Client Categorization Policy
These rules are intended to specify the criteria and procedure for investment intermediary Lenno Global Advisory JSC, for the classification of clients as retail, professional, as well as the circumstances in which they may be determined as eligible counterparties. Clients are defined as retail and professional on their own initiative or at the initiative of the II.
Applicable statutory and international instruments:
a) Markets in Financial Instruments Act (MFIA);
b) Ordinance No. 38 of 25 July 2007 on the requirements to the activities of investment intermediaries (Ordinance No. 38);
c) Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment intermediaries and defined terms for the purposes of that Directive (Delegated regulation 2017/565).
Classification of clients of II Lenno Global Advisory JSC:
1. For the purposes of these rules, a client is any natural person or legal entity who/which makes use of investment and/or ancillary services provided by the investment intermediary.
2. When providing investment services II Lenno Global Advisory JSC, the investment intermediary (II) requires from the client, respectively from the potential client, to provide information regarding that person’s knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded so as to enable the investment intermediary to assess whether the investment service or product envisaged is appropriate for the client.
3. For the purposes of item 2, prior to concluding a contract for the provision of investment or ancillary services with a client, the II requires the client to complete an information document (Annex No 1 to the contract for provision of investment or ancillary services or a questionnaire in electronic version for the contract for the provision of investment services through a trading platform), which determines the client's knowledge and experience and his / her ability to make investment decisions independently and to properly assess the risks associated with a given investment service or transaction.
4. Where the investment intermediary considers, on the basis of the information received under items 2 and 3, that the product or service is not appropriate to the client or potential client, the investment intermediary shall provide a warning to the client or potential client in writing, in a standardised format.
5. Where clients or potential clients do not provide the information referred to under items 2 and 3, or where they provide insufficient information regarding their knowledge and experience, the investment intermediary shall provide warning in writing in standardised format to them that the investment firm is not in a position to determine whether the service or product envisaged is appropriate for them.
6. The investment intermediary providing investment services that only consist of execution or reception and transmission of client orders in connection with one or more financial instruments with or without ancillary services may provide such services without the need to obtain the information in item 2 or without carrying out the appropriateness assessment where all the following conditions are met:
6.1. The services relate to any of the following financial instruments:
a) Shares admitted to trading on a regulated market or on an equivalent third-country market or on a MTF, where those are shares in companies, and excluding shares in non-UCITS collective investment undertakings and shares that embed a derivative;
b) Bonds or other forms of securitised debt admitted to trading on a regulated market or on an equivalent third country market or on a MTF, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved;
c) Money-market instruments, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved;
d) Shares or units in UCITS, excluding structured UCITS as referred to in the second subparagraph of Article 36(1) of Regulation (EU) No 583/2010;
e) Structured deposits, excluding those that incorporate a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term;
f) Other non-complex financial instruments for the purpose of this paragraph.
6.2. The service is provided at the initiative of the client or potential client.
6.3. The client or potential client has been informed in writing, in standardised format, that in the provision of that service the investment intermediary is not required to assess the appropriateness of the financial instrument or service provided or offered.
6.4. The investment firm complies with its obligations under Article 76 of MFIA.
6.5. Additional requirements for the assessment of the appropriateness as well as for the ongoing and periodic information required of the clients of the investment intermediary are laid down in Delegated regulation (EU) 2017/565.
7. When providing investment services under Article 6, item 2, point 4 and 5 of MFIA, II Lenno Global Advisory JSC I obligated to obtain the necessary information regarding the client’s or potential client’s knowledge and experience in the investment field relevant to the specific type of product or service, that person’s financial situation including his ability to bear losses, and his investment objectives including his risk tolerance so as to enable on the basis of this information the investment intermediary to assess the suitability in accordance with the requirements of Art. 78 of the MFIA and Delegated regulation 2017/565.
8. II Lenno Global Advisory JSC shall consider as retail clients with regard to all investment services, investment activities and financial instruments, the clients non-compliant with the requirements for a professional client or eligible counterparty.
9. As professional client may be considered a client who possesses the experience, knowledge and expertise to make its own investment decisions and properly assess the risks that it incurs.
10. II Lenno Global Advisory JSC classifies as professional clients with respect to all investment services, investment activities and financial instruments, clients that meet the requirements of MFIA, namely:
10.1. Entities which are required to be authorised or regulated to operate in the financial markets or entities carrying out the characteristic activities of the entities mentioned, entities authorised by a Member State under a Directive, entities authorised or regulated by a Member State without reference to a Directive, and entities authorised or regulated by a third country:
a) Credit institutions;
b) Investment intermediaries;
c) Other authorised or regulated financial institutions;
d) Insurance companies;
e) Collective investment schemes and management companies of such schemes;
f) Pension funds and management companies of such funds;
g) Commodity and commodity derivatives dealers;
i) Other institutional investors.
10.2. Large undertakings meeting two of the following size requirements:
a) balance sheet total not less than the BGN equivalent of EUR 20 000 000;
b) net turnover not less than the BGN equivalent of EUR 40 000 000;
c) own funds not less than the BGN equivalent of EUR 2 000 000.
10.3. National and regional governments, including public bodies that manage public debt at national or regional level, Central Banks, international and supranational institutions such as the World Bank, the IMF, the ECB, the EIB and other similar international organizations.
10.4. Other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.
11. The ones mentioned in item 10.1. - 10.4. entities are considered professional clients. They have the responsibility and the right to request treatment as retail clients, whereby the II may agree to provide a higher level of protection. When the client of the II is a person referred to in item 10.1. - 10.4., II Lenno Global Advisory JSC notifies the clients regarded as professional, prior to provision of the investment services that, based on the information received by them, the latter are considered to be professional clients and subject to the rules related to the professional clients, unless the investment intermediary and the client agree otherwise. II Lenno Global Advisory JSC informs the client that he can request a variation of the terms of the agreement in order to secure a higher degree of protection.
12. It is the responsibility of the client, considered to be a professional client, to ask for a higher level of protection when it deems it is unable to properly assess or manage the risks involved.
13. The higher level of protection shall be provided under a written agreement signed between II Lenno Global Advisory JSC and the professional client, in which shall be specified the services, activities, transactions, financial instruments or any financial products to which the higher level of client’s protection is applied. The higher level of protection ensures that the client shall not be deemed professional for the purpose of the applicable regime to the activity of the investment intermediary. II informs the client that he can request at any time a variation of the terms of the agreement in order to secure a higher degree of protection.
14. As professional clients may also be considered clients who have submitted a written request to Lenno Global Advisory JSC, which explicitly states the specific services, activities, transactions, financial instruments or other financial products in connection with which the clients wish to be considered professional. The aforementioned clients must satisfy at least two of the following criteria:
a) in the preceding 4 quarters the person has concluded on average 10 large-scale transactions per quarter on a relevant market;
b) the value of the investment portfolio of the person, which consists of financial instruments and cash deposits, exceeds the BGN equivalent of EUR 500 000;
c) the person works or has worked in the financial sector for at least one year on a position which requires knowledge of relevant transactions or services.
15. Under these rules, clients who consider that they meet the requirements of the preceding item and have submitted a written request to the II to be treated as professional clients in general or in connection with certain investment services or transactions or with a certain type of transaction or investment products, are treated as professional if the following conditions are simultaneously met - the particular client meets at least two of the criteria set out in item 14 and the procedure set out in item 18 of these rules is followed.
16. In conducting the categorization assessment, the II will carefully evaluate the experience and knowledge of each client, as well as whether the latter is able to make investment decisions and understand the risks associated with each type of transactions and services it plans to conclude or use.
17. A person who has knowledge of products with low complexity when wishing to treat them as a professional client on the basis of more complex products will not automatically be considered by the IIA to be suitable for treatment as a professional. customer.
18. Clients excluding those mentioned in item 10, but including public sector bodies, local public authorities, municipalities and private individual investors, may request to waive the rules of business activity conduct of II Lenno Global Advisory JSC, which ensure a higher level of client’s protection. The II may treat such clients as professional if they meet the requirements of MFIA and in accordance with the procedure described. In order to be treated as professional clients, these persons may request to be treated as professional clients, subject to the following:
18.1. The investment intermediary cannot accept that the persons under item 14 possess market knowledge and experience comparable to those of the persons under item 10 without making the necessary assessment.
18.2. The investment intermediary assesses the client's knowledge and experience in terms of whether the client can make investment decisions and assume the risks associated with specific transactions and services. The valuation is made in respect of the persons who manage and represent the client or who are entitled to carry out the respective transactions on his behalf.
18.3. The assessment procedure is as follows:
a) clients must state in writing to the investment intermediary that they wish to be treated as professional clients, either generally or in respect of a particular investment service or transaction, or type of transaction or product. The written request of the client must be accompanied by evidence that the client meets the identification criteria under item 14;
b) the investment intermediary must give clients a clear written warning of the protections and investor compensation rights, including those related to the Investor Compensation Fund, they may lose;
c) clients must state in writing, in a separate document from the contract, that they are aware of the consequences under letter “b”;
d) prior to deciding if the client shall be treated as professional, the investment intermediary shall act in order to ensure that the client is compliant with the requirements under item 14.
19. The investment firm considers that the professional client has the necessary experience and knowledge to be able to understand the inherent risks associated with those particular investment services or transactions or the types of transactions and products for which the client is classified as a professional client.
20. Clients of the investment intermediary regarded as professional, are obliged to notify the investment intermediary for any change of data, used as a ground for their treatment as professional clients. Should the investment intermediary become aware however that the client no longer fulfils the initial conditions, which made him eligible for a professional treatment, the II shall take appropriate action.
21. II Lenno Global Advisory JSC shall notify all its clients about the terms and criteria that define them as professionals or non-professionals as well as the circumstances in which they can be regarded as eligible counterparty. Clients shall be notified on a durable medium about their right to request to be regarded in the relevant capacity and the restriction of their protection thereof.
22. II Lenno Global Advisory JSC is a participant in the Investor Compensation Fund (ICF) and the clients of the II receive the protection provided by this fund. The ICF pays compensation under certain conditions to any client of an investment intermediary in cases where the investment intermediary is unable to meet its obligations to clients for reasons directly related to its financial position. The Fund may pay compensation if the II is unable to meet its obligations. The ICF pays compensation to every client of an investment intermediary in the amount of 90% of the value of the claim, but not much than BGN 40 000. No compensation is paid to clients who are persons under Art. 77, para. 2 of the Public Offering of Securities Act. The Fund pays to the clients of the investment intermediary compensation for the receivables that arise as a result of the impossibility for the investment intermediary to return the client assets (money and / or financial instruments) to them. Additional information, including the terms and conditions for compensation, is available on the ICF website - www.sfund-bg.com. Alternatively, you can learn more by calling: +359 2 981 27 10 and talk to the ICF. The II Lenno Global Advisory JSC will provide, upon individual request from the Client, information on the conditions governing the compensation and the requirements to be met in order to obtain compensation from the ICF.
23. Eligible counterparty shall be an investment intermediary, credit institution, insurance company, a collective investment scheme, a management company, a pension insurance company, a pension fund, other financial institutions, which have license or are governed by the laws of the European Union and of the Member States, the national governments, public bodies that manage public debt, central banks and international institutions, as well as such persons from third countries in respect of which requirements equivalent to the requirements of the laws of the European Union apply. An eligible counterparty shall be other entities which comply with the requirements under art. 71 of the Delegated regulation 565/2017/EU, including entities based in third countries.
23.1. Lenno Global Advisory JSC may conclude transactions with an eligible counterparty without complying with the requirements of Art. 71, para. 1, Art. 72, 73, 74, 77, 78, 82, 84, 85, 86 and 87 of the MFIA in respect of specific orders or related ancillary service directly related to those orders.
23.2. In the case of an order from a client who is an entity registered in another jurisdiction, the investment intermediary shall consider whether the client is identified as eligible counterparty under the law of the country in which the client is established.
23.3. Any entity categorized as eligible counterparty under these rules and under MFIA may expressly request not to be treated as such party in whole or for a specific transaction.
23.4. When concluding a transaction with or for an eligible counterparty, the investment intermediary should obtain the express confirmation from the prospective counterparty that it agrees to be treated as an eligible counterparty.
23.5. When concluding transactions with or for eligible counterparties, the investment intermediary shall comply with the requirements of Art. 71 of Delegated Regulation (EU) 2017/565.
The present Procedures and Policies are prepared in accordance with the requirements of the Markets in Financial Instruments Act, together with the Annex to § 1, item 10 of the MFIA, Ordinance No. 38 on the Requirements to the Activities of investment intermediaries and Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organizational requirements and operating conditions for investment intermediaries and defined terms for the purposes of that Directive and are adopted on a meeting of the Board of the directors of the II Lenno Global Advisory JSC with minutes dated 27.12.2019, effective from the date of their adoption. These Rules supersede all previous provisions of the Client Categorization Policy of Lenno Global Advisory JSC.