Who is a qualified investor?

Who is a qualified investor? According to the definitions (1, 2) of the Committee of European Securities Regulators (CESR) and the European Securities Commission (ESCO), a qualified investor (professional client) is someone who has the experience, professional financial knowledge and skills to make their own investment decisions with a proper assessment of the risks they are exposed to. The main principle of classifying investors in the European Union is the experience and knowledge that an applicant must have, so they can independently make decisions on investing in relevant financial instruments and assess the risks associated with them, which directly follows from Directive No. 2014/65 / EU of 15.05.2014.

In accordance with the rules of the Directive (Section II of Annex No. 2), the category of qualified investors or, as stated verbatim in the Directive, “clients who may be considered as professionals at their request”, includes persons corresponding to two of the three listed in the Directive criteria. Two of them characterize the experience and knowledge of the applicant: making transactions at least 10 times a quarter for a significant amount or having professional experience in the financial sector for at least one year. The third qualification - property - implies owning assets in the amount of at least € 500 thousand.

What does the status of a qualified investor mean for you? 

Its most important difference from the unqualified one is access to various securities and investment methods according to the degree of risk and cost.

So, if you are an unqualified investor, then your broker will not allow you to buy, for example, Brent oil futures, Apple stock options or Gazprom Eurobonds. But at the same time, they will allow you to purchase less risky assets: 7-Eleven / AT&T stocks or bonds, a number of ETF funds, government securities - i.e., instruments with low or medium risk, in their opinion. Also, you will hardly be able to purchase or use the following professional financial instruments: structured notes, various swaps (currency, commodity, credit default, swaptions, etc.), participate in closed-end mutual funds or IPOs, direct and venture capital investments, mortgage bonds and so on.

In turn, for a relatively new type of alternative investment - P2P lending, at least in Europe, there are no clear and legal requirements for the qualifications of investors. On the contrary, there are requirements for the platforms themselves that regulate their activities and reduce the risk of loss funds for investors.

And what about this status outside of Europe? In general, there is no fundamental difference here - the concept is the same everywhere. For example, in the United States, the Securities and Exchange Commission (SEC) acts tougher on potential qualified investors through the Securities Act of 1933.

Qualification is based not on the general concept of a qualified investor, as, for example, is accepted in EU legislation, but on a differentiated approach. This is expressed in the fact that in each key segment of the market there is its own type of qualified investor with established qualification rules that are different for each of the groups of qualified investors.

In Brazil, for example, a qualified investor is an individual who, through education, experience and capital, has acquired the ability to assess the risk of financial investments. The categories of qualified investors are defined in IBO Instruction No. 554.

Although the phenomenon does not apply to the European continental P2P lending market, the institution of qualified (accredited or professional) investors is still present in almost all countries with developed financial markets. As a rule, when assigning this status, the property status of the candidate, their knowledge in the field of financial markets (which can be confirmed by special exams and certificates), and sufficient experience in transactions with securities on the stock market are taken into account. Government authorities say that this method allows them to limit and control the cash flows of individuals in order to reduce the risk of losing their personal funds.