{
  "url": "https://openlegislation.uk/draft-markets-in-financial-instruments-amendment-eu-exit-regulations-2018/regulation-36",
  "json_url": "https://openlegislation.uk/draft-markets-in-financial-instruments-amendment-eu-exit-regulations-2018/regulation-36.json",
  "legislation": "ukdsi/2018/9780111173480",
  "legislation_title": "The Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018",
  "legislation_url": "https://openlegislation.uk/draft-markets-in-financial-instruments-amendment-eu-exit-regulations-2018",
  "path": "regulation/36",
  "kind": "regulation",
  "number": "36",
  "heading": "Professional clients",
  "text": "After Article 55, insert—\n“SCHEDULE 1\nPROFESSIONAL CLIENTS FOR THE PURPOSES OF THIS REGULATION\nArticle 2\nPART 1\nIntroduction\n1. A professional client is a client who possesses the experience, knowledge and expertise to make its own investment decisions and properly assess the risks that it incurs.\n2. In order to be considered to be a professional client, the client must comply with the criteria set out in Part 2 or Part 3 of this Schedule.\nPART 2\nCategories of client who are considered to be professional clients\n3. The following are professional clients in relation to all investment services and activities and financial instruments for the purposes of the Regulation—\n(a) entities which are required to be authorised or regulated to operate in the financial markets (including all authorised entities carrying out the characteristic activities of the entities mentioned: entities which are authorised or regulated in the United Kingdom under FSMA, entities authorised by a Member State under a Directive, entities authorised or regulated by a Member State without reference to a Directive, and entities authorised or regulated by another third country) and comprising—\n(i) i)credit institutions;\n(ii) investment firms;\n(iii) other authorised or regulated financial institutions;\n(iv) insurance companies;\n(v) collective investment schemes and management companies of such schemes;\n(vi) pension funds and management companies of such funds;\n(vii) commodity and commodity derivatives dealers;\n(viii) locals;\n(ix) other institutional investors;\n(b) large undertakings meeting two of the following size requirements on a company basis—\n(i) the total on their balance sheet is 20 million euros or more;\n(ii) their net turnover is 40 million euros or more;\n(iii) they have own funds of 2 million euros or more;\n(c) national and regional governments, including public bodies that manage public debt at national or regional level, Central Banks, international and supranational institutions such as the World Bank, the International Monetary Fund, the European Central Bank, the European Investment Bank and other similar international organisations;\n(d) other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.\n4. (1) An entity referred to in paragraph 3 may request non-professional treatment and investment firms may agree to provide a higher level of protection to that entity.\n(2) Where the client of an investment firm is an undertaking referred to in paragraph 3, the investment firm must—\n(a) inform it prior to any provision of services that, on the basis of the information available to the investment firm, the client is considered to be a professional client, and will be treated as such unless the investment firm and the client agree otherwise;\n(b) inform the client that the client can request a variation of the terms of the agreement in order to secure a higher degree of protection.\n(3) It is the responsibility of a client considered to be a professional client to ask for a higher level of protection if it thinks it is unable properly to assess or manage the risks involved.\n(4) This higher level of protection will be provided when a client who is considered to be a professional client enters into a written agreement with the investment firm to the effect that it is not to be treated as a professional client for the purposes of the applicable conduct of business regime.\n(5) The agreement must specify whether this applies to one or more particular services or transactions, or to one or more types of product or transaction.\nPART 3\nClients who may be treated as professionals on request\n5. (1) Clients other than those mentioned in Part 2, including public sector bodies, local public authorities, municipalities and private individual investors, may also waive some or all of the protections afforded by the conduct of business rules.\n(2) Investment firms may treat any of those clients as professional clients provided the relevant criteria and procedure mentioned below are fulfilled, but those clients are not to be presumed to possess market knowledge and experience comparable to that of the categories listed in Part 2.\n(3) A waiver under point (1) is only valid if the investment firm has undertaken an adequate assessment of the expertise, experience and knowledge of the client (“the assessment”), and that assessment gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making investment decisions and understanding the risks involved.\n(4) The fitness test applied—\n(a) to managers and directors who have been approved for the purpose of section 59 of FSMA;\n(b) to managers and directors of entities which are—\n(i) authorised persons within the meaning of section 31(2) of FSMA; or\n(ii) recognised investment exchanges, recognised clearing houses or recognised central counterparties within the meaning of section 285 of FSMA,\nmay be relied on for the purposes of the assessment.\n(5) In the case of small entities, the person subject to the assessment must be the person authorised to carry out transactions on behalf of the entity.\n(6) The assessment may not be relied on for the purposes of point (3) unless at least two of the following criteria are satisfied—\n(a) the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;\n(b) the size of the client’s financial instrument portfolio, including cash deposits and financial instruments, exceeds 500,000 euros;\n(c) the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.\nPART 4\nProcedure\n6. (1) A client satisfying the criteria in Part 3 may only be treated as a professional client if the following procedure is followed—\n(a) the client must state in writing to the investment firm that it wishes to be treated as a professional client, either generally or in respect of a particular investment service or transaction, or type of transaction or product;\n(b) the investment firm must give the client a clear written warning of the protections and investor compensation rights it may lose;\n(c) the client must state in writing, in a separate document from the contract, that it is aware of the consequences of losing such protections.\n(2) Before deciding to accept any request from a client to be treated as a professional client, investment firms must take all reasonable steps to ensure that the client in question meets the relevant requirements stated in Part 3.\n(3) Points (1) and (2) do not apply in relation to a client who has already been categorised as a professional client under parameters and procedures similar to those referred to in this Schedule.\n(4) Investment firms must implement appropriate written internal policies and procedures to categorise clients.\n(5) A professional client is responsible for keeping the investment firm informed about any change which could affect its current categorisation as a professional client.\n(6) Should the investment firm become aware however that the client no longer fulfils the conditions which made that client eligible to be treated as a professional client, the investment firm must take appropriate action.\nSCHEDULE 2\nDirective 2014/65/EU – EU Regulations made under Title II\nArticle 2\n1. Commission Implementing Regulation (EU) 2016/824 of 25 May 2016 laying down implementing technical standards with regard to the content and format of the description of the functioning of multilateral trading facilities and organised trading facilities and the notification to the European Securities and Markets Authority according to Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments.\n2. Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive.\n3. Commission Delegated Regulation (EU) 2017/569 of 24 May 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the suspension and removal of financial instruments from trading.\n4. Commission Delegated Regulation (EU) 2017/575 of 8 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments with regard to regulatory technical standards concerning the data to be published by execution venues on the quality of execution of transactions.\n5. Commission Delegated Regulation (EU) 2017/576 of 8 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the annual publication by investment firms of information on the identity of execution venues and on the quality of execution.\n6. Commission Delegated Regulation (EU) 2017/578 of 13 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments with regard to regulatory technical standards specifying the requirements on market making agreements and schemes.\n7. Commission Delegated Regulation (EU) 2017/589 of 19 July 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the organisational requirements of investment firms engaged in algorithmic trading.\n8. Commission Implementing Regulation (EU) 2017/1005 of 15 June 2017 laying down implementing technical standards with regard to the format and timing of the communications and the publication of the suspension and removal of financial instruments pursuant to Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments.\n9. Commission Delegated Regulation (EU) 2017/1018 of 29 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments with regard to regulatory technical standards specifying information to be notified by investment firms, market operators and credit institutions.\n10. Commission Delegated Regulation (EU) 2017/1943 of 14 July 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards on information and requirements for the authorisation of investment firms.\n11. Commission Implementing Regulation (EU) 2017/1945 of 19 June 2017 laying down implementing technical standards with regard to notifications by and to applicant and authorised investment firms according to Directive 2014/65/EU of the European Parliament and of the Council.\n12. Commission Delegated Regulation (EU) 2017/1946 of 11 July 2017 supplementing Directives 2004/39/EC and 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for an exhaustive list of information to be included by proposed acquirers in the notification of a proposed acquisition of a qualifying holding in an investment firm.”.",
  "extent": null,
  "status": null,
  "version": "current",
  "annotations": [],
  "outstanding_effects": [],
  "provenance": {
    "source": "legislation.gov.uk",
    "source_url": "https://www.legislation.gov.uk/ukdsi/2018/9780111173480/regulation/36",
    "retrieved_at": "2026-10-30T15:03:49.884760+00:00"
  },
  "licence": "Open Government Licence v3.0",
  "licence_url": "https://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/",
  "attribution": "Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives."
}