Article 2
Textual Amendments
F1Schs. 1, 2 inserted (31.12.2020) by The Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1403), regs. 1(3), 36 (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)
A professional client is a client who possesses the experience, knowledge and expertise to make its own investment decisions and properly assess the risks that it incurs.
In order to be considered to be a professional client, the client must comply with the criteria set out in Part 2 or Part 3 of this Schedule.
The following are professional clients in relation to all investment services and activities and financial instruments for the purposes of the Regulation—
(a)entities which are required to be authorised or regulated to operate in the financial markets (including all authorised entities carrying out the characteristic activities of the entities mentioned: entities which are authorised or regulated in the United Kingdom under FSMA, entities authorised by a Member State under a Directive, entities authorised or regulated by a Member State without reference to a Directive, and entities authorised or regulated by another third country) and comprising—
(i)credit institutions;
(ii)investment firms;
(iii)other authorised or regulated financial institutions;
(iv)insurance companies;
(v)collective investment schemes and management companies of such schemes;
(vi)pension funds and management companies of such funds;
(vii)commodity and commodity derivatives dealers;
(viii)locals;
(ix)other institutional investors;
(b)large undertakings meeting two of the following size requirements on a company basis—
(i)the total on their balance sheet is 20 million euros or more;
(ii)their net turnover is 40 million euros or more;
(iii)they have own funds of 2 million euros or more;
(c)national and regional governments, including public bodies that manage public debt at national or regional level, Central Banks, international and supranational institutions such as the World Bank, the International Monetary Fund, the European Central Bank, the European Investment Bank and other similar international organisations;
(d)other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.
(1)An entity referred to in paragraph 3 may request non-professional treatment and investment firms may agree to provide a higher level of protection to that entity.
(2)Where the client of an investment firm is an undertaking referred to in paragraph 3, the investment firm must—
(a)inform it prior to any provision of services that, on the basis of the information available to the investment firm, the client is considered to be a professional client, and will be treated as such unless the investment firm and the client agree otherwise;
(b)inform the client that the client can request a variation of the terms of the agreement in order to secure a higher degree of protection.
(3)It is the responsibility of a client considered to be a professional client to ask for a higher level of protection if it thinks it is unable properly to assess or manage the risks involved.
(4)This higher level of protection will be provided when a client who is considered to be a professional client enters into a written agreement with the investment firm to the effect that it is not to be treated as a professional client for the purposes of the applicable conduct of business regime.
(5)The agreement must specify whether this applies to one or more particular services or transactions, or to one or more types of product or transaction.
(1)Clients other than those mentioned in Part 2, including public sector bodies, local public authorities, municipalities and private individual investors, may also waive some or all of the protections afforded by the conduct of business rules.
(2)Investment firms may treat any of those clients as professional clients provided the relevant criteria and procedure mentioned below are fulfilled, but those clients are not to be presumed to possess market knowledge and experience comparable to that of the categories listed in Part 2.
(3)A waiver under point (1) is only valid if the investment firm has undertaken an adequate assessment of the expertise, experience and knowledge of the client (“the assessment”), and that assessment gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making investment decisions and understanding the risks involved.
(4)The fitness test applied—
(a)to managers and directors who have been approved for the purpose of section 59 of FSMA;
(b)to managers and directors of entities which are—
(i)authorised persons within the meaning of section 31(2) of FSMA; or
(ii)recognised investment exchanges, recognised clearing houses or recognised central counterparties within the meaning of section 285 of FSMA,
may be relied on for the purposes of the assessment.
(5)In the case of small entities, the person subject to the assessment must be the person authorised to carry out transactions on behalf of the entity.
(6)The assessment may not be relied on for the purposes of point (3) unless at least two of the following criteria are satisfied—
(a)the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
(b)the size of the client's financial instrument portfolio, including cash deposits and financial instruments, exceeds 500,000 euros;
(c)the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.
(1)A client satisfying the criteria in Part 3 may only be treated as a professional client if the following procedure is followed—
(a)the client must state in writing to the investment firm that it wishes to be treated as a professional client, either generally or in respect of a particular investment service or transaction, or type of transaction or product;
(b)the investment firm must give the client a clear written warning of the protections and investor compensation rights it may lose;
(c)the client must state in writing, in a separate document from the contract, that it is aware of the consequences of losing such protections.
(2)Before deciding to accept any request from a client to be treated as a professional client, investment firms must take all reasonable steps to ensure that the client in question meets the relevant requirements stated in Part 3.
(3)Points (1) and (2) do not apply in relation to a client who has already been categorised as a professional client under parameters and procedures similar to those referred to in this Schedule.
(4)Investment firms must implement appropriate written internal policies and procedures to categorise clients.
(5)A professional client is responsible for keeping the investment firm informed about any change which could affect its current categorisation as a professional client.
(6)Should the investment firm become aware however that the client no longer fulfils the conditions which made that client eligible to be treated as a professional client, the investment firm must take appropriate action.]