COBS 10A.2 Assessing appropriateness: the obligations

COBS 10A.2.1R

A2 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, first paragraph of article 30(2) of the IDD2]

COBS 10A.2.1AG

2A firm carrying on insurance distribution is also required to comply with the requirements in COBS 7.3 (additional insurance distribution obligations: demands and needs).

[Note: first paragraph of article 30(2) of the IDD]2

Bundled packages: MiFID business and insurance-based investment products

COBS 10A.2.2R

Where a bundle of services or products is envisaged pursuant to COBS 6.1ZA.16R (for MiFID business) or COBS 6.1ZA.16AR to COBS 6.1ZA.16E (for insurance-based investment products)2, the assessment made pursuant to COBS 10A.2.1R must consider whether the overall bundled package is appropriate.

[Note: article 25(3) of MiFID, first paragraph of article 30(2) of the IDD2]

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Assessing a client’s knowledge and experience: MiFID business

COBS 10A.2.3EU

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]

Assessing a client’s knowledge and experience: insurance-based investment product

COBS 10A.2.3AEU

215 Without prejudice to the fact that, in accordance with Article 20(1) of Directive (EU) 2016/97, any contract proposed shall be consistent with the customer's demands and needs, insurance intermediaries or insurance undertakings shall determine whether the customer has the necessary knowledge and experience in order to understand the risks involved in relation to the service or product proposed or demanded when assessing whether an insurance service or product distributed in accordance with Article 30(2) of Directive (EU) 2016/97 is appropriate for the customer.

[Note: article 15 of the IDD Regulation]

Information regarding a client’s knowledge and experience: MiFID business

COBS 10A.2.4EU

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]

Information regarding a client’s knowledge and experience: insurance-based investment products

COBS 10A.2.4AEU
  1. 217(1) For the purposes of Article 30(1) and (2) of Directive (EU) 2016/97, the necessary information to be obtained by insurance intermediaries and insurance undertakings with regard to the customer’s or potential customer’s knowledge and experience in the relevant investment field shall include, where relevant, the following, to the extent appropriate to the nature of the customer, and the nature and type of product or service offered or demanded, including their complexity and the risks involved:

    1. (a) the types of service, transaction, insurance-based investment product or financial instrument with which the customer or potential customer is familiar;

    2. (b) the nature, number, value and frequency of the customer’s or potential customer's transactions in insurance-based investment products or financial instruments and the period over which they have been carried out;

    3. (c) the level of education, and profession or relevant former profession of the customer or potential customer.

  2. 17(3) Where information required for the purposes of Article 30(1) or (2) of Directive (EU) 2016/97 has already been obtained pursuant to Article 20 of Directive (EU) 2016/97, insurance intermediaries and insurance undertakings shall not request it anew from the customer.

[Note: article 17(1) and (3) of the IDD Regulation]

Discouraging the provision of information: MiFID business

COBS 10A.2.5EU

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]

Discouraging the provision of information: insurance-based investment products

COBS 10A.2.5AEU

217(2) The insurance intermediary or insurance undertaking shall not discourage a customer or potential customer from providing information required for the purposes of Article 30(1) and (2) of Directive (EU) 2016/97.

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

Reliance on information: MiFID business

COBS 10A.2.6EU

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]

Reliance on information: insurance-based investment products

COBS 10A.2.6AEU

217(4) The insurance intermediary or insurance undertaking shall be entitled to rely on the information provided by its customers or potential customers 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]

Use of existing information: MiFID business and insurance-based investment products

COBS 10A.2.7G

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

Knowledge and experience: MiFID business and insurance-based investment products

COBS 10A.2.8G

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 understanding: MiFID business and insurance-based investment products

COBS 10A.2.9G

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 experience: MiFID business and insurance-based investment products

COBS 10A.2.10G

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 and insurance-based investment products2 provisions)1.