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.
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.
3Article 45(3) of the MiFID Org Regulation sets out provisions in respect of giving clients a higher level of protection.
45(3) Investment firms may, either on their own initiative or at the request of the client concerned treat a client in the following manner:
(a) as a professional or retail client where that client might otherwise be classified as an eligible counterparty pursuant to [COBS 3.6.2R];
(b) a retail client where that client that is considered a professional client pursuant to Part 2 of Schedule 1 to Regulation (EU) No 600/2014.
4Article 71(2) to (4) of the MiFID Org Regulation sets out provisions applying to eligible counterparties requesting a higher level of protection.
71(2) Where, pursuant to [COBS 3.7.1R], an eligible counterparty requests treatment as a client whose business with an investment firm is subject to rules in the Conduct of Business; Market Conduct; Senior Management Arrangements, Systems and Controls and the Product Intervention and Product Governance sourcebooks which were relied on immediately before IP completion day to implement Articles 24, 25, 27 and 28 of Directive 2014/65/EU (“the relevant rules”), the request should be made in writing, and shall indicate whether the treatment as retail client or professional client refers to one or more investment services or transactions, or one or more types of transaction or product.
(3) Where an eligible counterparty requests treatment as a client whose business with an investment firm is subject to the relevant rules, but does not expressly request treatment as a retail client, the firm shall treat that eligible counterparty as a professional client.
(4) Where the eligible counterparty expressly requests treatment as a retail client, the investment firm shall treat the eligible counterparty as a retail client, applying the provisions in respect of requests of non-professional treatment specified in paragraph 4 of Schedule 1 to Regulation (EU) No 600/2014.
- (1)
If, in relation to MiFID or equivalent third country business a per se professional client1 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.
- (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.
Re-categorising a client as a retail client under this section does not necessarily mean it will become an eligible complainant under DISP.