{"id":2024,"date":"2026-07-23T08:21:46","date_gmt":"2026-07-23T08:21:46","guid":{"rendered":"https:\/\/iqeq.com\/gb\/insights\/cp25-36-explained-the-fcas-new-rules-for-classifying-professional-investors\/"},"modified":"2026-07-23T08:21:48","modified_gmt":"2026-07-23T08:21:48","slug":"cp25-36-explained-the-fcas-new-rules-for-classifying-professional-investors","status":"publish","type":"post","link":"https:\/\/iqeq.com\/gb\/insights\/cp25-36-explained-the-fcas-new-rules-for-classifying-professional-investors\/","title":{"rendered":"CP25\/36 explained: The FCA’s new rules for classifying professional investors"},"content":{"rendered":"
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By Megan Earl, Senior Associate, Technical, Regulatory Compliance<\/p>\n <\/div>\n<\/section>\n\n

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At a glance<\/p>\n

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The Financial Conduct Authority (FCA)\u2019s Consultation Paper 25\/36 (CP25\/36) proposes changes to how firms are required to assess professional investor status. The FCA wants less reliance on fixed tests and more evidence-based judgement, so is proposing that firms focus on qualitative tests going forwards when classifying clients as \u201cprofessional\u201d. The upside is wider access to private markets and alternatives for genuinely sophisticated clients. The trade-off is that firms must use their own judgement, governance and records to support the decision.<\/p>\n

Firms should review onboarding, records and oversight now. Instead of relying on a checklist, firms will need to make and record a clear judgement based on each client\u2019s experience, knowledge, financial resilience and understanding of the protections they\u2019re giving up. Firms with a clear, well-documented process will be best placed to use the new flexibility without increasing risk.<\/p>\n

The key point: CP25\/36 moves professional investor classification from a rules and judgement-led test to a purely judgement-based process. Firms will need to evidence not only what they decided, but why that decision was reasonable.<\/strong><\/p>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/section>\n\n

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For two decades, many firms used a simple checklist to decide whether a UK client could be treated as professional. The client had to meet set tests on trading history, portfolio size or relevant finance experience. Once the boxes were ticked, the decision was easier to defend. The test was often a poor measure of real sophistication, and unfairly restricted access to certain products, but it gave firms a clear route to follow.<\/p>\n

CP25\/36<\/a>, published in December 2025, proposes to scrap that checklist. The consultation period closed in February 2026, and the FCA is expected to publish its final rules toward the end of this year.<\/p>\n

The final rules aren\u2019t settled yet, but the FCA\u2019s intended direction is clear. It wants firms to move away from fixed tests and towards judgement. Firms will need to show why treating a client as professional was reasonable.<\/p>\n

Who this affects<\/h2>\n

These proposals matter most for FCA-authorised fund managers, wealth managers and principal firms overseeing appointed representatives (ARs). They are especially relevant to firms with automated onboarding journeys or products aimed at sophisticated investors, including private markets, alternatives and higher-risk investments.<\/p>\n

For these firms, the new regime creates both opportunity and risk. This article explains the four key changes under CP25\/36 and what firms should do before the final rules are confirmed.<\/p>\n

What\u2019s changing under CP25\/36?<\/h2>\n

1. The removal of the requirement to perform a quantitative test<\/h3>\n

The FCA plans to delete the mandatory quantitative criteria in the Conduct of Business Sourcebook (COBS) 3.5.3R(2). It says the test is too narrow and too easy to misuse. For example, the trading rule was designed for active equity trading. It can penalise investors who make fewer, longer-held investments.<\/p>\n

The FCA also found that firms treated that number as the sole basis of their assessment, allowing them to become a substitute for judgment.<\/p>\n

2. Judgement-based assessment is now the focus<\/h3>\n

Treating a client as professional will require a documented, evidence-based assessment against a set list of relevant factors. The FCA has been clear that ticking boxes is not enough. Firms can\u2019t simply take the client\u2019s word for it. They also can\u2019t let clients assess their own suitability through an online click-through form.<\/p>\n

If you run an automated sign-up journey<\/a>, your firm must gather the right information, make a judgement call and record the reasoning. The burden of proof can\u2019t sit with a client ticking a box.<\/p>\n

The table below sets out the main factors firms should assess and record when deciding whether a client can be treated as professional.<\/p>\n

\u00a0<\/strong>Table: Relevant factors firms should assess before classifying a client as professional<\/strong><\/p>\n

\n\n\n\n\n\n\n\n\n
Relevant <\/strong>factor<\/strong><\/td>\nWhat the FCA is asking<\/strong><\/td>\n<\/tr>\n
Occupational experience<\/strong><\/td>\nCan this person understand and assess investment risk? Expertise earned outside financial services counts, but a finance background doesn\u2019t automatically qualify someone.<\/td>\n<\/tr>\n
Own-account investment history<\/strong><\/td>\nDoes the client demonstrate genuine experience? This includes buy-and-hold strategies; frequency is no longer a proxy for skill.<\/td>\n<\/tr>\n
Knowledge and ability to assess risk<\/strong><\/td>\nDo they have a firm grasp of the basics, such as diversification, and the specific higher-risk features of what they\u2019ll be offered, such as leverage?<\/p>\n

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Financial resilience<\/strong><\/td>\nDo they have capacity to absorb losses? This should be assessed holistically, without applying a minimum monetary threshold. Consider both the individual’s financial ability to bear losses and their understanding of the consequences of those losses.<\/td>\n<\/tr>\n
Objectives for opting out<\/strong><\/td>\nWhy the client wants professional status, and whether they understand what giving up retail protections means for them.<\/td>\n<\/tr>\n
Adverse information<\/strong><\/td>\nIs there anything that suggests they shouldn\u2019t qualify? For example: vulnerability indicators, inconsistent answers, or missed margin calls.<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n

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The FCA allows weakness in one area to be offset by strength in another. That gives firms welcome flexibility, but it also makes consistency harder to maintain. Two assessors could reasonably reach different conclusions about similar clients, so careful documentation of processes and reasoning<\/a> is critical.<\/p>\n

3. A \u00a310 million \u201cwealth-only\u201d route<\/h3>\n

Someone with more than \u00a310 million to invest in investments or liquid funds can choose to be treated as a professional without the full assessment. They must give informed consent, actively request the opt-up and the firm must still meet its wider duties. The FCA is still consulting on the exact figure, so the \u00a310 million benchmark could change.<\/p>\n

The FCA also makes a clear point: substantial wealth does not equal investment expertise. It cites cases where high-net-worth individuals overestimated their ability or relied on unauthorised advisers. A \u00a310 million portfolio might belong to someone who built and sold a business but has never assessed a leveraged product. The wealth-only route may let that client through the gate, but the firm is still responsible for the outcome.<\/p>\n

4. Per se professional categories are simplified<\/h3>\n

Some clients count as professionals automatically. These are known as \u201cper se professionals\u201d. The FCA wants to replace a long list of specific entity types with a simpler \u201cauthorised person\u201d definition. It also wants to include Special Purpose Vehicles (SPVs) and align thresholds that currently differ between Markets in Financial Instruments Directive (MiFID) and non-MiFID businesses.<\/p>\n

From following rules to defending your judgement<\/h2>\n

The old FCA regime gave firms a clearer standard. If a client met the criteria, the firm had a strong basis for its decision. The new regime puts more weight on the firm\u2019s judgement, records and governance.<\/p>\n

Here\u2019s what that means in practice:<\/p>\n