FRANCE: Thematic Inspections on the Suitability of the Financial Instruments Recommended to Retail Clients

Friday March 12 2021

The Autorité des Marchés Financiers (AMF) has published the summary of its short thematic inspections on the suitability of the financial instruments recommended to retail clients.

The AMF has analysed the methods for assessing the suitability of recommended financial instruments for the personal circumstances of retail clients in four institutions offering investment advisory services.

When the Markets in Financial Instruments Directive was revised (MiFID II), the investor protection aspect was reinforced by adding requirements concerning the assessment of their personal circumstances. Under MiFID I, a financial institution offering an investment advisory service had to enquire about information on the client’s knowledge and experience, objectives and financial situation. The institution also had to perform a suitability test.

Since 3 January 2018 (the date of the entry into force of MiFID II), the collection of information concerning investors’ objectives must also include an assessment of their risk tolerance. The information on the client’s financial situation must also make it possible to assess their ability to bear losses. Lastly, prior to the transaction, the institution must submit to the client a suitability report specifying the advice given and the extent to which the transaction corresponds to their preferences and investment objectives.

An assessment of compliance with the provisions of MiFID II

Via a series of short thematic “SPOT” inspections (Supervision des Pratiques Opérationnelle et Thématique – operational and thematic supervision of practices) performed last year, the AMF examined the suitability assessment procedures of four inspected institutions. Its investigations covered the period from 3 January 2018 to 16 March 2020.

During these inspections, the AMF focused on:

• the scope and procedures for collecting client information;
• the procedures for implementation of the suitability test;
• verification by the institution of the existence of other equivalent financial instruments which could correspond to the client’s profile, taking into consideration their cost and complexity;
• the submission and content of the suitability report summarising the advice given to the client; and
• the control system on the topic of suitability.

In its summary document, while the AMF stresses numerous good practices, it still notes significant shortcomings in complying with the required due diligence regarding suitability.

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