Note: articles 24(7)(b) and 24(8) of MiFID; article 12(2) and (3) of the MiFID Delegated Directive and article 72(3) of the MiFID Org Regulation]

COBS 2.3A.20 G

COBS 2.3A.8R sets out the conditions to be met if a fee, commission or non-monetary benefit is designed to enhance the quality of the service to a client. Those conditions are also likely to be relevant to firms considering whether 2a non-monetary benefit is capable of enhancing the quality of the service to a client for the purposes of the rule on acceptable minor non-monetary benefits (see COBS 2.3A.19R(2))2.

[Note: articles 24(7) and (8) of MiFID refer to minor non-monetary benefits that are capable of enhancing the quality of service provided to the client]

COBS 2.3A.21 G

A non-monetary benefit that involves a third party allocating valuable resources to the firm is not a minor non-monetary benefit and accordingly is considered to impair compliance with the firm’s duty to act in the client’s best interest.

[Note: recital 30 to the MiFID Delegated Directive]

COBS 2.3A.22 G

For the purposes of COBS 2.3A.19R(4) and (5)(a), non-substantive material or services consisting of short term market commentary on the latest economic statistics or company results or information on upcoming releases or events which are provided by a third party and which:

  1. (1)

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

  2. (2)

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

can be deemed to be information relating to a financial instrument or investment service of a scale and nature such that it constitutes an acceptable minor non-monetary benefit.

[Note: recital 29 to the MiFID Delegated Directive]

Paying commission on non-advised sales of packaged products

COBS 2.3A.23 G

The following guidance and evidential provisions provide examples of arrangements the FCA believes will breach the client’s best interests rule if a firm sells or arranges the sale of a packaged product for a retail client.

COBS 2.3A.24 E
  1. (1)

    If a firm is required to disclose commission (see COBS 6.4 (Disclosure of charges, remuneration and commission)) to a client in relation to the sale of a packaged product (other than in relation to arrangements between firms that are in the same immediate group) the firm should not enter into any of the following:

    1. (a)

      volume overrides, if commission paid in respect of several transactions is more than a simple multiple of the commission payable in respect of one transaction of the same kind; and

    2. (b)

      an agreement to indemnify the payment of commission on terms that would or might confer an additional financial benefit on the recipient in the event of the commission becoming repayable.

  2. (2)

    Contravention of (1) may be relied upon as tending to establish contravention of COBS 2.3A.5R.

COBS 2.3A.25 G

If a firm enters into an arrangement with another firm under which it makes or receives a payment of commission in relation to the sale of a packaged product that is increased in excess of the amount disclosed to the client, the firm is likely to have breached the rules on disclosure of charges, remuneration and commission (see COBS 6.4) and, where applicable, the rules on inducements in COBS 2.3A.6R(2) and (3), unless the increase is attributable to an increase in the premiums or contributions payable by that client.

Providing credit and other benefits to firms that advise retail clients on retail investment products

COBS 2.3A.26 G

The following guidance and evidential provisions provide examples of arrangements the FCA believes will breach the client’s best interests rule in relation to a personal recommendation of a retail investment product to a retail client.

COBS 2.3A.27 E
  1. (1)

    This evidential provision applies in relation to a holding in, or the provision of credit to, a firm which holds itself out as making personal recommendations to retail clients on retail investment products, except where the relevant transaction is between persons who are in the same immediate group.

  2. (2)

    A retail investment product provider should not take any step which would result in it:

    1. (a)

      having a direct or indirect holding of the capital or voting power of a firm in (1); or

    2. (b)

      providing credit to a firm in (1) (other than continuing to facilitate the payment of an adviser charge or consultancy charge where it is no longer payable by the retail client, as described in COBS 6.1A.5G or COBS 6.1C.6G);

    unless all the conditions in (4) are satisfied. A retail investment product provider should also take reasonable steps to ensure that its associates do not take any step which would result in it having a holding as in (a) or providing credit as in (b).

  3. (3)

    A firm in (1) should not take any step which would result in a retail investment product provider having a holding as in (2)(a) or providing credit as in (2)(b), unless all the conditions in (4) are satisfied.

  4. (4)

    The conditions referred to in (2) and (3) are that:

    1. (a)

      the holding is acquired, or credit is provided, on commercial terms, that is terms objectively comparable to those on which an independent person unconnected to a retail investment product provider would, taking into account all relevant circumstances, be willing to acquire the holding or provide credit;

    2. (b)

      the firm (or, if applicable, each of the firms) taking the step has reliable written evidence that (a) is satisfied;

    3. (c)

      there are no arrangements, in connection with the holding or credit, relating to the channelling of business from the firm in (1) to the retail investment product provider; and

    4. (d)

      the retail investment product provider is not able, and none of its associates is able, because of the holding or credit, to exercise any influence over the personal recommendations made in relation to retail investment products given by the firm.

  5. (5)

    In this evidential provision, in applying (2) and (3) any holding of, or credit provided by, a retail investment product provider’s associate is to be regarded as held by, or provided by, that retail investment product provider.

  6. (6)

    Contravention of (2) or (3) may be relied upon as tending to establish contravention of COBS 2.3A.15R.

COBS 2.3A.28 G

Where a retail investment product provider, or its associate, provides credit to a retail client of a firm making personal recommendations in relation to retail investment products, this may create an indirect benefit for the firm and, to the extent that this is relevant, the provider of retail investment products may need to consider the examples in COBS 2.3A.27E as if it had provided the credit to the firm.

COBS 2.3A.29 G

In considering the compliance of arrangements between members of the same immediate group with COBS 2.3A.15R, firms may wish to consider the evidential provisions in COBS 2.3A.24E and COBS 2.3A.27E, to the extent that these are relevant.

Guidance on inducements

COBS 2.3A.30 G

A firm which fails to comply with the rules on inducements will not meet its obligations in relation to conflicts of interest (see SYSC 10) or the obligation to act honestly, professionally and fairly in accordance with the best interests of its clients.

[Note: article 24(9) of MiFID]

COBS 2.3A.31 G

A firm is unlikely to meet its obligations relating to best execution (see COBS 11.2A), inducements (in this section), and conflicts of interest (see SYSC 10) where it receives payment, remuneration or commission from third parties (including those entities to whom or which it directs orders for execution) in relation to the execution of client orders. Firms should also have regard to the FSA’s Guidance on the practice of ‘Payment for Order Flow’.

[Note: for the FSA’s Guidance on the practice of ‘Payment for Order Flow’ see: http://www.fca.org.uk/publication/finalised-guidance/fg12-13.pdf]

Record keeping: inducements

COBS 2.3A.32 R

A firm must hold evidence that any fees, commission or non-monetary benefits paid or received by the firm are designed to enhance the quality of the relevant service to the client by:

  1. (1)

    keeping an internal list of all fees, commission and non-monetary benefits received by the firm from a third party in relation to the provision of the service; and

  2. (2)

    recording how the fees, commission and non-monetary benefits paid or received by the firm, or that the firm intends to use, enhance the quality of the services provided to the relevant clients and the steps taken in order not to impair the firm’s compliance with the duty to act honestly, fairly and professionally in the best interests of the client.

[Note: article 11(4) of the MiFID Delegated Directive]

COBS 2.3A.33 G

In relation to the MiFID business of a firm, article 72 and Annex 1 of the MiFID Org Regulation also make provision for the keeping of records on inducements.

[Note: article 72 and Annex 1 of the MiFID Org Regulation]

COBS 2.3A.34 R

In relation to the equivalent business of a third country investment firm and MiFID optional exemption business, information disclosed to the client in accordance with COBS 2.3A.6R(2), (3) and (4) and COBS 2.3A.10R to COBS 2.3A.12R must be retained in a medium that allows the storage of information in a way accessible for future reference by the FCA, and in such a form and manner that:

  1. (1)

    the FCA is able to access it readily and to reconstitute each key stage of the processing of each transaction;

  2. (2)

    it is possible for any corrections or other amendments, and the contents of the records prior to such corrections or amendments, to be easily ascertained;

  3. (3)

    it is not possible for the records otherwise to be manipulated or altered;

  4. (4)

    it can be exploited through information technology or any other efficient method of exploitation when analysis of the data cannot be easily carried out due to the volume and nature of the data; and

  5. (5)

    the firm’s arrangements comply with the record keeping requirements irrespective of the technology used.

COBS 2.3A.35 G

4In relation to the distribution of an insurance-based investment product, a firm should refer to SYSC 3 (for insurers and managing agents) and SYSC 9 (for other firms) for its obligations in relation to record keeping.