MiFID - Client Categorization

Client Categorization

The next step in the account opening procedure shall be the classification of the prospective Client into one of the following categories:


  • Professional Clients: Clients who possesses the experience, knowledge and expertise to make their own investment decisions and properly assess the risks that they incur
  • Retail Clients: Clients who are not Professional Clients
  • Eligible Counterparties

The following should be taken into consideration in the Client Classification process:

In the case where the Company shall enter into transactions with Eligible Counterparties, the Company is not obliged to comply with the Sections 6.5. and 6.6. of this IOM. However, the Heads of the relevant Departments may, at the request of the Client or with the decision of the relevant Heads, decide to comply with Sections 6.5. and 6.6. of this IOM for a Client classified as an Eligible Counterparty.

The Head of Administration/Back Office Department shall be responsible for the above Client classification procedure. Prospective Clients that satisfy one or more of the following criteria shall be classified as Professional Clients:

A: Entities which are required to be authorized or regulated to operate in the financial markets such us:

  • Credit institutions
  • Investment firms
  • Other authorized or regulated financial institutions
  • Insurance companies
  • Collective investment schemes and management companies of such schemes
  • Pension funds and management companies of such funds
  • Commodity and commodity derivatives dealers
  • Other institutional investors

B: Large undertakings meeting two of the following size requirements, on a portfolio basis:

  • Balance sheet total at least EUR 20.000.000
  • Net turnover at least EUR 40.000.000
  • Own funds at least EUR 2.000.000

C: National and regional governments, public bodies that manage public debt, Central Banks, international and supranational institutions such as the World Bank, the IMF, the ECB, the European Investment Bank and other similar international organizations.

D: Other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitization of assets or other financing transactions.

The Company shall recognize an undertaking as an Eligible Counterparty if that undertaking falls within a category of Clients who are to be considered Professional Clients in accordance with points (a), (b) and (c) above.

The Company shall also recognize as Eligible Counterparties undertakings which fall within a category of Clients who are to be considered Professional Clients in accordance with Sections 4.6.1. and 4.6.2. of this IOM. In such cases, however, the undertaking concerned shall be recognized as an Eligible Counterparty only in respect of the services or transactions for which it could be treated as a Professional Client.

Where an Eligible Counterparty requests treatment as a Client whose business with the Company is subject to provisions to ensure investor protection, such us the Company when providing investment services to Clients shall act honestly, fairly and professionally in accordance with the best interest of its Clients (see also Sections 6.1. and 6.6. of this IOM), but does not expressly request treatment as a Retail Client, and the Company agrees to that request, then the Company shall treat that Eligible Counterparty as a Professional Client.

However, where that Eligible Counterparty expressly requests treatment as a Retail Client, the provisions in respect of requests of non-professional treatment specified in points (a), (b) and (c) above shall apply. It should be pointed out to all the Clients that Professional Clients are not covered by the Client Compensation Fund administered by CySEC to which the Company shall subscribe.

Clients Who May be Treated as Professionals on Request
Clients other than those meeting the criteria for Professional Clients included above including public sector bodies and private individual investors, may also be allowed to waive some of the protections afforded by the conduct of business rules of the Company.

The Company should therefore be allowed to treat any of the above Clients as professionals provided the relevant criteria and procedures mentioned below are fulfilled.

These Clients should not, however, be presumed to possess market knowledge and experience comparable to that of the Professional Client categories listed in Section 4.6. of this IOM, above.

Any such waiver of the protection afforded by the standard conduct of business regime shall be considered valid only if an adequate assessment of the expertise, experience and knowledge of the Client, undertaken by the Company, gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the Client is capable of making his own investment decisions and understanding the risks involved.

The Fitness Test could be regarded as an example of the assessment of expertise and knowledge.

Fitness Test
The Administration/Back Office Department shall implement the Fitness Test in determining the assessment of the expertise, experience and knowledge of the Client.

The Fitness Test applied to managers and directors of entities licensed under European Directives in the financial field could be regarded as an example of the assessment of expertise and knowledge. In the case of small entities, the person subject to the above assessment should be the person authorized to carry out transactions on behalf of the entity.

In the course of the above assessment, as a minimum, two of the following criteria should be satisfied:

  • The Client has carried out transactions, in significant size, on the relevant market at an average of ten (10) per quarter over the previous four (4) quarters
  • The size of the Clients financial instrument portfolio, defined as including cash deposits and financial instruments exceeds EUR 500.000
  • 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

The Clients defined above may waive the benefit of the detailed rules of conduct only where the following procedure is followed:

  • They must state in writing to the Company that they wish to be treated as Professional Clients, either generally or in respect of a particular investment service or transaction, or type of transaction or product
  • The Company must give them a clear written warning of the protections and investor compensation rights they may lose
  • They must state in writing, in a separate document from the contract, that they are aware of the consequences of losing such protections

Accepting/Rejecting a Client
The Head of the Administration/Back Office Department, followed by the MLCO and finally the Managing Director, will need to approve in writing all applications for new Clients. For the abovementioned to approve an application, the application must verify the following:

  • [A] The correctness, authenticity and completeness of the information provided by the applicant
  • [B] The creditworthiness of the applicant, through a database search whenever this deems necessary
  • [C] The probability that the applicant is involved in illegal or criminal activities,
  • [D] The completeness of the required agreement documents

And, reject all applications that:


  • [A] Do not include all the necessary information
  • [B] Involve persons of doubtful creditworthiness or persons that may be involved in illegal or criminal activities
  • [C] Applications where the Client has not promptly provided the information or has done so incompletely

Following the signing by the Managing Director the application shall be forwarded to the Administration/Back Office Department in order to be entered in the Company's systems.


A copy of the agreement shall be given to the Client and a copy remains at the Company's records. A copy of the agreement can be provided to the Client at any point of time after his/her request.


With the approval of the Client, the Administration/Back Office Department shall check the relationship with other Clients and include him/her in the group of related/connected Clients, if such a relationship exists.