FCA Business Standards

Question 1

What does the FCA client categorisation do?

Answer 1

Ranks clients from most to least experience

Question 2

List the three key types of FCA client categorisation

Answer 2

Eligible Counter-party
Professional Client
Retail Client

Question 3

Under the FCA client categorisation which category has the most knowledge and experience, which the middle and which the least?

Answer 3

Eligible counterparty = most knowledge and experience
Professional client = medium knowledge and experience
Retail client = least knowledge and experience

Question 4

Under the FCA client categorisation what do rankings of knowledge and experience need to be balanced with?

Answer 4

Protection & levels of protection that are appropriate to the client

Question 5

What are the two types of professional clients

Answer 5

Per se and elective

Question 6

What/ who is listed under Per Se professional clients

Answer 6

• Entities that require authorisation/ regulation to operate in the financial markets
• National governments, central banks, supernational organisations
• MiFID business ‘large undertakings’ (must meet criteria see other card)
• Non-MiFID business ‘large undertakings’ (must meet criteria see other card)

Question 7

What/ who is listed under elective professional clients

Answer 7

Retail clients who have elected to step up (is not automatic)

Question 8

For retail clients to become elective professional what has to happen?

Answer 8

Have to request the election and opt up and they have to be run through 2 tests to prove they have necessary knowledge and experience

Question 9

What can elective professional clients additionally choose to do and why?

Answer 9

Client’s knowledge won’t necessarily be an expert across different products so can be a elective client in one asset class but not another.

Question 10

What are the two types of eligible counterparty?

Answer 10

Per se and Elective

Question 11

Who/ what is grouped under Per Se Eligible Counterparties and when do they become an EC?

Answer 11

o Authorised/ regulated firm
o Government
o Central banks
o Super-national entities e.g. world bank

Moment any of the above do Eligible counterparty business they move over to this category

Question 12

What constitutes as Eligible counterparty business

Answer 12

o Execution of orders on behalf of client
o Dealing on own account
o Reception and transmission of orders
o NOT advice or fund management

Question 13

Who can elect to be an eligible counterparty?

Answer 13

Large undertaking can elect to be an EC and all have to get from them is consent for the lost protection

Question 14

Who can’t become and Eligible Counterparty?

Answer 14

o Other investment institutions can not opt up to be an EC

o Individual can not opt up to be an EC

Question 15

For Retail clients to become professional clients what is involved?

Answer 15

• Tests X2 –> Qualitative and Quantitative
• Additional X3
  o Client must agree in writing
  o Firm must give written warnings of protections lost
  o Client must state (separately) in writing that they are aware of the consequences

Question 16

For Retail clients to become professional clients what is involved in the Qualitative test

Answer 16

assesses expertise, experience and knowledge. Gain assurance that the client is capable of making his own investment decisions and understanding the risk involved

Question 17

For Retail clients to become professional clients what is involved in the Quantitative test

Answer 17

At least two of the following three criteria must be met:
o At least 10 transactions per quarter on the relevant market, over the last four quarters
o Clients portfolio exceeds 500,000 euros
o At least on year’s professional work in the financial sector

Question 18

For a per se professional client if the client is a MiFID business large undertaking what is the conditions for it being viewed as per se

Answer 18

MiFID business ‘large undertakings’ (meet at least two of the following):
o 20m euro balance sheet total
o 40m euro turnover
o 2m euro own funds

Question 19

For a per se professional client if the client is a Non-MiFID business large undertaking what is the conditions for it being viewed as per se

Answer 19

• Non-MiFID business ‘large undertakings’ (meet either of the following)

o	Called up share capital or net assets at least £5m OR 
o	Two of the following three 
 - 12.5 m euro balance sheet total 
 - 25m euro turnover 
 - 250 average number of employees

Question 20

When may a firm treat an undertaking an an elective eligible counterparty?

Answer 20

if the client:
o Is a per se professional client
o Is an elective professional client and requests the categorisation
o Not individuals / other institutional investors

Question 21

What can a per se eligible counterpart or per se professional client choose to do?

Answer 21

• Following a client request or written agreement:
o A per se eligible counterparty may ‘opt down’ to professional client or retail client status
o A per se professional client may ‘opt down’ to retail client status