Admiral Markets UK Ltd · DRN-6099349

The complaint Mr V complains that Admiral Markets UK Ltd allowed him to trade with higher leverage than he should have been allowed to access and incorrectly classified him as a professional client, in relation to his derivative trading account. What happened In 2017, Mr V opened a trading account with Admiral. The following year, Admiral approved his application to be considered as a professional client. Just over six years later in June 2024, Admiral requested evidence from Mr V regarding his professional client status. As this wasn’t provided, Admiral changed his status to a retail account. Mr V got in touch with Admiral about this and wanted to look into what had happened. Having done so, he made a complaint and said, in short: • Admiral hadn’t followed the correct procedures when opening his account or when approving the professional client status, • they’d provided various screenshots of the tests they said he completed, and he was confused about which was correct, and concerned that they were fabricating information, • he’d received no proof of any tests completed prior to 2018, which also led to him to be concerned about the way Admiral allowed him to trade during the time prior to the professional client classification, • Admiral hadn’t carried out any re-assessments after 2018, • and ultimately, that the information supplied by Admiral in 2024 about the account opening in 2017 and the agreements, wasn’t in line with the relevant rules. Admiral looked into Mr V’s concerns but didn’t agree they’d done anything wrong – they said that the regulatory requirements were different when Mr V began trading, so the higher leverage wasn’t an issue, and that he’d agreed to the terms and risks at the time. Mr V asked for our help as he remained unhappy – he told us that in addition to losing around €200,000, the matter had taken an immense toll on his emotional wellbeing. He summarised his concerns as follows: • the higher leverage granted in 2017 before he was recategorised, • the lack of evidence to support that he’d accepted the terms of the account electronically, • the absence of risk warnings, • the failure to periodically reassess his professional status, and • the accuracy and validity of the evidence Admiral have relied on. Admiral didn’t agree to our service investigating the complaint as they thought it fell outside of the relevant time limits that apply. They said that under the rules, he had six years from the event complained of to raise his concerns, or three years from when he ought reasonably to have been aware of cause for concern. They said Mr V was aware of his status as a professional client in May 2018 and was aware of the leverage he was using during trading, so he ought to have raised his complaint earlier. An ombudsman considered

-- 1 of 9 --

this but didn’t agree – she instead issued a decision confirming this was a complaint we could consider. One of our investigators then had a look into what’d happened – while he wasn’t concerned with the account opening in 2017, he didn’t think Mr V ought to have been categorised as a professional client from May 2018 onwards. This was mainly because he couldn’t see Admiral had verified the answers Mr V had given about his portfolio and trade sizes. To put things right, our investigator asked Admiral to rework the account as if Mr V had been considered a retail client from May 2018 onwards. If this rework showed Mr V had lost more money trading as a professional than he would have done as a retail client, the investigator said Admiral ought to compensate him with 75% of the difference – he applied this deduction given it was Mr V’s choice to trade for six years as a professional. The investigator didn’t recommend any interest be added or think a payment for distress and inconvenience was warranted given Mr V continued to trade despite the magnitude of losses. Admiral didn’t agree with the investigator’s findings and said, in short: • the professional categorisation was done in line with the regulatory requirements in force at the time and we must not retrospectively apply standards of today, • Mr V had confirmed he’d met two of the criteria, which was sufficient to opt him up, • the regulatory expectations have evolved since then, hence them updating their processes in June 2024 which prompted this complaint after Mr V was recategorised, • Mr V traded as a professional for six years with full awareness of the reduced protections and higher risks, • Mr V chose to trade with the higher leverage available to him – he could always have reduced this should he wish, • increased leverage influenced Mr V’s margin, not necessarily his trade outcomes – he wasn’t compelled to take larger positions, nor did they automatically cause greater losses, • there is no causal link between professional client status and greater losses – instead, Mr V traded actively for six years while being aware of reduced protections and could have reverted to retail status but had no appetite to do so, • and that ultimately, Mr V was given the correct risk warnings and chose to proceed despite them. Mr V didn’t agree with the investigator’s either, he said, in short: • he didn’t agree Admiral should only pay 75% of any loss as he didn’t think this had any lawful basis – instead, he thought it was illogical and without precedent, • the jurisdiction decision confirmed he was unaware of the mis-categorisation until 2024 and therefore was under no duty to mitigate his position, • he challenged the fact that the investigator wasn’t including the 2017 trading given it was with higher leverage, • it is wrong to assume he’d have traded identically as a retail client, • it was also wrong to say that his ongoing trading was a mitigating factor – instead, ongoing trading ought to have given rise to reassessment which didn’t happen, • just because the nature of the trading is high risk shouldn’t mean interest cannot be paid on redress, • he ought to be awarded full compensation along with interest for the deprivation of funds. Our investigator thought about what both parties had said and issued further findings – but his position remained unchanged. Given both sides remained unhappy, the case was passed for an ombudsman to reconsider.

-- 2 of 9 --

Mr V made some final comments around our investigator’s proposed redress. He said, in short: • that the methodology introduces a hypothetical retail counterfactual scenario despite there being no client agreement evidencing a retail position, no difference in leverage or exposure prior to 2018, despite the investigator finding professional status had material consequences, • there is no legal or factual reference point for a retail recalculation, • our service’s practice says uncertainty arising from deficient of missing documentation ought to be borne by Admiral, • saying he could have reverted to retail doesn’t amount to informed consent as a professional and ought not to relieve Admiral of their obligations, • ongoing trading ought not to work against him – he continued trading without realising the issue and the lack of reassessment throughout the period further emphasises the issues, • the ombudsman who considered the jurisdiction matter concluded he was unaware of the classification issue until 2024 and in the absence of awareness, a duty to mitigate cannot arise, • the only outcome that is logical and consistent with the investigator’s findings would be full compensation and interest. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Mr V first opened his account with Admiral in April 2017. As Admiral are a regulated firm they’re subject to the rules set out in the regulator’s handbook – the conduct of business (COBS) section is what’s relevant here. Admiral weren’t required to assess the suitability of Mr V’s upcoming trading given they weren’t going to be giving him any advice – his account was opened on an execution only basis so it was for him to decide which trades to make. However, COBS 10 required Admiral to assess his appropriateness to trade as he did. In other words, this required them to gather relevant information from Mr V in order to decide whether he had the necessary knowledge and experience to understand the risks involved. We’d usually expect to see an appropriateness test before an account was opened which would give a firm insight as to whether or not the applicant had the required knowledge and experience to open such a trading account. We asked Admiral to see what Mr V shared with them when he first opened his account, but due to a system migration, they aren’t able to show us now. That said, they were able to find some of the responses given which showed Mr V had declared he had the following investment experience: over two years with CFDs, commodities and currencies, one to two years with stocks, and under a year for both futures and options. The record also noted Mr V traded weekly, considered himself a professional trader, was investing for growth and speculation, and didn’t have any relevant qualifications. Though we are unable to consider the outcome of a test of Mr V’s knowledge at the time, we can see he had declared over two years of experience with the relevant product, so it’s likely Mr V could have passed an appropriateness test to open the account. Had Mr V failed the test, he could still have opened an account if he’d accepted a warning. Given the number of years he went on to trade for, I don’t think it’s unreasonable to say Mr V is someone who clearly wanted to trade, had experience and would have accepted the warning in order to proceed. It follows that I don’t have concerns around the initial opening of the account. Once the account was open, Mr V began trading. Though he highlights now that he was able to trade with high leverage right away, that wasn’t a concern at the time as it wasn’t until the

-- 3 of 9 --

following year that the European Securities and Markets Authority implemented the restrictions introduced by the Markets in Financial Instruments Directive II, including the limiting of leverage. So, as I don’t have concerns around the initial account opening, nor access to higher leverage in 2017, I will instead move on to consider the elective professional client classification. As mentioned above, in 2018 ESMA introduced restrictions on the way contracts for differences and binary options were marketed, distributed and sold in order to increase protection for investors. In short, the changes involved leverage limits, margin close out rules, negative balance protection, prevention of the use of incentives and a firm specific risk warning delivered in a standardised way. Admiral have shared a document with us titled ‘Important Update on Forex & CFD Market Regulation’ which they shared at the time. It began by saying “You are reading this because you are currently categorised as a Retail Client and there are important changes that will affect your trading. The European Securities and Markets Authority (ESMA) have proposed to all online trading providers in the EU and the UK to significantly increase margin requirements for Retail Clients, i.e., to reduce the leverage. Please familiarise yourself with the pros and cons of being recategorised from Retail to Professional Client and proceed to your Trader’s Room should you be willing to accept professional trading terms, which include the leverage rates remaining unchanged.” There followed a table with one side setting out the benefits of being a professional client, and the other side setting out the drawbacks. Admiral listed the benefits as follows: Keep trading with higher leverage Qualifying as a Professional Client helps you keep the current leverage rates unchanged and prevents a possible increase in margin requirements by 15-25 times, which was recently proposed by the European regulators for the Forex industry. Should these proposals come into force in the upcoming months, it will greatly decrease either risk and reward expectations from trading, limit the freedom of using a variety of trading strategies as well as make some trading products simply not affordable for traders with smaller deposits. Keep access to a wide range of instruments As a Professional Client, you will keep access to the full range of instruments and will get all further expansions of our trading product line, while retail offering can be limited in terms of access to different markets Keep access to bonus programs Being qualified as a Professional Client allows you to keep access to all existing bonus programs and enrol to new programs and promotions in the future, while Retail Clients will be restricted from any trading incentives (cashback, discounts etc). Admiral listed the drawbacks as follows: You agree to waive some of the protections Being a Professional Client means waiving some of the protections and accepting slightly modified best execution rules, according to which not the overall price but other factors may be prioritised. The latter has no direct impact on your trading but may influence our arguments in case of disputes concerning order execution. You agree to communicate as a market professional

-- 4 of 9 --

We will have the right to communicate with you as a professional trader and use more formal and sophisticated language, where applicable. Nevertheless, our team will remain friendly and highly professional in our communication with you. Beneath the table was a button to click to apply for professional status. Mr V made his application in late April and Admiral have shared the summary of statements he agreed to when applying, which included that he’d read the risk warning, had the necessary knowledge and experience, and was able to withstand the risks. Mr V challenges the acceptance of these, but it is quite usual to see electronic acceptance as part of an application process, so I don’t doubt the risks and terms will have been accepted in order for the application to have proceeded. Admiral considered the application and approved it in early May. COBS 3.5.3 set out what Admiral needed to consider in order to reclassify Mr V. At the time, under the Conduct of Business Rules (COBS) 3.5.3 in the Financial Conduct Authority’s (FCA) handbook, a firm was entitled to treat a consumer as an elective professional client as long as certain criteria were met. The rule said: COBS 3.5.3R A firm may treat a client other than a local public authority or municipality as an elective professional client if it complies with (1) and (3) and, where applicable, (2): (1) the firm undertakes an adequate assessment of the expertise, experience and knowledge of the client that gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making his own investment decisions and understanding the risks involved (the "qualitative test"); (2) in relation to MiFID or equivalent third country business in the course of that assessment, at least two of the following criteria are satisfied: (a) the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters; (b) the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds EUR 500,000; (c) the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged; (the "quantitative test"); and (3) the following procedure is followed: (a) the client must state in writing to the firm that it wishes to be treated as a professional client either generally or in respect of a particular service or transaction or type of transaction or product; (b) the firm must give the client a clear written warning of the protections and investor compensation rights the client may lose; and (c) the client must state in writing, in a separate document from the contract, that it is aware of the consequences of losing such protections. Also relevant here is Section II.2 of Annex II of MiFID II which said: “…investment firms must be required to take all reasonable steps to ensure that the client requesting to be treated as a professional client meets the relevant requirements…” and this was included within COBS

-- 5 of 9 --

3.5.6R which said “Before deciding to accept a request for re-categorisation as an elective professional client a firm must take all reasonable steps to ensure that the client requesting to be treated as an elective professional client satisfies the qualitative test and, where applicable, the relevant quantitative test.” So Admiral needed to take all reasonable steps when considering the qualitative and quantitative tests. We asked Admiral what they did with regards to this – they shared the statements put to Mr V in relation to COBS 3.5.3 (2) which he could have answered true or false to. They were as follows, with his answers in bold: • I have traded leveraged products with Admiral Markets and/or with other service providers at an average frequency of 10 orders per quarter over the previous four (4) quarters with the notional value of my orders typically exceeding 20,000 EUR: True • The size of my financial instrument portfolio, defined as including cash deposits and financial instruments exceeds EUR 500,000 (with Admiral Markets and other service providers): True • I work or have worked in the financial sector for at least one year in a professional position, which requires knowledge of CFD and forex trading (e.g. banking, investment sector or independent professional experience): False So, Mr V told Admiral he’d qualify on his trade size and volume, along with his portfolio size. Admiral haven’t commented on whether they, in hindsight, can see Mr V did indeed qualify. But from what I’ve seen in the course of reviewing this complaint, there is no evidence Mr V had a professional role relevant to the trading, and there is no evidence he had a portfolio of the relevant size. So even if his trading prior to opting up met the relevant frequency and size in the previous 12 months, he still couldn’t meet the other criteria. Admiral have said they relied on Mr V’s self-certification but I don’t think this was enough. And I’m not applying today’s standards to that of 2018 in saying that either. Mr V’s professional client application was approved in early May 2018 – while COBS 3.5.6 was updated in January 2018, the wording on this point remained the same since November 2007 – it said a firm must take all reasonable steps to ensure the tests are satisfied. And I don’t think Admiral could argue they did take all reasonable steps when relying on Mr V’s self-certification.

-- 6 of 9 --

This was brought to the attention of the industry in January 2018 too, with the FCA’s Dear CEO letter flagging the below after a review of the relevant market: Client categorisation The review considered client categorisation, in particular how distributors categorise clients as ‘elective professional’. Under COBS 3.5.3R, firms are expected to undertake an adequate assessment of a client’s expertise, experience and knowledge to ensure they have reasonable assurance that the client is capable of making their own investment decisions and properly understands the risks involved. We identified a number of firms that accepted weak answers or asked inadequate questions to assess whether a client could opt up to elective professional status under the requirements set out in COBS 3.5.3R. In particular, firms asked clients poor ‘qualitative’ questions to assess, with a reasonable level of assurance, whether they had sufficient knowledge and experience. This raises concerns of potential non- compliance with this rule. We expect firms to go beyond asking clients for their own opinion of their knowledge and experience, as this is inevitably subjective and is unlikely to be reliable, at least on its own. Firms should request facts and information to support their assessment of a prospective client's expertise, knowledge and experience in ways that gives them reasonable assurance, given the nature of the planned transactions or services, that the client is capable of making their own investment decisions and understands the risks involved. So, the rule asked Admiral to take all reasonable steps. And the FCA flagged that facts and information should be sought rather than relying on a client’s answers. Not only this, but the same month Mr V was recategorised, the ESMA Q&A document was updated with further relevant commentary which specifically went on to warn against self-certification. Though updated after the recategorisation and therefore not specifically relied on in my findings, it is relevant to consider given Admiral ought to have thought about this again in 2018 instead of leaving it until their review in 2024: In addition, in accordance with the second paragraph of Section II.2, investment firms are expected to take all reasonable steps to ensure that a retail client that requested to be treated as a professional client meets the requirements of Section II.1. Whilst investment firms should use their discretion to determine the reasonable steps needed, they should avoid relying solely on self-certification by the client and should consider obtaining further evidence to support assertions that the client meets the identification criteria at that point in time, notably when they consider that the documents or statements received from the clients are not sufficiently conclusive. Regardless of the above, COBS from not only early 2018 but also 2007 still required Admiral to take all reasonable steps. And the Dear CEO letter highlighted this too. In my view, the requirement to take reasonable steps extended further than allowing Mr V to tick some boxes and to effectively self-certify himself as an elective professional. Here there is no evidence to show Admiral considered documents or statements, let alone as to whether they were sufficiently conclusive or not. The rules were clear in that the requirement on Admiral of assessing the professional nature of Mr V was a higher bar than what they needed to do when allowing him to open the account in the first place – this is because in choosing to be treated as an elective professional client, Mr V gave up protections like increased margin requirement and negative balance protection which would reduce the possibility of significant financial losses. To rely on self-certification was not in the spirit or intention of the rules.

-- 7 of 9 --

Taking everything into account, I’m not satisfied it was fair and reasonable for Admiral to have classified Mr V as an elective professional client in May 2018 as I cannot see he would have met the criteria. As a result, his application ought to have been declined and he ought to have remained a retail client. The question that follows is what would be fair compensation. Mr V has estimated that his losses are in the region of €200,000. Trading as a professional allowed him to trade with additional leverage than he’d have been able to access as a retail client, so it could be the case that his losses would have been limited if he hadn’t been wrongly categorised. Our service’s approach to putting things right involves considering how we might aim to put the consumer as close as possible to the position they ought to have been in, but for the business’ error. As I don’t think Mr V should have been allowed to trade as an elective professional client, I have thought about how we could put him back into the position he would have been in had his application been declined. From everything I’ve seen and despite what Mr V now argues, I still think he would have continued to trade with Admiral as a retail client. And I’ve nothing to suggest he wouldn’t have traded with similar frequency and interest in the same instruments. So I don’t think it would be right to ask Admiral to refund all of the losses he’s made, as those losses were a result of his trading decisions which he is likely to have still made – albeit perhaps on a smaller scale – as a retail client. Instead, what needs to be considered is the difference between the losses Mr V did make, and the losses he would instead have made as a retail client. These are likely to be less given he wouldn’t have had access to higher leverage and may have been stopped out sooner than he was. The account will also have had negative balance protection and might have prevented him from making some trades that wouldn’t have been available for retail clients, such as cryptocurrencies. I think it’s fair and reasonable for Admiral to consider this difference given they enabled Mr V to lose more money than he otherwise would have been able to. But we must also pause to consider Mr V’s contribution to his own losses, and what is fair and reasonable in all the circumstances of the case – and those circumstances extend to Mr V’s role here too. In this case, I’ve taken into account that Mr V was trading with higher leverage – as the rules allowed – prior to opting up, so this was something he wanted to continue doing, rather than start doing. And that he asked to continue with such exposure, by way of the application. I’ve also seen he traded with higher leverage for six years, and continued doing so while incurring losses year on year. Mr V clearly built significant experience in trading derivative products and felt the effect of the risks involved. Mr V also answered Admiral’s application questions incorrectly. Even if he got the one about trading frequency and size wrong – given the interpretation around significant size – it was less likely he could make a mistake with the portfolio size one, given what he tells us now. Admiral’s failure was the more significant contribution to Mr V’s larger losses – given if they’d followed the rules and not relied on self-certification Mr V wouldn’t have been able to be treated as an elective professional client. That said, we must also recognise that one of the causes of Mr V’s financial losses was his own actions and trading decisions. This means that like our investigator suggested, it wouldn’t be fair and reasonable to ask Admiral to fully compensate him for those. Our investigator proposed Admiral compensate Mr V with 75% of the difference in losses between those made as an elective professional client and those that would have been

-- 8 of 9 --

made as a retail client. I’ve thought very carefully about this and agree it feels like a fair and reasonable position. I note both parties disagreed with our investigator on this point – but neither suggested an alternative proportion, instead, Admiral suggested they not pay anything and Mr V suggested they pay it all. I appreciate Mr V feels strongly about this, and that there’s no legal or factual reference point, but there is if we consider contributory negligence. Under section 1 of the Law Reform (Contributory Negligence) Act 1945, damages can be reduced with regard to the claimant’s share in the responsibility for the damage. Here, Mr V gave inaccurate answers on his application and went on to place the loss making trades over an extended period. So I think it’s right we consider his contribution to the scale of the losses. And though Mr V contests the comparison between professional trades and retail trades, it is our established approach to consider what would have happened if an error didn’t occur. Here, if the professional status wasn’t granted, Mr V will have remained a retail client and given his prolonged interest in trading thereafter, I haven’t seen anything to persuade me that Mr V wouldn’t have wanted to continue trading. I also don’t think compensation should attract any interest, as Mr V suggests, given his contribution to the losses along with the inherently higher risk nature of the trading. Putting things right I uphold Mr V’s complaint and to put things right, Admiral Markets UK Limited must rework the trades Mr V made after becoming an elective professional client as if he had placed them as a retail client. This should take account of all differences the professional classification made, such as, but not limited to, leverage, access to non-retail products and negative balance protection. Admiral Markets UK Limited should then compare the total Mr V would’ve gained or lost as a retail client, with the total he lost as a professional client. If there is a difference, Admiral Markets UK Limited ought to pay 75% of this back to him. Admiral Markets UK Limited should complete the calculation and pay the redress to Mr V within four weeks of receiving from us notification that Mr V has accepted my decision. If the redress is still outstanding after that time, Admiral Markets UK Limited must pay Mr V simple interest on the redress at the gross rate of 8% from the date of this decision until the date the redress is paid. Admiral Markets UK Limited must also give Mr V details of its calculation in a clear and simple form. My final decision For the reasons explained, I uphold Mr V’s complaint. Admiral Markets UK Ltd must put things right by doing what I’ve said above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr V to accept or reject my decision before 27 April 2026. Aimee Stanton Ombudsman

-- 9 of 9 --