Final Report

Firms should have policies and procedures in place to collect all the information necessary to conduct the appropriateness assessment with respect to the specific product types offered or demanded by the client or potential client.

ESMA considers that the extent of information to be asked from clients may vary taking into account the type and characteristics of the investment products or services to be considered, the characteristics of clients and the client category. 

Firms that provide access to more complex or risky investment products, should carefully consider whether they need to ask for more in-depth information about the client’s knowledge and experience than they would ask when less complex or risky investment products are at stake.

Firms should take reasonable steps and have appropriate tools to ensure that the information provided by clients is reliable and consistent. Whilst clients are expected to provide correct, up-to-date and complete information, firms should take necessary steps to check the reliability, accuracy and consistency of the information.

When relying on previously collected information about a client’s knowledge and experience, firms should ensure that such information is up to date and accurate. Hence, firms should establish procedures defining the frequency of updating such information in order to ensure that the information remains up to date, is accurate, and complete for the purpose of the appropriateness assessment.

Where a client is:

• a legal person, or

• a group of two or more natural persons, or

• where one or more natural persons are represented by another natural person

firms should have a policy in place defining how to conduct the appropriateness assessment in such situations.

Firms should ensure that policies and procedures are implemented to understand the characteristics, nature, and features of investment products in order to allow them to assess if such products are appropriate to their clients.

For firms to be able to determine whether an investment service or product envisaged is appropriate for the client or potential client, they should establish policies and procedures to ensure that they consistently take into account:

• all information obtained about the client’s knowledge and experience necessary to assess whether an investment product is appropriate; and

• all relevant characteristics and risks of the investment products considered in the appropriateness assessment.

Effective warnings should be issued by firms which must be prominent, clear, and not misleading in the event that:

• no or insufficient information is provided by the client with respect to his or her knowledge or experience, or

• the assessment of the provided information shows that the investment service or product offered or demanded is not appropriate for the client.

Firms are required to regularly train their staff to ensure that they understand the role they play in the appropriate assessment and have an adequate level of skills, knowledge, and expertise, including sufficient knowledge of the relevant regulatory requirements and procedures in order to discharge their responsibilities.

In terms of this guideline, ESMA specifies that firms should ensure that records are kept with respect to the appropriate assessment and should as a minimum: 

• maintain adequate recording and retention arrangements to ensure orderly and transparent record-keeping regarding the appropriateness assessment, including the collection of information from the client and the non-advised service provided;

• ensure that record-keeping arrangements are designed to enable the detection of failures regarding the appropriateness assessment; 

• ensure that records kept are accessible for the relevant persons in the firm and for competent authorities; 

• have adequate processes to mitigate any shortcomings or limitations of the record-keeping arrangements.

ESMA provides that firms should adopt appropriate arrangements to ensure that they are able to determine situations where an appropriateness assessment needs to be performed and avoid performing one in situations where a suitability assessment needs to be performed.

Firms should have appropriate monitoring arrangements and controls in place to ensure compliance with the appropriateness requirements.