The FCA has called time on box-ticking approaches to client categorisation. Anisha Kalam breaks down what the regulator found, why it matters, and how firms can embed stronger, more consistent practices.
On 20 October 2025, the FCA published its findings from a review of 10 corporate finance firms’ compliance with the COBS 3 client categorisation rules and the COBS 4 certification requirements. The FCA conducted the review to ensure firm practices in client categorisation do not pose a risk, particularly to retail investors. The regulator acknowledged the gaps in firms’ assessments and records and provided feedback to all the reviewed firms to make improvements where weaknesses were identified.
This review is applicable to FCA-regulated firms involved in corporate finance business and will be of interest to the following:
- Firms that communicate or approve financial promotions;
- Corporate issuers; and
- Non-institutional investors.
What does this mean for firms?
The FCA plans to update the COBS 3 rules on client categorisation. Whilst the COBS 3 rules are currently applicable to corporate finance firms, the FCA is planning to enforce this for all regulated firms in scope to ensure an appropriate level of protection to consumers is delivered while ensuring the focus on business growth is still optimal.
Below, we list the findings from the FCA’s review of the firms and the good practices that are expected of firms that fall within the scope.
1. Categorising clients
1.1 Conducting an assessment
a. The FCA found that while most firms carry out a client categorisation assessment, many adopt a superficial or tick-box approach that lacks sufficient evidence to demonstrate compliance. Notably, it was found that several firms often did not keep supporting records when conducting the assessment and assessments were based on an adviser’s understanding of the client, without clear validation against the COBS 3 criteria or evidence to support the final outcome. Some firms also failed to revisit the categorisation when a client later engaged for a different transaction or where the client’s size or structure had changed.
b. How is this applicable for firms?
Categorisation should be evidence-based and consistently carried out at the time of onboarding. The FCA expects firms to record the assessment in a defined document (such as the New Business Committee form) whilst referencing the specific COBS 3 criteria met and attaching relevant evidence such as register checks or financial data. Compliance review and sign-off at the time of onboarding remain key indicators of good practice.
1.2 Elective Professional Categorisation
a. The FCA also highlighted weaknesses in how firms assess clients as elective professionals. Although some firms had identified historical gaps and taken remedial steps, many firms had an unstructured approach to conducting and documenting the elective professional qualitative assessment. It was found that firms often relied on self-certification questionnaires with limited review or rationale. Few could show a consistent process for evaluating expertise, experience, or knowledge, or explain the reasoning why a client qualified. In some instances, assessments were several years old and no longer reflected the client’s capacity to engage with investment risks.
b. How is this applicable for firms?
As per COBS 3.5.8G, clients are required to notify firms of changes affecting their categorisation, but this expectation may not be realistic for ‘natural persons’ (e.g., an individual investor the firm treats as a client rather than a contact), particularly when their health or capability has changed. Firms need to consider when to refresh an assessment, and in line with the client’s best interests. A notable positive practice firms should look to implement is moving beyond informal or historical classifications and demonstrating repeatable and uniform assessments, with tangible evidence reviewed and structured templates in place.
2. Categorising corporate finance contacts
2.1 Assessment and Record-Keeping
a. Under the financial promotion rules, any person who receives or is likely to receive a financial promotion is a ‘client’ for that purpose. This includes those treated as corporate finance contacts. The FCA identified that whilst most firms conducted some form of assessment before sending promotions, the process is usually informal and poorly documented. Some firms relied purely on personal familiarity or subjective judgement instead of using a structured assessment. In some cases, there was no organised record of who received promotions, or when, or on what basis they had been categorised. The regulator also noted confusion about the boundary between clients and contacts. It was noted that information buried in disclaimers does not satisfy the requirement to clearly indicate that the recipient is not a client.
b. How is this applicable to firms?
Firms should maintain a central register of contacts with evidence of client category assessments before promotions are issued. Each contact must be clearly informed at multiple stages, not just in a disclaimer that they are not being advised or afforded client protections, and, where applicable, contacts should be recategorised where circumstances change.
3. Certifying retail investors as high net worth or sophisticated
a. The FCA also reviewed how firms certify retail investors as high net worth (HNW) or self-certified sophisticated investors. Many firms failed to distinguish whether FCA or Financial Promotions Order (FPO) provisions applied to a particular investment or investor, leading to inconsistent documentation. There were also widespread weaknesses in how firms obtained and validated investor statements, with some relying on outdated, incomplete, or post-promotion certifications.
b. How is this applicable to firms?
Firms should be able to demonstrate how the applicable promotion provisions were identified and evidenced before any marketing occurs. Valid investor statements should be obtained, reviewed, and renewed annually, with system controls preventing expired certifications from being used. A reasonable belief must be formed and documented before any promotion is communicated.
4. Policies and procedures
a. The FCA’s review found that while most firms maintain written policies on client categorisation, it was noted that many policies maintained were generic, incomplete or lifted directly from the Handbook. The FCA identified that firms with detailed, tailored policies tended to demonstrate stronger compliance overall. These policies clearly mapped the firm’s permissions, client base and internal processes in line with COBS 3 and COBS 4.
b. How is this applicable for firms?
Policies should reflect how categorisation operates in practice, not just what the rules say. Firms should implement annual renewal processes and include clear ownership for implementation and oversight. Firms should also ensure documentation reflects real ownership and reflects governance and evidence of a culture of regulatory accountability.
Key Takeaways
The FCA’s expectations are clear: client categorisation and investor certification are not box-ticking exercises. These are fundamental controls protecting investors and firms alike. Firms that fail to maintain consistent assessment processes and clear audit trails risk breaching COBS obligations. Embedding rigorous documentation, review cycles, and compliance oversight will not only meet regulatory standards but will also strengthen investor confidence.
How Thistle Initiatives Can Help
At Thistle Initiatives, we help firms stay ahead of regulatory change by strengthening their compliance frameworks. Whether you're looking to assess your current controls or prepare for the FCA’s proposed updates to client categorisation as a firm in scope, we offer tailored support that’s practical, proportionate and effective.
If you’d like to discuss how we can support your firm in light of the new action plan, get in touch at info@thistleinitiatives.co.uk or call 020 7436 0630 to speak with our team.
Meet the Expert
Anisha Kalam, Senior Consultant 
Anisha is a compliance specialist with over six years of experience in financial services, specialising in FCA regulations and OFSI sanctions. She has successfully implemented global compliance programs, introduced cost-saving monitoring systems, and ensured adherence to regulatory requirements.
Anisha's expertise spans sanctions analysis, regulatory risk mitigation, policy drafting, and compliance audits. With a proven track record in reducing compliance risks and managing high-stakes regulatory projects, she brings technical precision and leadership to every role.