When providing investment services other than investment advice or portfolio management, a licence holder is to assess the client’s knowledge and experience before providing an investment service, in order to assess whether the product or Investment Service envisaged is appropriate for the client.
When providing investment advice or portfolio management services, licence holders are to assess the whether a particular product is suitable for a client or potential client. This entails assessing the client’s knowledge and experience with respect to the product or instrument in question, the client’s financial background and investment objectives.
Conduct of Business of Investment Services Licence Holders
With the emergence of more complex products in the market, the obligation of licence holders to act fairly, honestly, professionally and in the best interests of their clients, assumes greater importance. Clients are expected to take responsibility for any decision taken by them and declarations signed by them however Licence Holders are to ensure that clients are given all relevant information in simple jargon so that the clients are in a position to make informed decisions with respect to their investment options.
In assessing appropriateness, the licence holder should ensure that the client’s knowledge with respect to the investment product or instrument in question is well tested. The MFSA expects the licence holder to elicit sufficient information from the client in order to be in a position to decide whether the product or instrument is appropriate for the client.
In this regard, the MFSA expects a licence holder effecting an appropriateness test or assessing a product or instrument’s appropriateness to a client in the context of a suitability test to ensure that:
- The client understands the features of the product especially in complex products which entails clear answers to specific questions presented to the client regarding the product features. This will enable the Licence Holder to confirm that the client is aware of both the risks and features of the product or instrument in question.
- Paper work used for the appropriateness test should clearly indicate the service being provided to the client and in the context of which the test is carried out. When providing services other than investment advice and/or portfolio management, the licence holder should declare in a document signed by both the client and licence holder that in providing these services no personal recommendations to the client vis-à-vis the product or instrument were under consideration.
- In the case of retail clients, the client may request the licence holder to provide the documentation used to assess the appropriateness or suitability of a product or instrument in Maltese.