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URL Source: https://www.esma.europa.eu/sites/default/files/library/2019-esma35-36-1640-mifid_ii_supervisory_briefing_on_appropriateness.pdf

Published Time: Thu, 31 Aug 2023 15:03:36 GMT

Markdown Content:
4 April 2019 | ESMA35 -36 -1640 

# MiFID II Supervisory briefing 

# Appropriateness and execution -only ESMA • CS 60747 – 103 rue de Grenelle • 75345 Paris Cedex 07 • France • Tel. +33 (0) 1 58 36 43 21 • www.esma.europa.eu 

2

4 April 2019 ESMA35-36-1640 3

# Table of Contents 

1 Introduction  ................................ ................................ ................................ .................... 4

1.1 Overview  ................................ ................................ ................................ ................. 4

1.2 Scope  ................................ ................................ ................................ ...................... 4

1.3 Status of this document  ................................ ................................ ........................... 5

1.4 Purpose ................................ ................................ ................................ ................... 5

2 Supervisory briefing  ................................ ................................ ................................ ........ 7

2.1 Determining situations where the appropriateness assessment is required ............. 7

2.2 Obtaining information from clients  ................................ ................................ .......... 10 

2.3 Assessment of appropriateness  ................................ ................................ ............. 13 

2.4 Warnings to clients  ................................ ................................ ................................ .15 

2.5 Qualifications of firm’s staff  ................................ ................................ ..................... 17 

2.6 Record -keeping  ................................ ................................ ................................ ...... 19 4

# 1 Introduction 

# 1.1 Overview 

1. ESMA is required to play an active role in building a common supervisory culture by 

promoting common supervisory approaches and practices. 

2. On 19 December 2012, ESMA published a supervisory briefing in relation to 

appropriateness rules to provide guidance to NCAs in relati on to the MiFID I

appropriateness rules. This updated version of ESMA’s supervisory briefing on 

appropriateness and execution -only takes into account the new version of ESMA’s 

guidelines on suitability published on 28 May 2018 with respect to aspects also relevant 

to the appropriateness rules. ESMA’s 2012 supervisory briefing in relation to 

appropriateness and execution -only will consequently be retired as of the date of entry 

into application of th is new supervisory briefing .

3. This supervisory briefing has been designed for supervisors as an accessible 

introduction to Directive 2014/65/EU 1 (MiFID II ) appropriateness rules, and as a useful 

starting point when deciding on areas of supervisory focus. It summarises the key 

elements of the rules and also includes indicative questions that supervisors could ask 

themselves, or a firm, when assessing firms’ approaches to the application of the MiFID 

II rules. 

4. The content of this briefing is not exhaustive, does not constitute new policy, and does 

not promote any par ticular way of supervising the rules. It has been designed to be used 

in the way that best fits with supervisors’ methodologies (whether distributing the 

briefings internally, or passing them to external bodies, such as auditors, for example). 

# 1.2 Scope 

5. This s upervisory briefing is aimed at competent authorities (as defined in MiFID II ). It is 

also meant to give market participants indications of compliant implementation of the 

MiFID II appropriateness provisions.  

> 1Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and
> amending Directive 2002/92/EC and Directive 2011/61/EU.

5

6. It applies in relation to the application of the following MiFID II provisions: 

• Article 25 (3) and (4) of MiFID II .

• Articles 55 , 56 and 57 of the MiFID II Delegated Regulation 2.

# 1.3 Status of this document 

7. The supervisory briefing is issued under Article 29(2) of the ESMA Regulation which 

enables ESMA to develop new practical instruments and convergence tools such as 

supervisory briefings. The purpose of these tools is to promote common supervisory 

approache s and practices. The content of this supervisory briefing is not subject to any 

‘comply or explain’ mechanism for NCAs and is non -binding. 3

# 1.4 Purpose 

8. The MiFID II appropriateness requirements are set out in Article 25(3) of MiFID II and in 

Articles 55 and 5 6 of the MiFID II Delegated Regulation. Article 25(4) of MiFID II and 

Article 57 of the MiFID II Delegated Regulation cover the ‘execution -only ’ element of the 

appropriateness regime. The aim of the requirements is to increase inv estor protection 

in respec t of ‘ non -advised ’ services. 

9. The way in which the requirements apply depends on the type of service in question, the 

type of investment product 4 involved (in particular, whether the investment product is 

‘complex’ or ‘non -complex’), and the type of client. 

10. They apply to firms 5 which provide MiFID investment services other than investment 

advice and portfolio management (in those cases, the obligation is to assess suitability). 

Therefore, they apply to firms when providing ‘non -advised’ services , i.e. invest ment 

services other than portfolio management and investment advice .

11. Where the appropriateness test applies, it requires a firm to seek information from a client 

or potential client about his knowled ge and experience (i.e. ability to understand the risks 

about a specific type of investment product or service ). This is to enable the firm to 

determine whether that investment product or service is appropriate for the client (unlike                        

> 2Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementin g Directive 2014/65/EU of the European
> Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and define d
> terms for the purposes of that Directive.
> 3Regulation (EU) No 1095/2010 of the European P arliament and of the Council of 24 November 2010 establishing a European
> Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing
> Commission Decision 2009/77/EC.
> 4‘investment product’ means a financ ial instrument (within the meaning of Article 4(1)(15) of MiFID II) or a structured deposit
> (within the meaning of Article 4(1)(43) of MiFID II).
> 5‘firms’ mean sfirms subject to the requirements set out in Articles 25(3) and (4) of MiFID II and include in vestment firms (as
> defined in Article 4(1)(1) of MiFID II), credit institutions when providing investment services and activities (within the me aning of
> Article 4(1)(2) of MiFID II), investment firms and credit institutions (when selling structured deposit s), external Alternative
> Investment Fund Managers (AIFMs) (as defined in Article 5(1)(a) of the AIFMD) when providing the investment service of reception
> and transmission of orders (within the meaning of Article 6(4)(b) of the AIFMD) .

6

the requirements for suitability, there are no specific requirements to assess the client’s 

financial situation or investment objectives). 

12. The MiFID II appropriateness rules give firms a certain degree of flexibility regarding the 

information to obtain about the client’s knowledge and experience : the information to be 

collected shoul d be the information necessary with regard to the nature of the client, the 

nature and extent of the service to be provided and the type of investment product or 

transaction envisaged, including their complexity and the risks involved (proportionality 

prin ciple) . In most circumstances, supervisors will have to assess the adequacy of a 

firm’s arrangements on a case -by -case basis, having regard to the proportionality 

principle and a firm’s operational framework. 

13. This supervisory briefing is designed to help s upervisors make the above -mentioned 

judgements, and is structured around the following elements: 

• determining situations where the appropriateness assessment is required; 

• obtaining information from clients; 

• assessment of appropriateness; 

• warnings to clie nts; 

• qualification of firm’s staff; and 

• record -keeping .

14. Each element refers to the relevant legislation as well as provides examples of the sort 

of questions that supervisors could ask to test whether the outcomes of the 

appropriateness rules are being met by firms. 7

# 2 Supervisory briefing 

# 2.1 Determining situations where the appropriateness assessment 

# is required 

15. In accordance with Article 25 (3) of MiFID II , when providing MiFID investment services 

other than investment advice or discretionary portfolio management services, firms must 

ask the client or potential client to provide information regarding th at person’s knowledge 

and experience in the investment field relevant to the specific type of investment prod uct 

or service offered or demanded to assess whether the investment service or product 

envisaged is appropriate for the client in question. 

16. However, Article 25(4) of MiFID II (together with Article 57 of the MiFID II Delegated 

Regulation) provides for an optional exemption from the appropriateness test for certain 

types of ‘execution -only’ business, where a number of conditions are met . To assess 

whether such conditions are met, firms are likely to need processes (i ) to distinguish 

between “complex” and “non -complex” investment products; (ii) to identify whether 

contact with the firm is at the initiative of the client ; and (iii) to ensure that necessary 

warnings have been provided .

17. Relevant legislation: Article 25( 3) and (4) of MiFID II and Article 57 of the MiFID II 

Delegated Regulation .

18. Other: ESMA Guidelines on complex debt instruments and structured deposits dated 4 

February 2016 6 and Q&A1 in relation to appropriateness/complex financial instruments .

19. Questions 

Gen eral 

o How do the firm’s arrangements and procedures guide , track and record the 

interaction between staff and clients, having regard to the distinction between 

‘advised’ and ‘non -advised’ services? 

▪ What measures has the firm adopted to decide whether the s ervices offered 

by its employees and agents are advised or not? What controls has the firm 

put in place to ensure that the distinction it has set up between ‘advised’ and 

‘non -advised’ services is complied with? 

▪ How does the firm communicate this distinction clearly to its staff and other 

agents ? How does it monitor this?         

> 6ESMA/2015/187. The document CESR/09 -559 on MiFID complex and non -complex financial instruments for the purposes of the
> Directive’s appropriateness requirements is also relevant.

8

▪ How does the firm ensure that it is clear towards the client about the type of 

services to be provided, in particular whether these are advised or not and 

the corresponding level of protection ?

o What kind of safeguards are in place in order to avoid any advised service being 

provided inadvertently without a suitability assessment being performed ?

o What kind of safeguards are in place in order to ensure that the use of an electronic 

system does not hinder the firm’s capacity to detect where an appropriateness 

assessment should be carried out? 

Execution -only 

For the avoidance of doubt, the below questions would only be relevant where a firm 

intends to use the ‘execution -only’ exemption (under Article 25(4) of MiFID II) .

o Where a n appropriateness assessment is not envisaged, what kind of internal 

systems and controls are in place in order to ensure that the services given can 

only amount to “execution -only” business ?

o How do the firm’s arrangements and procedures guide, track and record the 

interaction between staff and clients, having regard to the distinction between 

business falling within the ‘execution -only’ exemption and other non -advised 

transactions? 

o What polici es and processes has the firm set up to identify which of its investment 

products may be regarded as “complex” for the purposes of the appropriateness 

requirements? Are such policies and processes regularly updated or reviewed? 

o Is the firm maintaining a li st of automatically non -complex investment products and 

all others will be categorised as complex unless they have been assessed against 

and have met all the criteria in Article 57 of the MiFID II Delegated Regulation? 

o If the firm maintains a list of automatically non -complex investment products , h ow 

is the firm constructing its list of automatically non -complex investment products :

▪ in relation to investment products referred to in the first indent of Article 25(4) 

of Mi FID II 7? For instance, how is the firm assessing which shares embed a 

derivative (what are the criteria used)?   

> 7Shares admitted to trading on a regulated market or on an equivalent third -country market or on a MTF, where those are shares
> in companies, and excluding shares in non -UCITS collective investment undertakings and shares that embed a derivative.

9

▪ in relation to investment products referred to in the second 8, t hird 9 and fifth 10 

indents of Article 25(4) of MiFID II? For instance, how is the firm assessing 

i) which debt instruments embed a derivative or incorporate a structure 

making it difficult for the client to understand the risk or ii) which structured 

deposits incorporate a structure which makes it difficult for the client to 

understand the risk of return or the cost of exiting the investment product 

before term ? Is the firm taking into account ESMA’s Guidelines on complex 

debt instruments and structured deposits dated 4 February 2016? 11 

▪ in relation to investment product s referred to in the fourth 12 indent of Article 

25(4) of MiFID II? For instance, how is the firm assessing which UCITS shall 

be understood as UCITS which provide investors, at certain predetermined 

dates, with algorithm -based payoffs that are linked to the performance, or t o

the realisation of price changes or other conditions, of financial assets, 

indices or reference portfolios or UCITS with similar features (structured 

UCITS)? .

o If the firm maintains a list of automatically non -complex investment products , is it 

updated an d at which frequency ?

o Are the firm’s policies and processes clear that the investment products expressly 

excluded from the list of automatically non -complex instruments of Article 25(4) (a) 

of MiFID II 13 should not be nonetheless assessed against the criteri a set out in 

Article 57 of the MiFID II Delegated Regulation to potentially be categorised as 

non -complex investment products for the purposes of the appropriateness test? 

o What policies and processes has the firm set up to identify which of its investment 

products may be deemed non -complex in accordance with Article 57 of the MiFID 

II Delegated Regulation? 

▪ To do so, is the firm maintaining a list of investment product s falling within 

Article 57 of the MiFID II Delegated Regulation? 

▪ If the firm maintains a list of investment products falling within Article 57 of 

the MiFID II Delegated Regulation, is such list updated and at which 

frequency ?         

> 8Bonds or other forms of securitised debt admitted to trading on a regulated market or on an equivalent t hird country market or
> on a MTF, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to under stand
> the risk involved.
> 9Money -market instruments, excluding those that embed a derivative or incorporate a structure which makes it difficult to
> understand the risk involved.
> 10 Structured deposits, excluding those that incorporate a structure which makes it difficult for the client to understand the r isk of
> return or the cost of exiting the product before ter m.
> 11 ESMA/2015/1787.
> 12 Shares or units in UCITS, excluding structured UCITS as referred to in the second subparagraph of Article 36(1) of Regulation
> (EU) No 583/2010.
> 13 For instance, shares in non -UCITS collective investment undertakings, shares embedding a derivative, structured deposits
> incorporating a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the investment
> product befo re term .

10 

o What policies and processes has the firm set up to identify whether the service is 

being provid ed at the initiative of the client? 

▪ Is the firm able to trace whether a client’s demand is made in response to a 

“solicitation” by the firm ? What types of general solicitations, advertisements 

or other form of general co mmunications initiated by the firm (or a third party 

on its behalf) towards the public or a group/category of clients is the firm 

considering as not disqualifying for the purposes of the execution -only 

exemption? 

# 2.2 Obtaining information from clients 

20. In accordance with Article 25(3) of MiFID II and Article 56 of the MiFID II Delegated 

Regulation , firms shall determine whether a client has the necessary experience and 

knowledge to understand the risks involved in relation to the investment product or 

service offered or demanded when assessing whether an investment service (other than 

investment advice or portfolio management) is appropriate for a client. 

21. Relevant legislation: Article s 25( 3) of MiFID II , Article s 5 5 and 56 of the MiFID II 

Delegated Regulation. 

22. Other : ESMA Guidelin es on certain aspects of the MiFID II suitability requirements dated 

28 May 2018 (in relation to the knowledge and experience aspects). 

23. Questions 

General 

o Are the questions asked by the firm to determine a client’s knowledge and 

experience covering all fac tors set out in Article 55(1) of the MiFID II Delegated 

Regulation? 

o How is the firm articulating the relationship between knowledge and experience ?

For instance, could a lack of experience be compensated by sufficient knowledge 

when the firm assesses whether the investment service or product being offered 

or demanded is appropriate for the client? 

o Is the firm requiring that its client meet certain th resholds in relation to certain or all 

factors set out in Article 55(1) of the MiFID II Delegated Regulation? Are such 

thresholds tailored to the types of investment services and investment products 

offered or demanded? 

▪ If the firm has set up thresholds a s described above, are these thresholds 

considered as minimum requirements that a client needs to meet or as 

guidance for the firm’s staff and other agents when assessing a client’s 

knowledge and experience? 11 

o When collecting information from a client, does the firm make it clear that a lack of 

answer to certain questions or to a certain number of questions, or that the 

provision of insufficient information, prevent s the firm from assessing the client’s 

knowledge and experience and, consequently, from carryin g out the 

appropriateness test? How? 

o How is the firm assessing the types of services, transactions and investment 

products with which the client is familiar ?

▪ For instance, i s the firm asking questions about the client’s past transactions ,

level of education (in the relevant field) and profession or former profession ?

o When collecting information about a client’s level of education and profession or 

former profession: 

▪ which education fields /professions are considered relevant by the firm? 

▪ Is the level of education or professional experience considered appropriate 

by the firm tailored to the complexity of the investment product offered or 

demanded? 

▪ Is the information requested by the firm about educational qualifications and 

professional ex perience sufficiently granular? 

o If the firm uses questionnaires (also in a digital format) to collect information about 

the client’s knowledge and experience, are they designed in a clear, exhaustive 

and comprehensible way (using layman’s terms, where poss ible and appropriate) 

avoiding misleading, confusing, imprecise and excessively technical language? 

o If the firm uses questionnaires (also in a digital format) to collect information about 

the client’s knowledge and experience, are they designed to gather the necessary 

information and in an accurate manner? 

▪ For instance, is the questionnaire present ed as a battery of questions 

(collecting information on a series of items through a single question )?

▪ Are the questions asked sufficiently detailed to collect the necessary 

information about the client’s knowledge and experience ?

▪ Is the level of details of the questions tailored to the complexity of the 

relevant services, transactions or investment products ? Do they get more 

specific and complex where the inves tment products offered or demanded 

get more complex as well? 

▪ How leading are the questions? Could answers be directly deductible from 

information available from the firm’s website? 12 

▪ is some customer service/client support (such as remote interaction via 

emails or mobile phones) available to the client when responding to the 

questionnaire (if in a digital format) in case the client needs clarity or is 

seeking further information? 

Proportionality 

o How does the firm assess the extent of the “necessary” information that should be 

collected with respect to clients’ knowledge and experience ?

▪ Is the firm using different questionnaire versions (depending on the features 

of the service provided, the type and characteristics of the i nvestment 

products to be considered , the channel through which the service is provided, 

the characteristics of the client , etc .)? What are the main differences between 

the different versions? Do they all enable the firm to gather the necessary 

information? 

▪ In order to assess the appropriateness of complex investment products , how 

does the firm ensure that the information collected about the client’s 

knowledge and experience is sufficiently detailed and granular, including the 

specific investment product to be traded and the relevant underlying class 

(as the case may be)? 

▪ For investment products with an underlying, is the firm asking specific 

questions to identify the relevant experience and knowledge of the client in 

relation to the investment product itself but also the relevant underlying asset 

and market? Where the investment product is sufficiently diversified (e.g., a 

well -diversified fund), is the firm asking specific questions about the relevant 

underlyings’ types and markets? 

o What policies and guidanc e has the firm formulated for its employees and agents 

about the level of information that it regards as acceptable in determining 

appropriateness (without which a warning that the firm is not in a position to 

determine whether the investment product or service envisaged is appropriate for 

the client would be issued) ?

Reliability 

o Are clients asked to make any degree of ‘self -assessment’ in respect of their 

knowledge and experience? Is the self -assessment counterbalanced by objective 

criteria? 

▪ Are the tools used by the firm to collect the necessary client information 

designed to allow the firm to check any self -assessment by the client against 

objective criteria (e.g. open -ended questions related to the client’s 

understanding of risk -return trade off an d diversification or the cli ent’s 

knowledge and experience )? How? 13 

▪ For instance, if a client declares that it is familiar with certain types of 

services, transactions and investment products but does not provide any 

other information such as his or her past transactions, level of education or 

profession, would the firm rely solely on the client’s declarations to carry out 

the appropriateness assessment , even for complex and risky products ? Or 

would the firm declare that it is not in a position to determine whether the 

investment product or service envisaged is appropriate for the client (and 

therefore issue the relevant warning to the client)? 

o Wh at steps have been taken by the firm to address inconsistencies in the client’s 

responses ? Does the questionnaire itself contain some design features to alert 

clients when their responses appear inconsistent? Or does the firm carry ou t an 

ex -post review of the client’s responses? If inconsistencies are identified, how does 

the firm resolve them? Does the firm make use of automatic inconsistency checks 

when working with online questionnaires? 

o What arrangements and procedures has the firm set up to address the risk that 

clients may tend to overestimate their knowledge and experience ?

o Is the firm allowing its clients or prospective clients to answer the questionnaire 

several times in a row (even without any training) if the firm considered, on the 

basis of the client’s initial answers, that such client di d not have the required 

knowledge and experience ? If so, does the firm make use of an alternative 

questionnaire? If not, for how long is such client not allowed to answer the 

questionnaire again? 

Updating client information 

o What are the arrangements used t o keep the information about the client ’s 

knowledge and experience updated? Do these appear appropriate ?

o Under what circumstances might the firm amend the information collected about 

the client ’s knowledge and experience ? Has the risk of unjustified update s been 

considered (for example, to avoid the situation where the firm may have an interest 

in selling some investment products which do not match the client’s 

characteristics ); and how is it managed? 

# 2.3 Assessment of appropriateness 

24. In accordance with Article 56 (1) of the MiFID II Delegated Regulation , firms shall 

determine whether a client has the necessary experience and knowledge to understand 

the risks in relation to the investment product or service offered or demanded when 

asses sing whether an investment service (other than investment advice or portfolio 

management) is appropriate for a client .

25. Relevant legislation: Article 25 (3) of MiFID II and Article 56(1) of the MIFID II Delegated 

Regulation .14 

26. Other: ESMA Guidelines on certai n aspects of the MiFID II suitability requirements dated 

28 May 2018 (in relation to the knowledge and experience aspects). 

27. Questions 

o Has the firm adopted robust and objective procedures for the assessment of the 

investment products offered under the appropriateness regime? Are these 

procedures subject to periodic review? 

▪ Does the firm categorise investment products according to their complexity 

when carrying out the appropriateness assessment ? Does this 

categorisation appear reasonable? 

▪ Is the information used as a basis for the investment product s’ assessment 

reliable, accurate, consistent as well as regularly reviewed and updated, 

where necessary? 

o How do the firm’s arrangements and procedures ensure that the appropriateness 

of a transac tion is assessed against t he client’s knowledge and experience ?

▪ By which means is the appropriateness test carried out (online, face -to -face, 

over the telephone)? 

▪ If the firm uses algorithm(s) underpinning the appropriateness test, d oes it 

regular ly monit or and test this/these algorithm (s) to ensure they are neutral 

and o bjective ?

o Is the firm attributing any weight to the information collected about the client’s 

knowledge and experience and the answers provided by the client? If so, how is 

the weighting at tributed? 

o At what stage in the sales process is the appropriateness test carried out? 

o Has the firm defined a clear policy on how the assessment should be conducted in 

relation to groups of two or more clients? 

o How are relevant facts regarding knowledge and experience (ability to understand 

the relevant investment product and in particular the risk to be taken) assessed 

and used to determine appropriateness ?

o What degree of discretion is given to relevant staff whe n assessing 

appropriateness ? Is this degree of discretion reasonable? 

o What are the firm’s procedures and arrangements to ensure that any automated 

tools used in the conduct of the appropriateness assessment (even if the 

interaction with the client does not occur through automated systems) do not hinder 

the consistency and reliability of such appropriateness assessment? 15 

# 2.4 Warnings to clients 

28. In accordance with Article 25 (3) of MiFID II, a firm shall warn its client or potential client 

where it considers, on th e basis of the information received in relation to the client’s 

knowledge and experience, that the investment product or service is not appropriate to 

the client or potential client. In addition, when clients or potential clients did not provide 

the requested information about their knowledge and experience, or when they provided 

insufficient information, the firm shall warn them that it is not in a position to determine 

whether the investment product or service envisaged is appropriate for them. 

29. In addition, under Article 25(4) of MiFID II, when a firm chooses not to test 

appropriateness for all non -advised transactions and to use the “execution -only” 

exemption, it shall ensure that the client or potential client has been clearly informed that ,

in the provision of th e corresponding service (s) , th e firm is not required to assess the 

appropriateness of the investment product (s) or service (s) provided or offered and that ,

therefore , he does not benefit from the corresponding protection of the relevant conduct 

of business rules. 

30. Relevant legislation: Article s 24(1), 25(3) and (4) of MiFID II and Article 56(2) of the MiFID 

II Delegated Regulation .

31. Questions 

General 

o What systems are in place to ensure that warnings are given where required? 

o What warnings does the firm have in place: 

▪ to warn the client th at insufficient information has been provided so the firm 

is unable to judge appropriateness; 

▪ to warn the client that the investment product/service is inappropriate; 

▪ to warn the client that in the provision of the execution -only service the firm 

is not r equired to assess the appropriateness of the instrument or service 

provided or offered and that therefore the client does not benefit from the 

corresponding protection of the relevant conduct of business rules? 

o Are these warnings clear? By which means are these warnings provided to clients 

(such as face -to -face meeting, by telephone, email, pop up boxes)? Is clients’ 

attention sufficiently drawn to them? 

o In cases where the assessment of appropriateness indicates that the investment 

product or service is not appropriate or where insufficient information is available 

to assess appropriateness, what are the measures adopted by the firm to ensure 

that the warning is effective and to avoid presenting the appropriateness 16 

assessment as a bo x ticking exercise (i.e. meant by the firm as a mere 

administrative burden that both firm and client can get over hastily and in a 

superficial manner) 

▪ For instance, in cases where the appropriateness assessment indicates that 

a complex and risky investment product is not appropriate for a client, is the 

warning delivered by the firm overly generic and/or vague? 

▪ To the contrary, is the firm delivering overly long warnings that obscure the 

key message that the client has failed to demonstrate the necessary 

knowledge and experience for the investment product or service? 

▪ Is the firm using different warnings depending upon the level of complexity 

and riskiness of the investment products? 

▪ For instance, for speculative products such as CFDs, i s the firm including a

mandatory “cooling -off” period after the provision of a warning (to 

demonstrate that the client has considered the information presented in the 

warning before deciding whether to proceed)? How long is any “cooling -off” 

period? 

▪ Is the firm , for speculative products such as CFDs, requiring the client to sign 

and return a form or to respond to a separate email such that the client does 

not have the option to proceed immediately? Do such form or email include 

the relevant warning that the client mus t separately acknowledge its receipt 

and content? 

▪ Is the firm including in its warnings language specifically designed to 

encourage the client to agree to a disclaimer and proceed with the 

transaction? 

▪ Are the warnings delivered by the firm presenting the confirmation by the 

client that he/she has the intention to proceed as the first logical next step? 

▪ By which other means is the firm making sure that the warnings delivered 

are effective? 

o Does the firm maintain records of data showing the ratio of instances where clients 

decide to proceed with a transaction despite receiving a warning from the firm that 

such transaction may not be appropriate (compared to the number of instances 

where such warnings were issued)? Is the firm using such data (if avail able) to 

assess whether such warnings are eff ective ? Is such assessment made regularly? 

o Does the firm maintain records of data showing the ratio of instances where clients 

decide to proceed with a transaction despite receiving a warning from the firm that 

insufficient information is available to assess appropriateness (compared to the 

number of instances where such warnings were issued)? Is the firm using such 17 

data (if available) to assess whether such warnings are eff ective ? Is such 

assessment made regular ly? 

Relationship with the firm’s obligation to act in the best interest of its clients 

o Where the appropriateness assessment indicates that a n investment product or 

service is not appropriate for a client, and such client has been warned accordingly 

but non etheless wishes to proceed, does the firm have in place policies and 

procedures to deal with this situation and, as the case may be, decide whether it 

allow s the client to proceed with the transaction? 

▪ For instance, if the firm is in possession of informat ion that indicates potential 

vulnerability (due to age and/or financial situation) of a retail client who is 

willing to invest in a speculative investment product (such as, for instance, a 

CFD) , is it considering the client’s best interest before deciding to allow the 

client to proceed? On this basis, has the firm previously refused to let a client 

proceed? Is the firm able to show records of past instances where it refused 

to let a client proceed? 

▪ In cases where a client wishes to proceed with a transactio n notwithstanding 

the warning issued by the firm and the latter allows the client tp do so , is the 

firm nonetheless considering whether the investment product or service to 

be offered to the client should be adapted (e.g., limiting the level of leverage 

available to a client, limiting the sum that a client can invest in any one 

transaction and/or for a period of time)? Is the firm able to show records of 

past instances as described in the foregoing? 

▪ Do the firm’s policies in this respect take into account cases where there is a 

heightened risk of conflicts of interest because the firm is selling its own 

investment products (or investment products issued by entities of the same 

group) or actively marketing investment products from within the firm’s 

range? 

o Do es the firm maintain records of data showing the ratio of instances where clients 

asked to proceed with a transaction despite receiving a warning from the firm (that 

such transaction may not be appropriate or that insufficient information is available 

to a ssess appropriateness) and the firm accepted the client ’s request (to proceed )?

If available, how is the firm using such data? 

# 2.5 Qualifications of firm ’s staff 

32. In accordance with Article 21(1)(d) of the MiFID II Delegated Regulation , firms are 

required to employ personnel with the skills, knowledge and expertise necessary for the 

discharge of the responsibilities allocated to them. 

33. Relevant legislation: Articles 16(2) and 25( 1) of MiFID II and Article 21(1)(d) of MiFID II 

Delegated Regulation. 18 

34. Questions: 

o How has the firm ensured that its staff and other agents are clear about the 

services it is offering and whether these are advised or not? 

▪ In the case of customer -facing staff providing ‘non -advised’ services, how 

are they trained on the risk of inadverte ntly i) giving a personal 

recommendation on a given investment product or ii) giving the client the 

impression (or let the client think) that a personal recommendation was 

given? 

o How are relevant staff trained on the appropriateness assessment? How does the 

firm ensure that all staff involved in material aspects of the appropriateness 

process have an adequate level of skills, knowledge and expertise? 

▪ How are relevant staff trained on the way to obtain relevant information from 

the client? 

▪ How ar e relevant staff trained on the importance of the collection of 

information from the client for the appropriateness assessment? 

▪ Do relevant staff understand the conditions where an appropriateness 

assessment is not required (execution -only)? 

▪ Do relevant st aff understand the role they play in the appropriateness 

assessment process and do they possess the skills, knowledge and 

expertise necessary, including sufficient knowledge of the relevant regulatory 

requirements and procedures, to discharge their respons ibilities? 

▪ Is the firm training its staff involved in the appropriateness assessment on 

the relationship between the appropriateness assessment and the firm’s 

obligation to act in the best interests of its clients ( where clients asked to 

proceed with a transaction despite receiving a warning from the firm (that 

such transaction may not be appropriate or that insufficient information is 

available to assess appropriateness))? 

▪ With respect to staff that does not directly face clients but is i nvolved in the 

appropriateness assessment in other ways (such as setting up the 

questionnaires, defining algorithms governing the assessment of 

appropriateness , working on the automated tools used in the 

appropriateness assessment…), how is the firm ensuri ng that they have the 

necessary skills, knowledge and expertise? 

o What are the firm’s procedures and arrangements to review its staff training and to 

ensure that staff involved in material aspects of the appropriateness process have 

an adequate level of ski lls, knowledge and expertise to fulfil their obligations in 

accordance with the relevant appropriateness requirements applicable to the firm? 19 

# 2.6 Record -keeping 

35. In accordance with Article 16(6) of MiFID II, firms shall arrange for records to be kept of 

all ser vices, activities and transactions undertaken by it which shall be sufficient to enable 

the competent authority to fulfil its supervisory tasks and to perform the enforcement 

actions under MiFID II, MIFIR 14 , Directive 2014/57/EU 15 and Regulation (EU) No 

596/2014 16 , and in particular to ascertain that the firm has complied with all obligations 

including those with respect to clients or potential clients and to the integrity of the 

market. In addition, Article 56 of the MiFID II Deleg ated Regulation provides for a number 

of record -keeping obligations which are specific to the assessment of appropriateness. 

36. Relevant legislation: Articles 16(2) and (6) and 25(5) of MiFID II, Articles 56, 72, 73, 74 

and 75 of the MiFID II Delegated Regula tion. 

37. Question s

o Has the firm established adequate record keeping arrangements in relation to all 

material aspects of the appropriateness assessment process , irrespective of the 

distribution channel used, including at least :

▪ the result of the appropriatenes s assessment; 

▪ any warning given to the client where the investment service or product was 

assessed as potentially inappropriate for the client, whether the client asked 

to proceed with the transaction despite the warning and, where applicable, 

whether the firm accepted the client’s request to proceed with the 

transaction; and 

▪ any warning given to the client where insufficient information is available to 

assess appropriateness, whether the client asked to proceed with the 

transaction despite this warning and , where applicable, whether the firm 

accepted the client’s request to proceed with the transaction? 

o Has the firm established adequate record keeping arrangements in relation to all 

other material aspects of the appropriateness assessment process, irrespective of 

the distribution channel used, such as: 

▪ the collection of information from the client (including how that information is 

used and interpreted to define the client’s knowledge and experience ); and          

> 14 Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments
> and amending Regulation (EU) NO 648/2012.
> 15 Directive 2014/57/EU of the European Parliament and of the Council of 16 Apr il 2014 on criminal sanctions for market abuse
> (market abuse directive) .
> 16 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse
> regulation) and repealing Directive 2003/6/EC of the Europea n Parliament and of the Council and Commission Directives
> 2003/124/EC, 2003/125/EC and 2004/72/EC .

20 

▪ on which basis an appropriateness assessment was not carried out .

o How is the firm tailoring its record -keeping arrangements to the means by which 

the appropriateness assessment is carried out? For instance, how is the firm 

accurately recording all material elements of appropriateness assessments car ried 

out during face -to -face meeting? 

o Is the firm keeping records of any changes made to the client’s knowledge and 

experience profile and types of investment product s that fit that profile (including 

the reasons for such changes)? 

o Are the record -keeping arrangements established by the firm designed to enable 

the detection of failures regarding the appropriateness assessment ? Please 

explain how. 

o Are the records kept by the firm with respect to the appropriateness assessment 

accessibl e for the relevant persons in the firm (such as the compliance and audit 

functions, the persons involved in the appropriateness process…)? And competent 

authorities? 

o Does the firm have adequate processes designed to mitigate any shortcomings or 

limitations of its record -keeping arrangements?