WorldWideMarkets Online Trading Ltd (“WWM”) Client Identification and Customer Classification Procedure
We the Firm must take all necessary steps to ensure we are compliant with the Financial Conduct Authority rules in particular the Customer Classification requirements specifically COBS 3.1.1R
The rules require the Firm to take reasonable steps to establish whether a new client is a Retail Client, Professional Client or an Eligible Counterparty. COBS 3.3.1R requires the Firm to confirm, in writing, to the client the client classification it has selected, detailing any limitations to the level of client protection that such a classification would entail compared with alternative classifications. The Firm must also advise a client on their right to opt-for a client category affording them a higher level of protection (COBS 3.3.1R(2)(a)&(b), COBS 3.7.1R).
WWM will be authorised by the FCA only to undertake Regulated Activities with or for Professional Clients and Eligible Counterparties. It is therefore important that before we act for a client we have established his/her correct classification. The Compliance Officer maintains the client classification records for a period of at least five years (COBS 3.8.2R).
Client Identification (“Customer Due Diligence”)
The firm must obtain adequate evidence of the identity of each client in accordance with our Anti-Money Laundering Procedures and be satisfied on the basis of this that we have no reason to suspect that the client is seeking to launder the proceeds of crime or is involved in terrorist financing. Our Anti-Money Laundering Procedures are risk based and follow standards set out in the Joint Money Laundering Steering Group guidance notes. No investment agreement will be entered into unless the client is able to provide adequate documentary evidence of identity and satisfactory details as to the source of the funds.
If detailed evidence of identity cannot be obtained, we may consider each potential client relationship on a case-by-case basis in conjunction with the MLRO. Where the client appears to be acting on behalf of another party, there may not be an obligation to obtain sufficient evidence of both their identities. For example, for regulated firms subject to the EU Money Laundering Directive or equivalent legislation themselves, we need only obtain proof that they are regulated. We may also rely on other regulated firms to undertake identification checks provided a documented confirmation is obtained and we have the right to review the identification evidence gathered.
Suitability requirements apply to professional clients. We are required to take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for a client.
We must obtain the necessary information from clients to determine their:
(a) Knowledge and experience in the investment field relevant to the specific type of designated investment or service;
(b) Financial situation; and
(c) Investment objectives;
in order to make a recommendation, or take a decision, which is suitable for the client. Under MiFID, we may not make a recommendation to a client unless we have sufficient information to assess its suitability for them.
Note that for professional clients, we are entitled to assume that they have the necessary level of experience and knowledge. When we give them investment advice we can assume that the client is able to financially bear any related investment risks consistent with their investment objectives.
a) Information to be provided to new clients
We must provide appropriate information to clients in a comprehensive form, before providing the investment service about:
- About the firm and its services;
- How the client may assess our performance e.g. benchmark or another appropriate method of evaluation and comparison (COBS 6.1.6(1)R).
- Proposed investments and investment strategies involved in the firm’s services, including appropriate guidelines on, and warnings of, the risks associated with our investments and strategies;
- The Firm’s execution venues, costs and associated charges
The Firm must take reasonable steps to establish whether a new client is a Retail Client, Professional Client or an Eligible Counterparty. COBS 3.3.1R requires the Firm to confirm, in writing, to the client the client classification it has selected, detailing any limitations to the level of client protection that such a classification would entail compared with alternative classifications. The Firm must also advise a client on their right to opt-for a client category affording them a higher level of protection. Opting for classification taking into account a clients’ knowledge and experience is considered below.
The Firm is authorised by the FCA only to undertake Regulated Activities with or for Professional Clients and Eligible Counterparties. It is therefore important that before we act for a client we have established his/her correct classification. The Compliance Officer maintains the client classification records for a period of at least five years.
Retail Client (COBS 3.4.1R)
A Retail Client is a client who is not a Professional Client or an Eligible Counterparty.
Professional Client (COBS 3.5.1R)
A Professional Client is a client who is a ‘Per se Professional Client’ or an ‘Elective Professional Client’.
A Per se Professional Client is a Professional Client that is not an Eligible Counterparty and is a:
· Credit institution;
- · Investment firm;
- · Other authorised or regulated financial institution;
- · Insurance company;
- · Collective investment scheme or the management company of such a scheme;
- · Pension fund or the management company of a pension fund;
- · Commodity or commodity derivatives dealer;
- · Local; or
- · Other institutional investor.
Or in relation to MiFID Business or Equivalent Third Country Business, a large undertaking meeting two of the following three size requirements on a company basis:
· Balance sheet total of Euro 20m;
- · Net turnover of Euro 40m; and
- · Own Funds of Euro 2m.
An Elective Professional Client is a Client who has requested to be classified as such, in writing (either generally or in respect of a particular service/transaction or product). The firm must provide such a client with a clear written warning of any protections and investor compensation rights they may lose and the client must confirm (in writing) that they understand the consequences of losing such protections.
A client may only become an elective professional client if they pass the ‘qualitative test’ and the ‘quantitative test’:
The firm must assesses the client’s expertise, experience and knowledge as sufficient (in relation to the transactions/services envisaged) to make investment decisions and understand the risks involved, ensuring that at least two of the following apply:
a) The client has carried out transactions of a significant size, on the relevant market, at an average frequency of 10 per quarter over the previous four quarters,
b) The client’s financial instrument (incl. cash) portfolio is > €500,000,
c) The client has worked in financial services for at least one year in a professional position requiring knowledge of the transactions/services envisaged,
In addition to the above, the firm must also ensure:
a) The client has provided the firm with a written statement that they wish to be treated as a professional (in general or with regard to a specific service/transaction);
b) The client has been given a written notice of the protections and investor compensation rights he may lose; and
c) The client must state in writing (separately from the contract) that they are aware of the consequences of losing such protections.
It is the professional client’s responsibility to keep the firm informed about any change that could affect their categorisation (COBS 3.5.8R). Where the firm becomes aware of such a change, it must re-categorise the client as a retail client and inform them of this change.
Eligible Counterparty (COBS 3.6.1R)
An Eligible Counterparty Client is either a ‘Per se Eligible Counterparty’ or an ‘Elective Eligible Counterparty’. The Firm may only undertake Eligible Counterparty Business (dealing on own account, execution of orders on behalf of clients, reception and transmission of orders or Ancillary Services as per MiFID Annex 1 B) for an Eligible Counterparty and may not, therefore, undertake investment advice.
A Per se Eligible Counterparty is an Eligible Counterparty that the Firm has chosen to classify as such and does not provide investment advice and is one of the following:
1) an investment firm;
(2) a credit institution;
(3) an insurance company;
(4) a collective investment scheme authorised under the UCITS Directive or its management company;
(5) a pension fund or its management company;
(6) another financial institution authorised or regulated under 2 EU2 legislation or the national law of an EEA State;
(7) an undertaking exempted from the application of MiFID under either Article 2(1)(k) (certain own account dealers in commodities or commodity derivatives) or Article 2(1)(l) (locals) of that directive;
(8) a national government or its corresponding office, including a public body that deals with the public debt;
(9) a central bank;
(10) a supranational organisation.
An ‘Elective Eligible Counterparty’ is an Eligible Counterparty the Firm has chosen to classify as an Elective Eligible Counterparty and is an undertaking which:
a) Is a per se professional client;
and (in relation to business other than MiFID or equivalent third country business):
b) Is a body corporate (including an LLP) with a called up share capital of at least £10m; or
c) Has a balance sheet total of €20m; Net turnover of €40m; and Own Funds of €2m; or
d) Is an elective professional client requesting re-classification as an eligible counterparty in respect of services/transactions it would be treated as a professional client for; and
e) Has provided the firm with express confirmation of its request to be treated as an eligible counterparty.
A firm may obtain a prospective counterparty’s confirmation that it agrees to be treated as an eligible counterparty either in the form of a general agreement or in respect of each individual transaction.
Opting Retail Clients to Elective Professional Client status
In the event the client agrees, COBS 3.5.3R allows the Firm to classify a Retail Client as an Elective Professional Client if we have taken reasonable care to determine that the client has sufficient expertise, experience and knowledge that gives reasonable assurance, in the light of the nature of the transactions or services envisaged, that the Retail Client is capable of making their own investment decisions and understand the risks involved and the Retail Client is able, in the event of providing MiFID Business, to meet the Quantitative Test laid out in COBS 3.5.3 R (2).
Providing clients with a higher level of protection
COBS 3.7.1R provides a client the right to be treated in such a way that higher levels of protection are afforded. A client categorised as a Professional Client or Eligible Counterparty could request to be classified as a Retail Client, or in the case of an Eligible Counterparty as a Professional Client (we may only undertake Investment Advice for Professional Clients). In the event that a client wishes to be classified as a Retail Client we will have to decline to act because our Firm is not authorised to act on behalf of Retail Clients.