UK FCA findings on client categorisation practices in corporate finance firms

The UK Financial Conduct Authority (FCA) has published findings from its multi-firm review of client categorisation practices in corporate finance firms. The review assessed compliance with COBS 3 and COBS 4 requirements and identified both good practices and areas for improvement. While most firms conducted client categorisation assessments under COBS3, many were found to be superficial, lacking supporting records and relying on invalid criteria, particularly in elective professional categorisations. The FCA expects firms to use structured assessments to evaluate whether a client meets the specific criteria in COBS3.5.3R for the elective professional categorisation and to keep adequate supporting records.

The review also highlighted that firms often fail to conduct formal assessments before communicating financial promotions to corporate finance contacts. Improper reliance on informal relationships or outdated assessments was common. However, the FCA noted good practice where firms maintained organised investor contact lists, assessed categorisation status and performed verification checks.

Regarding the certification of retail investors, the FCA found a lack of clarity among firms in applying either FCA financial promotion rules or Financial Promotion Order exemptions. Issues included the use of invalid templates, expired certifications and unverified investor eligibility. Many firms also lacked tailored policies and procedures, instead relying on generic documentation that failed to reflect their business models or distinguish between client types. The FCA expects all FCA regulated corporate finance firms to consider the findings which are relevant to their processes, noting all firms have different business models, and address any risk of harm they identify. However, firms are advised to engage with the FCA's forthcoming consultation on client categorisation before implementing changes to their processes.

Return to main website.