COBS 10 – Appropriateness for Non‑MiFID Investment Services
1. Chapter Summary
COBS 10 sets out the rules governing the appropriateness assessment for clients using execution‑only or non-advised investment services, particularly in non‑MiFID contexts. Its purpose is to ensure firms understand their clients’ financial knowledge and experience before facilitating transactions, aiming to protect clients from unsuitable products. These requirements build confidence and fairness in markets by ensuring clients are suitably informed about potential risks.
2. Applicability
This chapter applies to firms offering non-advised investment services—typically MiFID-exempt or non‑MiFID products—where clients act on an execution‑only basis. It does not apply to MiFID investment advice and portfolio management (which fall under COBS 9A) or basic advice scenarios. Applicability depends on whether the firm is providing discretionary investment services or just processing client orders.
3. Key Rules and Their Meaning
- COBS 10.2.1R – Obtain client’s knowledge and experience* Firms must assess whether the product or service is appropriate for the client by obtaining enough information regarding their knowledge and experience. In practice: A firm should ask fact-finding questions about the client’s experience with similar investments—this allows the firm to judge if the client can understand the risks.
- COBS 10.2.2R – Issue warning if no assessment or client lacks understanding If a firm cannot assess appropriateness or determines the product is not appropriate, it must warn the client. In practice: If a client refuses to share required information or demonstrates insufficient experience, the firm must clearly warn that the service may be inappropriate and confirm the client understands.
- COBS 10.2.3R – Maintain record of appropriateness assessment Firms must document the appropriateness assessment or the client’s warning and response. In practice: Record why a client was warned, how they responded, and keep evidence of consent before proceeding.
4. Interpretation Notes / FCA Expectations
- The FCA expects assessments to be client‑centred, reflecting the complexity of the product. E.g., units in a long-term asset fund may require deeper questioning .
- If a client insists on proceeding despite warnings, firms must still capture and evidence their informed understanding.
- The chapter clarifies that professional or eligible clients fall outside this requirement.
5. Practical Considerations for Firms
- Develop standardised questionnaires to capture relevant client information.
- Use clear warning templates that inform clients when a product may be inappropriate.
- Create audit trails documenting every client interaction, including responses and confirmations.
- Train staff to identify and escalate concerns when assessments fall short.
- Ensure system checks flag risks, prompting warnings where required.
6. Related Handbook References
- COBS 9A – Suitability in MiFID advisory services
- COBS 5 – Suitability for retail advised services
- COBS 6 – Information on investments
- PRIN 2A – Principles underpinning fair dealing and client care
- SYSC 9 – Record-keeping requirements
- MIFIDPRU – For MiFID firms providing non-advised services
7. Regulatory Focus / Enforcement Risk (optional)
- The FCA prioritises enforcement where firms fail to carry out or document appropriateness assessments, particularly for complex or higher-risk products.
- Firms that omit warnings or fail to record client responses face heightened scrutiny.
- Increased enforcement trends have emerged in direct digital offerings, where client checks are often deficient.