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COBS 4.1 Application

Who? What?

COBS 4.1.1 R RP

1This chapter applies to a firm:

  1. (1)

    communicating with a client in relation to its designated investment business (other than MiFID, equivalent third country or optional exemption business)10;

  2. (1A)

    10communicating with a client in relation to its MiFID, equivalent third country or optional exemption business;

  3. (2)

    communicating or approving a financial promotion other than:

    1. (a)

      a financial promotion of qualifying credit, a home purchase plan or a home reversion plan; or

    2. (b)

      a financial promotion in respect of a non-investment insurance contract; or

    3. (c)

      a promotion of an unregulated collective investment scheme that would breach section 238(1) of the Act if made by an authorised person (firms may not communicate or approve such promotions); or8

      8
    4. (d)

      a financial promotion in relation to a credit agreement, a consumer hire agreement or a credit-related regulated activity; or14

      8
    5. (e)

      a financial promotion in relation to a funeral plan contract or a regulated funeral plan activity.14

  4. (3)

    9when a MiFID investment firm or a credit institution is communicating in connection with selling, or advising clients in relation to, structured deposits as specified by COBS 1.1.1AAR.

COBS 4.1.1A R RP

6 COBS 4.4.3R applies to a firm with respect to the activity of issuing electronic money.

COBS 4.1.1B R
  1. (1)

    15TP firms must comply with the rules in (3) and (4) 16 to the extent that those rules do not already apply to those TP firms as a result of GEN 2.2.26R.

  2. (2)

    Gibraltar-based firms must comply with the rules in (3) and (4) 16to the extent that those rules do not already apply to such a Gibraltar-based firm as a result of GEN 2.3.1R.

  3. (3)

    The rules are those in:

    1. (a)

      COBS 4.5.2R (communicating with retail clients – general rule);

    2. (b)

      COBS 4.10 (approving and confirming compliance of financial promotions); and

    3. (c)

      COBS 4.11 (Record keeping: financial promotion).

  4. (4)

    16The rules are those in this chapter in so far as they relate to the communication and approval of financial promotions relating to qualifying cryptoassets.

COBS 4.1.1D G

17A firm is reminded of its obligations under the naming and marketing rules in ESG 4.3 (in particular, ESG 4.3.1R) when it:

  1. (1)

    communicates or approves a financial promotion that references the sustainability characteristics of a product or service; or

  2. (2)

    undertakes sustainability in-scope business in relation to a sustainability product.

COBS 4.1.2 G RP
  1. (1)

    4This chapter applies in relation to an authorised professional firm in accordance with COBS 18 (Specialist regimes).

  2. (2)

    This chapter applies, to a limited extent, in relation to communicating or approving a financial promotion that relates to a deposit if the deposit is a structured deposit, cash deposit ISA or cash deposit CTF.

COBS 4.1.3 G RP

A firm is required to comply with the financial promotion rules in relation to a financial promotioncommunicated by its appointed representative even where the financial promotion does not require approval because of the exemption in article 16 of the Financial Promotion Order (Exempt persons).

[Note: see section 39 of the Act]

COBS 4.1.4 G RP
  1. (1)

    In COBS 4.3.1 R,9 the defined term9 "financial promotion" includes:11

    99
    1. (a)

      in relation to MiFID, equivalent third country or optional exemption business, all communications that are marketing communications within the meaning of MiFID; and11

    2. (b)

      in relation to insurance distribution, all communications that are marketing communications within the meaning of IDD.11

  2. (2)

    In the case of MiFID, equivalent third country or optional exemption business9, certain requirements in this chapter are subject to an exemption for the communication of a third party prospectus in certain circumstances (see recital 73 of the MiFID Org Regulation)9. This has a similar effect to the exemption in article 70(1)(c) of the Financial Promotion Order, which is referred to in the definition of an excluded communication.

  3. (3)

    In this chapter “financial promotion” and “direct offer financial promotion” include communications that are marketing communications for the purposes of the UCITS Directive.5

COBS 4.1.5 G RP

9A firm communicating with an eligible counterparty should have regard to the application of COBS to eligible counterparty business (COBS 1 Annex 1 Part 1).

COBS 4.1.7 G RP

A reference in this chapter to MiFID, equivalent third country or optional exemption business9 includes a reference to communications that occur before an agreement to perform services in relation to MiFID, equivalent third country or optional exemption business9.

[Note: see recital 169 to the MiFID Org Regulation9]

What? Modification relating to the KII Regulation

COBS 4.1.7A R

13The rules in this chapter do not apply in relation to the form or content of a key investor information document, an EEA key investor information document or a NURS-KII document.

COBS 4.1.7B G
  1. (1)

    13The KII Regulation specifies in an exhaustive manner the form and content of the key investor information document for a UCITS scheme.

  2. (2)

    The form and content of a NURS-KII document is specified by COLL 4.7.3AR (Form and content of a NURS-KII document) and in COLL Appendix 2R (Modifications to the KII Regulation for KII-compliant NURS).

[Note: see article 3(1) of the KII Regulation]

Who? What? Application to registered persons promoting qualifying cryptoassets

COBS 4.1.7C R
  1. (1)

    16This chapter applies to a registered person communicating a financial promotion relating to one or more qualifying cryptoassets (in reliance on the exemption in article 73ZA of the Financial Promotion Order) as it applies to an authorised person communicating a financial promotion relating to one or more qualifying cryptoassets.

  2. (2)

    For the purpose of (1), relevant references in this chapter to a firm include reference to a registered person.

  3. (3)

    Where a rule in the Handbook applies to a registered person communicating a financial promotion relating to one or more qualifying cryptoassets, relevant references to a client include reference to a person to whom a financial promotion is, or is likely to be, communicated by the relevant registered person.

  4. (4)

    A registered person must establish, implement and maintain adequate policies and procedures sufficient to ensure its compliance with its obligations under the rules when communicating financial promotions relating to qualifying cryptoassets.

COBS 4.1.7D G
  1. (1)

    16COBS 4.1.7CR(1) requires a registered person to comply with the relevant rules in this chapter on the form and content of financial promotions (including those in COBS 4.12A). It also requires a registered person to make records of the financial promotions it communicates in compliance with the relevant rules in COBS 4.11 (Record keeping: financial promotion).

  2. (2)

    There are other requirements outside this chapter which apply to registered persons communicating financial promotions relating to qualifying cryptoassets, including:

    1. (a)

      Principle 7 (Communications with clients);

    2. (b)

      GEN 1.2 (Referring to approval by the FCA); and

    3. (c)

      GEN 4.5 (Statements about authorisation and regulation by the appropriate regulator).

COBS 4.1.7E G

16The exemption in article 73ZA of the Financial Promotion Order does not give rise to a type of excluded communication.

Where? General position

COBS 4.1.8 R RP

  1. (1)

    In relation to communications by a firm to a client in relation to its designated investment business this chapter applies in accordance with the general application rule and the rule on business with UKclients from an overseas establishment (COBS 1 Annex 1 Part 2 paragraph 2.1R).

  2. (2)

    In addition, the financial promotion rules apply to a firm in relation to:

    1. (a)

      the communication of a financial promotion to a person inside the United Kingdom;

    2. (b)

      the communication of a cold call to a person outside the United Kingdom, unless:

      1. (i)

        it is made from a place outside the United Kingdom; and

      2. (ii)

        it is made for the purposes of a business which is carried on outside the United Kingdom and which is not carried on in the United Kingdom; and

    3. (c)

      the approval of a financial promotion for communication to a person inside the United Kingdom.

COBS 4.1.9 G RP

[deleted]12

COBS 4.1.10 G RP

Firms should note the territorial scope of this chapter is also affected by:

  1. (1)

    the disapplication for financial promotions originating outside the United Kingdom that are not capable of having an effect within the United Kingdom (section 21(3) of the Act (Restrictions on financial promotion)) (see the defined term “excluded communication”);

  2. (2)

    the exemptions for overseas communicators (see the defined term “excluded communication”); and

  3. (3)

    the rules on financial promotions with an overseas element (see COBS 4.9).

COBS 4.2 Fair, clear and not misleading communications

The fair, clear and not misleading rule

COBS 4.2.1 R RP

  1. (1)

    A firm must ensure that a communication or a financial promotion is fair, clear and not misleading.

  2. (2)

    This rule applies in relation to:

    1. (a)

      a communication by the firm to a customer6 in relation to designated investment business which is not MiFID, equivalent third country or optional exemption business,7 other than a third party prospectus;

    2. (aa)

      6a communication to an eligible counterparty that is in relation to:8

      1. (i)

        MiFID or equivalent third country business other than a third party prospectus; or8

      2. (ii)

        insurance distribution;8

    3. (ab)

      7a communication by the firm to a customer in relation to MiFID, equivalent third country or optional exemption business, other than a third party prospectus;

    4. (b)

      a financial promotioncommunicated by the firm that is not:

      1. (i)

        an excluded communication;

      2. (ii)

        a non-retail communication;

      3. (iii)

        a third party prospectus; and

    5. (c)

      a financial promotion approved by the firm.

  3. (3)

    6As part of complying with (1), a firm must take into account the nature of the client.

[Note: ,3article 24(3) and article 30(1) of MiFID, article 17(2) of the IDD8 and article 77 of the UCITS Directive]3

6
COBS 4.2.2 G RP
  1. (1)

    1The fair, clear and not misleading rule applies in a way that is appropriate and proportionate taking into account the means of communication,6 the information the communication is intended to convey and the nature of the client and of its business, if any6. So a communication addressed to a professional client or an eligible counterparty6 may not need to include the same information, or be presented in the same way, as a communication addressed to a retail client.

  2. (2)

    COBS 4.2.1R(2)(b)1 does not limit the application of the fair, clear and not misleading rule under COBS 4.2.1R (2) (a). So, for example, a communication in relation to designated investment business that is both a communication to a professional client and a financial promotion, will still be subject to the fair, clear and not misleading rule.

6[Note: article 30(1) of MiFID and recital 65 to the MiFID Org Regulation, article 17(2) of the IDD8]

COBS 4.2.3 G RP

Part 7 (Offences relating to Financial Services) of the Financial Services Act 2012 creates criminal offences relating to certain misleading statements and practices.

Fair, clear and not misleading financial promotions

COBS 4.2.4 G RP

A firm should ensure that a financial promotion:

  1. (1)

    for a product or service that places a client's capital at risk makes this clear;

  2. (2)

    that quotes a yield figure gives a balanced impression of both the short and long term prospects for the investment;

  3. (3)

    that promotes an investment or service whose charging structure is complex, or in relation to which the firm will receive more than one element of remuneration, includes the information necessary to ensure that it is fair, clear and not misleading and contains sufficient information taking into account the needs of the recipients;

  4. (4)

    that names the FCA, PRA or both as its regulator and refers to matters not regulated by either the FCA, PRA or both makes clear that those matters are not regulated by the FCA, PRA or either;

  5. (5)

    that offers packaged products or stakeholder products not produced by the firm, gives a fair, clear and not misleading impression of the producer of the product or the manager of the underlying investments.

COBS 4.2.5 G RP

2A communication or a financial promotion should not describe a feature of a product or service as “guaranteed”, “protected” or “secure”, or use a similar term unless:

2 4
  1. (1)

    that term is capable of being a fair, clear and not misleading description of it; and

  2. (2)

    the firm communicates all of the information necessary, and presents that information with sufficient clarity and prominence, to make the use of that term fair, clear and not misleading.45

The reasonable steps defence to an action for damages

COBS 4.2.6 R RP

1If, in relation to a particular communication or financial promotion, a firm takes reasonable steps to ensure it complies with the fair, clear and not misleading rule, a contravention of that rule does not give rise to a right of action under section 138D of the Act.

COBS 4.3 Financial promotions to be identifiable as such

COBS 4.3.1 R RP

  1. (1)

    A firm must ensure that a financial promotion addressed to a client is clearly identifiable as such.

    [Note: article 24(3)4 of MiFID, article 17(2) of the IDD5 and article 77 of the UCITS Directive]3

  2. (2)

    If2 a financial promotion relates to a2firm'sMiFID, equivalent third country or optional exemption business4, this rule does not apply to the extent that the2financial promotion is a third party prospectus.

    2
  3. (3)

    If2 a financial promotion relates2 to a 2 firm's business that is not 2MiFID or equivalent third country business, this rule applies to communicating or approving the2financial promotion but does not apply:

    1. (a)

      to the extent that it is an excluded communication;

    2. (b)

      to the extent that it is a prospectus advertisement to which article 22 of the Prospectus Regulation7 applies;

    3. (c)

      if it is image advertising;

    4. (d)

      if it is a non-retail communication;

    5. (e)

      [deleted]5

      1
  4. (4)

    In the case of a marketing communication that relates to:5

    1. (a)

      a UCITS scheme6, or

      5
    2. (b)

      insurance distribution,5

    (2) and (3) do not limit the application of this rule.3

COBS 4.4 Compensation information

COBS 4.4.1 R RP

A firm must ensure that any reference in advertising to an investor compensation scheme 3 is limited to a factual reference to the scheme.

[Note: article 10(3) of the Investor Compensation Directive]

COBS 4.4.2 G

[deleted]1

1
COBS 4.4.3 R RP

2To ensure that a firm pays due regard to the information needs of its clients, and communicates information to them in a way which is clear, fair and not misleading with respect to the activity of issuing electronic money, a firm must ensure that, in good time before the firm issues electronic money to a person, it has been communicated to that person on paper or in another durable medium that the compensation scheme does not cover claims made in connection with issuing electronic money.

COBS 4.5 Communicating with retail clients (non-MiFID provisions)

Application

COBS 4.5.1 R RP

  1. (1)

    Subject to (2) and (3), this section applies to a firm in relation to:

    1. (a)

      the provision of information in relation to its designated investment business; and

    2. (b)

      the communication or approval of a financial promotion;

    where such information or financial promotion is addressed to, or disseminated in such a way that it is likely to be received by, a retail client.

  2. (2)

    This section does not apply to a firm communicating in relation to its MiFID, equivalent third country or optional exemption business.6

    333
  3. (3)

    This6 section does not apply in relation to a communication6:

    333
    1. (a)

      to the extent that it is an excluded communication;

    2. (b)

      to the extent that it is a prospectus advertisement to which article 22 of the Prospectus Regulation9 applies;

    3. (c)

      if it is image advertising.

General rule

COBS 4.5.2 R RP

A firm must ensure that information:

  1. (1)

    includes the name of the firm (and also, where relevant, the name of the firm that has confirmed the compliance of the financial promotion for the purposes of COBS 4.10.9AR(3)(a));12

  2. (1A)

    where relevant, includes the date on which the financial promotion was approved;12

  3. (2)

    is accurate and always gives a fair and prominent indication of any relevant risks when referencing6 any potential benefits of relevant business or a relevant investment6;

  4. (3)

    is sufficient for, and presented in a way that is likely to be understood by, the average member of the group to whom it is directed, or by whom it is likely to be received;6

  5. (4)

    does not disguise, diminish or obscure important items, statements or warnings.

  6. (5)

    6uses a font size in the indication of relevant risks that is at least equal to the predominant font size used throughout the information provided, as well as a layout that ensures that such indication is prominent;

  7. (6)

    6is consistently presented in the same language throughout all forms of information and marketing materials that are provided to each client, unless the client has agreed to receive information in more than one language; and

  8. (7)

    6is up-to-date and relevant to the means of communication used.

6

COBS 4.5.2A R
  1. (1)

    12This rule applies:

    1. (a)

      to a financial promotioncommunicated by way of a website, mobile application or other digital medium; and

    2. (b)

      where the format is such that, where relevant:

      1. (i)

        the name of the firm that approved or confirmed the compliance of the financial promotion; or

      2. (ii)

        the date on which the financial promotion was approved,

      cannot reasonably be included in the financial promotion.

  2. (2)

    The information in (1)(b) may be provided on a webpage to which a link is clearly provided in the financial promotion.

  3. (3)

    The link in (2) must be in the format: ‘Approver FRN [firm reference number of the firm that approved or confirmed the compliance of the financial promotion]'.

COBS 4.5.3 G RP
  1. (1)

    The effect of COBS 4.5.2R(1) is that, where relevant and subject to COBS 4.5.2AR, the name of the firm that approved or confirmed the compliance of a financial promotion must be included in that financial promotion.12

  2. (2)

    The name of the firm may be a trading name or shortened version of the legal name of the firm, provided the retail client can identify the firm communicating the information and, if different, the firm that approved or confirmed the compliance of the financial promotion.12

  3. (3)

    The name of the firm (and any link provided pursuant to COBS 4.5.2AR) should be given sufficient prominence to enable the retail client to easily identify the firm responsible for the compliance of the financial promotion with applicable rules.12

COBS 4.5.4 G RP

In deciding whether, and how, to communicate information to a particular target audience, a firm should take into account the nature of the product or business, the risks involved, the client's commitment, the likely information needs of the average recipient, and the role of the information in the sales process.

COBS 4.5.5 G RP

When communicating information, a firm should consider whether omission of any relevant fact will result in the6 information being insufficient, unclear, unfair or misleading. When considering whether a fact should be included in the communication or omitted from it, a firm should bear in the mind the guidance in COBS 4.2.2G to provide information which is appropriate and proportionate.7

Comparative information

COBS 4.5.6 R RP

6If information compares relevant business, relevant investments, or persons who carry on relevant business, a firm must ensure that the comparison is meaningful and presented in a fair and balanced way

Referring to tax

COBS 4.5.7 R RP

  1. (1)

    If any information refers to a particular tax treatment, a firm must ensure that it prominently states that the tax treatment depends on the individual circumstances of each client and may be subject to change in future.6

  2. (2)

    This rule applies in relation to a financial promotion except6 to the extent that it relates to66a pure protection contract that is a long-term care insurance contract6.

Consistent financial promotions

COBS 4.5.8 R RP

  1. (1)

    A firm must ensure that information contained in a financial promotion is consistent with any information the firm provides to a retail client in the course of carrying on designated investment business6.6

  2. (2)

    This rule does not apply to a financial promotion to the extent that it relates 6a pure protection contract that is a long-term care insurance contract.

Innovative finance ISA

COBS 4.5.9 G RP

4Examples of information about relevant risks (COBS 4.5.2R) that a firm should give a retail client in relation to an innovative finance ISA include:

  1. (1)

    an explanation of the tax consequences if:

    1. (a)

      the innovative finance component is a P2P agreement that is not repaid; and

    2. (b)

      an operator of an electronic system in relation to lending which facilitates a P2P agreement fails;

  2. (2)

    the procedure for, timing and tax consequences of:

    1. (a)

      withdrawing a P2P agreement from the innovative finance ISA; and

    2. (b)

      a request for transfer of all or part of the innovative finance components in the innovative finance ISA; 12

  3. (3)

    a warning, as relevant, that it may, or will, not be possible to sell or trade P2P agreements at market value on a secondary market; and12

  4. (4)

    an express warning that holding an investment within an innovative finance ISA does not reduce the risks associated with that investment or guarantee returns and that it is possible to lose all of the money invested. This warning should be additional to any more general warning that a product or service places a client’s capital at risk (COBS 4.2.4G(1)).12

COBS 4.5.10 G RP

4 Operators of electronic systems in relation to lending and firms which advise on P2P agreements should also have regard to the guidance in COBS 14.3.7AG and COBS 14.3.7BG regarding the types of information they should provide to clients to explain the specific nature and risks of P2P agreements.

Lifetime ISA

COBS 4.5.11 G

5Information about relevant risks (COBS 4.5.2R) that a firm should give a retail client in relation to a lifetime ISA may include:

  1. (1)

    an explanation of:

    1. (a)

      a retail client’s eligibility to subscribe to a lifetime ISA (including annual subscription limits) and to claim the lifetime ISA government bonus;

    2. (b)

      the lifetime ISA government withdrawal charge and the circumstances in which it might arise; and

    3. (c)

      the process by which a retail client can transfer a lifetime ISA; and

  2. (2)

    warnings that, if the retail client:

    1. (a)

      incurs a lifetime ISA government withdrawal charge, the retail client may get back less than they paid in to a lifetime ISA;

    2. (b)

      saves in a lifetime ISA instead of enrolling in, or contributing to a qualifying scheme, occupational pension scheme, or personal pension scheme:

      1. (i)

        the retail client may lose the benefit of contributions by an employer (if any) to that scheme; and

      2. (ii)

        the retail client’s current and future entitlement to means tested benefits (if any) may be affected.

Authorised fund managers’ communications in relation to benchmarks

COBS 4.5.11A R

11The rules in COBS 4.5.12R to COBS 4.5.15R apply to:

  1. (1)

    a financial promotion relating to an authorised fund;

  2. (2)

    a communication which contains a statement referring to or concerning the past performance of an authorised fund; and

  3. (3)

    any other communication about an authorised fund that refers in any way to the aims of the fund or describes the benefits or risks of investing in it.

COBS 4.5.11B G

11As a result of COBS 4.5.11AR, COBS 4.5.12R to COBS 4.5.15R would not normally be expected to apply to administrative communications if those communications do not refer in any way to the aims of an authorised fund or describe the benefits or risks of investing in it. Examples of such communications might include contract notes that simply set out details of the unitholder’s purchase or redemption of units, statements of income distributions or accumulations, and confirmations of a change of unitholder registration details.

COBS 4.5.12 R

8Subject to COBS 4.5.13R, an authorised fund manager must include in any communication about an authorised fund to which this rule11 applies:

  1. (1)

    a short explanation, in terms consistent with the relevant prospectus, of the choice and use of every target benchmark, constraining benchmark or comparator benchmark used in relation to the scheme; or

  2. (2)

    where no target benchmark, constraining benchmark or comparator benchmark is referred to in the prospectus, a statement to that effect and a short explanation of how investors can assess the performance of the scheme.

COBS 4.5.13 R

8Where an authorised fund manager includes, in any communication about an authorised fund to which this rule11 applies, an indication of past performance for any authorised fund it manages, it must (in addition to complying with COBS 4.6.2R where applicable):

  1. (1)

    include the corresponding past performance record of any target benchmark or constraining benchmark referred to in the prospectus of the scheme; and

  2. (2)

    not include an indication of past performance for any index, indices or similar factor that is not referred to in the prospectus of the scheme.

COBS 4.5.14 R
  1. (1)

    8Subject to paragraph (2), if a communication to which COBS 4.5.13R applies includes information comparing past performance of the scheme against one or more comparator benchmarks, the authorised fund manager must, for the period specified in paragraph (3) and in every subsequent communication it makes that is also subject to COBS 4.5.13R:

    1. (a)

      include a comparison against the same comparator benchmark or comparator benchmarks; and

    2. (b)

      not include a comparison against any other benchmark.

  2. (2)

    Paragraph (1) does not apply if such a comparison would not be compliant with COBS 4.5.13R as a result of a change to the prospectus of the scheme.

  3. (3)

    The period specified for the purposes of paragraph (1) is:

    1. (a)

      twelve months after a one-off communication is made; or

    2. (b)

      for as long as the communication remains available to the public in a durable medium and has not been superseded by a revised version.

COBS 4.5.15 R

8 COBS 4.5.12R to COBS 4.5.14R do not apply in respect of any reference to a comparator benchmark that is not identified in the prospectus of the relevant scheme when that reference appears in a communication that is:

  1. (1)

    used exclusively in the course of a personal visit, telephone conversation or other interactive dialogue; or

  2. (2)

    in response to a specific unsolicited request by a client for past performance to be compared with a particular comparator benchmark.

Funds investing in inherently illiquid assets (FIIAs)

COBS 4.5.16 R
  1. (1)

    10This rule applies to any financial promotion relating to a FIIA except the FIIA’sprospectus.

  2. (2)

    A firm must ensure that the following risk warning is given:

    1. “[Name of fund] invests in assets that may at times be hard to sell. This means that there may be occasions when you experience a delay or receive less than you might otherwise expect when selling your investment. For more information on risks, see the prospectus and key investor information document.”

  3. (3)

    If the financial promotion is a non-real time financial promotion, a firm must ensure that the risk warning is prominently placed in the financial promotion in a font size that is at least equal to the predominant font size used throughout the communication.

COBS 4.5.17 G

10The rules in COBS 4.5 do not apply to the form or content of a NURS-KII document (see COBS 4.1.7AR (Modification relating to the KII Regulation)).

COBS 4.5A Communicating with clients (including past, simulated past and future performance) (MiFID provisions)

Application

COBS 4.5A.1 R
  1. (1)

    1This section applies to a firm in relation to:

    1. (a)

      the provision of information; or

    2. (b)

      the communication of a financial promotion,

    which relates to the firm’sMiFID, equivalent third country or optional exemption business.

  2. (2)

    This section does not apply to a communication:

    1. (a)

      to the extent that it is a third party prospectus; or

    2. (b)

      if it is image advertising.

[Note: article 24(3) of MiFID]

COBS 4.5A.2 R

Provisions in this section marked “UK”2 apply in relation to MiFID optional exemption business as if they were rules (see COBS 1.2.2G).

COBS 4.5A.2A G

The effect of GEN 2.2.22AR is that provisions in this section marked “UK”2 also apply in relation to the equivalent business of a third country investment firm as if they were rules.

General requirements

COBS 4.5A.3 UK

244(1) Investment firms shall ensure that all information they address to, or disseminate in such a way that it is likely to be received by, retail or professional clients or potential retail or professional clients, including marketing communications, satisfies the conditions laid down in paragraphs 2 to 8.

44(2) Investment firm shall ensure that the information referred to in paragraph 1 complies with the following conditions:

  1. (a) the information includes the name of the investment firm,

  2. (b) the information is accurate and always gives a fair and prominent indication of any relevant risks when referencing any potential benefits of an investment service or financial instrument,

  3. (c) the information uses a font size in the indication of relevant risks that is at least equal to the predominant font size used throughout the information provided, as well as a layout ensuring such indication is prominent,

  4. (d) the information is sufficient for, and presented in a way that is likely to be understood by, the average member of the group to whom it is directed, or by whom it is likely to be received,

  5. (e) the information does not disguise, diminish or obscure important items, statements or warnings,

  6. (f) the information is consistently presented in the same language throughout all forms of information and marketing materials that are provided to each client, unless the client has accepted to receive information in more than one language,

  7. (g) the information is up-to-date and relevant to the means of communication used.

[Note: article 44(1) and (2) of the MiFID Org Regulation]

COBS 4.5A.4 G

The name of the firm may be a trading name or shortened version of the legal name of the firm, provided the client can identify the firm communicating the information.

COBS 4.5A.5 G

In deciding whether, and how, to communicate information to a particular target audience, a firm should take into account the nature of the product or business, the risks involved, the client’s commitment, the likely information needs of the average recipient, and the role of the information in the sales process.

COBS 4.5A.6 G

When communicating information, a firm should consider whether omission of any relevant fact will result in the information being insufficient, unclear, unfair or misleading.

Comparative information

COBS 4.5A.7 UK

244(3) Where the information compares investment or ancillary services, financial instruments, or persons providing investment or ancillary services, investment firms shall ensure that the following conditions are satisfied:

  1. (a) the comparison is meaningful and presented in a fair and balanced way;

  2. (b) the sources of the information used for the comparison are specified;

  3. (c) the key facts and assumptions used to make the comparison are included.

[Note: article 44(3) of the MiFID Org Regulation]

Referring to tax

COBS 4.5A.8 UK

244(7) Where the information refers to a particular tax treatment, it shall prominently state that the tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

[Note: article 44(7) of the MiFID Org Regulation]

Consistent financial promotions

COBS 4.5A.9 UK

246(5) Investment firms shall ensure that information contained in a marketing communication is consistent with any information the firm provides to clients in the course of carrying on investment and ancillary services.

[Note: article 46(5) of the MiFID Org Regulation]

Past performance

COBS 4.5A.10 UK

244(4) Where the information contains an indication of past performance of a financial instrument, a financial index or an investment service, investment firms shall ensure that the following conditions are satisfied:

  1. (a) that indication is not the most prominent feature of the communication;

  2. (b) the information must include appropriate performance information which covers the preceding 5 years, or the whole period for which the financial instrument has been offered, the financial index has been established, or the investment service has been provided where less than five years, or such longer period as the firm may decide, and in every case that performance information is based on complete 12-month periods;

  3. (c) the reference period and the source of information is clearly stated;

  4. (d) the information contains a prominent warning that the figures refer to the past and that past performance is not a reliable indicator of future results;

  5. (e) where the indication relies on figures denominated in a currency other pounds sterling, the currency is clearly stated, together with a warning that the return may increase or decrease as a result of currency fluctuations;

  6. (f) where the indication is based on gross performance, the effect of commissions, fees or other charges are disclosed.

[Note: article 44(4) of the MiFID Org Regulation]

COBS 4.5A.11 G

The obligations relating to describing performance should be interpreted in the light of their purpose and in a way that is appropriate and proportionate taking into account the means of communication and the information the communication is intended to convey. For example, a periodic statement in relation to managing investments that is sent in accordance with the rules on reporting information to clients (see COBS 16 and COBS 16A) may include past performance as its most prominent feature.

[Note: recital 65 to the MiFID Org Regulation]

Simulated past performance

COBS 4.5A.12 UK

244(5) Where the information includes or refers to simulated past performance, investment firms shall ensure that the information relates to a financial instrument or a financial index, and the following conditions are satisfied:

  1. 44(5)(a) the simulated past performance is based on the actual past performance of one or more financial instruments or financial indices which are the same as, or substantially the same as, or underlie, the financial instrument concerned;

  2. 44(5)(b) in respect of the actual past performance referred to in point (a), the conditions set out in points (a) to (c), (e) and (f) of paragraph 4 are satisfied;

  3. 44(5)(c) the information contains a prominent warning that the figures refer to simulated past performance and that past performance is not a reliable indicator of future performance.

[Note: article 44(5) of the MiFID Org Regulation]

COBS 4.5A.13 G

For the purposes of COBS 4.5A.12UK2, the conditions referred to in article 44(5)(b) can be found reproduced in COBS 4.5A.10UK2.

Future performance

COBS 4.5A.14 UK

244(6) Where the information contains information on future performance, investment firms shall ensure that the following conditions are satisfied:

  1. (a) the information is not based on or refer to simulated past performance;

  2. (b) the information is based on reasonable assumptions supported by objective data;

  3. (c) where the information is based on gross performance, the effect of commissions, fees or other charges is disclosed;

  4. (d) the information is based on performance scenarios in different market conditions (both negative and positive scenarios), and reflects the nature and risks of the specific types of instruments included in the analysis;

  5. (e) the information contains a prominent warning that such forecasts are not a reliable indicator of future performance.

[Note: article 44(6) of the MiFID Org Regulation]

COBS 4.5A.15 G

A firm should not provide information on future performance if it is not able to obtain the objective data needed to comply with the requirements regarding information on future performance in COBS 4.5A.14UK2. For example, objective data in relation to EIS shares may be difficult to obtain.

Information that uses the name of any competent authority

COBS 4.5A.16 UK

2 44(8) The information shall not use the name of any competent authority in such a way that would indicate or suggest endorsement or approval by that authority of the products or services of the investment firm.

[Note: article 44(8) of the MiFID Org Regulation]

Funds investing in inherently illiquid assets (FIIAs)

COBS 4.5A.17 R
  1. (1)

    3This rule applies to any financial promotion relating to a FIIA that is addressed to, or disseminated in such a way that it is likely to be received by, a retail client, except the FIIA’sprospectus.

  2. (2)

    A firm must ensure that the following risk warning is given:

    1. “[Name of fund] invests in assets that may at times be hard to sell. This means that there may be occasions when you experience a delay or receive less than you might otherwise expect when selling your investment. For more information on risks, see the prospectus and key investor information document.”

  3. (3)

    If the financial promotion is a non-real time financial promotion, the risk warning must be prominently placed in the financial promotion in a font size that is at least equal to the predominant font size used throughout the communication.

COBS 4.5A.18 G

3The rules in COBS 4.5A do not apply to the form or content of a NURS-KII document (see COBS 4.1.7AR (Modification relating to the KII Regulation)).

COBS 4.6 Past, simulated past and future performance (non-MiFID provisions)

Application

COBS 4.6.1 R RP

  1. (1)

    Subject to (2) and (3), this section applies to a firm in relation to:1

    1. (a)

      [deleted]6

      1222
    2. (b)

      the communication or approval of a financial promotion,6

      1

where such information or financial promotion is addressed to, or disseminated in such a way that it is likely to be received by, a retail client.1

  1. (2)

    This section does not apply to a firm communicating in relation to its MiFID, equivalent third country or optional exemption business6

    33
  2. (3)

    This6 section does not apply in relation to a communication6:

    3333
    1. (a)

      to the extent that it is an excluded communication;

    2. (b)

      to the extent that it is a prospectus advertisement to which article 22 of the Prospectus Regulation8 applies;

    3. (c)

      if it is image advertising;

    4. (d)

      to the extent that it relates to a deposit that is not a structured deposit (see also COBS 4.1.1R(3))6;

    5. (e)

      to the extent that it relates to a pure protection contract that is a long-term care insurance contract.

Past performance

COBS 4.6.2 R RP

A firm must ensure that information that contains an indication of past performance of relevant business, a relevant investment or a financial index, satisfies the following conditions:

  1. (1)

    that indication is not the most prominent feature of the communication;

  2. (2)

    the information includes appropriate performance information which covers the6 preceding five years, or the whole period for which the investment has been offered, the financial index has been established, or the service has been provided (where6 less than five years, or such longer period as the firm may decide)6, and in every case that performance information must be based on6 complete 12-month periods;

  3. (3)

    the reference period and the source of information are clearly stated;

  4. (4)

    the information contains a prominent warning that the figures refer to the past and that past performance is not a reliable indicator of future results;

  5. (5)

    if the indication relies on figures denominated in a currency other than pounds sterling7, the currency is clearly stated, together with a warning that the return may increase or decrease as a result of currency fluctuations;

  6. (6)

    if the indication is based on gross performance, the effect of commissions, fees or other charges is disclosed.

6

COBS 4.6.3 G RP

The obligations relating to describing performance should be interpreted in the light of their purpose and in a way that is appropriate and proportionate taking into account the means of communication and the information the communication is intended to convey. For example, a periodic statement in relation to managing investments that is sent in accordance with the rules on reporting information to clients (see COBS 16) may include past performance as its most prominent feature.

COBS 4.6.4 G RP

If a financial promotion includes information referring to the past performance of a packaged product that is not a financial instrument2, a firm will comply with the rule on appropriate performance information (COBS 4.6.2R (2)) if the financial promotion includes, in the case of a scheme, unit-linked life policy, unit-linked personal pension scheme or unit-linked stakeholder pension scheme (other than a unitised with-profits life policy or stakeholder pension scheme) past performance information calculated and presented in accordance with the table in COBS 4.6.4A G.

COBS 4.6.4A G

This Table belongs to COBS 4.6.4 G

Percentage growth

[Fund name]

Quarter/Year - Quarter/Year

Quarter/Year - Quarter/Year

Quarter/ Year - Quarter/Year

Quarter/ Year - Quarter/Year

Quarter/ Year - Quarter/ Year

pgr%

pgr%

pgr%

pgr%

pgr%

Notes:

  • The table should show performance information for five (or if performance information for fewer than five is available, all) complete 12-month periods, the most recent of which ends with the last full quarter preceding the date on which the firm first communicates or approves the financial promotion.
  • For products with performance data for fewer than five 12-month periods, firms should clearly indicate that performance data does not exist for the relevant periods.
  • No allowance should be made for tax recoveries on income for pension contracts, ISAs or PEPs.
  • pgr is the percentage growth rate for the year, where: pgr = ((P1 - P0)/PO)*100 and rounded to the nearest 0.1%, with exact 0.05% rounded to the nearest even 0.1%; and where P0 is the price at the start of the 12-month period and P1 is the price on the same day in the following 12-month period.
  • The prices should allow for any net distributions to be reinvested.
  • The price at P1 must be adjusted for any charges since the date of P0 which are based on a proportion of the fund and are levied by the cancellation of units.
  • The firm should use single pricing, or (if this is not available) bid to bid prices, unless the firm has reasonable grounds to be satisfied that another basis would better reflect the past performance of the fund.

COBS 4.6.4B G RP

  1. (1)

    The firm should present the information referred to in COBS 4.6.4 G no less prominently than any other past performance information.

  2. (2)

    This guidance does not apply to a prospectus, key investor information document4 or NURS-KII document5 drawn up in accordance with COLL.

COBS 4.6.5 G RP

  1. (1)

    In relation to a packaged product (other than a scheme, a unit-linked life policy, unit-linked personal pension scheme or a unit-linked stakeholder pension scheme (that is not a unitised with-profits life policy or stakeholder pension scheme)), the information should be given on:

    1. (a)

      an offer to bid basis (which should be stated) if there is an actual return or comparison of performance with other investments; or

    2. (b)

      an offer to offer, bid to bid or offer to bid basis (which should be stated) if there is a comparison of performance with an index or with movements in the price of units; or

    3. (c)

      a single pricing basis with allowance for charges.

  2. (2)

    If the pricing policy of the investment has changed, the prices used should include such adjustments as are necessary to remove any distortions resulting from the pricing method.

Simulated past performance

COBS 4.6.6 R RP

A firm must ensure that information that contains an indication of simulated past performance of relevant business, a relevant investment or a financial index, satisfies the following conditions:

  1. (1)

    it relates to an investment or a financial index;

  2. (2)

    the simulated past performance is based on the actual past performance of one or more investments or financial indices which are the same as, substantially the same as,6 or underlie, the investment concerned;

  3. (3)

    in respect of the actual past performance referred to in (2)6, the conditions set out in paragraphs (1) to (3), (5) and (6) of the rule on past performance (COBS 4.6.2 R) are complied with; and

  4. (4)

    the information contains a prominent warning that the figures refer to simulated past performance and that past performance is not a reliable indicator of future performance.

6

Future performance

COBS 4.6.7 R RP

  1. (1)

    A firm must ensure that information that contains an indication of future performance of relevant business, a relevant investment, a structured deposit or a financial index, satisfies the following conditions:

    1. (a)

      it is not based on and does not refer to simulated past performance;

    2. (b)

      it is based on reasonable assumptions supported by objective data;

    3. (c)

      where6 the indication is based on gross performance, the effect of commissions, fees or other charges is disclosed6;

    4. (ca)

      6it is based on performance scenarios in different market conditions (both negative and positive scenarios), and reflects the nature and risks of the specified types of investments included in the analysis; and

    5. (d)

      it contains a prominent warning that such forecasts are not a reliable indicator of future performance.

  2. (2)

    This6rule only applies in relation6 to financial promotions that relate to a financial instrument (or a financial index that relates exclusively to financial instruments) or a structured deposit.

6

COBS 4.6.8 G RP

A firm should not provide information on future performance if it is not able to obtain the objective data needed to comply with the rule on future performance. For example, objective data in relation to EIS shares may be difficult to obtain.

COBS 4.6.9 R RP
  1. (1)

    1A firm that communicates to a client a projection for a packaged product which is not a financial instrument2must ensure that the projection complies with the projectionsrules in COBS 13.4, COBS 13.5 and COBS 13 Annex 2.

    2
  2. (2)

    A firm must not communicate a projection for a highly volatile product to a client unless the product is a financial instrument.

COBS 4.7 Direct offer financial promotions

Application

COBS 4.7.-2 R

16This section (other than COBS 4.7.-1AEU to COBS 4.7.-1DG) does not apply in relation to a communication:

  1. (1)

    to the extent that it is an excluded communication;

  2. (2)

    to the extent that it is a prospectus advertisement to which article 22 of the Prospectus Regulation applies;

  3. (3)

    if it is image advertising;

  4. (4)

    to the extent that it relates to a deposit that is not a cash deposit ISA, cash-only lifetime ISA or cash deposit CTF;

  5. (5)

    to the extent that it relates to a pure protection contract that is a long-term care insurance contract.

COBS 4.7.-1 G
  1. (1)

    COBS 4.7.-1AUK12 to COBS 4.7.1R contain provisions on the communication of direct offer financial promotions.

    11
  2. (2)

    In broad terms:

    1. (a)

      COBS 4.7.-1AUK12 is relevant to a firm communicating a direct offer financial promotion in relation to its MiFID, equivalent third country or optional exemption business; 16

    2. (b)

      COBS 4.7.1R is relevant to a firm communicating a direct offer financial promotion that does not relate to its MiFID, equivalent third country or optional exemption business; and16

    3. (c)

      16the application of the other operative provisions in this section is not affected by reference to MiFID, equivalent third country or optional exemption business.

  3. (3)

    However, a MiFID investment firm, third country investment firm or MiFID optional exemption firm which is subject to the requirements in COBS 4.7.-1AUK12 may be subject to the rule in COBS 4.7.1R to the extent that it communicates a direct offer financial promotion:

    1. (a)

      which is not a marketing communication; or

    2. (b)

      which does not relate to its MiFID, equivalent third country or optional exemption business.

Direct offer financial promotions relating to MiFID, equivalent third country or optional exemption business

COBS 4.7.-1A UK

1246(6) Marketing communications containing an offer or invitation of the following nature and specifying the manner of response or including a form by which any response may be made, shall include such of the information referred to in Articles 47 to 50 as is relevant to that offer or invitation:

  1. (a) an offer to enter into an agreement in relation to a financial instrument or investment service or ancillary service with any person who responds to the communication;

  2. (b) an invitation to any person who responds to the communication to make an offer to enter into an agreement in relation to a financial instrument or investment service or ancillary service.

However, the first subparagraph shall not apply if, in order to respond to an offer or invitation contained in the marketing communication, the potential client must refer to another document or documents, which, alone or in combination, contain that information.

[Note: article 46(6) of the MiFID Org Regulation]

Effect of provisions marked “UK” for third country investment firms and MiFID optional exemptions firms

COBS 4.7.-1B R

Provisions in this section marked “UK”12 apply in relation to MiFID optional exemption business as if they were rules (see COBS 1.2.2G).

COBS 4.7.-1C G

The effect of GEN 2.2.22AR is that provisions in this section marked “UK”12 also apply in relation to the equivalent business of a third country investment firm as if they were rules.

COBS 4.7.-1D G

For the purposes of COBS 4.7.-1AUK12, the provisions of articles 47 to 50 of the MiFID Org Regulation can be found reproduced in COBS 6.1ZA and COBS 14.3A.

Other direct offer financial promotions

COBS 4.7.1 R RP

  1. (1)

    Subject to (3) and (4), a firm must ensure that a direct offer financial promotion that is addressed to, or disseminated in such a way that it is likely to be received by, a retail client contains:

    1. (a)

      11the information referred to in the rules on information disclosure (COBS 6.1.4 R, COBS 6.1.6 R, COBS 6.1.7 R, COBS 6.1.9 R, COBS 14.3.2 R, COBS 14.3.3 R, COBS 14.3.4 R and COBS 14.3.5 R) as is relevant to that offer or invitation; and11

    2. (b)

      11additional appropriate information about the relevant business and relevant investments so that the client is reasonably able to understand the nature and risks of the relevant business and relevant investments and consequently to take investment decisions on an informed basis.

  2. (2)

    This rule does not require the information in (1) to be included in a direct offer financial promotion if, in order to respond to an offer or invitation contained in it, the retail client must refer to another document or documents, which, alone or in combination, contain that information.

  3. (3)

    This rule16 does not apply in relation to a marketing11 communication that11 relates to a firm'sMiFID, equivalent third country or optional exemption business11

    33
  4. (4)

    [deleted]16

    311311
  5. (5)

    [deleted]11

    2

Guidance

COBS 4.7.2 G

Although COBS 4.7.1R (1)(b) does not apply in relation to MiFID, equivalent third country or optional exemption business11, similar requirements may apply under COBS 2.2A11.

COBS 4.7.2A G
  1. (1)

    6BCOBS 2A contains rules and guidance about the inclusion of a summary box in a direct offer financial promotion relating to a cash deposit ISA or cash deposit CTF provided by a firm other than a credit union.

  2. (2)

    Where BCOBS 2A applies, COBS 4.7.1R(1)(b) does not require a firm to include information outside a summary box in a direct offer financial promotion to the extent that this would simply repeat information included in a summary box in the same financial promotion.

COBS 4.7.3 G
  1. (1)

    COBS 4.7.1R (2) allows a firm to communicate a direct offer financial promotion that does not contain all the information required by COBS 4.7.1R (1), if the firm can demonstrate that the client has referred to the required information before the client makes or accepts an offer in response to the direct offer financial promotion.

  2. (2)

    A firmcommunicating or approving a direct offer financial promotion may also be subject to:10

    1. (a)

      the rules on providing product information in COBS 14.2, including the exceptions in COBS 14.2.5R to 14.2.9R; and10

    2. (b)

      the requirement in the PRIIPs Regulation to provide a key information document10.

COBS 4.7.4 G RP

In order to enable a client to make an informed assessment of a relevant investment or relevant business, a firm may wish to include in a direct offer financial promotion:

  1. (1)

    a summary of the taxation of any investment to which it relates and the taxation consequences for the average member of the group to whom it is directed or by whom it is likely to be received;1

  2. (2)

    a statement that the recipient should seek a personal recommendation if he has any doubt about the suitability of the investments or services being promoted; and1

  3. (3)

    (in relation to a promotion for a non-PRIIP packaged product10 that is not a financial instrument) a key features illustration, in which a generic projection may generally be used.1

COBS 4.7.5 G

[deleted]4

4
COBS 4.7.5A G RP

4 COBS 4.13.2 R (Marketing communications relating to UCITS schemes12) and COBS 4.13.3 R (Marketing communications relating to feeder UCITS) contain additional disclosure requirements for firms in relation to marketing communications (other than key investor information) that concern particular investment strategies of a UCITS scheme12

Warrants and derivatives5

COBS 4.7.6 R RP
  1. (1)

    2A firm must not communicate or approve a direct offer financial promotion:

    1. (a)

      relating to a warrant or derivative;

    2. (b)

      to or for communication to a retail client; and

    3. (c)

      where the firm will not itself be required to comply with the rules on appropriateness (see COBS 10 and 10A11);

    unless the firm has adequate evidence that the condition in (2) is satisfied.

  2. (2)

    The condition is that the person who will arrange or deal in relation to the derivative or warrant will comply with the rules on appropriateness or equivalent requirements for any application or order that the person is aware, or ought reasonably to be aware, is in response to the direct offer financial promotion.

COBS 4.7.6A G

14 Firms are reminded of their obligations in relation to the marketing, distribution and sale of restricted speculative investments in COBS 22.5.

COBS 4.7.6B G

18 19 Firms are reminded of the prohibitions in relation to the marketing, distribution and sale of cryptoasset derivatives and cryptoasset exchange traded notes in COBS 22.6.

COBS 4.7.6C R

[deleted]21

COBS 4.7.6D R

[deleted]21

21
COBS 4.7.6E R

[deleted]21

COBS 4.7.6F G

[deleted]21

COBS 4.7.6G G

[deleted]21

COBS 4.7.6H R

[deleted]21

COBS 4.7.6I G

[deleted]21

21
COBS 4.7.6J R

[deleted]21

21
COBS 4.7.6K G

[deleted]21

21
COBS 4.7.6L R

[deleted]21

21
COBS 4.7.6M G

[deleted]21

21
COBS 4.7.6N R

[deleted]21

21
COBS 4.7.6O G

[deleted]21

21
COBS 4.7.7 R RP

[deleted]21

COBS 4.7.8 R RP

[deleted]21

5 13
COBS 4.7.9 R RP

[deleted]21

5
COBS 4.7.10 R RP

[deleted]21

5 13
COBS 4.7.11 G

[deleted]21

8
COBS 4.7.11A G

[deleted]21

20
COBS 4.7.12 G

[deleted]21

13
COBS 4.7.13 G

[deleted]21

13
COBS 4.7.14 R

[deleted]21

21
COBS 4.7.15 G

[deleted]21

21

COBS 4.8 Cold calls and other promotions that are not in writing

Application

COBS 4.8.1 R RP

This section applies to a firm in relation to the communication of 3a financial promotion that is not in writing, but it does not apply:

  1. (1)

    to the extent that the financial promotion is an excluded communication;

  2. (2)

    if the financial promotion is image advertising;

  3. (3)

    if the financial promotion is a non-retail communication;1

  4. (4)

    [deleted]2

    2
  5. (5)

    to the extent that the financial promotion relates to a pure protection contract that is a long-term care insurance contract.1

Restriction on cold calling

COBS 4.8.2 R RP

A firm must not make a cold call unless:

  1. (1)

    the recipient has an established existing client relationship with the firm and the relationship is such that the recipient envisages receiving cold calls; or

  2. (2)

    the cold call relates to a generally marketable packaged product which is not:

    1. (a)

      a higher volatility fund; or

    2. (b)

      a life policy with a link (including a potential link) to a higher volatility fund; or

  3. (3)

    the cold call relates to a controlled activity to be carried on by an authorised person or exempt person and the only controlled investments involved or which reasonably could be involved are:

    1. (a)

      readily realisable securities (other than warrants); and

    2. (b)

      generally marketable non-geared packaged products.

Promotions that are not in writing

COBS 4.8.3 R RP

A firm must not communicate a solicited or unsolicited financial promotion that is not in writing, to a client3 outside the firm's premises, unless the personcommunicating it:

  1. (1)

    only does so at an appropriate time of the day;

  2. (2)

    identifies himself and the firm he represents at the outset and makes clear the purpose of the communication;

  3. (3)

    clarifies if the client would like to continue with or terminate the communication, and terminates the communication at any time that the client requests it; and

  4. (4)

    gives a contact point to any client with whom he arranges an appointment.

COBS 4.9 Financial promotions with an overseas element

Application

COBS 4.9.1 R RP

  1. (1)

    4Subject to (2) and (3), this section applies to a firm in relation to the communication or approval of a financial promotion that relates to the business of an overseas person.4

  2. (2)

    This section does not apply to a firm in relation to its MiFID or equivalent third country business.

  3. (3)

    4If a communication relates to a firm's business that is not MiFID or equivalent third country business, this section does not apply:4

    1. (a)

      to the extent that it is an excluded communication;

    2. (b)

      to the extent that it is a prospectus advertisement to which article 22 of the Prospectus Regulation5 applies;

    3. (c)

      if it is image advertising;

    4. (d)

      if it is a non-retail communication;1

    5. (e)

      [deleted]3

      23
    6. (f)

      to the extent that it relates to a pure protection contract that is a long-term care insurance contract.1

Financial promotions for the business of an overseas person

COBS 4.9.3 R RP

A firm must not communicate or approve a financial promotion which relates to a particular relevant investment or relevant business of an overseas person, unless:

  1. (1)

    the financial promotion makes clear which firm has approved or communicated it and, where relevant, explains:

    1. (a)

      that the rules made under the Act for the protection of retail clients do not apply;

    2. (b)

      the extent and level to which the compensation scheme will be available, or if the scheme will not be available, a statement to that effect; and

    3. (c)

      if the communicator wishes, the protection or compensation available under another system of regulation; and

  2. (2)

    the firm has taken reasonable steps to satisfy itself4 that the overseas person will deal with retail clients in the United Kingdom in an honest and reliable way.

Financial promotions for an overseas long-term insurer

COBS 4.9.4 R RP

A firm may only2communicate or approve a financial promotion to enter into a life policy with a person who is:

2 2
  1. (1)

    an authorised person; or

  2. (2)

    an exempt person who is exempt in relation to effecting or carrying out contracts of insurance of the class to which the financial promotion relates; or

  3. (3)

    an overseas long-term insurer that is entitled under the law of its home country or territory to carry on there insurance business of the class to which the financial promotion relates.

COBS 4.9.5 R RP

A financial promotion for an overseas long-term insurer, which has no establishment in the United Kingdom, must include:

  1. (1)

    the full name of the overseas long-term insurer, the country where it is registered, and, if different, the country where its head office is situated;

  2. (2)

    a prominent statement that 'holders of policies issued by the company will not be protected by the Financial Services Compensation Scheme if the company becomes unable to meet its liabilities to them'; and

  3. (3)

    if any trustee, investment manager or United Kingdom agent of the overseas long-term insurer is named which is not independent of the overseas long-term insurer, a prominent statement of that fact.

COBS 4.9.6 R RP

A financial promotion for an overseas long-term insurer which is authorised to carry on long-term insurance business in any country or territory listed in paragraph (c) of the Glossary definition of overseas long-term insurer must also include:

  1. (1)

    the full name of any trustee of property of any description which is retained by the overseas long-term insurer in respect of the promoted contracts;

  2. (2)

    an indication whether the investment of such property (or any part of it) is managed by the overseas long-term insurer or by another person and the full name of any investment manager;

  3. (3)

    the registered office of any such trustee and of any investment manager and of his principal office (if different); and

  4. (4)

    where any person in the United Kingdom takes, or may take, any steps on behalf of the overseas long-term insurer to enter into a promoted contract, the following details:

    1. (a)

      the full name of the overseas long-term insurer;

    2. (b)

      the registered office, head office or principal place of business of that person in the United Kingdom; and

    3. (c)

      if there is more than one such person, the principal or main person in the United Kingdom.

COBS 4.9.7 R RP

If a financial promotion relates to a life policy with an overseas long-term insurer but does not name the overseas long-term insurer by giving its full name or its business name:

  1. (1)

    it must include the following prominent statement: "This financial promotion relates to an insurance company which does not, and is not authorised to, carry on in any part of the United Kingdom the class of insurance business to which this promotion relates. This means that the management and solvency of the company are not supervised by the Financial Conduct Authority or the Prudential Regulation Authority. Holders of policies issued by the company will not have the right to complain to the Financial Ombudsman Service if they have a complaint against the company and will not be protected by the Financial Services Compensation Scheme if the company should become unable to meet its liabilities to them"; and

  2. (2)

    if it also refers to other investments, it must make this clear.

COBS 4.10 Approving and confirming compliance of financial promotions

Systems and controls

COBS 4.10.1 G RP

The rules in SYSC 3 (and also for Solvency II firms, the PRA Rulebook: Solvency II firms: Conditions Governing Business)1 and SYSC 4 require a firm that communicates with a client in relation to designated investment business, or communicates or approves a financial promotion, to put in place systems and controls or policies and procedures, or an effective internal control system,1 in order to comply with the rules in this chapter.

Approving financial promotions

COBS 4.10.1A G

3The purpose of COBS 4.10.2R is to ensure that a firm that approves a financial promotion for communication by an unauthorised person:

  1. (1)

    satisfies itself of the compliance of that financial promotion with the financial promotion rules; and

  2. (2)

    having approved that financial promotion, takes appropriate steps to ensure that the financial promotion remains compliant for the lifetime of its communication.

COBS 4.10.1B G
  1. (1)

    5The effect of section 55NA of the Act is that, with effect from 7 February 2024, a firm is unable to approve a financial promotion unless:

    1. (a)

      the firm is a permitted approver in relation to the financial promotion; or

    2. (b)

      an approver permission exemption applies.

  2. (2)

    SUP 6A contains guidance on applying for approver permission.

  3. (3)

    The requirements in this section that apply to a firm after it has approved a financial promotion continue to apply even where the firm ceases to be entitled to approve that financial promotion, for example because it ceases to be a permitted approver in respect of that financial promotion. This includes the requirement to monitor continuing compliance of the financial promotion. In such a scenario, if the firm became aware that the financial promotion no longer complied with the financial promotion rules, it could withdraw its approval but could not approve amendments to the financial promotion.

COBS 4.10.2 R RP

  1. (1)

    Before a firmapproves a financial promotion for communication by an unauthorised person, it must confirm that the financial promotion complies with the financial promotion rules.

  2. (1A)

    After a firm has complied with (1), and for as long as the financial promotion is communicated, the firm must take reasonable steps to monitor the continuing compliance of that financial promotion with the financial promotion rules.3

    [Note: for the FCA’s guidance on ‘Ongoing monitoring’ see: https://www.fca.org.uk/firms/financial-promotions-and-adverts/approving-financial-promotions]3

  3. (1B)

    A firm that has approved a financial promotion issued, and for communication by, an unauthorised person must require from that person, a written quarterly attestation that there has been no material change:3

    1. (a)

      to the financial promotion; or3

    2. (b)

      in circumstances which might affect the continuing compliance of the financial promotion with the financial promotion rules.3

  4. (1C)

    For the purpose of (1B), a firm must:3

    1. (a)

      require the first attestation no less than 3 months after it approves the financial promotion; and3

    2. (b)

      thereafter, require attestations at least once every 3 months for as long as the financial promotion is communicated.3

  5. (2)

    If, at any time after a firm has complied with (1), a firm becomes aware that a financial promotion no longer complies with the financial promotion rules, it must withdraw its approval and notify any person that it knows to be relying on its approval as soon as reasonably practicable.3

  6. (3)

    When approving a financial promotion, the firm must confirm compliance with the financial promotion rules that would have applied if the financial promotion had been communicated by a firm other than in relation to MiFID or equivalent third country business.3

COBS 4.10.2A R
  1. (1)

    3This rule applies to a firm that approves:

    1. (a)

      a direct offer financial promotion relating to a restricted mass market investment; or

    2. (b)

      a financial promotion relating to a non-mass market investment,

    for communication to a retail client.

  2. (2)

    A firm must take reasonable steps to ensure, on a continuing basis:

    1. (a)

      that the conditions specified in:

      1. (i)

        COBS 4.12A.15R(1)(b) are being satisfied in relation to each communication of the direct offer financial promotion relating to the restricted mass market investment;

      2. (ii)

        COBS 4.12B.10R(2)(b) are being satisfied in relation to each communication of the financial promotion relating to the non-mass market investment; and

    2. (b)

      if the firm will not itself carry out the appropriateness assessment required by COBS 4.12A.28R, that the appropriateness assessments undertaken comply with the rules specified in COBS 4.12A.28R.

  3. (3)

    If the firm is not satisfied that the relevant conditions are being satisfied or that the appropriateness assessments undertaken comply with the relevant rules then it must withdraw its approval of the financial promotion in accordance with COBS 4.10.2R(2).

COBS 4.10.2B G

3 COBS 4.11.6R requires a firm that approves a direct offer financial promotion relating to a restricted mass market investment for communication to a retail client to take reasonable steps to ensure that it is provided with, or has ready access to, information relating to the communication of the direct offer financial promotion. These records should assist the firm in complying with COBS 4.10.2AR.

COBS 4.10.2C G

6A firm is reminded of its obligations under ESG 4.3.1R when it communicates or approves a financial promotion that makes reference to the sustainability characteristics of a product or service.

COBS 4.10.3 G RP

  1. (1)

    Section 21(1) of the Act (Restrictions on financial promotion) prohibits an unauthorised person from communicating a financial promotion, in the course of business, unless an exemption applies or the financial promotion is approved by a firm. Many of the rules in this chapter apply when a firmapproves a financial promotion in the same way as when a firmcommunicates a financial promotion itself.

  2. (2)

    A firm may also wish to approve a financial promotion that it communicates itself. This would ensure that an unauthorised person who then also communicates the financial promotion to another person will not contravene the restriction on financial promotion in the Act (section 21).

  3. (3)

    Approving a financial promotion for communication by an unauthorised person is not MiFID, equivalent third country or optional exemption business2.

  4. (4)

    A firm may not approve a financial promotion relating to an unregulated collective investment scheme unless the firm would be able to communicate the promotion without breaching section 238(1) of the Act (see section 240 of the Act). The exemptions from that section in the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (as amended from time to time) are relevant.

  5. (5)

    The rules in COBS 4.12B prevent a firm from approving a financial promotion for a non-mass market investment for communication to retail clients unless an exemption applies. Where an exemption requires a preliminary assessment of suitability, the effect of COBS 4.12B.7R is that this assessment must be undertaken by the firmapproving the financial promotion.3

  6. (6)

    For the purposes of COBS 4.10.2R(1B), a financial promotion should be considered to be issued by an unauthorised person where that unauthorised person is responsible for the overall contents of the financial promotion (see also PERG 8.6.1G).3

  7. (7)

    The effect of COBS 4.10.2R(1A) and (2) and COBS 4.10.2AR(3) is that where a firm identifies that a financial promotion that it has approved is no longer compliant with the financial promotion rules, the firm must withdraw its approval.3

  8. (8)

    4A registered person is not able to approve a financial promotion.

COBS 4.10.3A G

3If a firm:

  1. (1)

    is unable to obtain an attestation required by COBS 4.10.2R(1B), that firm should consider whether to withdraw its approval;

  2. (2)

    in response to a request to provide an attestation, is informed of changes which indicate that the financial promotion no longer complies with the financial promotion rules, it must withdraw its approval,

in each case in accordance with COBS 4.10.2R(2).

COBS 4.10.4 R RP

A firm must not approve a financial promotion to be made in the course of a personal visit, telephone conversation or other interactive dialogue.

COBS 4.10.5 R RP

If a firmapproves a financial promotion in circumstances in which one or more of the financial promotion rules, or the prohibition on approval of promotions for collective investment schemes in section 240(1) of the Act (Restriction on approval), are expressly disapplied, the approval must be given on terms that it is limited to those circumstances.

COBS 4.10.6 G RP

For example, if a firmapproves a financial promotion for communication to a professional client or an eligible counterparty, the approval must be limited to communication to such persons.

COBS 4.10.7 G RP

If an approval is limited, and an unauthorised personcommunicates the financial promotion to persons not covered by the approval, the unauthorised person may commit an offence under the restriction on financial promotion in the Act (section 21). A firm giving a limited approval may wish to notify the unauthorised person accordingly.

COBS 4.10.7A G

3An approvedfinancial promotion that is addressed to, or disseminated in such a way that it is likely to be received by, a retail client is required to include the name of the firm that approved it and the date on which it was approved (COBS 4.5.2R).

Communicating financial promotions

COBS 4.10.8 G RP

If a firm continues to communicate a financial promotion when the financial promotion no longer complies with the rules in this chapter, it will breach those rules.

COBS 4.10.9 G RP

A financial promotion which is clearly only relevant at a particular date will not cease to comply with the financial promotion rules merely because the passage of time has rendered it out-of-date; an example would be a dated analyst's report.

Competence and expertise

COBS 4.10.9A R
  1. (1)

    3A firm must not communicate or approve a financial promotion unless the individual or individuals responsible for the compliance of the financial promotion with the financial promotion rules has or have appropriate competence and expertise.

  2. (2)

    Appropriate competence and expertise for the purposes of (1) means competence and expertise in the investment or financial service to which the financial promotion relates. It does not necessarily, for example, require competence or expertise in the day-to-day commercial activities of a company issuing securities for the purposes of raising capital.

  3. (3)

    If a firm (A) determines that it lacks appropriate competence and expertise in relation to a financial promotion, it must:

    1. (a)

      have another firm (B) confirm that the financial promotion complies with the financial promotion rules before A communicates that financial promotion; or

    2. (b)

      decline to approve that financial promotion.

  4. (4)

    4A registered person is not permitted to confirm the compliance of a financial promotion for the purpose of COBS 4.10.9AR(3).

COBS 4.10.9B R
  1. (1)

    3A firm must not confirm the compliance of a financial promotion for the purpose of COBS 4.10.9AR(3)(a) unless:

    1. (a)

      it is satisfied that the financial promotion complies with the financial promotion rules; and

    2. (b)

      the individual or individuals responsible for providing that confirmation has or have appropriate competence and expertise.

  2. (2)

    A firm must not confirm the compliance of a financial promotion to be made in the course of a personal visit, telephone conversation or other interactive dialogue.

Relying on another firm's confirmation of compliance

COBS 4.10.10 R RP

  1. (1)

    A firm (A) will not contravene any of the financial promotion rules if it communicates a financial promotion which has been produced by another person and:

    1. (a)

      A takes reasonable care to establish that another firm (B) has confirmed that the financial promotion complies with the financial promotion rules;

    2. (b)

      A takes reasonable care to establish that it communicates the financial promotion only to recipients of the type for whom it was intended at the time B carried out the confirmation exercise;5

    3. (c)

      so far as A is, or ought reasonably to be, aware:

      1. (i)

        the financial promotion has not ceased to be fair, clear and not misleading since that time; and

      2. (ii)

        B has not withdrawn the financial promotion; and5

    4. (d)

      5A takes reasonable care to establish that B did not breach the approver permission requirement in the context of confirming compliance.

  2. (2)

    This rule does not apply in relation to MiFID, equivalent third country or optional exemption business2.

COBS 4.10.11 G RP

A firm should inform anyone relying on its confirmation of compliance if it becomes aware that the financial promotion no longer complies with the rules in this chapter.

Conflicts of interest

COBS 4.10.12 R
  1. (1)

    3This rule applies to a firm that:

    1. (a)

      approves a financial promotion for communication by an unauthorised person; or

    2. (b)

      confirms the compliance of a financial promotion for the purposes of COBS 4.10.9AR(3)(a).

  2. (2)

    A firm must take all appropriate steps to identify and to prevent or manage conflicts of interest between the firm, including its managers, employees and appointed representatives (or, where applicable, tied agents), or any person directly or indirectly linked to them by control, and a person for whom the firm:

    1. (a)

      approves a financial promotion; or

    2. (b)

      confirms the compliance of a financial promotion.

COBS 4.11 Record keeping: financial promotion

General

COBS 4.11.1 R RP

  1. (1)

    A firm must make an adequate record of any financial promotion:10

    1. (a)

      it communicates;10

    2. (b)

      it approves; or10

    3. (c)

      of which it confirms compliance (COBS 4.10.9AR(3)(a)),10

    other than a financial promotion made in the course of a personal visit, telephone conversation or other interactive dialogue.

  2. (2)

    For a telemarketing campaign, a firm must make an adequate record of copies of any scripts used.

  3. (2A)

    [deleted] [Editor’s note: This provision now appears with minor amendments at COBS 4.11.4R]10

    5
  4. (2B)

    In respect of each financial promotion in (1), a firm must make an adequate record demonstrating how it has satisfied itself that it has the necessary competence and expertise required by COBS 4.10.9AR.10

  5. (3)

    A firm must retain the record in relation to a financial promotion relating to:

    1. (a)

      a pension transfer, pension conversion, 7pension opt-out or FSAVC, indefinitely;

    2. (b)

      a life policy, occupational pension scheme1, SSAS, personal pension scheme or stakeholder pension scheme, for six years;

    3. (c)

      MiFID or equivalent third country business, for five years; and

    4. (d)

      any other case, for three years.

  6. (4)

    4If a communication relates to a firm'sMiFID, equivalent third country or optional exemption business8, this section does not apply:4

    1. (a)

      to the extent that the communication is a third party prospectus;2

    2. (b)

      if it is image advertising;2

    3. (c)

      if it is a non-retail communication.2

  7. (5)

    4If a communication relates to a firm's business that is not MiFID or equivalent third country business, this section does not apply:4

    1. (a)

      to the extent that it is an excluded communication;

    2. (b)

      to the extent that it is a prospectus advertisement to which article 22 of the Prospectus Regulation9 applies;

    3. (c)

      if it is image advertising;

    4. (d)

      if it is a non-retail communication;2

    5. (e)

      [deleted]3

      3
    6. (f)

      to the extent that it relates to a pure protection contract that is a long-term care insurance contract2.

8

COBS 4.11.1A G

8A MiFID investment firm, third country investment firm or MiFID optional exemption firm should refer to the requirements on record keeping in the MiFID Org Regulation and SYSC 9.

COBS 4.11.2 G RP

A firm should consider maintaining a record of why it is satisfied that the financial promotion complies with the financial promotion rules.

COBS 4.11.3 G RP

If the financial promotion includes market information that is updated continuously in line with the relevant market, the record-keeping rules do not require a firm to record that information.

Promotions of restricted mass market investments and non-mass market investments

COBS 4.11.4 R

10If a firmcommunicates or approves a financial promotion which relates to a non-mass market investment where that financial promotion is addressed to or disseminated in such a way that it is likely to be received by a retail client:

  1. (1)

    the person allocated the compliance oversight function in the firm must make a record at or near the time of the communication or approval certifying that the promotion complies with the restrictions set out in section 238 of the Act and in COBS 4.12B, as applicable;

  2. (2)

    the making of the record required in (1) may be delegated to one or more employees of the firm who report to and are supervised by the person allocated the compliance oversight function, provided the process for certification of compliance has been reviewed and approved by the person allocated the compliance oversight function no more than 12 months before the date of the communication or approval of the promotion;

  3. (3)

    as part of the record required in (1), the firm must make a record of which exemption was relied on for the purposes of the promotion, together with the reason why the firm is satisfied that that exemption applies;

  4. (4)

    where the firm relies on an exemption that requires investor certification and warnings to investors, the record required in (1) must include a record of any certificate or investor statement (as signed by the investor) and of any warnings or indications required by the exemption;

  5. (5)

    if the rules in COBS 4.12B do not apply because the promotion is an excluded communication (COBS 4.12B.4R), the firm must identify in the record required in (1) which type of financial promotion defined as an excluded communication corresponds to the promotion being made, including, where applicable, which article in the Financial Promotion Order or in the Promotion of Collective Investment Schemes Order was relied on for the purposes of the promotion, together with the reason why the firm is satisfied that the exemption applies.

COBS 4.11.5 R
  1. (1)

    10This rule applies to a firm that communicates or may communicate a direct offer financial promotion in relation to a restricted mass market investment to which COBS 4.12A.15R applies.

  2. (2)

    A firm must make an adequate record of:

    1. (a)

      the categorisation of each retail client (COBS 4.12A.21R) and the evidence obtained in support of that categorisation;

    2. (b)

      where an appropriateness assessment is undertaken (COBS 4.12A.28R):

      1. (i)

        the total number of assessments undertaken;

      2. (ii)

        the number of assessments resulting in a determination that the investment was appropriate;

      3. (iii)

        the number of assessments resulting in a determination that the investment was not appropriate;

      4. (iv)

        in respect of each retail client, the outcome of the appropriateness process; and

      5. (v)

        in respect of each retail client, the number of times that retail client was subject to an appropriateness assessment in respect of the same investment.

COBS 4.11.6 R

10A firm that approves a direct offer financial promotion in relation to a restricted mass market investment to which COBS 4.12A.15R applies must take reasonable steps to ensure that:

  1. (1)

    adequate records of the information required by COBS 4.11.5R are made in connection with the communication of the direct offer financial promotion; and

  2. (2)

    the firm is provided with, or otherwise has ready access to, the records in (1).

COBS 4.11.7 R

10A firm must retain the records required by COBS 4.11.4R and COBS 4.11.5R for 5 years.

COBS 4.11.8 R

10Where a firm is required by COBS 4.12A.44R(2)(b) or COBS 4.12B.13R(2)(b) to maintain a record of its grounds for using an alternative form of risk summary, it must retain the record of its decision for 5 years.

COBS 4.12 6[deleted]

[Editor’s note: The substance of the provisions in COBS 4.12 are now incorporated in, and appear at, COBS 4.12B.]15

COBS 4.12A Promotion of restricted mass market investments

Purpose

COBS 4.12A.1 G

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.2 R
COBS 4.12A.3 R

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.4 R

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.5 G

1 COBS 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.6 G

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.7 R
  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.8 G

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.9 G

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

Risk warning

COBS 4.12A.10 R

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.11 R
  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.12 G
  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 personarranginginvestments 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.13 G
  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.14 G
  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.15 R
  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.16 G

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 approveddirect 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.17 R

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.18 R
  1. (1)

    1The first condition is that following the retail client's request to receive the direct offer financial promotion, the firm, or other personcommunicating 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.19 G

1 COBS 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.20 R
  1. (1)

    1Subject to (1A) below, the 2second condition is that before communicating the direct offer financial promotion, the firm, or other personcommunicating 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.21 R

1The third condition is that before communicating the direct offer financial promotion, the firm, or other personcommunicating 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.22 R
  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.23 E

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.24 G

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.25 G
  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.26 R

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.27 G
  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.28 R
  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.29 G
  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.30 R

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.31 R
  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.32 R
  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.33 G

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.34 G

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.35 G
  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.36 R
  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.37 G
  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.38 R

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.39 G

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.40 R

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.41 G
  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.42 R

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).

COBS 4.12B Promotion of non-mass market investments

Application

COBS 4.12B.1 R

1This section applies to:

  1. (1)

    firms;

  2. (2)

    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

  3. (3)

    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,

when approving or communicatingfinancial promotions in relation to non-mass market investments.

COBS 4.12B.2 G

1In addition to the persons listed in COBS 4.12B.1R, persons (including unauthorised persons) who benefit from a temporary exemption or exclusion from the general prohibition under:

  1. (1)

    Part 7 of the EU Exit Passport Regulations; or

  2. (2)

    Part 4 of the Electronic Commerce and Solvency 2 (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/1361),

are required to comply with the rules in this section as a consequence of:

  1. (3)

    regulation 59 of the EU Exit Passport Regulations; or

  2. (4)

    regulation 19 of the Electronic Commerce and Solvency 2 (Amendment etc.) (EU Exit) Regulations 2019.

COBS 4.12B.3 R

1Throughout this section, references to a firm include a TP firm and a Gibraltar-based firm.

COBS 4.12B.4 R

1This section does not apply to:

  1. (1)

    excluded communications; or

  2. (2)

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

Purpose and overview of the rules

COBS 4.12B.5 G
  1. (1)

    1The rules in this section are intended to ensure that financial promotions relating to non-mass market investments are not communicated to ordinary retail investors. They do not apply to excluded communications, to financial promotions to the extent that they relate to local authority securities or to financial promotions insofar as they are directed at clients other than retail clients.

  2. (2)

    The rules in this section reflect the often complex and high-risk nature of non-mass market investments.

  3. (3)

    The rules in this section therefore restrict firms from approving or communicatingfinancial promotions in relation to non-mass market investments which are addressed to, or disseminated in such a way that they are likely to be received by, a retail client, subject to certain exemptions.

  4. (4)

    The exemptions referred to in (3) are set out in COBS 4.12B.7R(5).

  5. (5)
    1. (a)

      Firms must also comply with COBS 4.12B.7R(1)(b) and the rules in COBS 4.12B.14R to COBS 4.12B.30R (see (b) below) where:

      1. (i)

        the financial promotion relates to a non-mass market investment; and

      2. (ii)

        the firm wishes to rely on exemptions 9 (certified high net worth investors), 10 (certified sophisticated investors) or 11 (self-certified sophisticated investors).

    2. (b)

      COBS 4.12B.7R(1)(b) and COBS 4.12B.14R to COBS 4.12B.31G cover:

      1. (i)

        preliminary assessment of suitability (in relation to exemptions 9 and 11);

      2. (ii)

        personalised risk warning, risk summary and cooling off period;

      3. (iii)

        risk warnings; and

      4. (iv)

        monetary and non-monetary incentives.

  6. (6)

    Where the financial promotion relates to a speculative illiquid security, firms must also comply with COBS 4.12B.32R, COBS 4.12B.33R and COBS 4.12B.35R which relate to the disclosure of costs, charges and commission.

  7. (7)

    The table below explains how the rules apply and to which non-mass market investments the rules apply, after the provisions in COBS 4.12B.4R have been applied.

  8. Handbook provision

    Description of the provision

    Which investments does the provision apply to

    When does the provision apply

    COBS 4.12B.6R

    Firms must not communicate or approvefinancial promotions in relation to non-mass market investments to retail clients

    All non-mass market investments other than units in unregulated collective investment schemes

    At all times.

    COBS 4.12B.7R(1)(b)

    Firms must carry out a preliminary assessment of suitability

    All non-mass market investments

    Before the financial promotion is communicated to a certified high net worth investor or self-certified sophisticated investor in reliance on the relevant exemption in COBS 4.12B.7R(5)

    COBS 4.12B.14R and COBS 4.12B.15R

    Firms must ensure that a personalised risk warning and summary of the risks is made available to the client and a period of at least 24 hours (the ‘cooling off period’) is applied before the financial promotion is communicated

    All non-mass market investments except for securities in a closed-ended investment fund (i) 2applying for, or with, a premium listing and (ii) 2which complies with the requirements of LR 15

    Before the financial promotion is communicated to a certified high net worth investor, self-certified sophisticated investor or certified sophisticated investor, in reliance on the relevant exemption in COBS 4.12B.7R(5)

    COBS 4.12B.17R

    Restrictions on monetary and non-monetary benefits being included within the financial promotions

    All non-mass market investments

    At the time the financial promotion is communicated to a certified high net worth investor, self-certified sophisticated investor or certified sophisticated investor, in reliance on the relevant exemption in COBS 4.12B.7R(5)

    COBS 4.12B.20R , COBS 4.12B.21R, COBS 4.12B.24R, and COBS 4.12B.26R

    Firms must ensure that a risk warning is provided to the client

    All non-mass market investments except for securities in a closed-ended investment fund (i) 2applying for, or with, a premium listing; and (ii) 2 which complies with the requirements of LR 15

    At the time the financial promotion is communicated to a certified high net worth investor, self-certified sophisticated investor or certified sophisticated investor, in reliance on the relevant exemption in COBS 4.12B.7R(5)

    COBS 4.12B.32R , COBS 4.12B.33R, and COBS 4.12B.35R

    Firms must ensure that statements disclosing all costs, charges and commission are provided to the client

    Only speculative illiquid securities

    At the time the financial promotion is communicated to a certified high net worth investor, self-certified sophisticated investor or certified sophisticated investor, in reliance on the relevant exemption in COBS 4.12B.7R(5)

  9. (8)

    There is guidance in COBS 4.12B.43G to 4.12B.45G on the application of the exemptions set out in the table in COBS 4.12B.7R(5).

Promotion of non-mass market investments

COBS 4.12B.6 R
  1. (1)

    1A firm must not communicate or approve a financial promotion which relates to a non-mass market investment where that financial promotion is addressed to, or disseminated in such a way that it is likely to be received by, a retail client.

  2. (2)

    The restriction in (1) is subject to COBS 4.12B.7R and does not apply to units in unregulated collective investment schemes, which are subject to a statutory restriction on promotion in section 238 of the Act.

Exemptions from the restrictions on the promotion of non-mass market investments

COBS 4.12B.7 R
  1. (1)

    1The restriction in COBS 4.12B.6R does not apply if the following conditions are met:

    1. (a)

      the financial promotion falls within an applicable exemption in the first column in the table in (5) because either:

      1. (i)

        it is made to, or directed at, only those recipients whom the firmcommunicating the financial promotion has taken reasonable steps to establish are persons in the second column of the table; or

      2. (ii)

        the firmapproving the financial promotion has taken reasonable steps to establish that the financial promotion will be made to, or directed at, only those recipients who are persons in the second column of the table;

    2. (b)

      where the third column of the table refers to the need for a preliminary assessment of suitability, that assessment is undertaken before the financial promotion is made to or directed at the recipient;

    3. (c)

      the firm complies with the relevant rules in COBS 4.12B.14R to 4.12B.35R relating to the use of exemptions 9 (certified high net worth investors), 10 (certified sophisticated investors) or 11 (self-certified sophisticated investors), as provided by COBS 4.12B.7R(5).

  2. (2)

    For the purposes of COBS 4.12B.7R(1)(a), a firm will have taken reasonable steps to establish that the recipients of the financial promotion are persons in the second column of the table where the firm has:

    1. (a)

      obtained the relevant completed certificate from the retail client; and

    2. (b)

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

  3. (3)

    Where a firmapproves or communicates a financial promotion the preliminary assessment of suitability required by COBS 4.12B.7R(1)(b) must be undertaken by that firm.

  4. (4)

    A firm may rely on more than one exemption in relation to the same financial promotion.

  5. (5)

    Title of Exemption

    Promotion to:

    Promotion of non-mass market investment which is:

    Exemptions applicable to promotions of non-mainstream pooled investments only:

    1. Replacement products and rights issues

    A person who already participates in, owns, holds rights to or interests in, a non-mainstream pooled investment that is being liquidated or wound down or which is undergoing a rights issue. [See Note 1.]

    1. A non-mainstream pooled investment which is intended by the operator or manager to absorb or take over the assets of that non-mainstream pooled investment, or which is being offered by the operator or manager of that non-mainstream pooled investment as an alternative to cash on its liquidation;

    or

    2. Securities offered by the existing non-mainstream pooled investment as part of a rights issue.

    2. Enterprise and charitable funds

    A person who is eligible to participate or invest in an arrangement constituted under:

    (1) the Church Funds Investment Measure 1958 (available at www.legislation.gov.uk/ukcm/Eliz2/6-7/1/2014-01-01);

    (2) section 96 or 100 of the Charities Act 2011 (available at www.legislation.gov.uk/ukpga/2011/25/2014-01-01);

    (3) section 25 of the Charities Act (Northern Ireland) 1964 (available at www.legislation.gov.uk/apni/1964/33/section/25/2014-01-01);

    (4) the Regulation on European Venture Capital Funds (‘EuVECAs’) or the RVECA Regulation (‘RVECAs’); or

    (5) the Regulation on European Social Entrepreneurship Funds (‘EuSEFs’) or the SEF Regulation (‘SEFs’).

    Any non-mainstream pooled investment which is such an arrangement.

    3. Eligible employees

    An eligible employee, that is, a person who is:

    (1) an officer;

    (2) an employee;

    (3) a former officer or employee; or

    (4) a member of the immediate family of any of (1) – (3), of an employer which is (or is in the same group as) the firm, or which has accepted responsibility for the activities of the firm in carrying out the designated investment business in question.

    1. A non-mainstream pooled investment, the instrument constituting which:

    A. restricts the property of the non-mainstream pooled investment, apart from cash and near cash, to:

    (1) (where the employer is a company) shares in and debentures of the company or any other connected company; [See Note 2.]

    (2) (in any case), any property, provided that the non-mainstream pooled investment takes the form of:

    (i) a limited partnership, under the terms of which the employer (or connected company) will be the unlimited partner and the eligible employees will be some or all of the limited partners; or

    (ii) a trust which the firm reasonably believes not to contain any risk that any eligible employee may be liable to make any further payments (other than charges) for investment transactions earlier entered into, which the eligible employee was not aware of at the time he entered into them; and

    B. (in a case falling within A(1) above) restricts participation in the non-mainstream pooled investment to eligible employees, the employer and any connected company.

    2. Any non-mainstream pooled investment, provided that the participation of eligible employees is to facilitate their co-investment:

    (i) with one or more companies in the same group as their employer (which may include the employer); or

    (ii) with one or more clients of such a company.

    4. Members of the Society of Lloyd’s

    A person admitted to membership of the Society of Lloyd’s or any person by law entitled or bound to administer his affairs.

    A scheme in the form of a limited partnership which is established for the sole purpose of underwriting insurance business at Lloyd’s.

    5. Exempt Persons

    An exempt person (other than a person exempted only by section 39 of the Act (Exemption of appointed representatives) (available at www.legislation.gov.uk/ukpga/2000/8/section/39/2014-01-01) if the financial promotion relates to a regulated activity in respect of which the person is exempt from the general prohibition.

    Any non-mainstream pooled investment.

    6. Non-retail clients

    An eligible counterparty or a professional client.

    Any non-mainstream pooled investment in relation to which the client is categorised as a professional client or eligible counterparty. [See Note 4.]

    7. Solicited advice

    Any person.

    Any non-mainstream pooled investment, provided the communication meets all of the following requirements:

    (a) the communication only amounts to a financial promotion because it is a personal recommendation on a non-mainstream pooled investment;

    (b) the personal recommendation is made following a specific request by that client for advice on the merits of investing in the non-mainstream pooled investment; and

    (c) the client has not previously received a financial promotion or any other communication from the firm (or from a person connected to the firm) which is intended to influence the client in relation to that non-mainstream pooled investment [See Note 3.]

    8. US persons

    A person who is classified as a United States person for tax purposes under United States legislation or who owns a US qualified retirement plan.

    Any investment company registered and operated in the United States under the Investment Company Act 1940.

    Exemptions applicable to promotions of all non-mass market investments:

    9. Certified high net worth investor

    An individual who meets the requirements set out in COBS 4.12B.38R or a person (or persons) legally empowered to make investment decisions on behalf of such an individual.

    Any non-mass market investment the firm considers is likely to be suitable for that individual, based on a preliminary assessment of the client’s profile and objectives. [See COBS 4.12B.9G(2).]

    10. Certified sophisticated investor

    An individual who meets the requirements set out in COBS 4.12B.39R, including an individual who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm’sclient.

    Any non-mass market investment.

    11. Self-certified sophisticated investor

    An individual who meets the requirements set out in COBS 4.12B.40R, including an individual who is legally empowered (solely or jointly with others) to make investment decisions on behalf of another person who is the firm’sclient.

    Any non-mass market investment the firm considers is likely to be suitable for that individual, based on a preliminary assessment of the client’s profile and objectives.

    [See COBS 4.12B.9G(2)].

    The following Notes explain certain words and phrases used in the table above.

    Note 1

    Promotion of non-mainstream pooled investments to a category of person includes any nominee company acting for such a person.

    Note 2

    A company is ‘connected’ with another company if:

    they are both in the same group; or

    one company is entitled, either alone or with another company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to the share capital, which are exercisable in all circumstances at any general meeting of the other company or of its holding company.

    Note 3

    A person is connected with a firm if it acts as an introducer or appointed representative for that firm or if it is any other person, regardless of authorisation status, who has a relevant business relationship with the firm.

    Note 4

    In deciding whether a promotion is permitted under the rules of this section or under section 238 of the Act, firms may use the client categorisation regime that applies to business other than MiFID or equivalent third country business. (This is the case even if the firm will be carrying on a MiFID activity at the same time as or following the promotion.)

COBS 4.12B.8 R

1A firm may communicate an invitation or inducement to participate in an unregulated collective investment scheme without breaching the restriction on promotion in section 238 of the Act if the promotion falls within an exemption in the table in COBS 4.12B.7R(5) and is in accordance with COBS 4.12B.7R(1).

Advice and preliminary assessment of suitability

COBS 4.12B.9 G
  1. (1)

    1Where a firm communicates any promotion of a non-mass market investment in the context of advice, it should have regard to and comply with its obligations under COBS 9 or 9A (as applicable). Firms should also be mindful of the appropriateness requirements in COBS 10 and 10A which apply to a wide range of non-advised services.

  2. (2)
    1. (a)

      The effect of COBS 4.12B.7R(1)(b) is that where a firm wishes to rely on exemptions 9 (certified high net worth investors) or 11 (self-certified sophisticated investors), as provided by COBS 4.12B.7R(5), the preliminary assessment of suitability must be undertaken before promotion of the non-mass market investment is made to or directed at clients (in addition to other requirements). Where a firmapproves or communicates a financial promotion the preliminary assessment of suitability must be undertaken by that firm as required by COBS 4.12B.7R(3).

    2. (b)

      There is no duty to communicate the preliminary assessment of suitability to the client. If the firm does so, it must not do so in a way that amounts to making a personal recommendation unless it complies with the rules in COBS 9 or 9A (as applicable) on suitability.

    3. (c)

      The requirement for a preliminary assessment of suitability does not extend to a full suitability assessment, unless advice is being offered in relation to the non-mass market investment being promoted, in which case the requirements in COBS 9 or 9A apply (as applicable). However, it requires that the firm takes reasonable steps to acquaint itself with the client’s profile and objectives in order to ascertain whether the non-mass market investment under contemplation is likely to be suitable for that client. The firm should not promote the non-mass market investment to the client if it does not consider it likely to be suitable for that client following such preliminary assessment.

Promotions to certified high net worth investors, certified sophisticated investors or self-certified sophisticated investors

COBS 4.12B.10 R
  1. (1)

    1COBS 4.12B.10R to COBS 4.12B.31G apply to financial promotions which:

    1. (a)

      relate to non-mass market investments ; and

    2. (b)

      are communicated, or are to be communicated, to certified high net worth investors, certified sophisticated investors or self-certified sophisticated investors for the purposes of the exemptions in COBS 4.12B.7R(5).

  2. (2)

    A firm may only rely on exemptions 9 (certified high net worth investors), 10 (certified sophisticated investors) or 11 (self-certified sophisticated investors) to:

    1. (a)

      communicate a financial promotion to which this rule applies if the firm has complied with the rules in COBS 4.12B.14R to COBS 4.12B.35R, as appropriate; or

    2. (b)

      approve for communication a financial promotion to which this rule applies if the firm is satisfied that the rules in COBS 4.12B.14R to COBS 4.12B.35R, as appropriate, will be satisfied in relation to each communication of the financial promotion.

  3. (3)

    The conditions in COBS 4.12B.14R (personalised risk warning) and COBS 4.12B.15R (cooling off period) do not need to be satisfied if the retail client has previously received a financial promotion relating to a non-mass market investment from the same person as would otherwise need to satisfy them.

COBS 4.12B.11 G

1Where a firm is relying on exemptions 9 (certified high net worth investors), 10 (certified sophisticated investors) or 11 (self-certified sophisticated investors), in accordance with COBS 4.12B.7R(1)(a), it must first take reasonable steps to establish that the retail client falls into one of those categories and then the firm must undertake a preliminary assessment of suitability in accordance with COBS 4.12B.7R(1)(b), where relevant. Once a firm has completed these steps, it must comply with the rules in COBS 4.12B.14R to COBS 4.12B.35R.

COBS 4.12B.12 G

1The effect of COBS 4.12B.10R(3) and related provisions in this section is that a personalised risk warning and cooling off period are only required on the first occasion that a firm, or other personcommunicating a financial promotion, communicates a financial promotion relating to a non-mass market investment to a particular retail client.

Risk summaries

COBS 4.12B.13 R

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)

    provide 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 4.12B.13A G

1For the purposes of COBS 4.12B.13R(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.

This list is not exhaustive.

Prior conditions for communication to certified high net worth investors, certified sophisticated investors or self-certified sophisticated investors

COBS 4.12B.14 R
  1. (1)

    1The first condition is that before communicating the financial promotion, the firm, or other personcommunicating the 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. How would you feel if you lost the money you’re about to invest? Take 2 mins to learn more.

  2. (2)

    If the 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) 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 non-mass market investment that is the subject of the 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 financial promotion.

  3. (3)

    If the 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) must 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 non-mass market investment that is the subject of the 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 financial promotion.

  4. (4)

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

  5. (5)

    The condition is only satisfied if the retail client specifies that they wish to continue to receive the financial promotion.

  6. (6)

    This rule does not apply to a financial promotion of a closed-ended investment fund applying for, or with, a premium listing and which complies with the requirements of LR 15.

  7. (7)

    The personalised risk warning required by (2)(a) and the risk summary required by (2)(b) must comply with COBS 4.12B.28R and COBS 4.12B.30R.

  8. (8)

    The risk summary required by (3)(a)(ii) must comply with COBS 4.12B.24R and COBS 4.12B.26R.

COBS 4.12B.15 R
  1. (1)

    1The second condition applies if a retail client requests to view a financial promotion of a non-mass market investment (including of a security in a closed-ended investment fund applying for, or with, a premium listing and which complies with the requirements of LR 15).

  2. (2)

    The second condition is that, before communicating the financial promotion, the firm or other personcommunicating the financial promotion:

    1. (a)

      allows a period of at least 24 hours (the ‘cooling off period’) to elapse;

    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 financial promotion; and

    3. (c)

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

  3. (3)

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

COBS 4.12B.16 G

1 COBS 4.12B.15R 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 4.12B.14R and obtaining the information necessary to undertake the preliminary assessment of suitability required by COBS 4.12B.7R(1)(b).

Restrictions on monetary and non-monetary incentives

COBS 4.12B.17 R
  1. (1)

    1A firm must not communicate or approve a financial promotion which relates to a non-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 to 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.

COBS 4.12B.18 G

1For the purposes of COBS 4.12B.17R monetary and non-monetary incentives include, but are not limited to:

  1. (1)

    offering bonuses when investing in a non-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 non-mass market investment;

  4. (4)

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

  5. (5)

    offering free gifts once an investment in a non-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 4.12B.19 G

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

Risk warning to be included in the financial promotion

COBS 4.12B.20 R

1A firm must not communicate or approve a financial promotion which relates to a non-mass market investment unless it contains a risk warning that complies with COBS 4.12B.21R.

COBS 4.12B.21 R
  1. (1)

    1For the purposes of COBS 4.12B.20R the financial promotion must contain the following risk warning:

    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. (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, the following risk warning must be used:

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

  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 non-mass market 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 in a durable medium relating to the type of non-mass market investment that is the subject of the financial promotion selected from COBS 4 Annex 1R.

  5. (5)
    1. (a)

      A firm must omit the words “and you are unlikely to be protected if something goes wrong” from the risk warning required by (1) if the conditions in (b) apply.

    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)

    This rule does not apply to a financial promotion of a closed-ended investment fund applying for, or with, a premium listing and which complies with the requirements of LR 15.

  7. (7)

    The risk warning required by (1) or (2) and the risk summary required by (4)(b) must comply with COBS 4.12B.24R and COBS 4.12B.26R.

  8. (8)

    The risk summary required by (3)(a)(ii) must comply with COBS 4.12B.28R and COBS 4.12B.30R.

COBS 4.12B.22 G
  1. (1)

    1Reference in COBS 4.12B.21R(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 or a personarranginginvestments.

  2. (2)

    A firm relying on COBS 4.12B.21R(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 4.12B.21R(5)(c).

COBS 4.12B.23 G

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 be provided with an appropriate risk summary in a durable medium at or around the time that the financial promotion is communicated (COBS 4.12B.21R(4)).

Requirements of risk warnings and non-digital risk summaries

COBS 4.12B.24 R
  1. (1)

    1The relevant risk warning in COBS 4.12B.21R(1) or (2) and the relevant risk summaries in COBS 4.12B.14R(3)(a)(ii) and COBS 4.12B.21R(4)(b) 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 4.12B.21R or COBS 4 Annex 1R.

  2. (2)

    The relevant risk warning in COBS 4.12B.21R(1) or (2) must, if the financial promotion is, or is to be, communicated by means of a website or mobile application:

    1. (a)

      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. (b)

      be included as described in (a) on each linked webpage on the website or page on the application relating to the non-mass market investment.

COBS 4.12B.25 G

1The FCA expects firms to take account of the latest version of the international Web Content Accessibility Guidelines (WCAG) accessibility standard when designing how the risk warning will be displayed: https://www.w3.org/WAI/WCAG21/quickref/

COBS 4.12B.26 R

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 4.12B.27 G

1For the purposes of COBS 4.12B.26R, 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 4.12B.28 R

1The relevant personalised risk warning in COBS 4.12B.14R(2) and the relevant risk summaries in COBS 4.12B.14R(2)(b) and COBS 4.12B.21R(3)(a)(ii) 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 4.12B.14R(1)(b) 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 4.12B.29 G

1The FCA expects firms to take account of the latest version of the international Web Content Accessibility Guidelines (WCAG) accessibility standard when designing how the personalised risk warning or risk summary will be displayed: https://www.w3.org/WAI/WCAG21/quickref/

COBS 4.12B.30 R

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 4.12B.31G

1For the purposes of COBS 4.12B.30R, 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.

Further requirement to include a statement of costs, charges and commission where the financial promotion relates to speculative illiquid securities

COBS 4.12B.32R

1A firm must not communicate or approve a financial promotion which relates to a speculative illiquid security to, or for communication to, a retail client unless it contains statements that comply with COBS 4.12B.33R.

COBS 4.12B.33R

1For the purposes of COBS 4.12B.32R, the financial promotion must contain:

  1. (1)

    a statement which expresses as a percentage the total amount of the capital raised by the issue of the speculative illiquid security which will be paid out in costs, fees, charges and commissions and other expenses to any third party;

  2. (2)

    a statement which expresses as a cash sum the percentage referred to in (1) above; and

  3. (3)

    in addition to the statements in (1) and (2) above, a statement which provides a breakdown of the actual or potential expenditure to be paid out of an investor’s capital and details of the third party (or parties) who will receive it.

COBS 4.12B.34G
  1. (1)

    1There is an illustration of how a firm should comply with COBS 4.12B.33R(2) in (2) below.

  2. (2)

    Where a firm pays 30% of the total amount of capital raised by the issue of speculative illiquid securities towards costs, fees, charges and commissions and other expenses to any third party, the statement should say: “For every £100 you invest, £30 will be paid to third parties to meet costs, fees, charges and commissions.

COBS 4.12B.35R

1The statements providing the percentage figure in COBS 4.12B.33R(1) and the cash sum in COBS 4.12B.33R(2) must:

  1. (1)

    be prominent;

  2. (2)

    be contained together within their own border and with bold text;

  3. (3)

    immediately follow the most prominent reference to the expected return on the speculative illiquid security; an

  4. (4)

    be published so that they are clearly legible against a neutral background.

COBS 4.12B.36G

1The statement providing the breakdown of expenditure in COBS 4.12B.33R(3) should be included in the financial promotion in a clear and prominent way.

COBS 4.12B.37G

1The purpose of the statements required by COBS 4.12B.33R is to enable an investor to consider the proportion of capital raised by an issue of a speculative illiquid security that will not be invested. This information should help the investor to assess the risk that the issuer will be unable to pay any advertised interest payments, other income or otherwise to repay the investor’s capital at maturity.

Definition of sophisticated and high net worth investors

COBS 4.12B.38R

1A certified high net worth investor is an individual who has completed and signed, within the period of twelve months ending on the day on which the communication is made, a statement in the terms set out in COBS 4 Annex 2R, and whose completion of the statement indicates that they meet the relevant criteria to be categorised as such.

COBS 4.12B.39R

1A certified sophisticated investor is an individual:

  1. (1)

    who has a written certificate signed within the last 36 months by a firm confirming they have been assessed by that firm as sufficiently knowledgeable to understand the risks associated with engaging in investment activity in non-mass market investments; and

  2. (2)

    who has completed and signed, within the period of twelve months ending on the day on which the communication is made, a statement in the terms set out in COBS 4 Annex 3R, and whose completion of the statement indicates that they meet the relevant criteria to be categorised as such.

COBS 4.12B.40R

1A self-certified sophisticated investor is an individual who has completed and signed, within the period of twelve months ending on the day on which the communication is made, a statement in the terms set out in COBS 4 Annex 4R, and whose completion of the statement indicates that they meet the relevant criteria to be categorised as such.

COBS 4.12B.41G

1Where the financial promotion will relate to more than one type of non-mass market investment, the retail client may sign a combined statement that meets the requirements in COBS 4 Annex 2R to COBS 4 Annex 4R, as applicable, in respect of each type of non-mass market investment to which the financial promotion will relate.

COBS 4.12B.42R

1A firm must not:

  1. (1)

    influence, or seek to influence, the information that a retail client provides when completing a certificate for the purposes of COBS 4.12B.38R to COBS 4.12B.40R; 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 certified high net worth investor, certified sophisticated investor or self-certified sophisticated investor, as applicable.

Sophisticated and high net worth investors: guidance on certification by authorised person and reliance on self-certification

COBS 4.12B.43G
  1. (1)

    1A firm which wishes to rely on any of the certified high net worth investor exemptions (see Part I of the Schedule to the Promotion of Collective Investment Schemes Order, Part I of Schedule 5 to the Financial Promotion Order and COBS 4.12B.38R) should have regard to its duties under the Principles and the client's best interests rule. In particular, the firm should take reasonable steps to ascertain that the retail client does, in fact, meet the income and net assets criteria set out in the relevant statement for certified high net worth investors.

  2. (2)

    In addition, the firm should consider whether the promotion of the non-mass market investment is in the interests of the retail client and whether it is fair to make the promotion to that client on the basis that the client is a certified high net worth investor, having regard to the generally complex nature of non-mass market investments. A retail client who meets the criteria for a certified high net worth investor but not for a certified sophisticated investor may be unable to properly understand and evaluate the risks of the non-mass market investment in question.

COBS 4.12B.44G
  1. (1)

    1A firm which is asked to or proposes to assess and certify a retail client as a certified sophisticated investor (see article 23 of the Promotion of Collective Investment Schemes Order, article 50 of the Financial Promotion Order and COBS 4.12B.39R) should have regard to its duties under the Principles and the client's best interests rule. In particular, the firm should carry out that assessment with due skill, care and diligence, having regard to the generally complex nature of non-mass market investments and the level of experience, knowledge and expertise that the retail client being assessed must possess in order to be fairly and reasonably assessed and certified as a sophisticated investor.

  2. (2)
    1. (a)

      For example, a retail client whose investment experience is limited to mainstream investments such as regularly traded securities issued by listed companies, life policies or units in regulated collective investment schemes (other than qualified investor schemes) is generally unlikely to possess the requisite knowledge to adequately understand the risks associated with investing in non-mass market investments.

    2. (b)

      In exceptional circumstances, however, the retail client may have acquired the requisite knowledge through means other than their own investment experience, for example, if the retail client is a professional of several years’ experience with the design, operation or marketing of complex investments such as options, futures, contracts for differences or non-mass market investments.

COBS 4.12B.45G
  1. (1)

    1A firm which wishes to rely on any of the self-certified sophisticated investor exemptions (see Part II of the Schedule to the Promotion of Collective Investment Schemes Order, Part II of Schedule 5 to the Financial Promotion Order and COBS 4.12B.40R) should have regard to its duties under the Principles and the client's best interests rule. In particular, the firm should consider whether the promotion of the non-mass market investment is in the interests of the client and whether it is fair to make the promotion to that client on the basis of self-certification.

  2. (2)

    For example, it is unlikely to be appropriate for a firm to make a promotion under any of the self-certified sophisticated investor exemptions without first taking reasonable steps to satisfy itself that the investor does in fact have the requisite experience, knowledge or expertise to understand the risks of the non-mass market investment in question. A retail client who meets the criteria for a self-certified sophisticated investor but not for a certified sophisticated investor may be unable to properly understand and evaluate the risks of a non-mass market investment.

One-off promotions

COBS 4.12B.46G
  1. (1)

    1A firm which wishes to rely on one of the one-off promotion exemptions provided by the Promotion of Collective Investment Schemes Order or the Financial Promotion Order to promote a non-mass market investment to a retail client should have regard to its duties under the Principles and the client’s best interests rule. In particular, the firm should consider whether the financial promotion of the non-mass market investment is in the interests of the client and whether it is fair to make the financial promotion to that client on the basis of a one-off promotion exemption.

  2. (2)

    The one-off promotion exemptions permit the promotion of investments to clients under certain conditions (see PERG 8.14.3G to PERG 8.14.13G for guidance on the scope of the one-off exemptions in the Financial Promotion Order). Firms should note that, in the FCA’s view, promotion of a non-mass market investment to a retail client who is not a certified high net worth investor, a certified sophisticated investor or a self-certified sophisticated investor is unlikely to be appropriate or in that client’s best interests.

Qualified investor schemes

COBS 4.12B.47G
  1. (1)

    1A firm which wishes to promote units in a qualified investor scheme to a retail client in circumstances where the firm considers the financial promotion to be an excluded communication (see COBS 4.12B.4R(1)) should have regard to its duties under the Principles and the client’s best interests rule.

  2. (2)

    As explained in COLL 8.1, qualified investor schemes are intended only for professional clients and retail clients who are sophisticated investors. Firms should note that, in the FCA’s view, promotion of units in a qualified investor scheme to a retail client who is not a certified sophisticated investor or a self-certified sophisticated investor is unlikely to be appropriate or in that client’s best interests.

COBS 4.12B.48G

[deleted.]2

Electronic documents

COBS 4.12B.49G

1In this section:

  1. (1)

    any requirement that a document is signed may be satisfied by an electronic signature or electronic evidence of assent; and

  2. (2)

    any references to writing should be construed in accordance with GEN 2.2.14R and its related guidance provisions.

Definition of speculative illiquid security

COBS 4.12B.50R

1Subject to COBS 4.12B.52R to COBS 4.12B.54R, a speculative illiquid security is a debenture or preference share which:

  1. (1)

    has a denomination or minimum investment of less than £100,000 (or an equivalent amount as defined in COBS 4.12B.51R); and

  2. (2)

    has been issued, or is to be issued, in circumstances where the issuer or a member of the issuer’sgroup uses, will use or purports to use some or all of the proceeds of the issue directly or indirectly for one or more of the following:

    1. (a)

      the provision of loans or finance to any person other than a member of the issuer’sgroup;

    2. (b)

      buying or acquiring specified investments (whether they are to be held directly or indirectly);

    3. (c)

      buying or acquiring investments other than specified investments (whether they are to be held directly or indirectly);

    4. (d)

      buying real property or an interest in real property (whether it is to be held directly or indirectly);

    5. (e)

      paying for or funding the construction of real property.

COBS 4.12B.51R

1For the purposes of COBS 4.12B.50R(1):

  1. (1)

    an equivalent amount in relation to an amount denominated in any currency other than sterling is an amount of equal value denominated wholly or partly in another currency; and

  2. (2)

    the equivalent amount is to be calculated at the latest practicable date before (but in any event not more than three business days before) the date of the issue of debentures or preference shares.

COBS 4.12B.52R

1A debenture or preference share that does not otherwise fall within COBS 4.12B.50R is not a speculative illiquid security by virtue only of the fact that the proceeds of the issue are used to buy or acquire specified investments as part of the ordinary cash management activities or treasury functions of an issuer (or its group) carrying on a general commercial or industrial purpose as defined in COBS 4.12B.54R(1).

COBS 4.12B.53R

1For the purposes of COBS 4.12B.50R, and notwithstanding the exemption for readily realisable securities in COBS 4.12B.54R(3)(d), a debenture is also a speculative illiquid security if:

  1. (1)

    it meets the conditions set out in COBS 4.12B.50R; and

  2. (2)

    it:

    1. (a)

      is admitted to official listing on an exchange in the United Kingdom or an EEA State; and

    2. (b)

      is not regularly traded on or under the rules of such an exchange; or

  3. (3)

    it:

    1. (a)

      is a newly issued debenture which can be reasonably expected to be admitted to official listing on an exchange in the United Kingdom or an EEA State; and

    2. (b)

      cannot reasonably be expected to be regularly traded on or under the rules of such an exchange when it begins to be traded.

COBS 4.12B.54R

1A debenture or preference share is not a speculative illiquid security where one or more of the exemptions in (1), (3) or (4) below applies.

  1. (1)

    This exemption applies where:

    1. (a)

      the issuer or a member of the issuer’sgroup uses the proceeds of the issue for the purpose of the activities in COBS 4.12B.50R(2)(c) (buying or acquiring investments other than specified investments), (d) (buying real property or an interest in real property) or (e) (paying for or funding the construction of real property); and

    2. (b)

      the relevant property or investment is or will be used by the issuer or a member of the issuer’sgroup for a general commercial or industrial purpose which it carries on.

  2. (2)

    The exemption in (1) will not apply in respect of a debenture or preference share within COBS 4.12B.50R(2)(d) or (e) if the ability of the issuer to pay in relation to the debenture or preference share:

    1. (a)

      any coupon or other income; and/or

    2. (b)

      capital at maturity,

    is wholly or predominantly linked to, contingent on, highly sensitive to, or dependent, on a return generated as a result of the matters referred to in COBS 4.12B.50R(2)(d) or (e).

  3. (3)

    This exemption applies where the debenture or preference share is:

    1. (a)

      issued, or to be issued, by a credit institution;

    2. (b)

      issued, or to be issued, by an investment trust;

    3. (c)

      a non-mainstream pooled investment;

    4. (d)

      a readily realisable security except for a debenture within COBS 4.12B.53R; or

    5. (e)

      a P2P agreement.

  4. (4)

    This exemption applies where:

    1. (a)

      the issuer is:

      1. (i)

        a property holding vehicle; or

      2. (ii)

        a single-company holding vehicle;

    2. (b)

      any financial promotions made relating to the investment comply with COBS 4.12A as appropriate; and

    3. (c)

      any financial promotion made relating to a single-company holding vehicle clearly and prominently states which single company the investment relates to.

COBS 4.12B.55R
  1. (1)

    1For the purposes of COBS 4.12B.54R(1)(b), a general commercial or industrial purpose includes the following:

    1. (a)

      a commercial activity, involving the purchase, sale and/or exchange of goods or commodities and/or the supply of services; or

    2. (b)

      an industrial activity involving the production of goods; or

    3. (c)

      a combination of (a) and (b).

  2. (2)

    For the purposes of COBS 4.12B.54R(1)(b), a general commercial or industrial purpose does not include:

    1. (a)

      investment to generate a pooled return;

    2. (b)

      property development or construction services; and

    3. (c)

      hiring, leasing or rental services.

Guidance on general commercial or industrial purpose

COBS 4.12B.56G
  1. (1)

    1COBS 4.12B.50R provides that a debenture or preference share will fall within the definition of a speculative illiquid security where the proceeds of the issue are to be used by the issuer or a member of the issuer’sgroup to fund various activities including buying or acquiring investments (other than specified investments) or the buying or construction of real property.

  2. (2)

    However, COBS 4.12B.54R(1) provides an exemption in cases where the investments (other than specified investments) that are bought or acquired, or the property which is bought or constructed are or will be used by the issuer or a member of the issuer’s group for a general commercial or industrial purpose which it carries on.

  3. (3)

    General commercial or industrial purpose is defined in COBS 4.12B.55R.

  4. (4)

    The effect of the exemption in COBS 4.12B.54R(1) is that a debenture or preference share will not be a speculative illiquid security where the proceeds of the issue are used by the issuer or a member of the issuer’sgroup to buy or acquire investments (other than specified investments), or to buy or construct real property, and the relevant investments or property are or will be used by the issuer or group member for the purposes of its own commercial or industrial activities. This is illustrated in the examples in (5) and (6) below.

  5. (5)

    In relation to COBS 4.12B.50R(2)(c) (buying or acquiring investments other than specified investments):

    1. (a)

      where a company issues a debenture or preference share and uses the proceeds to purchase IT equipment for use in its business, to the extent that the IT equipment might be considered an investment, the debenture or preference share will benefit from the exemption because the IT equipment is used by the company for its own commercial activities (in this case, for use by its staff to provide services to customers);

    2. (b)

      where a supermarket chain issues a debenture or preference share and uses the proceeds to purchase stock (for example wine) for sale as part of its retail business, to the extent that the wine might be considered an investment, the debenture or preference share will benefit from the exemption because the wine is used by the supermarket for its own commercial activities (in this case, to sell it on to its retail customers for a profit);

    3. (c)

      where a company issues a debenture or preference share and uses the proceeds to buy or acquire art or fine wine as an investment, it will not benefit from the exemption because the art or fine wine will not be used by the company itself for its own commercial activities; if the art or fine wine is used to generate a pooled return, then the exemption would also not apply as a result of COBS 4.12B.55R(2)(a); and

    4. (d)

      where a company issues a debenture or preference share and uses the proceeds to purchase IT equipment for the purpose of hiring or leasing those out to another company, it will not benefit from the exemption because it is not using the IT equipment for its own commercial activities and hiring and leasing services are excluded from the definition of general commercial or industrial purpose as a result of COBS 4.12B.55R(2)(c).

  6. (6)

    In relation to COBS 4.12B.50R(2)(d) or (e) (buying or constructing real property):

    1. (a)

      where a retailer issues a debenture or preference share and uses the proceeds to build a shop, the debenture or preference share will benefit from the exemption because the property is used by the retailer for its own commercial activities (in this case, the sale of goods);

    2. (b)

      where a property developer issues a debenture or preference share and uses the proceeds to fund the costs of a property development or construction of property, which is intended to be sold or rented out for commercial purposes or as residential dwellings, it will not benefit from the exemption because the development will not be used by the developer itself, and property development and construction services are excluded from the definition of general commercial or industrial purpose (see COBS 4.12B.55R(2)(b));

    3. (c)

      where a company issues a debenture or preference share to fund the costs of constructing a power station which the company intends to operate itself with a view to selling the electricity it produces, the debenture or preference share will benefit from the exemption (unless COBS 4.12B.54R(2) applies). That is because it will use the property for its own commercial or industrial activities (generating electricity). However, firms should also consider COBS 4.12B.54R(2) and the guidance in (7) below.

  7. (7)

    COBS 4.12B.54R(2) provides that the general commercial or industrial purposes exemption does not apply where the ability of the issuer to pay the coupon or other income or to repay capital on maturity in relation to the debenture or preference share is wholly or predominantly linked to, contingent on, highly sensitive to, or dependent on, a return generated as a result of the matters referred to in COBS 4.12B.50R(2)(d) or (e) (buying or construction of real property).

  8. (8)

    The effect of the above is that where a company issues a debenture or preference share for the purpose of buying real property, an interest in real property or funding the construction of a particular project and the company’s ability to pay interest on the debenture or preference share or repay capital depends on the success of that purchase or project, the exemption in COBS 4.12B.54R(1) will not apply. In those circumstances, the debenture or preference share will be a speculative illiquid security unless one of the other exemptions in COBS 4.12B.54R applies.

COBS 4.13 UCITS

Application

COBS 4.13.1 R RP
  1. (1)

    1This section applies to a firm in relation to a communication to a client, including an excluded communication, that is a marketing communication within the meaning of the UCITS Directive.

  2. (2)

    This section does not apply to:

    1. (a)

      image advertising; or

    2. (b)

      the instrument constituting the fund2, the prospectus, the key investor information3 or the periodic reports and accounts of a UCITS scheme4.

      2

[Note: recital (58) of the UCITS Directive]

Marketing communications relating to UCITS schemes

COBS 4.13.2 R RP
  1. (1)

    A firm must ensure that a marketing communication that comprises an invitation to purchase units in a UCITS scheme4 and that contains specific information about the scheme:

    1. (a)

      makes no statement that contradicts or diminishes the significance of the information contained in the prospectus and the key investor information document4 for the scheme;

    2. (b)

      indicates that a prospectus exists for the scheme and that the key investor information document4 is available; and

    3. (c)

      specifies where and in which language such information or documents may be obtained by investors or potential investors or how they may obtain access to them.

  2. (2)

    Where a UCITS scheme4 may invest more than 35% of its scheme property in transferable securities and money market instruments issued or guaranteed by the United Kingdom or4 an EEA State, one or more of its local authorities, a third country or a public international body to which the United Kingdom or4 one or more EEA States belong, the firm must ensure that a marketing communication relating to the scheme contains a prominent statement drawing attention to the investment policy and indicating the particular states, local authorities4 or public international bodies in the securities of which the scheme intends to invest or has invested more than 35% of its scheme property.

  3. (3)

    Where a UCITS scheme4 invests principally in units in collective investment schemes, deposits or derivatives, or replicates a stock or debt securities index in accordance with COLL 5.2.31 R (Schemes replicating an index)4, the firm must ensure that a marketing communication relating to the scheme contains a prominent statement drawing attention to the investment policy.

  4. (4)

    Where the net asset value of a UCITS scheme or 4has, or is likely to have, high volatility owing to its portfolio composition or the portfolio management techniques that are or may be used, the firm must ensure that a marketing communication relating to the scheme contains a prominent statement drawing attention to that characteristic.

[Note: articles 54(3), 70(2), 70(3) and 77 of the UCITS Directive]

Marketing communications relating to a feeder UCITS

COBS 4.13.3 R RP

A firm must ensure that a marketing communication (other than a key investor information document4) relating to a feeder UCITS contains a statement that the feeder UCITS permanently invests at least 85% in value of its assets in units of its master UCITS.

[Note: article 63(4) of the UCITS Directive]

COBS 4.14 [deleted]

[deleted]3

COBS 4 Annex 1 Risk summaries

COBS 4 Annex 1R R

1This Annex belongs to COBS 4.12A.11R, COBS 4.12A.20R, COBS 4.12B.14R and COBS 4.12B.21R1.

Where a risk summary in this Annex includes two or three alternative formulations of text in square brackets, the first should be used where the person offering the investment is not an authorised person (including a registered person) 3 and the second where the person offering the investment is an authorised person. The third alternative formulation should be used instead of the first or second formulations where the investment is a unit in an unregulated collective investment scheme3. A firm should select the correct statement in the relevant section and omit the statement(s) in that section that are not appropriate. Firms should omit square brackets.

Where a risk summary in this Annex includes only one available statement in relation to unregulated collective investment schemes, firms should use this where the investment is a unit in an unregulated collected investment scheme. This text should not be used when the investment is not a unit in an unregulated collective investment scheme. Firms should omit square brackets.

Where a risk summary in this Annex includes a web address in square brackets:

• where the risk summary is provided through a digital medium, this web address and square brackets should be omitted, and the preceding underlined text should link to the web address specified in the square brackets;

• where the risk summary is provided through a non-digital medium, this web address and square brackets should be omitted and firms should amend the text to make it appropriate for the non-digital setting, pointing the reader to the relevant web address.

The risk summary in (1) is expected ordinarily to be used where a financial promotion will be communicated by a firm intermediating investment in non-readily realisable securities by way of an online platform. The risk summaries in (3) and (4) are expected ordinarily to be used where a financial promotion will be communicated by an issuer of non-readily realisable securities or a firm intermediating investment in non-readily realisable securities other than by way of an online platform.

1

Risk summary for investments in non-readily realisable securities which are arranged by a firm by way of an online platform

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you invest

• Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.

• Certain of these investments can be held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential returns will be tax free.

• Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

2. You won’t get your money back quickly

• Even if the business you invest in is successful, it will likely take several years to get your money back.

• The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.

• Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.

• Some platforms may give you the opportunity to sell your investment early through a ‘secondary market’ or ‘bulletin board’, but there is no guarantee you will find a buyer at the price you are willing to sell.

3. Don’t put all your eggs in one basket

• Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. [https://www.fca.org.uk/investsmart/5-questions-ask-you-invest]

4. The value of your investment can be reduced

• If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.

• These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

5. You are unlikely to be protected if something goes wrong

• Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. [https://www.fscs.org.uk/check/investment-protection-checker/]

• Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here. [https://www.financial-ombudsman.org.uk/consumers].

If you are interested in learning more about how to protect yourself, visit the FCA’s website here. [ https://www.fca.org.uk/investsmart ] For further information about investment-based crowdfunding, visit the FCA’s website here. [ https://www.fca.org.uk/consumers/crowdfunding ]

2

Risk summary for P2P agreements or P2P portfolios

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose the money you invest

• Many peer-to-peer (P2P) loans are made to borrowers who can’t borrow money from traditional lenders such as banks. These borrowers have a higher risk of not paying you back.

• Advertised rates of return aren’t guaranteed. If a borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money.

• These investments can be held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free.

2. You are unlikely to get your money back quickly

• Some P2P loans last for several years. You should be prepared to wait for your money to be returned even if the borrower repays on time.

• Some platforms may give you the opportunity to sell your investment early through a ‘secondary market’, but there is no guarantee you will be able to find someone willing to buy.

• Even if your agreement is advertised as affording early access to your money, you will only get your money early if someone else wants to buy your loan(s). If no one wants to buy, it could take longer to get your money back.

3. Don’t put all your eggs in one basket

• Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments. [https://www.fca.org.uk/investsmart/5-questions-ask-you-invest]

4. The P2P platform could fail

• If the platform fails, it may be impossible for you to collect money on your loan. It could take years to get your money back, or you may not get it back at all. Even if the platform has plans in place to prevent this, they may not work in a disorderly failure.

5. You are unlikely to be protected if something goes wrong

• The Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover investments in P2P loans. You may be able to claim if you received regulated advice to invest in P2P, and the adviser has since failed. Try the FSCS investment protection checker here. [https://www.fscs.org.uk/check/investment-protection-checker/]

• Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here. [https://www.financial-ombudsman.org.uk/consumers]

If you are interested in learning more about how to protect yourself, visit the FCA’s website here . [ https://www.fca.org.uk/investsmart ]

For further information about peer-to-peer lending (loan-based crowdfunding), visit the FCA’s website here . [ https://www.fca.org.uk/consumers/crowdfunding ]

3

Risk summary for non-readily realisable securities which are shares

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you invest

• If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.

2. You are unlikely to be protected if something goes wrong

• [The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. [https://www.fscs.org.uk/what-we-cover/investments/]] or

[Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. [https://www.fscs.org.uk/check/investment-protection-checker/]]

• [The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm] or [Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it.] Learn more about FOS protection here. [https://www.financial-ombudsman.org.uk/consumers]

3. You won’t get your money back quickly

• Even if the business you invest in is successful, it may take several years to get your money back. You are unlikely to be able to sell your investment early.

• The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.

• If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-up businesses rarely pay these.

4. Don’t put all your eggs in one basket

• Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments. [https://www.fca.org.uk/investsmart/5-questions-ask-you-invest]

5. The value of your investment can be reduced

• The percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.

• These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here . [ https://www.fca.org.uk/investsmart ]

4

Risk summary for non-readily realisable securities which are debentures

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you invest

• If the business you are investing in fails, there is a high risk that you will lose your money. Most start-up and early-stage businesses fail.

• Advertised rates of return aren’t guaranteed. This is not a savings account. If the borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

• These investments are sometimes held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free.

2. You are unlikely to be protected if something goes wrong

• [The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. [https://www.fscs.org.uk/what-we-cover/investments/]] or

[Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. [https://www.fscs.org.uk/check/investment-protection-checker/]]

• [The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm] or [Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it.] Learn more about FOS protection here. [https://www.financial-ombudsman.org.uk/consumers]

3. You are unlikely to get your money back quickly

• Many bonds last for several years, so you should be prepared to wait for your money to be returned even if the business you’re investing in repays on time.

• You are unlikely to be able to cash in your investment early by selling your bond. You are usually locked in until the business has paid you back over the period agreed.

4. Don’t put all your eggs in one basket

• Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments. [https://www.fca.org.uk/investsmart/5-questions-ask-you-invest]

If you are interested in learning more about how to protect yourself, visit the FCA’s website here . [ https://www.fca.org.uk/investsmart ]

5

Risk summary for speculative illiquid securities

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

• If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies.

• Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

• These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

• [The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. [https://www.fscs.org.uk/what-we-cover/investments/]] or

[Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. [https://www.fscs.org.uk/check/investment-protection-checker/]]

• [The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm] or [Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it]. Learn more about FOS protection here. [https://www.financial-ombudsman.org.uk/consumers]

3. You are unlikely to get your money back quickly

• This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money.

• You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

• This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

• This makes it difficult to predict how risky the investment is, but it will most likely be high.

• You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

• Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments. [https://www.fca.org.uk/investsmart/5-questions-ask-you-invest]

If you are interested in learning more about how to protect yourself, visit the FCA’s website here . [ https://www.fca.org.uk/investsmart ]

For further information about minibonds, visit the FCA’s website here. [https://www.fca.org.uk/consumers/mini-bonds]

6

Risk summary for non-mainstream pooled investments

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

• If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies.

• Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

• These investments are very occasionally held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

• [The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. [https://www.fscs.org.uk/what-we-cover/investments/]] or

[Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. [https://www.fscs.org.uk/check/investment-protection-checker/]] or

[The Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover investments in unregulated collective investment schemes. You may be able to claim if you received regulated advice to invest in one, and the adviser has since failed. Try the FSCS investment protection checker here. [https://www.fscs.org.uk/check/investment-protection-checker/]]

• [The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm] or [Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it.] Learn more about FOS protection here. [https://www.financial-ombudsman.org.uk/consumers]

3. You are unlikely to get your money back quickly

• This type of business could face cash-flow problems that delay payments to investors. It could also fail altogether and be unable to repay any of the money owed to you.

• You are unlikely to be able to cash in your investment early by selling your investment. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

• You may have to pay exit fees or additional charges to take any money out of your investment early.

4. This is a complex investment

• This kind of investment has a complex structure based on other risky investments, which makes it difficult for the investor to know where their money is going.

• This makes it difficult to predict how risky the investment is, but it will most likely be high.

• You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

• Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments. [https://www.fca.org.uk/investsmart/5-questions-ask-you-invest]

If you are interested in learning more about how to protect yourself, visit the FCA’s website here. [https://www.fca.org.uk/investsmart]

[For further information about unregulated collective investment schemes (UCIS), visit the FCA’s website here. [https://www.fca.org.uk/consumers/unregulated-collective-investment-schemes]]

7

2Risk summary for units in a long-term asset fund

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You should be ready to invest for the long term and, during this time, the value of your investment may go up or down. You may lose money on your investment.

• Assets in this fund may take a long time to buy and sell.

• Long-Term Asset Funds (LTAFs) can invest into fixed assets, infrastructure, or complex financial products, all of which are relatively hard to sell. Investors who do not remain invested for the long-term may not get back all of their money. It may take many years to make a profit on the investment.

• You should carry out your own research, so that you understand what you are investing in.

2. If you decide to exit early, you won’t get your money back quickly

• This LTAF accepts requests to sell units only once a month and there is also a 90-day waiting period before the value of your units is determined and you receive your money. This means that:

o If you choose to sell your units on 2 January, and the trading day is the 15th of the month, you won’t get any money back until approximately 20 April, assuming a few extra days for the trade to close and funds to transfer.

o The value of the units you sell will be at the price set on 15 April if it is a business day, or else the next business day after it.

• Once your redemption request has been approved, you cannot cancel your request.

3. It will take a long time to make profits

• If the assets the LTAF invests in are successful, it may still take a long time to get your money back and make a profit.

• You should not expect to get your money back as payments of income (unless the LTAF includes payments of income as an investment objective).

4. Don’t put all your eggs in one basket

• Putting all your money into a single investment or type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

5. You are unlikely to be protected if something goes wrong

• Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Learn more about FSCS protection here [https://www.fscs.org.uk/check/investment-protection-checker/].

• Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here https://www.financial-ombudsman.org.uk/consumers].

38

Risk summary for qualifying cryptoassets

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you invest

• The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.

• The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.

2. You should not expect to be protected if something goes wrong

• The Financial Services Compensation Scheme (FSCS) doesn’t protect this type of investment because it’s not a ‘specified investment’ under the UK regulatory regime – in other words, this type of investment isn’t recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here. [https://www.fscs.org.uk/check/investment-protection-checker/]

  • [The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm] or [Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it.] Learn more about FOS protection here. [https://www.financial-ombudsman.org.uk/consumers]

3. You may not be able to sell your investment when you want to

• There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.

• Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.

4. Cryptoasset investments can be complex

• Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.

• You should do your own research before investing. If something sounds too good to be true, it probably is.

5. Don’t put all your eggs in one basket

• Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments. [https://www.fca.org.uk/investsmart/5-questions-ask-you-invest]

If you are interested in learning more about how to protect yourself, visit the FCA’s website here. [ https://www.fca.org.uk/investsmart ]

For further information about cryptoassets, visit the FCA’s website here. [ https://www.fca.org.uk/investsmart/crypto-basics ]

COBS 4 Annex 2 Certified high net worth investor statement

COBS 4 Annex 2R R

1This Annex belongs to COBS 4.12A.22R and COBS 4.12B.38R.

COBS4_Annex_2_1
COBS4_Annex_2_2

COBS 4 Annex 3 Certified sophisticated investor statement

COBS 4 Annex 3R R

1This Annex belongs to COBS 4.12A.22R and COBS 4.12B.39R.

Firms must omit the notes and square brackets which appear in the following form of certificate.

COBS4_Annex_3_1

Note 1: The firm must insert the type of investment in relation to which the client wishes to be categorised for the purpose of receiving financial promotions.

COBS 4 Annex 4 Self-certified sophisticated investor statement

COBS 4 Annex 4R R

1This Annex belongs to COBS 4.12A.22R and COBS 4.12B.40R.

Firms must omit the notes and square brackets which appear in the following form of certificate.

COBS4_Annex_4_1
COBS4_Annex_4_2

Note 1: The firm must insert the type of investment in relation to which the client wishes to be categorised for the purpose of receiving financial promotions.

COBS 4 Annex 5 Restricted investor statement

COBS 4 Annex 5R R

1This Annex belongs to COBS 4.12A.22R.

COBS4_Annex_5_20231008 3
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