Suitability & Appropriateness Tests

What is a suitability test and when is it conducted?

A suitability test for proposed products/services is required when providing investment advice and portfolio management services to both retail and professional investors. Companies must assess the client’s investment sector knowledge and experience relating to the specific type of financial instrument or service, along with the client’s financial situation. All proposed products must match the client’s investment objectives and profile. 

What is an appropriateness test and when does it apply?

An appropriateness test is required when carrying out execution only transactions on complex products on behalf of retail investors. In such cases, companies must assess the client’s investment sector knowledge and experience relating to the specific type of offered or demanded financial instrument or service, so as to ensure that the client understands the risks in each case. 

What is the difference between suitability and appropriateness testing?

They are two different tests that aim at stronger investor protection. client classification and the service offered by the Group determined whether these tests are conducted.

The following table shows when each test should be conducted:

Complex products Non-complex products
Provision of investment advice
 
Suitability test
 
Suitability test
Discretionary Portfolio Management
 
Suitability test
 
Suitability test
Other Services (Execution only)
 
Appropriateness test