COBS 10A.2 Assessing appropriateness: the obligations
When providing a service to which this chapter applies, a firm must ask the client to provide information regarding that client’s knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded to enable the firm to assess whether the service or product envisaged is appropriate for the client.
[Note: article 25(3) of
Bundled packages
Where a bundle of services or products is envisaged pursuant to COBS 6.1ZA.16R1, the assessment made pursuant to COBS 10A.2.1R must consider whether the overall bundled package is appropriate.
[Note: article 25(3) of
Assessing a client’s knowledge and experience
56(1) Investment firms, shall determine whether that client has the necessary experience and knowledge in order to understand the risks involved in relation to the product or investment service offered or demanded when assessing whether an investment service as referred to in Article 25(3) of Directive 2014/65/EU is appropriate for a client.
An investment firm shall be entitled to assume that a professional client has the necessary experience and knowledge in order to understand the risks involved in relation to those particular investment services or transactions, or types of transaction or product, for which the client is classified as a professional client.
[Note: article 56(1) of the MiFID Org Regulation]
Information regarding a client’s knowledge and experience
55(1) Investment firms shall ensure that the information regarding a client's or potential client’s knowledge and experience in the investment field includes the following, 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:
(a) the types of service, transaction and financial instrument with which the client is familiar;
(b) the nature, volume, and frequency of the client’s transactions in financial instruments and the period over which they have been carried out;
(c) the level of education, and profession or relevant former profession of the client or potential client.
[Note: article 55(1) of the MiFID Org Regulation]
Discouraging the provision of information
55(2) An investment firm shall not discourage a client or potential client from providing information required for the purposes of Article 25(2) and (3) of Directive 2014/65/EU.
[Note: article 55(2) of the MiFID Org Regulation]
Reliance on information
55(3) An investment firm shall be entitled to rely on the information provided by its clients or potential clients unless it is aware or ought to be aware that the information is manifestly out of date, inaccurate or incomplete.
[Note: article 55(3) of the MiFID Org Regulation]
Use of existing information
When assessing appropriateness, a firm may use information it already has in its possession.
Knowledge and experience
Increasing the client’s understanding
No duty to communicate firm’s assessment of knowledge and experience
If a firm is satisfied that the client has the necessary experience and knowledge in order to understand the risks involved in relation to the product or service, there is no duty to communicate this to the client. If the firm does so, it must not do so in a way that amounts to making a personal recommendation unless it complies with the rules in COBS 9A (MiFID provisions)1.