Rule on Inducements - COBS Provision

See: COBS Anatomy

2.3.1 A firm must not pay or accept any fee or commission, or provide or receive any non-monetary benefit, in relation to designated investment business or, in the case of its MiFID or equivalent third country business, another ancillary service, carried on for a client other than:

(1) a fee, commission or non-monetary benefit paid or provided to or by the client or a person on behalf of the client; or

(2) a fee, commission or non-monetary benefit paid or provided to or by a third party or a person acting on behalf of a third party, if:

(a) the payment of the fee or commission, or the provision of the non-monetary benefit does not impair compliance with the firm's duty to act in the best interests of the client; and

(b) the existence, nature and amount of the fee, commission or benefit, or, where the amount cannot be ascertained, the method of calculating that amount, is clearly disclosed to the client, in a manner that is comprehensive, accurate and understandable, before the provision of the service;

(i) this requirement only applies to business other than MiFID or equivalent third country business if it includes giving a personal recommendation in relation to a retail investment product, or giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme;

(ii) where this requirement applies to business other than MiFID or equivalent third country business, a firm is not required to make a disclosure to the client in relation to a non-monetary benefit permitted under (a) and which falls within the table of reasonable non-monetary benefits in COBS 2.3.15 as though that table were part of this rule for this purpose only;

(iii) this requirement does not apply to a firm giving basic advice; and

(c) in relation to MiFID or equivalent third country business or when carrying on a regulated activity in relation to a retail investment product, the payment of the fee or commission, or the provision of the non-monetary benefit is designed to enhance the quality of the service to the client; or

(3) proper fees which enable or are necessary for the provision of designated investment business or ancillary services, such as custody costs, settlement and exchange fees, regulatory levies or legal fees, and which, by their nature, cannot give rise to conflicts with the firm's duties to act honestly, fairly and professionally in accordance with the best interests of its clients.

Commentary

See also COBS 11.6.3 et seq.

In a nutshell:

2.3.1 A firm must not pay or accept any fee in relation to business carried on for a client other than:

(1) Client Fees: a fee paid to or by the client; or

(2) Third Party Fees: a fee paid or provided to or by a third party if:

(a) No impairment: it does not impair the firm's duty to act in the client’s best interests; and

(b) Full disclosure: it is clearly and comprehensively disclosed to the client before providing the service; and

(c) Service enhancement: the fee is designed to enhance the quality of the service to the client; or

(3) Ancillary fees: fees which enable designated investment business or ancillary services, such as custody costs, exchange fees, regulatory levies or legal fees, and which cannot give rise to conflicts with a clients’ best interests.

Conduct of Business

This is an article about the FCA’s conduct of business rules, known by its chapter in the FCA Sourcebook, COBS, which implement, among other things, MiFID (directive 2004/39/EC (EUR Lex) and implementing directive 2006/73/EC (EUR Lex)).