COBS

Question 1

What is the overarching duty under COBS 2.1?

Answer 1

To act honestly, fairly and professionally in accordance with the best interests of the client.

Question 2

Which FCA Principles are reinforced by COBS 2.1?

Answer 2

Principle 6 (customers’ interests) and Principle 7 (communications with clients).

Question 3

What must firms provide under COBS 2.2 (non-MiFID/IDD)?

Answer 3

Appropriate, comprehensible information so clients can make informed investment decisions.

Question 4

What key disclosures are required under COBS 2.2?

Answer 4

Firm status, services, remuneration, conflicts of interest, and complaints procedures.

Question 5

What distinguishes COBS 2.2A from 2.2?

Answer 5

COBS 2.2A applies to MiFID/IDD business and imposes more detailed and timely disclosure requirements.

Question 6

What is the key inducement rule under COBS 2.3 (non-MiFID)?

Answer 6

Third-party payments must not impair the firm’s duty to act in the client’s best interests and must be disclosed.

Question 7

When are minor non-monetary benefits allowed under COBS 2.3?

Answer 7

When they enhance service quality and are clearly disclosed to the client.

Question 8

What are the conditions for inducements under COBS 2.3A (MiFID)?

Answer 8

They must enhance the quality of service and not impair compliance with the duty to act honestly, fairly, and professionally.

Question 9

What must firms do before receiving inducements under COBS 2.3A?

Answer 9

Provide full prior disclosure of the amount or nature of the inducement.

Question 10

What does COBS 2.3B regulate?

Answer 10

Acceptance of research as an inducement.

Question 11

When can research be accepted under COBS 2.3B?

Answer 11

If it is a minor non-monetary benefit or funded through a Research Payment Account (RPA).

Question 12

What is required for RPAs under COBS 2.3B?

Answer 12

Clear budgeting, oversight, and client disclosure.

Question 13

What does COBS 2.3C require regarding research and execution services?

Answer 13

Separation and pricing of execution and research services to avoid conflicts of interest.

Question 14

What does COBS 2.3C prohibit?

Answer 14

Free provision of research bundled with execution services, unless via an RPA.

Question 15

What does COBS 2.4 permit regarding agents and client classifications?

Answer 15

A firm may treat an agent as its client and rely on another firm’s client classification if reasonable.

Question 16

What does COBS 2.5 address?

Answer 16

The sale of optional additional products.

Question 17

What are firms prohibited from doing under COBS 2.5?

Answer 17

Making optional products a condition of the main service unless objectively justified.

Question 18

What must firms do when offering optional products under COBS 2.5?

Answer 18

Clearly disclose the optional nature of such products.

Question 19

What is the IDD (Insurance Distribution Directive)?

Answer 19

A European Union directive (Directive (EU) 2016/97) that regulates the sale and distribution of insurance and insurance-based investment products (IBIPs).

It aims to protect consumers, harmonise rules across the EU/EEA, improve transparency on costs and product features, and require firms to act in the customer’s best interests.

In the UK, it is implemented via the FCA’s Insurance Conduct of Business Sourcebook (ICOBS) and parts of the Conduct of Business Sourcebook (COBS).

Question 20

What must a firm disclose about its regulatory status under COBS 6.1.4?

Answer 20

That it is authorised by the FCA or PRA, including a statement confirming this.

Question 21

When must a firm inform a client about conflicts of interest under COBS 6.1.4?

Answer 21

Either via a policy summary (if a common platform firm) or the method of fair treatment if a conflict arises.

Question 22

What benchmark-related disclosure is required when managing investments under COBS 6.1.6?

Answer 22

Firms must establish and disclose a meaningful benchmark to enable clients to assess performance.

Question 23

Portfolio Management Disclosures (R6.1.6–7)

What information must a firm disclose if it proposes to manage investments for a client?

Answer 23

Valuation method and frequency, delegated management details, benchmarks, types of permitted investments, risk levels, and constraints.

Question 24

Client Asset and Money Safeguarding (R6.1.7–8)

What must a firm disclose when client assets may be held in an omnibus account?

Answer 24

A prominent warning of the risks resulting from pooled holdings with third parties.

Question 25

# Client Asset and Money Safeguarding (R6.1.7–8) When must a firm provide pre-use disclosures about securities financing transactions?

Answer 25

In good time before use, in a durable medium, detailing responsibilities, restitution terms, and risks.

Question 26

What must be itemised separately in cost disclosures to retail clients under COBS 6.1.9?

Answer 26

Commissions charged by the firm.

Question 27

# Costs and Charges (R6.1.9) When must a firm disclose that other transaction-related costs may apply?

Answer 27

When those costs are not paid via or imposed by the firm but may arise for the client.

Question 28

# Firm and Service Information – MiFID (UK6.1ZA.5) What must a MiFID firm disclose about its authorisation?

Answer 28

That it is authorised, including the name and contact details of the competent authority.

Question 29

# Insurance Distribution Disclosures (R6.1ZA.7A) What must an insurance intermediary disclose regarding its role and ownership?

Answer 29

Whether it represents the client or insurer and any >10% ownership interests.

Question 30

You are advising a retail client on a MiFID investment product. You provide a personalised illustration of the expected returns after costs but omit the annual post-sale breakdown of actual costs. The client holds the product for 18 months. What COBS 6 rule have you breached, and why is this significant?

Answer 30

You breached COBS 6.1ZA.12R–14UK, which requires annual ex-post disclosure of all costs and charges incurred, including an illustration of their cumulative impact on return. This is significant because it affects the client’s ability to assess investment value over time and could result in regulatory action for failure to ensure transparency.

Question 31

A firm communicates key service disclosures to a retail client by directing them to a public website without obtaining prior consent. No follow-up email or printed material is provided. Why does this fail to meet COBS 6 standards, and what should the firm have done instead?

Answer 31

This fails to meet COBS 6.1.13R (non-MiFID) and COBS 6.1ZA.19B (MiFID) because a website alone is not a durable medium unless the client consents and specific FCA conditions are met. The firm should have delivered the information by email, paper, or a compliant online portal that preserves the content for future reference and allows unchanged reproduction.

Question 32

An authorised firm managing investments for a client becomes aware of a material conflict of interest that may affect fair treatment. The firm is not a common platform firm and does not have a published conflicts policy. Under COBS 6, what is the firm required to do, and what is the rule basis?

Answer 32

Under COBS 6.1.4(8)(b), the firm must explain how it will ensure fair treatment of the client when a conflict arises. As it is not a common platform firm, a written policy summary is not sufficient or required; instead, it must directly disclose the approach to maintaining fairness in this instance.

Question 33

What are the three core elements a firm must assess to ensure a recommendation is suitable under COBS 9.2.1?

Answer 33

Knowledge and experience, financial situation, and investment objectives.

Question 34

(Scenario-Based): A client refuses to share details about their income and investment goals, but insists on advice. What must the adviser do under COBS 9.2.6?

Answer 34

Decline to make a personal recommendation, as suitability cannot be assessed without necessary information.

Question 35

Under what circumstances must a suitability report be issued according to COBS 9.4.1?

Answer 35

When a personal recommendation is made in respect of certain pension actions, life policies, or regulated collective investments.

Question 36

(Scenario-Based): A firm advises a client to transfer out of a safeguarded benefit pension scheme. What extra documentation must be provided?

Answer 36

A one-page summary at the front of the suitability report (COBS 9.4.11), except where the only benefit is a guaranteed annuity rate.

Question 37

When is a firm exempt from providing a suitability report under COBS 9.4.4?

Answer 37

For top-ups to existing contracts or if the client is non-UK resident and not present in the UK during the transaction.

Question 38

Q (Scenario-Based): A client proceeds against advice and insists on buying a high-risk product. What steps must the firm take under COBS 9.5A?

Answer 38

Obtain written acknowledgement that the client is proceeding against advice and explain the risks and firm’s original reasoning.

Question 39

Q (Scenario-Based): An adviser recommends a drawdown pension. What must the suitability report include according to COBS 9.4.11?

Answer 39

Explanation of risks such as erosion of capital, potential for poor investment returns, and unsustainable income levels.

Question 40

What is the retention period for suitability records relating to pension transfers under COBS 9.5.2?

Answer 40

Indefinitely.

Question 41

A UK adviser recommends a unit-linked life insurance bond to a retail client and uses a digital tool to assess suitability. Which section of the FCA Handbook governs the suitability rules for this recommendation?

Answer 41

COBS 9A – because the product is an insurance-based investment product (IBIP) and the rules must comply with the Insurance Distribution Directive (IDD), including the requirement that tools used in the suitability assessment be fit-for-purpose.

Question 42

An advisory firm managing portfolios for professional clients under MiFID assumes clients can bear investment risks and understand complex products. Under which rule is this assumption permitted?

Answer 42

COBS 9A – specifically under the MiFID Org Regulation which allows firms to assume professional clients have the necessary knowledge and financial capacity unless there is evidence to the contrary.

Question 43

A firm provides personal recommendations to a UK retail client on investing in a UK-regulated collective investment scheme (not an IBIP). It documents the client’s objectives and recommends regular monthly contributions. Is the firm required to provide a suitability report under COBS 9A?

Answer 43

No – COBS 9 applies in this case, not COBS 9A. The product is not a MiFID instrument or IBIP. Under COBS 9, suitability reports are still required for certain products, but the MiFID-specific obligations of COBS 9A do not apply.

Question 44

What must a firm assess under COBS 10.2 before providing a non-advised service to a retail client?

Answer 44

Whether the client has sufficient knowledge and experience to understand the risks of the product or service.

Question 45

Under what condition may a firm rely on existing client information when assessing appropriateness?

Answer 45

When the information is not manifestly outdated, inaccurate, or incomplete.

Question 46

When is a firm exempt from appropriateness assessments under COBS 10.4?

Answer 46

When the service is execution-only for non-complex products at the client’s initiative, with appropriate warnings.

Question 47

Name three features that qualify a financial instrument as “non-complex” under COBS 10.4.1R(3).

Answer 47

(i) Not a derivative; (ii) liquid market pricing; (iii) limited liability; (iv) transparent and understandable features.

Question 48

How must a firm warn a client under COBS 10.3 if the product is deemed inappropriate or if insufficient information is provided?

Answer 48

Through a clear warning, possibly in a standardised format, before proceeding with the transaction.

Question 49

What are two key risk disclosures a firm must explore under COBS 10 Annex 4 when assessing client knowledge about qualifying cryptoassets?

Answer 49

(i) Potential total loss of investment; (ii) high volatility and operational risks such as cyberattacks or key loss.