SIFA 9.8 Know your customer

Before you give personal recommendations regarding investment or mortgage business to private customers, you must take reasonable steps to ensure that you have enough personal and financial information about them. The information you gather should be relevant to the services that you agree to provide (COB 5.2.5 R). For general insurance the required information is ascertained in the preparation of the statement of demands and needs. When arranging a life policy for any client, you may be required to give them a statement of their demands and needs (COB 5.2.12 R to COB 5.2.17 G).

Principle 9 (Customers: relationships of trust) requires you to take reasonable care to ensure the suitability of your advice and discretionary decisions for any customers who are entitled to rely on this. You will not be able to comply with Principle 9 unless you have first obtained enough information about your private customers to enable you to assess correctly their individual requirements. This will help you to meet your responsibility to give suitable advice.

Another key reason for obtaining information about your customers is to prevent money laundering (see Chapter 14 of the Guide).

You will need to obtain personal and financial information to be able to recommend a suitable product. The process is often described as fact-finding and the document that records the information is generally referred to as a fact-find. The factors that you will need to assess include:

• the financial needs and objectives of a private customer;
• the customer's current income and expenditure and any likely changes to income and expenditure - to assess the affordability of any investment or mortgage product that you recommend to a private (or retail) customer;
• their attitude to risk; and
• any foreseeable future events for your client.

There is guidance in the table at COB 5.2.11 G.

We do not prescribe the method of completing a fact-find and of obtaining personal and financial information about a private customer. You may design and use a process that is suitable for the market you transact business in (COB 5.2.11 G).

Where you advise customers on a continuing basis, you should regularly review the information you keep about them (COB 5.2.6 G).

If a private customer declines to provide relevant personal and financial information, you should not proceed without promptly advising them that this may adversely affect the quality of the services you can provide (COB 5.2.7 G). You should consider sending written confirmation of that advice. Note that provision of certain information e.g. income / expenditure is not optional when dealing with mortgage products where it is a requirement to ensure responsible lending. Fact-finds for these products are specific and vary according to the nature of the loan e.g. property purchase, equity release or lifetime mortgages.

The following parts of the Handbook are relevant:

• know your customer requirements: COB Section 5.2;
• guidance on how to collect information: table at COB 5.2.11 G;
• statement of demands and needs: COB 5.2.12 R to COB 5.2.17 G; and
• in MCOB and ICOB - advising and selling standards.

If you arrange an execution-only transaction (a transaction where no advice is sought or given) you will not normally need to obtain personal or financial information. However, you may still need to do money-laundering checks and provide a demands and needs statement in relation to any life policy business (COB 5.2.2 G).

If you arrange a pension transfer or opt-out from an occupational pension scheme for a private customer on an execution-only basis, you will need to make and retain a clear record to confirm that no advice was supplied to the customer (COB 5.2.10 R).