Elective professional client - COBS Provision

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MiFID Categorisation

• Professional clients: per se professional client | elective professional client
  
• ECPs: per se eligible counterparty | elective eligible counterparty | COBS 1 Annex 1 for disapplication of COBS rules to ECPs
  
• Retail client: See COBS 3.4: one who is not a professional client or an ECP
  
• Categorisation decision tree (pdf)
  

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Section 3.5.3, COBS Rules

COBS Rules
3.5.3 A the firm may treat a client as an elective professional client if it complies with (1) and (3) and, where applicable, (2):

(1) the the firm undertakes an adequate assessment of the expertise, experience and knowledge of the client that gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making his own investment decisions and understanding the risks involved (the “qualitative test”);

(2) in relation to MiFID or equivalent third country business in the course of that assessment, at least two of the following criteria are satisfied:

(a) the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;

(b) the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds EUR 500,000;

(c) the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged;

(the “quantitative test”); and

(3) the following procedure is followed:

(a) the client must state in writing to the the firm that it wishes to be treated as a professional client either generally or in respect of a particular service or transaction or type of transaction or product;

(b) the the firm must give the client a clear written warning of the protections and investor compensation rights the client may lose; and

(c) the client must state in writing, in a separate document from the contract, that it is aware of the consequences of losing such protections.

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Conduct of Business

This is an article about the FCA’s conduct of business rules, known by its chapter in the FCA Sourcebook, COBS, which implement, among other things, MiFID (directive 2004/39/EC (EUR Lex) and implementing directive 2006/73/EC (EUR Lex)).