Providing product information to clients

Part

COBS Conduct of Business Sourcebook

Chapter

Providing product information to clients

Printed on: 06/11/2024

Rulebook at: 01/10/2008

COBS 14

Providing product information to clients

COBS 14.1

Interpretation

01/11/2007

COBS 14.1.1

In this chapter:

(1) 'retail client' includes the trustee or operator of a stakeholder pension scheme or personal pension scheme and the trustee of a money-purchase occupational pension scheme; and
(2) 'sell' includes 'sell, personally recommend or arrange the sale of' in relation to a designated investment and equivalent activities in relation to a cash-deposit ISA and cash-deposit CTF.

01/11/2007

COBS 14.2

Providing product information to clients

01/11/2007

The provision rules

COBS 14.2.1

A firm that sells:

(1) a packaged product to a retail client, must provide a key features document and a key features illustration to that client (unless the packaged product is a unit in a simplified prospectus scheme or an EEA simplified prospectus scheme);
(2) a life policy that is not a reinsurance contract to a client, must provide the Consolidated Life Directive information to that client;
(3) the variation of a life policy or personal pension scheme to a retail client, must provide that client with sufficient information about the variation for the client to be able to understand the consequences of the variation (unless the policy or scheme is a SIPP);
(3A) the variation of a SIPP to a retail client, to contract out of the State Second Pension, must provide the client with a projection for an appropriate personal pension and a contracting-out comparison for those benefits together with such additional information as is necessary for the client to understand the consequences of the variation;
(4) a cash-deposit ISA or cash-deposit CTF to a retail client, must provide a key features document to that client;
(5) a unit in a simplified prospectus scheme to a client, must offer the scheme's current simplified prospectus to that client. In addition, if the client is a retail client present in the EEA, the firm must provide the simplified prospectus to the client together with:

(a) enough information for the client to be able to make an informed decision about whether to hold the units in a wrapper (if the units will, or may, be held in that way); and
(b) information about the three types of CTF that are generally available (stakeholder CTFs, cash-deposit CTFs and security-based CTFs), and the type of CTF the firm is offering (if the units will, or may, be held in a CTF);

(6) a unit in an EEA simplified prospectus scheme to a client, must offer an up-to-date copy of the scheme's EEA simplified prospectus to that client.

[Note: in respect of (2) article 36(1) of, and Annex III to, the Consolidated Life Directive]

[Note: in respect of (5) and (6) articles 1, 33(1) and 44 of the UCITS Directive]

01/10/2008

COBS 14.2.2

The documents or information required to be provided or offered by the first provision rule (COBS 14.2.1 R ) must be in a durable medium or made available on a website (where that does not constitute a durable medium) that meets the website conditions.

01/11/2007

COBS 14.2.3

(1) A firm that personally recommends that a retail client holds a particular asset in a SIPP must provide that client with sufficient information for the client to be able to make an informed decision about whether to buy or invest.
(2) This rule does not apply if the asset is described in COBS 14.2.1 R.

01/11/2007

Firm not to cause confusion about the identity of the producer of a product

COBS 14.2.4

When a firm provides a document or information in accordance with the rules in this section, it must not do anything that might reasonably cause a retail client to be mistaken about the identity of the firm that has produced, or will produce, the product.

01/11/2007

Exception to the provision rules: key features documents and simplified prospectuses

COBS 14.2.5

A firm is not required to provide:

(1) a document, if the firm produces the product and the rules in this section require another firm to provide the document;
(2) a key features document or key features illustration, if another person is required to provide the distance marketing information by the rules of another EEA State;
(3) the Consolidated Life Directive information, if another person is required to provide that information by the rules of another EEA State;
(4) a simplified prospectus if:

(a) another person is required to offer the simplified prospectus to the client by the rules of another EEA State; or
(b)

(i) the client is buying or investing in response to a direct offer financial promotion without receiving a personal recommendation to buy or invest; and
(ii) the firm offers an up-to-date copy of the simplified prospectus to the client and provides materially the same information to the client in some other way.

[Note: in respect of (3), article 36(4) of, and Annex III to, the Consolidated Life Directive]

[Note: in respect of (4), articles 1, 33(1) and 44 of the UCITS directive]

01/11/2007

Exception: key features illustrations

COBS 14.2.6

A firm is not required to provide a key features illustration for a product if the information that would have been included in that illustration is included in the key features document provided to the client.

01/11/2007

Exception to the provision rules: key features documents and key features illustrations

COBS 14.2.7

A firm is not required to provide a key features document or a key features illustration for:

(1) a key features scheme if it provides a simplified prospectus instead;
(2) a life policy that is not a reinsurance contract if:

(a) the firm is operating from an establishment in another EEA State and the sale is by distance contract; or
(b) the client is habitually resident outside the United Kingdom and the sale is not by distance contract.

(3) a traded life policy.

[Note: in respect of (2), articles 4(1) and 16 of the Distance Marketing Directive and article 36 of the Consolidated Life Directive]

01/11/2007

Exception to the provision rules: key features documents and key features illustrations

COBS 14.2.8

A firm is not required to provide a key features document or a key features illustration, if:

(1) the client is buying or investing in response to a direct offer financial promotion without receiving a personal recommendation to buy or invest; and
(2) the firm provides materially the same information in some other way.

01/11/2007

Exception to the provision rules: key features documents, key features illustrations and simplified prospectuses

COBS 14.2.9

A firm is not required to provide a key features document, a key features illustration or a simplified prospectus for a key features scheme or simplified prospectus scheme if:

(1) the client is habitually resident outside the EEA and not present in the EEA when the relevant application is signed; or
(2) the purchase is by a discretionary investment manager on behalf of a retail client; or
(3) the sale is arranged or personally recommended by an investment manager and the client has agreed that a key features document or simplified prospectus is not required; or
(4) a retail client is purchasing a holding in a scheme in which the client already has a holding, or the client is switching from one class of shares or units to another in the same scheme, and the relevant document has already been provided to that client.

[Note: articles 1, 33(1), and 44 of the UCITS directive]

01/11/2007

COBS 14.2.10

Although a firm is not always required to provide a simplified prospectus to a client (COBS 14.2.9 R), the obligation to offer the prospectus to the client (COBS 14.2.1R (5)) remains.

01/11/2007

Exception to the provision rules: aggregated scheme documents

COBS 14.2.11

A firm may provide a single document, which describes more than one key features scheme, simplified prospectus scheme or EEA simplified prospectus scheme, or any combination of those schemes, if:

(1) the schemes are offered through a funds supermarket service;
(2) the document clearly describes the difference between the relevant schemes; and
(3) (in the case of a simplified prospectus scheme or an EEA simplified prospectus scheme) the firm also offers copies of the relevant prospectuses to the client.

[Note: article 33(1) of the UCITS directive]

01/11/2007

Exception: successive operations

COBS 14.2.12

In the case of a distance contract comprising an initial service agreement, followed by successive operations or a series of separate operations of the same nature performed over time, the rules in this section only apply to the initial agreement.

01/11/2007

COBS 14.2.13

If there is no initial service agreement but the successive operations or separate operations of the same nature performed over time are performed between the same contractual parties, the rules in this section only apply:

(1) when the first operation is performed; and
(2) if no operation of the same nature is performed for more than a year, when the next operation is performed (the next operation being deemed to be the first in a new series of operations).

01/11/2007

The timing rules

COBS 14.2.14

When the rules in this section require a firm to:

(1) offer a simplified prospectus or an EEA simplified prospectus to a client, that prospectus must be offered free of charge before the conclusion of the contract; or
(2) provide a key features document, a simplified prospectus, an EEA simplified prospectus or any other document or information to a client, the document or information must be provided free of charge and in good time before the firm carries on the relevant business.

[Note: article 33(1) of the UCITS directive]

01/11/2007

Exception to the timing rules: child trust funds

COBS 14.2.15

A key features document for an HMRC allocated CTF must be provided as soon as reasonably possible after the CTF has been opened.

01/11/2007

Exception to the timing rules: distance contracts and voice telephony communications

COBS 14.2.16

A firm may provide a document, or the information required to be provided by the rules in this section, in a durable medium immediately after the conclusion of a distance contract, if the contract has been concluded at a client's request using a means of distance communication that does not enable the document or information to be provided in that form in good time before the client is bound by the contract.

01/11/2007

COBS 14.2.17

Where the rules in this section require a document or information to be provided, in the case of a voice telephony communication, a firm must:

(1) if the client gives explicit consent to receiving only limited information, provide the abbreviated distance marketing disclosure information (COBS 5 Annex 2 R) orally to the client;
(2) if the client does not give explicit consent to only receiving limited information, and the parties wish to proceed by voice telephony communication, provide the distance marketing information (COBS 5 Annex 1 R) orally to the client;
(3) in the case of (1) or (2), send the documents or information to the client in a durable medium immediately after the contract is concluded.

06/08/2008

COBS 14.3

Information about designated investments

01/11/2007

Application

COBS 14.3.1

This section applies to a firm in relation to:

(1) MiFID or equivalent third country business; and
(2) the following regulated activities when carried on for a retail client:

(a) making a personal recommendation about a designated investment; or
(b) managing investments that are designated investments; or
(c) arranging, (bringing about) or executing a deal in a warrant or derivative; or
(d) engaging in stock lending activity.

01/11/2007

Providing a description of the nature and risks of designated investments

COBS 14.3.2

A firm must provide a client with a general description of the nature and risks of designated investments, taking into account, in particular, the client's categorisation as a retail client or a professional client. That description must:

(1) explain the nature of the specific type of designated investment concerned, as well as the risks particular to that specific type of designated investment, in sufficient detail to enable the client to take investment decisions on an informed basis; and
(2) include, where relevant to the specific type of designated investment concerned and the status and level of knowledge of the client, the following elements:

(a) the risks associated with that type of designated investment including an explanation of leverage and its effects and the risk of losing the entire investment;
(b) the volatility of the price of designated investments and any limitations on the available market for such investments;
(c) the fact that an investor might assume, as a result of transactions in such designated investments, financial commitments and other additional obligations, including contingent liabilities, additional to the cost of acquiring the designated investments; and
(d) any margin requirements or similar obligations, applicable to designated investments of that type.

[Note: article 31(1) and (2) of the MiFID implementing Directive]

01/11/2007

COBS 14.3.3

If a firm provides a retail client with information about a designated investment that is the subject of a current offer to the public and a prospectus has been published in connection with that offer in accordance with the Prospectus Directive, that firm must inform the retail client where that prospectus is made available to the public.

[Note: article 31(3) of the MiFID implementing Directive]

01/11/2007

COBS 14.3.4

Where the risks associated with a designated investment composed of two or more different designated investments or services are likely to be greater than the risks associated with any of the components, a firm must provide an adequate description of the components of that designated investment and the way in which its interaction increases the risks.

[Note: article 31(4) of the MiFID implementing Directive]

01/11/2007

COBS 14.3.5

In the case of a designated investment that incorporates a guarantee by a third party, the information about the guarantee must include sufficient detail about the guarantor and the guarantee to enable the retail client to make a fair assessment of the guarantee.

[Note: article 31(5) of the MiFID implementing Directive]

01/11/2007

Satisfying the provision rules

COBS 14.3.6

(1) A firm need not treat each of several transactions in respect of the same type of financial instrument as a new or different service and so does not need to comply with the provision rules (COBS 14.3.2 R to COBS 14.3.5 R) in relation to each transaction.
(2) But a firm should ensure that the client has received all relevant information in relation to a transaction, such as details of product charges that differ from those already disclosed.

[Note: in respect of (1), recital 50 to to the MiFID implementing Directive]

01/11/2007

COBS 14.3.7

Providing a key features document or simplified prospectus may satisfy the requirements of the rules in this section.

01/11/2007

Product information: form

COBS 14.3.8

The documents and information provided in accordance with the rules in this section must be in a durable medium or available on a website (where that does not constitute a durable medium) that meets the website conditions.

[Note: article 29(4) of the MiFID implementing Directive]

01/11/2007

The timing rules

COBS 14.3.9

(1) The information to be provided in accordance with the rules in this section must be provided in good time before a firm carries on designated investment business or ancillary services with or for a retail client.
(2) A firm may provide that information immediately after it begins to carry on that business if:

(a) the firm was unable to comply with (1) because, at the request of the client, the agreement was concluded using a means of distance communication which prevented the firm from complying with that rule; and
(b) in any case where the rule on voice telephony communications (COBS 5.1.12 R) does not otherwise apply, the firm complies with that rule as if the client was a consumer.

[Note: article 29(2) and (5) of the MiFID implementing Directive]

01/11/2007

Keeping the client up-to-date

COBS 14.3.10

A firm must notify a client in good time about any material change to the information provided under the rules in this section which is relevant to a service that the firm is providing to that client. That notification must be given in a durable medium if the information to which it relates is given in a durable medium.

[Note: article 29(6) of the MiFID implementing Directive]

01/11/2007

Information about UCITS schemes

COBS 14.3.11

If a firm provides a client with a simplified prospectus or an EEA simplified prospectus that meets the requirements of article 28 of the UCITS Directive, it will have provided appropriate information for the purpose of the requirement to disclose information on:

(1) designated investments and investment strategies (COBS 2.2.1R (1)(b)); and
(2) costs and associated charges (COBS 2.2.1R (1)(d) and COBS 6.1.9 R;

in relation to the costs and associated charges in respect of the UCITS scheme itself, including the exit and entry commissions.

[Note: article 34 of the MiFID implementing Directive]

01/11/2007

COBS 14.3.12

A simplified prospectus provides sufficient information in relation to the costs and associated charges in respect of the UCITS scheme itself. However, a firm distributing units in a UCITS scheme should also inform a client about all of the other costs and associated charges related to the provision of its services in relation to units in the UCITS scheme.

[Note: recital 55 to the MiFID implementing Directive]

01/11/2007