Professional client

Picture a swimming pool with two areas: the shallow end, with lifeguards and floats, and the deep end for expert swimmers, with far fewer aids. Financial markets work in a similar way. A professional client is an investor whom the rules consider experienced enough to protect less, because they are presumed to understand the risks.

Banks, insurers and large companies are usually professional clients, but an individual with enough experience and wealth can also ask to be treated as one. In exchange for that lower protection, they gain access to more products and to faster processes.

A professional client is the investor category that, under Annex II of Directive 2014/65/EU (MiFID II), has the experience, knowledge and expertise needed to make their own investment decisions and properly assess the risks involved, and therefore receives an intermediate level of protection, lower than that of a retail client. In Spain the category is transposed into Law 6/2023 on Securities Markets and Investment Services (LMVSI, BOE-A-2023-7053).

There are two routes. Per se professionals include financial institutions (credit institutions, investment firms, insurers, collective investment undertakings and their management companies, and pension funds) and large undertakings that exceed two of these three thresholds: a balance sheet of 20 million euros, net turnover of 40 million, and own funds of 2 million. On-request professionals are retail clients who waive part of their protection by meeting at least two of three criteria: having carried out transactions of significant size at a meaningful frequency (around ten per quarter over the previous four quarters), holding a portfolio of financial instruments and cash above 500,000 euros, or having at least one year of professional experience in the financial sector in a role that requires knowledge of such transactions.

The firm must assess and document that compliance, and the investor may request to return to the higher-protection category. This classification is decisive for the marketing of security tokens: as financial instruments, they fall under MiFID II and the LMVSI, not MiCA, and targeting an offer only at professional clients usually simplifies the issuer's obligations and removes the prospectus requirement. We cover this in retail vs professional investors in security tokens.