COBS: Suitability and Appropriateness Rules

Question 1

to who do suitability rules apply

Answer 1

all customers (retail and professional clients)

Question 2

what does the suitability rule make firms do

Answer 2

requires them to obtain sufficient information to give suitable advice with regard to the information disclosed and other facts that the firm ought to reasonably be aware of

Question 3

what are the applications to the suitability rule

Answer 3

acting as an investment manager (discretionary services)
personal recommendations (advisory services)

Question 4

what type of information is obtained in the ‘fact find’

Answer 4

personal and financial information about the client

Question 5

what is the purpose of suitability and for which types of clients is each point (there are three)

Answer 5

to meet customers investment objectives (PC and RC)
ensure that the customer is able to bear financial risks (elective PC and RC)
ensure that the customer has the necessary knowledge and experience to understand those risks (RC only)

Question 6

where does the suitability rule not apply

Answer 6

execution only services

Question 7

what happens if a firm cannot obtain sufficient information

Answer 7

no recommendations or decisions to deal must be made

Question 8

what happens if a client insists to proceed with a transaction but firm has deemed not suitable

Answer 8

firm can proceed but:

must communicate to client that firm does not recommend it, why they dont recommend it, the risks of the transaction

Question 9

which clients require a suitability report

Answer 9

retail clients only

Question 10

what is the purpose of a suitability report and for what kind of investments is required

Answer 10

to confirm why the firm believes the recommendation is suitable and should be provided for both mifid and non mifid investments

Question 11

what should a suitability report include

Answer 11

specify the clients demands and needs
explain why the firm believes the recommended transaction meets those needs
explains any possible disadvantages of the transaction for the client

Question 12

what form must a suitability report be in

Answer 12

provided in a durable medium before the contract is concluded

Question 13

under what circumstances can timing be delayed in regard to a suitability report

Answer 13

can be delayed if the agreement is concluded at a distance and the client agrees to this delay

Question 14

what are 5 times when a suitability report is not required

Answer 14

where the firm (acting as investment manager) makes a recommendation in connection to a regulated CIS

client is habitually resident outside EEA and is not present in the UK at time of consent to proposal

in small life policies under 50 pounds per annum

if recommendation is to increase regular premiums to an existing contract

if investing further premiums to an existing packaged product into which contributions have already been paid

Question 15

time limit for suitability report for personal or stakeholder pension where right to cancel applies

Answer 15

no later than 14 days after contract is concluded

Question 16

to which clients to the appropriateness rules apply

Answer 16

retail and professional clients

Question 17

what is the purpose of the appropriateness rules

Answer 17

to ensure firms obtain sufficient information to assess if a product is appropriate for the customer

Question 18

to what business does appropriateness rules apply and which types of clients does each one apply to (there are 2)

Answer 18

mifid business (both RC and PC)
direct offers (retail only)

Question 19

what must a firm do before acting under the appropriateness rules and how do they differ for RC and PC

Answer 19

firm must assess whether the customer:

is able to bear the financial risks in relation to the product or service

has the knowledge and experience to understand those risks (retail clients only)

Question 20

when are warnings provided under appropriateness rules

Answer 20

the firm believes the investment or scheme is not appropriate

the customer has not produced sufficient information for the firm to come to a conclusion

Question 21

when is appropriateness rule not necessary

Answer 21

for execution only business involving non-complex financial instruments

Question 22

if a service provides management or advice, does suitability apply and does appropriateness apply

Answer 22

suitability always applies, but appropriateness does not

Question 23

if a service does not provide management or advice, and the investment product is NOT complex, does suitability and appropriateness apply

Answer 23

neither suitability nor appropriateness apply

Question 24

if a service does not provide management or advice, and the investment product IS complex and was promoted through a direct offer, does suitability and appropriateness apply

Answer 24

appropriateness applies, suitability does not

Question 25

if a service does not provide management or advice, and the investment product is complex, not promoted via a direct offer but is for a retail client, does suitability and appropriateness apply

Answer 25

appropriateness applies, but not suitability

Question 26

if a service does not provide management or advice, and the investment product is complex, not promoted via a direct offer and is NOT for a retail client, does suitability and appropriateness apply

Answer 26

neither suitability nor appropriateness apply