How Can We Help?
Table of Contents
< All Topics
Print

COBS 10A – Appropriateness for MiFID Execution-Only Services

PostedJune 24, 2025
UpdatedJune 24, 2025
ByAndy

1. Chapter Summary

COBS 10A sets out rules governing execution-only investment services under MiFID, requiring firms to assess whether such services are appropriate for the client based on their knowledge and experience. It ensures that firms do not facilitate potentially unsuitable products to investors without proper assessment and warning. By defining the scope and thresholds for appropriateness checks, it safeguards clients and maintains regulatory integrity in non-advised services.

2. Applicability

Applies to firms that execute client-initiated transactions (e.g., execution-only services) in MiFID-regulated investments on behalf of clients. It’s triggered when a MiFID investment firm or eligible entity relies on another firm’s appropriateness assessment. It does not apply to advisory or portfolio management services (covered under COBS 9A) or to non-MiFID/non-IVP scenarios.

3. Key Rules and Their Meaning

  • COBS 10A.1.1R – Scope of Chapter* “This chapter applies to a firm which assesses appropriateness on behalf of a MiFID investment firm…” Firms conducting MiFID execution-only services must check whether the product aligns with the client’s knowledge and experience.
  • COBS 10A.2.1R – Knowledge & Experience Information* “A firm must determine whether the client has the necessary knowledge and experience in investment to understand the risks involved…” Firms must gather relevant client information — e.g., past investments, transaction behavior — to judge if a service or product is appropriate.
  • COBS 10A.3.1R – Warning Requirement* “The firm must warn the client that the firm is not in a position to determine whether the service or product is appropriate for the client.” If insufficient information is provided or the client appears inexperienced, firms must give a clear, prominent warning.
  • COBS 10A.4.1R – Exceptions to Appropriateness Check Permits firms not to assess appropriateness when dealing in straightforward products (e.g., shares on a regulated market or simple bonds), provided clients have prior knowledge.
  • COBS 10A.5.1R – Record-Keeping Firms must maintain records of appropriateness assessments, including any warnings and client confirmation, to demonstrate compliance.

4. Interpretation Notes / FCA Expectations

  • Firms should tailor appropriateness questions to the complexity of the product—more complex instruments require more detailed fact-finds.
  • Warnings must be clear and unambiguous, not buried in small print.
  • Knowing when an exception applies requires careful product categorisation, as simple differences (e.g., corporate vs structured bonds) matter.
  • Firms should not rely solely on client self-assessment; they must verify experience where possible.

5. Practical Considerations for Firms

  • Draft client questionnaires that capture relevant experience, including frequency and volume of trades.
  • Implement automated warnings in client platforms if surveys are skipped or clients indicate low experience.
  • Maintain a record archive containing each assessment, any warnings issued, and client acknowledgments.
  • Provide staff training on identifying when appropriateness tests can be bypassed versus when they are mandatory.
  • Regularly review product lists to ensure correct classification under Chapter 10A exceptions.

6. Related Handbook References

  • COBS 9A – Suitability in MiFID advisory and portfolio services
  • COBS 10 – Appropriateness in non-MiFID/execution-only contexts
  • Q&A 10 – FCA guidance on distinguishing between simple and complex products
  • PRIN 2A – Principles (fair treatment, skill, and diligence)
  • SYSC 9 – Record-keeping obligations for transactions and client information
  • MIFIDPRU – Prudential standards for MiFID firms

7. Regulatory Focus / Enforcement Risk

  • Insufficient client information collection or documentation is a common enforcement trigger.
  • Opaque or ineffective warnings frequently feature in FCA investigations.
  • Firms dispensing execution-only products without robust appropriateness frameworks face significant compliance risk — especially with digital onboarding systems.