FCA CP25/36 Explained: How the UK Elective Professional Client Rules Are Changing

FCA CP25/36 Explained: How the UK Elective Professional Client Rules Are Changing

In FCA Consultation Paper CP25/36 (December 2025), the Financial Conduct Authority proposes to remove the quantitative test for elective professional clients. In its place would be a holistic qualitative assessment and a new opt-up route for individuals with at least £10 million in investable assets. Clients would have to give informed, signed consent, and firms would need to re-categorise all existing elective professional clients within one year of the new rules taking effect. Final rules are expected in the second half of 2026. Until then, the current COBS 3 rules still apply.

Key takeaways

• Quantitative test removed: the “two out of three” criteria in COBS 3.5.3R(2) would go, except for local authorities.
• New £10 million wealth route: individuals with £10m or more in investable assets could opt up to professional status, subject to informed consent.
• Stronger qualitative assessment: firms would assess “Relevant Factors” including experience, investment history, financial resilience and understanding of risk, and could not rely on client self-certification.
• Informed consent: clients must actively request professional status and give informed, signed consent. Firms must not pressure or incentivise them.
• Simpler per se categories: any authorised or regulated financial entity, and SPVs controlled by authorised firms, would qualify as per se professional clients.
• One-year re-categorisation: every existing elective professional client must be reviewed against the new rules.
• Private markets impact: private equity, venture capital and co-investment arrangements could benefit most, because their investors often fail the current trading frequency test.

What is client categorisation and why does it matter?

Client categorisation is the process FCA-regulated firms use to decide whether a client is a retail client, a professional client or an eligible counterparty, under Chapter 3 of the FCA’s Conduct of Business Sourcebook (COBS 3).

The category decides which regulatory protections apply. Retail clients get the most protection, including the Consumer Duty, appropriateness tests, risk warnings and restrictions on financial promotions. Professional clients can access a wider range of investments, such as unregulated funds, private placements and co-investment opportunities, but give up many of those protections.

For many firms, including all of Laven’s Appointed Representatives, who work exclusively with professional clients and eligible counterparties, getting categorisation right is fundamental to doing business.

What are the current FCA rules for professional clients?

Per se professional clients

Per se professional clients qualify automatically. They include firms authorised or regulated to operate in the financial markets, governments and central banks, institutional investors, and large undertakings. A large undertaking must meet two of three size tests: a €20 million balance sheet, €40 million net turnover or €2 million own funds.

Elective professional clients

An elective professional client is a retail client, usually an individual, who asks to be treated as a professional client. Under the current rules, the firm must be satisfied that the client passes both of these tests:

1. The qualitative test: an adequate assessment of the client’s expertise, experience and knowledge, giving reasonable assurance that they can make their own investment decisions and understand the risks.
2. The quantitative test (COBS 3.5.3R(2)): the client meets at least two of these three criteria:
   • transactions of significant size on the relevant market at an average of 10 per quarter over the previous four quarters;
   • a financial instrument portfolio of more than €500,000;
   • at least one year working in the financial sector in a professional role requiring knowledge of the services involved.

The firm must then give a written warning setting out the protections the client will lose, and the client must confirm in writing that they consent.

Why is the FCA changing the elective professional client test?

The FCA says it wants firms to “confidently operate with professional clients that truly don’t need retail protections” (FCA 2025, 4), while keeping the threshold high for everyone else. Industry feedback identified problems on both sides.

The test excludes genuine experts. Respondents told the FCA the trading frequency criterion “appears to have been designed with active equity traders in mind” (FCA 2025, 14). Sophisticated investors who make fewer but larger investments often fail it. The FCA highlights corporate executives, entrepreneurs and industry experts whose wealth sits in private businesses. It also highlights junior investment professionals who are offered staff co-investment but lack a large personal portfolio.

The test lets in the wrong people. The FCA’s supervisory work found the quantitative criteria “can be open to misuse” (FCA 2025, 5), with some consumers wrongly opted out of retail protections through tick-box self-certification.

What does CP25/36 propose?

Current rules vs CP25/36 proposals

The £10 million wealth assessment

Individuals with investable assets of at least £10 million, held as designated investments and/or cash, could be categorised as elective professional clients without the full qualitative assessment. They would still need to give informed consent, and the Consumer Duty and the client’s best interests rule would still apply.

The enhanced qualitative assessment and Relevant Factors

Firms would carry out a holistic assessment covering:

• Occupational experience: the ability to understand investment risk, gained in any sector, not just financial services.
• Investment history: including buy-and-hold strategies, not just trading frequency.
• Financial resilience: financial capacity and the ability to bear losses.
• Knowledge and understanding of risk: covering diversification and the risks of the planned activity, such as leverage.
• Objectives: why the client wants to opt out, and whether they understand what that means.
• Adverse information: signs of vulnerability, inconsistent answers or past problems such as missed margin calls.

Weakness in one factor can be balanced by strength in another. The FCA says an investment history made up mostly of speculative, leveraged or crypto products is not usually evidence of professional capability on its own. In most cases there would be no quantitative test required.

Informed consent and safeguards

A client can only become an elective professional client if they actively ask to and give informed, signed consent. A “wet” signature is not required. Before consenting, they must receive enough information and time to consider the decision, plus a clear warning about the protections they will lose. Firms may tell suitable clients that the option exists, but they must not incentivise, mislead or pressure anyone into taking it.

Re-categorising existing clients

Within one year of the rules taking effect, firms must review every existing elective professional client. The FCA expects many firms will need to obtain new consent, because a ticked box “will not demonstrate informed consent” (FCA 2025, 32). It estimates one-off industry costs at £32.3 million (FCA 2025, 45).

What does CP25/36 mean for private equity and venture capital?

Private equity firms, venture capital managers, deal arrangers and placement agents raising capital from individuals could benefit most. Angel investors, founders, senior executives and co-investing employees often fail the current trading frequency test, even though they are experienced investors. A holistic assessment of experience, resilience and risk understanding is far more likely to recognise them as professional clients.

The trade-off is a heavier evidential burden. Firms will need documented assessment processes, consent wording that meets the new standard, and a plan for re-categorising their existing clients.

When will the new client categorisation rules apply?

The consultation closed on 2 February 2026. Until the final rules are published, firms must keep applying the current COBS 3 requirements, including the quantitative test.

Frequently asked questions

What is FCA CP25/36? CP25/36 is an FCA consultation paper, published in December 2025, called Client categorisation and conflicts of interest. It proposes reforms to the elective and per se professional client rules in COBS 3, and a simplification of the conflicts of interest rules in SYSC 10.

What is an elective professional client? An elective professional client is an individual or entity that would normally be a retail client but has asked to be treated as a professional client. The firm must assess them as having the necessary expertise, experience and knowledge, and they give up most retail protections in return.

Is the quantitative test being removed? The FCA has proposed removing it for all clients except local authorities. Until final rules are published, the quantitative test still applies.

What is the £10 million wealth threshold? It is a proposed new route for individuals with at least £10 million in investable assets, held as designated investments and/or cash, to opt up to elective professional status, subject to informed consent.

Will existing professional clients need to be re-categorised? Yes. Under the proposals, firms must review all existing elective professional clients against the new rules within one year of them taking effect, and many will need to obtain fresh, informed consent.

Can an Appointed Representative deal with elective professional clients? Yes, provided the AR’s principal firm allows it and the client is properly categorised. Laven’s ARs work only with professional clients and eligible counterparties, and follow Laven’s client categorisation procedures.

How Laven can help

At Laven, our compliance team tracks regulatory developments such as CP25/36 and keeps our Appointed Representatives and hosted managers informed about what is changing and what it means in practice. When the final rules are published, we will update our client categorisation questionnaires, warning notices and onboarding procedures, and support our clients through re-categorisation.

If you would like to discuss how the client categorisation changes could affect your business, or how to start carrying out regulated activities as an Appointed Representative, please contact our team.

References

FCA (Financial Conduct Authority). 2025. Client Categorisation and Conflicts of Interest. Consultation Paper CP25/36. London: Financial Conduct Authority, December 2025. https://www.fca.org.uk/publication/consultation/cp25-36.pdf.

Financial Services Consumer Panel. 2026. Financial Services Consumer Panel Response to FCA CP25/36: Client Categorisation and Conflicts of Interest. London: Financial Services Consumer Panel, February 2, 2026. https://www.fca.org.uk/panels-assets/consumer-panel/publication/financialservicesconsumerpanelresponsetocp25-36clientcategorisationandconflictsofinterest.pdf.