On 20 October 2025, the Financial Conduct Authority (FCA) published findings of its review of corporate finance firms to assess compliance with client categorisation rules under COBS 3 and COBS 4.
Where firms engage with contacts they categorise as professional clients or treat as high-net-worth or sophisticated investors, those contacts do not benefit from certain regulatory protections – therefore the FCA is keen to see the categorisation exercise being carried out diligently. This has a knock-on effect on investment advice and financial promotions.
The findings of the report will be of particular interest for all FCA-regulated and non-regulated firms doing corporate finance business, but also to firms that approve financial promotions, corporate issuers and non-institutional investors.
The review has reported failures regarding assessment of client categories and investor certifications.
The FCA has reported that the failures arose from:
- A failure to retain adequate records
- No formal methods in place to deal with COBS 3 and 4
- Applying the wrong criteria when classifying clients and contacts as professional, high-net-worth or sophisticated
- A misunderstanding or misapplication of the relevant financial promotion rules and exemptions
Going forwards, the FCA emphasised that proper client categorisation is crucial to regulatory protection and market integrity in this sector. The FCA wants to see corporate finance firms undertake well-documented assessments to identify applicable rules for each investment type, especially when investor individuals are involved.
The FCA now plans to update the COBS3 rules on client categorisation for all regulated firms in scope “to make sure they deliver an appropriate degree of protection to consumers while facilitating growth”. The FCA will run a consultation for this and encourage firms to engage with and consider its forthcoming consultation before making changes to their processes.