The third section of the FCA handbook involves the rules on how firms and advisers should conduct their business with their customers.
The Business Standards are divided into sub sections based on the regulated product and the type of advice involved. Firms that offer various products and advice must apply the relevant sourcebooks
that are related to that particular product or advice given.
Conduct of Business Sourcebook
Categorisation of Clients:
Advisers are required to categorise their clients and the category of the client dictates the level of protection that is given to the customer.
The Eligible counterparties are large financial firms or other authorised firms such as investment firms, banks or the government. The client in this case requires the lowest level of investor protection as they usually require execution only contracts and no advise is provided. A typical example would be HSBC bank trading with Santander Bank. As both of them are financial firms they do not require any advice protection.
This can be classed as an eligible counterparty that requires advice along with execution of contracts. This could also be large institutional investors that invest in financial products. The adviser would offer an intermediate level of protection as these firms are experienced. A typical example of
this would be an investor with a large portfolio who is aware of the risks involved but they must confirm this in writing.
A retail client is requiring the highest level of care as the client usually has a basic understanding and is the main category that requires advice. A retail client is referred to as “person in the street” and this individual is protected if things go wrong by the FOS and FSCS.