On 8 December 2025, the Financial Conduct Authority (FCA) published Consultation Paper CP25/36, presenting significant reforms to how firms categorise clients and also manage conflicts of interest. The FCA seeks to rebalance risk with what is described as a “landmark package to boost UK investment culture”.
Background and Context
The FCA’s proposals respond both to industry feedback voicing a long-standing concern regarding the limitations of the client categorisation regime and its rigid quantitative criteria together with the FCA’s own identification of problematic practices, including weak qualitative assessments and reliance on self-certification.
The second and minor act is the reframing of conflicts of interest rules, which seek to addresses the particular (and often seen) irritation of the same but different rules. Here, a rationalisation of provisions in SYSC 10 (Conflicts of Interest) is proposed, though without an amendment to the substantive obligation.
Both changes continue the FCA’s work in reforming European Union (EU) derived conduct and organisational rules.
Client Categorisation Proposals
Alternative Wealth Assessment: £10 Million Threshold
The most noteworthy proposal is a new route for high-net-worth individuals to opt out of retail protections. Firms will be able to categorise clients with investable assets of at least £10 million (defined as a portfolio of designated investments and/or cash) as elective professional clients without conducting the structured qualitative assessment.
This threshold deliberately targets a small cohort of wealthy, sophisticated individuals who are likely to have access to professional advisers and, indeed, can bear losses. For asset managers, this creates significant opportunities to streamline onboarding processes for ultra-high-net-worth individuals, family offices, and qualified investors who participate in private funds and co-investment arrangements. In way of a ballast, the client must still ‘actively’ request professional status and provide informed consent, with full understanding of the protections relinquished.
Removal of Rigid Quantitative Test
The FCA proposes deleting the current quantitative criteria in COBS 3.5.3R(2), which require clients to meet thresholds i.e., executing 10 transactions per quarter over four consecutive quarters, holding a portfolio exceeding €500,000, and working in the financial sector for at least one year. These criteria will though, be retained for local authorities.
For private markets firms in particular, this change acknowledges the meaninglessness of the trading frequency criterion. Similarly, the requirement for financial sector employment unduly constrained those who have substantial wealth and risk management experience.
The removal of COBS 3.5.3R(2)R also addresses the obstacle certain employees face when seeking to participate in staff co-investment schemes, who may not meet the portfolio size threshold despite their professional expertise.
Enhanced Qualitative Assessment Framework
While removing rigid criteria, the FCA proposes retaining and strengthening the qualitative assessment requirement. It is proposed that firms conduct a holistic evaluation based on a set of “relevant factors”, specifically:
- Professional Experience: Expertise gained outside the financial sector, including broader (than today) consideration of entrepreneurship, corporate leadership, legal, accounting, and other professional backgrounds.
- Personal Investment History: Nuanced evaluation of the nature, complexity, and outcomes of a client’s investment activities, and including experience with a variety of asset classes.
- Knowledge and Understanding: Of key investment concepts such as liquidity, leverage, and the specificities of the products in question.
- Financial Resilience and Capacity to Bear Losses: Absent a wealth threshold for this opt-up route (unlike the £10 million alternative), an assessment of whether clients have resources to absorb losses without material consequence.
- Objectives for Opting Out: Why a client is seeking professional status and whether it genuinely serves their interests, rather than being driven by access to inappropriate products.
- Adverse Information: Indicators of vulnerability, poor trading history, or other red flags that suggest a client should retain retail protections.
The FCA emphasises the need for firms to conduct genuine inquiries when red flags arise, rather than accepting clients’ representations at face value. In other words, firms cannot rely on self-certification or tick-box questionnaires.
Improved Safeguards and Informed Consent
The proposals introduce stringent requirements for the opt-up processes, so addressing the aforementioned weaknesses the FCA has observed here.
Active consent
Clients to actively request professional categorisation. Firms can share information about the option with clients they reasonably believe meet the threshold but must refrain from initiating categorisation discussions unless there is a genuine basis for believing the client qualifies.
Informed Consent
Clients must provide signed consent after receiving clear explanations of the protections they will lose. This includes, inter alia, loss of access to the Financial Services Compensation Scheme (FSCS) for certain claims, reduced financial promotion restrictions, no mandatory risk warnings, and potential exposure to higher leverage ratios.
Further, firms are warned against the use of incentives or misleading representations to encourage opt-ups. The FCA has explicitly stated that offering professional status as a “higher status” benefit or linking it to preferential terms would violate these rules.
Ongoing Monitoring
While periodic reviews are not mandatory, it is proposed that firms reassess categorisations appropriately, including prolonged periods without client interaction (two or more years), changes in circumstances, or patterns suggesting risks undertaken are not understood.
Per Se Professional Client Simplification
The FCA also proposes to streamline the per se professional client category by replacing the current entity list with a simpler definition of “authorised or regulated financial entities,” explicitly including special purpose vehicles (SPVs) controlled by authorised firms, and harmonising thresholds between MiFID and non-MiFID businesses.
For asset managers, this simplifies the categorisation of institutional investors, fund entities, and structured vehicles commonly used in alternative investment structures. The FCA is also consulting on removing certain non-MiFID trustee criteria while retaining pension trustees.
Investment Classification Regimes
Several UK investment regimes cross-reference MiFID professional client definitions, including “professional investor” in AIFMD, which sit in legislation rather than FCA rules. The Financial Promotion Order (FPO) also uses client categorisation concepts.
The FCA has asked for feedback on how divergence between its proposed client categorisation changes and these existing regimes could affect firms. Asset managers must consider how changes to COBS 3 interact with the use of related definitions and financial promotion exemptions, particularly for marketing alternative investment funds to professional investors.
Conflicts of Interest Rationalisation
Streamlining Duplicative Requirements
Over time, conflicts rules have become fragmented due to the layering of different EU directives and regulations, including MiFID, AIFMD, and UCITS. Thus, firms such as Collective Portfolio Management Investment Firms must navigate multiple regimes with overlapping and duplicative provisions.
The FCA’s rationalisation exercise seeks to merge these manifold provisions into a single framework while maintaining the same substantive requirements. This change fundamentally is one of harmonising terminology (such as “material risk of damage”) and other subtly different phrases into consolidated rules on identifying and managing conflicts, standardised policy content requirements, and alignment of provisions on gifts and inducements across all firm types.
A shift to principles
The FCA plans to strip away prescriptive, process-heavy requirements and instead, supervision will rely on the “client’s best interests” rule and the Consumer Duty. The objective is to allow firms to design conflict management frameworks that are specific to their business models (e.g., managing conflicts between different funds or strategies).
Suggested action points
The consultation period closes on February 2, 2026. In addition to considering whether to respond to the consultation directly to the FCA or via an industry body, firms should consider the following actions:
Immediate (By 2 February 2026):
- Conduct a gap analysis comparing current categorisation processes against proposed requirements.
- Identify potentially affected clients and, if required, a communication plan.
- Review Conflict of interest logs and policies, considering how conflicts are presented and substantive outcomes recorded. i.e., how a conflict was actually managed.
Pre-Implementation (Expected H2 2026 Policy Statement):
- Develop enhanced assessment frameworks incorporating the relevant factors with clear guidance for staff on holistic evaluation.
- Design informed consent processes with templates explaining lost protections, adequate consideration time, and signature requirements.
- Update policies and procedures pertaining to categorisation, conflicts management (at next review), and the Consumer Duty.
- Create training programs educating staff on the new rules and approach.
Post-Implementation tasks (Within one Year of Rules Taking Effect):
- Review all existing elective professional clients against new criteria, obtaining fresh consent and re-categorising where necessary.
- Review per se professional clients previously categorised under removed non-MiFID criteria.
- A process for ongoing review ofcategorisationreassessment triggers, such as prolonged inactivity, circumstance changes, or risk comprehension concerns.
Closing remarks
The primary objective of CP25/36 is to simplify the client categorisation framework to allow for experienced investors to more readily access private markets, with the removal of the rigid “quantitative test” for opting clients up to professional status being the most noteworthy change for asset managers. It acknowledges that wealth or trading frequency does not always equal sophistication and widens the pool of investors that can access alternative assets.
Additionally, the rationalisation of the conflict of interest rules to rely more on high-level principles is a sensible one and will allow firms to adopt a highest standard without need for overt acknowledgement (in policy) of the various, similar but different rules that may apply.
If you would like to discuss these changes and how to approach them, please get in touch.
