COB 3.5 COB 3.5 Conflicts of Interest
COB 3.5.1(1) An
Authorised Firmmust take reasonable steps to ensure that conflicts and potential conflicts of interest between itself and its Clientsand between one Clientand another are identified and then prevented or managed in such a way that the interests of a Clientare not adversely affected and to ensure that all its Clientsare fairly treated and not prejudiced by any such conflicts of interest.(2) Where an Authorised Firmis aware of a conflict or potential conflict of interest, it must prevent or manage that conflict of interest by using one or more of the following arrangements as appropriate:(a) establishing and maintaining effective Chinese Wallsto restrict the communication of the relevant information;(b) disclosing the conflict of interest to the Clientin writing either generally or in relation to a specific Transaction; or(c) relying on a written policy of independence, which requires an Employeeto disregard any conflict of interest when advising a Clientor exercising a discretion.(3) If an Authorised Firmis unable to prevent or manage a conflict or potential conflict of interest as provided in (2), it must decline to act for that Client.
Attribution of Knowledge
When a COB Rule applies to an
Authorised Firmthat acts with knowledge, the Authorised Firmwill not be taken to act with knowledge for the purposes of that Rule as long as none of the relevant individuals involved for on behalf of the Authorised Firmacts with that knowledge as a result of a Chinese Wallarrangement established under COB Rule 3.5.1(2)(a).
COB 3.5.3 COB 3.5.3(1) An
Authorised Firmmust have systems and controls including policies and procedures to ensure that neither it, nor an Employeeor Associateof it, offers, gives, solicits or accepts inducements such as commissions or other direct or indirect benefits where such inducements are reasonably likely to conflict with any duty that it owes to its Clients.(2) Subject to (3), an Authorised Firmmust, before recommending a financial product as defined in GEN Rule 2.11.1(4) to, or Executing a Transactionfor, a Retail Client, disclose to that Clientany commission or other direct or indirect benefit which it, or any Associateor Employeeof it, has received or may or will receive, in connection with or as a result of the firm making the recommendation or executing the Transaction.(3) An Authorised Firmneed not disclose to a Retail Clientunder (2) any details about inducements where it:(a) believes on reasonable grounds that the Retail Clientis al aware of the relevant inducements;(b) is undertaking an Execution-Only Transactionfor that Retail Client; or(c) is executing a Transactionpursuant to the terms of a Discretionary Portfolio Management Agreementfor that Retail Client.(4) An Authorised Firmmay provide the information required under (2) in summary form, provided it informs the Clientthat more detailed information will be provided to the Clientupon request and complies with such a request.
COB 3.5.3 Guidance
In relation to COB Rule 3.5.3 (1), in circumstances where an
Authorised Firmbelieves on reasonable grounds that the Client'sinterests are better served by a Personto whom the referral is to be made, any commission or other benefit which the firm or any of its Employeesor Associatesreceives in respect of such a referral would not be a prohibited inducement under that Rule.
COB 3.5.4 COB 3.5.4
Authorised Firmmay only accept goods and services under a Soft Dollar Agreementif the goods and services are reasonably expected to:(a) assist in the provision of Investment Businessservices to the Authorised Firm's Clientsby means of:(i) specific advice on dealing in, or on the value of, any Investment;(ii) research or analysis relevant to (i) or about Investmentsgenerally; or(iii) use of computer or other information facilities to the extent that they are associated with specialist computer software or research services, or dedicated telephone lines;(b) provide custody services relating to Investmentsbelonging to, or managed for, Clients;(c) provide services relating to portfolio valuation or performance measurement services; or(d) provide market price services.
COB 3.5.4 Guidance
Authorised Firmshould undertake a thorough assessment of the nature of the goods and services and the terms upon which they are to be provided under a Soft Dollar Agreementto ensure that the receipt of such goods and services provide commensurate value. This is particularly the case if any costs of such goods and services are to be passed through to Clients. Where the Clientbears the cost of the goods and services, the disclosure obligation relating to costs and charges under COB Rule 3.3.2 (see App2) will apply to such costs.
Authorised Firmmust not Dealin Investmentsas Agentfor a Client, either directly or indirectly, through any broker under a Soft Dollar Agreement, unless:(a) the agreement is a written agreement for the supply of goods or services described in COB Rule 3.5.4, which do not take the form of, or include, cash or any other direct financial benefit;(b) Transactionexecution by the broker is consistent with any best execution obligations owed to the Client;(c) the Authorised Firmhas taken reasonable steps to ensure that the services provided by the broker are competitive, with no comparative price disadvantage, and take into account the interests of the Client;(d) for Transactionsin which the broker acts as principal, the Authorised Firmhas taken reasonable steps to ensure that Commissionpaid under the agreement will be sufficient to cover the value of the goods or services to be received and the costs of execution; and
Authorised Firmenters into a Transactionfor or on behalf of a Retail Clientor Professional Client, either directly or indirectly, with or through the agency of another Person, in relation to which there is a Soft Dollar Agreementwhich the Authorised Firmhas, or knows that another member of its Grouphas, with that other Person, it must disclose to its Client:(a) the existence of a Soft Dollar Agreement; and(b) the Authorised Firm'sor its Group'spolicy relating to Soft Dollar Agreements.
COB 3.5.7(1) If an
Authorised Firmor member of its Grouphas a Soft Dollar Agreementunder which either the Authorised Firmor member of its Group Dealsfor a Client, the Authorised Firmmust provide that Clientwith the following information:(a) the percentage paid under Soft Dollar Agreementsof the total Commissionpaid by or at the direction of:(i) the Authorised Firm; and(ii) any other member of the Authorised Firm's Groupwhich is a party to those agreements;(b) the value, on a cost price basis, of the goods and services received by the Authorised Firmunder Soft Dollar Agreements, expressed as a percentage of the total Commissionpaid by or at the direction of:(i) the Authorised Firm; or(ii) other members of the Authorised Firm's Group;(c) a summary of the nature of the goods and services received by the Authorised Firmunder the Soft Dollar Agreements; and(d) the total Commissionpaid from the portfolio of that Client.(2) The information in (1) must be provided to that Clientat least once a year, covering the period since the Authorised Firmlast reported to that Client.