PS07/2 only deals with responses to CP06/20 on financial promotion and other communications, where they relate to proposals implementing MiFID. Feedback on responses to the non-MiFID proposals will appear in the NEWCOB Policy Statement. The consultation only considered the financial promotion rules that apply to investment business.
Respondents to CP06/20 agreed with the FSA’s copy out approach to MiFID implementation. The FSA has confirmed that having considered the responses, the effect and content of the rules on communications and financial promotions will remain broadly as outlined in CP06/20. These rules will fully implement the relevant MiFID provisions, and (according to the FSA) will not impose super-equivalent requirements that place additional obligations on MiFID firms.
However, in relation to the layout of the Handbook text, the FSA does intend to make the application of provisions clearer and the rules more “user friendly”, whilst still accurately reflecting stated policy and correctly implementing MiFID. The proposed new layout of COBS 5 will be published with the NEWCOB Policy Statement. The numbering and layout of the rules will change and the rules will be accompanied by guidance. The FSA also confirms that it plans to improve the presentation of the rules as they relate to direct sales marketing material, and the rules that apply to authorised professional firms.
Communication to clients: COBS 4
According to PS07/2 most respondents agreed with the FSA’s proposed interpretation and implementation of the high-level “fair, clear and not misleading communications” provision. Given this the FSA is not making changes to its proposals.
The FSA has noted that the draft Handbook text did raise some discussion on whether there had been a change from a “reasonable steps” position to an absolute standard position with regard to the communication of fair, clear and not misleading information. Some respondents were concerned that the FSA was introducing a zero-failure regime which would increase compliance costs for firms and demand a more exacting standard of them. The FSA responds in PS07/2 by stating that it did not anticipate the change in wording to alter the standards it expects of firms. Further comment from the FSA is expected in the NEWCOB Policy Statement.
The FSA has reconsidered the application provision dealing with communication to eligible counterparties. It is revising this provision to clarify that the “fair, clear and not misleading” rule does not apply to information communicated to eligible counterparties under Principle 7. Only the “not misleading” standard will apply which means that the position will therefore remain the same as it is now for communications to market counterparties.
Financial promotion and communication to retail clients: COBS 5
Following CP06/20, issues were raised surrounding the MiFID term “marketing communication”, which is not defined in the Handbook. In PS07/2 the FSA states that it accepts that some clarification would be useful and it has reconsidered the references to “marketing communications” in its draft rules. The FSA confirms that the term “financial promotion” (as amended) encompasses all “marketing communications” (the Handbook text reflects this). However, as MiFID does not define “marketing communication”, the FSA has decided not to define it in the Handbook. The reason for this, it says, is to avoid any risk of unintended super-equivalence.
Some of the responses to CP06/20 expressed concern about the practical effect of the requirement that financial promotions (or marketing communications) shall be clearly identifiable as such. The FSA has responded by stating that there is no positive requirement in the proposed rule for firms to state on all promotional material that “this is a financial promotion” (however, see COBS 13.3.2R in relation to non-independent research). The FSA does believe that, in most cases, it will be obvious whether or not something is a financial promotion and therefore no change will be necessary. According to the FSA, a positive statement that the communication is a promotion will probably only be necessary in cases where the promotional material might be confused with something else, such as editorial comment.
The FSA’s proposals left some firms unclear as to when the exemptions in the Financial Services and Markets Act (Financial Promotion) Order 2005 (FPO) were relevant. PS07/2 provides some guidance on this. In summary, the FSA states in PS07/2 that the exemptions are still always available to unauthorised persons and potentially relevant to firms communicating outside MiFID scope. However, the FPO exemptions will not be relevant to MiFID firms carrying on MiFID business and communicating in relation to a MiFID instrument. Therefore MiFID-based rules in COBS 4 and 5 will continue to apply to financial promotions within MiFID scope, regardless of any FPO exemptions. The FSA intends to redraft the rules in this area to make clear when the exemptions are available (as part of its review of application provisions and structure of the rules).
This publication is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to a particular matter.