Content Options

View Options

Status: You are viewing the version of the handbook as on 2005-06-30.

PRIN 1.2 Clients and the Principles

Characteristics of the client

PRIN 1.2.1GRP

Principles 6 (Customers' interests), 7 (Communications with clients), 8 (Conflicts of interest), 9 (Customers: relationships of trust) and 10 (Clients' assets) impose requirements on firms expressly in relation to their clients or customers. These requirements depend, in part, on the characteristics of the client or customer concerned. This is because what is "due regard" (in Principles 6 and 7), "fairly" (in Principles 6 and 8), "clear, fair and not misleading" (in Principle 7), "reasonable care" (in Principle 9) or "adequate" (in Principle 10) will, of course, depend on those characteristics. For example, the information needs of a general insurance broker will be different from those of a retail general insurance policyholder.

Approach to client classification

PRIN 1.2.2GRP

Principles 6, 8 and 9 and parts of Principle 7, as qualified by PRIN 3.4.1 R, apply only in relation to customers (that is, clients which are not market counterparties). The approach that a firm needs to take regarding classificationof clients into customers and market counterparties will depend on whether the firm is carrying on designated investment business or other activities, as described in PRIN 1.2.3 G and PRIN 1.2.4 G.

Classification: designated investment business1

PRIN 1.2.3GRP
1
  1. (1)

    All firms, except those intending only to provide basic advice on a stakeholder product, are required by COB 4.1.4 R (Requirement to classify) to classify a client before conducting designated investment business with or for him, and that classification will be applicable for the purposes of Principles 6, 7, 8 and 9.1

  2. (2)

    The person to whom a firm provides basic advice on a stakeholder product will be a private customer for all purposes including the purposes of Principles 6, 7, 8 and 9.1

Classification: other activities

PRIN 1.2.4G

In relation to the carrying on of activities other than designated investment business, for example general insurance business or accepting deposits, only COB 4.1.12 R and COB 4.1.13 G (Large intermediate customer classified as a market counterparty) and COB 4.1.14 R (Client classified as a private customer) in COB 4.1 (Client classification) apply (see PRIN 3.4.2 R).

PRIN 1.2.5G

A firm is therefore not required to classify its clients (because COB 4.1.4 R does not apply) and may choose to comply with Principles 6, 7, 8 and 9 as if all its clients were customers. Alternatively, it may choose to distinguish between market counterparties and customers in complying with those Principles. But, in that case, the firm would need to classify any client treated as a market counterparty. In doing this, the requirements in SYSC will apply, including the requirement to establish appropriate systems and controls SYSC 3.1.1 R) and the requirement to make and retain adequate records SYSC 3.2.20 R). In classifying its market counterparties, it would be open to such a firm, although not obligatory, to permit intermediate customers to opt up to market counterparty status in accordance with COB 4.1.12 R. It would also have to treat a market counterparty as a customer if the firm had chosen to treat the client as a private customer in the circumstances set out in COB 4.1.14 R.

PRIN 1.2.6GRP

If the person with or for whom the firm is carrying on an activity is acting through an agent, the ability of the firm to treat the agent as its client under COB 4.1.5 R (Agent as client) will not be available. For example, if a general insurer is effecting a general insurance contract through a general insurance broker who is acting as agent for a disclosed policyholder, the policyholder will be a client of the firm and the firm must comply with the Principles accordingly.