COBS 9A.3 Information to be provided to the client

Explaining the reasons for assessing suitability: MiFID business

COBS 9A.3.1EU

54(1) Investment firms shall not create any ambiguity or confusion about their responsibilities in the process when assessing the suitability of investment services or financial instruments in accordance with Article 25(2) of Directive 2014/65/EU. When undertaking the suitability assessment, the firm shall inform clients or potential clients, clearly and simply, that the reason for assessing suitability is to enable the firm to act in the client’s best interest.

[Note: first paragraph of article 54(1) of the MiFID Org Regulation]

COBS 9A.3.1AEU

211 Insurance intermediaries and insurance undertakings shall not create any ambiguity or confusion about their responsibilities in the process of assessing the suitability of insurance-based investment products in accordance with Article 30(1) of Directive (EU) 2016/97. Insurance intermediaries and insurance undertakings shall inform customers, clearly and simply, that the reason for assessing suitability is to enable them to act in the customer's best interest.

[Note: article 11 of the IDD Regulation]

Suitability reports: MiFID business and insurance-based investment products

COBS 9A.3.2R
  1. (1)

    [deleted]1

  2. (2)

    When providing investment advice to a retail client1, a firm must, before the transaction is concluded, provide the client with a suitability report in a durable medium:2

    1. (a)

      specifying the advice given and how that advice meets the preferences, objectives and other characteristics of the client;2

    2. (b)

      (for an insurance-based investment product):2

      1. (i)

        specifying, on the basis of the information obtained from the client, the client’s demands and needs; and2

      2. (ii)

        including a personalised recommendation explaining why a particular insurance-based investment product would best meet the client’s demands and needs.2

      The details in (i) and (ii) must be modulated according to the complexity of the contract of insurance proposed and the type of client.2

  3. (3)

    Where the transaction2 is concluded using a means of distance communication which prevents the prior delivery of the suitability report, the firm may provide the suitability report in a durable medium immediately after the client is bound by the transaction2 , provided both the following conditions are met:

    1. (a)

      the client has consented to receiving the suitability report without undue delay after the conclusion of the transaction; and

    2. (b)

      the firm has given the client the option of delaying the transaction in order to receive the suitability report in advance.

  4. (4)

    Where a firm provides a portfolio management service or has informed the client that it will carry out periodic assessment of suitability, the periodic report, provided under COBS 16A.2.1R, must contain an updated statement of how the client’s investments meet the preferences, objectives and other characteristics of the client.

[Note: second, third and fourth paragraphs of article 25(6) of, and recital 82 to, MiFID; article 20(1), article 20(2), second paragraph of article 22(1) and second, third and fourth 3paragraphs of article 30(5) of the IDD2]

COBS 9A.3.2AR

2Where a firm makes a personal recommendation to a professional client on an insurance-based investment product it must, prior to the conclusion of the contract, provide to the client the information in COBS 9A.3.2R(2)(b) in accordance with COBS 7.4.

[Note: article 20(1) and 20(2) of the IDD]

Providing a suitability report: MiFID business

COBS 9A.3.3EU

54(12) When providing investment advice, investment firms shall provide a report to the retail client that includes an outline of the advice given and how the recommendation provided is suitable for the retail client, including how it meets the client’s objectives and personal circumstances with reference to the investment term required, client’s knowledge and experience and client’s attitude to risk and capacity for loss.

Investment firms shall draw clients’ attention to and shall include in the suitability report information on whether the recommended services or instruments are likely to require the retail client to seek a periodic review of their arrangements.

Where an investment firm provides a service that involves periodic suitability assessments and reports, the subsequent reports after the initial service is established may only cover changes in the services or instruments involved and/or the circumstances of the client and may not need to repeat all the details of the first report.

[Note: article 54(12) of the MiFID Org Regulation]

Providing a suitability report: insurance-based investment products

COBS 9A.3.3AEU
  1. 214(1) When providing advice on the suitability of an insurance-based investment product in accordance with Article 30(1) of Directive (EU) 2016/97, insurance intermediaries and insurance undertakings shall provide a statement to the customer (suitability statement) that includes the following:

    1. (a) an outline of the advice given;

    2. (b) information on how the recommendation provided is suitable for the customer, in particular how it meets:

      1. (i) the customer’s investment objectives, including that person’s risk tolerance;

      2. (ii) the customer’s financial situation, including that person’s ability to bear losses;

      3. (iii) the customer’s knowledge and experience.

  2. 14(2) Insurance intermediaries and insurance undertakings shall draw customers’ attention to, and shall include in the suitability statement, information on whether the recommended insurance-based investment products are likely to require the customer to seek a periodic review of their arrangements.

  3. 14(3) Where an insurance intermediary or insurance undertaking has informed the customer that it will carry out a periodic assessment of suitability, the subsequent statements after the initial service is established may be limited to changes in the services or underlying investment assets, and/or the circumstances of the customer without repeating all the details contained in the first statement.

[Note: article 14(1) to (3) of the IDD Regulation]

COBS 9A.3.4G

When providing a suitability report, a firm should consider the requirements in COBS 4.2.1R to ensure that the contents of the suitability report are fair, clear and not misleading.

COBS 9A.3.5G

Situations that are likely to require a retail client to seek a periodic review of their arrangements include where a client is likely to need to seek advice to bring a portfolio of investments back in line with the original recommended allocation where there is a probability that the portfolio could deviate from the target asset allocation.

[Note: recital 85 to the MiFID Org Regulation]

Periodic assessments: MiFID business and insurance-based investment products

COBS 9A.3.6R

A firm must:2

  1. (1)

    in relation to an insurance-based investment product, at least in good time prior to the conclusion of the contract;2

  2. (2)

    otherwise, in good time before it provides its investment advice;2

inform the client whether it will provide the client with a periodic assessment of the suitability of the financial instruments or the insurance-based investment products recommended to the client.2

[Note: article 24(4)(a)(iii) of MiFID, article 29(1)(a) of the IDD2]

COBS 9A.3.7G

COBS 9A.3.6R supplements COBS 2.2A.2R (information disclosure before providing services (MiFID provisions and insurance distribution2)).

Periodic assessments: MiFID business

COBS 9A.3.8EU

52(5) Investments firms providing a periodic assessment of the suitability of the recommendations provided pursuant to Article 54(12) shall disclose all of the following:

(a) the frequency and extent of the periodic suitability assessment and where relevant, the conditions that trigger that assessment;

(b) the extent to which the information previously collected will be subject to reassessment; and

(c) the way in which an updated recommendation will be communicated to the client.

[Note: article 52(5) of the MiFID Org Regulation]

COBS 9A.3.9EU

54(13) Investment firms providing a periodic suitability assessment shall review, in order to enhance the service, the suitability of the recommendations given at least annually. The frequency of this assessment shall be increased depending on the risk profile of the client and the type of financial instruments recommended.

[Note: article 54(13) of the MiFID Org Regulation]

Periodic assessments: insurance-based investment products

COBS 9A.3.10EU

214(4) Insurance intermediaries and insurance undertakings providing a periodic assessment of suitability shall review, in accordance with the best interests of their customers, the suitability of the recommended insurance-based investment products at least annually. The frequency of this assessment shall be increased depending on the characteristics of the customer, such as the risk tolerance, and the nature of the recommended insurance-based investment product.

[Note: article 14(4) of the IDD Regulation]