What are the obligations on a firm when a specific financial instrument is unsuitable for a client, in particular also in situations when the client wishes to proceed with the transaction nonetheless?

Answer 6

When providing investment advice, firms are required under Article 25(2) of MiFID II to recommend to the client (or potential client) only the investment services and financial instruments that are suitable for him/her and, in particular, are in accordance with his risk tolerance and ability to bear losses. Recital 87 of the MiFID II Delegated Regulation clarifies that a suitability assessment should be undertaken "not only in relation to [when] recommendations to buy a financial instrument are made but for all decisions whether to trade including whether or not to buy, hold or sell an investment".

Therefore, firms should avoid any behaviour that might result in a breach of the rules on suitability. Examples of clearly incorrect behaviours (see, for example, Case 1 and Case 2 below) could be situations where the purchase of a specific financial instrument cannot be recommended to a client because that instrument is unsuitable for him and the firm influences that client to proceed with the transaction at his/her own initiative (for instance, by emphasising only the positive aspects of the product); or where the firm purposely changes the client's profile (without there being any real change in the client’s situation that would justify such a modification of the profile) in order to make suitable a financial instrument that is unsuitable for him/her, so as to be able to recommend it.