France’s AMF checks how investment firms assess client knowledge
The firms checked by the regulator have overall improved their practices of testing the knowledge of their clients about financial products.
One of the main topics of the MiFID II rules has been investor protection and the regulatory changes have involved changes to onboarding procedures at investment firms, as well as more detailed tests of the level of clients’ expertise with regard to a certain financial product. This is a rather pressing issue, if we take into account that the latest ESMA restrictions on CFD offering, for instance, simply do not apply to professional investors, and hence, the risk of clients being easily transferred to the “professional” category has been present.
Earlier today, France’s Financial Markets Authority (AMF) has published a summary of the findings stemming from five checks related to the knowledge and experience of clients of investment firms.
The checks, carried out early in 2018, have been done under a new AMF program called SPOT. The checks have uncovered both good and bad practices, but the regulator underlines that, overall, the practices related to checking clients’ knowledge of financial products have improved.
More precisely, the regulator has identified a number of good procedures. For instance, the firms are now asking their (potential) clients various questions, depending on the type of financial product offered to the client. Also, clients are offered a document setting forth in a clear manner the peculiarities and the risks associated with complex financial or risky products. Another good practice is to periodically revise the questionnaire.
There are bad practices that the AMF has uncovered too. For instance, some firms have asked questions that had no possible answer for “no knowledge”. Instead the options were low / medium / good knowledge. In addition, some firms still allow clients choose their profile by self-assessment.
Earlier this month, the French regulator warned of some issues related to the implementation of the new ESMA rules. AMF’s Chairman Robert Ophèle said chaos may emerge if ESMA stops renewing its measures restricting CFD offering to retail investors and prohibiting binary options. According to him, once ESMA does not renew the rules for CFDs and binary options, there will be a multitude of national regimes regarding the offering of these products. This will result in chaotic surveillance of products that are marketed online.