If your firm distributes products without advice, appropriateness is your first line of defense: an assessment of knowledge and experience, documented warnings and a clearly defined execution-only exemption.
Would your appropriateness process stand up to a CNMV review?
Tell us how you distribute products without advice and we will point out the weak spots in your workflow and records.
Six areas we review at banks, investment firms and management companies: from the assessment procedure to the records you show the supervisor.
We design or review your full procedure: service-product matrix, knowledge and experience questionnaires, result criteria, warnings and records. Integrated with your other MiFID II policies and with how you actually operate in each channel.
If you also provide advice or manage portfolios, a different assessment applies: suitability under MiFID II Art. 25. We define which of your firm’s workflows are advised and which are not, so that each one gets the test it requires.
Retail, professional or eligible counterparty: the category determines what you can presume and what you must ask in the assessment.
Appropriateness decides whether the order goes through; best execution decides how it is executed. Two policies the CNMV reviews together.
In portfolio management, an appropriateness test will not do: every investment decision requires suitability. We review your mandate and your process.
Distribution proceedings are won with records. We prepare you for requests for information and reviews of non-advised sales.
Four real situations at firms that distribute products without advice and need their process to withstand a review.
“Our relationship managers do not formally give advice, but they place complex products with retail clients. We need the appropriateness test and its warnings to be traceable transaction by transaction.”
“We act at the client’s initiative on non-complex products, but push notifications and featured listings can break the exemption. We want to review the workflow before the supervisor does.”
“We receive orders via the web, by phone and by email. Each channel assesses appropriateness in its own way, and that is exactly what an inspector spots in a single morning.”
“We sell our funds without personal recommendations. We need documented criteria on which vehicles we treat as complex and what we assess before each subscription.”
Reviews of product distribution tend to trip over the same design errors. Spotting them in time is much cheaper than defending them later.
Confusing suitability with appropriateness: if your staff steer the client toward specific products, that is a personal recommendation and the test required was suitability. A “non-advised” workflow on paper does not protect you if your actual practice says otherwise.
Warnings that leave no trace: a “not appropriate” result with no documented warning, or one generic warning used for everything, leaves the transaction with no possible defense years later, when the complaint arrives.
Misclassifying complexity: treating a product as non-complex when it is not opens the door to execution-only dealing you are not entitled to. The error taints thousands of transactions at once.
| Service provided | Applicable assessment | Conditions and evidence |
|---|---|---|
| Investment advice or discretionary portfolio management | Suitability test | Knowledge and experience, financial situation and objectives (MiFID II Art. 25). Without a valid suitability assessment, no recommendation or management decision can be defended. |
| RTO or execution of complex products, without advice | Appropriateness test | You assess knowledge and experience. If the result is negative or the client does not provide information, you give an express warning and keep a record of it. |
| Execution-only on non-complex products | None, subject to conditions | The transaction is initiated by the client, you inform the client that you are not assessing appropriateness and you meet the other requirements of the exemption. All of it recorded. |
We audit your appropriateness process end to end: service scoping, complexity catalog, questionnaires, warnings and records. We deliver a prioritized remediation plan you can defend before the CNMV.
One thing only: the client’s knowledge and experience of the type of product or transaction. It is used to determine whether the client is able to understand the risks of what they are about to buy.
It does not look at their financial situation or investment objectives: those belong to the suitability test, which applies when there is advice or portfolio management.
In the service that requires it and in its scope:
The practical consequence: suitability filters the recommendation; appropriateness filters the understanding of risk.
When the conditions of the execution-only exemption are met: the service is limited to execution or reception and transmission of orders, it concerns non-complex products, it is provided at the client’s initiative and you clearly warn the client that you are not assessing appropriateness, in addition to meeting the other regulatory requirements.
If any piece fails—a complex product, initiative prompted by your firm, a missing warning—the exemption no longer applies and the transaction is left unprotected.
MiFID II starts from a list of instruments that can be treated as non-complex and from criteria to assess the rest: structures that make the risk hard to understand, embedded derivatives or barriers to exit point to complexity.
What matters in practice for your firm is not memorizing the list but maintaining your own complexity catalog, approved and versioned, that classifies every instrument in your range with documented criteria. That catalog is one of the first things an inspector asks for.
Warn the client expressly and keep evidence of the warning and of the client’s decision to go ahead. A negative result does not in itself block the transaction, but it makes the documented warning your only defense against complaints and before the supervisor.
Good practices we review: a warning specific to the product (not one generic text for everything), given before the order, and recorded with the date, channel and the client’s acceptance.
Then you cannot determine appropriateness, and you must warn the client of exactly that: that their refusal prevents you from assessing whether the product is appropriate for their knowledge and experience.
That warning is documented too. A pattern of clients who “prefer not to answer”, concentrated in certain products or in a particular sales network, is a classic red flag in distribution reviews.
Yes. As a general rule, professional clients can be presumed to have the necessary experience and knowledge for the services and products for which they are classified as professional, which simplifies the assessment.
That is why appropriateness really starts with client classification: a flawed categorization carries over into every later assessment.
That you can reconstruct any transaction: which service was provided, how the product was classified, what the client was asked, what result the assessment gave, what warning was issued and what the client decided.
In practice: an approved procedure, a complexity catalog, versioned questionnaires, records of assessments and warnings, and periodic data quality controls. We cover this in our MiFID II compliance service.
The goal is not to “have a test”: it is for every non-advised transaction to be classified, assessed, accompanied by a warning when needed and recorded. This is how we set it up.
We take stock of which of your firm’s workflows are advised and which are not, which instruments you distribute and through which channels. That map shows where suitability applies, where appropriateness applies and where the execution-only exemption is available.
Questionnaires proportionate to the product’s risk, consistent result criteria, specific warnings for “not appropriate” and “not assessable”, and execution-only notices that genuinely inform.
Every assessment, warning and client decision is traceable. Internal control samples transactions, watches for anomalous patterns and updates the process when the product range or channel changes.
If your firm also gives advice, start by drawing a clear line between the two worlds: we can help through our MiFID II compliance service and the suitability test page.
The 10 conduct controls the CNMV expects to see working at an EAF or investment firm, with the typical evidence for each. Ideal as a quarterly self-assessment with your team.
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The terms that appear in your procedure, in the supervisor’s requests for information and in client complaints. It pays to use them precisely.
The assessment required for non-advised services involving complex products: it measures whether the client understands the product’s risks.
The full assessment (knowledge, financial situation, objectives) required by MiFID II Art. 25 for advice and portfolio management.
An instrument whose structure makes its risk hard to understand. Distributing it without advice requires an appropriateness assessment.
An instrument that, if the other conditions are met, allows execution-only dealing without a prior assessment.
The regime that allows orders to be executed or transmitted without assessing the client: non-complex product, client initiative and a warning.
A condition of the exemption: the order originates with the client. Targeted marketing communications can shift the initiative to the firm.
An express communication to the client: product not appropriate, assessment impossible due to lack of information, or no assessment in execution-only.
A typical non-advised investment service: the firm receives the order and transmits it for execution. For complex products, it requires an appropriateness assessment.
Classification (MiFID II Annex II) shapes the assessment: professional clients can be presumed to have knowledge and experience, retail clients cannot.
A clear boundary between advised and non-advised workflows, backed by scripts, training and controls, not just by the contract.
A service map by channel, approved sales scripts and staff training records.
Every instrument in the range rated as complex or non-complex, with reasoned criteria and change governance.
A versioned complexity catalog, approved by the competent body, with a log of changes.
Questionnaires proportionate to the product, with no leading answers, objective result rules and no immediate retakes to “pass”.
Questionnaire templates, documented result logic and anti-fraud controls on retakes.
Issued automatically, before the order, in all three scenarios: not appropriate, not assessable and execution-only.
Approved texts for each scenario, and a log of issue and acceptance with the date, channel and related transaction.
Full traceability per transaction and monitoring of anomalous patterns, with periodic review of the process.
A retrievable repository of assessments, sampling reports and an annual procedure review plan.
Each of these practices comes up again and again in distribution proceedings. If any of them sounds familiar, review it now.
Client assessment is one part of a larger investor protection system: client classification, the boundary with advice, voice channel recording and pure execution business models. These pages help you close the loop.
The most expensive test error is applying the wrong one. When your business crosses into advice without anyone declaring it.
Retail, professional and eligible counterparty: the category decides what you can presume in the assessment and which protections apply.
The phone orders you assess are also recorded and retained. What MiFID II Art. 16(7) requires of your voice channels.
Pure execution platforms: where they strain the exemption, what happens with gamification, and the end of PFOF in the EU.
If your firm also provides advised services, see our MiFID II compliance service and the MiFID II, discretionary portfolio management and robo-advisor pages, where client assessment plays by other rules.
Tell us which services you provide without advice and we will review with you where appropriateness applies, where execution-only is available and what you still need to evidence.
In the investor protection framework of MiFID II (Directive 2014/65/EU, supplemented by Delegated Regulation (EU) 2017/565 and transposed in Spain by Law 6/2023), client assessment has two levels. When a firm provides investment advice or discretionary portfolio management, it must carry out the suitability test under MiFID II Art. 25. When it provides non-advised services—execution of orders, reception and transmission—involving complex products, the required assessment is the appropriateness test: a check of the client’s knowledge and experience to understand the product’s risks. For banks, investment firms and management companies that distribute without advice, this test is what determines whether their distribution can be defended.
Appropriateness measures a single dimension: whether the client has enough knowledge and experience to understand the risks of the type of product or transaction. It does not analyze the client’s financial capacity or objectives, which belong to the suitability test. It applies to non-advised services involving complex products, and its depth must be proportionate to the instrument’s risk: you do not ask the same questions for a derivative as for a simple fund. The client category also matters: as a general rule, professional clients can be presumed to have knowledge and experience of the products for which they hold that classification.
MiFID II allows orders to be executed or transmitted without a prior assessment when several conditions are met: the product is non-complex, the service is provided at the client’s initiative and the firm clearly warns the client that it is not assessing appropriateness, in addition to meeting the other regulatory requirements. Each condition must be proven: a poorly built complexity catalog, or marketing campaigns that in practice originate the transaction, disable the exemption without anyone noticing until the review. Pure execution models—from online banking to neobrokers—operate right on this boundary.
If the assessment concludes that the product is not appropriate, or if the client does not provide enough information to assess it, the firm must warn the client expressly. The transaction can go ahead, but the warning—specific, given before the order and kept with the client’s acceptance—becomes the central evidence against complaints and requests for information. Generic, late or unretrievable warnings are, for practical purposes, the same as no warning at all.
The supervisor does not review the test: it reviews the entire process. It expects to find an approved procedure, a governed complexity catalog, questionnaires with no leading answers, objective result rules, traceable warnings and controls that detect anomalous patterns (repeated tests, refusals to provide information concentrated in one network). In voice channels, the assessment also goes hand in hand with the recording of communications. We design and audit this process as part of our MiFID II compliance service for firms supervised by the CNMV.
Key legislation, linked to the official text:
Legislation and links reviewed in .