FCA Consultation Paper CP25/36 Proposes Significant Reform of Client Categorisation Rules

8 December 2025, the FCA published Consultation Paper CP25/36, setting out one of the biggest shake ups to client categorisation we have seen in years. The regulator wants to strengthen consumer protection and give wholesale firms a clearer and more practical way to decide when a client can be treated as an elective professional.

The FCA is aiming for two things. First, to stop clients who genuinely need retail protections from being opted up too quickly. Second, to remove barriers that prevent well resourced or highly experienced clients from accessing products that suit their objectives. These changes form part of a wider push to support growth, competitiveness and better outcomes across the market.

Key proposals in CP25/36

Removal of the quantitative test

The FCA plans to remove the long standing quantitative test that required clients to meet two out of three numerical criteria. The regulator has seen firms relying on these figures alone without assessing experience or understanding. The FCA considers the test too rigid and out of step with how modern investors gain knowledge.

A new wealth based pathway

Clients with more than ten million pounds in investable assets would be able to opt out of retail protections without going through the strengthened qualitative test. The FCA sees these clients as lower risk, provided firms give clear warnings and meet Consumer Duty requirements.

A stronger qualitative test for everyone else

Clients who do not use the wealth route must go through a fuller qualitative assessment based on Relevant Factors. These include professional background, investment history, financial resilience, risk understanding and the reasons for opting up.

Firms cannot rely on self certification. They must check that the information they hold is accurate and up to date and be able to explain why they believe the client meets the professional criteria. Weakness in one area can be balanced by strength in another, but firms must show clear reasoning.

Informed consent and clearer communication

Clients must receive straightforward warnings about which protections they will lose if they opt up and must sign to confirm informed consent. Firms can start discussions about opting up where they believe a client may qualify, but they cannot pressure or incentivise clients to take professional status.

Record keeping and reassessment

Firms must keep detailed records explaining how they reached each categorisation decision. If circumstances change and a client may no longer meet the criteria, the firm must reassess. The FCA expects systems that can flag when a review is needed.

Why the FCA is reforming the regime

The FCA has seen examples where categorisation has slipped into a tick box exercise. Some firms have relied too heavily on self certified information or encouraged clients to opt up when their understanding was limited, exposing them to complex and higher risk products. At the same time, sophisticated or well resourced clients can be blocked from suitable opportunities because they cannot meet the current rigid numerical test.

The FCA wants a model that protects those who need retail safeguards while giving firms space to work more effectively with clients who have clear experience or capability.

Our perspective at Adempi

We welcome the move to modernise the regime and remove the quantitative test, which has caused practical challenges for firms and clients for years. The proposals give firms more flexibility while placing greater emphasis on genuine judgement, which we think is the right balance.

In our view, firms should not treat wealth as a stand in for understanding. A client with ten million pounds may still not grasp the risks of more complex products. The FCA makes this point clearly, and we think it is important that firms stay alert rather than assuming high net worth automatically equates to sophistication.

The existing appropriateness framework already encourages firms to assess understanding in a structured way. Aligning that with the new qualitative assessment could help firms make better and quicker decisions without losing sight of client protection.

Overall, we see CP25/36 as a positive and much needed update. It brings more flexibility, more proportionality and a framework that reflects how the market works today.

What firms should prepare for

If the proposals are adopted, firms will need to:

• Redesign how they categorise clients

• Train staff on applying the new Relevant Factors

• Strengthen documentation and record keeping

• Update consent, communication and disclosure templates

• Review governance and oversight in line with Consumer Duty expectations

These changes allow firms to tailor services for sophisticated clients more effectively, while also raising expectations around evidencing each decision.

How Adempi can help

Adempi helps firms understand what CP25/36 means for their business, update categorisation frameworks and build qualitative assessments that are clear, defensible and aligned to FCA expectations.

We also support firms preparing consultation responses and planning practical implementation steps.

Not sure how these changes will affect your firm?

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Get in touch and we will happily talk it through.

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.