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COBS 9.2 Assessing suitability

Assessing suitability: the obligations

COBS 9.2.1RRP
  1. (1)

    A firm must:3

    1. (a)

      take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for its client; and3

    2. (b)

      ensure that any life policy proposed is consistent with the client’s insurance demands and needs.3

  2. (2)

    When making the personal recommendation or managing his investments, the firm must obtain the necessary information regarding the client's:

    1. (a)

      knowledge and experience in the investment field relevant to the specific type of designated investment or service;

    2. (b)

      financial situation; and

    3. (c)

      investment objectives;

    so as to enable the firm to make the recommendation, or take the decision, which is suitable for the client and for a life policy, to propose a contract that is consistent with the client’s insurance demands and needs3.

[Note:2 recital 44 to, and second paragraph of article 20(1), of the IDD3]

COBS 9.2.1AG

3A client’s insurance demands and needs are those which would need to be obtained under COBS 7.3 where a contract is sold without the provision of a personal recommendation.

COBS 9.2.2RRP
  1. (1)

    A firm must obtain from the client such information as is necessary for the firm to understand the essential facts about him and have a reasonable basis for believing, giving due consideration to the nature and extent of the service provided, that the specific transaction to be recommended, or entered into in the course of managing:

    1. (a)

      meets his investment objectives;

    2. (b)

      is such that he is able financially to bear any related investment risks consistent with his investment objectives; and

    3. (c)

      is such that he has the necessary experience and knowledge in order to understand the risks involved in the transaction or in the management of his portfolio.

  2. (2)

    The information regarding the investment objectives of a client must include, where relevant, information on the length of time for which he wishes to hold the investment, his preferences regarding risk taking, his risk profile, and the purposes of the investment.

  3. (3)

    The information regarding the financial situation of a client must include, where relevant, information on the source and extent of his regular income, his assets, including liquid assets, investments and real property, and his regular financial commitments.

COBS 9.2.3RRP

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.

COBS 9.2.4RRP

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

Reliance on information1

COBS 9.2.5RRP

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

Insufficient information1

COBS 9.2.6RRP

If a firm does not obtain the necessary information to assess suitability, it must not make a personal recommendation to the client or take a decision to trade for him.

COBS 9.2.7GRP

Although a firm may not be permitted to make a personal recommendation or take a decision to trade because it does not have the necessary information, its client may still ask the firm to provide another service such as, for example, to arrange a deal or to deal as agent for the client. If this happens, the firm should ensure that it receives written confirmation of the instructions. The firm should also bear in mind the client's best interests rule and any obligation it may have under the rules relating to appropriateness when providing the different service (see COBS 10, Appropriateness (for non-advised services)) and COBS 10A, Appropriateness (for non-advised services) (MiFID and insurance-based investment products 3provisions)).2

COBS 9.2.8RRP

[deleted]2

Friendly society life policies

COBS 9.2.9RRP
  1. (1)

    When recommending a small friendly society life policy, a firm, for the purpose of assessing suitability, need only obtain details of the net income and expenditure of the client and his dependants.

  2. (2)

    A friendly society life policy is small if the premium:

    1. (a)

      does not exceed £50 a year; or

    2. (b)

      if payable weekly, £1 a week.

  3. (3)

    The firm must keep for five years a record of the reasons why the recommendation is considered suitable.