Client Categorisation Policy

‍Version: 1.1 | Last update: 17.04.2025

1. Introduction

The purpose of this policy is to establish rules for the categorisation of Mexem Financial Services UK Ltd’s (Mexem UK) clients under the provisions of COBS 3 of the FCA Handbook. Mexem UK is required, before entering into an agreement with a new client or before entering otherwise into a commercial dealing with a client, to categorise the client as Retail, Professional Client (Per Se or Elective), or Eligible Counterparty in accordance with the criteria set out in this Policy, with a view to the protection of those clients and to comply with the regulations. Unless informed otherwise, clients will be treated as Retail Clients, which provides the highest level of regulatory protection.

2. Retail Clients

A Retail Client is considered every client who does not qualify as a Professional Client or Eligible Counterparty. Retail Clients must meet the following criteria:

a. Clients who do not meet the requirements to be eligible counterparties or professional clients;
b. Clients who are classified by Mexem UK as retail, including those who meet the criteria to be professional clients;
c. Clients who have requested to be treated as retail in compliance with this Policy; or
d. Local authorities unless they can be treated as elective professional clients.

Retail Clients benefit from the full scope of investor protections under FCA rules, including access to the Financial Ombudsman Service and the Financial Services Compensation Scheme (FSCS).

3. Professional Clients

Whilst Mexem UK automatically classifies all clients as Retail Clients, a category that clients can subsequently request to be changed, the following sets out the regulatory definition of Professional Clients. A Professional Client is a client that possesses the experience, knowledge, and expertise to make its own investment decisions and assess the risks involved. Under FCA COBS 3.5, Professional Clients are classified either as Per Se Professional Clients or Elective Professional Clients. This section outlines the criteria under which a client may be treated as a Per Se Professional Client.

3.1 Per Se Professional Clients

The following are automatically classified as Professional Clients when carrying out investment activities:

Entities required to be authorised or regulated to operate in the financial markets;
In relation to MiFID or equivalent third country business, a large undertaking meeting two of the following size requirements on a company basis: a balance sheet total of EUR 20,000,000; a net turnover of EUR 40,000,000; own funds of EUR 2,000,000;
A partner or unincorporated associate which has net assets of at least GBP 5 million;
A trustee of a trust which has assets of at least GBP 10 million;
A trustee of an occupational pension scheme or SSAS, or a trustee or operator of a personal pension scheme or stakeholder pension scheme where the scheme has at least 50 members, or assets under management of at least GBP 10 million;
Another institutional investor whose main activity is to invest in financial instruments or designated investments.

Per Se Professional Clients can request to be classified as Retail Clients (see Section 5 – Request for Reclassification).

3.2. Elective Professional Clients (Opt-Up Process)

Clients who do not fall under the categories above may still request to be treated as a Professional Client under the Elective Professional Client category. The client must meet the following criteria (as per COBS 3.5.3R):

a. Following an assessment by us, the client gives reasonable assurance of expertise, experience and knowledge of the transactions or services envisaged and the client is capable of making his own investment decisions and understands the risks involved (the “qualitative test”);
b. two of the following need to be satisfied:
i. ii. the client has carried out transactions in significant size, at an average of 10 per quarter over the previous four quarters; the size of the client’s portfolio exceeds EUR 500,000; or
iii. the client works or has worked in the financial sector for at least one year in a professional position (the “quantitative test”); and
c. The client must state in writing to the firm that it wishes to be treated as a professional client, either generally or in respect to a particular service or transaction; the firm must give the client a clear written warning of the protection and investor compensation rights the client must lose; and the client must state in writing, in a separate document form the contract, that it is aware of the consequences of losing such protections.

UK Local Authorities may be treated as Elective Professional Clients provided:

a. The qualitative test as above is carried out; and
b. The size of the client’s financial instrument portfolio exceeds GBP 10,000,000; and one of the following applies:
i. ii. the client has carried out transactions, in significant size, on the relevant market at an average frequency of ten per quarter over the previous four quarters; or the person authorised to carry out transactions on behalf of the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the provision of services envisaged; or
iii. the client is an ‘administering authority’ of the Local Government Pension Scheme within the meaning of the version of Schedule 3 of The Local Government Pension Scheme Regulations 2013 or, (in relation to Scotland) within the meaning of the version of Schedule 3 of The Local Government Pension Scheme (Scotland) Regulations 2014 in force at 1 January 2018, and is acting in that capacity (the ‘quantitative’ test) and
c. The client must state in writing to the firm that it wishes to be treated as a professional client, either generally or in respect to a particular service or transaction; the firm must give the client a clear written warning of the protection and investor compensation rights the client must lose; and the client must state in writing, in a separate document from the contract, that it is aware of the consequences of losing such protections.

It should be noted that the “quantitative test” may differ depending on whether the local authority is UK based or non-UK based.

Clients opting for Elective Professional Client status must formally request reclassification and acknowledge, in writing, that they understand the reduced regulatory protections applicable to Professional Clients. The client will receive a risk warning from Mexem UK prior to reclassification, who will assess whether the client demonstrates sufficient understanding of the implications of this categorisation.

4. Eligible Counterparties

Mexem UK automatically classifies all clients as Retail Clients, unless a client is explicitly onboarded under a different category, such as a Professional Client or an Eligible Counterparty (ECP). Clients may subsequently request a change to their categorisation if they meet the applicable regulatory criteria. The following outlines the regulatory definition of Eligible Counterparties, including those entities that qualify as Per Se Eligible Counterparties when engaging in eligible counterparty business:

investment firms
credit institutions
insurance companies
collective investment schemes authorised under the UCITS Directive
a pension fund or its management company
another financial institution authorised or regulated under EU legislation
an undertaking exempted from the application of MiFID
a national government or its corresponding office
a central bank
a supranational organisation.

The firm may treat a client as an elective eligible counterparty if the client is an undertaking and the firm has obtained express confirmation from the prospective counterparty that it agrees to be treated as an eligible counterparty. An eligible counterparty (ECP) is a client to whom the Firm provides eligible counterparty business, which is:

Executing orders on behalf of clients;
Dealing on own account; or
Receiving and transmitting orders

ECPs receive the lowest level of regulatory protection. FCA rules on best execution, reporting, and conduct of business do not apply. Written consent is required for ECP classification, either within the client agreement or separately. Clients will be advised of the protections waived under this classification.

5. Request for Reclassification to Retail Client (Non-Professional Treatment)

Whilst Mexem UK automatically classifies all clients as Retail Clients, a status that can be changed upon request, the following outlines the regulatory position where Professional Clients seek to be treated as Retail Clients. Clients who meet the criteria for Per Se or Elective Professional Client status may request to be reclassified as Retail Clients in order to benefit from a higher level of regulatory protection. Such a reclassification is subject to Mexem UK’s agreement and approval.

Mexem UK may at its own discretion change the categorisation of a client from professional client or eligible counterparty to retail client, or from eligible counterparty to professional client (see 5.2 below). Whenever a change in categorisation is agreed, Mexem UK will send a written notification to the client informing them how the change will secure a higher degree of protection. In addition, Mexem UK will notify the client if the change in categorisation results in suspension of certain special contractual provisions provided only to professional clients or eligible counterparties.

5.1 Notification Obligations

Before providing services, Mexem UK must inform any client it considers to be a Professional Client (based on available information) that:

The client will be treated as a Professional Client, unless otherwise agreed; and
The client has the right to request Retail Client classification, thereby receiving greater regulatory protections under the FCA’s Conduct of Business Rules.

It is the client's responsibility to request a higher level of protection if they believe they cannot appropriately assess or manage the risks involved in the service or investment.

5.2 Procedure for Reclassification to Retail Status

A Professional Client may be reclassified as a Retail Client subject to the following:

The client submits a written request to be treated as a Retail Client, either generally or in relation to specific products or services.
The Company issues a clear written warning outlining the regulatory protections and rights that will apply if the client is treated as a Retail Client.
The client provides written confirmation, separate from the contractual documentation, acknowledging that they understand the implications of being treated as a Retail Client.

If the above steps are completed, the Company may enter into a revised agreement and treat the client as a Retail Client.

5.4 Responsibilities and Ongoing Monitoring

Clients treated as Professional Clients must keep the Company informed of any changes that could affect their classification. If Mexem UK becomes aware that a client no longer meets the criteria for their current classification, it will take appropriate action, which may include:

Reclassifying the client to a more protective category (e.g. Retail Client)
Reassessing the client's eligibility and risk exposure
Updating the client’s terms of business

6. Records

Mexem UK will make a record of the form of each notice provided and each agreement entered into with clients.

7. Policy Review

This policy will be reviewed at least annually and amended as necessary.

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