### Summary of ESMA MiFID II Supervisory Briefing on Appropriateness and Execution-Only

**Source**: ESMA Supervisory Briefing, *MiFID II Supervisory Briefing on Appropriateness and Execution-Only*, published April 4, 2019, updated to reflect guidelines from May 28, 2018, available at [ESMA website](https://www.esma.europa.eu/sites/default/files/library/2019-esma35-36-1640-mifid_ii_supervisory_briefing_on_appropriateness.pdf).

**Purpose**: This briefing provides guidance to National Competent Authorities (NCAs) and market participants on implementing MiFID II appropriateness and execution-only requirements for non-advised investment services, aiming to enhance investor protection by ensuring firms assess client knowledge and experience for product suitability.

**Key MiFID II Provisions**:
- **Appropriateness Test** (Art. 25(3), MiFID II; Arts. 55, 56, Delegated Regulation): Firms must assess client knowledge and experience for non-advised services (e.g., execution or order transmission) to determine product suitability, except in specific cases.
- **Execution-Only Exemption** (Art. 25(4), MiFID II; Art. 57, Delegated Regulation): Firms may skip the appropriateness test for non-complex instruments if services are client-initiated, clients are informed of limited protections, and conditions are met.
- **Relevant Legislation**: Arts. 16(2), 16(6), 24(1), 25(1-5), MiFID II; Arts. 21(1)(d), 56, 72-75, Delegated Regulation.

**Key Sections**:
1. **Determining When Appropriateness Assessment Applies**:
   - Required for non-advised services unless the execution-only exemption applies.
   - Firms need processes to: distinguish complex vs. non-complex products, confirm client-initiated contact, and provide warnings.
   - Non-complex products (Art. 25(4)): Shares on regulated markets, bonds/money market instruments without derivatives, UCITS (excluding structured UCITS), and structured deposits without complex risk structures.
   - Questions for supervisors: How does the firm distinguish advised vs. non-advised services? How are complex/non-complex products identified and updated?

2. **Obtaining Client Information**:
   - Firms must collect data on client knowledge and experience (Art. 55(1)) tailored to the product/service complexity (proportionality principle).
   - Questionnaires should be clear, avoid technical jargon, and ensure granularity for complex products.
   - Supervisors should check: Are questions comprehensive? Do they address education, profession, and past transactions? Are inconsistencies in client responses addressed?

3. **Assessment of Appropriateness**:
   - Firms must evaluate if clients understand risks based on collected information (Art. 56(1)).
   - Supervisors should verify: Are assessment procedures robust? Are automated tools objective? How is appropriateness assessed for groups of clients?

4. **Warnings to Clients**:
   - Firms must warn clients if a product is inappropriate or if insufficient information prevents assessment (Art. 25(3)).
   - For execution-only, clients must be informed of limited protections (Art. 25(4)).
   - Questions: Are warnings clear and effective? Do they vary by product complexity? Are records kept of client decisions post-warning?

5. **Staff Qualifications**:
   - Staff must have necessary skills and knowledge (Art. 21(1)(d)).
   - Supervisors should ensure: Staff are trained to distinguish advised vs. non-advised services, understand appropriateness requirements, and avoid conflicts of interest.

6. **Record-Keeping**:
   - Firms must maintain records of assessments, warnings, and client decisions (Arts. 16(6), 56).
   - Supervisors should check: Are records comprehensive, accessible, and designed to detect failures?

**Additional Notes**:
- Replaces ESMA’s 2012 briefing, incorporating 2018 suitability guidelines.
- Non-binding, issued under Art. 29(2) of ESMA Regulation for supervisory convergence.
- References ESMA Guidelines on complex debt instruments (Feb 4, 2016) and CESR/09-559 for product classification.

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### Cleansed Text
Below is the cleansed version of the summary, correcting formatting and typographical errors while preserving structure and content:

**Source**: ESMA Supervisory Briefing, *MiFID II Supervisory Briefing on Appropriateness and Execution-Only*, published April 4, 2019, updated to reflect guidelines from May 28, 2018, available at [ESMA website](https://www.esma.europa.eu/sites/default/files/library/2019-esma35-36-1640-mifid_ii_supervisory_briefing_on_appropriateness.pdf).

**Purpose**: This briefing guides National Competent Authorities (NCAs) and market participants on implementing MiFID II appropriateness and execution-only requirements for non-advised investment services, enhancing investor protection by ensuring firms assess client knowledge and experience for product suitability.

**Key MiFID II Provisions**:
- **Appropriateness Test** (Art. 25(3), MiFID II; Arts. 55, 56, Delegated Regulation): Firms must assess client knowledge and experience for non-advised services (e.g., execution or order transmission) to determine product suitability, except in specific cases.
- **Execution-Only Exemption** (Art. 25(4), MiFID II; Art. 57, Delegated Regulation): Firms may skip the appropriateness test for non-complex instruments if services are client-initiated, clients are informed of limited protections, and conditions are met.
- **Relevant Legislation**: Arts. 16(2), 16(6), 24(1), 25(1-5), MiFID II; Arts. 21(1)(d), 56, 72-75, Delegated Regulation.

**Key Sections**:
1. **Determining When Appropriateness Assessment Applies**:
   - Required for non-advised services unless the execution-only exemption applies.
   - Firms need processes to: distinguish complex vs. non-complex products, confirm client-initiated contact, and provide warnings.
   - Non-complex products (Art. 25(4)): Shares on regulated markets, bonds/money market instruments without derivatives, UCITS (excluding structured UCITS), and structured deposits without complex risk structures.
   - Questions for supervisors: How does the firm distinguish advised vs. non-advised services? How are complex/non-complex products identified and updated?

2. **Obtaining Client Information**:
   - Firms must collect data on client knowledge and experience (Art. 55(1)) tailored to the product/service complexity (proportionality principle).
   - Questionnaires should be clear, avoid technical jargon, and ensure granularity for complex products.
   - Supervisors should check: Are questions comprehensive? Do they address education, profession, and past transactions? Are inconsistencies in client responses addressed?

3. **Assessment of Appropriateness**:
   - Firms must evaluate if clients understand risks based on collected information (Art. 56(1)).
   - Supervisors should verify: Are assessment procedures robust? Are automated tools objective? How is appropriateness assessed for groups of clients?

4. **Warnings to Clients**:
   - Firms must warn clients if a product is inappropriate or if insufficient information prevents assessment (Art. 25(3)).
   - For execution-only, clients must be informed of limited protections (Art. 25(4)).
   - Questions: Are warnings clear and effective? Do they vary by product complexity? Are records kept of client decisions post-warning?

5. **Staff Qualifications**:
   - Staff must have necessary skills and knowledge (Art. 21(1)(d)).
   - Supervisors should ensure: Staff are trained to distinguish advised vs. non-advised services, understand appropriateness requirements, and avoid conflicts of interest.

6. **Record-Keeping**:
   - Firms must maintain records of assessments, warnings, and client decisions (Arts. 16(6), 56).
   - Supervisors should check: Are records comprehensive, accessible, and designed to detect failures?

**Additional Notes**:
- Replaces ESMA’s 2012 briefing, incorporating 2018 suitability guidelines.
- Non-binding, issued under Art. 29(2) of ESMA Regulation for supervisory convergence.
- References ESMA Guidelines on complex debt instruments (Feb 4, 2016) and CESR/09-559 for product classification.