Developing an automated digital suitability assessment against the backdrop of MiFID II

Abstract

This paper reviews the Markets and Financial Instruments Directive II (MiFID II) suitability assessment from an academic perspective, including behavioural finance aspects. It highlights critical focus points within the regulation and provides guidance for an automated, digital suitability assessment. It suggests the use of visualisation elements and experience sampling to assess a client’s risk tolerance. It outlines how to employ decision support systems to measure the ability to bear losses. Finally, the paper discusses how to construct an algorithmic evaluation logic of the assessed parameters yielding a client risk profile. Overall, suggestions on how to implement an objectively evaluated digital suitability assessment are provided. The approach might thus be of interest to regulators, the traditional industry and FinTech companies alike.