Client Categorisation

Rules of Arev Securities hf. on the classification of clients

General

These rules are made in accordance with Article 51 of the Financial Instruments Markets Act No. 115/2021. It states that investment firms must establish procedures for the classification of clients. Clients can fall into three different categories: retail clients, professional clients and eligible counterparties.

Client classification is important because the protection required by law for clients in the securities business differs depending on whether they are retail clients, professional clients or eligible counterparties.

Unique categories

2.1 General

The definition of individual categories can be found in Article 45 of Regulation (EU) 2017/565, specifically:

1. Recognised counterparties pursuant to Article 30(2) of Directive 2014/65/EU

2. Professional investors as referred to in Part I, Section II of the Annex to Directive 2014/65/EU

3. General investors as referred to in Article 24 of Directive 2014/65/EU

The same client can be classified into two different categories. For example, a particular client may be classified as a professional investor for trading in bonds and listed shares, but for trading in unlisted shares, they may be classified as a retail investor.

2.2 Recognised counterparties

Recognised counterparties, as defined by the Securities Markets Act, are those parties that fall under points (a), (b) or (c) of the definition of professional investors in Article 4(1)(14) of Regulation (EU) 2021/1230 on financial market infrastructures. This means that the following are recognised counterparties for the purposes of the Act:

a. Parties, at home or abroad, that hold an operating licence or carry out a legally mandated activity in the financial markets, including lending institutions, securities firms, financial institutions, insurance companies, funds for collective investment and their management companies, pension funds and their management companies as applicable, sellers of commodities and commodity derivatives, local entities and other institutional investors.

b.     Large undertakings which meet at least two of the following criteria in terms of financial figures, to be based on the official exchange rate as it is published at any given time:
    1. The total balance sheet amount is equivalent to 20 million euros in Icelandic krónur or higher.
    2. Net annual turnover is equivalent to 40 million euros in Icelandic krónur or more.
    3. Own funds are equivalent to 2 million euros in Icelandic krónur or more.

c. Governments, regional authorities, central banks and international institutions, such as the International Monetary Fund, the European Central Bank, the European Investment Bank and other comparable international institutions.

2.3 Professional investors

In the Markets in Financial Instruments Act 2021, professional investors are defined as:

A client who has the experience, knowledge and expertise to make their own investment decisions and assess the risks involved. The following are considered professional investors:

a. Parties, at home or abroad, that hold an operating licence or carry out a legally mandated activity in the financial markets, including lending institutions, securities firms, financial institutions, insurance companies, funds of common investment and their management companies, pension funds and their management companies as applicable, sellers of commodities and commodity derivatives, local entities and other institutional investors.

b. Large undertakings which meet at least two of the following financial criteria, the figures to be based on the official exchange rate as published at the time:
    1. The total balance sheet amount is the equivalent of 20 million euros in Icelandic krónur or higher.
    2. Net annual turnover is equivalent to 40 million euros in Icelandic krónur or more.
    3. Own funds are equivalent to 2 million euros in Icelandic krónur or more.

d. Other institutional investors whose primary business is to invest in financial instruments, including parties engaged in asset securitisation or other financing transactions.

e. Parties who have been approved as professional investors in accordance with Article 54.

Particular attention is drawn to the fact that the assessment for the classification of professional investors on request is twofold, in accordance with the above, first, an independent assessment must be made as to whether the professional skill, experience and knowledge are sufficient, and following this, it must be assessed whether the client meets at least two of the above-mentioned conditions.

Non-professional investors can request to be treated as professional investors, in which case an assessment will be carried out by Arev.

Professional investors do not have to agree to their classification; they only have to agree to the rules on best execution.

2.4 General investors

Retail investors are those who are not considered professional investors or eligible counterparties (whether those professional investors are also considered eligible counterparties or not).

In addition to the above, attention is drawn to the fact that Arev is obliged to enter into a written agreement with all retail investors who receive securities trading services from the company. This does not apply, however, to those who receive only investment advice. The contract shall set out the rights and obligations of the contracting parties. It makes no difference whether the arrangement is an ongoing business relationship or a single transaction.

Legal Effects of Classification

The outcome of the classification has a significant impact on the dealings and obligations of Arev Securities hf. towards its clients, and the effects of the classification are detailed below.

3.1 Recognised counterparty

The classification of a client as a recognised counterparty entails that [•] is authorised under Article 22 of the Act to conduct business with that client without complying with the protection requirements laid down in Article 9, 14, 15, 16 and 18, and Article 19(1) of the Act. This entails the following:

a. Arev is not obliged to enter into a written agreement with a recognised counterparty which sets out the rights and obligations of the parties in respect of Arev undertaking services for the counterparty in the field of securities trading.

b. Arev is not obliged to provide information about the company, investment options or risks to authorised counterparties to whom it offers its services. Furthermore, the company is not obliged to provide information on its fees or changes to its fees. Similarly, the company is not obliged to provide the recognised counterparty with information about legal remedies in the event of a dispute.

c. Before Arev provides investment advice or portfolio management to an authorised counterparty, the company is under no obligation to obtain information about the counterparty's knowledge or experience, their financial situation, or their objectives for the intended investment. The same applies, however, where other services than investment advice or asset management are concerned.

d. The rules of Article 18 on best execution, which provide for Arev's obligation to seek all avenues to secure the best possible outcome for its clients and to establish procedures to that end, do not apply when dealing with an authorised counterparty.

e. Arev is not obliged to take measures to ensure the fair and prompt execution of a client's instructions when the counterparty is an authorised agent.

3.2 Professional investor

Professional investors are clients who have the experience, knowledge and expertise to make their own investment decisions and assess the risks involved. Consequently, the law is based on the premise that professional investors do not require the same level of protection for their investments as general investors.

This outlines the protection that Arev is required to provide to retail investors on the one hand, and to professional counterparties on the other, in accordance with the Securities Markets Act. It can be assumed that the protection Arev must provide to professional investors is between that required for the other two categories. In this context, for example, Article 14 of the Securities Markets Act, which concerns a financial institution's duties regarding the provision of information to clients, applies to both retail and professional investors, whereas the rules of Article 15. of the Act, concerning the obtaining of information and advice for asset management and investment advice, apply only to a limited extent to professional investors.

3.3 General investor

Retail investors enjoy full protection under the provisions of the Securities Markets Act, including with regard to all matters excluded for recognised counterparties and listed above. This includes, amongst other things, an obligation for Arev to provide clients in this category with information about:

Arev and the services offered and the client's resources;
1. the investment options available and the risks associated with each;
1. the fees and commissions associated with each investment option.

Please note that retail investors are permitted to request to be classified as professional investors. Upon such classification, the client waives some of their rights and protections under the Securities Markets Act. For such a request to be considered, the client must provide Arev with certain information, and such classification is subject to Arev's approval.

Take effect

These rules shall come into effect upon the signature of the Arev board. Furthermore, the policy on the same subject from 2025 is hereby repealed.

Approved at the board meeting on 27 March 2026.