• COBS 2.4.4 COBS 2.4.4 "Assessed" Professional Clients

    Individuals

    (a) An individual may be treated as an "assessed" Professional Client (instead of a Retail Client) if:
    (i) the individual has net assets of at least US$500,000, or US$1,000,000 in the case of the Promotion of a Passported Fund (including any assets held directly or indirectly by that person), the calculation of which must exclude:
    (A) property which is that person's primary residence or any loan secured on that residence;
    (B) any rights of that person under a qualifying Contract of Insurance within the meaning of FSMR; or
    (C) any benefits (in the form of pensions or otherwise) which are payable on the termination of that person's service or on death or retirement and to which that person or that person's dependents are, or may be, entitled;
    (ii) either:
    (A) the individual is, or has been, in the previous twelve months, or two years in the case of the Promotion of a Passported Fund, an Employee in a professional position of an Authorised Person or a Recognised Body; or
    (B) the individual appears, on reasonable grounds, to have sufficient experience and understanding of relevant financial markets, products or transactions and any associated risks, following the analysis set out in Rule 2.6.2; and
    (iii) the individual has not opted to be classified as a Retail Client.
    (b) An Authorised Person may classify any legal structure or vehicle, such as an Undertaking, trust or foundation, which is set up solely for the purpose of facilitating the management of an investment portfolio of an individual assessed as meeting the requirements in Rule 2.4.4(a) as a Professional Client.
    (c) An Authorised Person may classify as a Professional Client an individual (a "joint account holder") who has a joint account with an individual assessed as meeting the requirements in Rule 2.4.4(a) (the "primary account holder") if:
    (i) the joint account holder is a Family Member of the primary account holder;
    (ii) the account is used for the purposes of managing investments for the primary account holder and the joint account holder; and
    (iii) the joint account holder has confirmed in writing (or, in the case of a joint account operated by a primary account holder who is a parent or legal guardian of a minor, that parent or guardian exercises its authority to act for the minor in accordance with any necessary formalities) that investment decisions relating to the joint account are generally made for, or on behalf of, him by the primary account holder.
    (d) An individual classified as a Professional Client may operate a joint account with more than one Family Member. Provided that each such Family Member meets the requirements set out in Rule 2.4.4(c), they may all be classified as Professional Clients.
    (e) A legal structure or vehicle of a Professional Client which is itself classified as a Professional Client may not opt to be treated as a Retail Client, as that right belongs to the Professional Client for whose purposes the vehicle is set up.
    (f) A Family Member of a Professional Client classified as a Professional Client under Rule 2.4.4(c) does not per se have a right to opt to be classified as a Retail Client with regard to the operation of the joint account.
    (g) A Family Member of a Professional Client classified as a Professional Client under Rule 2.4.4(c) may withdraw his confirmation given to have decisions on behalf of him made by the Professional Client who is the primary account holder of the joint account. An Authorised Person must ensure that once such a withdrawal is made, the withdrawing individual is no longer classified as a Professional Client.

    Undertakings

    (h) An Authorised Person may classify an Undertaking as an "assessed" Professional Client if the Undertaking, or (as assessed by the Authorised Person) its Controller (provided that if such controller is a natural person, it meets the Professional Client criteria in Rule 2.4.4(a)), Holding Company, Subsidiary or joint venture partner:
    (i) either:
    (A) has own funds or called up capital of at least US$500,000;
    (B) appears, on reasonable grounds, to have sufficient experience and understanding of relevant financial markets, products or transactions and any associated risks, following the analysis set out in Rule 2.6.2; and
    (C) has not opted to be classified as a Retail Client; or
    (ii) meets any of the criteria in Rule 2.4.2 for a "deemed" Professional Client.
    Amended on (3 February, 2020).

    • Guidance

      1. In the calculation of net assets in Rule 2.4.4(a)(i), the reference to "assets held directly or indirectly" is designed to include assets held by direct legal ownership, by beneficial ownership (e.g. as a beneficiary in a trust), or by both legal and beneficial ownership. Such assets may be held, for instance, through a special purpose or personal investment vehicle, a foundation, or similar. Similarly, any real property held subject to an Islamic mortgage, where the lender has the legal title to the property, may be counted as indirectly held property of a Client, less the amount owing on the mortgage, where it is not a primary residence. As the test is to determine the net assets (not gross assets) of an individual, any mortgages or other charges held over the property to secure any indebtedness of the individual should be deducted from the value of the assets. An individual's primary residence is excluded from the calculation of their net assets. If an individual who is an expatriate has a primary residence in his home country, such a residence should not generally be counted for the purposes of meeting the net asset test. However, if the current residence in the host country is owned by the individual, then that may be treated as their primary residence and the value of the residence in the home country of the individual may be counted for the purposes of meeting the net asset test, provided there is sufficient evidence of ownership and an objective valuation of the relevant premises. An Authorised Person should be able to demonstrate that it has objective evidence of the ownership and valuation of any assets taken into account for the purposes of meeting the net asset test.
      2. Joint ventures may be in the form of contractual arrangements under which parties contribute their assets and expertise to develop or to undertake specified business activities. Where an Undertaking is set up by participants in such a joint venture for the purposes of their joint venture, the Undertaking itself can be treated as a Professional Client provided a joint venture partner meets the Professional Client criteria. To be able to rely on a joint venture partner's Professional Client status, such a partner should generally be a key decision maker with respect to the business activities of the joint venture, and not just a silent partner.