Client classification often feels like an “admin” step before the real work starts. For many firms, the elective professional client process under COBS 3.5 still leans heavily on self-certification, generic questionnaires and signed acknowledgements.

The Court of Appeal’s decision in Linear Investments Ltd v Financial Ombudsman Service Ltd [2025] EWCA Civ 1369, handed down on 29 October 2025, makes clear that this approach is no longer safe. Linear operated a managed Contract for Difference (CFD) strategy for professional and institutional investors. A retail client, an academic rather than a financial markets professional, completed the firm’s forms, ticked boxes claiming substantial CFD experience and asked to be treated as an elective professional client.

The Financial Ombudsman Service (FOS) concluded that Linear had failed both limbs of the elective professional test:

  • Qualitative test under COBS 3.5.3R(1): Linear did not undertake an adequate assessment of the client’s expertise, experience and knowledge to give reasonable assurance that he could make his own decisions and understood the risks of leveraged CFDs.
  • Quantitative test under COBS 3.5.3R(2): Recording CFD trade size in generic “lots” without specifying underlying markets or lot size conventions did not demonstrate trading “in significant size, on the relevant market”.

The FOS ordered full redress using a lower-risk FTSE UK Private Investors Income Total Return Index benchmark, plus 8% simple interest; and Linear appealed.

The Court of Appeal upheld the FOS on the core findings:

  • Liability and benchmark – Linear’s assessment did not meet the COBS 3.5 standard, and using a lower-risk benchmark was rational given the client’s actual experience and understanding.
  • Contributory negligence – The Court allowed the appeal only at this point, holding that the FOS had misapplied the legal principles and should have considered a reduction in redress to reflect the client’s misstatements. The case has been sent back to the FOS to reassess the award.

The result is a useful reminder: tick-box self-certification is therefore no longer enough – but nor is it always fair for firms to bear 100% of the loss when clients misrepresent their experience.

The core question for compliance leaders is to what extent can firms rely on self-certification when classifying elective professional clients and what should change after the ruling.

Lessons from Linear: what COBS 3.5 really requires

1.     The tests are objective – not a paperwork ritual

COBS 3.5.3R sets out three conditions that must all be satisfied before a client can be treated as an elective professional:

  • Qualitative test – assess whether the client has enough knowledge and experience to make their own decisions and understand the risks.
  • Quantitative test – check that at least two of the FCA criteria are met (trading frequency/size, portfolio value, or relevant professional experience).
  • Procedural steps – obtain a written request, give clear risk warnings, and secure an acknowledgement that protections will be lost.

The Court emphasised that these are objective regulatory standards, not box-ticking exercises. The key question is not “did we get forms signed?”, but “did we reach a defensible, evidence-based judgement that this client meets the criteria for this product?”

2.     Tick-boxes are a starting point, not an end point

Linear’s process used a tick-box questionnaire covering products traded, frequency and size, alongside optional narrative explanations and supporting evidence. In practice, the narrative sections weren’t completed and no evidence was obtained, but the client was still classified as an elective professional.

The Court agreed with the FOS that this failed the qualitative test. Once the firm’s own form asks for explanations and evidence, not getting them is a red flag, not a technicality. Where information is incomplete or inconsistent (e.g. claimed CFD experience alongside a narrative focused only on long-only shares) the firm is “on inquiry” and must pause and probe before granting professional status.

3.     The quantitative test needs market-specific detail

The Court endorsed the FOS’s view that simply recording CFD trade sizes in “lots” did not satisfy the requirement for trades “in significant size, on the relevant market”. Lot sizes and conventions vary by market; without specifying which markets, instruments and actual exposures were involved, the firm could not demonstrate that the client met the quantitative threshold.

For compliance teams, this means quantitative criteria must produce verifiable, market-relevant evidence, not just numbers that look technical but prove nothing on paper.

What compliance teams should do now

While this case is fact-specific, the themes are universal. Firms should treat it as a prompt to tighten client classification by:

  • Refreshing COBS 3.5 processes: ensure forms capture product- and market-specific experience (not just generic “investing”) and require narrative explanations for higher-risk products such as leveraged CFDs.
  • Making evidence the centre point: record a short written rationale for each elective professional classification and resolve any gaps or inconsistencies before approval, rather than treating them as admin noise.
  • Embedding this into complaints handling: build contributory negligence analysis into FOS strategies where clients have clearly misstated their experience, while recognising that robust classification remains the first line of defence.

Final thoughts

The ruling underlines that client classification is not administrative noise, but a core conduct safeguard. Done well, it supports COBS 3.5 compliance, strengthens Consumer Duty outcomes and provides a more defensible position if a dispute reaches the FOS.