COBS 18

Specialist Regimes

COBS 18.1

Trustee Firms

Application

COBS 18.1.1

See Notes

handbook-rule
(1) This section applies to the MiFID or equivalent third country business carried on by a trustee firm.
(2) It does not apply to a trustee firm when acting as:
(a) a depositary; or

Application of COBS to trustee firms

COBS 18.1.2

See Notes

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

COBS 18.1.3

See Notes

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

Duties of trustee firms under the general law

COBS 18.1.4

See Notes

handbook-guidance

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

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

Considering and complying with applicable COBS rules

COBS 18.1.5

See Notes

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

References to "client" in applicable COBS rules

COBS 18.1.6

See Notes

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

COBS 18.2

Energy market activity and oil market activity

Energy market activity and oil market activity - MiFID business

COBS 18.2.1

See Notes

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

COBS 18.2.2

See Notes

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

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

COBS 18.2.3

See Notes

handbook-rule

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

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

COBS 18.2.4

See Notes

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

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

COBS 18.2.5

See Notes

handbook-rule

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

  1. (1) commodity futures; or
  2. (2) commodity options; or
  3. (3) contracts for differences related to an underlying commodity; or
  4. (4) other futures or contracts for differences which are not related to commodities, financial instruments or cash;
  5. which is not MiFID or equivalent third country business and energy market activity or oil market activity.

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

COBS 18.2.6

See Notes

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

Exceptions to best execution

COBS 18.2.7

See Notes

handbook-rule

The duty to provide best execution does not apply where:

  1. (1) the firm has agreed with a professional client that it does not owe a duty of best execution to him; or
  2. (2) the firm relies on another person to whom it passes a customer order for execution to provide best execution, but only if it has taken reasonable care to ensure that he will do so.

Providing best execution

COBS 18.2.8

See Notes

handbook-rule

To provide best execution, a firm must:

  1. (1) take reasonable care to ascertain the price which is the best available for the customer order in the relevant market at the time for transactions of the kind and size concerned; and
  2. (2) execute the customer order at a price which is no less advantageous to the customer, unless the firm has taken reasonable steps to ensure that it would be in the customer's best interests not to do so.

COBS 18.2.9

See Notes

handbook-evidential-provisions
  1. (1) In order to take reasonable care to ascertain the price which is the best available, a firm:
    1. (a) should disregard any charges and commission made by it or its agents that are disclosed to the customer under COBS 6.1.9 R (Information about costs and associated charges);
    2. (b) need not have access to competing exchanges, or to all, or a minimum number of, available price sources; but if a firm can access prices displayed by different exchanges and trading platforms and make a direct and immediate comparison, it should execute the customer order at the best price available to the firm on such exchanges or trading platforms, if this is in the best interests of the customer;
    3. (c) should pass on to the customer the price at which it executes the transaction to meet the customer order; and
    4. (d) should not take a mark-up or mark-down from the price at which it executes the customer order.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with the requirement to take reasonable care to ascertain the price which is the best available for the customer order (see COBS 18.2.8 R (1))
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of the requirement to take reasonable care to ascertain the price which is the best available for the customer order (see COBS 18.2.8 R (1))

COBS 18.3

Corporate finance business

Corporate finance business - MiFID business

COBS 18.3.1

See Notes

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

COBS 18.3.2

See Notes

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

Corporate finance business - non-MiFID business

COBS 18.3.3

See Notes

handbook-rule
Only the provisions of COBS in the table apply to corporate finance business carried on by a firm which is not MiFID or equivalent third country business.

COBS 18.3.4

See Notes

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

COBS 18.4

Stock lending activity

COBS 18.4.1

See Notes

handbook-rule
The provisions of COBS in the table do not apply in relation to any stock lending activity carried on by a firm which is MiFID or equivalent third country business:

COBS 18.4.2

See Notes

handbook-guidance
The provisions of COBS in the table are unlikely to be relevant in relation to any stock lending activity carried on by a firm which is MiFID or equivalent third country business:

COBS 18.5

Operators of collective investment schemes

Application

COBS 18.5.1

See Notes

handbook-rule
This section applies to a firm which is an operator of a collective investment scheme.

Application or modification of general COBS rules for operators

COBS 18.5.2

See Notes

handbook-rule

An operator when it is carrying on scheme management activity:

  1. (1) must comply with the COBS rules specified in the table, as modified by this section; and
  2. (2) need not comply with any other rule in COBS.

Table: Application of conduct of business rules
Application of conduct of business rules

Additional application of COBS rules for management companies

COBS 18.5.2A

See Notes

handbook-rule

A management company must:

  1. (1) in addition to complying with the COBS rules specified in COBS 18.5.2 R, comply with COBS 11.7 (Personal account dealing); and
  2. (2) comply with COBS 2.3 (Inducements) as modified by COBS 2.3.2A R

[Note: article 13(1) to 13(4) of the UCITS implementing Directive]

General modifications

COBS 18.5.3

See Notes

handbook-rule

The COBS rules specified in the table in COBS 18.5.2 R apply to an operator when it is carrying on scheme management activity with the following modifications:

  1. (1) subject to (2), references to customer or client are to be construed as references to any scheme in respect of which the operator is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on;
  2. (2) in the case of an unregulated collective investment scheme, when an operator is required by the rules in COBS to provide information to, or obtain consent from, a customer or client, the operator must ensure that the information is provided to, or consent obtained from, a participant or a potential participant in the scheme as the case may be; and
  3. (3) references to the service of portfolio management in COBS 11.2 and 11.3 and COBS 11.5 (Record keeping: client orders and transactions) are to be construed as references to the management by an operator of financial instruments held for or within the scheme of which it is the operator.

Modification of best execution for operators of unregulated collective investment schemes

COBS 18.5.4

See Notes

handbook-rule

The best execution provisions applying to an operator of a collective investment scheme do not apply in relation to an unregulated collective investment scheme whose scheme documents include a statement that best execution does not apply in relation to the scheme and in which:

  1. (1) no participant is a retail client; or
  2. (2) no current participant in the scheme was a retail client on joining the scheme as a participant.

Scheme documents for an unregulated collective investment scheme

COBS 18.5.5

See Notes

handbook-rule
An operator of an unregulated collective investment scheme must not accept a retail client as a participant in the scheme unless it has taken reasonable steps to offer and, if requested, provide to the potential participant scheme documents which adequately describe how the operation of the scheme is governed.

Format and content of scheme documents

COBS 18.5.6

See Notes

handbook-guidance
An operator's scheme documents may consist of any number of documents provided that it is clear that collectively they constitute the scheme documents and provided the use of several documents in no way diminishes the significance of any of the statements which are required to be given to the potential participant.

COBS 18.5.7

See Notes

handbook-guidance
The scheme documents of an unregulated collective investment scheme (if they exist) should make it clear that if a participant is reclassified as a retail client, this reclassification will not affect certain scheme management activities of the operator of the scheme. In particular, despite such a reclassification, the operator will not be required to comply with the best execution provisions applying to an operator of a collective investment scheme. It should be noted that there is no requirement that scheme documents must be produced for an unregulated collective investment scheme.

COBS 18.5.8

See Notes

handbook-rule

Where the scheme is an unregulated collective investment scheme and no current participant in the scheme was a retail client on joining the scheme as a participant, the scheme documents must include a statement that:

  1. (1) explains that if a participant is reclassified as a retail client subsequent to joining the scheme as a participant, then the operator may continue to treat all participants in the scheme as though they were not retail clients;
  2. (2) explains that if a participant is reclassified as a retail client subsequent to joining the scheme as a participant, then the modification of best execution (see COBS 18.5.5 R) will continue to apply to that scheme; and
  3. (3) explains that, in the event of such a reclassification, the operator will not be required to provide best execution in relation to the scheme.

COBS 18.5.9

See Notes

handbook-guidance
The operator will still have to comply with other COBS provisions as a result of the reclassification of a participant as a retail client, for example, the requirement to provide periodic statements to participants who are retail clients in an unregulated collective investment scheme (see the rule on periodic statements for an unregulated collective investment scheme (COBS 18.5.11)).

Adequate information

COBS 18.5.10

See Notes

handbook-evidential-provisions
  1. (1) In order to provide adequate information to describe how the operation of the scheme is governed, an operator of an unregulated collective investment scheme should include in the scheme documents a provision about each of the items of relevant information set out in the following table (Content of scheme documents).
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with COBS 18.5.5 R.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of COBS 18.5.5 R.
Table: Content of scheme documents
Content of scheme documents

Periodic statements for an unregulated collective investments scheme

COBS 18.5.11

See Notes

handbook-rule
An operator of an unregulated collective investment scheme must, subject to the exceptions from the requirement to provide a periodic statement, provide to participants in the scheme, promptly and at suitable intervals, a statement in a durable medium which contains adequate information on the value and composition of the portfolio of the scheme at the beginning and end of the period of the statement.

Promptness, suitable intervals and adequate information

COBS 18.5.12

See Notes

handbook-evidential-provisions
  1. (1) An operator should act in accordance with the provisions in the right hand column of the periodic statements table (see COBS 18.5.15E) to fulfil the requirement to prepare and issue periodic statements indicated in the left hand column against these provisions.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with the requirement to prepare and issue periodic statements.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of the requirement to prepare and issue periodic statements.

Exceptions from the requirement to provide a periodic statement

COBS 18.5.13

See Notes

handbook-rule
  1. (1) An operator of an unregulated collective investment scheme need not provide a periodic statement:
    1. (a)
      1. (i) to a participant in the scheme who is a retail client ordinarily resident outside the United Kingdom; or
      2. (ii) to a participant in the scheme who is a professional client; if the participant has so requested or the operator has taken reasonable steps to establish that the participant does not wish to receive it; or
    2. (b) if it would duplicate a statement to be provided by someone else.
  2. (2) For a firm acting as an outgoing ECA provider, the exemption for retail client participants ordinarily resident outside the United Kingdom applies only to a participant in the scheme who is a retail client ordinarily resident outside the EEA.

Record keeping requirements

COBS 18.5.14

See Notes

handbook-rule
An operator of an unregulated collective investment scheme must make a copy of any periodic statement it has provided in accordance with the requirement to prepare and issue periodic statements to participants in the scheme. The record must be retained for a minimum period of three years.

COBS 18.5.15

See Notes

handbook-evidential-provisions
Table: Periodic statements
This table belongs to COBS 18.5.12 E.

COBS 18.5.16

See Notes

handbook-guidance

Examples of uncovered open positions include:

  1. (1) selling a call option on an investment not held in the portfolio;
  2. (2) unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable investments denominated in that currency; and
  3. (3) transactions having the effect of selling an index to an amount greater than the portfolio's holdings of investments included in that index.

COBS 18.5.17

See Notes

handbook-evidential-provisions
Table: General contents of a periodic statement
This table belongs to COBS 18.5.15 E.

COBS 18.5.18

See Notes

handbook-evidential-provisions
Table: Contents of a periodic statement in respect of contingent liability investments
This table belongs to COBS 18.5.15 E.

COBS 18.6

Lloyd's

Application

COBS 18.6.1

See Notes

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

COBS rules that apply to Lloyd's market activities

COBS 18.6.2

See Notes

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

COBS 18.6.3

See Notes

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

Definitions and modifications

The Principles and Lloyd's market activities

COBS 18.6.5

See Notes

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

COBS 18.7

Depositaries

COBS 18.7.1

See Notes

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

COBS 18.8

OPS firms - non scope business

COBS 18.8.1

See Notes

handbook-rule

COBS applies to an OPS firm when it carries on business which is not MiFID or equivalent third country business, with the following modifications:

  1. (1) references to client are to be taken to be references to the OPS or welfare trust, as the case may be, in respect of which the OPS firm is acting or intends to act, and with or for the benefit of whom the relevant business is to be carried on;
  2. (2) if an OPS firm is required by any COBS rule to provide information to, or obtain consent from, a client, that firm must ensure that the information is provided to, or consent obtained from, each of the trustees of the OPS or welfare trust for whom that firm is acting; and
  3. (3) COBS is modified by the addition of the rules in the table below:

COBS 18.8.2

See Notes

handbook-rule
Where an OPS firm conducts OPS activity and is obliged to provide a periodic statement, the periodic statement must contain the information in the table below.

COBS 18.8.3

See Notes

handbook-rule
COBS 8 (Client agreements) does not apply to an OPS firm, where the OPS firm is carrying on designated investment business as part of its OPS activity in relation to an occupational pension scheme of which it is a trustee.

COBS 18.9

ICVCs

COBS 18.9.1

See Notes

handbook-rule
(1) The financial promotion rules in COBS apply to an ICVC, except that COBS 4.13 (UCITS) applies only to an ICVC that is a UCITS scheme.
(2) COBS 14.2 (Providing product information to clients) applies to an ICVC that is a UCITS scheme.

COBS 18.9.2

See Notes

handbook-guidance
Firms should note that the operator of an ICVC when it is undertaking scheme management activity will be subject to COBS 18.5.2R.

COBS 18.10

UCITS qualifiers and service companies

COBS 18.10.1

See Notes

handbook-rule
The COBS provisions in the table apply to a UCITS qualifier and a service company:

COBS 18.11

Authorised professional firms

COBS 18.11.1

See Notes

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

COBS 18.11.2

See Notes

handbook-rule

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

  1. (1) the fair, clear and not misleading rule applies;
  2. (2) the financial promotion rules apply as modified below;
  3. (3) COBS 7 (Insurance mediation) applies but only if the designated professional body of the firm does not have rules approved by the FSA under section 332(5) of the Act that implement articles 12 and 13 of the Insurance Mediation Directive and that apply to the firm;
  4. (4) COBS 8.1.3 R (Client agreements) applies, except for the requirement to provide information on conflicts of interest; and
  5. (5) COBS 5.2 (E-commerce) applies.

COBS 18.11.3

See Notes

handbook-rule

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

  1. (1) the firm's main business is the practice of its profession (see IPRU(INV) 2.1.2R(3));
  2. (2) the financial promotion is made for the purposes of and incidental to the promotion or provision by the firm of its professional services or its non-mainstream regulated activities; and
  3. (3) the financial promotion is not communicated on behalf of another person who would not be able lawfully to communicate the financial promotion if he were acting in the course of business;
however, a firm may use the exemptions for promoting unregulated collective investment schemes in COBS 4 (Communicating with clients, including financial promotions) if it wishes.

COBS 18.11.4

See Notes

handbook-guidance
The rules on approving financial promotions continue to apply.