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The FCA has released its long-anticipated proposals to update its rules on client categorisation - consultation paper CP25/36.
These proposals follow an FCA multi-firm review on client categorisation on corporate finance firms (see our recent blog on this), as well as questions posed in both the Call for Input on a review of FCA requirements following the Consumer Duty's introduction and the discussion chapter of consultation paper CP24/24 on the MiFID Organisational Regulation. The FCA has taken into account the feedback received in relation to these publications, together with insights from its engagement with wholesale firms.
We outline the proposed changes in this blog, but in short, the FCA is proposing to remove the quantitative test, enhance the qualitative assessment, and introduce a wealth assessment (amongst other changes).
The FCA's proposals try to walk a tightrope of improving consumer outcomes (so that clients are not artificially opted up), whilst at the same time enabling individuals with expertise and resources to be opted up and be able to access appropriate products and services. The jury is still out on whether the proposals achieve this and if they go far enough. There are likely to be questions from the industry on the proposed tests and required evidence, as well as suggestions for fine-tuning; but overall, we expect the proposals will be welcomed.
Client categorisation proposals in summary
Elective professional clients
The FCA proposes to change the elective professional client categorisation rules in COBS 3.5.3R for clients (other than local authorities) as follows:
A firm may treat a client as an elective professional client if:
(a) either:
i. the client has net investable assets (defined as a portfolio of designated investments or cash) in excess of £10 million, or
ii. the firm has undertaken a qualitative assessment of the expertise, experience and knowledge of the client and is satisfied on reasonable grounds, that the client is capable of making their own investment decisions, and of understanding the risks in relation to the transactions the firm may undertake with the client and the products and services the firm may offer the client;
(b) the client has requested categorisation as an elective professional and the firm has obtained the client's informed consent, by signature, to opting out of retail protections; and
(c) the categorisation is compatible with the firm's obligations to act honestly, fairly and professionally in the best interests of the client and under the Consumer Duty.
So, how will the FCA achieve this? The table below offers a brief overview.
| FCA proposal | In brief |
| Current quantitative test in COBS 3.5.3R(2) | Removing the current quantitative test as a mandatory element of the qualitative assessment. The FCA agrees that the current quantitative criteria are no longer fit for purpose: they are too narrow and open to misuse. |
| Alternative wealth assessment |
Introducing a new alternative wealth assessment for a client with investable assets (a portfolio of designated investments and/or cash) above £10 million to elect to opt out of retail protections and to be treated as an elective professional client. The structured qualitative assessment (see below) will not be required. (The FCA has set the wealth threshold at a level where it considers there is a low risk that an individual would be unable to access the level and quality of advice that may be suitable to their financial literacy, and the complexity of their investments and circumstances.) |
| Enhanced qualitative assessment |
Retaining the requirement that firms undertake a robust qualitative assessment of a client's expertise, experience and knowledge. The FCA considers that, overall, this obligation remains fit for purpose. However, to clarify expectations about how firms should carry out the assessment, it proposes new rules, including relevant factors firms must take into account. Specifically, the FCA is seeking to ensure that:
The proposed relevant factors are broadly consistent with the intent of the current qualitative and quantitative criteria, but designed to offer more flexibility. They relate to: occupational experience; a client's own account investment history; financial resilience; knowledge, understanding and ability to assess risk; and the client's objectives for, and understanding of the implications of, requesting to opt-out of retail client protections. |
| Improved safeguards |
Strengthening safeguards to prevent firms from inappropriately opting clients out of retail protections. The FCA's key proposals in this regard include:
(In line with its simplification agenda, the FCA encourages feedback on whether the Consumer Duty would be sufficient rather than any of its proposed new rules.) |
Per se professional clients
The FCA proposes to simplify the per se professional client category criteria by removing the list of different types of entities in COBS 3.5.2R(1).
In addition, it proposes to remove the distinctions:
- In the size thresholds for categorising large undertakings and trustees (other than pension trustees) for MiFID and non‑MiFID business. The FCA's proposed approach is to require all firms seeking to categorise a client as a per se professional, where the client does not fall within any of the other criteria for per se professionals, to apply the existing MiFID thresholds for large undertakings.
- Between large undertakings that can elect to be treated as an eligible counterparty (ECP) for the purpose of MiFID and non‑MiFID business.
Next steps and transitional provisions
The deadline for responses to the FCA's proposals in CP25/36 is 2 February 2026. The FCA will consider the feedback received and plans to publish a policy statement with final rules (it does not specify a date for this).
Firms will need to review, within one year of the new client categorisation rules coming into force, the categorisation of all existing elective professional clients against the new rules, including whether the firm has obtained informed consent from existing clients. The FCA makes clear that, given the specific requirements of its new rule on informed consent, in its view, many firms may conclude they need to obtain new consent. By way of example, the FCA describes the scenario of a firm having accepted a client ticking a box to indicate they consent: this will not demonstrate informed consent under the new rules.
Firms conducting non‑MiFID business with per se professional clients, or elective ECP clients, that have been categorised under one of the thresholds in COBS 3 will also need to review the categorisation of these clients and consider whether they need to be re-categorised. Again, there will be a transitional period from the entry into force date of the new rules, during which time firms will be able to complete this exercise.
Monitoring outcomes
Firms will undoubtedly incur initial costs implementing these rule changes, since client categorisation is a core process, but the FCA believes this is significantly outweighed by the long‑term benefits.
The FCA intends to monitor the effectiveness of its client categorisation rules through supervisory work. This will include reviewing complaints made to the FCA regarding firm practices. The FCA is also exploring the possibility of collating client categorisation data through a regulatory return form, which could then be used to develop monitoring metrics.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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