Classification of investors according to financial regulations
To guarantee protection and transparency in investments, the European MiFID II regulation classifies investors into three categories according to their level of experience and financial knowledge. This classification determines the type of protection and the information they receive when investing.
1. Retail Investors
These are individuals or small companies that do not have extensive experience in financial investments. This category receives the greatest protection, as it is considered that investors may need more information and advice before making decisions.
Characteristics:
They have access to detailed information about the products in which they invest.
Strict transparency and security standards apply to them.
They are protected against possible abusive or misleading practices.
2. Professional Investors
These are companies or individuals with experience and advanced knowledge of investments. As they have a greater capacity to analyse risks, they receive a lower level of protection than retail investors.
Examples of professional investors:
Large companies that meet certain financial criteria (such as a high turnover or large equity capital).
Financial institutions, banks and insurance companies.
Investors with a proven investment history and knowledge of financial markets.
Differences with retailers:
They receive fewer warnings about investment risks.
They can negotiate specific terms with financial institutions.
They have access to more complex financial products.
3. Institutions and Large Investors
This group includes institutions that operate in financial markets on a regular basis and with extensive knowledge. They are the ones that receive the least protection, as they are considered to have the capacity to assess and assume risks on their own.
Examples of eligible counterparties:
Financial institutions and banks.
Large investment firms.
Governments and central banks.
Can you change category?
Yes. Depending on their experience and financial situation, an investor can request to be reclassified. For example:
A retail investor can request to be considered a professional if they meet certain requirements.
A professional investor can choose to receive the protection of a retail investor if they wish.
This classification helps each investor receive the information and protection appropriate to their level of experience, guaranteeing a secure and transparent financial environment.
If you have any doubts about what type of investor you are or what the best option is for you, consult a specialised financial advisor.