A MiFID firm has received an instruction from a retired client to buy a number of CFDs related to shares in a company listed on the Stock Exchange. Under MiFID regulations, the firm is required to:

• A. first ask the client about their knowledge and experience of investing in CFDs, before executing the order.
• B. arrange a meeting with the client to discuss the investment, prior to executing the order.
• C. decline to carry out the transaction if the adviser feels it is not appropriate to the client.
• D. decline to carry out the transaction, regardless of whether the investment is or is not appropriate to the client.

Answer: (A)

MiFID obliges investment firms to check that a client has the necessary knowledge and experience to understand and bear the risks of complex or high-risk products, such as CFDs, before executing an order for them. This appropriateness assessment is done first, by asking the client about their familiarity with CFDs and their investment experience. If the client can demonstrate sufficient knowledge, the firm can proceed; if not, the firm should not execute the order (or should take steps to ensure understanding) because the product may not be appropriate for the client. This is why asking about knowledge and experience before executing is the correct requirement.