COBS TP 1 Transitional Provisions relating to Client Categorisation

Material to which the transitional provision applies

Transitional provision2

Transitional provision: dates in force

Handbook provisions2: coming into force

Overview of transitional provisions for client categorisation

1.1

COBS 3

G

• COBS TP 1.2 contains default transitional categorisation provisions in relation to the existing clients of a firm on 1 November 2007. In many cases, they allow a client to be automatically provided with the nearest equivalent categorisation under COBS 3 to their previous categorisation.
• COBS TP 1.3 explains how the transitional provisions for client categorisation relate to the requirement for a firm to act if it becomes aware that an elective professional client no longer satisfies the initial conditions for its categorisation.
• The default provisions do not prevent a firm categorising such a client differently in accordance with COBS 3. COBS TP 1.4 provides guidance on how some of the procedural requirements in COBS 3 apply in some such cases.
• COBS TP 1.5 contains transitional notification obligations, which apply if the default provisions do not allow that client to be provided with the nearest equivalent categorisation or a firm chooses not to take advantage of those provisions in relation to a client.
• COBS TP 1.6 contains a transitional notification obligation that applies to a firm that, in relation to MiFID or equivalent third country business, takes advantage of the default transitional categorisation provisions to classify a client as a per se professional client.
• COBS TP 3.9 contains transitional categorisation provisions in relation to clients of a firm that are taken on between 1 November 2007 and 30 June 2008 in relation to business that is not MiFID or equivalent third country business.3

From 1 November 2007 indefinitely

1 November 2007

Categorisation of existing clients

1.2

COBS 3

R

• An existing client that was correctly categorised as a private customer immediately before 1 November 2007 is a retail client unless and to the extent it is given a different categorisation by the firm under COBS 3.
• An existing client that was correctly categorised as an intermediate customer immediately before 1 November 2007:
  • is an elective professional client if it was an expert private customer that had been re-classified as an intermediate customer on the basis of its experience and understanding; or
  • is otherwise a per se professional client;
• unless and to the extent it is given a different categorisation by the firm under COBS 3.
• An existing client that was correctly categorised as a market counterparty immediately before 1 November 2007 is:
  • for eligible counterparty business that is not MiFID or equivalent third country business, an eligible counterparty; and
  • otherwise, a per se professional client;
• unless and to the extent it is given a different categorisation by the firm under COBS 3.

From 1 November 2007 indefinitely

1 November 2007

[Note: Article 71(6) of, and third paragraph of section II.2 of Annex II to, MiFID]

1.3

COBS 3

G

Under COBS 3.5.9 R, if a firm becomes aware that a client no longer fulfils the initial conditions that made it eligible for categorisation as an elective professional client, the investment firm must take the appropriate action. In the case of a client that has been classified as an elective professional client under COBS TP 1.2R(2)(a), the initial conditions are those that applied to the client's initial categorisation as an intermediate customer.

From 1 November 2007 indefinitely

1 November 2007

Former inter-professional business

1.4

COBS 3

G

The requirement to provide notices under COBS 3.3.1 R only applies in relation to new clients. The requirement to obtain confirmation under COBS 3.6.4 R (2)2 only applies in relation to prospective counterparties. These obligations are therefore not relevant to the extent that an existing client with whom a firm conducted inter-professional business before 1 November 2007 is categorised as an eligible counterparty under COBS 3 in relation to eligible counterparty business.

From 1 November 2007 indefinitely

1 November 2007

Transitional notification obligations

1.5

COBS 3

R

(1) If a firm does not categorise a client that was a private customer immediately before 1 November 2007 as a retail client, it must notify that client of its categorisation as a professional client or eligible counterparty, as appropriate, on or before that date, or if later, before conducting any further business to which COBS applies for that client.

(2) If a firm does not categorise a client that was an intermediate customer immediately before 1 November 2007 as a professional client, it must notify that client of its categorisation as a retail client or eligible counterparty, as appropriate, on or before that date, or if later, before conducting any further business to which COBS applies for that client.

(3) If a firm does not categorise a client that was a market counterparty immediately before 1 November 2007 as an eligible counterparty, it must notify that client of its categorisation as a retail client or professional client on or before that date, or if later, before conducting any further business to which COBS applies for that client.

From 1 November 2007 indefinitely

1 November 2007

[Note: article 28(1) of the MiFID implementing Directive]

1.6

COBS 3

R

If a firm, in relation to MiFID or equivalent third country business, categorises a client who would not otherwise have been a professional client as a professional client under COBS TP 1.2(2)(b) or (3)(b), it must inform that client about the relevant conditions for the categorisation of clients. This notification must be made on or before 1 November 2007, or if later, before conducting any further business to which COBS applies for that client.

From 1 November 2007 indefinitely

1 November 2007

[Note: article 71(6) of MiFID]

1.7

G

A notice to a professional client under COBS TP 1.6 should inform that client:

• that they have been categorised as a professional client; and
• of the main differences between the treatment of a retail client and a professional client.

From 1 November 2007 indefinitely

1 November 2007

1.8

R

The record-keeping requirements under COBS 3.8.2 R apply in relation to any client categorisations or re-categorisations made under the transitional provisions for COBS 3.

From 1 November 2007 indefinitely

1 November 2007

31.9

COBS 3

R

• A new client that could have been correctly categorised as an intermediate customer under the rules in force on 31 October 2007:
  • may be treated as an elective professional client if it could have been categorised as an expert private customer that had been categorised as an intermediate customer in accordance with COB 4.1.9 R on the basis of its experience and understanding; or
  • otherwise may be treated as a per se professional client, subject to (3) below.
• A firm may categorise as an eligible counterparty or a per se professional client any new client that could have been correctly categorised as an market counterparty under the rules in force on 31 October 2007, provided that the firm may only treat the client as an eligible counterparty for the purposes of eligible counterparty business .
• Clients categorised under COBS TP 3.9 must be dealt with in accordance with the relevant procedures and notifications in COBS 3.

From 1 November 2007 to 30 June 2008

1 November 2007