High Court finds that Robert Tchenguiz was correctly classified as an elective professional client and that there was no breach of COBS rules


Investor Robert Tchenguiz (T) had opened a spread betting account with CMC Spreadbet plc (CMC), and CMC had elected to treat T as a ‘professional client’. T’s classification as an elective professional client would mean that he would enjoy fewer protections than if he had been treated as a retail client, in that he would not benefit from negative balance protection (NBP). Retail clients benefiting from NBP would be protected against losing more than their stake whereas a professional client could operate their account at a deficit under FCA’s COB rules. Under the account terms and conditions (TOB), CMC retained rights to call upon any negative balance and seek immediate repayment of such sums.

T traded on his account by opening substantial spreadbet positions on shares of First Group plc, however those shares incurred substantial losses at the start of the COVID-19 pandemic, resulting in a significant negative balance for which T was being held liable by CMC (the Initial Losses). CMC called upon the Initial Losses and sought immediate repayment from T, which T failed to provide. As a result and to prevent further losses accruing (the Crystallised Losses), CMC closed the trading positions in accordance with its TOB and requested T to pay the Crystallised Losses. T failed to pay the Crystallised Losses and CMC issued legal proceedings to recover the same.

T’s defence

In his defence to the claim, T contended that:

  1. he should not be categorised as an elective professional client, since CMC failed to comply with FCA’s COBS rules in giving warnings about the loss of protections concomitant with the reclassification; and
  2. if CMC was entitled to classify T as an elective professional client, then CMC have either breached COBS 2.1.1R or acted in a Braganza irrational manner in its exercise of discretion under paragraph 12.3 of Schedule 1 of CMC’s TOB, such that T has a section 138D FSMA claim for damages which gives rise to equitable set-off that extinguishes the claim.


The Judge noted that after T opened a retail client account with CMC, T completed a request form to become an electric professional client in which T confirmed that:

  • the size of his financial instrument portfolio exceeded €500,000 (it was in fact stated to be greater than £1 million); and
  • T had worked in the financial sector for at least one year in a professional capacity that required knowledge of the transactions or services envisaged.

T had also provided evidence to support his declaration electing to become a professional client. The request form further stated that T would lose certain protections, including the NBP, and it provided details of these to T.

In the course of cross-examination, T candidly accepted that he knew that the classification as a professional client would not only provide advantages to him but also lose him the NBP, as it had done in his prior trading experience. The Judge further noted that clear warnings were given the TOB about the protections that T would lose, particularly the loss of the NBP. Accordingly, the Judge determined that “CMC complied with the regulatory requirements of COBS 3.5.3R(3) with regard to the need to give clear written warnings concerning the loss of NBP, both in general terms, from an objective point of view, having regard to the requirements of COBS 4.5A.3 and also having specific regard to the circumstances, knowledge and experience of the Defendant”. Accordingly, the Judge rejected T’s contention that “inadequate warnings were given to him, no sufficient reference was made to the disadvantages of recategorisation as a professional client or any implication that he was not in fact well aware of them or that he was wrongly required to opt-up to professional status”. As a result, NBP would not apply and the losses claimed by CMC were a debt that was capable of arising and becoming due.

In the circumstances, the Judge found that CMC did discharge its duty, if it was owed, under COBS 2.1.1R but he also considered that it is not applicable to cases of close out following a failure to meet a margin call since in such circumstances the spread betting firm is seeking to remedy the breach of agreement in accordance with its terms and it was entitled to put its own interest ahead of the client in such circumstances. Notably, the Judge determined that CMC’s act of close out and execution and the timing of them were in both the interests of CMC and T.


Consequently, the Judge concluded that T “was lawfully categorised as a professional client and CMC did not fail to comply with the duty in COBS to give appropriate warnings with regard to the loss of protections and rights which he would have enjoyed as a retail client but not as a professional client. Further, for the reasons I have given, I reject the Defendant’s contentions that in closing out his account CMC breached the Braganza duty or failed to comply with COBS 2.1.1R and the duty to act in the best interests of its client”. CMC had fully complied with its regulatory obligations and was entitled to close out the positions as it had done. CMC’s claim for the Crystallised Losses succeeded in full.

Harshil Patel