Investment Suitability Check

Investment suitability is a key consumer protection requirement for many regulators. Accordingly, financial institutions can only recommend investment services and products suitable for the client's investment objectives and risk profile and compliant with all relevant laws and regulations.

Investment Suitability Checks became increasingly relevant in the context of investment advice. In many organisations, investment ideas proposed to a client are not the result of an individual client advisor or relationship manager. These rather follow a strict investment process to ensure investments are suitable with all regulatory requirements (suitability rules, cross-border and product marketing restrictions, tax implications).

As a financial institution, you can optimise this investment process using an adaptable embedded Investment Suitability Check. It allows you to provide your clients with suitable investment ideas that consider a client's individual needs or restrictions and complies with all regulatory requirements.

The Challenge

Many investment advisers and portfolio managers struggle with the incredible complexity of applying country-specific suitability requirements at the investment product level. Typically, this process requires reading lengthy manuals and policies with suitability and cross-border rules as well as conducting annual compliance training and certifications on these topics. These manual approaches are inefficient and have the constant risk of overlooking or using outdated regulatory requirements.

When looking for investment advice or investment management services, clients expect that the following areas are taken care of:

• What is the risk category of an investment product in my portfolio?
  
  
• What investment product best fits my investment objectives?
  
  
• Do country-specific restrictions apply to certain investment products?
  
  
• Is my portfolio tax-efficient according to my tax domicile?
  

  Apiax allows you to check for the Tax Efficiency of investments products. See the Tax-Efficient Investment Management Integration Guide for more information.

Today, the main challenge in answering those questions is the number of client and product attributes needed to run such regulatory assessment, hence characterising the financial instrument from a cross-border, tax, and suitability perspective.
As a financial institution, you can optimise this investment process using an adaptable embedded Investment Suitability Check. It allows you to provide your clients with suitable investment ideas that consider a client's individual needs or restrictions and complies with all regulatory requirements.

This integration guide explains how to integrate all relevant suitability restrictions into your processes to offer efficient and fully compliant investment management services based on the Apiax rules.

Pre-requirements

Before starting, ensure that you have:

• A SaaS subscription to the Apiax API (optional subscription to the platform);
• An active subscription for the relevant digital compliance rules (content);
• A user account with access rights;
• Ready-to-use API authentication and access;
• A capable end-user solution to integrate, such as an Order Management or Portfolio Management System.

For more information, see Apiax initial account setup.

Use cases and studies

Apiax offers a series of business cases and provides studies to gain further insights into the business benefits of switching to embedded compliance rather than following traditional compliance approaches.
Refer to the use cases webpage on apiax.com or contact Apiax for more information and an overview of how you can move your business forward with ready-to-use solutions for embedded compliance.

Introduction

This integration guide provides step-by-step instructions for making your investment management process fully compliant. It takes you through the process of embedding compliance checks into your investment or portfolio management system or process. Follow these steps with your specific case and situation in mind. Adopt and extend rules, attributes and API requests where necessary.

Apiax offers test and live API keys as well as all relevant suitability rules out of the box. You can customise the rules on the Rule Governance Platform, which supports versioning functions for you to test and validate changes before applying them.

Example to get started

Financial Institution AG, a Swiss wealth manager, distributes financial products to investors and provides investment advisory services. The company has a securities dealer licence for Switzerland. Sophia, the client, an investor with residence in Malta, is looking for a personalised investment recommendation regarding the composition of an investment funds' portfolio.

Objective: Financial Institution AG seeks to understand if it is restricted to offer such advice on a specific instrument to Sophia and, if so, what restrictions would those be.

The figure below depicts the flow of a portfolio manager or investment advisor using an Apiax-powered tool to look for a personalised investment recommendation regarding the composition of an investment fund's portfolio.