The Supreme Court of Justice issued a decision on  January 20, 2014, which has set a civil doctrine on the  scope of the duty of information required in investment  services which contain financial advice by establishing  a distinction between the so-called convenience  and suitability tests, and setting out instances for the  application of each of them.

The existing disproportion between financial services distributors and  its clients (if they are not professional investors) and in view of the  complexity of these types of products, the High Court considers that  the retail investors have to be specially protected.

To this end, using the Markets and Financial Instruments Directive  (MiFID), the High Court has provided information on the duties required  of the lending financial institutions, and how they should assist clients  to interpret the information given and make an informed decision.

The scope of duties of information and advice aimed at retail  investors on complex financial products should not be reduced to  simply partial, clear and not misleading information but must also  consist of a detailed description of the product to be hired, as well  as the characteristics of the risks inherent to it. There should also  be consideration on the classification of the client as either retail or  professional, with the ultimate goal of putting the client in a position  to make an informed investment decision.

In addition, the explanation of the risks, according to the type of  product, must include related risks, the volatility of the price on this  type of instruments, additional costs the investor may have to take  and any other obligations applicable to the financial instrument.

Financial institutions should also assess the knowledge and  experience of financial matters that the client has and, accordingly,  issue a judgment of convenience or suitability.

The suitability test will serve to determine whether the client has or  not the required knowledge and experience to understand the risks  from the product to be hired, assessing the instruments they are  familiar with, frequency and volume of their transactions, and the  education and profession.

In contrast, the suitability test will require greater demands, being  provided for cases of investment or assets management advisory  services, and will require a full examination of the client including the  suitability test, a report on the financial situation of the customer, and  the investment objectives.

Ultimately, the judgment of the suitability of the product, will include,  inter alia in its content, the judgment of convenience, and will  therefore be much more extensive.

Such judgment of suitability will therefore be required for financial  advisory services which the High Court describes as personalized  recommendations concerning one or several financial operations,  whether at the customer’s request or at the initiative of the  financial institution.

Once the fixed doctrine had been issued, the High Court confirmed  the ruling, which had been subject to appeal, and declared null the  contract of swap signed by Caixa d´Estalvis del Penedés with a retail  investor, considering that there was error in his consent, having not  received a comprehensive and adequate information of the risks of  the operation and without practicing the judgment of suitability.