COBS 12 – Investment Research and Non-Independent Research
1. Chapter Summary
COBS 12 sets out comprehensive rules governing the production and distribution of investment research and non-independent research. Its primary objective is to manage conflicts of interest and maintain independence, transparency, and quality in research provided by firms and analysts. These rules foster trust and credibility in the market by ensuring investors receive objective and reliable information.
2. Applicability
Applies to firms that produce or disseminate investment research or non-independent research, typically investment banks, brokers, and research providers. It covers both retail and professional clients but excludes purely independent research. Special provisions also apply to situations involving underwriting or placing activities, where access and conflict rules become more stringent.
3. Key Rules and Their Meaning
- COBS 12.2.1R – Definition of Investment Research and Non-Independent Research* Research includes recommendations on investments, whether independent or tied to other services like underwriting or corporate finance. In practice: Firms must clearly categorise research output and ensure appropriate governance for each type.
- COBS 12.2.19UK3 – Conflict Management for Research* Firms must identify potential conflicts arising from research production (e.g. investment banking links) and implement controls to manage them. Nuance: Non-independent research requires particularly robust processes to prevent bias.
- COBS 12.2.21A G – Guidance on Analyst Interactions* Analytic interactions with issuers or during pitches may impair independence. Firms must restrict analyst participation in such activities until access safeguards are in place. In practice: This often applies during IPOs or corporate finance pitches and requires control systems to track analyst involvement.
4. Interpretation Notes / FCA Expectations
- The FCA expects firms to adopt a cases-by-case approach when assessing conflicts and analyst communications during sensitive transactions.
- Firms must be able to justify any analysts’/researchers’ contacts with issuers when underwriting or pitching is ongoing.
- Guidance emphasises mechanisms such as firewalls, governance committees, and documentation to maintain objectivity.
- There is an increasing expectation that firms will disclose non-independent research ties transparently to recipients.
5. Practical Considerations for Firms
- Implement formal research policies defining independent vs non-independent research, including conflict registers.
- Use documented decision frameworks to approve/disallow analyst participation in issuer interactions.
- Maintain training programmes to educate analysts about independence and conflict risks.
- Deploy strong record-keeping and audit trails capturing communication context and control decisions.
- Regularly review relationships between research and corporate finance/investment banking teams to ensure ongoing compliance.
6. Related Handbook References
- COBS 11A – Underwriting/placing rules linked to research access
- SYSC 10 – Conflicts of interest sourcebook (governance and control requirements)
- PRIN 2A – Principles around integrity, skill, and customer interests
- MIFIDPRU / MAR – MiFID and Market Abuse frameworks
- AFME Guidance – Industry-level interpretation and best practices under COBS 12
7. Regulatory Focus / Enforcement Risk
- The FCA has heightened scrutiny on conflicts in research, especially where tied to corporate finance or IPO pitches.
- Key risk areas include: analyst access without controls, biased non-independent research, lack of governance, and unclear disclosures.
- Firms failing to manage these dynamics face a high risk of enforcement actions, especially in high-stakes deals or publishing tied research with inadequate transparency.