SIFA 9.5 Client classification
Why do you need to classify your clients?
When and how should you classify your clients?
You must classify your clients before conducting any investment business with them, by taking reasonable steps to establish which category is most appropriate for them (COB 4.1.4 R).
The three client categories are listed below: (the full definitions are in the handbook glossary) |
Likelihood of a small personal investment firm dealing with each type of customer |
|
Private customer |
Private customers are mainly private individuals. They are given additional protections under COB rules covering financial promotion, know your customer and suitability. |
Definitely - the large majority of your clients, if not all of them, will fall into this category. |
Intermediate customer: |
Examples of intermediate customers could include individuals with substantial investment experience. |
Possibly |
Market counterparty: |
An example of a market counterparty is a central bank |
Very unlikely |
Other considerations when classifying customers:
Very occasionally, customers who would normally be classed as one type of customer can be classed differently. To do this, you are required to obtain written consent from your customer. For example, an expert private customer could be classed as an intermediate customer but only if you have taken reasonable care to determine that they are experienced and have an in-depth knowledge of products and services (i.e. at a similar level to a financial adviser). COB 4.1.9 R requires you to give such an individual who it is proposed should be classified as an intermediate customer, a written warning (you should keep a copy) to say that they would lose some protections under the regulatory system. You must also give your client sufficient time to consider the implications of being classified as an intermediate customer and obtain his written consent.
Where are the relevant Handbook sections?
The following sections are relevant:
- (1)
The rules and guidance are in Section 4.1 of COB.
- (2)
Transitional rules for firms that were 'grandfathered' across to the FSA from the PIA on 1 December 2001 (date also known as N2): COB Table TR3 'Client Classification Provisions' sets out our view on client classifications that were made by firms before N2. The table can be found under COB section TP 1: 'COB TR 1 Transitional Rules for pre-N2 and ex-Section 43 firms'.
- (3)
Classifying clients under a different category and when to review the classifications: COB 4.1.9 R?COB 4.1.15 R.
Record keeping
You must keep a record of the classification you make for each customer and enough information to support the classification (COB 4.1.16 R). Listed below are details of how long you must keep the record to meet our requirements. Each retention period starts from when the customer ceases to be a customer of your firm.