COBS 2.2 COBS 2.2 Client Categorisation
An Authorised Person must categorise each of its clients into an appropriate Client category. There are three Client categories:(a) Retail Client;(b) Professional Client; and(c) Market Counterparty.
A Person may be classified into one category of Client in relation to the carrying on of a Regulated Activity where this involves provision of a service to a Client, product or Transaction, but another category of Client in relation to another such Regulated Activity and corresponding service, product or Transaction. An Authorised Person must ensure that a client is appropriately and correctly classified with respect to each Regulated Activity, service, product or Transaction.
If an Authorised Person is aware that a Client, with or for whom it is intending to carry on a Regulated Activity where this involves provision of a service to a Client, is acting as an agent for another Person (the "second person") in relation to a particular Transaction, then unless the Client is another Authorised Person or a Recognised Body, the Authorised Person must also treat that second person as its Client in relation to that Transaction.
COBS 2.2.4 COBS 2.2.4
If an Authorised Person intends to carry on any Regulated Activity where this involves provision of a service to a client which is a trust, it must unless otherwise provided in the Rules, treat the trustee of the trust, and not the beneficiaries of the trust, as its Client.
The point at which a Person becomes a Client of an Authorised Person is a question of fact that needs to be addressed by the Authorised Person in light of the nature of the relevant Regulated Activity (or Specified Investment) involved, and the relations and interactions which the Authorised Person has with that Person. For instance, in certain types of Regulated Activities (such as corporate advisory services), a number of conversations (such as marketing and promotional activities) may occur between an Authorised Person and a potential client before it may appear to the Authorised Person on a reasonable basis that the Authorised Person is likely to be carrying on a Regulated Activity where this involves provision of a service to a Client, at which point a client classification is required.
The client classification must take place before an Authorised Person carries on a Regulated Activity where this involves provision of a service to a Client. However, this does not preclude marketing prior to such classification being documented and notified.
The Regulator expects Authorised Persons to adopt practices which are consistent with the underlying intent of the client classification provisions, which is to provide Clients with an appropriate level of regulatory protection in light of the resources and expertise available to such Clients. Therefore, as soon as it is reasonably apparent that an Authorised Person is likely to carry on a Regulated Activity where this involves provision of a service to a potential customer, it should undertake the client classification process relating to that customer.
For example, an Authorised Person is not expected to undertake advising or arranging activities relating to a Regulated Activity or Specified Investment which is suited to Professional Clients (e.g. complex derivatives) with a potential customer without having a reasonable basis to consider that such a customer has sufficient knowledge and experience relating to the relevant activity or product. Whilst a formal client classification may not be needed at the early stages of interaction, an Authorised Person is expected to form a reasonable view about the professional status of a potential Client when exposing such a customer to Regulated Activities or Specified Investment (such as investments in a Qualified Investor Fund) which are intended for Professional Clients.