Client Categorisation and Conflicts of Interest: Practical Implications of FCA CP25/36

With the FCA’s consultation on client categorisation and conflicts of interest (CP25/36) now moving into its final stages, this is a useful point for firms to take stock of the proposals and consider whether, and how, they may wish to respond before the consultation closes on 2 February 2026.

CP25/36 forms part of the FCA’s broader programme of post-EU reform, and reflects a clear shift away from rigid, rules-based tests towards greater resilience on judgement, governance and evidence. While much of the market has been digesting these proposals since publication, the approaching deadline is a prompt to revisit what is being proposed and what it could mean in practice.

1. Client categorisation 

Arguably the most significant aspect of CP25/36 is the FCA’s proposed overhaul of the elective professional client regime.

In particular, the FCA proposes to:

• remove the existing quantitative test for elective professional clients, moving away from transaction-count and portfolio-size thresholds (cited as no longer reflective of changes in the market and investor expertise)
• place greater emphasis on a strengthened qualitative assessment, requiring firms to form a holistic view of a client’s expertise, experience and knowledge
• introduce a new wealth-based opt-out route, allowing individuals with at least £10 million in investable assets to elect professional status without a qualitative assessment, and
• reinforce informed consent requirements, including clearer evidence that clients understand the protections they are giving up.

Although framed as increasing flexibility, these proposals do not represent a lowering of standards. Instead, they shift responsibility squarely onto firms to justify and evidence categorisation decisions, with governance and documentation becoming more important than ever.

In practice, many firms have historically relied on quantitative thresholds as a way of creating consistency, auditability and internal comfort around client categorisation decisions. The FCA’s proposals move away from that approach, but in doing so they increase the importance of clear internal frameworks, escalation routes and documented rationale. 

For many firms, this will require a reassessment of existing policies, training and approval processes, especially where current approaches rely heavily on quantitative tests.

2. Per se professional clients

CP25/36 also proposes changes to the definition of per se professional clients, including:

• a simplified approach to identifying regulated entities
• greater consistency across MiFID and non-MiFID regimes, and
• clarification of the treatment of special purpose vehicles and large undertakings.

While these changes are intended to simplify the rulebook, firms will still need to consider whether existing client classifications remain appropriate under the revised framework, and how any transition would be managed. Firms should also note the FCA’s proposals for transitional arrangements to smooth the change between the existing and new regimes, including in relation to elective professionals.

3. Conflicts of interest

Alongside client categorisation, the consultation proposes a streamlining of the FCA’s conflicts of interest rules, primarily through consolidation within SYSC 10.

The FCA’s intention here is not to change firms’ substantive obligations, but to:

• remove duplication across different sectoral regimes
• make proportionality more explicit, and
• improve clarity and consistency, including around gifts, benefits and personal account dealing.

Most firms should not need to fundamentally redesign their conflicts frameworks, but the proposals may prompt a useful review of whether existing policies remain clear, coherent and fit for purpose. For firms, the real challenge is unlikely to be the redrafting of policies, but ensuring that conflicts frameworks remain operationally embedded, understood by the business, consistently applied, and capable of standing up to scrutiny when judgement calls are made.

Final thoughts

Although CP25/36 has been in circulation for some time, its implications are far-reaching. The proposals collectively signal:

• a move towards principles-based regulation
• increased reliance on firm judgement, supported by robust governance, and
• heightened expectations around record-keeping and accountability.

As the consultation period draws to a close, firms may wish to consider whether the proposals strike the right balance between flexibility and protection, and whether any aspects would benefit from further clarification before the rules are finalised.

We will continue to follow the FCA’s proposals as they develop and will share further observations once the FCA publishes its policy statement later this year.

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Written by Sarah Logeswaran (Senior Associate) and John Roberts (Senior Associate)