FCA CP25/36: A dramatic overhaul of client categorisation rules

As part of a package to boost UK investment culture, the Financial Conduct Authority (FCA) is consulting on changes to client categorisation and conflicts of interest rules (8 December 2025). The aim is to allow firms to operate more confidently with professional clients who do not need retail protections, while maintaining high standards of consumer protection and reducing regulatory complexity and burdens.

The FCA's proposals represent a shift towards a more flexible, outcome-focused approach to client categorisation and a streamlined, proportionate approach to conflicts of interest.

We expect these proposals will be widely welcomed by the financial services industry - the current elective professional client categorisation test (which relies on both qualitative and quantitative assessments) is outdated, inflexible and is not producing the right outcomes for customers. Under the proposed regime, this model would be replaced with a wealth-only assessment, removing the quantitative test entirely, together with an enhanced qualitative test. Whilst at first glance the £10 million investible assets wealth-only threshold may seem high, the complete removal of the quantitative test and move to a qualitative test for all other retail customers, means that firms should not need to rely on the wealth-only threshold as often as they may have needed to, had the quantitative test been retained. However, in our view, further clarity is needed from the FCA around how this revised regime would interact with the Berne Financial Services Agreement and how current onboarding and record-keeping processes need to be uplifted in practice.

In this Consultation Paper, the FCA also proposes changes to the conflicts of interest rules in SYSC. This is a rationalisation of the rules that is not intended to lead to any substantive change.

Next steps

The Consultation Paper closes on 2 February 2026. We recommend that firms engage with the FCA on this now and we will be responding on behalf of a group of our clients. We have already engaged with the FCA at the pre-consultation stage on this, and they have reflected several of the proposals we made on behalf of our clients in this Consultation Paper.

The updated Regulatory Initiatives Grid which is anticipated on 11 December 2025 should give us an insight as to when we can expect a Policy Statement on these rules. As well as engaging with the FCA, we recommend that firms start looking at their current elective professional opt up processes, particularly the consent process and record keeping, and consider how these may need to be uplifted.

Below is a high level summary of the key proposals set out in the Consultation Paper. For full details, please do refer to the Consultation Paper. As we have been heavily involved in industry lobbying and advocacy with the FCA on these reforms, we are well placed to guide you through the potential impact. Please also reach out to one of the contacts listed here or your usual Simmons contact to discuss.

Summary

1. Client categorisation: proposed changes

a. The elective professional client regime

The FCA has proposed the following.

• Wealth-only assessment: Individuals with investable assets (a portfolio of designated investments and/or cash) of at least £10 million can be opted up, subject to informed consent. No qualitative assessment would be required for these clients. In terms of how this interacts with the Berne Financial Services Agreement, the FCA have said "the FCA will support the UK Government in engaging with the Swiss authorities on the implications of these proposals for firms covered by the BFSA".
• Removal of quantitative test: The current quantitative test in COBS 3.5.3R (covering trading frequency, financial instrument portfolio size and financial sector experience) would be removed for all clients except local authorities.
• Enhanced qualitative assessment: Aside from where a client has investable assets of at least £10 million, firms must also undertake a robust, holistic qualitative assessment of a client's expertise, experience, and knowledge, considering a set of relevant factors when doing so (including professional experience, trading history, risk understanding, financial resilience, objectives, and any adverse information - see new COBS 3.5.10R).
• Consumer Duty overlay: The re-categorisation of a client as an elective professional must be compatible with the Consumer Duty and the firm's obligations under the client's best interests rule.
• Improved safeguards: Clients must actively request professional status and provide informed (rather than basic) consent (by signature) after being given clear information about the protections they will lose. Firms are prohibited from incentivising or pressuring clients to opt up.  
• Communications: Firms may proactively initiate discussions about opting up, but only if they reasonably believe the client meets the elective professional threshold. Firms must not promote specific professional-only products until re-categorisation is complete.
• Ongoing review: There will be no mandatory periodic reassessment that clients still meet the elective professional criteria, but firms must reassess if they become aware or suspect a client no longer meets the elective professional criteria. If a firm has no interaction with an elective professional client for two years, then they will need to re-assess their categorisation before carrying out any regulated activity on behalf of that client. Firms must review and, if necessary, re-categorise all existing elective professional clients within one year of the new rules coming into force, ensuring compliance with the updated standards and informed consent requirements.
• Local public authorities: Local authorities will still have to meet a quantitative test as set out in COBS 3.5.3BR in order to be opted up.  

b. Per se professional clients

• Simplification: The list of per se professional client types will be replaced with a broader definition (any entity authorised or regulated in the UK or a third country to operate in financial markets), with the option to retain a list if needed for clarity.
• SPVs: Special Purpose Vehicles (SPVs) controlled by authorised firms will be expressly included as per se professionals.
• Threshold harmonisation: The size thresholds for large undertakings will be harmonised across MiFID and non-MiFID business, removing unnecessary complexity. All firms will need to apply the existing MiFID thresholds for large undertakings.

c. Record keeping and policies

• Clarified requirements: Firms must keep detailed records of the basis for client categorisation, including information obtained, assessments made, and rationale for decisions.
• Application: These requirements will apply to all firms categorising clients for any purpose, not just those conducting designated investment business.

2. Conflicts of interest: proposed changes

• Rationalisation: The FCA proposes to merge and simplify the conflicts of interest rules in SYSC 10, removing duplicative and minor distinctions between rules for different firm types, without changing the substance of obligations.
• Proportionality: A new proportionality provision will apply, making clear that compliance is assessed in light of the nature, scale, and complexity of the business.
• Terminology: Consistent terminology will be used across all firms (such as "material risk of damage," "all appropriate steps," "monetary or non-monetary benefit").
• No substantive change: The changes are not intended to require firms to update systems or client documentation before their next scheduled policy review.
• Personal account dealing: The FCA have taken this opportunity to correct a technical error in the PA dealing rules which erroneously excludes transactions in certain European funds, but not in UK funds, from the rules.