Retail
Maximum protection, the default category
“If there is not enough information to place a client in another category, the client is treated as retail: the category that gives the most protection.”
MiFID Client Classification: Retail, Professional and Eligible Counterparty
MiFID II requires you to place each client in one of three categories—retail, professional or eligible counterparty—which determine their level of protection and the firm’s obligations. We help you design a classification policy and processes that stand up to a CNMV inspection.
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- Portfolio (professional on request)
- €500,000
- Trading frequency
- 10/quarter
- Professional company balance sheet
- €20 million
- Client categories
- 3 categories
Services
What you need to classify your clients correctly
Six building blocks that turn the classification obligation into a documented system you can defend before the CNMV: categories, criteria, communication, changes and how it fits with suitability and best execution.
Policy
Client classification policy
We draft the policy: the three categories, the objective criteria for placing each client, the documentation required and the cases in which a client is classified as retail by default.
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MiFID IIAnnex II3 categoriesCNMV
Procedure
Communication and category changes
We design the workflow: written notice of the category to the client, information on its implications, the right to request a different classification and the assessment of change requests.
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CommunicationCategory changeEvidence
Suitability
Fit with suitability and appropriateness
The category shapes the assessments: suitability in portfolio management and advice, appropriateness for complex products. We integrate classification and tests consistently.
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SuitabilityAppropriateness
Best execution
Impact on order execution
For retail clients, the best result is measured in terms of total consideration. The client’s category directly affects how best execution is applied.
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Best executionRetail
Information
Pre-contractual information by category
Each category receives a different level of information and warnings. We tailor the pre-contractual documentation to the client’s profile and the product.
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InformationWarnings
Control
Review and maintenance
Classification is not static: we review your procedures so that changes in the client’s situation are detected and each category stays up to date and traceable.
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ReviewTraceability
Profiles
The first step in every investment client relationship
Before providing any investment service, the firm must classify the client. That decision shapes protection, assessments, information and best execution. It is the foundation for everything else.
Professional
Intermediate protection, by size or on request
“Large entities and companies above certain thresholds are professional clients; a retail client can also ask for this status if they meet the requirements.”
Counterparty
Minimum protection, large institutions
“The eligible counterparty is a subcategory of professional client: credit institutions, investment firms, insurers or governments, for certain specific services.”
Change
Clients can change category
“The client can ask for more protection (always) or less (subject to requirements). A request is required; the firm assesses it and communicates the outcome in writing.”
Why it matters
Why is classification critical?
Misclassifying a client, or failing to document the classification, taints everything that follows: information, suitability and appropriateness assessments, best execution and effective protection. It is one of the classic focus areas of conduct supervision.
The most common mistake: classifying the client incorrectly or without supporting documents, giving them less protection than they are entitled to, or misapplying the professional-on-request regime.
Classification drives everything else: if the category is wrong, the tests, information and warnings will be wrong too. An error at the base spreads across the entire client relationship.
Moving down has requirements: moving a client to a category with less protection (for example, from retail to professional) is only valid if the client meets the criteria and the process is documented.
MiFID II · Annex II
3 categories
The rules define retail, professional and eligible counterparty, with objective criteria for each and rules for changes.
Protection
Default
Without sufficient information, the client is classified as retail, the category with the highest level of protection.
Conduct
Sanctions
Poor classification can lead to CNMV requests for information, client complaints and the annulment of transactions.
Is your client classification policy well built?
Before the CNMV reviews it, check that the three categories are well defined, that the criteria and thresholds are applied correctly, that the professional-on-request regime is documented and that classification fits with suitability, appropriateness and best execution.
Frequently asked questions
MiFID client classification: common questions
What is MiFID client classification?
It is the obligation under MiFID II for every investment firm to place each client in one of three categories: retail, professional or eligible counterparty. Each category carries a different level of protection.
Classification determines the information provided, the assessments that apply and how best execution is applied.
What are the three categories?
- Retail: maximum protection. The default category.
- Professional: intermediate protection. Experience and knowledge are presumed.
- Eligible counterparty: minimum protection. Large institutions, for certain services.
Who is a retail client?
It is the default category: any natural person or entity that cannot be classified as a professional client or eligible counterparty. If the firm does not have enough information, the client is classified as retail, the category with the highest level of protection.
Who is a professional client?
Professional clients include, among others, regulated entities (credit institutions, investment firms, insurers, collective investment schemes), governments and public bodies and large companies that meet at least two of three thresholds: a balance sheet total of €20 million or more, net turnover of €40 million or more, or own funds of €2 million or more.
What is “professional on request”?
It is the regime under which a retail client can ask to be treated as a professional client, waiving part of their protection. The client must meet at least two of three requirements:
- Transactions of significant size at an average frequency of 10 per quarter over the previous four quarters.
- A portfolio of financial instruments and cash exceeding €500,000.
- At least one year of experience in the financial sector in a position that requires that knowledge.
What is an eligible counterparty?
It is a subcategory of professional clients reserved for large institutional investors: credit institutions, investment firms, insurers, collective investment schemes, pension funds, governments and central banks, among others.
It applies only to certain services (execution of orders, reception and transmission of orders, and dealing on own account) and carries the lowest level of protection.
Can a client change category?
Yes. The client can request a move up (more protection, always admissible) or down (less protection, subject to requirements). The change must be requested; the firm assesses it and communicates its decision. A move to a category with less protection is only valid if the criteria are met and the change is documented.
How is the category communicated to the client?
The firm must notify each client in writing of the category they have been placed in, the implications of that classification and their right to request a different classification. This notice and the supporting documents are key in a CNMV inspection.
People also ask
MiFID categories: protection, suitability and specific cases
What protection does a professional client lose compared with a retail client?
A professional client receives less information and fewer warnings, their knowledge is presumed for the appropriateness assessment and, in general, some safeguards designed for retail clients do not apply. The core conduct of business rules still apply, however.
Does the category affect the suitability test?
Yes. In investment advice and portfolio management, the firm may presume certain knowledge and experience for professional clients. The suitability test is still required, but its scope varies with the client’s category.
And the appropriateness test?
The appropriateness test (complex products without advice) focuses on retail clients. Professional clients are presumed to have the knowledge and experience needed for the products covered by their category.
Can a natural person be a professional client?
Yes, through the professional on request regime, if they meet at least two of the three requirements (trading frequency, a portfolio above €500,000 and professional experience). It is a voluntary option that involves giving up part of their protection.
Is classification permanent?
No. The firm must keep it up to date: if the client’s situation changes or the client asks for it, the category should be reviewed. The client is also required to report relevant changes that affect their classification.
How does it relate to KYC and AML?
They are separate but complementary obligations. MiFID classification measures investor protection; anti-money laundering KYC identifies the client and their risk. Both are collected at the start of the relationship, but they stem from different rules.
The three categories
Retail, professional and eligible counterparty
The more protection, the more obligations for the firm. This is the foundation that every classification policy must develop and document.
Professional by size (per se)
Large companies are classified as professional clients if they meet at least two of these three thresholds (no request needed):
- Balance sheet
- Total of €20 million or more.
- Net turnover
- €40 million or more.
- Own funds
- €2 million or more.
Professional on request (a retail client opting up)
A retail client can ask to be treated as a professional client if they meet at least two of these three requirements, waiving part of their protection:
- An average frequency of 10 significant transactions per quarter over the previous 4 quarters.
- A portfolio of financial instruments and cash above €500,000.
- At least one year of professional experience in the financial sector in a position that requires it.
| Category | Level of protection | Who fits | Assessments |
|---|---|---|---|
| Retail | Maximum | Natural persons and entities that are neither professional clients nor eligible counterparties. Default category. | Suitability (advice/portfolio management) and appropriateness (complex products). |
| Professional | Intermediate | Regulated entities, governments, large companies (thresholds) and retail clients on request. | Suitability with presumed knowledge; appropriateness presumed. |
| Eligible counterparty | Minimum | Large institutions (credit institutions, investment firms, insurers, governments), for certain services. | Certain protection rules do not apply to those services. |
Categories and criteria under MiFID II (Directive 2014/65/EU, especially its Annex II) and Law 6/2023. The eligible counterparty is a subcategory of professional clients that applies only to certain services. Each client’s specific classification must be documented and communicated in writing, and it can be reviewed on request or on the firm’s own initiative.
Practical guide
How to classify your clients correctly: a practical guide
Classification is not an onboarding formality: it is the piece that supports all investor protection. The key is to apply objective criteria, document them and keep them current throughout the relationship.
Objective criteria, not intuition
Each category has criteria and thresholds defined in the rules. Classifying “by feel” or for commercial convenience is the first error the CNMV spots. Everything must be based on verifiable data.
If it is not documented, it does not exist
Written notice of the category, information on its implications and records supporting any changes are the proof that classification was done properly. Without evidence, compliance with the obligation is left up in the air.
A living classification
The client’s situation changes. You need to review categories, handle change requests and react to new information, keeping every decision traceable.
Checklist: a robust client classification
- Define the three categories and their criteria in a clear classification policy.
- Collect the necessary client information at the start of the relationship.
- Classify the client as retail by default when there is not enough information.
- Apply the objective thresholds for per se professional clients.
- Document the professional-on-request regime and the waiver of protection.
- Verify the requirements before any move to a category with less protection.
- Notify the category in writing, with its implications and the right to request another.
- Align the category with the suitability and appropriateness tests.
- Adapt pre-contractual information and best execution to the category.
- Review and update the classification periodically and traceably.
If you want to review your classification policy or integrate it with suitability and best execution, see our securities market regulation services or the MiFID II conduct of business rules.
Classification in practice
From category to effective protection
A well-executed client classification is not a box ticked at onboarding: it determines protection, assessments (suitability and appropriateness), information and best execution. Here is a visual panel showing how it works in practice.
1) PolicyPolicy: the decision framework
The starting point is a policy setting out the three categories, the objective criteria and the documentation needed to place each client with supporting evidence.
- The three categories
- Criteria and thresholds
- Required documentation
2) AssignmentAssignment: the right category
Clients are classified using objective criteria; retail by default. The per se professional thresholds are applied and, where relevant, the professional-on-request regime.
- Retail by default
- Professional thresholds
- Professional on request
3) CommunicationCommunication: in writing and traceable
The client is told their category, its implications and their right to request another. The written record is what proves compliance with the obligation before the CNMV.
- Written notice
- Implications explained
- Right to change
4) AlignmentAlignment: the category shapes everything
Classification determines the suitability and appropriateness tests, the pre-contractual information and how best execution is applied (total consideration for retail clients).
Tip: inspections often cross-check the assigned category against the tests performed and the information given to the client.
Quick decisionPractical map: which category applies?
Individual
A natural person or SME with no special requirements: retail, maximum protection.
Large company
A regulated entity or a company above the thresholds: professional, intermediate protection.
Institutional
Bank, investment firm, insurer or government: eligible counterparty for certain services.
Playbook
Client classification in practice
Classification policy
A document setting out the three categories, objective criteria, thresholds and the rules for changes.
Approved policy and current version with a change log.
Category assignment
Classification based on verifiable data; retail by default when information is missing.
Client record, data collected and the rationale for the category.
Professional on request
Verification of at least two of the three requirements and a warning about the loss of protection.
Client request, proof of the requirements and signed acceptance.
Communication
Written notice of the category, its implications and the right to request another.
Classification letter or document delivered to the client.
Maintenance
Periodic review and handling of changes in the client’s situation or reclassification requests.
Log of reviews and category changes throughout the relationship.
Common errors the CNMV detects
Spot them before a conduct inspection to avoid requests for information and complaints.
- Placing a client in a category with less protection without meeting the requirements.
- Not notifying the client in writing of the category or its implications.
- Misapplying the professional-on-request regime or failing to warn of the loss of protection.
- Not updating the classification when the client’s situation changes.
- Disconnecting the category from the suitability/appropriateness tests and the information provided.
Glossary
Key concepts: client classification and MiFID II
If you are reviewing your client classification policy, these terms appear in the documentation, in the tests and in your dealings with the CNMV. Understanding them well helps you build a consistent system.
RetailCategory
Retail client
The default category, with the highest level of protection. Any natural person or entity that is neither a professional client nor an eligible counterparty.
If information is missing, retail.
ProfessionalCategory
Professional client
Intermediate protection. Experience and knowledge are presumed. Includes regulated entities, governments, large companies (thresholds) and retail clients on request.
MiFID II Annex II.
CounterpartyCategory
Eligible counterparty
A subcategory of professional client, with minimum protection. Large institutions, only for certain services (execution, RTO and dealing on own account).
Credit institutions, investment firms, governments...
On requestRegime
Professional on request
A retail client asks to be treated as a professional client by meeting at least two of three requirements (trading frequency, a portfolio above €500,000 and professional experience).
Means giving up protection.
SuitabilityAssessment
Suitability test
An assessment in investment advice and portfolio management. For professional clients, certain knowledge and experience may be presumed, depending on their category.
Different from the appropriateness test.
AppropriatenessAssessment
Appropriateness test
An assessment of knowledge and experience for complex products without advice. It focuses on retail clients; for professional clients it is presumed.
Complex products.
ThresholdsProfessional
Large company criteria
A company is a professional client if it meets two of three: balance sheet ≥ €20 million, net turnover ≥ €40 million or own funds ≥ €2 million.
Per se classification.
ReclassificationChange
Change of category
The client can ask for more protection (always) or less (subject to requirements). The change must be requested and assessed, and the decision communicated in writing.
Up or down.
MiFID IIFramework
Directive 2014/65/EU
The European framework for markets in financial instruments that governs client classification and conduct of business rules, transposed in Spain by Law 6/2023.
Supervisor: CNMV.
Contact
Book a call
Tell us about your case and we will review your client classification policy so that it applies the categories correctly and stands up to CNMV supervision.
Regulatory framework for client classification in Spain: MiFID II and the Securities Markets Law (LMV)
The obligation to classify clients stems from MiFID II (Directive 2014/65/EU, especially its Annex II) and is incorporated into Spanish law through Law 6/2023 on Securities Markets and Investment Services. Supervision lies with the CNMV, as part of the conduct of business and investor protection rules.
The three client categories
MiFID II distinguishes retail clients (maximum protection and the default category), professional clients (intermediate protection, by size or on request) and eligible counterparties (minimum protection, large institutions for certain services). When there is not enough information, the client is classified as retail.
Per se professional and professional on request
A company is a per se professional client if it meets at least two of three thresholds: a balance sheet total of €20 million or more, net turnover of €40 million or more, or own funds of €2 million or more. A retail client can request professional on request treatment if they meet at least two of three requirements: an average frequency of ten significant transactions per quarter over the previous four quarters, a portfolio above €500,000, or at least one year of experience in the financial sector.
Why classification shapes everything
The assigned category determines the pre-contractual information, the suitability and appropriateness assessments, the warnings and how best execution is applied (for retail clients, total consideration). That is why misclassification taints the whole client relationship and is a common focus of conduct supervision. It connects directly with the MiFID II conduct of business rules, the suitability test and best execution of orders.
Securities markets
Resources and blog
Official sources
Key legislation, linked to the official text:
- Directive 2014/65/EU of May 15, 2014 on markets in financial instruments (MiFID II)EUR-Lex · Official Journal of the EU
- Law 6/2023 of March 17 on Securities Markets and Investment ServicesBOE · consolidated text
Legislation and links reviewed in .