United KingdomSuitability for business that is not MiFID business: personal recommendations to retail clients and decisions to trade for them (COBS 9.1 and 9.2)
In force since .
An AI sector rules rule binding private bodies.
- Criminal exposure
- No
- Private right of action
- Yes
- Enforcement body
- Financial Conduct Authority
- Instrument type
- a regulation made under an act
- Obligation class
- Governance
- Audit expectation
- none
As of .
What it requires
- It reaches you if you are a firm that makes a personal recommendation to a retail client in relation to a designated investment, manages investments of a retail client of the firm, or manages the assets of an occupational pension scheme, stakeholder pension scheme or personal pension scheme, other than in relation to your MiFID, equivalent third country or optional exemption business or an insurance-based investment product, for which COBS 9A sets the suitability rules (COBS 9.1.1R and COBS 9.1.1AG), and not in relation to a targeted support service within the scope of COBS 9B (COBS 9.1.1BG): take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for your client, and ensure that any life policy proposed is consistent with the client's insurance demands and needs (COBS 9.2.1R(1)).
- When making the personal recommendation or managing the client's investments, obtain the necessary information regarding the client's knowledge and experience in the investment field relevant to the specific type of designated investment or service, financial situation and investment objectives, so as to enable you to make the recommendation, or take the decision, which is suitable for the client (COBS 9.2.1R(2)).
- Obtain from the client such information as is necessary to understand the essential facts about the client and to have a reasonable basis for believing, giving due consideration to the nature and extent of the service provided, that the specific transaction to be recommended, or entered into in the course of managing, meets the client's investment objectives, is such that the client is able financially to bear any related investment risks consistent with those objectives, and is such that the client has the necessary experience and knowledge to understand the risks involved in the transaction or in the management of the portfolio (COBS 9.2.2R(1)).
- Include in the information about the client's investment objectives, where relevant, the length of time the client wishes to hold the investment, the client's preferences regarding risk taking, the client's risk profile and the purposes of the investment, and in the information about the client's financial situation, where relevant, the source and extent of the client's regular income, assets, including liquid assets, investments and real property, and regular financial commitments (COBS 9.2.2R(2) and (3)).
- Include in the information about the client's knowledge and experience, to the extent appropriate to the nature of the client, the nature and extent of the service to be provided and the type of product or transaction envisaged, the types of service, transaction and designated investment with which the client is familiar, the nature, volume and frequency of the client's transactions in designated investments and the period over which they have been carried out, and the client's level of education and profession or relevant former profession (COBS 9.2.3R).
- Do not encourage a client not to provide information for the purposes of your assessment of suitability (COBS 9.2.4R).
- If you do not obtain the necessary information to assess suitability, do not make a personal recommendation to the client or take a decision to trade for the client (COBS 9.2.6R).
What this law does
COBS 9 applies to a firm which makes a personal recommendation to a retail client in relation to a designated investment, manages investments of a retail client of the firm, or manages the assets of an occupational pension scheme, stakeholder pension scheme or personal pension scheme, other than in relation to its MiFID, equivalent third country or optional exemption business or to an insurance-based investment product.
COBS 9A contains the suitability requirements which apply in respect of insurance-based investment products, or in respect of a firm's MiFID, equivalent third country or optional exemption business involving the provision of investment advice or portfolio management.
The rules in COBS 9 do not apply to a firm in relation to the provision of a targeted support service within the scope of the rules in COBS 9B. A firm must take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for its client. The current text of COBS 9.2.1R took effect on . The current text of COBS 9.2.2R, which sets the information a firm must obtain from the client, took effect on .
If a firm does not obtain the necessary information to assess suitability, it must not make a personal recommendation to the client or take a decision to trade for the client. COBS Schedule 5 states that a contravention of any rule in COBS that its table does not list separately may be actionable by a private person under section 138D of the Financial Services and Markets Act 2000.
If the appropriate regulator considers that an authorised person has contravened a relevant requirement imposed on the person, section 206 of the Financial Services and Markets Act 2000 lets it impose a penalty of such amount as it considers appropriate.
When LexLint raises it
When your app profile says your app provides financial services or makes high-risk automated decisions.