This chapter applies to a firm which provides investment services in the course of MiFID or equivalent third country business other than making a personal recommendation or carrying out portfolio management.

This chapter applies to a firm which assesses appropriateness on behalf of a MiFID investment firm so that the other firm may rely on the assessment under COBS 2.4.4R (Reliance on other investment firms: MiFID and equivalent business).

The effect of GEN 2.2.22AR is that provisions in this chapter marked “EU” also apply in relation to the equivalent business of a third country investment firm as if they were rules.

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

MIFID]

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

MiFID]

1. (1)

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

2. (2)

   This warning may be provided in a standardised format.

[Note: article 25(3) of MiFID]

1. (1)

   If the client does not provide the information to enable the firm to assess appropriateness, or if the client provides insufficient information regarding their knowledge and experience, the firm must warn the client that the firm is not in a position to determine whether the service or product envisaged is appropriate for the client.

2. (2)

   This warning may be provided in a standardised format.

[Note: article 25(3) of MiFID]

1. (1)

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

   1. (a)

      the service:

      1. (i)

         only consists of execution or reception and transmission of client orders, with or without ancillary services, excluding ancillary service (2) in section B of Annex I to MiFID (granting of credits or loans), where the relevant credits or loans do not comprise existing credit limits of loans, current accounts and overdraft facilities of clients;

      2. (ii)

         relates to particular financial instruments; and

      3. (iii)

         is provided at the initiative of the client;

   2. (b)

      the client has been clearly informed (whether in a standardised format or not) that, in the provision of this service, the firm is not required to assess the appropriateness of the financial instrument or service provided or offered and that therefore the client does not benefit from the protection of the rules on assessing appropriateness; 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)(ii) are any of the following:

   1. (a)

      shares in companies admitted to trading on:

      1. (i)

         a regulated market; or

      2. (ii)

         an equivalent third country market; or

      3. (iii)

         an MTF,

      except shares that embed a derivative and units in a collective investment undertaking that is not a UCITS; or

   2. (b)

      bonds or other forms of securitised debt admitted to trading on:

      1. (i)

         a regulated market; or

      2. (ii)

         an equivalent third country market; or

      3. (iii)

         an MTF,

      except those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved; or

   3. (c)

      money-market instruments, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved; or

   4. (d)

      shares or units in a UCITS, excluding structured UCITS as referred to in the second subparagraph of article 36(1) of the KII Regulation; or

   5. (e)

      structured deposits, excluding those that incorporate a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term; or

   6. (f)

      other non-complex financial instruments.

3. (3)

   For the purposes of this rule, a third country market is considered to be equivalent to a regulated market if it is a market in relation to which the Commission has adopted an affirmative equivalence decision in accordance with the requirements in article 4(1)(c) of Directive 2003/71/EC and the condition in article 4(1)(d) of Directive 2003/71/EC is satisfied.

[Note: article 25(4) of MIFID]

[Note:

ESMA has published guidelines which specify criteria for the assessment of (i) debt instruments incorporating a structure which makes it difficult for the client to understand the risk involved, and (ii) structured deposits incorporating a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term. The guidelines can be found here: [https://www.esma.europa.eu/sites/default/files/library/2015-1787_-_guidelines_on_complex_debt_instruments_and_structured_deposits.pdf].]