Distributing cocos - new temporary rules from 1 October 2014

Distributing cocos - new temporary rules from 1 October 2014

Some contingent convertible instruments (cocos) will be subject to new temporary product intervention rules from 1 October 2014. Alexandria Carr, financial services and regulatory Of Counsel at Mayer Brown, explains who will be affected and suggests that concerns over cocos may prompt wider European action.

Original news

Firms will be restricted from distributing cocos to the mass retail market after 1 October 2014, the Financial Conduct Authority (FCA) has announced. As cocos are highly complex, the FCA believes they are unlikely to be appropriate for this market, so has used its new consumer protection powers to place a temporary restriction on their distribution ahead of consulting on permanent rules later in 2014.

What is the background to the temporary product intervention rules?

When the FCA was established on 1 April 2013, it was given a new power to make product intervention rules. This power is set out in the Financial Services and Markets Act 2000, s 137(D) (FSMA 2000), as amended by the Financial Services Act 2012. FSMA 2000, s 138M provides that the FCA may make product intervention rules without consultation (and without complying with other requirements under FSMA 2000, such as conducting a cost benefit analysis) if it considers it necessary or expedient to do so to advance its consumer protection objective amongst other things.. Product intervention rules made in this way are temporary and may only last for a maximum of 12 months.

The FCA has used the powers conferred on it under FSMA 2000, ss 137D and 138M to make temporary product intervention rules to impose restrictions in relation to the distribution of cocos to retail investors. The Temporary Marketing Restriction (Contingent Convertible Securities) Instrument 2014, FCA 2014/47 will come into effect on 1 October 2014 and

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