COBS 3.7 Providing clients with a higher level of protection
A firm must allow a professional client or an eligible counterparty to request re-categorisation as a client that benefits from a higher degree of protection.
[Note: second paragraph of article 24(2) of, and the second paragraph of section I of annex II to, MiFID and the second paragraph of article 50(2) of the MiFID implementing Directive]
It is the responsibility of a professional client or eligible counterparty to ask for a higher level of protection when it deems it is unable to properly assess or manage the risks involved.
[Note: third paragraph of section I and fourth paragraph of section II.2 of annex II to
MiFID and second paragraph of article 50(2) of the MiFID implementing Directive]
A firm may, either on its own initiative or at the request of the client concerned:
- (1)
treat as a professional client or a retail client a client that might otherwise be categorised as a per se eligible counterparty;
- (2)
treat as a retail client a client that might otherwise be categorised as a per se professional client;
and if it does so, the client will be re-categorised accordingly. Where applicable, this re-categorisation is subject to the requirement for a written agreement in COBS 3.7.5 R.
[Note: second paragraph of article 24(2) of, and second paragraph of section I of annex II to, MiFID and article 28(3) and the second paragraph of article 50(2) of the MiFID implementing Directive]
If a per se eligible counterparty requests treatment as a client whose business with the firm is subject to conduct of business protections, but does not expressly request treatment as a retail client and the firm agrees to that request, the firm must treat that eligible counterparty as a professional client.
[Note: first paragraph of article 50(2) of the MiFID implementing Directive]
- (1)
If, in relation to MiFID or equivalent third country business a per se professional client or a per se eligible counterparty requests treatment as a retail client, the client will be classified as a retail client if it enters into a written agreement with the firm to the effect that it will not be treated as a professional client or eligible counterparty for the purposes of the applicable conduct of business regime.
- (2)
This agreement must specify the scope of the re-categorisation, such as whether it applies to one or more particular services or transactions, to one or more types of product or transaction or to one or more rules.
[Note: fourth paragraph of section I of annex II to MiFID and second paragraph of article 50(2) of the MiFID implementing Directive]
- (1)
In accordance with Principle 7 (communications with clients) if a firm at its own initiative re-categorises a client in accordance with this section, it should notify that client of its new category under this section.
- (2)
If the firm already has an agreement with the client, it should also consider any contractual requirements concerning the amendment of that agreement.
The ways in which a client may be provided with additional protections under this section include re-categorisation:
- (1)
on a general basis; or
- (2)
on a trade by trade basis; or
- (3)
in respect of one or more specified rules; or
- (4)
in respect of one or more particular services or transactions; or
- (5)
in respect of one or more types of product or transaction.
[Note: second paragraph of article 24(2) of MiFID]
Re-categorising a client as a retail client under this section does not necessarily mean it will become an eligible complainant under DISP.