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COBS 9.2 Assessing suitability

Assessing suitability: the obligations

COBS 9.2.1 R
  1. (1)

    A firm must take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for its client.

  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 him.

[Note: article 19(4) of MiFID, article 12(2) of the Insurance Mediation Directive]

COBS 9.2.2 R
  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.

[Note: articles 35(1), (3) and (4) of the MiFID implementing Directive]

COBS 9.2.3 R

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 9.2.4 R

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

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

Reliance on information1

COBS 9.2.5 R

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.

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

Insufficient information1

COBS 9.2.6 R

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.

[Note: article 35(5) of the MiFID implementing Directive]

COBS 9.2.7 G

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)).

Professional clients (MiFID and equivalent third country business)

COBS 9.2.8 R
  1. (1)

    If a firm makes a personal recommendation or manages investments for a professional client in the course of MiFID or equivalent third country business, it is entitled to assume that, in relation to the products, transactions and services for which the professional client is so classified, the client has the necessary level of experience and knowledge for the purposes of COBS 9.2.2R (1)(c).

  2. (2)

    If the service consists of making a personal recommendation to a per se professional client, the firm is entitled to assume that the client is able financially to bear any related investment risks consistent with his investment objectives for the purposes of COBS 9.2.2R (1)(b).

[Note: article 35(2) of the MiFID implementing Directive]

Friendly society life policies

COBS 9.2.9 R
  1. (1)

    When recommending a small friendly societylife 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 societylife 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.