When are COBS rules relevant to claims against financial institutions?

United Kingdom Publication January 2020

Financial institutions frequently face claims by their clients. In this article, we highlight a new argument originating in breach of contract claims by individuals against regulated firms and linked to the standard set out by regulatory rules.

Claims against regulated firms often involve allegations that the firm failed to give sufficient information about the risks of a transaction, or that it undertook to advise the client but failed to provide accurate advice, and they are based on misrepresentation, breach of contract, negligence and breach of fiduciary duty. Sometimes, they also include a claim for breach of FCA rules – in particular, damages for breach of statutory duty under section 138D of the Financial Services and Markets Act 2000 (FSMA). 

In turn, a claim under section 138D usually relies on a breach of the FCA’s Conduct of Business Sourcebook (COBS), which has the status of delegated legislation. Reliance on COBS brings significant advantages for clients (especially retail clients who benefit from the highest level of protection), because of the specific obligations imposed on firms by the FCA. For instance, regulated firms have a duty to communicate in a way that is fair, clear and not misleading, a duty to consider the suitability of investments if the firm is providing investment advice, and a duty to disclose commissions.

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