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COBS 16 – Execution of Client Orders and Best Execution

PostedJune 24, 2025
UpdatedJune 24, 2025
ByAndy

1. Chapter Summary

COBS 16 outlines the rules and principles that firms must follow to ensure they execute client orders on terms most favorable to the client, commonly known as “best execution.” This chapter is critical in protecting client interests by mandating firms to take all sufficient steps to obtain the best possible result when executing orders, considering price, costs, speed, likelihood of execution, and other relevant factors. It underpins trust in market fairness and transparency.

2. Applicability

Applies to firms executing client orders related to MiFID financial instruments and providing investment services such as dealing on own account or on behalf of clients. The chapter primarily targets transactions with retail and professional clients, though certain best execution obligations differ by client category. Eligible counterparties generally have more limited protections under this regime.

3. Key Rules and Their Meaning

  • COBS 16.2.1R – Obligation to Take All Sufficient Steps (Best Execution Duty) Firms must take all sufficient steps to obtain the best possible result for clients when executing orders, considering price, costs, speed, likelihood of execution and settlement, size, nature, or any other relevant consideration. Meaning: Firms must actively seek optimal execution outcomes, not just rely on standard market practices or relationships.
  • COBS 16.3.1R – Execution Policy Firms must establish, implement, and maintain an order execution policy that details how they achieve best execution and must provide this information to clients. In practice: This requires documented procedures setting out venues, factors considered, and processes used for execution.
  • COBS 16.4.1R – Client Consent and Execution Policy Disclosure Firms must disclose their execution policy to clients before providing services and obtain their consent to the policy’s terms. Nuance: This is typically done through client agreements or informational documents, ensuring clients understand how their orders will be handled.
  • COBS 16.5.1R – Monitoring and Review of Execution Arrangements Firms must regularly review the effectiveness of their execution arrangements and policy to ensure they deliver best execution. In practice: This involves ongoing monitoring, analysis of execution quality, and adjustments if deficiencies are identified.
  • COBS 16.6.1R – Reporting on Execution Quality Firms must publish annual reports on the quality of execution obtained for clients, detailing top execution venues and relevant statistics. Meaning: Enhances transparency and allows clients and regulators to assess execution performance.

4. Interpretation Notes / FCA Expectations

  • FCA guidance emphasizes a holistic approach to best execution, balancing multiple factors and tailoring execution strategies to client types and instruments.
  • Firms should maintain comprehensive records of execution decisions and monitoring outcomes to demonstrate compliance.
  • The FCA expects clear, accessible client disclosures regarding execution policies and any material changes.
  • Firms must be able to show active oversight and continuous improvement of their execution arrangements.

5. Practical Considerations for Firms

  • Develop and maintain a written order execution policy, regularly updated and approved by senior management.
  • Integrate execution quality monitoring systems capturing relevant data on execution venues and trade outcomes.
  • Provide clients with clear execution policy disclosures at onboarding and when changes occur.
  • Conduct periodic internal audits and reviews of execution performance and document findings and remedial actions.
  • Train staff on the importance of best execution principles and firm-specific procedures.

6. Related Handbook References

  • COBS 11 – Client order handling and aggregation rules
  • COBS 13 – Client categorisation (affects best execution obligations)
  • COBS 14 – Suitability (links to execution decisions in advisory services)
  • PRIN 2A – FCA Principles for Businesses, including Principle 6 on customer interests
  • SYSC 10 – Governance and controls relevant to execution oversight
  • MIFIDPRU – Prudential requirements influencing execution risk management

7. Regulatory Focus / Enforcement Risk

  • Execution quality remains a top FCA focus area, with thematic reviews exposing failures in monitoring, disclosures, and governance.
  • Enforcement risk is high where firms do not maintain or follow effective execution policies, fail to disclose adequately to clients, or ignore execution quality data.
  • Firms should prioritize transparency, robust controls, and proactive monitoring to mitigate risk and uphold market integrity.