The FSA said the new regime would enable regulatory protection to be focussed on those customers who need it most and allow an appropriately ‘light touch’ approach for business conducted between professionals.
The customer classification regime will determine what protections provided by conduct of business rules should be available to different categories of customer. The broad framework for this regime was published in June 1999.
The proposed categories are:
ú Market counterparties: this category will include the most sophisticated market users such as central banks, governments,authorised firms and overseas financial services firms;
ú Intermediate customers: larger institutional investors who have relevant experience or expertise, or the means to pay for professional advice where needed. This category would include local authorities, companies, partnerships and trusts which satisfy certain size criteria; and
ú Private customers: private individuals and small business customers that do not qualify as market counterparties or intermediate customers.
The paper seeks views on whether authorised firms should automatically be classified as market counterparties and, if so, how regulatory protections should be delivered to underlying customers where the firm is dealing in the market on their behalf.
It also seeks views on the scope for movement between categories, which would enable customers to choose a level of protection that is more in tune with their expertise and experience.
The paper sets out how the customer categories would help to deliver a differentiated consumer protection regime by indicating which of the FSA’s draft conduct of business rules would apply to eachcategory.
Michael Foot, Managing Director of Financial Supervision, said: ‘Different customers need – and expect – different levels of protection from the regulatory system. This is reflected in the consumer protection objective set out in the Financial Services and Markets Bill. We believe the approach proposed in this consultation paper is consistent with this objective, in that it provides a sound basis for differentiating regulatory protections according to the sophistication and experience of different types of customer.
‘It will also help us meet our market confidence objective, by ensuring that we do not over-regulate professional markets; and will enable us to deploy our supervisory resources more efficiently by directing effort towards those most in need of protection.’
The Financial Services and Markets Bill is expected to become law during the first half of 2000.
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