By Megan Earl, Senior Associate, Technical, Regulatory Compliance
At a glance
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.
CP25/36, 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.
The final rules aren’t settled yet, but the FCA’s 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.
Who this affects
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.
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.
What’s changing under CP25/36?
1. The removal of the requirement to perform a quantitative test
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.
The FCA also found that firms treated that number as the sole basis of their assessment, allowing them to become a substitute for judgment.
2. Judgement-based assessment is now the focus
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’t simply take the client’s word for it. They also can’t let clients assess their own suitability through an online click-through form.
If you run an automated sign-up journey, your firm must gather the right information, make a judgement call and record the reasoning. The burden of proof can’t sit with a client ticking a box.
The table below sets out the main factors firms should assess and record when deciding whether a client can be treated as professional.
Table: Relevant factors firms should assess before classifying a client as professional
| Relevant factor | What the FCA is asking |
| Occupational experience | Can this person understand and assess investment risk? Expertise earned outside financial services counts, but a finance background doesn’t automatically qualify someone. |
| Own-account investment history | Does the client demonstrate genuine experience? This includes buy-and-hold strategies; frequency is no longer a proxy for skill. |
| Knowledge and ability to assess risk | Do they have a firm grasp of the basics, such as diversification, and the specific higher-risk features of what they’ll be offered, such as leverage?
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| Financial resilience | Do 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. |
| Objectives for opting out | Why the client wants professional status, and whether they understand what giving up retail protections means for them. |
| Adverse information | Is there anything that suggests they shouldn’t qualify? For example: vulnerability indicators, inconsistent answers, or missed margin calls. |
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 is critical.
3. A £10 million “wealth-only” route
Someone with more than £10 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 £10 million benchmark could change.
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 £10 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.
4. Per se professional categories are simplified
Some clients count as professionals automatically. These are known as “per se professionals”. The FCA wants to replace a long list of specific entity types with a simpler “authorised person” 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.
From following rules to defending your judgement
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’s judgement, records and governance.
Here’s what that means in practice:
- Decisions may be reviewed with hindsight. A decision that looked reasonable during onboarding could be examined after a loss, complaint or review, by someone who already knows how it ended. The FCA confirms it will monitor effectiveness through supervision and complaints work, and is looking at collecting categorisation data directly from firms
- Your paperwork is now the proof. The FCA wants firms to keep records explaining the basis for each decision: the information you gathered, what you checked, and why you concluded the client met the threshold. If you can’t show your reasoning, the decision will be difficult to defend, however sound the underlying judgment was
- Consistency becomes a governance question. When two capable people can justify different answers, the principal risk is drift. Different teams or offices may apply the “strength offsets weakness” idea differently over time. Defensibility depends on a framework that produces consistent decisions, and oversight that can prove it’s working
What firms should do next
The FCA is still finalising the detail, but firms can prepare now. Acting early gives firms time to build strong, defensible frameworks before supervisory pressure increases.
What to do now
Check your current process against the four changes listed above. Where do you still rely on the old quantitative test or on clients rating themselves?
- Rebuild your assessment around the relevant factors, with a clear, written logic for how a strength can offset a weakness. Different people should be able to reach the same answer based on your guidelines
- Tighten your record-keeping so every file clearly explains why the client qualifies and on what evidence
- Put oversight and monitoring in place that can show your decisions are consistent and catch drift early
AR principals should extend all of the above across their AR network, with oversight you can clearly demonstrate.
How IQ-EQ can help
IQ-EQ’s Compliance Consulting team helps FCA-authorised firms take a sensible, proportionate approach under the new regime. We help design assessments that support consistent decisions. We also help firms improve records, monitoring and board-level oversight. Our experience covers a wide range of business models and asset classes, from private equity co-investors to Contracts for Difference (CFD) clients.
In parallel, IQ-EQ’s Regulatory Hosting team , in our capacity as a principal firm, will be ensuring all our Appointed Representatives (ARs) are following the new rules. Our team draws on deep experience running and overseeing ARs, helping firms meet record-keeping requirements and monitoring compliance with the new rules.
If you’re reviewing your client categorisation process, our team can help you identify what needs to change before the final rules are confirmed. Get in touch today.
About the author
Megan Earl is a Technical Senior Associate at IQ-EQ, specialising in regulatory compliance across the FCA, MiFID and Alternative Investment Fund Managers Directive (AIFMD) regimes. She designs and improves compliance policies, governance frameworks and training programmes for principal firms and their appointed representatives. She also contributes to board-level governance and reporting.
Frequently asked questions
What retail protections does a client lose by opting up?
How do the FCA’s investor classification changes affect appointed representatives and their principals?
What’s the difference between an elective professional and a per se professional client?
When will the FCA’s CP25/36 rules come into effect?
What should firms review now?
Important note
This article is for general information only and doesn’t constitute legal or regulatory advice. Firms should consider the final FCA rules when they’re published and seek advice based on their own circumstances.
