FCA BS - Client Categorisation

Question 1

Definition of Client and Customer

Answer 1

A person who firm provides (intends or provided)

1. Service in course of regulated activity
2. Ancillary service in course of MiFID business

Customers are retail and professional clients

Question 2

3 Types of Client

Answer 2

Retail - most protection. Local authorities are classed as retail, can can opt up to professional if investing on behalf of LGPS

Professional - more experience and less protection

Eligible Counterparty - investment firms, credit institutions, insurance companies, UCITS etc. Has a ‘light touch’ regulatory regime
- do not give advice, but deal with the transmission of orders

Question 3

Per Se Professional Client

Answer 3

In relation to MiFID or equivalent, meets two of following:

Balance sheet - €20m
Net Turnover - €40m
Own Funds - €2m

In relation to non-MiFID, either:

1. Share capital of €5m
2. (Two of following)
   Balance Sheet - €12.5m
   Net Turnover - €20m
   Employees - 250

Question 4

Elective Professional Client

Answer 4

1. Qualitative Test - firms has assessed client is knowledgable
2. Quantitative Test (at least 2 of following:)

a) 10 significant transactions per quarter over last 4 quarters
b) portfolio exceeds €500,000
c) client has worked in specific financial sector for 1 year

3. Client must state it’s desire, firm must give warning, client must state its aware of warnings (all in writing)

Question 5

Per Se Eligible Counterparty examples

Answer 5

Pension Funds (+ management co)
UCITS (+management co)

Question 6

Per Se Combined Examples

Answer 6

Investment firms
Credit Institutions
Institutional Investor 
National, international, supranational bodies
Central Banks

Question 7

Eligible Counterparty Business

Answer 7

Light touch regime is limited to specific types of business:

• executing orders on behalf of clients or dealing on own account
• receiving and transmitting orders

Question 8

Recategorisation of Clients

Answer 8

Firms must allow PC or EC to recategorise to a higher level of protection e.g. retail

Does not enable client to all aspects of protection e.g. complaining to FOS

Question 9

Client Agreements

Answer 9

MiFID requires firms to enter into written agreements with PC and RC for each service

Agreement should include terms of agreement and information about the firm

If agreement concluded by distance communication, firm can provide client with agreement after already being bound

Record of client agreement must be kept for duration of relationship and in case of pension transfer, opt out or FSAVC indefinitely