The FCA has published CP25/36, a consultation that quietly rewires two of the most fundamental parts of the UK regulatory framework: client categorisation and conflicts of interest.

On paper, this is about simplification.

In reality, it is about responsibility.

Client categorisation has been dysfunctional for so long it became muscle memory. Firms stopped asking whether it made sense and focused instead on whether it could survive an audit trail. CP25/36 is the FCA dragging that quiet compromise back into the light.

Let’s cover it in butter and get it stuck in our teeth. 🌽

At its core, CP25/36 asks two uncomfortable questions.

First, how should firms decide whether a client is retail or professional in a way that reflects real sophistication rather than arbitrary thresholds.

Second, can conflicts of interest rules be made usable without firms treating them like theoretical footnotes.

Client categorisation determines what protections apply, what disclosures are required, and how products can be sold. It is not a technical classification exercise. It is a commercial choke point.

For years, the regime has been inherited from MiFID with minimal adaptation. That inheritance is now being questioned.

Client categorisation under the old regime was like airport security run by a spreadsheet. Plenty of people got waved through who shouldn’t have, while others were pulled aside because their shoes looked suspicious.

The FCA proposes to remove the mandatory quantitative test for elective professional clients. That test has long required clients to meet numerical thresholds around portfolio size and trading activity.

The problem is obvious to anyone who has ever sat in an onboarding meeting.

The old test rewarded wealth cosplay and punished genuine competence. If you understood risk but did not tick the right boxes, tough luck. If you ticked the boxes but did not understand risk, welcome aboard.

Under CP25/36, firms can rely more heavily on qualitative assessment, provided they can evidence that the client understands risk, has relevant experience, and can bear losses.

This is the FCA admitting, quietly, that spreadsheet compliance was never the same thing as suitability.

The consultation introduces a wealth-only opt-up route for clients with more than £10m in investable assets.

This is not a free pass. It is the FCA saying: fine, you can opt out of retail protections, but only if you explicitly acknowledge what you are giving up.

In practice, this will not reduce paperwork. It will just move it from formulas to disclaimers. Expect consent wording so explicit it reads like a pre-fight waiver.

The FCA is clear that informed consent must be documented. Firms must be able to show that the client understood which protections no longer apply and agreed anyway.

This is less about speed and more about liability.

On conflicts, CP25/36 proposes a rationalisation rather than a rewrite.

Duplicative SYSC provisions are consolidated. Language is aligned. Proportionality is made explicit.

Anyone who has lived through a SYSC interpretation debate knows the real issue. Half the meeting is spent arguing about which rule applies. The other half is spent pretending that argument itself counts as risk management.

Conflicts frameworks have quietly become a place firms hide uncomfortable truths. Simplification will not remove conflicts. It will just make it harder to pretend they are theoretical.

The FCA is not lowering standards here. It is removing excuses.

Rationalising the conflicts rules is like finally organising the kitchen junk drawer. Nothing dangerous has been removed, but it’s now much harder to pretend you didn’t know where the scissors were.

Most firms will claim they’re ready for this in the same way people say they’re ready for tax season. Confident words, quiet panic, and a sudden interest in extensions.

Most firms are confusing documented process with actual understanding.

Client categorisation under CP25/36 becomes a judgement exercise. Judgement has to be defended. Especially when something goes wrong.

The FCA will not be impressed by a beautifully drafted policy if the underlying decision makes no sense.

This consultation shifts responsibility back onto firms at exactly the moment many have optimised their compliance functions to avoid responsibility altogether. That tension is not accidental.

The FCA is not trying to make life easier. It is trying to make accountability clearer.

Client categorisation is no longer a back-office checkbox. It is a front-line commercial decision with regulatory consequences.

Conflicts are no longer theoretical risks described in policy documents. They are practical issues that need to be recognised, managed, and explained.

In practice, this regime will separate firms that understand their clients from firms that understand only their own paperwork. One of those groups will move faster. The other will request extensions.