FCA Handbook - COBS 16A Reporting information to clients (MiFID and insurance-based investment products provisions)

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COBS 16A.1 Application

This chapter applies to a firm in relation to:

(1)
its MiFID, equivalent third country or optional exemption business; and
(2)
carrying on insurance distribution activities relating to an insurance-based investment product.

Application to activities in relation to insurance-based investment products

The only rules in this chapter which apply to a firm when carrying on insurance distribution activities in relation to an insurance-based investment product are:

(1) those which implemented the IDD; and

(2) those which are derived from the IDD Regulation.

For the purposes of COBS 16A.1.4R, if a rule implemented a requirement of the IDD or is derived from the IDD Regulation, a note (“Note:”) to that effect follows the relevant rule.

COBS 16A.2 General client reporting and record keeping requirements

(1)
A firm must provide a client with adequate reports on the service provided in a durable medium.
(2)
The reports must include:
1. (a)
  periodic communications to the client, taking into account the type and the complexity of the financial instruments or insurance-based investment products involved and the nature of the service provided to the client; and
2. (b)
  where applicable, the costs associated with the transactions and services undertaken on behalf of the client.

[Note: article 25(6) of MIFID, article 30(5) of the IDD]

A firm should refer to SYSC 3.2 (for insurers and managing agents) and SYSC 9 (for other firms) for the requirements that apply in relation to the retention of records.

A firm to which SYSC 9 applies is required to keep records of all services, activities and transactions undertaken by it.

In complying with the requirements in SYSC 9, a firm to which those rules apply must keep a record of each report provided to a client in compliance with the rules in this chapter applicable to MiFID, equivalent third country or optional exemption business.

COBS 16A.3 Occasional reporting: MiFID business

Execution of orders other than when undertaking portfolio management

(1) If a firm has carried out an order on behalf of a retail client or a professional client, it must:
1. (a) promptly provide the client, in a durable medium, with the essential information concerning the execution of that order;
2. (b)
  in the case of a retail client, send the client a notice in a durable medium confirming execution of the order:
  1. (i)
    as soon as possible and no later than the first business day following execution; or
  2. (ii)
    if the confirmation is received by the firm from a third party, no later than the first business day following receipt of the confirmation from the third party; and
3. (c) supply the client, on request, with information about the status of their order.
(2) Paragraph (1) does not apply to a firm providing a portfolio management service.
(3) Paragraph (1)(b) does not apply if the confirmation would contain the same information as a confirmation that is to be promptly dispatched to the client by another person.
(4) Paragraphs (1)(a) and (b) do not apply to an order executed on behalf of a client that relates to a bond funding a mortgage loan agreement with the client. The report on the transaction must be made at the same time as the terms of the mortgage loan are communicated, but no later than one month after the execution of the order.
(5)
If a firm carries out an order for a retail client relating to units or shares in a collective investment undertaking which is part of a series of orders that are executed periodically, it must:
1. (a)
  comply with (1)(b) in relation to that order; or
2. (b)
  provide the client, at least once every six months, with the information listed in (6) in respect of those transactions.
(6) The notice required by (1)(b) must include such of the following information as is applicable and, if relevant, in accordance with MiFID RTS 22:
1. (a) the reporting firm identification;
2. (b) the name or other designation of the client;
3. (c) the trading day;
4. (d) the trading time;
5. (e) the type of the order (for example, a limit order, market order or other specific type of order);
6. (f) the venue identification;
7. (g) the instrument identification;
8. (h) the buy/sell indicator;
9. (i) the nature of the order if other than buy/sell;
10. (j) the quantity;
11. (k) the unit price;
  (l) the total consideration;
12. (m) a total sum of the commissions and expenses charged and, where the client so requests, an itemised breakdown including, where relevant, the amount of any mark-up or mark-down imposed by the firm where the transaction was executed by the firm when dealing on own account, and the firm owes a duty of best execution to the client;
13. (n) the rate of exchange obtained where the transaction involves a conversion of currency;
14. (o) the client's responsibilities in relation to the settlement of the transaction, including the time limit for payment or delivery as well as the appropriate account details where these details and responsibilities have not previously been notified to the client; and
15. (p) if the client's counterparty was the firm itself or any person in the firm's group or another retail client of the firm, the fact that this was the case unless the order was executed through a trading system that facilitates anonymous trading.
(7) For the purposes of calculating the unit price in (6)(k), where the order is executed in tranches, the firm may supply the retail client with information about the price of each tranche or the average price. If the average price is provided, the firm must supply the retail client with information about the price of each tranche upon request.
(8) The firm may provide the retail client with the information referred to in (6) using standard codes if it also provides an explanation of the codes used.

In determining what is essential information, a firm should consider including:

(1)
for transactions in a derivative:
1. (a)
  the maturity, delivery or expiry date of the derivative;
2. (b)
  in the case of an option, a reference to the last exercise date, whether it can be exercised before maturity and the strike price; and
3. (c)
  if the transaction closes out an open futures position, all essential details required in respect of each contract comprised in the open position and each contract by which it was closed out and the profit or loss to the client arising out of closing out that position (a difference account);
(2)
for the exercise of an option:
1. (a)
  the date of exercise, and either the time of exercise or that the client will be notified of that time on request;
2. (b)
  whether the exercise creates a sale or purchase in the underlying asset; and
3. (c)
  the strike price of the option (for a currency option, the rate of exchange will be the same as the strike price) and, if applicable, the total consideration from or to the client; and
(3)
the fact that the transaction involves any dividend or capitalisation or other right which has been declared, but which has not been paid, allotted or otherwise become effective in respect of the investment, and under the terms of the transaction the benefit of which will not pass to the purchaser.

Guidance on the requirements

Where a firm executes an order in tranches, the firm may, where appropriate, indicate the trading time and the execution venue in a way that is consistent with this, such as, “multiple”. In accordance with the client’s best interests rule, a firm should provide additional information at the client’s request.

In accordance with COBS 2.4.9R, a firm may dispatch confirmation to an agent, other than the firm or an associate of the firm, nominated by the client in writing.

COBS 16A.4 Periodic reporting

Provision by a firm and contents: MiFID business

(1) If a firm is providing a portfolio management service on behalf of a retail client or professional client, it must provide the client with a periodic statement of the portfolio management activities carried out on behalf of that client in a durable medium unless such a statement is provided by another person.
(2)
The periodic statement must:
1. (a)
  provide a fair and balanced review of the activities undertaken and of the performance of the client's portfolio during the reporting period; and
2. (b)
  in the case of a retail client, include such of the following information as is applicable:
  1. (i)
    the name of the firm;
  2. (ii)
    the name or the other designation of the client's account;
  3. (iii)
    a statement of the contents and the valuation of the portfolio, including details of:
    1. (A) eachfinancial instrument held, its market value, or fair value if market value is unavailable;
    2. (B) the cash balance at the beginning and at the end of the reporting period; and
    3. (C) the performance of the portfolio during the reporting period;
  4. (iv)
    the total amount of fees and charges incurred during the reporting period, itemising at least total management fees and total costs associated with execution, and including, where relevant, a statement that a more detailed breakdown will be provided on request;
  5. (v)
    a comparison of performance during the period covered by the statement with the investment performance benchmark (if any) agreed between the investment firm and the client;
  6. (vi)
    the total amount of dividends, interest and other payments received during the reporting period in relation to the client's portfolio;
  7. (vii)
    information about other corporate actions giving rights in relation to financial instruments held in the portfolio;
  8. (viii)
    for each transaction executed during the period, such of the information referred to in COBS 16A.3.1R(6)(c) to (l) as is applicable, unless the client elects to receive information about executed transactions on a transaction-by-transaction basis, in which case (4) applies.
(3)
The periodic statement in (1) must be provided to a retail client once every 3 months, except in the following cases:
1. (a)
  if the firm:
  1. (i)
    provides the client with access to an online system, which qualifies as a durable medium, and provides the client with easy access to:
    1. (A) up-to-date valuations of the client's portfolio; and
    2. (B) the information specified in COBS 16A.5.1R(3); and
  2. (ii)
    has evidence that the client has accessed a valuation of their portfolio at least once during the relevant quarter;
2. (b)
  the periodic statement must be provided at least once every 12 months if:
  1. (i)
    the retail client elects to receive information about executed transactions on a transaction-by-transaction basis (COBS 16A.4.1R(4)); and
  2. (ii)
    there are no transactions in:
    1. (A) financial instruments covered by paragraphs 4 to 11 of Part 1 of Schedule 2 to the Regulated Activities Order; or
    2. (B) securities giving the right to acquire or sell a transferable security or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures;
  (c) if the agreement between an the firm and the retail client for a portfolio management authorises a leveraged portfolio, the periodic statement must be provided at least once a month.
(4)
If a retail client elects to receive information about executed transactions on a transaction-by-transaction basis, the firm must:
1. (a)
  on the execution of a transaction by the portfolio manager, promptly provide to the retail client the essential information concerning that transaction in a durable medium; and
2. (b)
  unless the confirmation would contain the same information as a confirmation that is to be promptly dispatched to the retail client by another person, send the retail client a notice confirming the transaction and containing the information in COBS 16A.3.1R(6):
  1. (i)
    no later than the first business day following that execution; or
  2. (ii)
    if the confirmation is received by the firm from a third party, no later than the first business day following receipt of the confirmation from the third party.

In accordance with COBS 2.4.9R, a firm may dispatch a periodic statement (as required by COBS 16A.4.1R) to an agent, other than the firm or an associate of the firm, nominated by the client in writing.

Provision by a firm and contents: insurance-based investment products

(1)
Without prejudice to COBS 13.1.2R, COBS 13.3.2R, COBS 14.2.11R, COBS 14.2.5R, COBS 14.2.7R, COBS 16.6.3R, COBS 16.6.3AR and COBS 20.4.7R, and COBS 13 Annexes 1 and 2, in relation to an insurance-based investment product, a firm must provide the client with a periodic report, on a durable medium, of the services provided to and transactions undertaken on behalf of the client.
(2)
The periodic report required (1) must provide a fair and balanced review of the services provided to and transactions undertaken on behalf of that client during the reporting period and must include, where relevant, the total costs associated with these services and transactions, and the value of each underlying investment asset.
(3)
The periodic report required under (1) must be provided at least annually.

[Note: article 18 of the IDD Regulation]

Guidance on contingent liability transactions

For the purposes of this section, a contingent liability transaction should be understood as being a transaction that involves any actual or potential liability for the client that exceeds the cost of acquiring the instrument.

When providing a periodic statement to a retail client, a firm should consider whether to include:

(1)
the collateral value in respect of any contingent liability transaction in the client’s portfolio during the relevant period; and
(2)
option account valuations in respect of each open option written by the client in the client’s portfolio at the end of the relevant period; stating:
1. (a)
  the share, future, index or other investment involved;
2. (b)
  the trade price and date for the opening transaction, unless the valuation statement follows the statement for the period in which the option was opened;
3. (c)
  the market price of the contract; and
4. (d)
  the exercise price of the contract.
(3)
Option account valuations may show an average trade price and market price in respect of an option series if the client buys a number of contracts within the same series.

COBS 16A.5 Statements of client financial instruments or client funds

(1)
A firm that holds financial instruments or client money for a client must send that client, at least on a quarterly basis, a statement in a durable medium of those financial instruments or client money, unless:
1. (a)
  such a statement:
  1. (i)
    has been provided in a periodic statement; or
  2. (ii)
    has been requested more frequently by a client, in which case the firm must provide it more frequently at a commercial cost; or
2. (b)
  the firm:
  1. (i)
    provides the client with access to an online system, which qualifies as a durable medium, where the client can easily access up-to-date statements of their financial instruments or client money; and
  2. (ii)
    has evidence that the client has accessed an up-to-date statement at least once during the relevant quarter.
(2)
A UK credit institution need not send a statement in respect of deposits within the meaning of Article 2(1)(23A) of MiFIR held by it.
(3)
The statement referred to in (1) must include:
1. (a)
  details of all the financial instruments or client money held by the firm for the client at the end of the period covered by the statement;
2. (b)
  the extent to which any financial instruments or client money have been the subject of securities financing transactions;
3. (c)
  the extent of any benefit that has accrued to the client by virtue of participation in any securities financing transactions, and the basis on which that benefit has accrued;
4. (d)
  a clear indication of the assets or client money which are subject to the rules in CASS relating to MiFID business and those that are not, such as those that are subject to title transfer collateral arrangements and excluded either from the custody rules as a result of CASS 6.1.6R(3) or from the client money rules as a result of CASS 7.11.1R(4);
5. (e)
  a clear indication of which assets are affected by any peculiarities in their ownership status, for instance due to a security interest; and
6. (f)
  the market or estimated value, when the market value is not available, of the financial instruments included in the statement with a clear indication of the fact that the absence of a market price is likely to be indicative of a lack of liquidity. The evaluation of the estimated value must be performed by the firm on a best effort basis.
(4)
In cases where the portfolio of a client includes the proceeds of one or more unsettled transactions, the information referred to in (3)(a) may be based either on the trade date or the settlement date, provided that the same basis is applied consistently to all such information in the statement.
(5) A firm which holds financial instruments or client money and which provides a portfolio management service for a client may include the statement referred to in (1) in the periodic statement it provides to that client.

Firms subject to either or both the custody chapter and the client money chapter are reminded of the reporting obligations to clients in CASS 9.2 (Prime broker’s daily report to clients) and CASS 9.5 (Reporting to clients on request).