The Financial Services Authority has proposed to modify the client categorisation requirements of MiFID to allow greater flexibility for out of scope firms.
In its consultation paper on the new conduct of business (NEWCOB) sourcebook - CP06/19: Reforming Conduct of Business Regulations - the FSA confirms it will adopt the Markets in Financial Instruments Directive (MiFID) client terminology of ‘retail’, ‘professional’ and ‘eligible counterparty’ for both MiFID and non-MiFID firms.
But it proposes that modifications of the criteria for the categories should be adopted to allow greater flexibility for non-MiFID business.
In particular, the FSA is proposing to ‘turn off’ the quantitative criteria for a retail client ‘opting up’ to professional client status.
If the quantitative criteria were adopted clients would need to carry out significant transactions, have a portfolio exceeding 500,000 euros and/or have worked in the financial sector for at least one year, as well as meeting qualitative criteria, before they could become professional clients.
Instead, they will only need to meet the qualitative assessment, which requires firms to undertake an “adequate assessment” of the expertise, experience and knowledge of the client” to give “reasonable assurance, in the light of the nature of transactions or services envisaged, that the client is capable of making his own investment decisions and understanding the risks involved”.
For retail non-MiFID business, existing clients classified as private will be automatically grandfathered into the retail client of NEWCOB and there will be no requirement of notification.
The FSA says firms will need to put in place appropriate written internal policies and procedures to categorise their clients including procedures for re-categorising clients where the firm becomes aware this is required.
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