High Court Clarifies Exemption from COBS 10 Appropriateness Requirements

Mrs Justice Collins Rice has handed down judgment in R (Chadwin & Ors) v Financial Services Compensation Scheme Ltd [2021] EWHC 2523 (Admin) in which Thomas Samuels successfully appeared for the Financial Services Compensation Scheme. The decision concerns a challenge to FSCS’s determination in relation to COBS 10.4.1R(1)(b), one of the three conditions required to be satisfied before a firm acting an execution-only basis can be exempted from the requirement to assess appropriateness under COBS 10. It is the first decision of any court in relation to the meaning and function of the provision.

The Judge concluded that it required “explicit information about the regulatory position in relation to the provision of a particular ‘service’ by a particular firm to a particular client” (at [23]).Documents such as the generalised marketing material in question, available both to clients and non-clients, were not sufficient to satisfy the requirement. At [33]:

“…the marketing document’s self-description as not itself providing individually tailored investment advice, and as warning that appropriateness will depend on each individual’s circumstances and that the power bonds may not be suitable for all investors… is simply not the same thing as telling the reader that any future transaction… will be undertaken… on the basis that [the firm] is not required as such (that is, ‘in the provision of this service’) to assess the appropriateness of that transaction – at any point or in any form – and that the investor will therefore not benefit in any way from the protection of the rules on assessing suitability.  The former is a description of the (non-)effect of a marketing communication on its readership at large; the latter is a statement of the (non-)applicability of specific legal entitlements in a client/provider relationship.  Deducing the latter from the former is a non-sequitur…”

The Judge ultimately dismissed the claim in light of the application of s. 31(2A) of the Senior Courts Act 1981, which debars the Administrative Court from granting relief on a claim for judicial review if it is “highly likely” that the decision would have been the same irrespective of the alleged error. Applying the approach set out by the Court of Appeal in R (Goring-on-Thames Parish Council) v South Oxfordshire DC [2018] 1 WLR 5161, the Judge noted the causation issues faced by the claimants irrespective of the analysis on COBS 10.4.1R. She therefore concluded at [42]: “It appears to me in all these circumstances to be highly likely that the outcome for the Claimants would not have been substantially different if the ‘conduct complained of had not occurred’.”

Judgment available here: R (Chadwin) v FSCS