Sentinel Regulatory Services news & information

The FCA recently published Consultation Paper 25/36 “Client categorisation and conflicts of interest” following on from its July 2025 announcement that it planned to review its “client categorisation rules to unlock greater opportunities for wealthy investors, strengthen capital markets and drive economic growth”.

It is also a response to its supervisory work, firms’ feedback on CP24/24 which asked whether the FCA should amend its categorisation rules, and responses to its 2024 Call for Input on the Review of FCA Requirements following the introduction of the Consumer Duty.

The proposed changes to the Elective Professional Client (EPC) rules are a very welcome clarification of the tests used to reclassify retail clients to EPC status.  Significantly, the FCA has proposed removing the COBS 3.5.3R(2) Quantitative test for MifID firms on the grounds that it is no longer fit for purpose (if it ever was?!). By way of reminder, this rule requires prospective EPCs to pass 2 of 3 tests below:

a.      The client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters.

b.      The size of the client’s financial instrument, defined as including cash deposits and financial instrument, exceeds EUR 500,000.

c.      The client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

Many prospective EPCs would typically meet test b. but fail tests a. and c., thereby disqualifying many sophisticated and knowledgeable clients from the EPC category.

So, the FCA has proposed, along with additional guidance, a clearer qualitative assessment test alongside an optional threshold test for clients with £10m or more of investable assets (defined as a portfolio of designated investments and/or cash) to be automatically categorised as EPCs without the need for the qualitative assessment.

These proposals represent a significant improvement for both potential investors and authorised firms. Although, as they stand, we would expect the vast majority of EPCs to be assessed using the revised qualitative assessment tests and only a small minority assessed based on the £10m+ portfolio of investible assets test.  Why is that?

Analysis of wealth statistics are quite enlightening. Knight Frank’s Wealth Reports shed considerable light on the distribution of UK and global wealth as follows: entry to the top 1% of UK wealth requires net assets of $3.3m+ (£2.5m+). So, 700,000 individuals based on an approximate UK population of 70m. Moreover, it is important to note that this $3.3m threshold represents their total net wealth (including property, savings, chattels etc) and not their investable assets. Knight Frank’s latest 2025 Wealth Report provides further opportunity to focus in on wealth distribution. They define High Net Worth Individuals (HNWI) as those with net assets of $10m+ (£7.5m+) who total 55,667 in the UK (2.4% of the global total). Once again, significantly, this represents their total net wealth, implying that those with investable portfolios of £10m+ are a smaller subset of the 55,667 identified. So, a rare and possibly endangered species, some of whom are looking to migrate to warmer climes.

To summarise, putting the numbers in perspective and providing targets for you to aspire to in 2026, Knight Frank has identified:

• 700,000 in the UK’s top 1% of wealth with total net assets of $3.3m+
• 55,667 UK HNWIs (2.4% of the global total) with net assets of $10m or more
• 2.25m global HNWIs (97.6% of the global total) mostly found in the USA, China, Japan and India.
• 100,000 global Ultra-High Net Worths (UHNWIs) with net assets of $100m (£75m) or more and
• 2,700+ global billionaires identified (courtesy of Forbes).

In conclusion, the FCA’s proposed EPC rule revisions are a significant and welcome improvement on the current position. Having said that, based on the wealth statistics outlined above, the FCA’s proposed £10million investable portfolios test sets a high bar that seems unlikely to be of much practical, day to day use.