MiFID advocates a client classification system tailored to the knowledge and experience of each type of client. Under MiFID, there are three categories of clients:
• Retail clients
• Professional clients
• Eligible counterparties (ECP) including investment firms, credit institutions, insurance companies, undertakings for the collective investment of transferable securities (UCITS), and pension funds.
MiFID client classification defines specific regulatory obligations for the business that investment services firms conduct with each category of client. The greatest regulatory protection applies to the less experienced retail/private clients, with more limited rules for professional clients and exclusion for eligible counterparties.
NetEconomy provides a fully-integrated solution that offers comprehensive monitoring and risk rating capabilities that automate the assessment, classification and reclassification (including opt ups/opt downs) of its clients. NetEconomy stores information and expected trading behavior for each client type, assigning individual risk scores and generating alerts when suitability or appropriateness breaches occur.
In addition, NetEconomy monitors for client classification holistically, where all transactions are taken into account – for both investment and payment transactions.
Suitability and Appropriateness
NetEconomy addresses MiFID’s suitability and appropriateness requirements by collecting and storing all customer due diligence information necessary to ensure that the products and services which they provide are suitable or appropriate for their clients.
NetEconomy captures and stores information about the client or prospective client’s level of knowledge, trading experience, financial situation and investment objectives.
By storing all relevant data in a client static profile NetEconomy is able to automatically assess whether: – The intended transaction is appropriate for the client; – A recommended product or service is suitable for the client.