Client Categorisation: Progress & Pitfalls

The FCA recently consulted on proposals to reset how firms distinguish between retail and professional clients: the process for opting up clients to elective professional status. While we're supportive of the direction of travel, we have a few concerns about how the detail of these proposals will work in practice.

What's changing?

The consultation proposes removing the current quantitative test, enhancing the qualitative assessment firms carry out on clients, and introducing an alternative wealth assessment. Firms will be able to categorise individuals as elective professional clients where the client has investable assets of at least £10 million, subject to the client's informed consent.

On paper, this looks sensible. The current regime has created obstacles for sophisticated investors while failing to consistently protect those who need it. A two-route structure, one for wealth and another for knowledge, should provide flexibility.

But the devil is in the detail.

As we worked through the proposals with our clients, three issues stand out:

1. When does capability become suitability?

The proposed "knowledge route" includes a requirement for firms to assess "financial resilience"—essentially evaluating whether a client has the financial capacity, risk tolerance and ability to bear potential losses.

This shifts the assessment from "Does this client understand the risks?" to "Does my firm think this investment is suitable for them?"

For wealth managers and financial advisers, assessing suitability is part of the job. But for manufacturers, platforms, and distributors operating at arm's length, this creates disproportionate burdens. It requires collecting sensitive financial data that many business models aren't designed to handle, and it brings liability concerns that could fundamentally change the nature of non-advisory relationships.

Our view? The knowledge route should stick to assessing capability. We should be looking to empower informed decision making, rather than taking the decision out of clients hands. If the FCA is concerned about financial resilience, require firms to ensure clients understand related concepts, or to get advice. But the judgment should not be passed to firms on to firms, especially those who do not naturally have a close relationship to the firm.

2. The digital Catch-22

The FCA proposes that firms can only initiate discussions about professional categorisation where they have a "reasonable basis" for believing the client will meet the threshold.

But how do you form that belief without asking questions? And how do you ask questions without explaining why—and what the client might gain?

For digital-first businesses, like online platforms, and firms receiving inbound enquiries, this creates an impossible loop. Online businesses can't mention the professional route until they know someone qualifies, but they can't find out if someone qualifies without explaining what's on offer.

We've suggested that firms should be able to provide general information about professional categorisation as part of their onboarding process, with clear warnings about protections that would be lost. The existing safeguards—robust assessment, informed consent, Consumer Duty— should already be sufficient to prevent mis-selling.

3. Cherry-picking which experience counts

The consultation proposes that investment history involving speculative or leveraged products should generally be excluded from capability assessments.

We understand the FCA's concern that some clients have lost money through risky investments without truly understanding what they were doing. But why ban firms from considering relevant experience when the whole point of the qualitative assessment is to evaluate whether that experience demonstrates genuine understanding?

If a firm offers complex derivatives and a client has demonstrable experience with similar products, that seems directly relevant—especially given that opt-ups can now be product-specific. The focus should be on *what* the experience demonstrates about capability, not blanket exclusions.

What happens next?

The proposals get a lot right. Removing unhelpful quantitative criteria, allowing product-specific opt-ups, and streamlining conflicts of interest rules are all positive steps.

But without refinement to these three areas, the reforms risk creating new barriers for capable clients, making digital business models unworkable, and pushing firms toward box-ticking rather than meaningful assessment.

We've set out our concerns—and suggested solutions—in our full consultation response, which you can read here.

The consultation closed on 2 February 2026 and the next official step will be for the FCA to publish a policy statement confirming the final rules. If you responded to the consultation, we'd be interested to hear whether these issues resonate with your business model, or whether you've identified other practical challenges.

Get in Touch

Need support navigating client categorisation requirements or reviewing your existing processes? Our compliance consultants work with firms that have both retail and professional clients and are on hand to help you to implement practical, proportionate solutions.

Contact us to discuss how these changes might affect you, or explore our Services

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You can reach us at contact@adempi.co.uk or on 0203 925 4761 

Or to prepare your business for whats next or find out more about our services from the website: Adempi - FCA Compliance Consultants.