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COBS 10.2 Assessing appropriateness: the obligations

COBS 10.2.1RRP
  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:

    1. (a)

      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 demanded;

    2. (b)

      may 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 19(5) of MiFID and article 36 of the MiFID implementing Directive]

COBS 10.2.2RRP

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.

[Note: article 37(1) of the MiFID implementing Directive]

COBS 10.2.3RRP

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

[Note: article 37(2) of the MiFID implementing Directive]

Reliance on information1

COBS 10.2.4RRP

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firm is entitled to rely on the information provided by a client unless it is aware that the information is manifestly out of date, inaccurate or incomplete.

[Note: article 37(3) of the MiFID implementing Directive]

Use of existing information1

COBS 10.2.5GRP

When assessing appropriateness, a firm may use information it already has in its possession.

Knowledge and experience1

COBS 10.2.6GRP

Depending on the circumstances, a firm may be satisfied that the client's knowledge alone is sufficient for him to understand the risks involved in a product or service. Where reasonable, a firm may infer knowledge from experience.

Increasing the client's understanding1

COBS 10.2.7GRP

If, before assessing appropriateness, a firm seeks to increase the client's level of understanding of a service or product by providing information to him, relevant considerations are likely to include the nature and complexity of the information and the client's existing level of understanding.

No duty to communicate firm's assessment of knowledge and experience1

COBS 10.2.8GRP

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 9 on suitability.