6.6 Conduct of Business (COBS) Rules

The Conduct of Business Sourcebook (COBS) is the core conduct rulebook for firms carrying on designated investment business in the UK. It implements the FCA's conduct-of-business objectives — clear communications, suitable advice, fair treatment, and good outcomes — for retail and non-retail clients. COBS came into force in November 2007, replacing the conduct rules that were previously spread across multiple sourcebooks.

Scope and Structure of COBS

COBS applies to firms carrying on designated investment business, long-term insurance business relating to life policies, and related activities from an establishment in the UK (or through an appointed representative). It is divided into 23 chapters, each addressing a stage of the client relationship.

Communications and Financial Promotions (COBS 4)

COBS 4 governs every communication a firm makes to clients or potential clients, including financial promotions. The core rule is that communications must be clear, fair and not misleading — echoing PRIN 7. Financial promotions must be:

• Approved by an authorised person (the financial promotions approval regime) — unapproved promotions by unauthorised persons are restricted by s.21 FSMA
• Balanced and presented in a way that is clear, fair and not misleading
• Clearly identifiable as a marketing communication
• Suitable for the intended audience (retail vs professional)
• Adequately substantiated

For retail clients, communications must include appropriate risk warnings and not omit material information. MCOB 3 contains parallel rules for mortgage promotions.

Suitability and Appropriateness (COBS 9, 9A, 10)

The suitability and appropriateness rules are central to the FCA's consumer protection objective.

Suitability (COBS 9 and 9A)

When a firm advises a retail client on investments, COBS 9 (and COBS 9A for retail investment advice) requires the firm to:

• Gather sufficient information about the client's knowledge and experience, financial situation, and investment objectives
• Ensure the recommendation is suitable for that client
• Provide a suitability report explaining why the recommendation is appropriate
• For retail investment advice, apply the Dolores rules — including a 12-month periodic suitability review for portfolio advice

A non-advised sale avoids the suitability requirement, but the firm must still follow COBS 4 (clear, fair and not misleading) and may need to assess appropriateness under COBS 10.

Appropriateness (COBS 10)

For certain non-advised transactions (e.g. complex products such as derivatives), COBS 10 requires the firm to assess whether the client has the knowledge and experience to understand the risks. If not, the firm must warn the client — the structured warning is required.

Product Governance (PROD and COBS 4)

Product governance is set out in PROD (the Product Intervention and Product Governance sourcebook), with supporting rules in COBS 4 for product communications. The PROD 3 rules require product manufacturers to:

• Define a target market of consumers for whom the product is designed
• Identify negative target market — those for whom the product is unlikely to meet needs
• Test the product to ensure it delivers fair value
• Provide clear information to distributors

Distributors (under PROD 4) must understand the manufacturer's target market and only distribute to customers within it. The Consumer Duty (PRIN 12) builds on these rules — firms in the distribution chain must act to deliver good outcomes.

Client Agreements (COBS 14, 14A)

COBS 14 requires firms to enter a client agreement with each client, setting out the basis of the relationship, services provided, charges, and other key terms. The agreement must be in writing (including electronic), given to the client before services are provided, and contain the designation of the client's categorisation (retail, professional, or eligible counterparty). COBS 14A covers off-platform investment agreements (where advice is provided for execution-only platform investments).

Dealing, Managing and Best Execution (COBS 11)

COBS 11 governs how firms execute client orders. The general rule is that firms must take reasonable steps to obtain the best possible result for the client — the best execution obligation. For retail clients, this means considering price, cost, speed, likelihood of execution and any other factor relevant to the order. Firms must disclose their execution policy and the venues on which they execute.

Consumer Duty (PRIN 12, Consumer Duty Sourcebook)

The Consumer Duty is the most significant conduct reform in a generation. It came into force on 31 July 2023 for new and existing open products and services, and from 31 July 2024 for closed products. It is implemented through:

• PRIN 12 — A new principle: a firm must act to deliver good outcomes for retail customers
• PRIN 2A — Detailed rules on the four consumer outcomes
• FG22/5 — Final non-Handbook Guidance

The Four Outcomes

The Duty applies to retail market business. Where PRIN 12 applies, Principles 6 (customers' interests) and 7 (communications) do not — they are subsumed by the stronger Duty. Boards must certify annually that the firm is delivering good outcomes, and the FCA expects firms to evidence monitoring of customer outcomes, not just compliance with processes.

Key Takeaways

• COBS is the conduct rulebook for designated investment business, with 23 chapters covering communications, suitability, dealing and client agreements
• COBS 4 requires communications and financial promotions to be clear, fair and not misleading
• COBS 9 and 9A set the suitability rules for advised business; COBS 10 sets appropriateness for non-advised complex products
• Product governance sits in PROD (manufacturers and distributors) with COBS 4 covering communications
• Consumer Duty (PRIN 12, PRIN 2A) has been live since 31 July 2023 with four outcomes