Robert Day v Forex Capital Markets Limited

Appropriateness under COBS is generally assessed once, when the client begins the relevant investment service. The firm may rely on information supplied by the client unless it knows, or objectively ought to know, that it is manifestly out of date, inaccurate or incomplete. Relevant trading experience may support an inference of knowledge, and formal education need not always be investigated.

Post-trade information about an instrument’s expiry date is not necessarily essential where only one contract and one possible expiry date are available. A contractual notice obligation concerning cessation of a product does not ordinarily apply to a temporary suspension caused by an exceptional market event.

The claimant traded leveraged contracts for difference and spread bets on WTI oil through the defendant’s online platform during the highly volatile market conditions of early 2020. He lost approximately £1.86 million.

He alleged breaches of contract and COBS concerning the appropriateness assessment, expiry-date information, misleading website information, and the defendant’s response to negative oil prices. The court determined whether the defendant had breached its regulatory or contractual obligations and, if so, whether the alleged breaches caused the claimed losses.

1. Claim dismissed. The claimant failed on all pleaded heads of claim.
2. Under COBS 10A, a firm must obtain information about the client’s knowledge and experience and determine whether the client understands the risks of the relevant product or service. The firm has flexibility as to the method of assessment. It may place substantial weight on practical experience and may infer knowledge from that experience. Formal education, bankruptcy, and the absence of a quiz were not, on these facts, required matters.
3. The court held that the assessment is generally a one-time assessment made when the relevant service begins. COBS 10A.2.6EU makes the right to rely on client information subject to an objective qualification where the firm knows or ought to know that it is manifestly out of date, inaccurate or incomplete. It does not create a continuing duty to reassess appropriateness before each transaction. The removal of former COBS 10.4.2R did not alter that conclusion. [2018] EWHC 2478 (Ch) was followed on this issue.
4. FXCM’s assessment was adequate. In any event, a warning would not have prevented the claimant from trading, and a fuller assessment would still have concluded that the products were appropriate for him. The best-interests rule did not require FXCM to prevent an experienced client, who understood the risks and was not vulnerable, from trading.
5. COBS 16A.3.1EU required essential execution information in a durable medium. The expiry date was not essential in circumstances where FXCM offered only one USOil contract at a time and the single expiry date was signposted in the contractual documents.
6. As a matter of contract, the claimant’s further USOil positions were April-expiring positions. The misleading webpage had no contractual force and did not cause the loss.
7. Clause 7.3 of the Terms of Business concerned a complete cessation of a service or product, not a temporary suspension in unusual market conditions. The fall of the oil price below zero was an exceptional market event within clause 24.3, which entitled FXCM to close open positions. No prior notice was required under clause 7.3.