Under MiFID-style regimes a firm has to place every client into a category before it does business with them, and the category is not a preference. Retail clients get the fullest protections. Professional clients are presumed to have the knowledge and experience to bear certain risks and lose several of those protections. Eligible counterparties, typically regulated institutions, sit outside most conduct protections entirely. The categories exist in other regimes under different names, and the underlying logic is the same: the protections a firm owes depend on who it decided the client was.
What makes this a CRM problem rather than a legal one is that the decision has to be produced on demand, with the evidence that supported it, for a client the firm onboarded three years ago. A dropdown does not do that.
The record has four parts, not one
A defensible categorisation record holds the category itself, the basis for it, the evidence, and the effective date. The basis is the specific test the firm applied. The evidence is the documents and answers that satisfied it. The effective date matters because the category has to be resolvable for any past moment, since a trade that happened last June was governed by whatever the category was last June.
Elective professional status is where this gets serious. Regimes that allow a retail client to opt up set specific conditions, the firm must assess them rather than accept the client's word, and it must warn the client in a durable form which protections they are giving up and get an acknowledgement back. The conditions themselves are set by the applicable rules, and a firm needs its own legal advice on how they apply. We covered the substance in professional client status and the wider framework in client categorisation rules. What the CRM has to guarantee is that the acknowledgement exists before the category changes, not after.
This is descriptive, not advice. The tests, the warnings and the record-keeping periods are set by each firm's regulator, and every firm must take its own legal advice before designing an opt-up process.
Make the platform read the category, never set it
The technical rule that fixes most of the failure modes: the trading platform reads a category assigned by the CRM, and has no way to change it. Leverage, margin close-out, negative balance protection and which risk warnings render are all derived from the category, so if the platform can also set it, the derivation is circular and the audit trail is worthless. This is the same argument as in configuring leverage per jurisdiction, and it is the reason we built the category as a CRM-owned attribute in the Broker CRM rather than as an account setting.
The corollary is that a category change is a workflow, not an edit. It should require the assessment to be completed, the disclosure to have been sent and acknowledged, an approver who is not the person who benefits commercially from the change, and a written reason. Every one of those is a field, and together they are the file a supervisor asks for.
The three failure patterns
The first is the sales-driven opt-up. A client hits a leverage ceiling, complains, and someone reclassifies them to fix the complaint. The paperwork gets backfilled or never happens. When it surfaces, the firm cannot show the client met any test, and every trade after that date is exposed.
The second is the silent inheritance. A firm migrates from an old CRM or acquires a client book, and categories come across as raw values with no underlying evidence. The new firm now asserts classifications it cannot support. The only clean fix is re-categorisation, which is unpopular and correct. Anyone planning a CRM migration should treat this as a scoped work item rather than a data mapping detail.
The third is the stale category. Categorisation is not permanently valid. A firm needs a trigger for review: a change in the client's circumstances the client has an obligation to report, a periodic refresh in line with the firm's policy, or a material change in the client's activity. A client classified as professional on the basis of a professional role they no longer hold is a live problem, and only the CRM can notice it.
What the category has to drive downstream
| Downstream control | Typical retail treatment | Typical professional treatment |
|---|---|---|
| Leverage ceiling | Capped by the applicable product intervention rules | Higher limits permitted in several regimes |
| Negative balance protection | Mandatory where the regime requires it | Not automatically included |
| Standardised risk warning | Required, in prescribed form in some regimes | Requirements differ |
| Appropriateness assessment | Required for the products it covers | Knowledge and experience may be presumed |
| Complaint and compensation routes | Ombudsman and compensation scheme access where available | Often narrower or unavailable |
Because the last row exists, the client has to understand the trade. An opt-up that a client did not really understand is the kind of thing that turns into a complaint years later, and the firm's defence is the acknowledged disclosure or nothing.
Reporting is where sloppy categorisation becomes visible
Categories feed the numbers a firm publishes and files: the loss-percentage figure some regimes require on marketing, the split of retail and professional business in regulatory returns, the counterparty flags in transaction reporting under regimes like MiFIR. If a category was changed retroactively, those numbers stop reconciling, and the mismatch is easier to spot from outside the firm than inside it.
The position I hold, and it costs firms revenue in the short run: opt-ups should be rare, slow and approved by compliance, not by sales. A firm whose professional book grew quickly is not a firm with sophisticated clients. It is a firm with a categorisation control that does not work, and that shows up in the file long before it shows up in the revenue.
"If a salesperson can change a client's category without producing evidence, the category is not a classification. It is a discount code."
— Alex Onta, Executive Director, SINGUARD
Key Takeaways
- A categorisation record needs four parts: the category, the test applied, the evidence, and the effective date it applied from.
- The CRM owns the category and the trading platform reads it, so leverage and protections are derived rather than set at the account.
- Elective professional status requires an assessment against the applicable conditions plus an acknowledged warning about lost protections, in that order.
- Migrated or acquired client books carry categories without evidence, and the only clean remedy is re-categorisation.
Frequently Asked Questions
Can a client simply ask to be treated as a professional client?
A request can start the process but cannot decide it. Regimes that permit opting up set conditions the firm must assess and document, and the firm must warn the client which protections are lost and obtain an acknowledgement. Firms should take their own legal advice on the applicable test.
How long should categorisation evidence be kept?
For at least the record-keeping period set by the firm's own regulator, which varies by regime, and in practice for as long as any trade governed by that category could still be questioned. The evidence has to be retrievable against a date, not just the current value.
What happens if a client's circumstances change after categorisation?
The category can stop being supportable. Firms need a review trigger, whether that is a client obligation to report changes, a periodic refresh, or a material change in activity, and the CRM is usually the only system positioned to notice it.
About the Author
Alex Onta is an Executive Director at SINGUARD. He built eTrader, the terminal, the mobile apps, eTrader Broker, Copytrading, Business and Community, along with the worldwide clustered-server infrastructure it all runs on, with his brother Roman Onta helping on the design, and he leads that division today. Together with Roman he builds the Prop Firm CRM, the Broker CRM, Scalegram and CopySignals, and the two of them carry worldwide compliance, payment processing and international business structuring side by side. He lives and works in Dubai for most of the year. Meet the executive duo leading Singuard's five divisions.