Things are going well for your firm, it is going from strength to strength. It has a strong client base of satisfied customers. In fact it has received no client complaints in the 13 years of its business. That is precisely the position of independent investment management firm Kinsale Capital Management, before the Central Bank's visit in 2014. The firm has now been hit with a €275,000 fine for breaches of the MiFID Regulations.

As part of the Central Bank's thematic review, an on-site inspection of Kinsale's client categorisation procedures was conducted in October 2014. Despite a seemingly clean record, a number of fundamental breaches were uncovered. 

The breaches in this case relate to:

  • Kinsale's failure to carry out adequate assessments of certain clients who elected to be treated as professional clients over a 4 year period;
  • Kinsale's failure to implement appropriate policies and procedures for client categorisation over a 5 year period; and
  • Kinsale providing investment services to retail clients in breach of the terms of its authorisation over a 5 year period.

CB Authorisations:

Regulation 72(1) of the MiFID Regulation requires an authorised investment firm to comply at all times with the conditions and requirements of its authorisation.

In this instance Kinsale's authorisation states that:

 “the Firm will provide investment and ancillary services to eligible counterparties and professional clients only”. 

The Firm’s authorisation did not permit it to provide Investment Services to retail clients. 

In a statement issued by the Central Bank, strong emphasis is placed on assessment and correct categorisation of clients.

"....Kinsale is not authorised to provide investment services to retail clients.  Therefore, it is especially concerning that the Firm did not put in place and adhere to robust procedures to appropriately assess and categorise prospective clients requesting to be treated as professionals so as to ensure that the Firm did not provide investment services to retail clients. "

This hefty fine should serve as a warning to authorised entities . It highlights the need for regular internal audits of CB Authorisations and ongoing staff training.

You should ensure that:

  • Your firm carries out adequate assessments of the expertise, experience and knowledge of clients;
  • Your firm documents the steps that the Firm are required to take before categorising elective professional clients; and
  • Your firm keeps records up to date. Review internal policies and procedures to ensure that you have the documentary evidence which you were required to get from your client prior to categorising them as elective professional clients.