4.What type of categories are there?
In Europe, for example, there are three key categories: Retail Client, Elective Professional Client/Professional Client Per Se and Eligible Counterparty Opt-Up/ Eligible Counterparty Per Se. While Retail Clients have the highest level of protection and are the main category protected by the Financial Ombudsman, there are a number of reasons why financial institutions (and the clients themselves) may wish to push the client up the chain to the next category, for example, to access additional products or services.
Categorising clients correctly is highly complex – and for this reason, many financial institutions inadvertently get it wrong. As an example, many make the assumption that once they comply with MiFID, they comply with all EU markets in this regard. This is incorrect as the financial institution needs to defer to the status of the client’s domicile. If they aren’t aware, for example, of the specific guidelines for onboarding Slovakian clients, then they could easily and inadvertently breach the regulation, resulting in the need for a reversal of the transaction and/ or fines from the regulator.
