Glossary
Professional Client
Professional Client (client professionnel)
Professional Client is the client category reserved for entities deemed able to make their own investment decisions; in the DIFC, only these clients have access to credit funds.
Definition
Professional Client status places a person or an entity among the clients that have the experience and knowledge needed to make their own investment decisions. French law has the same concept under the name client professionnel: article L. 533-16 of the French Monetary and Financial Code defines it as a client that possesses the experience, knowledge and expertise needed to make its own investment decisions and properly assess the risks incurred. In the DIFC, rule COB 2.3.4 of the DFSA Rulebook automatically classifies as a Professional Client a large undertaking that meets two of the following three criteria at the date of its latest accounts: a balance sheet total of at least $20m, annual net turnover of at least $40m, own funds or called up capital of at least $2m. Article D. 533-11 of the French Monetary and Financial Code uses the same amounts in euros, calculated on the standalone accounts. The category concerns a company borrowing €20m or more in two ways. DIFC credit funds raise their capital only from Professional Clients, which defines the investors of the fund that lends to it. A company that exceeds these thresholds is itself classified as a professional client when it invests its cash or enters into an interest rate hedge. The conduct of business rules of articles L. 533-11 to L. 533-15 then apply, taking this professional status into account.
Worked example
A transport company reports a €180m balance sheet total, €260m of revenue and €45m of equity in its standalone accounts. It meets all three criteria of article D. 533-11 and rule COB 2.3.4. When it takes out an interest rate hedge linked to its €90m loan, the investment services provider classifies it as a professional client.
Points to check
- The three size criteria: balance sheet total, net turnover, own funds
- The classification the provider notifies for a hedge or a cash investment
- The conditions, set by decree, under which a non-professional client asks to be treated as a professional client
- In the DIFC and ADGM, the category of investors admitted to the lending fund
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