COBS: Suitability and Appropriateness Rules Flashcards
to who do suitability rules apply
all customers (retail and professional clients)
what does the suitability rule make firms do
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
what are the applications to the suitability rule
acting as an investment manager (discretionary services)
personal recommendations (advisory services)
what type of information is obtained in the ‘fact find’
personal and financial information about the client
what is the purpose of suitability and for which types of clients is each point (there are three)
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)
where does the suitability rule not apply
execution only services
what happens if a firm cannot obtain sufficient information
no recommendations or decisions to deal must be made
what happens if a client insists to proceed with a transaction but firm has deemed not suitable
firm can proceed but:
must communicate to client that firm does not recommend it, why they dont recommend it, the risks of the transaction
which clients require a suitability report
retail clients only
what is the purpose of a suitability report and for what kind of investments is required
to confirm why the firm believes the recommendation is suitable and should be provided for both mifid and non mifid investments
what should a suitability report include
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
what form must a suitability report be in
provided in a durable medium before the contract is concluded
under what circumstances can timing be delayed in regard to a suitability report
can be delayed if the agreement is concluded at a distance and the client agrees to this delay
what are 5 times when a suitability report is not required
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
time limit for suitability report for personal or stakeholder pension where right to cancel applies
no later than 14 days after contract is concluded
to which clients to the appropriateness rules apply
retail and professional clients
what is the purpose of the appropriateness rules
to ensure firms obtain sufficient information to assess if a product is appropriate for the customer
to what business does appropriateness rules apply and which types of clients does each one apply to (there are 2)
mifid business (both RC and PC)
direct offers (retail only)
what must a firm do before acting under the appropriateness rules and how do they differ for RC and PC
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)
when are warnings provided under appropriateness rules
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
when is appropriateness rule not necessary
for execution only business involving non-complex financial instruments
if a service provides management or advice, does suitability apply and does appropriateness apply
suitability always applies, but appropriateness does not
if a service does not provide management or advice, and the investment product is NOT complex, does suitability and appropriateness apply
neither suitability nor appropriateness apply
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
appropriateness applies, suitability does not
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
appropriateness applies, but not suitability
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
neither suitability nor appropriateness apply
