Options are derivatives. In most jurisdictions a firm that lets a retail client buy or write options without giving advice must first check whether the client understands the product and its risks. This guide summarizes the main texts and shows where a knowledge test can help.
Directive 2014/65/EU (MiFID II), applicable since 3 January 2018, requires investment firms that provide services other than investment advice and portfolio management to ask the client for information about knowledge and experience in the investment field relevant to the specific type of product or service, so that the firm can assess whether it is appropriate for the client (article 25(3)).
If the firm considers the product not appropriate, it must warn the client. If the client gives no information or not enough, the firm must warn that it cannot determine whether the product is appropriate.
The execution-only regime of article 25(4) applies only to non-complex instruments. Options are derivatives, so they are outside it and the appropriateness assessment applies.
Commission Delegated Regulation (EU) 2017/565 (articles 55 and 56) lists the information on knowledge and experience, to the extent appropriate to the client, the product and the service:
ESMA published its Guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements (ESMA35-43-3006) in January 2023. Among other points, they discourage reliance on the client's self assessment, ask firms to design questions that actually test knowledge and to avoid leading questions, and expect firms to have arrangements for clients who repeat the assessment or change answers in a short time.
National authorities apply these guidelines through their own supervisory practice, so check the position of your regulator.
United Kingdom: the FCA Conduct of Business Sourcebook sets the appropriateness rules for non-advised services in COBS 10 and COBS 10A.
United States: FINRA Rule 2360(b)(16) requires a member firm, before approving a customer's account for options trading, to exercise due diligence to ascertain the essential facts about the customer, including financial situation and investment objectives, and to give the options disclosure document. A registered principal approves or disapproves the account in writing. Many brokers then grant different options levels.
Singapore: MAS Notice SFA 04-N12 requires a Customer Knowledge Assessment for unlisted Specified Investment Products and a Customer Account Review for listed ones. Hong Kong: the SFC Code of Conduct requires intermediaries to assess the client's knowledge of derivatives.
A test built on the actual mechanics of options gives you evidence that goes beyond a declaration by the client. Typical topics:
Unicorn Academy for Business is a knowledge assessment tool that you use inside your own processes. It does not decide whether a product is appropriate for a client and it does not by itself ensure compliance with MiFID II, MiCA or any other rule. How you use the results, and the appropriateness or suitability assessment, remain your responsibility.
No. A knowledge test is one input to your appropriateness assessment. You decide which products to offer to which clients and how to use the results; compliance remains your responsibility.
Yes, if you allow it. You set the number of attempts and the waiting hours between attempts, and every attempt is kept in the audit log with its answers.
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This page is general information, not legal advice. Rules change and apply differently by country, licence and client type: check the current official texts and the guidance of your regulator.