Investor protection: a quick guide to the Conduct of Business Sourcebook

Posted: 13/12/2023

What is the Conduct of Business Sourcebook and who is protected?

The Financial Conduct Authority (FCA) Handbook contains the Conduct of Business Sourcebook (COBS) which sets out rules for the way firms regulated by the FCA conduct their business. These guidelines include rules both for the conduct of business with retail and professional clients and for the disclosure of information.

Are spread betting transactions/trades covered?

The COBS rules apply to firms carrying out designated investment business, and activities connected with it, in the United Kingdom.   

Designated investment business is defined as a set list of activities which were specified in Part II of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. One of the activities included is the buying and selling of securities or contractually based investments. The investments are defined in part 3 of the order and include contracts for difference and other contracts to secure a profit or loss by reference to fluctuations in the price of any property or an index or other factor designated for that purpose. Case law has confirmed that for the purpose of this legislation, spread bets should be held to be contracts for difference and so are covered by COBS.

What are the requirements in relation to information disclosure?

There are a number of COBS rules which deal with the information that firms must provide to their customers. Some examples of these rules are:

• Firms must provide best execution, although the rules in relation to this vary depending on the product involved;
• COBS 2.1 – Acting honestly, fairly and professionally. This includes the ‘client’s best interests rule’. Firms must act honestly, fairly and professionally in relation to designated investment business carried on for a retail client; 
• COBS 2.2 – Information disclosure before providing services. This includes providing appropriate and comprehensible guidance on, and warning of the risks associated with, designated investments. It should also include costs and associated charges. This is so that the client can reasonably understand the nature and risks of the investment and make investment decisions on an informed basis;   
• COBS 4.2 – Fair, clear and not misleading communications. Firms must ensure that a communication or a financial promotion is fair, clear and not misleading. This applies whether the client is retail or professional but the communication must take into account the nature of the client; 
• COBS 4.5 – Communicating with retail clients. This includes rules on the way that information is disseminated to retail clients. It sets out specific information that must be included as well as the way it should be presented which spans accuracy of the information, setting out any relevant risks when referring to benefits and ensuring the information is likely to be understood by the average member of the public and does not disguise, diminish or obscure any important information, statements or warnings; 
• COBS 6.1 – Information about the firm and compensation information. This applies to business for a retail client. The rule explains the type of information that should be set out including information about costs and associated charges as well as addressing the timing of when and the medium by which such disclosure should be provided. Retail clients must be kept up to date on any material changes to this information; 
• COBS 14.3 – Information about designated investments. This includes a description of the nature and risks of designated investments and again provides rules on the timing of the disclosure and keeping clients up to date. The information provided must take into account the client’s categorisation as a retail or professional client.  

How can a customer rely on the Conduct of Business Sourcebook?

Under s138D(2) Financial Services and Markets Act 2000, a breach of a rule in the FCA Handbook is generally actionable by a private person who suffers loss as a result of the breach. It will then be a case of confirming whether the customer is a retail or professional customer before determining whether the relevant rule applies to them.  

Our group action litigation team

For more information about our specialist group action litigation team and details of some of the group actions we are currently investigating, including claims against online trading platforms for potentially misleading information about the risks, costs, or product details of spread betting and CFD trading, and a claim against umbrella companies on behalf of contractors, please see our group action litigation page.

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