Knowledge Base
Assess the suitability of financial products or services for clients
Which financial instruments are considered non-complex under MiFID II?
Under Article 25(4) of MiFID II, non-complex instruments include shares listed on a regulated market, bonds without embedded derivatives, money market instruments, and units of simple non-structured UCITS. These instruments must meet specific criteria: no clauses modifying the risk profile, no exit fees rendering the investment illiquid, and sufficient liquidity for sale at market price.
Which article specifically governs the execution-only exemption for non-complex products?
Article 25(4) of MiFID II governs the execution-only exemption for non-complex products. This exemption applies when instruments meet specific criteria: no clauses modifying the risk profile, no exit fees rendering the investment illiquid, and sufficient liquidity.
What must a clear warning issued during an appropriateness assessment deemed inappropriate contain?
The warning must inform the client that the product is not appropriate given the information provided. It must be distinct depending on whether the product is actually inappropriate or whether the information is insufficient. This warning must be on a durable medium and kept in the client's file.
What is the main purpose of the appropriateness assessment under MiFID II?
The appropriateness assessment aims to verify that the envisaged financial instrument matches the client's knowledge and experience. This is governed by Article 25(3) of MiFID II and Article L.533-13 II of the Code monétaire et financier. Unlike the suitability test, it does not require the provider to refrain from executing the order if the client confirms their willingness despite a warning.
The appropriateness test requires the service provider to refrain from transmitting the order if the product is considered inappropriate.
Unlike the suitability test, the appropriateness test does not require the service provider to refrain. If the client confirms their willingness to proceed despite a clear warning, the order can be transmitted. This confirmation must be kept in the file, as stipulated by Article 25(3) of MiFID II.
Categorize items by dragging them to the appropriate zones
Items to categorize:
Mandatory assessment
Possible exemption under conditions
The appropriateness assessment applies to investment services other than advice and discretionary management (order reception-transmission and execution on behalf of clients). It is mandatory for complex products but may be exempted for non-complex products if certain criteria are met.
Financial products classified as complex under MiFID II
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Derivatives (options, futures, warrants, certificates), structured products (EMTN, autocallables), alternative investment funds, formula-based UCITS, unlisted shares, convertible or subordinated bonds, as well as FCPR, FCPI, SCPI, and OPCI are considered complex. For these instruments, the appropriateness assessment is mandatory and cannot be bypassed.
A simple non-structured UCITS can be considered complex if it incorporates a clause that fundamentally modifies its risk profile.
Under MiFID II, a simple non-structured UCITS is considered non-complex only if it does not contain a clause that fundamentally modifies its risk profile. If such a clause exists, it becomes complex and the appropriateness assessment becomes mandatory.