This chapter applies to a firm which provides:2

1. (1)

   investment advice or portfolio management in the course of MiFID, equivalent third country or optional exemption business; or2

2. (2)

   investment advice in relation to an insurance-based investment product.2

Provisions in this chapter marked “UK”3 and including a Note (‘Note:’) referring to the MiFID Org Regulation2 apply in relation to MiFID optional exemption business as if they were rules.

When providing investment advice or portfolio management a firm must:

1. (1)

   obtain the necessary information regarding the client’s:

   1. (a)

      knowledge and experience in the investment field relevant to the specific type of financial instrument, insurance-based investment product2 or service;

   2. (b)

      financial situation including his ability to bear losses; and

   3. (c)

      investment objectives including his risk tolerance,

   so as to comply with (2);

2. (2)

   only2 recommend investment services, financial instruments and insurance-based investment products, as applicable, or take decisions to trade, which are2 suitable for the client and, in particular, in accordance with the client’s risk tolerance and ability to bear losses.

[Note: first paragraph of article 25(2) of MiFID, first paragraph of article 30(1) of the IDD2]

2When proposing an insurance-based investment product a firm must ensure it is consistent with the client’s insurance demands and needs.

[Note: recital 44 to, and second paragraph article 20(1) of, the IDD]

1. (1)

   8For the purposes of providing a personal recommendation on an insurance-based investment product in accordance with COBS 9A.2.1R and COBS 9A.2.16R, a firm must determine the extent of the information to be collected from the client in light of all the features of the advice to be provided to the client.

2. (2)

   Without prejudice to the fact that, in accordance with COBS 9A.2.3AR, COBS 9A.3.2R and COBS 9A.3.2AR, any insurance-based investment product proposed must be consistent with the client’s demands and needs, a firm must obtain from the client such information as is necessary for the firm to understand the essential facts about the client and to have a reasonable basis for determining that its personal recommendation to the client satisfies all of the following criteria:

   1. (a)

      it meets the client’s investment objectives, including that person’s risk tolerance;

   2. (b)

      it meets the client’s financial situation, including that person’s ability to bear losses;

   3. (c)

      it is such that the client has the necessary knowledge and experience in the investment field relevant to the specific type of insurance-based investment product or service.

3. (3)

   Where information required for the purposes of COBS 9A.2.1R and COBS 9A.2.16R has already been obtained pursuant to COBS 9A.2.3AR, COBS 9A.3.2R and COBS 9A.3.2AR, a firm must not request information it already has anew from the client.

[Note: articles 9(1) and (2) and 17(3) of the IDD Regulation]

8For the purposes of COBS 9A.2.1R and COBS 9A.2.16R in relation to an insurance-based investment product, the necessary information to be obtained by a firm with regard to the client’s knowledge and experience in the relevant investment field must include, where relevant, the following, to the extent appropriate to the nature of the client, and the nature and type of insurance-based investment product or service offered or demanded, including their complexity and the risks involved:

1. (1)

   the types of service, transaction, insurance-based investment product or financial instrument with which the client is familiar;

2. (2)

   the nature, number, value and frequency of the client’s transactions in insurance-based investment products or financial instruments and the period over which they have been carried out;

3. (3)

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

[Note: article 17(1) of the IDD Regulation]

1. (1)

   8In relation to an insurance-based investment product, the information regarding the client’s financial situation, including that person’s ability to bear losses, must include, where relevant, information on the source and extent of the client’s regular income, assets, including liquid assets, investments and real property and the regular financial commitments.

2. (2)

   The level of information gathered must be appropriate to the specific type of insurance-based investment product or service being considered.

[Note: article 9(3) of the IDD Regulation]

1. (1)

   8In relation to an insurance-based investment product, the information regarding the client’s investment objectives, including that person’s risk tolerance, must include, where relevant, information on the length of time for which the client wishes to hold the investment, that person’s preferences regarding risk taking, the risk profile, and the purposes of the investment.

2. (2)

   The level of information gathered must be appropriate to the specific type of insurance-based investment product or service being considered.

[Note: article 9(4) of the IDD Regulation]

1. (1)

   8In relation to an insurance-based investment product, a firm must take reasonable steps to ensure that the information collected about the client for the purposes of the assessment of suitability is reliable.

2. (2)

   The steps in (1) must include, but not be limited to, the following:

   1. (a)

      ensuring that the client is aware of the importance of providing accurate and up-to-date information;

   2. (b)

      ensuring that all tools, such as risk assessment profiling tools or tools to assess a client’s knowledge and experience, employed in the suitability assessment process are fit-for-purpose and are appropriately designed for use with its clients, with any limitations identified and actively mitigated through the suitability assessment process;

   3. (c)

      ensuring that questions used in the process are likely to be understood by the client and to capture an accurate reflection of the client’s objectives and needs and the information necessary to undertake the suitability assessment;

   4. (d)

      taking steps, as appropriate, to ensure the consistency of client information, such as considering whether there are obvious inaccuracies in the information provided by the client.

[Note: article 10 of the IDD Regulation]

8In relation to insurance-based investment products, a firm must not discourage a client from providing information required for the purposes of COBS 9A.2.1R and COBS 9A.2.16R.

[Note: article 17(2) of the IDD Regulation]

8For the purposes of assessing suitability in relation to an insurance-based investment product, a firm may rely on the information provided by its clients unless it is aware or ought to be aware that the information is manifestly out of date, inaccurate or incomplete.

[Note: article 17(4) of the IDD Regulation]

8Where a firm does not obtain the information required under COBS 9A.2.1R and COBS 9A.2.16R, the firm must not provide a personal recommendation on insurance-based investment products to the client.

[Note: article 9(5) of the IDD Regulation]

1. (1)

   8With regard to group insurance a firm must establish and implement a policy as to who will be subject to the suitability assessment where an insurance-based investment product is concluded on behalf of a group of members and each individual member cannot take an individual decision to join.

2. (2)

   The policy established under (1) must also contain rules on how that assessment will be done in practice, including from whom information about knowledge and experience, financial situation and investment objectives will be collected.

3. (3)

   A firm must record the policy established under (1).

[Note: article 13 of the IDD Regulation]

Where a firm provides investment advice2 recommending a package of services or products bundled pursuant to COBS 6.1ZA.16R (for MiFID business) or COBS 6.1ZA.16AR to COBS 6.1ZA.16ER (for insurance-based investment products)2, the firm must ensure that the overall bundled package is suitable for the client.

[Note: second paragraph of article 25(2) of MiFID and second paragraph of article 30(1) of the IDD2]

8When providing a personal recommendation in relation to an insurance-based investment product that involves switching between underlying investment assets a firm must also collect the necessary information on the client’s existing underlying investment assets and the recommended new investment assets and must undertake an analysis of the expected costs and benefits of the switch, such that it is reasonably able to demonstrate that the benefits of switching are expected to be greater than the costs.

[Note: article 9(7) of the IDD Regulation]

8When providing a personal recommendation on an insurance-based investment product in accordance with COBS 9A.2.1R and COBS 9A.2.16R, a firm must not make a recommendation where none of the insurance-based investment products are suitable for the client.

[Note: article 9(6) of the IDD Regulation]

1. (1)

   5A firm must not create any ambiguity or confusion about its responsibilities in the process of assessing the suitability of insurance-based investment products in accordance with COBS 9A.2.1R and COBS 9A.2.16R.

2. (2)

   A firm must inform the client, clearly and simply, that the reason for assessing suitability is to enable it to act in the client’s best interest.

[Note: article 11 of the IDD Regulation]

1. (1)

   [deleted]1

2. (2)

   When providing investment advice to a retail client1, a firm must, before the transaction is concluded, provide the client with a suitability report in a durable medium:2

   1. (a)

      specifying the advice given and how that advice meets the preferences, objectives and other characteristics of the client;2

   2. (b)

      (for an insurance-based investment product):2

      1. (i)

         specifying, on the basis of the information obtained from the client, the client’s demands and needs; and2

      2. (ii)

         including a personalised recommendation explaining why a particular insurance-based investment product would best meet the client’s demands and needs.2

      The details in (i) and (ii) must be modulated according to the complexity of the contract of insurance proposed and the type of client.2

3. (3)

   Where the transaction2 is concluded using a means of distance communication which prevents the prior delivery of the suitability report, the firm may provide the suitability report in a durable medium immediately after the client is bound by the transaction2 , provided both the following conditions are met:

   1. (a)

      the client has consented to receiving the suitability report without undue delay after the conclusion of the transaction; and

   2. (b)

      the firm has given the client the option of delaying the transaction in order to receive the suitability report in advance.

4. (4)

   Where a firm provides a portfolio management service or has informed the client that it will carry out periodic assessment of suitability, the periodic report, provided under COBS 16A.2.1R, must contain an updated statement of how the client’s investments meet the preferences, objectives and other characteristics of the client.

[Note: second, third and fourth paragraphs of article 25(6) of, and recital 82 to, MiFID; article 20(1), article 20(2), second paragraph of article 22(1) and second, third and fourth 3paragraphs of article 30(5) of the IDD2]

2Where a firm makes a personal recommendation to a professional client on an insurance-based investment product it must, prior to the conclusion of the contract, provide to the client the information in COBS 9A.3.2R(2)(b) in accordance with COBS 7.4.

[Note: article 20(1) and 20(2) of the IDD]

1. (1)

   5When providing a personal recommendation on the suitability of an insurance-based investment product in accordance with COBS 9A.2.1R and COBS 9A.2.16R, a firm must provide a statement to the client (suitability statement) that includes the following:

   1. (a)

      an outline of the personal recommendation given;

   2. (b)

      information on how the recommendation provided is suitable for the client, in particular how it meets:

      1. (i)

         the client’s investment objectives, including that person’s risk tolerance;

      2. (ii)

         the client’s financial situation, including that person’s ability to bear losses;

      3. (iii)

         the client’s knowledge and experience.

2. (2)

   A firm must draw the client’s attention to, and must include in the suitability statement, information on whether any recommended insurance-based investment product is likely to require the client to seek a periodic review of their arrangements.

3. (3)

   Where a firm has informed the client that it will carry out a periodic assessment of suitability, the subsequent statements after the initial service is established may be limited to changes in the services or underlying investment assets, and/or the circumstances of the client without repeating all the details contained in the first statement.

[Note: article 14(1) to (3) of the IDD Regulation]

A firm must:2

1. (1)

   in relation to an insurance-based investment product, at least in good time prior to the conclusion of the contract;2

2. (2)

   otherwise, in good time before it provides its investment advice;2

inform the client whether it will provide the client with a periodic assessment of the suitability of the financial instruments or the insurance-based investment products recommended to the client.2

[Note: article 24(4)(a)(iii) of MiFID, article 29(1)(a) of the IDD2]

1. (1)

   5A firm providing a periodic assessment of suitability must review, in accordance with the best interests of its client, the suitability of the recommended insurance-based investment products at least annually

2. (2)

   The frequency of a periodic assessment must be increased depending on the characteristics of the client, such as the risk tolerance, and the nature of the recommended insurance-based investment product.

[Note: article 14(4) of the IDD Regulation]

1. (1)

   4Without prejudice to the application of the General data protection regulation, a firm must maintain records of the assessment of suitability in relation to insurance-based investment products undertaken in accordance with COBS 9A.2.1R and COBS 9A.2.16R.

2. (2)

   The records maintained under (1) must include the information obtained from the client and any documents agreed with the client, including documents that set out the rights of the parties and the other terms on which the firm will provide services to the client.

3. (3)

   The records must be retained for at least the duration of the relationship between the firm and the client.

[Note: article 19(1) of the IDD Regulation]

4In the case of an assessment of suitability undertaken in accordance with COBS 9A.2.1R and COBS 9A.2.16R in relation to insurance-based investment products, the record maintained under COBS 9A.4.3R must include the following:

1. (1)

   the result of the suitability assessment;

2. (2)

   the recommendation made to the client and the statement provided in accordance with COBS 9A.3.3AR;

3. (3)

   any changes made by the firm with regard to the suitability assessment, in particular any change to the client’s risk tolerance;

4. (4)

   any changes to the underlying investment assets.

[Note: article 19(2) of the IDD Regulation]