1. (1)

   5This chapter applies to a firm which arranges or deals in relation to a non-readily realisable security, speculative illiquid security, derivative or5warrant with or for a retail client, other than in the course of MiFID or equivalent third country business, or facilitates a retail client becoming a lender under a P2P agreement and the firm is aware, or ought reasonably to be aware, that the application or order is in response to a direct offer financial promotion.

2. (2)

   5Where a rule in this chapter applies to a firm which arranges or deals in relation to a speculative illiquid security, the rule also applies to:

   1. (a)

      a TP firm (to the extent that the rule does not already apply to such a TP firm as a result of GEN 2.2.26R); and

   2. (b)

      a Gibraltar-based firm (having the same meaning as in the Gibraltar Order) to the extent that the rule does not already apply to such a Gibraltar-based firm as a result of GEN 2.3.1R).

1. (1)

   When providing a service to which this chapter applies, a firm must ask the client to provide information regarding his knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded so as to enable the firm to assess whether the service or product envisaged is appropriate for the client.

2. (2)

   When assessing appropriateness, a firm must determine whether the client has the necessary experience and knowledge in order to understand the risks involved in relation to the product or service offered or demanded2.

The information regarding a client's knowledge and experience in the investment field includes, to the extent appropriate to the nature of the client, the nature and extent of the service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved, information on:

1. (1)

   the types of service, transaction and designated investment with which the client is familiar;

2. (2)

   the nature, volume, frequency of the client's transactions in designated investments and the period over which they have been carried out;

3. (3)

   the level of education, profession or relevant former profession of the client.

A firm must not encourage a client not to provide information required for the purposes of its assessment of appropriateness.

A firm is entitled to rely on the information provided by a client unless it is aware that the information is manifestly out of date, inaccurate or incomplete.

1. (1)

   If a firm considers, on the basis of the information received to enable it to assess appropriateness, that the product or service is not appropriate to the client, the firm must warn the client.

2. (2)

   This warning may be provided in a standardised format.

1. (1)

   If the client elects not to provide the information to enable the firm to assess appropriateness, or if he provides insufficient information regarding his knowledge and experience, the firm must warn the client that such a decision will not allow the firm to determine whether the service or product envisaged is appropriate for him.

2. (2)

   This warning may be provided in a standardised format.

1. (1)

   A firm is not required to ask its client to provide information or assess appropriateness if:

   1. (a)

      the service only consists of execution and/or the reception and transmission of client orders, with or without ancillary services, it relates to particular financial instruments and is provided at the initiative of the client;

   2. (b)

      the client has been clearly informed (whether the warning is given in a standardised format or not) that in the provision of this service the firm is not required to assess the suitability of the instrument or service provided or offered and that therefore he does not benefit from the protection of the rules on assessing suitability; and

   3. (c)

      the firm complies with its obligations in relation to conflicts of interest.

2. (2)

   The financial instruments referred to in (1)(a)1 are:

   1. (a)

      [deleted]1

   2. (b)

      money market instruments, bonds or other forms of securitised debt (excluding those bonds or securitised debt that embed a derivative); or

   3. (c)

      [deleted]1

   4. (d)

      other non-complex financial instruments.

3. (3)

   A financial instrument is non-complex if it satisfies the following criteria:

   1. (a)

      it is not a derivative or other security giving the right to acquire or sell a transferable security or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures;

   2. (b)

      there are frequent opportunities to dispose of, redeem, or otherwise realise the instrument at prices that are publicly available to the market participants and that are either market prices or prices made available, or validated, by valuation systems independent of the issuer;

   3. (c)

      it does not involve any actual or potential liability for the client that exceeds the cost of acquiring the instrument; and

   4. (d)

      adequately comprehensive information on its characteristics is publicly available and is likely to be readily understood so as to enable the average retail client to make an informed judgment as to whether to enter into a transaction in that instrument.

If a client engages in a course of dealings involving a specific type of product or service through the services of a firm, the firm is not required to make a new assessment on the occasion of each separate transaction. A firm complies with the rules in this chapter provided that it makes the necessary appropriateness assessment before beginning that service.

The firm must retain its records relating to appropriateness for a minimum of five years.