How should an investment firm assess whether a private individual investor may be treated, on request, as a professional client under Section II of Annex II of MiFID II?

Answer 3

As Section II of Annex II of MiFID II allows some of the protections afforded to retail clients by the conduct of business rules to be waived, such provisions are expected to be relied upon in a reasonable and carefully considered manner that is also consistent with an investment firm's overarching duty to act in the best interest of its clients.

As a reminder, in accordance with the third paragraph of Section II.1, private individual investors may be treated as professional clients only if an adequate assessment of their expertise, experience and knowledge gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making investment decisions and understanding the risks involved. For instance, the fulfilment by a private individual investor of two of the criteria provided in the fifth paragraph of Sub-Section II.1 is an indication that such client may be treated as a professional client. However, such test may not be sufficient to justify the acceptance of a request for waiver received under Sub-Section II.2. Depending on the circumstances (e.g. the category of products the client intends to trade), a more thorough analysis of the client's expertise, experience and knowledge may be required.