The FCA’s CP25/36: Simplifying client categorisation and conflicts of interest rules presents materially significant changes, despite an ostensibly limited scope. While the proposals aim to streamline conflicts rules, introduce a high-net-worth route to elective professional status, and reinforce protections against inappropriate retail opt-outs, the most substantive impact lies in the transitional arrangements.
For firms, this is not a minor adjustment exercise but a mandatory re-assessment of all elective professional clients, with substantial operational, evidential and client-management implications. This article summarises the key proposals, highlights the less visible operational and legal challenges, and assesses the practical impacts of the transitional rules under COBS TP 1.10-1.13, alongside planning considerations for implementation.
Key Proposals
- Wealth-based opt-out: Introduction of an alternative elective professional client route for high-wealth clients (£10m+), subject to informed consent and wider FCA client protection rules. The consultation also asks whether the £10m threshold is appropriate to balance client protection with reducing regulatory burden on firms.
- Qualitative assessment replacing quantitative test: The removal of the mandatory COBS 3.5.3R(2) quantitative criteria (except for local authorities), replaced with a holistic qualitative assessment of client experience, knowledge and expertise. Enhanced informed-consent requirements ensure that clients understand the implications of opting out of retail protections.
- Strengthen safeguards for client consent: New measures ensure that clients are classified as elective professional only if they actively request it and provide explicit, informed consent to waive retail protections. This includes minimum disclosure obligations, guidance on initiating such discussions with clients and conditions designed to prevent premature promotion of professional-only products.
- Refinement of per se professional client criteria: Simplification of the per se professional client category in line with FCA feedback from CP24/24: The MiFID Organisational Regulation. This includes removing outdated entity lists, defining special purpose vehicles (SPVs), and clarifying the treatment of pension trustees, while maintaining suitable standards of client sophistication.
- Record keeping and governance alignment: The FCA proposes clarifying record-keeping obligations, retaining specific assessments for local authorities, and relying on existing regulatory frameworks (e.g. Consumer Duty, SYSC, and the overarching ‘client’s best interests’ principle) rather than introducing additional bespoke safeguards.
These measures are intended to preserve retail protections while allowing firms to serve genuinely sophisticated investors. However, the success of these reforms depends heavily on the effectiveness of transition and supervision.
Transitional focus: Where the Real Impact Lies
Under COBS TP 1.10–1.13, firms are required to reassess all existing elective professional clients within 12 months using the revised qualitative criteria. Where clients no longer meet the new standards, or informed consent cannot be demonstrated to the required level, firms must recategorise the clients, notify them, and if retail business is not serviced manage an orderly disengagement.
This will function as a wholesale remediation project, particularly for firms relying on legacy consent forms, outdated KYC records or previously used quantitative assessments.
Practical Implications
- Evidence and Record-Keeping
Firms need a complete inventory of elective professional clients and must verify that current evidence supports classification under the new qualitative standards. Firms that carry out non-MiFID business with per se professional clients and elective eligible counterparties that have been categorised as “large undertakings” will need to determine if the clients still meet these criteria. Weak or absent records increase the likelihood of recategorisation.
- Renewing Informed Consent
Many historical consent records will not meet the revised standards. Updated disclosure materials, approved client scripts and documented conversations may be required to demonstrate that consent is both informed and current.
- Client impact and Potential Attrition
Clients recategorised as retail may lose access to certain products. Where a firm does not cater to retail clients, this may necessitate a wind-down. Proactive client communication and relationship management will be essential.
- System and Process Updates
Changes in categorisation will require updates to CRM systems, onboarding flows, access controls, and suitability logic. This is not just a legal review, it is an operational transformation.
- Supervisory Scrutiny
The FCA is unlikely to tolerate mechanical re-certification or insufficient documentation. Firms must be able to evidence the rationale for each categorisation decision clearly and robustly.
Additional Considerations
- The new wealth criterion requires a clear internal definition of “investable assets” and consistent application.
- Incentive structures should be reviewed to ensure no undue pressure towards elective professional status.
- Firms using introducers or third-party platforms may face additional evidential challenges.
- Although the transitional period is 12 months, the operational window may be tight; prioritisation will be necessary.
How Complyport Can Help?
The transitional requirements in CP25/36, particularly TP1.10-TP1.13 are not simply a regulatory update, but a mandatory re-validation exercise across your elective professional and, for non-MiFID business, per se professional client base. Adapting to new regulatory requirements can be time-consuming and disruptive, especially when they introduce obligations that span multiple individuals across your organisation. Complyport is here to ensure the categorisation transition is controlled, timely and fully defensible to the regulator.
We support firms by:
- Mapping Client Categorisations and Evidence Testing: We review your current elective professional client population (and non-MiFID per se professional client population), assess documentation quality against the updated COBS 3.5 requirements and highlight where informed consent or qualitative evidence must be refreshed or rebuilt.
- Training and Advisory Support: We deliver tailored training and advisory sessions that equip Compliance and Senior Management teams with the practical skills and insights needed to uphold high-quality reporting, ensure accurate client categorisation and meet the FCA’s standards.
- Governance, Policies, and Documentation: We strengthen governance, client-categorisation policies and record-keeping standards to ensure the ongoing categorisation process remains repeatable, auditable and aligned to FCA interpretation.
- Ongoing Monitoring and Support: We provide guidance on implementing continuous monitoring, internal checks, and review procedures to sustain improvements in reporting quality and reduce the risk of recurring errors.
Contact Us
To understand how these changes may impact your business, or to discuss how Complyport can streamline your compliance with the new Companies House requirements, get in touch to arrange a meeting with one of our Subject Matter Experts.
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