MiFID II Supervisry briefing Suitability 13 Nvember 2018 ESMA35-43-1206
13 Nvember 2018 ESMA35-43-1206 ESMA CS 60747 103 rue de Grenelle 75345 Paris Cedex 07 France Tel. +33 (0) 1 58 36 43 21 www.esma.eurpa.eu 2
Table f Cntents 1 Intrductin... 4 1.1 Overview... 4 1.2 Scpe... 4 1.3 Status f this dcument... 5 1.4 Purpse... 5 2 Supervisry briefing... 7 2.1 Determining situatins where the suitability assessment is required... 7 2.2 Infrmatin t clients abut the purpse f the suitability assessment... 7 2.3 Obtaining infrmatin frm clients... 8 2.4 Arrangements necessary t understand investment prducts...12 2.5 Arrangements necessary t ensure the suitability f an investment...14 2.6 Suitability reprt...16 2.7 Qualificatins f firm staff...18 2.8 Recrd-keeping...19 3
1 Intrductin 1.1 Overview 1. ESMA is required t play an active rle in building a cmmn supervisry culture by prmting cmmn supervisry appraches and practices. 2. On 18 December 2012, ESMA published a supervisry briefing in relatin t suitability t prvide guidance t NCAs in relatin t the MIFID I suitability rules. This updated versin f ESMA s supervisry briefing n suitability takes int accunt the new versin f ESMA s guidelines n suitability published n 28 May 2018. ESMA s 2012 supervisry briefing in relatin t suitability will cnsequently be retired as f the date f entry int applicatin f the new ESMA guidelines n suitability. 3. This supervisry briefing has been designed fr supervisrs as an accessible intrductin t Directive 2014/65/EU 1 (MiFID II) suitability rules, and as a useful starting pint when deciding n areas f supervisry fcus. It summarises the key elements f the rules and explains the assciated bjectives and utcmes. It als includes indicative questins that supervisrs culd ask themselves, r a firm, when assessing firms appraches t the applicatin f the MiFID II rules. 4. The cntent f this briefing is nt exhaustive, des nt cnstitute new plicy, and des nt prmte any particular way f supervising the rules. It has been designed t be used in the way that best fits with supervisrs methdlgies (whether distributing the briefings internally, r passing them t external bdies, such as auditrs, fr example). 1.2 Scpe 5. This supervisry briefing is aimed at cmpetent authrities (as defined in MiFID II). It is als meant t give market participants indicatins f cmpliant implementatin f the MiFID II suitability prvisins. 6. It applies in relatin t the applicatin f the fllwing MiFID II prvisins: Articles 25(2) and (6) f MiFID II. Articles 54 and 55 f the MiFID II Delegated Regulatin 2. 1 Directive 2014/65/EU f the Eurpean Parliament and f the Cuncil f 15 May 2014 n markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.06.2014, p. 349). 2 Cmmissin Delegated Regulatin (EU) 2017/565 f 25 April 2016 supplementing Directive 2014/65/EU f the Eurpean Parliament and f the Cuncil as regards rganisatinal requirements and perating cnditins fr investment firms and defined terms fr the purpses f that Directive. 4
1.3 Status f this dcument 7. The supervisry briefing is issued under Article 29(2) f the ESMA Regulatin which enables ESMA t develp new practical instruments and cnvergence tls such as supervisry briefings. The purpse f these tls is t prmte cmmn supervisry appraches and practices. The cntent f this supervisry briefing is nt subject t any cmply r explain mechanism fr NCAs and is nn-binding. 3 1.4 Purpse 8. MiFID II and the MiFID II Delegated Regulatin place varius requirements n firms when they prvide investment advice r discretinary prtfli management services that d nt apply when prviding ther investment services. Ntably, these include requirements t ensure that (when prviding advice) any persnal recmmendatins made r (when prviding discretinary prtfli management services) any discretinary investment decisins taken n behalf f clients are suitable fr each client. 9. The MiFID II suitability rules give firms a certain degree f flexibility in cmplying with the duty t btain the necessary infrmatin abut the client s circumstances n the ne hand, and using this infrmatin in making recmmendatins r taking investment decisins n the ther hand. In mst circumstances, supervisrs will have t assess the adequacy f a firm s arrangements n a case-by-case basis, having regard t the prprtinality principle and a firm s peratinal framewrk. 10. This supervisry briefing is designed t help supervisrs make these judgements, and is structured arund the fllwing elements: determining situatins where the suitability assessment is required; infrmatin t clients abut the purpse f the suitability assessment; btaining infrmatin frm clients; arrangements necessary t understand investment prducts; arrangements necessary t understand the suitability f an investment; suitability reprt; qualificatins f firm staff; and recrd keeping. 3 Regulatin (EU) N 1095/2010 f the Eurpean Parliament and f the Cuncil f 24 Nvember 2010 establishing a Eurpean Supervisry Authrity (Eurpean Securities and Markets Authrity), amending Decisin N 716/2009/EC and repealing Cmmissin Decisin 2009/77/EC. 5
11. Each element refers t the relevant legislatin and ther guidance available as well as prvides examples f the srt f questins that supervisrs culd ask t test whether the utcmes f the suitability rules are being met by firms. 12. In this supervisry briefing rb-advice means the prvisin f investment advice r prtfli management services (in whle r in part) thrugh an autmated r semiautmated system used as a client-facing tl. Hwever, fr the avidance f dubt, the use f electrnic autmated r semi-autmated systems as prfessinal-facing tls are als within the scpe f this supervisry briefing. 6
2 Supervisry briefing 2.1 Determining situatins where the suitability assessment is required 13. In accrdance with Article 25(2) f MiFID II, when prviding investment advice r discretinary prtfli management services, firms must ensure that the specific transactin t be recmmended, r entered int in the curse f prviding a discretinary prtfli management service, is suitable fr the client in questin. 14. Relevant legislatin: Article 25(2) f MiFID II. 15. Questins Hw d the firm s arrangements and prcedures guide, track and recrd the interactin between staff and clients, having regard t the distinctin between advised and nn-advised services? What safeguards are in place t avid any persnal recmmendatin being made in situatins where a suitability assessment is nt envisaged? What arrangements and prcedures has the firm set up t ensure that the suitability assessment cvers all recmmendatins (whether it is, fr example, a recmmendatin t buy, hld r sell an instrument, r nt t d s) and is nt limited t recmmendatins t buy financial instruments? Where a suitability assessment is nt envisaged, what kind f internal systems and cntrls are in place in rder t ensure that the services given d nt amunt t advice? What kind f safeguards are in place in rder t ensure that the use f an electrnic system des nt hinder the firm s capacity t detect where a suitability assessment shuld be carried ut? 2.2 Infrmatin t clients abut the purpse f the suitability assessment 16. In accrdance with Article 54(1) f the MiFID II Delegated Regulatin, investment firms shall nt create any ambiguity r cnfusin abut their respnsibilities in the prcess when assessing the suitability f investment services r financial instruments and shall infrm their clients r ptential clients, clearly and simply, that the reasn fr assessing suitability is t enable the firm t act in the client s best interest. 17. Relevant legislatin: Article 24(1), 24(4) and 24(5) f MiFID II, Article 54(1) f the MiFID II Delegated Regulatin. 7
18. Relevant Guideline: General Guideline 1. 19. Questins Des the infrmatin given t clients n investment advice and prtfli management services include infrmatin abut the suitability assessment? Hw des the infrmatin given t clients abut the suitability assessment encurage them t prvide accurate and sufficient infrmatin that will allw the firm t carry the suitability assessment adequately? Des the infrmatin given t clients abut the suitability assessment explain that, withut accurate and sufficient infrmatin abut the client s knwledge, experience, financial situatin and investment bjectives, the firm is nt able t prvide investment advice r prtfli management services r may recmmend/invest n behalf f the client in unsuitable prducts? Fr instance, is the firm giving examples n hw missing r inaccurate infrmatin may affect the firm s ability t perfrm the suitability assessment and therefre t prvide investment advice and prtfli management services? If nt, hw des the infrmatin given t clients abut the suitability assessment highlight and help clients t understand the imprtance f prviding cmplete and accurate infrmatin t enable the firm t recmmend suitable prducts and services t the clients? With respect t rb-advice, des the firm prvide its clients with the additinal infrmatin prescribed under paragraph 20 f General Guideline 1 f the suitability guidelines? Hw d the firm s plicies and prcedures ensure that the infrmatin abut the suitability assessment was prvided t the client? And that it is effective? With respect t rb-advice, has the firm adapted the means by which it is prviding the required infrmatin t ensure that the infrmatin is prvided t the client and that it is effective, despite the lack f human interactin? Fr example, is it using design features (such as pp-up bxes), interactive text r ther means? 2.3 Obtaining infrmatin frm clients 20. In accrdance with Article 54 f the MiFID II Delegated Regulatin, when prviding investment advice r discretinary prtfli management services, firms must btain the necessary infrmatin in rder t understand the essential facts abut the client s that they can assess whether the specific transactin t be recmmended, r entered int 8
during the curse f prviding a discretinary prtfli management service, is suitable fr the client in questin. 21. Relevant legislatin: Articles 25(1) and 25(2) f MiFID II, Articles 54(2) t 54(8) and Article 55 f the MiFID II Delegated Regulatin. 22. Other: General Guidelines 2 t 6 and 11 as well as Q&A 7. 23. Questins General What arrangements and prcedures has the firm set up t ensure that relevant and necessary infrmatin abut essential client facts is btained? What mechanism is used t btain infrmatin that give due cnsideratin t all relevant and necessary facts abut the client? In particular, hw are relevant facts regarding investment bjectives (including hlding perid, risk taking preferences, risk prfile and purpses f the investment), financial situatin (including surce and extent f regular incme, assets and financial cmmitments) and knwledge and experience (including the ability t understand the relevant financial instrument and in particular the risk t be taken) assessed and used t determine suitability? Has the firm established sme general client prfiles with reference t the three relevant dimensins (i.e. investment bjectives, financial situatin, experience and knwledge)? If s, hw d the arrangements and prcedures f the firm lead t the assessment f each client within the varius prfiles established? Hw d these general categries cntinue t satisfy the need t take int accunt a client s particular circumstances? If the firm uses questinnaires (including in digital frmat) t cllect client infrmatin, are they designed in a clear, exhaustive and cmprehensible way (using layman s terms, where pssible and apprpriate) aviding misleading, cnfusing, imprecise r excessively technical language? Des the questinnaire make clear that a lack f answer t certain questins r t a certain number f questins may prevent the firm frm prviding investment advice r prtfli management services? Or that prviding inaccurate, imprecise r incmplete infrmatin may cause the firm t recmmend/invest n behalf f the client in unsuitable prducts? Hw? In relatin t the cllectin f infrmatin n the client s financial situatin, des the questinnaire ffer the pssibility nt t reply? Des the questinnaire explain why such infrmatin is needed and hw the client s verall financial situatin may be relevant t the service prvided? Hw? When the firm requests infrmatin n the client s investments held with 9
ther firms, des the firm specifically explain why such infrmatin is needed t recmmend a suitable prduct? If the firm uses questinnaires (including in digital frmat) t cllect client infrmatin, are they designed t gather as much relevant infrmatin as pssible and in an accurate manner? Fr instance, is the questinnaire presented as a battery f questins? Where a questinnaire is nt cmpleted in a face-t-face meeting, is sme human interactin (such as remte interactin via email r mbile phne) available t the client when respnding t the questinnaire in case the client needs clarity r is seeking further infrmatin? Hw des the firm appraise the client s understanding f basic financial ntins such as investment risk (including cncentratin risk) and the relatinship between risk and return n investments? T this end, is the firm using indicative and cmprehensible examples f riskreturn trade ff and testing the client s respnse t such scenaris? Hw are the client s risk-taking preferences (willingness t take risks, risk preparedness, placing hrizn) taken int accunt by the firm when assessing the client s risk tlerance? Hw des the firm check fr any incnsistencies between the tw? Fr example, is the firm using graphs, specific percentages r cncrete figures when asking the client hw he wuld react when the value f his prtfli decreases and is it checking the client s answers against thse relating t its risktaking preferences? Prprtinality Hw des the firm assess the extent f the necessary infrmatin that shuld be cllected? Is the firm using different questins r additinal questinnaires (depending n the features f the investment advice r prtfli management services t be prvided, the type and characteristics f the investment prducts t be cnsidered, the characteristics f the client, its investment bjective, etc)? What are the main differences between the different versins? D they all enable the firm t gather the necessary infrmatin? Or wuld the firm be able t ffer mre human interactin t the client if it had t cllect mre extensive r detailed infrmatin frm the client? Fr instance, in relatin t cmplex r risky financial prducts, hw des the firm ensure that the client understands the mechanisms that make the 10
financial instrument cmplex r risky, whether the client has already traded in such prduct, fr hw lng, etc. and gives all necessary infrmatin? Reliability Are clients asked t make any degree f self-assessment (e.g. in respect f their attitude t risk/knwledge and experience)? Is the self-assessment cunterbalanced by bjective criteria? Are the tls used by the firm t cllect the necessary client infrmatin designed t allw the firm t crss-check any self-assessment by the client against bjective criteria (e.g. pen-ended questins related t the client s understanding f risk-return trade ff and diversificatin, the client s knwledge and experience r financial situatin and the client s risk perceptin)? Hw is this carried ut? Fr example, is it: a) crss-checked with ther criteria; b) verified with bjective data r infrmatin; c) ex-ante and n a regular basis research r surveys are carried ut t assess the effectivity f tls, questinnaires? What steps have been taken by the firm t address incnsistencies in the client s respnses? Des the questinnaire itself cntain sme design features t alert clients when their respnses appear incnsistent? Or des the firm carry ut an ex-pst review f the client s respnses? If incnsistencies are identified, hw des the firm reslve them? What are the firm s arrangements and prcedures t make sure that, where insufficient r unclear infrmatin is cllected frm the client, safeguards are triggered t prevent the firm prviding investment advice r prtfli management services? Client infrmatin fr legal entities r grups Des the firm have a plicy defining, n an ex ante basis, hw t cnduct the suitability assessment in relatin t legal entities, grups f tw r mre natural persns and ne r mre natural persns represented by anther natural persn? Des such plicy define the prcedure and criteria t be fllwed in rder t cmply with the MiFID II suitability requirements? Des the firm infrm, n an ex ante basis, its clients that are legal persns, grups f tw r mre natural persns r ne r mre natural persns represented by anther natural persn, wh will be subject t the suitability assessment, hw it will be dne in practice and the pssible impact it culd have fr the relevant client(s), in accrdance with the firm s plicy? 11
Updating client infrmatin What are the arrangements fr keeping the client prfiles updated? Are these arrangements reasnable? What prcedures has the firm put in place t encurage clients t update the infrmatin riginally prvided when significant changes ccur? What criteria are used t determine the frequency f review f client infrmatin (risk prfile f the client, certain events such as retirement, marriage, birth f a child, etc)? What arrangements and prcedures has the firm set up t mitigate the risk f inducing the client t update his wn prfile s as t make appear as suitable a certain investment prduct that wuld therwise be unsuitable? Is the firm infrming the client when additinal infrmatin results in a change f his prfile? Fr example, des the firm adpt prcedures t verify, befre r after transactins are made, whether a client s prfile has been updated t frequently r nly after a shrt perid frm last mdificatin? Under what circumstances might the firm amend the client prfile? Des this require the agreement f the client? Has the risk f unjustified client prfile changes been cnsidered (fr example, t avid the situatin where the sales frce may have an interest in recmmending prducts which d nt match the client s prfile); and hw is it managed? What arrangements and prcedures has the firm set up t infrm the client when additinal infrmatin prvided results in a change f the client s prfile? What kind f internal systems and cntrls are in place t ensure that the client prfile reflects all relevant facts abut the client? Are these systems and cntrls reasnable? Hw des the firm ensure that clients update their client infrmatin peridically? Des the investment firm use multiple means t engage the client (pp up after lgin if rb-advice, e-mail, letter, phne, etc.)? What happens when clients d nt update their client infrmatin? What actins are cnsidered and when are such actins triggered? 2.4 Arrangements necessary t understand investment prducts 24. In accrdance with Article 54(9) f the MiFID II Delegated Regulatin, investment firms shall have, and be able t demnstrate, adequate plicies and prcedures in place t ensure that they understand the nature, features, including csts and risks f investment services and financial instruments selected fr their clients and that they assess, while 12
taking int accunt cst and cmplexity, whether equivalent investment services r financial instruments can meet their client s prfile. 25. Relevant legislatin: Articles 16(2) and 25(2) f MiFID II, Article 54(9) f the MiFID II Delegated Regulatin. 26. Relevant Guideline: General Guideline 7. 27. Questins Are the prcedures used capable f assessing all relevant facts abut the financial instrument? In particular, are features regarding cmplexity, pssible returns, risk, prspective financial cmmitment fr the client and liquidity f the financial instrument cnsidered, where relevant? Has the firm taken int accunt the different characteristics and nature f the prducts cnsidered (such as the cmplexity f the prduct) when setting up the prcedures t be fllwed t understand the investment prducts? Is the firm s assessment f investment prducts als taking int accunt hw prducts culd behave ver the lifetime and curse f the prduct? Is the firm s assessment f investment prducts als taking int accunt hw certain prducts culd behave in certain circumstances (e.g. cnvertible bnds r ther debt instruments subject t the Bank Recvery and Reslutin Directive 4 which may, fr example, change their nature int shares)? Hw des the firm ensure that the liquidity risk identified is nt balanced ut with ther risk indicatrs (such as credit risk, market risk)? Is the liquidity risk specifically linked t the client s willingness t hld the investment fr a certain length f time? Hw is the firm s analysis cnducted fr the purpses f prduct gvernance bligatins taken int accunt in this prcess? Has the firm established sme general categries within different kinds f financial instruments? 4 Directive 2014/59/EU f the Eurpean Parliament and f the Cuncil f 15 May 2014 establishing a framewrk fr the recvery and reslutin f credit institutins and investment firms and amending Cuncil Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulatins (EU) N. 1093/2010 and (EU) N. 648/2012 (OJ L 173, 12.6.2014, p. 190-348). 13
If this is the case, hw d the arrangements and prcedures f the firm lead t the classificatin f each financial instrument within the varius established categries? Hw d the assigned categries track relevant features f the financial instrument? What degree f discretin is left t relevant staff when assessing financial instruments? Is this degree f discretin reasnable? Has the risk f an unjustified assessment been cnsidered (fr example, where there is an interest t cnsider a given financial instrument as suitable fr as many clients as pssible t favur its marketing)? What arrangements are used t keep the evaluatin f financial instruments updated? What systems and cntrls are in place t ensure the understanding f all relevant financial instruments? Are these systems and cntrls reasnable? 2.5 Arrangements necessary t ensure the suitability f an investment 28. In accrdance with Article 25(2) f MiFID II, when prviding investment advice r discretinary prtfli management services, firms must ensure that the specific transactin t be recmmended, r entered int in the curse f prviding a discretinary prtfli management service, is suitable fr the client in questin. 29. Relevant legislatin: Articles 16(2) and 25(2) f MiFID II, Articles 21, 54(9) and 54(11) f the MiFID II Delegated Regulatin. 30. Other: General Guideline 8 and Q&A 6. 31. Questins General What apprach des the firm adpt when assessing the features f each transactin r prtfli t ensure its suitability fr the client in questin? Is this apprach reasnable? Hw des the firm select suitable investments when prviding advice r prtfli management services? Hw d arrangements and prcedures ensure that relevant infrmatin abut financial instruments is matched with the client s circumstances? 14
Is the mechanism used capable f cvering all relevant financial instruments and transactins that shuld be cnsidered by the firm when prviding advice r prtfli management services t any client? Hw are the risks f financial instruments assessed against the client prfile? Hw is the liquidity f financial instruments cnsidered in relatin t the client s hlding perid? What are the firm s plicy and arrangements in relatin t suitability assessments relating t a client s prtfli as a whle? What arrangements and prcedures has the firm set up t ensure that its emplyees r representatives d nt prpse unsuitable transactins r strategies t clients? Hw des the firm ensure that all relevant client infrmatin is taken int cnsideratin when establishing the suitability f an investment? What are the firm s measures and prcedures t ensure an apprpriate degree f diversificatin within the client s prtfli? Has the firm specifically adpted measures t ensure that cncentratin with regard t credit risk is effectively identified, cntrlled and mitigated, especially in the cntext f self-placement mdels? In particular, has the firm identified ex ante cncentratin threshlds? Are these threshlds differentiated depending n the specific features f the investment prducts cnsidered, as well as n the clients financial situatin (including their ability t bear lsses) and their investment bjectives (including their risk prfile)? Has the firm defined prcedures t identify situatins where the size f a client s prtfli wuld be deemed t small t allw fr an effective diversificatin in terms f credit risk? In such instances, des the firm direct thse clients twards types f investments that are secured r per se diversified (such as, fr example, a diversified investment fund)? What happens if a transactin t be recmmended n a prduct distributed by the firm is deemed unsuitable fr the client? What happens if a transactin that is prpsed by a client is deemed unsuitable by the firm, but the client wishes t prceed n a nn-advised basis (under MiFID s apprpriateness r executin-nly regimes)? Hw des the firm determine if allwing this is in the best interests f the client? What degree f discretin is given t relevant staff when assessing suitability? Is this degree f discretin reasnable? 15
What kind f internal systems and cntrls are in place t ensure that nly suitable prducts are recmmended t a client r are cnsidered within the prtfli management service? D these appear reasnable? What are the firm s prcedures and arrangements t ensure that any autmated tls used in the cnduct f the suitability assessment (even if the interactin with the client des nt ccur thrugh autmated systems) d nt hinder the cnsistency and reliability f such suitability assessment? When prviding rb-advice, hw des the firm ensure that the tls used are cntinuusly fit fr purpse? Des the firm peridically assess the utcme f autmated tls used? Equivalent prducts What are the firm s plicy and prcedures t ensure that, befre the firm decides n the investment prduct(s) that will be recmmended r invested in the prtfli managed n behalf f the client, a thrugh assessment f the pssible investment alternatives is undertaken, taking int accunt prducts csts and cmplexity? Switching investments What are the firm s plicy and prcedures t ensure that, when the firm recmmends switching an investment, an analysis f the csts and benefits f the switch is cnducted and part f the suitability assessment s that the firm is reasnably able t demnstrate that the expected benefits f switching are greater than the csts? 2.6 Suitability reprt 32. In accrdance with Article 25(6) f MiFID II, when prviding investment advice, firms shall, befre the transactin is made, prvide retail clients with a statement n suitability (the suitability reprt) in a durable medium specifying the advice given and hw that advice meets the preferences, bjectives and ther characteristics f the retail client. In additin, where a firm prvides prtfli management services r has infrmed its retail clients that it will carry ut a peridic assessment f suitability, the peridic reprt shall cntain an updated statement f hw the investment meets the clients preferences, bjectives and ther characteristics. 33. Relevant legislatin: Article 25(6) f MiFID II, Article 54(12) and (13) f the MiFID II Delegated Regulatin. 34. Other: Q&As 1 t 5 and 9. 16
35. Questins What arrangements and prcedures has the firm set up t ensure that a suitability reprt is sent with respect t all recmmendatins (whether it is, fr example, a recmmendatin t buy, hld r sell an instrument, r nt t d s) and is nt limited t recmmendatins t buy financial instruments? When and hw is the suitability reprt prvided t the client? Hw is the firm cmplying with its bligatin t prvide such reprt befre any transactin is made and in a durable medium? If the suitability reprt is made available t the client n the firm s website (and the client receives a ntificatin f the availability f such reprt), hw can the client access the reprt, is the client able t stre the reprt, and fr hw lng? What arrangements and prcedures has the firm set up t ensure that the suitability reprt cntains all required infrmatin (such as an utline f the advice given and hw the recmmendatin prvided is suitable fr the retail client, including hw it meets the client s bjectives and persnal circumstances with reference t the investment term required, client s knwledge and experience and client s attitude t risk and capacity fr lss)? Des the suitability reprt draw client s attentin t and include infrmatin n whether the recmmended investments are likely t require the retail client t seek a peridic review f such investments? Where the suitability reprt cannt be prvided t the client befre the transactin is made, what arrangements and prcedures has the firm set up t ensure that the suitability reprt is prvided immediately after the client is bund by any agreement and that the cnditins f paragraph 3 f Article 25(6) f MiFID II are cmplied with? Where the firm prvides prtfli management services r has infrmed the client that a peridic assessment f suitability will be carried ut, what arrangements and prcedures has the firm set up t ensure that peridic reprts with infrmatin n hw the investment meets the client s preferences, bjectives and ther characteristics are prvided? When prviding prtfli management t retail clients, is the firm prviding the relevant peridic infrmatin n hw the investment meets the client s preferences, bjectives and ther characteristics as part f the peridic reprt prvided under Article 60 f the MiFID II Delegated Regulatin and in accrdance with the minimum frequency set ut in such article? When a new reprt is issued, is the peridic infrmatin updated n the basis f the assessment f the client s prtfli as a whle? 17
Where the firm has infrmed the client that a peridic statement f suitability will be carried ut, at what frequency is the firm prviding the peridic suitability infrmatin required under sub-paragraph 4 f Article 25(6) f MiFID II? Hw des the firm assess the frequency f the peridic suitability statements that shuld be prvided t a client depending n the risk prfile f such client and the type f financial instruments recmmended? 2.7 Qualificatins f firm staff 36. In accrdance with General Guideline 11, firms are expected t ensure that staff invlved in material aspects f the suitability prcess have an adequate level f skills, knwledge and expertise. 37. Relevant legislatin: Articles 16(2), 21, 25(1) and 25(9) f MiFID II, Article 21(1)(d) f MiFID II Delegated Regulatin. 38. Relevant Guideline: General Guideline 11. 39. Questins In the case f custmer-facing staff prviding nn-advised services, hw are they trained n the risk f inadvertently i) giving a persnal recmmendatin n a given financial instrument r ii) giving the client the impressin (r let the client think) that a persnal recmmendatin was given? Hw are relevant staff trained n the suitability assessment? Hw des the firm ensure that all staff invlved in material aspects f the suitability prcess have an adequate level f skills, knwledge and expertise? Hw are relevant staff trained n the way t btain relevant infrmatin frm the client? Hw are relevant staff trained n the imprtance f the cllectin f infrmatin frm the client fr the suitability assessment? D relevant staff understand the rle they play in the suitability assessment prcess and d they pssess the skills, knwledge and expertise necessary, including sufficient knwledge f the relevant regulatry requirements and prcedures, t discharge their respnsibilities? D relevant staff have the skills necessary t be able t assess the needs and bjectives f the client? With respect t staff that d nt directly face clients but are invlved in the suitability assessment in ther ways (such as setting up the questinnaires, defining algrithms gverning the assessment f suitability, wrking n the autmated tls used in the suitability assessment r the prvisin f rb- 18
advice ), what are the firm s prcedures and arrangements t train them and t review their training t ensure that they have the necessary skills, knwledge and expertise? What are the firm s prcedures and arrangements t review its staff training and t ensure that staff invlved in material aspects f the suitability prcess maintain an adequate level f skill, knwledge and expertise t fulfil their bligatins in accrdance with the relevant suitability requirements applicable t the firm? 2.8 Recrd-keeping 40. In accrdance with General Guideline12, firms shuld maintain adequate recrd-keeping arrangements in relatin t all material aspects f the suitability prcess, including infrmatin t and frm client, infrmatin n recmmendatins made t the client and investment (r disinvestment) decisins taken n behalf f the client, as well as related suitability reprts. 41. Relevant legislatin: Articles 16(2), 25(5) and 25(6) f MiFID II, Articles 72, 73, 74 and 75 f the MiFID II Delegated Regulatin. 42. Other: General Guideline 12 and Q&A 8. 43. Questins Has the firm established adequate recrd keeping arrangements in relatin t all material aspects f the suitability prcess, including: the cllectin f infrmatin frm the client (including hw that infrmatin is used and interpreted t define the client s risk prfile); infrmatin prvided t the client in relatin t the suitability assessment; infrmatin n the investments cnsidered as part f the suitability assessment; why any investment r disinvestment was made and/r what investment advice was given (even when the advice did nt result in an actual investment/disinvestment); the suitability reprt prvided t the client? Is the firm keeping recrds f any changes made t the client s investment prfile and types f financial instruments that fit that prfile (including the reasns fr such changes)? 19
Are the recrd-keeping arrangements established by the firm designed t enable the detectin f failures regarding the suitability assessment (such as mis-selling)? Please explain hw. Are the recrds kept by the firm with respect t the suitability assessment (including the suitability reprts prvided t the client) accessible fr the relevant persns in the firm (such as the cmpliance and audit functins, the persns invlved in the suitability prcess )? And cmpetent authrities? Des the firm have adequate prcesses designed t mitigate any shrtcmings r limitatins f its recrd-keeping arrangements? Des the firm keep recrds f the infrmatin frm the client (including hw that infrmatin is used and interpreted t define the client s risk prfile), and is the infrmatin nt verwritten and lst when the infrmatin is updated by the client (including with respect t rb-advice)? What arrangements and prcedures has the firm set up t cnsider and mitigate the additinal risks that culd affect the prvisin f investment services thrugh nline/digital tls (such as malicius cyber activity)? With respect t rb-advice, des the firm keep recrds f the versin f the autmated tls used t prvide the investment services t the client? When a defect in an autmated tl is detected, is the recrd keeping such that the firm can establish which clients might nt have a suitable investment? 20