COBS: Client Categorisation

Question 1

what is the purpose of COBS

Answer 1

allow the FCA to discharge its operational objective of securing an appropriate degree of protection for consumers when dealing with regulated firms

Question 2

what classifies as a customer

Answer 2

retail and professional client

Question 3

what classifies as a client

Answer 3

retail, professional and eligible counterparty

Question 4

what classifies as a consumer

Answer 4

a retail client that is also a natural person

Question 5

how are local authorities and municipalities classified

Answer 5

retail clients

Question 6

can local authorities and municipalities be elective professional or elective eligible counterparties

Answer 6

can be elective professional when they meet certain requirements

can never be ECP

Question 7

to who does client categorisation apply

Answer 7

all clients

Question 8

what are classed as per se professional clients (there are 4)

Answer 8

any authorised/regulated firm
government/central bank/supernatural
other institutional investor e.g. special purpose vehicle
large undertaking

Question 9

what is the criteria for a large undertaking to be a per se professional client for MiFID business

Answer 9

satisfy at least 2/3 of:

balance sheet 20m euros
net turnover 40m euros
own funds 2m euros

Question 10

what is the criteria for a large undertaking to be a per se professional client for NON - MiFID business

Answer 10

a company with share capital/net assets of 5m pounds
a trustee of an occupational pension scheme with at least 50 members and 10m pounds assets under management

any company meeting 2/3 of:
balance sheet 12.5m euros
net turnover 25m euros
average of 250 employees

Question 11

what are the two tests for elective professional clients and for which business do they apply

Answer 11

qualitative test (all business) - firm to assess expertise, experience and knowledge to provide reasonable assurance about capability or understanding

quantitative test (MiFID only) - meet 2/3 of: avg trade frequency of 10 per quarter over past 4 quarters, portfolio greater that 500k euros, works or has worked over 1 year in financial services

Question 12

what is the procedure for a retail client to become an elective professional client

Answer 12

written intent from client
written warning to client about lost protection
written client consent to lost protection

Question 13

what are the 3 types of eligible counterparty business and what does this mean

Answer 13

dealing on own account
execution of orders on behalf of clients
transmission orders

CANNOT be ECP for advisory services

Question 14

who is classified as a per se ECP

Answer 14

most of the per se professional clients - authorised/regulated firms, governments and central banks

Question 15

who can be an elective eligible counterparty

Answer 15

only large undertakings can opt up to ECP status or any per se professional clients

Question 16

what is the procedure to become an elective ECP

Answer 16

obtain client confirmation to be treated as ECP

Question 17

who cannot be an elective ECP

Answer 17

NOT special purpose vehicles or elective professional clients

Question 18

if a client opts down to retail client, what does it give them fully and what does it not guarantee them

Answer 18

full protection under COBS
does not guarantee right of access to bodies such as the FOS and FSCS (which is for complaints and insolvency stuff)

Question 19

who is regarded as the client when someone is acting as an agent for someone

Answer 19

the agent is the client

Question 20

what is the exception to the agent being treated as the client

Answer 20

written agreement between firm and agent to treat the other as the client OR

if the purpose of the agency is to avoid duties owed to the other person

Question 21

can a retail client opt up to ECP

Answer 21

no

Question 22

can an ECP opt down to PC and RC

Answer 22

yes

Question 23

who does acting as an agent apply to

Answer 23

all clients

Question 24

who does reliance on others apply to

Answer 24

all clients

Question 25

can a firm rely on information provided by another MiFID firm + who bares the responsibility

Answer 25

yes, can rely on info and recommendations, the providing mifid firm is responsible

Question 26

can a firm rely on information from a non MiFID firm + who is responsible for accuracy of info

Answer 26

yes if:

the information is in writing
the non mifid firm is independent
the non mifid firm is competent

(mifid firm is accountable to assess this)