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COBS 4.12A Promotion of restricted mass market investments

Purpose

COBS 4.12A.1G

1The rules in this section:

  1. (1)

    require that any financial promotion relating to a restricted mass market investment:

    1. (a)

      includes a prescribed form of risk warning;

    2. (b)

      does not include any form of incentive to invest; and

  2. (2)

    restrict the communication and approval of direct offer financial promotions in relation to restricted mass market investments except where certain conditions are satisfied.

Application

COBS 4.12A.2R
COBS 4.12A.3R

1In this section, reference to a firm includes:

  1. (1)

    TP firms, to the extent that this section does not already apply to those TP firms as a result of GEN 2.2.26R; and

  2. (2)

    Gibraltar-based firms, to the extent that this section does not already apply to such a Gibraltar-based firm as a result of GEN 2.3.1R.

COBS 4.12A.4R

1This section does not apply to:

  1. (1)

    excluded communications;

  2. (2)

    image advertising; or

  3. (3)

    financial promotions to the extent that they relate to local authority securities.

COBS 4.12A.5G

1COBS 4.12A.15R does not apply in relation to credit union subordinated debt or to deferred shares issued by a credit union. Firms are reminded that CREDS 3A contains requirements regarding the retail distribution and financial promotion of these instruments.

COBS 4.12A.6G

1The requirements in this section relating to the provision of risk warnings are in addition, and without prejudice, to firms’ other obligations in relation to the provision of information.

Restrictions on monetary and non-monetary incentives

COBS 4.12A.7R
  1. (1)

    1A firm must not communicate or approve a financial promotion which relates to a restricted mass market investment and which offers to a retail client any monetary or non-monetary incentive to invest.

  2. (2)

    The rule in (1) does not apply where the conditions in paragraph (3) are satisfied.3

  3. (3)

    3The conditions are that:

    1. (a)

      the relevant incentive is a product or service produced or provided by the person, or a member of the group of the person, who will benefit from the proceeds of the investment; and

    2. (b)

      the financial promotion relates to a non-readily realisable security, P2P agreement, P2P portfolio or a unit in a long-term asset fund.

COBS 4.12A.8G

1For the purposes of COBS 4.12A.7R, monetary and non-monetary incentives include, but are not limited to:

  1. (1)

    offering bonuses when investing in a restricted mass market investment for the first time;

  2. (2)

    offering bonuses where the client refers another person;

  3. (3)

    offering cashback when investing in a restricted mass market investment;

  4. (4)

    offering discounts when investing a particular amount in restricted mass market investments;

  5. (5)

    offering free gifts once an investment in a restricted mass market investment has been made such as laptops or mobile telephones; or

  6. (6)

    offering any additional free investments or offering discounts on investments.

COBS 4.12A.9G

1Information and research tools do not constitute non-monetary incentives.

Risk warning

COBS 4.12A.10R

1A firm must not communicate or approve a financial promotion which relates to a restricted mass market investment unless it contains a risk warning that complies with COBS 4.12A.11R.

COBS 4.12A.11R
  1. (1)

    1For the purposes of COBS 4.12A.10R, the financial promotion must contain:

    1. (a)

      the following risk warning if the financial promotion relates to one or more non-readily realisable securities:

      Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.

    2. (b)

      the following risk warning if the financial promotion relates to one or more P2P agreements or P2P portfolios:

      Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong.

    3. (c)

      2the following risk warning if the financial promotion relates to a unit in a long-term asset fund:

      This is a high-risk investment, and assets may take a long time to buy and sell. Only invest if you can wait (possibly several years) to get your money back. You do not have protection against poor performance.

    4. (d)

      3the following risk warning if the financial promotion relates to one or more qualifying cryptoassets:

      Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong.

  2. (2)

    Where the number of characters contained in the risk warning in (1) exceeds the number of characters permitted by a third-party marketing provider:

    1. (a)

      the following risk warning must be used if the financial promotion relates to one or more non-readily realisable securities or qualifying cryptoassets3:

      Don’t invest unless you’re prepared to lose all the money you invest.

    2. (b)

      the following risk warning must be used if the financial promotion relates to one or more P2P agreements or P2P portfolios:

      Don’t invest unless you’re prepared to lose money.

    3. (c)

      2the following risk warning must be used if the financial promotion relates to a unit in a long-term asset fund:

      This is a high-risk investment, so only invest if you can wait to get your money back.

  3. (3)

    Where the financial promotion is, or is to be, communicated by way of a website, mobile application or other digital medium:

    1. (a)

      the risk warning in (1) or (2) must also include a link:

      1. (i)

        in the form of the text: Take 2 mins to learn more; and

      2. (ii)

        which, when activated, delivers an appropriate risk summary in a pop-up box (or equivalent) relating to the type of investment that is the subject of the financial promotion selected from COBS 4 Annex 1R;

    2. (b)

      the link required by (3)(a) need not be:

      1. (i)

        in the form required by (3)(a)(i) if the inclusion of that additional text would exceed the number of characters permitted by a third-party marketing provider;

      2. (ii)

        provided if the medium of communication does not allow the incorporation of a link.

  4. (4)

    Where the financial promotion is communicated other than by way of a website, mobile application or other digital medium (and including where the financial promotion is a real time financial promotion), the risk warning in (1) must be:

    1. (a)

      provided:

      1. (i)

        in a durable medium; or

      2. (ii)

        if the medium of communication means that the risk warning cannot be provided in a durable medium, in a manner appropriate to the medium of communication; and

    2. (b)

      however the financial promotion is communicated, accompanied by an appropriate risk summary:

      1. (i)

        in a durable medium; and

      2. (ii)

        relating to the type of investment that is the subject of the financial promotion selected from COBS 4 Annex 1R,

      unless it is not possible to obtain the information necessary to enable the risk summary to be provided in a durable medium.

  5. (5)
    1. (a)

      A firm must omit the words “and you are unlikely to be protected if something goes wrong” from the risk warnings 2required by (1)(a), (1)(b) or (1)(d) 3if the conditions in (5)2(b) apply.

      2
    2. (b)

      The conditions are that:

      1. (i)

        the financial promotion relates to an investment:

        1. (A)

          that is issued by; or

        2. (B)

          the provision of which involves a,

        participant firm or an appointed representative of a participant firm; and

      2. (ii)

        the activity of the person in (i) is of a type that could give rise to a protected claim.

    3. (c)

      A firm that omits the words in (a) must make a record of the basis on which the conditions in (b) are met.

  6. (6)

    The risk warning required by (1) or (2) and the risk summary required by (4)(b) must comply with COBS 4.12A.36R and COBS 4.12A.38R.

  7. (7)

    The risk summary required by (3)(a)(ii) must comply with COBS 4.12A.40R and COBS 4.12A.42R.

  8. (8)

    2Where the financial promotion relates to a unit in a long-term asset fund, the appropriate risk summary required by (3)(a)(ii) or (4)(b) (see COBS 4 Annex 1R(7) (Risk summary for units in a long-term asset fund)) must be adapted to reflect the characteristics of the relevant LTAF, particularly the dealing arrangements for the LTAF and the applicable notice period.

COBS 4.12A.12G
  1. (1)

    1Reference in COBS 4.12A.11R(5)(b)(i)(B) to the ‘provision’ of an investment is to a person developing, managing or packaging an investment such as an operator. It does not refer to persons involved in distributing, or intermediating the sale of, an investment such as a financial adviser, a person arranging investments or an operator of an electronic system in relation to lending.

  2. (2)

    A firm relying on COBS 4.12A.11R(5) should consider obtaining external legal advice (from legal advisers with relevant expertise and experience) on the appropriateness of omitting the words in that rule from a risk warning. Any such advice should be recorded as part of the firm’s compliance with COBS 4.12A.11R(5)(c).

COBS 4.12A.13G
  1. (1)

    1Even where it is not possible to provide a risk warning in a durable medium (for example, because the financial promotion is a real time financial promotion), the recipient of the financial promotion must still ordinarily be provided with an appropriate risk summary in a durable medium at or around the time that the financial promotion is communicated (COBS 4.12A.11R(4)(b)).

  2. (2)

    It is unlikely to be possible to comply with COBS 4.12A.11R(4)(b) where the financial promotion is communicated by means of (without limitation) a television or radio broadcast. In such a case, the financial promotion must still include the relevant risk warning specified in COBS 4.12A.11R(1).

Direct offer financial promotions

COBS 4.12A.14G
  1. (1)

    1COBS 4.12A.15R to COBS 4.12A.35G apply in relation to direct offer financial promotions to retail clients in relation to restricted mass market investments.

  2. (2)

    A firm may communicate information about a P2P agreement or a P2P portfolio to a retail client before COBS 4.12A.15R applies, provided that the defining elements of a direct offer financial promotion are not present in that communication. This information may comprise, without limitation, mandatory disclosures applicable to that firm, such as those set out in COBS 18.12.24R to COBS 18.12.28R, including information about:

    1. (a)

      the identity of the borrower(s);

    2. (b)

      the price or target rate, provided they are accompanied by a fair description of the anticipated actual return, taking into account fees, default rates and taxation;

    3. (c)

      the term;

    4. (d)

      the risk categorisation; and

    5. (e)

      a description of any security interest, insurance, guarantee or other risk mitigation measures adopted by the firm.

  3. (3)

    2COBS 4.12A.18R (First condition: cooling off period) does not apply where a direct offer financial promotion to a retail client relates only to a unit in a long-term asset fund.

COBS 4.12A.15R
  1. (1)

    1Unless permitted by COBS 4.12A.17R and subject to (2), (3) and (4), 2 a firm must not:

    1. (a)

      communicate a direct offer financial promotion relating to a restricted mass market investment to a retail client unless the conditions in COBS 4.12A.18R (cooling off period), COBS 4.12A.20R (personalised risk warning), COBS 4.12A.21R (categorisation) and COBS 4.12A.28R (appropriateness) are satisfied; or

    2. (b)

      approve a direct offer financial promotion relating to a restricted mass market investment for communication to a retail client unless the firm is satisfied that the conditions in COBS 4.12A.18R (cooling off period), COBS 4.12A.20R (personalised risk warning), COBS 4.12A.21R (categorisation) and COBS 4.12A.28R (appropriateness) will be satisfied in relation to each communication of the direct offer financial promotion.

  2. (2)

    The conditions in COBS 4.12A.18R (cooling off period) and COBS 4.12A.20R (personalised risk warning) do not need to be satisfied if the retail client has previously received a direct offer financial promotion relating to a restricted mass market investment from the same person as would otherwise need to satisfy them.

  3. (3)

    The condition in COBS 4.12A.28R (appropriateness) does not need to be satisfied if the specific type of restricted mass market investment to which the direct offer financial promotion relates has previously been assessed as appropriate for the retail client by the same person as would otherwise need to undertake the assessment.

  4. (4)

    2Where the direct offer financial promotion relates only to a unit in a long-term asset fund:

    1. (a)

      the condition in COBS 4.12A.18R (cooling off period) does not apply; and

    2. (b)

      the condition in COBS 4.12A.20R (personalised risk warning) does not need to be satisfied if the retail client has previously received a direct offer financial promotion relating to a unit in a long-term asset fund from the same person that would otherwise need to satisfy the condition.

COBS 4.12A.16G

1The effect of COBS 4.12A.15R and related provisions in this section is that:

  1. (1)

    a personalised risk warning and cooling off period are only required on the first occasion that a firm, or other person communicating an approved direct offer financial promotion, communicates a direct offer financial promotion relating to a restricted mass market investment (other than a unit in a long-term asset fund) 2to a particular retail client;

  2. (1A)

    2where a direct offer financial promotion relates only to a unit in a long-term asset fund:

    1. (a)

      a personalised risk warning is required only on the first occasion that a firm, or other person communicating an approved direct offer financial promotion, communicates a direct offer financial promotion to a particular retail client; and

    2. (b)

      a cooling off period is not required;

  3. (2)

    an appropriateness assessment is only required on the first occasion that a particular retail client responds to a direct offer financial promotion relating to a specific type of restricted mass market investment (although a firm should consider whether it would be in the best interests of the retail client for a further assessment to be undertaken, for example due to lapse of time, even where this is not required); and

  4. (3)

    in any case, a direct offer financial promotion relating to a restricted mass market investment can only be communicated to a retail client who has a current statement (completed and signed within the period of 12 months ending with on the day on which the communication is to be made) of a type falling within COBS 4.12A.22R and which applies to the type of restricted mass market investment to which the direct offer financial promotion relates.

COBS 4.12A.17R

1A firm may communicate or approve a direct offer financial promotion relating to a restricted mass market investment to, or for communication to, a retail client if:

  1. (1)

    the firm itself will comply with the suitability rules (COBS 9 and 9A) in relation to the investment promoted; or

  2. (2)

    the retail client has confirmed before the promotion is made that they are a retail client of another firm that will comply with the suitability rules (COBS 9 and 9A) in relation to the investment promoted; or

  3. (3)

    the retail client is a corporate finance contact or a venture capital contact.

First condition: cooling off period

COBS 4.12A.18R
  1. (1)

    1The first condition is that following the retail client's request to receive the direct offer financial promotion, the firm, or other person communicating the direct offer financial promotion:

    1. (a)

      allows a period of at least 24 hours (the ‘cooling off period’) to elapse before communicating the direct offer financial promotion;

    2. (b)

      following the lapse of time in (a), invites the retail client to specify whether they wish to:

      1. (i)

        leave the investment journey; or

      2. (ii)

        continue to receive the direct offer financial promotion; and

    3. (c)

      the retail client specifies that they wish to continue to receive the direct offer financial promotion.

  2. (2)

    The options in (1)(b) must be presented with equal prominence.

  3. (3)

    2This condition does not apply if the direct offer financial promotion relates only to units in a long-term asset fund.

COBS 4.12A.19G

1COBS 4.12A.18R does not prevent the person who is subject to it from engaging with the retail client during the cooling off period. This includes for the purposes of providing the client with the personalised risk warning required by COBS 4.12A.20R and obtaining the information necessary to undertake the appropriateness assessment required by COBS 4.12A.28R.

Second condition: personalised risk warning

COBS 4.12A.20R
  1. (1)

    1Subject to (1A) below, the 2second condition is that before communicating the direct offer financial promotion, the firm, or other person communicating the direct offer financial promotion:

    1. (a)

      obtains the retail client's full name; and

    2. (b)

      having obtained the retail client’s name, communicates to that retail client the following personalised risk warning:

    3. [Client name], this is a high-risk investment. How would you feel if you lost the money you’re about to invest? Take 2 mins to learn more.

  2. (1A)

    2Where the direct offer financial promotion relates to a unit in a long-term asset fund, the second condition is that before communicating the direct offer financial promotion, the firm, or other person communicating the direct offer financial promotion:

    1. (a)

      obtains the retail client’s full name; and

    2. (b)

      having obtained the retail client’s name, communicates to that retail client the following personalised risk warning:

      [Client name], this is a high-risk investment, and assets may take a long time to buy and sell. Only invest if you can wait (possibly several years) to get your money back. You do not have protection against poor performance. Take 2 mins to learn more.

      [Editor’s note: The last sentence in this text will be underlined in the final rules.]

  3. (2)

    If the direct offer financial promotion is, or is to be, communicated by means of a website, mobile application or other digital medium, the personalised risk warning in (1)(b) or (1A)(b) 2 must:

    1. (a)

      be clearly brought to the retail client’s attention by means of a pop-up box (or equivalent);

    2. (b)

      include a link which, when activated, delivers an appropriate risk summary in a further pop-up box (or equivalent):

      1. (i)

        relating to the type of restricted mass market investment that is the subject of the direct offer financial promotion; and

      2. (ii)

        selected from COBS 4 Annex 1R; and

    3. (c)

      be accompanied by an invitation to the retail client to specify whether they wish to:

      1. (i)

        leave the investment journey; or

      2. (ii)

        continue to receive the direct offer financial promotion.

  4. (3)

    If the direct offer financial promotion is, or is to be, communicated other than by means of a website, mobile application or other digital medium:

    1. (a)

      the personalised risk warning in (1)(b) or (1A)(b) 2must be:

      1. (i)

        provided to the retail client omitting the words “Take 2 mins to learn more”; and

      2. (ii)

        accompanied by an appropriate risk summary in a durable medium relating to the type of restricted mass market investment that is the subject of the direct offer financial promotion selected from COBS 4 Annex 1R; and

    2. (b)

      the retail client must then be invited to specify whether they wish to:

      1. (i)

        leave the investment journey; or

      2. (ii)

        continue to receive the direct offer financial promotion.

  5. (4)

    The options in (2)(c) and (3)(b) must be presented with equal prominence.

  6. (5)

    This condition:

    1. (a)

      is only satisfied if the retail client specifies that they wish to continue to receive the direct offer financial promotion; and

    2. (b)

      must be satisfied before steps are taken to satisfy the conditions in COBS 4.12A.21R (categorisation) and COBS 4.12A.28R (appropriateness).

  7. (6)

    The personalised risk warning required by (1)(b) or (1A)(b) 2and the risk summary required by (2)(b) must comply with COBS 4.12A.40R and COBS 4.12A.42R.

  8. (7)

    The risk summary required by (3)(a)(ii) must comply with COBS 4.12A.36R and COBS 4.12A.38R.

  9. (8)

    2Where the financial promotion relates to a unit in a long-term asset fund, the appropriate risk summary required by (2)(b) or (3)(a)(ii) (see COBS 4 Annex 1R(7) (Risk summary for units in a long-term asset fund)) must be adapted to reflect the characteristics of the relevant LTAF, particularly the dealing arrangements for the LTAF and the applicable notice period.

Third condition: categorisation

COBS 4.12A.21R

1The third condition is that before communicating the direct offer financial promotion, the firm, or other person communicating the direct offer financial promotion, takes reasonable steps to establish that the retail client is:

  1. (1)

    certified as:3

    1. (a)

      3 a ‘high net worth investor’;

    2. (b)

      3a ‘sophisticated investor’; or

    3. (c)

      3a ‘restricted investor’, or

  2. (2)

    3if the direct offer financial promotion relates to a non-readily realisable security, a P2P agreement, a P2P portfolio or a unit in a long-term asset fund, self-certified as a ‘sophisticated investor’,

in each case in accordance with COBS 4.12A.22R.

COBS 4.12A.22R
  1. (1)

    1A certified high net worth investor, a certified sophisticated investor, a self-certified sophisticated investor or a restricted investor is an individual:

    1. (a)

      who has completed and signed, within the period of 12 months ending on the day on which the communication is made, a statement in the terms set out in the applicable rule listed below and as modified by (2):

      1. (i)

        certified high net worth investor: COBS 4 Annex 2R;

      2. (ii)

        certified sophisticated investor: COBS 4 Annex 3R;

      3. (iii)

        self-certified sophisticated investor: COBS 4 Annex 4R;

      4. (iv)

        restricted investor: COBS 4 Annex 5R; and

    2. (b)

      whose completion of the statement in (a) indicates that they meet the relevant criteria to be categorised as such.

  2. (2)

    When used in relation to P2P agreements or a P2P portfolio, the statement in COBS 4 Annex 4R (self-certified sophisticated investor) must be modified as follows:

    1. (a)

      the reference to “an unlisted company” must be replaced with a reference to “a P2P agreement or P2P portfolio”; and

    2. (b)

      the reference to “private equity, or in the provision of finance for small and medium enterprises” must be replaced with a reference to “the provision of finance, resulting in an understanding of the P2P agreements or P2P portfolios to which the promotions will relate”.

COBS 4.12A.23E

1For the purposes of COBS 4.12A.21R, a firm (or relevant other person) will have taken reasonable steps to establish the certification of a retail client where:

  1. (1)

    the firm (or other person) has obtained the relevant completed certificate from the retail client; and

  2. (2)

    the retail client’s completion of the certificate evidences that the retail client meets the criteria to be certified as such.

COBS 4.12A.24G

1Where the direct offer financial promotion will relate to more than one type of restricted mass market investment, the condition in COBS 4.12A.21R may be satisfied by the retail client signing a combined statement that meets the requirements in COBS 4 Annex 2R to COBS 4 Annex 5R, as applicable, in respect of each type of restricted mass market investment to which the direct offer financial promotion will relate.

COBS 4.12A.25G
  1. (1)

    31Where the restricted investor statement (COBS 4 Annex 5R) refers to a restricted investor not investing more than 10% of their net assets, this refers to the retail client’s aggregate investment across all types of restricted mass market investment.

  2. (2)

    3However, a retail client may be informed that they need not include in the calculation referred to in (1) any investment in a restricted mass market investment made in response to a direct offer financial promotion for the purpose of which they were categorised as sophisticated (whether on a certified or self-certified basis).

1
COBS 4.12A.26R

1A firm must not:

  1. (1)

    influence, or seek to influence, the information that a retail client provides when completing a certificate in COBS 4.12A.22R; or

  2. (2)

    encourage a retail client to complete a further certificate in the event that a client’s signed certificate indicates that they do not meet the criteria to be categorised as a high net worth, sophisticated or restricted investor, as applicable.

Fourth condition: appropriateness

COBS 4.12A.27G
  1. (1)

    1The fourth condition is relevant if the recipient of the direct offer financial promotion makes an application or order for a restricted mass market investment in response to that direct offer financial promotion.

  2. (2)

    The fourth condition requires a restricted mass market investment to be assessed as appropriate for a retail client before an application or order is processed. The rules and guidance are not prescriptive as to how such an assessment is undertaken. The condition is designed to ensure that retail clients are only able to invest in restricted mass market investments which they have the knowledge and experience to understand, particularly in relation to the risks. Appropriateness processes should be designed to this end.

COBS 4.12A.28R
  1. (1)

    1The fourth condition applies where the firm itself or the person who will:

    1. (a)

      arrange or deal in relation to a non-readily realisable security;

    2. (b)

      facilitate the retail client becoming a lender under a P2P agreement or a P2P portfolio; or2

    3. (c)

      2arrange or deal in relation to a unit in a long-term asset fund, or issue such a unit; or3

    4. (d)

      3transact in a qualifying cryptoasset,

    is aware, or ought reasonably to be aware, that an application or order is in response to the direct offer financial promotion.

  2. (2)

    The condition is that the firm or person in (1) will only process the application or order once it has assessed that the restricted mass market investment is appropriate for the retail client in compliance with the rules in COBS 10 or COBS 10A (as applicable) or equivalent requirements as modified and supplemented by COBS 4.12A.30R to COBS 4.12A.32R.

COBS 4.12A.29G
  1. (1)

    1If the person in COBS 4.12A.28R(1) is not a firm, the effect of COBS 4.12A.28R(2) is that the person is required to undertake that assessment as if the rules in COBS 10 or COBS 10A applied to them.

  2. (2)

    The firm or person in COBS 4.12A.28R(1) can gather information for the purpose of assessing, and undertake its assessment of, whether a restricted mass market investment is appropriate for a retail client before the end of any 2‘cooling off period’ required by COBS 4.12A.18R.

COBS 4.12A.30R

1In the course of providing information regarding their knowledge and experience for the purpose of the appropriateness assessment required by COBS 4.12A.28R, the retail client must not be provided with assistance, information, guidance or feedback which might affect the substance of the information that they provide.

COBS 4.12A.31R
  1. (1)

    1This rule applies if:

    1. (a)

      a restricted mass market investment is assessed as not being appropriate for a particular retail client; and

    2. (b)

      the assessment of appropriateness is based on a series of questions which the retail client is required to answer.

  2. (2)

    The retail client must not be informed of the particular answers which led to the restricted mass market investment being assessed as not appropriate for them.

  3. (3)

    Any further assessment of the appropriateness of that restricted mass market investment for that retail client must not be based on the same questions as were used for the purpose of a previous assessment of the appropriateness of that restricted mass market investment for that retail client.

COBS 4.12A.32R
  1. (1)

    1This rule applies where a restricted mass market investment has been assessed as not being appropriate for a particular retail client pursuant to two consecutive assessments.

  2. (2)

    Following the second determination that a restricted mass market investment is not appropriate for a retail client, any further assessment of the appropriateness of that restricted mass market investment for that retail client must not be undertaken for at least 24 hours.

COBS 4.12A.33G

1The effect of COBS 4.12A.28R to COBS 4.12A.32R is that:

  1. (1)

    direct offer financial promotions relating to restricted mass market investments may only be communicated, or approved for communication, to retail clients if any application or order received in response to that direct offer financial promotion will be fulfilled only where that restricted mass market investment has been assessed as being appropriate for that retail client;

  2. (2)

    if the assessment of appropriateness results in the provision of a warning (a determination that the restricted mass market investment is not appropriate for the retail client (COBS 10.3 or COBS 10A.3)), then an order or application received in response to a direct offer financial promotion may not be fulfilled; and

  3. (3)

    the circumstances in which an assessment of appropriateness need not be undertaken (COBS 10.4 and COBS 10A.4) are not relevant for the purpose of the fourth condition.

COBS 4.12A.34G

1When gathering information regarding a retail client’s knowledge and experience for the purpose of assessing whether a restricted mass market investment is appropriate for that retail client, the firm or person undertaking the assessment should:

  1. (1)

    avoid asking the retail client questions that invite binary (yes/no) answers;

  2. (2)

    if asking multiple-choice questions, use questions which offer at least 3 plausible answers (excluding the option to answer ‘do not know’, or similar); and

  3. (3)

    ensure that questions address matters that are relevant to the specific type of investment in which the retail client has expressed interest (see also COBS 10.2.2R).

COBS 4.12A.35G
  1. (1)

    1A retail client should only be informed of the outcome of an appropriateness assessment once they have provided all of the information required for the assessment to be undertaken.

  2. (2)

    COBS 4.12A.31R(2) does not prevent a retail client from being informed of the broad reasons for which a restricted mass market investment was assessed not to be appropriate for them or of the nature of the deficiencies identified in their knowledge or experience. The rule is intended to prevent a retail client from being informed only of the questions within an assessment which led to a restricted mass market investment being assessed not to be appropriate such that the client is able simply to change their answer in any subsequent assessment without improving their own understanding.

  3. (3)

    For the purposes of COBS 4.12A.31R(3), any questions used to undertake a further assessment of appropriateness should be sufficiently different such that the retail client could not simply infer the answers that would lead to an assessment of appropriateness from the outcome of their responses to a previous set of questions.

  4. (4)

    A firm should consider whether the particular features of a restricted mass market investment mean that an interval of greater than 24 hours should be applied following a second assessment that that investment is not appropriate for a retail client (COBS 4.12A.32R(2)).

  5. (5)

    A retail client may be informed of the option to re-apply to buy a restricted mass market investment following a determination that the restricted mass market investment is not appropriate for them. However, the retail client should not be encouraged to do so.

Requirements of risk warnings and non-digital risk summaries

COBS 4.12A.36R
  1. (1)

    1The relevant risk warning in COBS 4.12A.11R(1) or (2) and the relevant risk summaries in COBS 4.12A.11R(4)(b) and COBS 4.12A.20R(3)(a)(ii) must:

    1. (a)

      be prominent, taking into account the content, size and orientation of the financial promotion as a whole;

    2. (b)

      except where the risk warning cannot be provided in writing, be clearly legible, contained within its own border and with bold and underlined text as indicated in COBS 4.12A.11R or COBS 4 Annex 1R.

  2. (2)

    The relevant risk warning in COBS 4.12A.11R(1) or (2) must, if the financial promotion is, or is to be, communicated by means of:

    1. (a)

      a website or mobile application:

      1. (i)

        be statically fixed and visible at the top of the screen, below anything else that also stays static, even when the retail client scrolls up or down the webpage; and

      2. (ii)

        be included as described in (i) on each linked webpage on the website or page on the application relating to the relevant investment;

    2. (b)

      a television broadcast, be prominently fixed on the screen for the duration of the broadcast.

COBS 4.12A.37G
  1. (1)

    3The FCA expects firms to take account of the latest version of the international Web Content Accessibility Guidelines (WCAG) accessibility standard when designing digital financial promotions and, in particular, how the risk warning will be displayed: https://www.w3.org/WAI/WCAG21/quickref/

  2. (2)

    Firms should have regard to the intended or likely recipients of a financial promotion. Where a firm considers that such persons are unlikely to have a good understanding of the English language, a risk warning or risk summary required by the rules in this section should be provided in an appropriate language in addition to English.

COBS 4.12A.38R

1The financial promotion must not contain any design feature which has the intent or effect of reducing the visibility or prominence of the risk warning or risk summary.

[Note: The FCA has also issued non-Handbook guidance on prominence in financial promotions. See https://www.fca.org.uk/publication/finalised-guidance/fg-fin-proms-prominence.pdf]
COBS 4.12A.39G

1For the purposes of COBS 4.12A.38R, design features which might reduce the visibility or prominence of a risk warning or risk summary include, but are not limited to:

  1. (1)

    using a font size for the risk warning or risk summary that is smaller than the standard size used in the financial promotion;

  2. (2)

    using a background colour that does not sufficiently contrast the text or makes it difficult for the client to read the text;

  3. (3)

    fading the text of the risk warning or risk summary;

  4. (4)

    placing the risk warning or risk summary at the bottom of the promotion or embedding it within other standard information, for example legal information or the firm’s contact details;

  5. (5)

    requiring additional links to be clicked in order for the full text of the risk warning to be seen;

  6. (6)

    using a font or background in the risk warning or risk summary in the same colours as the firm’s brand, or using a font or background in the same colours as the rest of the financial promotion; and

  7. (7)

    using a font or background in the risk warning or risk summary in the same colour as other forms of disclosure and standard information; the colour of the font and background should distinguish the risk warning or risk summary from other forms of information.

Requirements of digital personalised risk warnings and digital risk summaries

COBS 4.12A.40R

1The relevant personalised risk warning in COBS 4.12A.20R(2) and the relevant risk summaries in COBS 4.12A.11R(3)(a)(ii) and COBS 4.12A.20R(2)(b) must be:

  1. (1)

    prominently brought to the retail client’s attention, taking into account the content, size and orientation of the financial promotion as a whole;

  2. (2)

    clearly legible, contained within its own border and with bold and underlined text as indicated in COBS 4.12A.20R(1)(b), COBS 4.12A.20R(1A)(b) 2 and COBS 4 Annex 1R;

  3. (3)

    statically fixed and visible in the middle of the screen; and

  4. (4)

    the main focus of the screen.

COBS 4.12A.41G
  1. (1)

    3The FCA expects firms to take account of the latest version of the international Web Content Accessibility Guidelines (WCAG) accessibility standard when designing digital financial promotions and, in particular, how the personalised risk warning or risk summary will be displayed: https://www.w3.org/WAI/WCAG21/quickref/

  2. (2)

    Firms should have regard to the intended or likely recipients of a financial promotion. Where a firm considers that such persons are unlikely to have a good understanding of the English language, a risk warning or risk summary required by the rules in this section should be provided in an appropriate language in addition to English.

COBS 4.12A.42R

1The financial promotion must not contain any design feature which has the intent or effect of reducing the visibility or prominence of the personalised risk warning or risk summary.

[Note: The FCA has also issued non-Handbook guidance on prominence in financial promotions. See https://www.fca.org.uk/publication/finalised-guidance/fg-fin-proms-prominence.pdf]
COBS 4.12A.43G

1For the purposes of COBS 4.12A.42R, design features which might reduce the visibility or prominence of a personalised risk warning or risk summary include, but are not limited to:

  1. (1)

    using a font size for the personalised risk warning or risk summary that is smaller than the standard size used in the financial promotion;

  2. (2)

    using a background colour that does not sufficiently contrast the text or makes it difficult for the retail client to read the text;

  3. (3)

    fading the text of the personalised risk warning or risk summary;

  4. (4)

    placing the personalised risk warning or risk summary at the bottom of the promotion or embedding it within other standard information, for example legal information or the firm’s contact details;

  5. (5)

    requiring additional actions to be taken by the retail client, such as requiring additional links to be clicked in order for the full text of the personalised risk warning or risk summary to be seen;

  6. (6)

    using a font or background in the risk warning in the same colours as the firm’s brand, or using a font or background in the same colours as the rest of the financial promotion; and

  7. (7)

    using a font or background in the risk warning in the same colour as other forms of disclosure and standard information; the colour of the font and background should distinguish the personalised risk warning or risk summary from other forms of information.

Risk summaries

COBS 4.12A.44R

1Where a rule in this section requires a firm to communicate a risk summary selected from COBS 4 Annex 1R, the firm must either:

  1. (1)

    (subject to COBS 4.12A.46R) 2provide the risk summary as it appears in COBS 4 Annex 1R; or

  2. (2)

    provide a version of the risk summary in COBS 4 Annex 1R in appropriately amended form, provided that:

    1. (a)

      the firm has a valid reason for each amendment;

    2. (b)

      the firm makes a record of each amendment and the reason for it;

    3. (c)

      any alternative or additional text is in plain English; and

    4. (d)

      the amended risk summary does not take longer than around 2 minutes to read.

COBS 4.12A.45G

1For the purposes of COBS 4.12A.44R(2), the following reasons are considered to be valid:

  1. (1)

    the relevant part of the risk summary in COBS 4 Annex 1R would be misleading in relation to the particular investment;

  2. (2)

    the relevant part of the risk summary in COBS 4 Annex 1R would be irrelevant in relation to the particular investment;

  3. (3)

    the risk summary in COBS 4 Annex 1R does not include a risk that is relevant to the particular investment and it is appropriate for that further risk to be included;

  4. (4)

    the sole purpose of the relevant statement in the risk summary is to include a hyperlink to a webpage and the medium of communication does not permit the incorporation of a link;2

  5. (5)

    2the firm is required to adapt the risk summary in accordance with COBS 4.12A.11R(8) (Risk warning) or COBS 4.12A.20R(8) (Second condition: personalised risk warning).

This list is not exhaustive.

COBS 4.12A.46R

2COBS 4.12A.44R(1) does not apply to a firm which communicates a risk summary relating to units in an LTAF (see COBS 4.12A.11R(8) (Risk warning) and COBS 4.12A.20R(8) (Second condition: personalised risk warning)).

COBS 4.12A.47G

2A firm communicating a risk summary relating to units in an LTAF (see COBS 4 Annex 1R(7) (Risk summaries)) is required to adapt the risk summary to reflect the characteristics of the relevant LTAF, particularly the dealing arrangements for the LTAF and the applicable notice period (see COBS 4.12A.11R(8) (Risk warning) and COBS 4.12A.20R(8) (Second condition: personalised risk warning)). Other amendments may also be appropriate. When amending the risk summary, the firm will need to comply with COBS 4.12A.44R(2).