Under Markets in Financial Instruments Directive II (MiFID II), financial services organisations (depending on the services they offer) must assess whether a financial service or product is suitable or appropriate for their customer.
To do this, they must obtain information about the customer’s knowledge and experience
As a financial services organisation, if you offer a service other than investment advice or individual wealth management, you must obtain information about the client’s knowledge and experience in relation to the specific financial instrument in which they wish to invest. This is called the appropriateness test. If you decide that the service or product is not appropriate, then you must warn your client. The client then makes the decision whether or not to purchase the service or product.
If you are a financial organisation and provide investment advice or manage an individual asset, you do not have to separately assess the appropriateness. You are, however, required to assess the suitability. In addition to the knowledge and experience of your client, you must also obtain information about their financial position, their investment objectives and their risk appetite. You should then bring your advice/management into line with the information you have discovered.
Our consultants can help you to design a suitability or appropriateness test. We can also assess whether the test meets legal requirements and adjust it as necessary.