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Client Categorisation Policy

EXECUTIVE SUMMARY

  

CXM Prime Ltd (“CXM Prime”) CXM Prime Office No. 518 15 St Helen's Place, London, England, EC3A 6DQ, Registered in England and Wales, Company Number: 13407617 is authorised and regulated by the Financial Conduct Authority (“FCA”) FRN: 966753. This policy summarises how CXM Prime takes steps to categorise clients before establishing a business relationship with them and before the provision of any investment services.   

  

CXM Prime is required by the Financial Conduct Authority (FCA) to categorise clients as Retail, Professional or as an Eligible Counterparty. Prior to the provision of services, the firm must notify clients of the categorisation that has been applied to them; any right that they have to request a different categorisation; and any limitations to the level of client protection that such a different categorisation would entail.    

  

CXM Prime ensures that clients are appropriately categorised, prior to doing business with them, in order to ensure that regulatory protections are focused on those classes of client that need this the most.    

  

FCA rules attach different regulatory protections to each client category – with the result that those falling within the Retail category will be afforded a higher level of protection than that afforded to investors in the Professional or Eligible Counterparty category.   

  

It should be noted that CXM Prime does not have regulatory permission to deal with Retail clients. The firm deals only with Professional clients and Eligible Counterparties.  

  

OWNERSHIP

  

Owning Function: Compliance.  

Policy Owner: Head of Compliance.    

  

OBJECTIVES 

  

CXM Prime is required to categorise all clients prior to providing investment services to them.  The purpose of client categorisation is to ensure that clients receive the level of regulatory protection that is appropriate to them.   

The objectives of the policy are to ensure that:  

  • Clients receive the appropriate regulatory protection via the correct categorisation;   

  • Clients are made aware of their categorisation;   

  • Clients are made aware of the option to request a different categorisation and any limitations to the level of client protection that such a different categorisation would entail; and  

  • Employees of CXM Prime are aware of the significance of client categorisation and that they are able to apply the correct procedures to ensure that clients are correctly categorised.       

  

CXM Prime must establish whether the client is a Retail Client, Professional Client or an Eligible Counterparty (ECP).  As CXM Prime is permitted to conduct business only with Professional Clients and ECPs, applications from Retail clients will be declined.   

  

Details of how to classify clients are provided in the FCA Handbook in COBS 3.4 (Retail Clients), COBS 3.5 (Professional Clients) and COBS 3.6 (Eligible Counterparties).  Records relating to the categorisation of individual clients are retained for a minimum period of five years after the date on which CXM Prime ceases to carry on business with or for that client.   

  

Clients are informed in the Client Agreement that they are responsible for keeping CXM Prime informed about any change, which could affect their current categorisation. However, if an employee of CXM Prime should become aware of any information at any time during the relationship with the client, which would indicate that a client no longer fulfils the criteria of their client categorisation, the employee must inform the Head of Compliance immediately and the appropriate action should be taken such as re-categorisation of the client (if required).   

RETAIL CLIENTS 

  

CXM Prime does not have regulatory permission to deal with Retail clients and applications from Retail clients must, therefore, be rejected.   

It should be noted that unless a client is deemed a professional client or an eligible counterparty, they will be a Retail client. A retail client may include the following:    

  

  • A company, partnership or trust that does not qualify as a professional client;   

  • An individual who is not an authorised person;   

  • An individual who is an authorised person but is not acting in the course of carrying on the business for which he is authorised;    

  • An overseas individual who does not qualify as an overseas financial services Firm; or  • A group of individuals who are not in partnership but who would be treated as a single customer.  

  

CXM Prime does not have regulatory permission to deal with Retail clients. In addition to declining applications from Retail clients, the firm will terminate its relationship with an existing client where it is made aware or has reason to believe that the client no longer meets the definition of either a Per Se Professional client or an ECP.   

  

PROFESSIONAL CLIENTS

   

For the purposes of this policy, a Professional Client is a client who is categorised as a Per Se Professional Client.  

  

As set out in the previous section of this policy, CXM Prime does not deal with retail clients. Furthermore, the firm does not deal with retail clients who request to be treated as professional, namely, elective  

 

professional clients as defined in section 3.5.3R of the FCA Handbook. As such, it does not operate an “opt up” procedure.   

In line with COBS 10A.2.3 of the FCA handbook, the firm is entitled to assume that per se professional clients (and eligible counterparties) have the necessary experience and knowledge in order to understand the risks involved in relation to those particular investment services or transactions, or types of transaction or product, for which the clients are categorised as such. As the firm will offer only one investment product, categorisation of products is not currently relevant.

 

Per Se Professional clients have fewer FCA protections than a Retail client and are considered to be more experienced, knowledgeable and sophisticated in understanding the risks involved in the products offered by CXM Prime.   

  

Professional Clients (and Eligible Counterparties) are responsible for keeping CXM Prime informed of any change which could affect their categorisation as Professional clients (and/or Eligible Counterparties). If the firm is made aware or has reason to believe that a Professional client or Eligible Counterparty no longer fulfils the initial conditions that made them eligible for a Professional client or Eligible Counterparty categorisation, it may take appropriate action, including re-categorising the client where applicable and/or terminating the investment services and/or business relationship with the client.   

   

To meet the definition of a Per Se Professional Client, the client is required to be authorised or regulated to operate in the financial markets. The following list includes all authorised entities carrying out the characteristic activities of the entities mentioned, whether authorised in the UK or a third country:  

  

  1. a credit Institution;    

  2. an investment firm;     

  3. any other authorised or regulated financial institution;    

  4. an insurance company;    

  5. a collective investment scheme or the management company of such a scheme;    

  6. a pension fund or the management company of a pension fund;    

  7. a commodity or commodity derivatives dealer;    

  8. a local authority;    

  9. any other institutional investor.  

  

As CXM Prime undertakes only MiFID business, a Per Se Professional client in relation to that type of business can be a corporate/large undertaking meeting two of the following size requirements on a company basis:    

  

  1. balance sheet total of EUR 20,000,000;    

  2. net turnover of EUR 40,000,000;    

  3. own funds of EUR 2,000,000;    

   

The following also meet the definition of a Per Se Professional client:  

  • a national or regional government, including a public body that manages public debt at national or regional level, a central bank and an international and supranational institution or another similar international organisation;    

  • another institutional investor whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.   

  

Before commencing a relationship with a potential Per Se Professional client, CXM Prime will undertake appropriate due diligence to validate the status of the client and their supporting categorisation. Relevant measures within the due diligence process will include:  

  

  • confirming the legal status and composition of the client from open source documents or via specific documents requested from the client;  

  • reconciling the client against appropriate regulatory or legal registers;  

  • obtaining copies of documents from the client to verify its status; or  

  • requesting any other information from the client or relevant third parties to validate the status of the client.  

  

These measures are distinct from the application of the firm’s systems and controls relating to AntiMoney Laundering/Counter Terrorist Financing or any other form of financial crime although it is recognised that certain information may serve a dual purpose.   

 

ELIGIBLE COUNTERPARTIES (ECP)

  

An eligible counterparty is a client that is either a per se eligible counterparty or an elective eligible counterparty. Clients that automatically fall within the eligible counterparty definition will be "per se" eligible counterparties.   

   

The FCA Conduct of Business (COBS) rules in relation to best execution, order handling and certain conduct of business obligations do not apply when bringing about or entering into transactions with Eligible Counterparties or in respect of any ancillary service directly related to those transactions.   

   

The FCA deems each of the following to be a per se eligible counterparty (including an entity that is not from the UK that is equivalent to any of the following) unless and to the extent it is given a different categorisation under the FCA rules:   

   

  • an investment firm;   

  • a credit institution;   

  • an insurance company;   

  • a collective investment scheme authorised under the UK provisions which implemented the UCITS Directive or its management company;   

  • a pension fund or its management company;   

  • another financial institution authorised or regulated under the law of the UK;   

  • a national government or its corresponding office, including a public body that deals with the public debt at national level;   

  • a central bank;   

  • a supranational organisation.   

  

A financial institution includes regulated institutions in the securities, banking and insurance sectors.   

  

Before commencing a relationship with a potential ECP, CXM Prime will undertake appropriate due diligence to validate the status of the client and their supporting categorisation. Relevant measures within the due diligence process will include:  

  

  • confirming the legal status and composition of the client from open source documents or via specific documents requested from the client;  

  • reconciling the client against appropriate regulatory or legal registers;  

  • obtaining copies of documents from the client to verify its status; or  

  • requesting any other information from the client or relevant third parties to validate the status of the client.  

  

These measures are distinct from the application of the firm’s systems and controls relating to Anti-Money Laundering/Counter Terrorist Financing or any other form of financial crime although it is recognised that certain information may serve a dual purpose.   

  

Elective eligible counterparties   

   

Clients who have been categorised as Per Se Professional clients and that meet the opt-up conditions of an Eligible Counterparty may, with their express consent, be treated as an Eligible Counterparty either for all services for which such opt-up is permitted by law and/or in respect of a particular investment service and/or product.   

  

CXM Prime may treat a client as an elective eligible counterparty if the following conditions are met:   

   

  1. The client is an undertaking;   

  2. The client is a per se professional client (except for a client that is only a per se professional client because it is an institutional investor); and

  3. The client requests such categorisation.   

  

Where the client requests to be treated as an eligible counterparty, the following procedure shall be followed:  

  

  • the firm will provide the client with a clear written warning of the consequences for the client of such a request, including the protections they may lose;  

  • the client shall confirm in writing the request to be treated as an eligible counterparty either generally or in respect of one or more investment services or a transaction or type of transaction or product and that they are aware of the consequences of the protection they may have lost as a result of the request.  

  

The categories of elective eligible counterparties include an equivalent undertaking that is not from the UK provided the above conditions and requirements are satisfied.  

  

The firm will obtain a prospective counterparty's confirmation that it agrees to be treated as an eligible counterparty either in the form of a general agreement or in respect of each individual transaction. The approach will be determined on a case by case basis.  

REQUEST FOR DIFFERENT CLASSIFICATION – HIGHER LEVEL OF PROTECTION

  

Under FCA rules, a firm must allow a professional client or an eligible counterparty to request re-categorisation as a client that benefits from a higher degree of protection. A firm may also provide clients with a higher level of protection on its own initiative.   

  

It is the responsibility of a professional client or eligible counterparty to ask for a higher level of protection when it deems it is unable to properly assess or manage the risks involved.  

  

The regulatory rules set out provisions in respect of giving clients a higher level of protection. Specifically, firms may, either on their own initiative or at the request of the client concerned treat a client in the following manner:  

  

  • as a professional or retail client where that client might otherwise be classified as an eligible counterparty (pursuant to COBS 3.6.2R);  

  • a retail client where that client that is considered a professional client (pursuant to Part 2 of Schedule 1 to Regulation (EU) No 600/2014). 

  

CXM Prime deals exclusively with Per Se Professional clients and ECPs. As such, CXM Prime will not treat as an ECP as a retail client and it will not treat a Per Se Professional client as a retail client.   

  

Notwithstanding this requirement of CXM Prime’s policy, where an ECP requests a higher level of protection, the firm will require the request to be made in writing and to indicate whether the treatment as a professional client refers to one or more investment services or transactions, or one or more types of transaction or product.   

  

If the firm accepts the request, the client will be treated as a Per Se Professional client and the firm will confirm the new categorisation to the client in writing.   

  

If the firm at its own initiative re-categorises an ECP as a Per Se Professional client it will notify that client of its new category. In doing so, the firm will consider any contractual requirements concerning the amendment of any existing agreements.  

  

The ways in which a client may be provided with additional protections include re-categorisation:  

  

  • on a general basis; or  

  • on a trade by trade basis; or  

  • in respect of one or more specified rules; or  

  • in respect of one or more particular services or transactions; or  

  • in respect of one or more types of product or transaction.  

  

The exact basis of re-categorisation will be determined by the firm on a case by case basis taking into account the nature of any request from the client and the characteristics of the client relationship and activity.   

      

RECORD KEEPING

  

CXM Prime will make a record of the form of each client categorisation notice provided in accordance with this policy. Where the same form of notice is provided to more than one client, the firm will keep evidence of despatch of the notice to each client.   

This record will be retained for a period of five years after the firm ceases to carry on business with clients who were provided with that form.  

 

CXM Prime will make a record in relation to each client of:  

  • the categorisation established for the client, including sufficient information to support that categorisation;  

  • evidence of despatch to the client of any notice required and if such notice differs from the relevant standard form, a copy of the actual notice provided; and  

  • a copy of any agreement entered into with the client.  

This record will be made at the time of categorisation and should be retained for a period of five years after the firm ceases to carry on business with or for that client.  

TRAINING

  

The key elements of this policy will form part of induction training for all new staff of CXM Prime.   

In addition, all staff of the firm receive annual compliance training and the firm’s client categorisation policy and procedures will form part of that training.  

MONITORING AND OVERSIGHT

  

CXM Prime operates a three lines of defence model in relation to the management of risks to the business, including risks arising out of non-compliance. The operational functions forming the first line of defence will ensure that ongoing monitoring of the application of this policy is undertaken and that any exceptions are appropriately rectified in terms of communication with the client,  remedial training for staff and updates to procedures.   

These first line of defence controls will be supplemented by compliance monitoring as part of the second line of defence. As part of the compliance monitoring programme, the firm’s Compliance function will undertake routine checks of compliance with the policy as well as thematic reviews, at least annually, of the effectiveness of the policy and the supporting procedures.   

Any exceptions to the appropriate application of this policy will be reported to the senior management of the firm.   

  

BREACHES OF CLIENT CATEGORISATION POLICY

 

Any breaches of the Client Categorisation Policy will be recorded on the Firm’s breach log.

 

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