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

SIFA 9.5 Client classification

SIFA 9.5.1G

You need to take reasonable steps to establish the classification of each client that you intend to conduct investment business with or for, and classify them appropriately.

Why do you need to classify your clients?

SIFA 9.5.2G

Classifying your clients is part of the 'know your customer process'. It helps you to recommend suitable products to your clients while ensuring that they are covered by the appropriate protections.

SIFA 9.5.3G

We want to ensure that your clients receive an appropriate level of protection. Private customers are entitled to receive the most protection under the regulatory system.

When and how should you classify your clients?

SIFA 9.5.4G

You must classify your clients before conducting any investment business with them, by taking reasonable steps to establish which category is most appropriate for them (COB 4.1.4 R).

SIFA 9.5.5G

The three client categories are listed below: (the full definitions are in the handbook glossary)

Likelihood of a small personal investment firm dealing with each type of customer

Private customer

Private customers are mainly private individuals. They are given additional protections under COB rules covering financial promotion, know your customer and suitability.

Definitely - the large majority of your clients, if not all of them, will fall into this category.

Intermediate customer:

Examples of intermediate customers could include individuals with substantial investment experience.

Possibly

Market counterparty:

An example of a market counterparty is a central bank

Very unlikely

Other considerations when classifying customers:

SIFA 9.5.6G

Very occasionally, customers who would normally be classed as one type of customer can be classed differently. To do this, you are required to obtain written consent from your customer. For example, an expert private customer could be classed as an intermediate customer but only if you have taken reasonable care to determine that they are experienced and have an in-depth knowledge of products and services (i.e. at a similar level to a financial adviser). COB 4.1.9 R requires you to give such an individual who it is proposed should be classified as an intermediate customer, a written warning (you should keep a copy) to say that they would lose some protections under the regulatory system. You must also give your client sufficient time to consider the implications of being classified as an intermediate customer and obtain his written consent.

Where are the relevant Handbook sections?

SIFA 9.5.7G

The following sections are relevant:

  1. (1)

    The rules and guidance are in Section 4.1 of COB.

  2. (2)

    Transitional rules for firms that were 'grandfathered' across to the FSA from the PIA on 1 December 2001 (date also known as N2): COB Table TR3 'Client Classification Provisions' sets out our view on client classifications that were made by firms before N2. The table can be found under COB section TP 1: 'COB TR 1 Transitional Rules for pre-N2 and ex-Section 43 firms'.

  3. (3)

    Classifying clients under a different category and when to review the classifications: COB 4.1.9 R?COB 4.1.15 R.

Record keeping

SIFA 9.5.8G

You must keep a record of the classification you make for each customer and enough information to support the classification (COB 4.1.16 R). Listed below are details of how long you must keep the record to meet our requirements. Each retention period starts from when the customer ceases to be a customer of your firm.

SIFA 9.5.9G

Period of retention

When client classification relates to:

Indefinitely

Pension transfer, pension opt-out or FSAVC.

At least six years

Life policy or pension contract.

At least three years

In any other case

SIFA 9.5.10G

The following sections of this Overview are also relevant:•'Terms of business' - Chapter 9.6;•'Know your customer' - Chapter 9.8; and•'Suitability' - Chapter 9.9.