Prior to the provision of investment services, the service provider must categorise the client as either a professional or a non-professional investor. The categorisation has an impact on the scope of investor protection and the applicable conduct of business rules: non-professional investors are afforded the highest degree of investor protection. It covers both the full protection offered by the conduct of business rules and from the investor compensation fund.
Private persons are normally non-professional investors
The majority of private persons are categorised as non-professional investors. In general, small firms and associations are also categorised as non-professional.
The Securities Markets Act defines the professional investor. According to the Act, professional investors include large companies and firms operating in financial markets. Another type of customer can also be professional if the customer meets the criteria provided for in law and the service provider assesses that the customer is capable of making independent investment decisions and understanding the risks involved.
Categorisation must be communicated to the client
The customer must be informed personally either in writing or in another permanent manner of
- the category in which the customer belongs
- the customer’s right to request a change in the customer categorisation and
- the impact the change in the categorisation has on the customer’s position.
Service provider may change categorisation on the customer’s request
A customer categorised as a non-professional investor may request treatment as a professional investor from the service provider. The request may be general or concern a certain investment service, transaction or type of financial instrument. The customer’s request and the related exchange of information (ie the service provider’s notification of the impact on the customer’s position of such a change in the categorisation and the customer’s confirmation of being aware of the impact of the change) must be made in writing.
Likewise, a customer categorised as a professional investor may request a change in the categorisation so as to be treated as a non-professional investor. A written agreement must be made on the customer’s treatment as a non-professional investor, specifying, for example, that the categorisation only applies to a certain service or certain types of financial instruments.
14 November 2012