FCA Business Standards Flashcards
What does the FCA client categorisation do?
Ranks clients from most to least experience
List the three key types of FCA client categorisation
Eligible Counter-party
Professional Client
Retail Client
Under the FCA client categorisation which category has the most knowledge and experience, which the middle and which the least?
Eligible counterparty = most knowledge and experience
Professional client = medium knowledge and experience
Retail client = least knowledge and experience
Under the FCA client categorisation what do rankings of knowledge and experience need to be balanced with?
Protection & levels of protection that are appropriate to the client
What are the two types of professional clients
Per se and elective
What/ who is listed under Per Se professional clients
- 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)
What/ who is listed under elective professional clients
Retail clients who have elected to step up (is not automatic)
For retail clients to become elective professional what has to happen?
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
What can elective professional clients additionally choose to do and why?
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.
What are the two types of eligible counterparty?
Per se and Elective
Who/ what is grouped under Per Se Eligible Counterparties and when do they become an EC?
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
What constitutes as Eligible counterparty business
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
Who can elect to be an eligible counterparty?
Large undertaking can elect to be an EC and all have to get from them is consent for the lost protection
Who can’t become and Eligible Counterparty?
o Other investment institutions can not opt up to be an EC
o Individual can not opt up to be an EC
For Retail clients to become professional clients what is involved?
- 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
For Retail clients to become professional clients what is involved in the Qualitative test
assesses expertise, experience and knowledge. Gain assurance that the client is capable of making his own investment decisions and understanding the risk involved
For Retail clients to become professional clients what is involved in the Quantitative test
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
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
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
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
• 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
When may a firm treat an undertaking an an elective eligible counterparty?
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
What can a per se eligible counterpart or per se professional client choose to do?
• 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
