Statement of Guidance - Classification of Clients (Securities Investment Business)

Summary

This is a CIMA Statement of Guidance explaining how firms conducting securities investment business under the Securities Investment Business Law (SIBL) and its Conduct of Business Regulations must classify their clients. It sets out three categories of clients, each corresponding to a different level of regulatory protection, with private clients receiving the highest protection and market counterparties the least.

• Market counterparties: Receive the least regulatory protection; this category includes governments and central banks.
• Professional clients: Receive an intermediate level of protection; this category includes high net worth persons, sophisticated persons, public authorities, and certain funds.
• Private clients: Receive the highest protection; individuals and small businesses fall into this category by default.

The guidance also explains the conditions and procedural safeguards required when a firm reclassifies a client into a category with less protection.

It applies to firms and intermediaries carrying on securities investment business in or from the Cayman Islands, and is intended to help them correctly determine client status before providing services, since this determines which Conduct of Business protections apply.

Key obligations

• Before entering into a securities investment business relationship, a firm must take reasonable steps to determine whether it is dealing with a market counterparty, a professional client, or a private client.
• When classifying or treating a client as a professional client, the firm must inform that client in writing of the protections under the regulatory regime that they lose by being classified as such.
• To reclassify a professional client as a market counterparty under Regulation 12(3), the licensee must advise the client in writing of the protections it will lose, and the client must not object to the reclassification.
• To treat a private client as a professional client, the firm must exercise reasonable care to determine the client has sufficient experience and understanding, give the client a written warning of the protections lost, and obtain the client's written consent.
• If a firm chooses to classify a person who would otherwise be a professional client as a private client instead, it must notify the client of this fact.

Applies to

Securities Investment Business licensees, Securities Investment Business Intermediaries, firms conducting securities investment business