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COBS 9A – Suitability for MiFID Investment Advice and Portfolio Management

PostedJune 24, 2025
UpdatedJune 24, 2025
ByAndy

1. Chapter Summary

COBS 9A establishes the suitability framework for firms providing investment advice or portfolio management under MiFID, onshored EU, or equivalent third-country regimes. It ensures that firms collect relevant client information, assess whether a product is suitable, inform clients of reasons, and keep appropriate records. This ensures advice and transactions are aligned with clients’ investment needs, risk tolerance, and capacity — vital for consumer protection and FCA compliance.

2. Applicability

This chapter applies to MiFID investment firms, including those operating under equivalent third-country regimes or optional exemptions, that engage in investment advice or portfolio management. It does not apply to execution-only services or basic advice scenarios, which are covered under other COBS chapters.

3. Key Rules and Their Meaning

  • COBS 9A.2.1R – Collect Client Information & Recommend Only Suitable Products* Paraphrased: Firms must obtain a client’s knowledge and experience, financial position, and risk tolerance, and only recommend products or services that are suitable. In practice: Firms must conduct a thorough fact-finding process; recommendations must align with clients’ profiles, mitigating the risk of unsuitable advice.
  • COBS 9A.2.4G – Proportionate Information Collection* Firms should determine the extent of information collected based on the service’s nature and complexity, balancing thoroughness with relevance. Nuance: More complex advice demands a more comprehensive fact find, while simple portfolio management may require less detail.
  • COBS 9A.2.6R/G – Detail on Knowledge, Experience Assessment* Paraphrased or brief quoted: Information should include types of products used, transaction history, volume/frequency, and professional background. In practice: Firms must dig into client experience specifics—not just general familiarity—especially for complex or high-risk products.
  • COBS 9A.3.1R – Providing Reasons for Suitability* Firms must clearly explain why their recommendation suits the client’s circumstances. Nuance: This explanation should link back to the client’s fact-find and risk profile, forming part of the suitability report.
  • COBS 9A.4.1R – Record-Keeping of Suitability Assessments Firms must maintain records of client information, rationale for suitability, and any suitability statements. In practice: These records should demonstrate decision-making and support FCA oversight.

4. Interpretation Notes / FCA Expectations

  • The FCA expects robust and documented fact-finds suited to product complexity and client circumstances.
  • Advice must reflect a client’s whole position, not just partial understanding or assumptions (e.g., seminars don’t equate to full suitability).
  • Where client information exceeds what is strictly necessary, firms should still use reasoned judgment in assessing relevance.
  • Suitability expectations dovetail with PRIN Principles — particularly around skill, care, and customer interests.

5. Practical Considerations for Firms

  • Use structured fact-finding tools covering knowledge, risk tolerance, financial capacity, and goals.
  • Ensure suitability reports detail reasoning clearly, referencing relevant client data.
  • Maintain complete audit trails including record of justifications and communications.
  • Provide staff training on suitability identification and documentation best practice.
  • Review and update templates regularly to reflect evolving expectations and product complexity.

6. Related Handbook References

  • COBS 9 – Suitability for retail non-MiFID investment advice
  • COBS 10A – Appropriateness for non-advised investment services
  • COBS 6 – Pre-contractual investment information
  • PRIN 2A – Principles (skill, care, and customer treatment standards)
  • SYSC 9 – Record-keeping and data retention obligations
  • MIFIDPRU – Prudential rules and requirements for MiFID firms

7. Regulatory Focus / Enforcement Risk (optional)

  • Common enforcement issues include incomplete fact-finds and advice decisions without proper rationale—particularly concerning “insistent clients” or where clients misunderstand the contract.
  • The FCA scrutinizes whether the firm’s determination of product suitability was justified and documented.
  • Inadequate record-keeping or failure to retain suitability evidence can significantly amplify enforcement consequences.