6.6 Conduct of Business (COBS) Rules

Applying the Right Conduct Rules

The Conduct of Business Sourcebook (COBS) contains FCA conduct requirements for investment business and relevant life insurance business. Its application provisions matter: a rule for MiFID investment advice is not automatically the rule for every insurance, mortgage or execution-only service. Start with the activity, product and client category, then identify the relevant chapter.

For FSRE, learn the purpose of the main provisions rather than a supposed fixed number of chapters. The FCA Handbook index provides the current structure.

Communications and Financial Promotions

Under COBS 4, communications within its scope must be fair, clear and not misleading. A promotion should explain material risks and limitations as well as potential benefits, using language appropriate to its audience. A technically accurate statement can still mislead if it hides a major qualification.

Section 21 of FSMA restricts an unauthorised person's communication of an invitation or inducement to engage in investment activity in the course of business. Authorised communication, approval by an appropriately permitted authorised firm, and statutory exemptions are different routes through that restriction. Do not assume every authorised firm's own promotion needs another firm's approval. Mortgage promotions have their own provisions in MCOB 3A.

Suitability and Appropriateness

Suitability asks whether a recommendation fits the individual client. The assessment considers the client's knowledge and experience, financial situation, ability to bear losses, objectives and risk tolerance. A product can be suitable for a broad target market yet unsuitable for one person within that market.

For MiFID investment advice to a retail client, COBS 9A requires a suitability report explaining the advice and how it meets the client's circumstances and objectives. A product information document describes the product; it does not replace the personal reasoning in that report. COBS 9 applies to other business within its stated scope. Check the applicable reporting requirements rather than applying one rule to every product.

Appropriateness, under COBS 10 or 10A where applicable, focuses on whether the client has enough knowledge and experience to understand the risks of a non-advised transaction. It does not assess whether the investment meets all the client's personal objectives. An adverse assessment, or insufficient information to assess, can require a warning. Some execution-only transactions qualify for an exemption subject to conditions; “non-advised” alone does not establish an exemption.

If a firm provides a periodic suitability assessment under COBS 9A, separate ongoing-review rules apply. For MiFID recommendations, COBS 9A.3.9R currently requires assessment at least annually, with greater frequency where the client risk profile and instruments warrant it. One-off advice does not automatically create that continuing assessment service.

Product Governance and Client Agreements

PROD 3 deals with financial instruments and structured deposits, while PROD 4 deals with insurance products. Each addresses both manufacture and distribution; they are not respectively a “manufacturer chapter” and a “distributor chapter”. Manufacturers identify the market for the product and assess its design. Distributors need to understand the product, its intended market and their distribution arrangements. Exact obligations depend on the relevant sector and application provisions.

Client agreements are addressed in COBS 8 and 8A, as applicable. They establish the rights and obligations of the parties and the service being provided. The agreement, charges disclosure and suitability report serve related but different purposes. A signed agreement does not make unsuitable advice suitable.

Best Execution

For business subject to COBS 11.2A, the firm must take all sufficient steps to obtain the best possible result when executing orders. Relevant factors include price, costs, speed, likelihood of execution and settlement, size and nature. For a retail client, total consideration—price plus execution-related costs—is central. The cheapest quoted price alone does not settle the question if costs or other relevant factors change the result. Other business has its own applicable provisions; do not substitute “reasonable steps” for the specific 11.2A standard.

Consumer Duty

The Duty is implemented through Principle 12, within PRIN, and the detailed provisions of PRIN 2A. It applied from 31 July 2023 to new and existing products and services open to sale or renewal, and from 31 July 2024 to closed products and services. Its four outcomes concern:

• Products and services: meeting the needs of the identified target market.
• Price and value: a reasonable relationship between the total price and the benefits provided.
• Consumer understanding: helping customers make informed decisions.
• Consumer support: support that meets customer needs without unreasonable barriers.

Where Principle 12 applies, Principles 6 and 7 do not apply to the same business. Other relevant obligations remain. The governing body must review and approve an assessment of customer outcomes at least annually, including required remedial actions and whether future strategy is consistent with the Duty. This is an evidence-based assessment, not a guarantee that every individual customer will obtain a profitable investment return.

For exam scenarios, connect the rule to the failure: misleading promotion, missing personal suitability reasoning, unsuitable distribution, poor execution or unreasonable support barriers. Naming the sourcebook without identifying the customer's problem is not enough.

Sources: COBS 9A, COBS 11, PROD application, and Consumer Duty.