Entire Section
Conduct of Business Module (COB) [VER39/10-21]
COB 1 COB 1 Introduction
COB 1.1 COB 1.1 Application
COB 1.1.1 COB 1.1.1
This module (COB) applies to every
Authorised Firm with respect to the carrying on, in or from the DIFC, of any:(a)Financial Service ; or(b) activity which is carried on, or held out as being carried on, in connection with or for the purposes of such aFinancial Service ;except to the extent that a provision of COB provides for a narrower application.
Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 1.1.1 Guidance
An
Authorised Firm may be able to rely on the Transitional Rules in section 2.6 for the purposes of meeting the client classification requirements in chapter 2.[Added] DFSA RM58/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 1.1.2
COB does not apply to a
Representative Office .Derived from DFSA RM68/2009 (Made 3rd January 2010). [VER17/01-10]COB 1.1.2 Guidance
An Authorised Firm may be able to rely on the Transitional Rules in COB section 2.6 for the purposes of meeting the client classification requirements in COB chapter 2.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 2 COB 2 Client Classification
COB 2.1 COB 2.1 Application
COB 2.1.1
(1) This chapter applies, subject to Rule 2.1.2, to anAuthorised Firm , which carries on, or intends to carry on, anyFinancial Service with or for aPerson .(2) For the purposes of this chapter, aPerson includes aFund , pension fund or trust, even if it does not have a separate legal personality.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]Exclusions
COB 2.1.2 COB 2.1.2
(1) This chapter does not apply to aCredit Rating Agency in so far as it carries on, or intends to carry on, theFinancial Service of Operating aCredit Rating Agency .(2) This chapter does not apply to anAuthorised Firm in so far as it carries on the activity described in GEN Rule 2.26.1, provided that no otherFinancial Service is carried on.(3) This chapter does not apply to anAuthorised ISPV .(4) Except as provided in (5), this chapter does not apply to an Authorised Firm that is Operating an Employee Money Purchase Scheme or Acting as the Administrator of an Employee Money Purchase Scheme.(5) An Authorised Firm referred to in (4) must treat the Members, Beneficiaries and Participating Employers of an Employee Money Purchase as Retail Clients.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Added] DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 2.1.2 Guidance
1. The activity described in GEN Rule 2.26.1 is marketing of financial services and financial products which are offered in a jurisdiction outside theDIFC . Such marketing activities can be conducted by anAuthorised Firm , which holds aRepresentative Office Licence, provided the financial services or financial products marketed by it are those offered by its head office or a member of itsGroup .2. As aRepresentative Office conducting marketing activities of the kind described in GEN Rule 2.26.1 does not have a client relationship with a Person to whom it markets a financial service or financial product, the client classification requirements in this chapter do not apply to the firm with regard to that Person.3. OtherAuthorised Firms can also conduct marketing activities, of the kind described in GEN Rule 2.26.1, under the exclusion in GEN Rule 2.26.2.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.2 COB 2.2 Overview
COB 2.2 Guidance
1. This chapter sets out the manner in which anAuthorised Firm is required to classify itsClients , as well as good practice it may follow. The scope of application of the Rulebook modules will vary depending on whether thePerson with or for whom anAuthorised Firm is carrying onFinancial Services is classified as aRetail Client ,Professional Client orMarket Counterparty .Risk based approach
2. The Rules in this chapter reflect the DFSA's risk based approach to regulation. Therefore, to achieve the underlying objective of client classification, which is to ensure that firms provide to their clients an appropriate level of regulatory protection, the Rules, for example:a. take into account the higher degree of knowledge and experience ('expertise') and resources available to certain institutional and wholesale clients (see Rule 2.3.4);b. take into account who primarily bears the risk associated with a particular type of aFinancial Service (see Rule 2.3.5);c. take into account the type ofPersons to whom aFinancial Service is usually provided (see Rules 2.3.6, 2.3.7 and 2.3.8);d. provide flexibility for anAuthorised Firm to rely on a client classification made by its head office or aGroup member, provided risks associated with such reliance are effectively addressed (see Rules 2.4.4 and 3.3.4);e. provide flexibility for group-basedFinancial Services to be provided where risks associated with such services are effectively addressed (see Rule 2.4.5); andf. provide flexibility for look-through arrangements where reliance can be placed on expertise and resources available to aClient , such as at itsHolding Company or controller level (see Rule 2.3.8(2)).Types of clients
3. There are three types ofClients :a. aRetail Client ;b. aProfessional Client ; orc. aMarket Counterparty .However, aPerson may be classified as aProfessional Client in relation to oneFinancial Service or financial product, but aRetail Client in relation to another. Similarly, aPerson classified as aProfessional Client may be classified as aMarket Counterparty in relation to someFinancial Services or financial products but not others (see paragraphs 8 and 9 below).Retail clients
4. APerson who cannot be classified as aProfessional Client orMarket Counterparty in accordance with the Rules is required to be classified as aRetail Client (see Rule 2.3.2). If anAuthorised Firm chooses to provideFinancial Services to aPerson as aRetail Client , it may do so by simply classifying thatPerson as aRetail Client without having to follow any further procedures as required for classifyingPersons asProfessional Clients orMarket Counterparties .Professional Clients
5. There are three routes through which aPerson may be classified as aProfessional Client :a. 'deemed'Professional Clients under Rule 2.3.4. As thesePersons have significant assets under their control, and, therefore, either possess, or have the resources to obtain, the necessary expertise to manage such assets, they can be classified as 'deemed'Professional Clients without having to meet any additional net asset and expertise criteria;b. 'service-based'Professional Clients under Rule 2.3.5, Rule 2.3.6 or Rule 2.3.6A. Due to their inherent nature, certainFinancial Services activities such as credit provided to anUndertaking for business purposes ('commercial credit'),. . . advisory and arranging activities relating to corporate structuring and financing and crowdfunding services provided to aBody Corporate that is a borrower or anIssuer , are generally provided toPersons with sufficient expertise to obtain such services or are of relatively low risk to the Client. Therefore, aPerson to whom such a Financial Service is provided can be classified as a 'service-based'Professional Client ; andc. 'assessed'Professional Clients under Rules 2.3.7 and 2.3.8. ThesePersons are either individuals or Undertakings which can be classified as aProfessional Client only if they meet the specified net assets and expertise requirements set out in Rules 2.4.2 and 2.4.3.Investment vehicles and family member joint account holders of individuals who are themselvesProfessional Clients can also be classified asProfessional Clients where certain conditions are met — see Rule 2.3.7(2) and (3).Market Counterparties
6. A 'deemed'Professional Client under Rule 2.3.4 may be classified as aMarket Counterparty provided theAuthorised Firm has complied with the procedures set out in Rule 2.3.9(2). When anAuthorised Firm carries onFinancial Services with aMarket Counterparty , only a limited number of requirements in the Rulebook modules apply to such firms. This is because anAuthorised Firm transacts with aMarket Counterparty on an equal footing and, therefore, most of the client protection provisions in the Rulebook modules are not needed to protect such a party.7. When anAuthorised Firm carries onFinancial Services with anotherAuthorised Firm or aRegulated Financial Institution , such services would generally qualify asFinancial Services that can be carried on with aMarket Counterparty (provided the procedures in Rule 2.3.9(2) are met). Examples of such services include:a. providing reinsurance or insurance management services to an insurer; andb. providing one or more Financial Services of custody, managing assets, or fund administration services to a fund manager, collective investment fund or a pension fund.Such activities would not attract most of the client protection provisions contained in the Rulebook modules for the reasons set out under item 6 above.Multiple classifications
8. In some circumstances, anAuthorised Firm may provide aFinancial Service to aPerson who qualifies under more than one category ofProfessional Client . For example, aClient to whom anAuthorised Firm provides commercial credit or corporate structuring and financing advice or arranging credit, in the circumstances specified in Rule 2.3.5 or Rule 2.3.6, may also be a 'deemed'Professional Client under Rule 2.3.4. In such circumstances, anAuthorised Firm can classify such aPerson as a 'deemed'Professional Client , in which case the firm may also be able to classify thatClient as aMarket Counterparty following the procedures in Rule 2.3.9(2).9. It is also possible that anAuthorised Firm may provide a range ofFinancial Services to a singleClient . If theClient can be classified as aProfessional Client with regard to certainFinancial Services (such asProviding Credit under the requirements in Rule 2.3.5, and similarly providing corporate structuring and financing advice or arranging credit under Rule 2.3.6), and not so with regard to otherFinancial Services , anAuthorised Firm needs to take care that theClient is appropriately and correctly classified with respect to eachFinancial Service . This may mean that the sameClient may receive bothProfessional Client treatment with regard to someFinancial Services andRetail Client treatment with regard to otherFinancial Services . Where aClient cannot be classified as aProfessional Client with regard to someFinancial Services , theAuthorised Firm can only provide such services to theClient if it has aRetail Endorsement on itsLicence .Client classifications and Client Agreements
10. Rule 2.4.4 provides a degree of flexibility for anAuthorised Firm which is aBranch operation or member of a Group to rely on client classifications made by its head office or any other branch of the same legal entity, or by a member of itsGroup . Where such reliance is placed, theAuthorised Firm should be able to demonstrate to the satisfaction of theDFSA that the reliance is reasonable because the applicable requirements are substantially similar and, where this is not the case, any identified differences (i.e. gaps) are suitably addressed to enable the firm to meet its obligations relating to client classification under this chapter.11. It is also possible that anAuthorised Firm which is a member of aGroup may have someClients to whom it providesFinancial Services as aRetail Client , whilst otherGroup members may provideFinancial Services to the sameClient as aProfessional Client . While anAuthorised Firm may rely on the client classifications made by aGroup member under Rule 2.4.4, it is the responsibility of the firm to ensure that the correct classification is adopted by it for the purposes of theFinancial Services it provides to theClient (see Rule 2.4.4). See also Rule 3.3.4, which provides a degree of flexibility for anAuthorised Firm which is aBranch to rely on aClient Agreement made by its head office or any other branch of the same legal entity, or by a member of theGroup , provided the requirements in that Rule are met.Group clients
12. Rule 2.4.5 is designed to provide a greater degree of flexibility to anAuthorised Firm providingFinancial Services to aClient in aGroup context, where more than one member of theGroup may be providingFinancial Services which form a bundle of services. EachGroup may have different arrangements to provide a number of services to aClient . Depending on the nature of the arrangement theGroup adopts, and theFinancial Services involved, risks associated with such arrangements could also differ. Therefore, Rule 2.4.5 sets out the outcomes which need to be achieved by anAuthorised Firm where it participates in aGroup arrangement under which a bundle ofFinancial Services is provided to aClient by different members within itsGroup . See also Rule 3.3.4, which provides a degree of flexibility for anAuthorised Firm participating in an arrangement under which a bundle ofFinancial Services is provided to aClient where reliance can be made on aClient Agreement executed by aGroup member, provided the requirements in that Rule are met.Transitional Rules
13. Section 2.6 contains provisions designed to enableAuthorised Firms to make a smooth transition to the new client classification regime that came into force on 1 April 2015. These Rules, among other things:a. keep in force the client classifications made under the old client classification regime for theFinancial Services that were provided to thoseClients under that regime;b. provide for the increased asset threshold of $1 million to come into effect on 1 April 2016; andc. retain the asset threshold at $500,000 until 1 April 2016.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 2.3 COB 2.3 Types of Clients
COB 2.3.1 COB 2.3.1
(1) AnAuthorised Firm must, before carrying on aFinancial Service with or for aPerson , classify thatPerson as a:(a)Retail Client ;(b)Professional Client ; or(c)Market Counterparty ,in accordance with the requirements in this chapter.(2) AnAuthorised Firm may classify aPerson as a different type of aClient for differentFinancial Services or financial products that are to be provided to such aClient .(3) If anAuthorised Firm is aware that aPerson ('the agent'), with or for whom it is intending to carry on aFinancial Service is acting as an agent for anotherPerson ('the principal') in relation to the service then, unless the agent is anotherAuthorised Firm or a Regulated Financial Institution, theAuthorised Firm must treat the principal as itsClient in relation to that service.(4) If anAuthorised Firm intends to provide anyFinancial Service to a trust, it must, unless otherwise provided in the Rules, treat the trustee of the trust, and not the beneficiaries of the trust, as itsClient .Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.3.1 Guidance
1. When aPerson becomes aClient of anAuthorised Firm is a question of fact that needs to be addressed by the firm in light of the nature of the relevantFinancial Service (or financial product) involved, and the relations and interactions which the firm has with thatPerson . For instance, in certain types ofFinancial Services (such as corporate advisory services), a number of conversations (such as marketing and promotional activities) may occur between anAuthorised Firm and a potential client before it may appear to the firm on a reasonable basis that thePerson is likely to obtain aFinancial Service from the firm, at which point a client classification is required.2. Given the many different circumstances in which interactions between a potential client and anAuthorised Firm take place, it is not possible to include a more specific requirement than the current provision which requires the client classification to occur "before" a firm provides aFinancial Service to aPerson — see Rule 2.3.1(1). This provides anAuthorised Firm flexibility to determine when exactly it would be appropriate for the firm to undertake client classification.3. TheDFSA expectsAuthorised Firms to adopt practices which are consistent with the underlying intent of the client classification provisions, which is to provideClients an appropriate level of regulatory protection in light of the resources and expertise available to such Clients. Therefore, as soon as it is reasonably apparent that a potential customer is likely to obtain aFinancial Service from the firm, it would need to undertake the client classification process relating to that customer (unless such a customer is classified as aRetail Client for the purposes of the Rules — see Rule 2.3.2).4. For example, anAuthorised Firm is not expected to undertake advising or arranging activities relating to aFinancial Service or financial product which is suited toProfessional Clients (such as complex derivatives) with a potential customer without having a reasonable basis to consider that such a customer has sufficient knowledge and experience relating to the relevant service or product. While a formal client classification may not be needed at the early stages of interaction with a potential customer, a firm is expected to form a reasonable view about the professional status of a potential customer when exposing such a customer toFinancial Services or financial products (such as investments in aQualified Investor Fund ) which are intended forProfessional Clients .5. Rule 2.3.1(2) allows anAuthorised Firm to classify aClient as aRetail Client in respect of someFinancial Services and aProfessional Client in respect of otherFinancial Services . For example, aClient classified as a 'service-based'Professional Client under Rule 2.3.5 for theFinancial Service ofProviding Credit may not necessarily meet the criteria to be classified as an 'assessed'Professional Client under Rule 2.3.7 or Rule 2.3.8 in respect of any otherFinancial Service to be provided to thatClient . Therefore, such aClient would need to be classified as aRetail Client with respect toFinancial Services other thanProviding Credit .Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]Retail Clients
COB 2.3.2
An
Authorised Firm must classify as aRetail Client anyPerson who is not classified as aProfessional Client or aMarket Counterparty .Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]Professional Clients
COB 2.3.3 COB 2.3.3
(1) AnAuthorised Firm may classify aPerson as aProfessional Client if that Person:(a) meets the requirements to be:(i) a "deemed"Professional Client pursuant to Rule 2.3.4;(b) has not opted-in to be classified as aRetail Client in accordance with the requirements in Rule 2.4.1.(2) If anAuthorised Firm becomes aware that aProfessional Client no longer fulfils the requirements to remain classified as aProfessional Client , theAuthorised Firm must, as soon as possible, inform theClient that this is the case and the measures that are available to the firm and theClient to address that situation.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17COB 2.3.3 Guidance
The measures referred to in Rule 2.3.3(2) may include classifying the
Client as aRetail Client with respect to any futureFinancial Services to be provided to thatClient or, if the firm does not have a Retail Endorsement, discontinuing the provision ofFinancial Services to thatClient .Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]'Deemed' Professional Clients
COB 2.3.4 COB 2.3.4
(1) For the purposes of Rule 2.3.3(1)(a)(i), aPerson is a 'deemed'Professional Client if thatPerson is:(a) a supranational organisation whose members are either countries, central banks or national monetary authorities;(b) a properly constituted government, government agency, central bank or other national monetary authority of any country or jurisdiction;(c) a public authority or state investment body;(d) anAuthorised Market Institution ,Regulated Exchange or regulated clearing house;(e) anAuthorised Firm , aRegulated Financial Institution or the management company of a regulated pension fund;(f) aCollective Investment Fund or a regulated pension fund;(g) a Large Undertaking as specified in (2);(h) aBody Corporate whose shares are listed or admitted to trading on any exchange of an IOSCO member country;(i) any other institutional investor whose main activity is to invest in financial instruments, including an entity dedicated to the securitisation of assets or other financial transactions;(j) a trustee of a trust which has, or had during the previous 12 months, assets of at least $10 million; or(k) a holder of a licence under theSingle Family Office Regulations with respect to its activities carried on exclusively for the purposes of, and only in so far as it is, carrying out its duties as aSingle Family Office .(2) APerson is a Large Undertaking if it met, as at the date of its most recent financial statements, at least two of the following requirements:(a) it has a balance sheet total of at least $20 million;(b) it has a net annual turnover of at least $40 million; or(c) it has own funds or called up capital of at least $2 million.(3) In (2):(a) a 'balance sheet total' means the aggregate of the amounts shown as assets in the balance sheet before deducting both current and long-term liabilities;(b) 'own funds' mean cash and investments as shown in the balance sheet; and(c) 'called up capital' means all the amounts paid-up on allotted shares, less any amounts owing on allotted shares.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.3.4 Guidance
1. Although anAuthorised Firm is not required to undertake a detailed assessment of a 'deemed'Professional Client's expertise or net assets (as is required in the case of an 'assessed'Professional Client ), a firm still needs to have a reasonable basis for classifying aPerson as falling within the list of 'deemed'Professional Clients in Rule 2.3.4(1) or (2). For example, in order to verify whether a trustee of a trust can be classified as a 'deemed'Professional Client under Rule 2.3.4(1)(j), anAuthorised Firm should obtain a verified copy of the most recent balance sheet of the relevant trust.2. An individual trustee on the board of a trust where the trust has at least $10 million assets under its control can qualify as a 'deemed'Professional Client under Rule 2.3.4(1)(j) but only in relation to that particular trust.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]'Service-based' Professional Clients
Guidance
Rule 2.3.5, Rule 2.3.6 and Rule 2.3.6A each set out different circumstances in which a
Person can be classified as a 'service-based'Professional Client . The professional status allowed under these three 'service-based'Professional Client categories can only be used for those threeFinancial Services and not for any otherFinancial Service provided to the sameClient . If such aClient also obtains otherFinancial Services from the same firm, unless theClient can qualify either as a 'deemed' or 'assessed'Professional Client , thatClient will need to be classified as aRetail Client for those otherFinancial Services .Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 2.3.5 COB 2.3.5
(1) For the purposes of Rule 2.3.3(1)(a)(ii), aPerson is a 'service-based'Professional Client if:(a) theFinancial Service provided to thatPerson isProviding Credit ;(b) thePerson is anUndertaking ; and(c) theCredit Facility in question is provided for use in the business activities of:(i) thePerson ;(ii) a controller of thePerson ;(iii) any member of theGroup to which thePerson belongs; or(iv) a joint venture of aPerson referred to in (i)–(iii).(2) In (1)(c)(ii), a controller is an individual who:(a) owns a majority of the shares of theUndertaking ;(b) is able to appoint or remove a majority of the board members of theUndertaking ; or(c) controls a majority of the voting rights of theUndertaking (or that of aHolding Company of theUndertaking ).Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.3.5 Guidance
1. Rule 2.3.5(1)(c) enables anAuthorised Firm to classify anUndertaking as aProfessional Client for the purposes ofProviding Credit for businesses purposes, not only for theUndertaking itself, but also for its related entities (such as a controller or member of itsGroup ) as specified in that Rule, provided that theUndertaking has not opted-in to be classified as a Retail Client.2. It is possible that anUndertaking obtaining credit may also fall within the category of a 'deemed'Professional Client under Rule 2.3.4 — see, for example, a Large Undertaking under Rule 2.3.4(2). AnAuthorised Firm may Provide Credit to such aPerson without having to meet the requirements in Rule 2.3.5.3. Joint ventures are generally contractual arrangements under which parties contribute their assets and/or expertise to develop or to undertake specified business activities. AnUndertaking can be set up by a number of joint venture partners for obtaining credit for use in the ordinary course of their joint venture business. Although joint venture partners would themselves not have a controlling interest in the joint venture, as credit is obtained for use in the joint venture business, they have the benefit of the professional client status available to theUndertaking under Rule 2.3.5.4. While anAuthorised Firm is not required to undertake a detailed assessment of a 'service-based' Professional Client's expertise or net assets (as required in the case of an 'assessed'Professional Client ), a firm still needs to have a reasonable basis for classifying aPerson as falling within the circumstances specified in this Rule (or Rule 2.3.6). For example, to verify that anUndertaking is obtaining credit for use in the business of itsHolding Company or another member of itsGroup , a firm would need some documentation to demonstrate theGroup member relationship. Such documents may include a diagram of theGroup structure and copies of certificates of incorporation and shareholdings of the relevant companies.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.3.6 COB 2.3.6
(1) For the purposes of Rule 2.3.3(1)(a)(ii), a is a 'service-based' ProfessionalPerson Client if:(a) theFinancial Service provided to thatPerson is "Advising on Financial Products ", "Arranging Deals in Investments ", or "Arranging Credit and Advising on Credit "; and(b) the service in (a) is provided for the purposes of 'corporate structuring and financing'.(2) In (1), 'corporate structuring and financing':(a) includes:(i) providing advice relating to an acquisition, disposal, structuring, restructuring, financing or refinancing of a corporation or other legal entity; or(ii) arranging credit for a purpose referred to in (i); and(b) excludes anyAdvising on Financial Products ,Arranging Deals in Investments orArranging Credit and Advising on Credit , provided to an individual for the purposes of, or in connection with, the management of that individual's investments.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 2.3.6A COB 2.3.6A
For the purposes of the reference in Rule 2.3.3(1)(a)(ii) to this
Rule , aPerson is a 'service-based'Professional Client if:(a) theFinancial Service being provided to thePerson isLoan Crowdfunding orInvestment Crowdfunding ; and(b) thePerson is aBody Corporate and is using the service to borrow funds from lenders or to obtain funds from investors.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 2.3.6 Guidance
1. This Rule enables anAuthorised Firm to classify aPerson obtaining advice or arranging credit for the purposes of corporate structuring and financing as aProfessional Client based on the nature of such activities, which are generally sought byPersons with greater expertise and resources thanRetail Clients . Such advice and arranging occurs in the context of takeovers and merger activities and capital raising activities of companies, including anyInitial Public Offerings or other offers of securities for capital raising purposes.2. If aClient seeking corporate structuring and financing services is also aPerson who falls within the category of a 'deemed'Professional Client under Rule 2.3.4, anAuthorised Firm may provide to such aPerson those services without having to meet the requirements in Rule 2.3.6.3. Under Rule 2.3.6(2)(b), any advisory and arranging services given to an individual who is a wealth managementClient for the purposes of their investment activities or portfolio management are excluded because suchClients are not necessarilyProfessional Clients . Therefore, for such aClient to qualify as aProfessional Client , he would need to be an 'assessed'Professional Client , which requires an assessment of his net assets and expertise against the requirements in Rules 2.4.2 and 2.4.3.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]'Assessed' Professional Clients
Individuals
COB 2.3.7 COB 2.3.7
(1) For the purposes of Rule 2.3.3(1)(a)(iii), an individual is an 'assessed'Professional Client if:(a) the individual has net assets of at least $1 million calculated in accordance with Rule 2.4.2; and(b) either:(i) the individual is, or has been, in the previous two years, anEmployee in a relevant professional position of anAuthorised Firm or aRegulated Financial Institution ; or(ii) the individual appears, on reasonable grounds, to have sufficient experience and understanding of relevant financial markets, products or transactions and any associated risks, following the analysis set out in Rule 2.4.3.(2) AnAuthorised Firm may classify any legal structure or vehicle, such as anUndertaking , trust or foundation, which is set up solely for the purpose of facilitating the management of an investment portfolio of an individual assessed as meeting the requirements in (1) as aProfessional Client .(3) AnAuthorised Firm may also classify as aProfessional Client another individual (the "joint account holder") who has a joint account with an individual assessed as meeting the requirements in (1) (the "primary account holder") if:(a) the joint account holder is a family member of the primary account holder;(b) the account is used for the purposes of managing investments for the primary account holder and the joint account holder; and(c) the joint account holder has confirmed in writing that investment decisions relating to the joint account are generally made for, or on behalf of, him by the primary account holder.(4) In (3), a 'family member' of the primary account holder is:(a) his spouse;(b) his children and step-children, his parents and step-parents, his brothers and sisters and his step-brothers and step-sisters; and(c) the spouse of any individual within (b).Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.3.7 Guidance
1. Under Rule 2.6.3, the net asset test referred to in Rule 2.3.7(1)(a) remains $500,000 until 1 April 2016.2. An individual can generally only be classified as aProfessional Client if he meets the requirements in Rule 2.3.7(1) or (3). This is because all the other criteria relevant toProfessional Clients in this chapter apply to Undertakings and not to individuals, with the possible exception of a trustee of a trust under Rule 2.3.4(j).3. An individual classified as aProfessional Client may operate a joint account with more than one family member. Under the general principle of interpretation that the singular includes the plural, provided each such family member meets the requirements set out in Rule 2.3.7(3), they can all be classified asProfessional Clients .4. A legal structure or vehicle of aProfessional Client , which is itself classified as aProfessional Client under Rule 2.3.7(2), does not have a right to opt-in as aRetail Client , as that right belongs to theProfessional Client for whose purposes the vehicle is set up.5. A family member of aProfessional Client classified as aProfessional Client under Rule 2.3.7(3) also does not per se have a right to opt-in to be classified as aRetail Client with regard to the operation of the joint account. However, such an individual has the right to withdraw his confirmation given under Rule 2.3.7(3)(c) to have decisions on behalf of him made by theProfessional Client who is the primary account holder of the joint account. AnAuthorised Firm must ensure that once such a withdrawal is made, the withdrawing individual is no longer classified as aProfessional Client . The joint account arrangements would also need to be reviewed as the primary account holder would no longer have the power to make decisions on behalf of the withdrawing individual.6. In the case of a joint account operated by a primary account holder who is a parent or legal guardian of a minor, the procedures for obtaining the formal consent referred to in Rule 2.3.7(3)(c) would generally not be required, as such parent or guardian would have the authority to act for the minor where he is the joint account holder.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]Undertakings
COB 2.3.8 COB 2.3.8
(1) For the purposes of COB Rule 2.3.3(1)(a)(iii), anUndertaking is an 'assessed'Professional Client if theUndertaking :(a) has own funds or called up capital of at least $1 million; and(b) appears, on reasonable grounds, to have sufficient experience and understanding of relevant financial markets, products or transactions and any associated risks, following the analysis set out in COB Rule 2.4.3.(2) AnAuthorised Firm may also classify anUndertaking as aProfessional Client if theUndertaking has:(a) a controller;(b) aHolding Company ;(c) aSubsidiary ; or(d) a joint venture partner,who meets the requirements to be classified as an 'assessed'Professional Client pursuant to either COB Rule 2.3.7(1)(a) and (b)(ii) or COB Rule 2.3.8(1) as applicable, or a 'deemed'Professional Client pursuant to COB Rule 2.3.4(1).(3) For the purposes of classifying an Undertaking that is an industry or professional body or association as an ‘assessed’ Professional Client, the requirement in (1)(a) does not apply.(4) In this Rule:(a) the terms 'own funds' and 'called up capital' in (1)(a) have the meaning given under COB Rule 2.3.4(3)(b) or (c) as the case may be; and(b) the term 'controller' in (2)(a) means an individual who meets the criteria in COB Rule 2.3.5(2).Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 2.3.8 Guidance
1. Under COB Rule 2.6.3, the asset test referred to in COB Rule 2.3.8(1)(a) remains $500,000 until 1 April 2016.2. Where anAuthorised Firm proposes to classify anUndertaking as aProfessional Client under (2), the firm must assess whether thePerson on whom reliance is placed, i.e. a Person referred to in (2)(a) to (d) as is relevant, meets theProfessional Client criteria, unless thatPerson falls within a category of 'deemed' Professional Client.3. Where anUndertaking is set up by partners in a joint venture for the purposes of their joint venture, theUndertaking itself can be treated as aProfessional Client provided a joint venture partner meets theProfessional Client criteria (see Guidance paragraph 3 under COB Rule 2.3.5 for a description of a joint venture). To be able to rely on a joint venture partner'sProfessional Client status, such a partner should generally be a key decision maker with respect to the business activities of the joint venture, and not just a silent partner.4. An Authorised Firm is not required to assess if an Undertaking meets the asset test referred to in COB Rule 2.3.8(1)(a), where the Undertaking is an industry or professional body or association i.e. a body or association that represents a particular industry sector or that oversees, or provides services to, members of a particular profession. The Authorised Firm will, however, still need to assess if the Undertaking meets the knowledge and experience requirement in COB Rule 2.3.8(1)(b).Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]Market Counterparties
COB 2.3.9 COB 2.3.9
(1) AnAuthorised Firm may classify aPerson as aMarket Counterparty if:(a) thatPerson is:(i) a 'deemed'Professional Client pursuant to COB Rule 2.3.4;(ii) an 'assessed'Professional Client pursuant to COB Rule 2.3.8(2)(b) which is wholly owned by aHolding Company that is a 'deemed'Professional Client pursuant to COB Rule 2.3.4(1)(g) or (h); or(iii) a 'deemed'Market Counterparty pursuant to Rule (1A); and(b) in the case ofPersons referred to in (a)(i) and (ii), the requirements in (2) have been met.(1A) AnInsurer ,Insurance Intermediary orInsurance Manager may 'deem' any one or more of the followingPersons to be aMarket Counterparty :(a) a ceding insurer; and(b) in respect of the services provided to that ceding insurer, any reinsurer, insurance agent or insurance broker that facilitates the provision of the services to the ceding insurer.(2) For the purposes of (1)(b), anAuthorised Firm must, before classifying aPerson as aMarket Counterparty , ensure that:(a) thePerson has been given a prior written notification of the classification as aMarket Counterparty ; and(b) thatPerson has not requested to be classified otherwise within the period specified in the notice.(3) The notification in (2)(a) may be given in respect of particularFinancial Services orTransactions or in respect of allFinancial Services andTransactions .(4) The notification in (2)(a) need only be given:(a) in the case of aFund , either to theFund or itsFund Manager ; and(b) in the case of a pension fund, either to such fund or its management company.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 2.3.9 Guidance
When an
Authorised Firm carries on, or provides or obtains,Financial Services with or from anotherAuthorised Firm or aRegulated Financial Institution , as those entities are 'deemed'Professional Clients under Rule 2.3.4(1), they could be classified asMarket Counterparties , provided the procedures set out in Rule 2.3.9(2) are complied with. For example, such services may include providing theFinancial Services of custody, managing assets, or fund administration services to aFund Manager of aCollective Investment Fund or a pension fund.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 2.4 COB 2.4 Procedures relating to client classification
Option for a Professional Client to be classified as a Retail Client
COB 2.4.1 COB 2.4.1
(1) For the purpose of Rule 2.3.3(1)(b), anAuthorised Firm must, subject to (4), when first establishing a relationship with aPerson as aProfessional Client , inform thatPerson in writing of:(a) thatPerson's right to be classified as aRetail Client ;(b) the higher level of protection available toRetail Clients ; and(c) the time within which thePerson may elect to be classified as aRetail Client .(2) If thePerson does not expressly elect to be classified as aRetail Client within the time specified by theAuthorised Firm , theAuthorised Firm may classify thatPerson as aProfessional Client .(3) If aPerson al classified as aProfessional Client by anAuthorised Firm expressly requests theAuthorised Firm to be re-classified as aRetail Client , theAuthorised Firm must, subject to (4), re-classify such aPerson as aRetail Client .(4) If anAuthorised Firm does not provide Financial Services toRetail Clients , it must inform thePerson of this fact and any relevant consequences.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.4.1 Guidance
1. The obligation in Rule 2.4.1(1) applies to anAuthorised Firm when it first provides, or intends to provide, a to aFinancial Service Professional Client .2. Once anAuthorised Firm has first classified aPerson as aProfessional Client , under the procedures in Rule 2.3.3(1), thatProfessional Client has a right at any subsequent time to ask, under Rule 2.4.1(3), to be re-classified as aRetail Client to obtain a higher level of protection. Although the right to ask the firm to be re-classified as aRetail Client is available to theProfessional Client , as a matter of good practice:a. the firm should also periodically review whether the circumstances relating to the particularClient remain the same; andb. if the firm becomes aware of any circumstances which would warrant a re-classification of theClient , initiate the process with theClient to give thatClient a more appropriate classification.3. Where an existingProfessional Client is offered a newFinancial Service or new financial product, a re-classification might be appropriate if:a. the newFinancial Service or financial product is substantially different to those previously offered to thatClient ; andb. theClient's experience and understanding appears not to extend to the newFinancial Service or financial product.4. AnAuthorised Firm cannot provideFinancial Services to aRetail Client unless it has aRetail Endorsement on itsLicence . However, such a firm may refer to another appropriately licensed firm anyPerson who elects to opt-in as aRetail Client .Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]Assessment of net assets
COB 2.4.2 COB 2.4.2
An
Authorised Firm , when calculating net assets of an individual for the purposes of the requirement under Rule 2.3.7(1)(a):(a) must exclude the value of the primary residence of thatPerson ; and(b) may include any assets held directly or indirectly by thatPerson .Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.4.2 Guidance
1. The reference to "assets held directly or indirectly" is designed to include assets held by direct legal ownership, by beneficial ownership (for example, as a beneficiary in a trust), or by both legal and beneficial ownership. Such assets may be held, for instance, through a special purpose or personal investment vehicle, a foundation, or the like. Similarly, any real property held subject to an Islamic mortgage, where the lender has the legal title to the property, may be counted as indirectly held property of aClient , less the amount owing on the mortgage, where it is not a primary residence.2. As the test is to determine the net assets (not gross assets) of an individual, any mortgages or other charges held over the property to secure any indebtedness of the individual should be deducted from the value of the assets.3. An individual's primary residence is excluded from the calculation of their net assets. If an individual who is an expatriate has a primary residence in his home country, such a residence should not generally be counted for the purposes of meeting the net asset test, particularly if the current residence in their host country is rented. However, if the current residence in the host country is owned by the individual, then that may be treated as their primary residence and the value of the residence in the home country of the individual may be counted for the purposes of meeting the net asset test, provided there is sufficient evidence of ownership and an objective valuation of the relevant premises.4. AnAuthorised Firm should be able to demonstrate that it has objective evidence of the ownership and valuation of any assets taken into account for the purposes of meeting the net asset test.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]Assessment of knowledge and experience
COB 2.4.3 COB 2.4.3
(1) For the purpose of the analysis required under Rules 2.3.7(1)(b)(ii) and 2.3.8(1)(b), anAuthorised Firm must include, where applicable, consideration of the following matters:(a) thePerson's knowledge and understanding of the relevant financial markets, types of financial products or arrangements and the risks involved either generally or in relation to a proposedTransaction ;(b) the length of time thePerson has participated in relevant financial markets, the frequency of dealings and the extent to which thePerson has relied on professional financial advice;(c) the size and nature of transactions that have been undertaken by, or on behalf of, thePerson in relevant financial markets;(d) thePerson's relevant qualifications relating to financial markets;(e) the composition and size of thePerson's existing financial investment portfolio;(f) in the case of credit or insurance transactions, relevant experience in relation to similar transactions to be able to understand the risks associated with such transactions; and(g) any other matters which theAuthorised Firm considers relevant.(2) Where the analysis is being carried out in respect of anUndertaking , the analysis must be applied, as appropriate, to those individuals who are authorised to undertake transactions on behalf of the Undertaking.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.4.3 Guidance
Generally, an
Authorised Firm may consider aPerson to have relevant experience and understanding where such aPerson :a. has been involved in similar transactions in a professional or personal capacity sufficiently frequently to give theAuthorised Firm reasonable assurance that thePerson is able to make decisions of the relevant kind, understanding the type of risks involved; orb. is found to be acting, in relation to the particular transaction involved, in reliance on a recommendation made by anAuthorised Firm orRegulated Financial Institution .Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]Reliance on a classification made elsewhere
COB 2.4.4 COB 2.4.4
(1) This Rule applies to anAuthorised Firm which is aBranch or is a member of aGroup .(2) AnAuthorised Firm may, subject to (3), rely on a client classification made, if it is aBranch , by its head office or any other branch of the same legal entity, or if it is a member of aGroup , by any other member of itsGroup , if it has reasonable grounds to believe that such a client classification is substantially similar to the client classification required under this chapter.(3) If any gaps are identified between the requirements applicable to theAuthorised Firm under this chapter and the requirements under which the client classification is carried out by another entity referred to in (2), theAuthorised Firm may only rely on such a client classification if it has effectively addressed the identified gaps.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.4.4 Guidance
1. Generally, anAuthorised Firm relying on this Rule should be able to demonstrate to theDFSA the due diligence process that it had undertaken to assess whether the client classification made by its head office or other branch of the same legal entity or a member of itsGroup substantially meets the client classification requirements in this chapter and, if any gaps are identified, how those gaps are effectively addressed. See Rule 2.5.3, which requires the provision of unrestricted access to records for demonstrating to theDFSA due compliance with this Rule.2. If anAuthorised Firm wishes to use any client classification undertaken by any third party other than its head office or another branch of the same legal entity, or a member of itsGroup , such an arrangement is generally treated as an outsourcing arrangement. Therefore, theAuthorised Firm would need to meet the GEN requirements relating to outsourcing.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]Group clients
COB 2.4.5 COB 2.4.5
(1) This Rule applies to anAuthorised Firm which:(a) is a member of aGroup ; and(b) provides to aClient one or moreFinancial Services where the services provided by the firm form part of a bundle of financial services provided to that Client by it and itsGroup members.(2) AnAuthorised Firm referred to in (1) must ensure that:(a) the client classification it adopts for anyFinancial Service which it provides to theClient is both consistent with the requirements in this chapter and appropriate for the overall bundle of financial services provided to thatClient ;(b) theClient has a clear understanding of the arrangement under whichFinancial Services are provided to theClient by theAuthorised Firm in conjunction with the other members of theGroup ; and(c) any risks arising from the arrangements referred to in (b) are identified and appropriately and effectively addressed.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.4.5 Guidance
1. The provision of a 'bundle' of financial services may involve different arrangements within differentGroups . TheDFSA considers that the provision of a 'bundle' of financial services occurs where:a. several members of aGroup provide discrete stand-alone financial services to a single Client but do so as part of providing a complete suite of related financial services to that Client. An example would be where one member of theGroup gives investment advice to theClient , another member of theGroup executes the transaction (based on the advice) relating to a financial product and yet another member of theGroup is the issuer of that financial product;b. several members of aGroup provide different aspects of the same financial service to a single Client; orc. the bundle comprises any combination of both (a) and (b).2. A bundle of financial services referred to in 1 above can be project specific. An example is where a number of members within aGroup providing discrete aspects of expertise that go to facilitate a merger and acquisition project of aClient . In such a situation, different members of theGroup could prepare and provide:a. advice relating to a proposed restructure;b. advice relating to financing of the restructure; andc. arranging credit for financing the restructure.3. In order to provide flexibility forAuthorised Firms which are members of aGroup to provide such bundles of financial services to their Clients in a manner that suits theClient's needs and the nature of the service, Rule 2.4.5 sets out the overarching objectives that must be achieved (i.e. outcome based requirements), rather than any detailed requirements. This Rule goes beyond a simple reliance on a 'client classification' made by another member of aGroup under Rule 2.4.4.4. Depending on the nature of the arrangement under whichGroup members choose to provide to the sameClient a bundle ofFinancial Services , and the nature of theFinancial Services involved, the risks associated with such arrangements may vary. Some of the common risks that could arise, and therefore would need to be addressed, include:a. conflicting legal requirements applicable to the provision of the relevantFinancial Services , particularly if the members of theGroup are located in different jurisdictions; andb. aClient not being able to identify clearly the actual service provider or providers and resulting legal exposure to theClient that may arise for all members of theGroup . To address this risk, it is good practice for each member of theGroup to set out in writing (e.g. in the client agreement) the services for which it is responsible. See also Rule 3.3.4(3)(b) for the firm's obligations.5. GEN section 5.3 sets out the systems and controls requirements that apply to allAuthorised Firms . In order to meet those GEN requirements, anAuthorised Firm relying on Rule 2.4.5 should consider, at a minimum, having the following:a. a clear description of theGroup arrangement under which a bundle of financial services is provided – such as which member of theGroup is responsible for which aspects of the bundle ofFinancial Service provided to theClient , or alternatively, that collective responsibility would be assumed by all or some members of theGroup ;b. how theClient is classified for the purposes of the relevantFinancial Service provided by the firm;c. identification of where records relating to client classification and Financial Services provided to theClient are maintained;d. which firm, if any, is responsible for the overall bundle of financial services and, if this is not the case, how the accountability for the financial services is apportioned among members within theGroup ;e. a client agreement (whether entered into by theAuthorised Firm or by a member of itsGroup under Rule 3.3.4) which adequately covers all the financial services provided to theClient , including those provided by the firm; andf. what the identified risks are and how they are being addressed.6. See Rule 2.5.3 which requires the provision of unrestricted access to records for demonstrating to theDFSA due compliance with this Rule.7. Rule 2.4.5 is not expressly extended to a Branch as it is not a separate legal entity, and hence would generally have greater flexibility thanGroup members providing a bundle of services when providingFinancial Services to aClient in conjunction with its head office or any other branch of the same legal entity. However, to the extent a Branch operates as a stand-alone entity, it may use the same outcome-based approach reflected in Rule 2.4.5 where it provides any Financial Services to aClient in conjunction with its head office or other branches of the same legal entity.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.5 COB 2.5 Record keeping
COB 2.5.1
An
Authorised Firm must keep records of:(1) the procedures which it has followed under the Rules in this chapter, including any documents which evidence theClient's classification; and(2) any notice sent to theClient under the Rules in this chapter and evidence of despatch.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.5.2
(1) The records in Rule 2.5.1 must be kept by anAuthorised Firm for at least six years from the date on which the business relationship with aClient has ended.(2) In complying with (1), anAuthorised Firm may, if the date on which the business relationship with theClient ended is unclear, treat the date of the completion of the lastTransaction with theClient as the date on which the business relationship ended.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.5.3
(1) Without limiting the generality of the record keeping requirements applicable to anAuthorised Firm , anAuthorised Firm must, where it relies on Rule 2.4.4 and Rule 2.4.5, ensure that the DFSA has unrestricted access to all the records required for the firm to be able to demonstrate to the DFSA its compliance with the applicable requirements, including any records maintained by or at its head office or any other branch of the same legal entity, or a member of its Group.(2) AnAuthorised Firm must notify the DFSA immediately if, for any reason, it is no longer able to provide unrestricted access to records as required under (1).Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]Guidance
1. See GEN Rules 5.3.24 – 5.3.27 for the requirements relating to record keeping. These Rules require, among other things, thatAuthorised Firms be able to produce records, however kept, within a reasonable period not exceeding three business days.2. If anAuthorised Firm is aware of any restrictions that prevent it from being able to produce relevant records relating to a client classification referred to in Rule 2.5.3(1), that firm would need to undertake its own client classifications.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.6 COB 2.6 Transitional Rules
COB 2.6.1
An
Authorised Firm may continue to treat aPerson as aRetail Client ,Professional Client , orMarket Counterparty , as the case may be, without having to re-classify thePerson under section 2.3:(a) where theAuthorised Firm was treating thatPerson as such aClient (including under a waiver or modification in force) immediately prior to 1 April 2015; and(b) with regard to the Financial Services carried on with or for thatClient prior to that date.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.6.2 COB 2.6.2
Without limiting the generality of Rule 2.6.1, and for the avoidance of doubt, any client classification adopted, Transaction carried on with or for a
Client , orClient Agreement entered into with aClient for the purposes of section 3.3, prior to 1 April 2015, remains in force on and after that date.Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.6.2 Guidance
1. The introduction of the new client classification regime does not trigger the need to re-classify existingClients . However, with regard to an existingClient who has been grandfathered under Rule 2.6.1, the need for a re-classification may subsequently arise in a number of circumstances such as those set out in paragraphs 2, 3 and 4.2. Where aProfessional Client grandfathered under Rule 2.6.1 subsequently requests to opt-in as aRetail Client under Rule 2.4.1(3), theAuthorised Firm will need to re-classify thatClient in accordance with the requirements in that Rule.3. Where a grandfatheredClient wishes to obtain a newFinancial Service after the new regime came into force, anAuthorised Firm will not be able to rely on the existing client classification relating to thatClient in respect of the newFinancial Service . This is because Rule 2.6.1 only applies in respect of theFinancial Services carried on with or for aClient before the new regime came into force. Therefore, the firm will need to make a new classification relating to such aClient in respect of the newFinancial Service and do so under the new client classification regime.4. If anAuthorised Firm becomes aware that a grandfathered professional client no longer fulfils the requirements to remain classified as aProfessional Client , it will need to comply with the requirements in Rule 2.3.3(2).Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 2.6.3
(1) For the purposes of classifying aPerson as an 'assessed'Professional Client under either Rule 2.3.7 or Rule 2.3.8, the reference to $1 million in each of Rules 2.3.7(1)(a) and 2.3.8(1)(a) is to be read as a reference to $500,000 on and before 31 March 2016.(2) AnAuthorised Firm may continue to treat aPerson as an 'assessed'Professional Client in reliance on the lower asset threshold specified in (1) on and after 1 April 2016 provided:(a) it is in respect of theFinancial Services carried on with or for theClient prior to that date; and(b) the firm continues to ensure that all the other applicable requirements in this chapter are met in respect of thatClient .Derived from DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 3 COB 3 Core Rules — Investment Business, Accepting Deposits, Providing Credit, Providing Trust Services, Operating a Crowdfunding Platform, Operating An Employee Money Purchase Scheme And Acting As The Administrator Of An Employee Money Purchase Scheme
COB 3 Guidance
1. The Rules in this chapter give support to thePrinciples in GEN section 4.2 and in particularPrinciples 1, 2, 6 and 7.2. There are additional Rules that apply toAuthorised Firms in other chapters of this module, which are more specific to the nature of theFinancial Service conducted by theAuthorised Firm .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.1 COB 3.1 Application
COB 3.1.1
This chapter applies to an
Authorised Firm which carries on or intends to carry on:(a)Investment Business ;(b)Accepting Deposits ;(c)Providing Credit ;(d)Providing Trust Services ;(e)Operating a Crowdfunding Platform ;(f) Operating an Employee Money Purchase Scheme;(g) Acting as the Administrator of an Employee Money Purchase Scheme;(h) Providing Money Services; or(i) Arranging or Advising on Money Services.except where it is expressly provided otherwise.
Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Amended] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 3.2 COB 3.2 Communication of Information and Marketing Material
General
COB 3.2.1
When communicating information to a
Person in relation to a financial product or financial service, anAuthorised Firm must take reasonable steps to ensure that the communication is clear, fair and not misleading.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.2.2
An
Authorised Firm must not, in any form of communication with aPerson , including an agreement, attempt to limit or avoid any duty or liability it may have to thatPerson or any otherPerson under legislation administered by theDFSA .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM154/2015 (Made 9th December 2015) [VER25/02-16]COB 3.2.3
Where a Rule in COB requires information to be sent to a
Client , theAuthorised Firm must provide that information directly to theClient and not to anotherPerson , unless it is on the written instructions of theClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Guidance
In Rule 3.2.2, a communication would include a financial promotion, a client agreement, terms of business, financial product terms and conditions, a mandate, power of attorney entered into for the purposes of a financial service or product and any other communication which relates in whole or in part to the provision of a financial service or product.
Derived from DFSA RM154/2015 (Made 9th December 2015) [VER25/02-16]Marketing Material
COB 3.2.4
(1) AnAuthorised Firm must ensure that any marketing material communicated to aPerson contains the following information:(a) the name of theAuthorised Firm communicating the marketing material or, on whose behalf the marketing material is being communicated;(b) theAuthorised Firm's regulatory status as required under GEN section 6.4; and(c) if the marketing material is intended only forProfessional Clients orMarket Counterparties , a clear statement to that effect and that no otherPerson should act upon it.(2) In (1), marketing material includes any invitation or inducement to enter into an agreement:(a) in relation to a financial product or to engage in aFinancial Service with theAuthorised Firm ; or(b) in relation to a financial product or financial service offered by aPerson other than theAuthorised Firm .(3) AnAuthorised Firm which communicates marketing material in (2)(b) must:(a) ensure that the marketing material complies with the applicable Rules and any legislation administered by the DFSA; and(b) not distribute such marketing material if it becomes aware that thePerson offering the financial product or financial service to which the material relates is in breach of the regulatory requirements that apply to thatPerson in relation to that product or service.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 3.2.5
An
Authorised Firm must take reasonable steps to ensure that:(a) any marketing material intended forProfessional Clients is not sent or directed to anyPersons who are notProfessional Clients ; and(b) noPerson communicates or otherwise uses the marketing material on behalf of theAuthorised Firm in a manner that amounts to a breach of the requirements in this section.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Past Performance and Forecasts
COB 3.2.6 COB 3.2.6
An
Authorised Firm must ensure that any information or representation relating to past performance, or any future forecast based on past performance or other assumptions, which is provided to or targeted atRetail Clients :(a) presents a fair and balanced view of the financial products or financial services to which the information or representation relates;(b) identifies, in an easy to understand manner, the source of information from which the past performance is derived and any key facts and assumptions used in that context are drawn; and(c) contains a prominent warning that past performance is not necessarily a reliable indicator of future results.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.2.6 Guidance
In presenting information relating to past performance of a financial product or financial service, the
Authorised Firm should follow, to the extent relevant, theGlobal Investment Performance Standards (GIPS) issued byInstitute ofChartered Financial Analysts of the USA or a reputable independent actuarial, financial or statistical reporting service provider.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.3 COB 3.3 Key Information and Client Agreement
Application
COB 3.3.1
The Rules in this section do not apply to an
Authorised Firm when it is:(a) carrying on aFinancial Service with or for aMarket Counterparty ;(b)Accepting Deposits ;(c)Providing Credit ;(d) carrying on an activity of the kind described in GEN Rule 2.26.1 that constitutes marketing;(e) aFund Manager of aFund Offering theUnits of aFund it manages;(f) Operating an Employee Money Purchase Scheme;(g) Acting as the Administrator of an Employee Money Purchase Scheme; or(h) an ATS Operator.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM68/2009 (Made 3rd January 2010). [VER17/01-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010) [VER19/07-10]
[Amended] DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Amended] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 3.3.2 COB 3.3.2
(1) Subject to (2), anAuthorised Firm must not carry on aFinancial Service with or for aPerson unless:(a) there is aClient Agreement containing the key information specified in App2 which is either entered into:(i) between theAuthorised Firm and thatPerson ; or(ii) in accordance with the requirements in Rule 3.3.4; and(b) before entering into theClient Agreement with thePerson , theAuthorised Firm has provided to thatPerson the key information referred to in (a) in good time to enable him to make an informed decision relating to the relevantFinancial Service .(2) AnAuthorised Firm may provide aFinancial Service to aClient without having to comply with the requirement in (1);(a) subject to (3), where it is, on reasonable grounds, impracticable to comply; or(b) where theClient has expressly agreed to dispense with the requirement in regard to a personal investment vehicle.(3) When (2)(a) applies, anAuthorised Firm providing theFinancial Service must:(a) first explain to thePerson why it is impracticable to comply; and(b) enter into aClient Agreement as soon as practicable thereafter.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 3.3.2 Guidance
1. App 2 sets out the core information that must be included in everyClient Agreement and additional disclosure for certain types of activities to which this chapter applies. The information content forClient Agreements withRetail Clients is more detailed than forProfessional Clients .2. For the purposes of COB Rule 3.3.2(1)(b), anAuthorised Firm may either provide aPerson with a copy of the proposedClient Agreement , or give that information in a separate form. If there are any changes to the terms and conditions of the proposed agreement, theAuthorised Firm should ensure that theClient Agreement to be signed with thePerson accurately incorporates those changes.3. For the purposes of COB Rule 3.3.2(2)(a), anAuthorised Firm may consider it is reasonably impracticable to provide the key information to aPerson if thatPerson requests theAuthorised Firm to execute aTransaction on a time critical basis. Where anAuthorised Firm has given the explanation referred to in COB Rule 3.3.2(3)(a) verbally, it should maintain records to demonstrate to the DFSA that it has provided that information to theClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Changes to the Client Agreement
COB 3.3.3
If the
Client Agreement provided to aRetail Client allows anAuthorised Firm to amend theClient Agreement without theClient's prior written consent, theAuthorised Firm must give at least 14 days notice to theClient before providing aFinancial Service to thatClient on any amended terms, unless it is impracticable to do so.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Reliance on a Client Agreement made by another entity
COB 3.3.4
(1) AnAuthorised Firm may, for the purposes of Rule 3.3.2(1)(a)(ii), rely on aClient Agreement executed in accordance with the requirements in either (2) or (3).(2) For the purposes of (1), anAuthorised Firm which is aBranch may rely on aClient Agreement , executed by its head office or any other branch of the same legal entity, if:(a) theClient Agreement adequately and clearly applies to theFinancial Services provided by theBranch ; and(b) theAuthorised Firm ensures that theClient Agreement is available to theDFSA on request.(3) For the purposes of (1), anAuthorised Firm may rely on aClient Agreement , executed by a member of itsGroup if:(a) it is providing aFinancial Service pursuant to Rule 2.4.5;(b) theClient Agreement clearly sets out:(i) theFinancial Service provided by theAuthorised Firm and;(ii) that theClient's rights in respect of (i) are enforceable against theAuthorised Firm ; and(c) theAuthorised Firm ensures that theClient Agreement is available to theDFSA on request.(4) AnAuthorised Firm must notify theDFSA immediately if, for any reason, it is no longer able to provide unrestricted access to aClient Agreement as required under (2) or (3).[Added] DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]COB 3.4 COB 3.4 Suitability
Application
COB 3.4.1
The Rules in this section do not apply where the
Authorised Firm :(a) carries on aFinancial Service with or for aMarket Counterparty ;(b) undertakes an Execution-OnlyTransaction ;(c) undertakes the activities ofAccepting Deposits orProviding Credit ;(d) carries on an activity of the kind described in GEN Rule 2.26.1 that constitutes marketing;(e) carries on the activity of operating anMTF ;(f) carries on the activity of Operating an Employee Money Purchase Scheme, or.(g) carries on the activity of Acting as the Administrator of an Employee Money Purchase Scheme.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM68/2009 (Made 3rd January 2010). [VER17/01-10]
[Amended] DFSA RM123/2013 (Made 13th June 2013). [VER22/07-13]
[Amended] DFSA RMI259/2019 (Made 1st January 2020). [VER34/01-20]
[Amended] DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Suitability Assessment
COB 3.4.2 COB 3.4.2
(1) Subject to (2), anAuthorised Firm must not recommend to aClient a financial product or financial service, or execute aTransaction on a discretionary basis for aClient , unless theAuthorised Firm has a reasonable basis for considering the recommendation orTransaction to be suitable for that particularClient . For this purpose, theAuthorised Firm must:(a) undertake an appropriate assessment of the particularClient's needs and objectives, and, financial situation, and also, to the extent relevant, risk tolerance, knowledge, experience and understanding of the risks involved; and(b) take into account any other relevant requirements and circumstances of theClient of which theAuthorised Firm is, or ought reasonably to be aware.(2) AnAuthorised Firm may, subject to (3) and (4), limit the extent to which it will consider suitability when making a recommendation to, or undertaking aTransaction on a discretionary basis for or on behalf of, aProfessional Client if, prior to carrying on that activity, theAuthorised Firm :(a) has given a written warning to theProfessional Client in the form of a notice clearly stating that theAuthorised Firm will consider suitability only to the extent specified in the notice; and(b) theProfessional Client has given his express consent, after a proper opportunity to consider the warning, by signing that notice.(3) Where anAuthorised Firm manages aDiscretionary Portfolio Management Account for aProfessional Client , it must ensure that the account remains suitable for theProfessional Client , having regard to the matters specified in (1) (a) and (b).(4) If anAuthorised Firm has, before the Commencement Date, given a written warning to a Professional Client in the form of a notice stating that it will not consider suitability, the firm must, no later than 6 months after the Commencement Date, either:(a) issue a new warning that meets the requirements in (2); or(b) carry out a full suitability assessment in accordance with (1).(5) In (4), Commencement Date means the day on which Rule-Making Instrument No. 259 of 2019 comes into force.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Added] DFSA RMI259/2019 (Made 1st January 2020). [VER34/01-20]COB 3.4.2 Guidance
Information a firm needs to have for a suitability assessment1. When carrying out a suitability assessment under Rule 3.4.2 (1), anAuthorised Firm should have, or obtain, certain minimum information about the Client. For example, the information about the Client’s:a. needs and objectives should include, where relevant, information about the length of time theClient wishes to hold the financial product. The age of a Client that is an individual may also be relevant;b. financial situation should include, where relevant, the assets, liabilities (including tax), income and expenses, and general capacity to withstand losses arising from investing in financial products; andc. knowledge and experience should include, where relevant, the nature, volume and frequency of previous investments made by theClient , and the Client’s level of familiarity with relevant financial products and financial services. The Client’s occupation or profession, former professional experience, and level of financial education may also be relevant.Overall suitability for the Client’s portfolio2. When recommending a financial product to aClient , or executing a discretionary transaction for a Client, anAuthorised Firm should consider the overall effect the recommendation or discretionary transaction would have on the Client’s investment portfolio. For example, for aClient with a low or medium risk profile, a proportion of high-risk financial products in the Client’s portfolio may be suitable, provided this is consistent with the risk-return profile of the portfolio, and the firm is satisfied that any financial products that are recommended to the Client, or invested in, on behalf of the Client, are likely to meet the Client’s investment objectives and financial circumstances.Written warnings about limited suitability assessments3. Under Rule 3.4.2(2), anAuthorised Firm may limit the extent to which it will consider suitability when making a recommendation to, or undertaking a discretionary transaction for or on behalf of, aProfessional Client . However, the DFSA does not consider that this Rule permits a firm to limit its consideration of suitability to such a degree that under Rule 3.4.2(1) there is no meaningful basis for the recommendation or transaction.4. The DFSA expects a written warning given to a Professional Client under Rule 3.4.2(2) to:a. be in a stand-alone document (for example, not be included in the Client Agreement or other communication issued to theClient );b. be given in good time before providing the financial service; orc. clearly state how the suitability assessment will be limited, for example what the firm would consider, or would not consider, as part of the limited assessment, such as any specified investment objectives, needs or circumstances of theClient , or a limited range of financial products from which the firm would be choosing;d. specify any risks associated with undertaking a suitability assessment that is limited in scope; ande. provide for a clear acknowledgement by theClient that they have received and understood the warning and consent to the limited suitability assessment that will be undertaken by the firm, as set out in that warning.5. A firm should consider the need to provide a fresh warning to a Professional Client in some circumstances. For example, where the firm becomes aware of significant changes to::a. the financial needs or circumstances of theClient ; orb. the types of financial products or financial services covered by an existing warning.Suitability assessment when Providing Trust Services6. AnAuthorised Firm Providing Trust Services does not have to undertake an assessment of the factors such as risk tolerance, knowledge and experience of aClient when assessing the suitability of the service to a particularClient . This is because those considerations are not relevant to the activity ofProviding Trust Services .Suitability assessment when recommending a Credit Facility7. AnAuthorised Firm that recommends to a Client a particular Credit Facility as suitable for that Client, needs to consider whether the facility is suitable for theClient in terms of its affordability by the Client. AnAuthorised Firm acting as a credit broker for a Client would need to consider not only the affordability of the facility for theClient , but also whether the product is suitable compared to other credit products available in the market. However, a provider of a Credit Facility is only required to assess the suitability for a particular Client if it makes a recommendation to thatClient .8. When an Authorised Firm recommends a Credit Facility to a Retail Client it should consider, in particular, the impact of the rates and other applicable conditions on the Retail Client. For example, the DFSA does not consider that a firm could have any reasonable basis to recommend to a Retail Client a pay-day facility, salary advance facility or any similar arrangement that has exorbitant rates.Suitability assessment when Operating an Employee Money Purchase Scheme or Acting as the Administrator of an Employee Money Purchase Scheme9. The Financial Services of Operating an Employee Money Purchase Scheme or Acting as the Administrator of such a Scheme do not permit the Operator or Administrator to advise Members of the Scheme, particularly on the suitability of investments offered on the Investment Platform. If an Operator or Administrator wishes to give such advice, it must obtain an authorisation for Advising on Financial Products.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Added] DFSA RMI259/2019 (Made 18th December 2019). [VER/34/01-20]
[Added] DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Amended] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 3.4.3
An
Authorised Firm must take reasonable steps to ensure the information it holds about aClient is accurate, complete and up to date.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.5 COB 3.5 Conflicts of Interest
Fair Treatment
COB 3.5.1
(1) AnAuthorised Firm must take reasonable steps to ensure that conflicts and potential conflicts of interest between itself and itsClients and between oneClient and another are identified and then prevented or managed in such a way that the interests of aClient are not adversely affected and to ensure that all itsClients are fairly treated and not prejudiced by any such conflicts of interest.(2) Where anAuthorised Firm is aware of a conflict or potential conflict of interest, it must prevent or manage that conflict of interest by using one or more of the following arrangements as appropriate:(a) establishing and maintaining effectiveChinese Walls to restrict the communication of the relevant information;(b) disclosing the conflict of interest to theClient in writing either generally or in relation to a specificTransaction ; or(c) relying on a written policy of independence, which requires anEmployee to disregard any conflict of interest when advising aClient or exercising a discretion.(3) If anAuthorised Firm is unable to prevent or manage a conflict or potential conflict of interest as provided in (2), it must decline to act for thatClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Attribution of Knowledge
COB 3.5.2
When a COB Rule applies to an
Authorised Firm that acts with knowledge, theAuthorised Firm will not be taken to act with knowledge for the purposes of that Rule as long as none of the relevant individuals involved for on behalf of theAuthorised Firm acts with that knowledge as a result of aChinese Wall arrangement established under COB Rule 3.5.1(2)(a).Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Inducements
COB 3.5.3 COB 3.5.3
(1) AnAuthorised Firm must have systems and controls including policies and procedures to ensure that neither it, nor anEmployee orAssociate of it, offers, gives, solicits or accepts inducements such as commissions or other direct or indirect benefits where such inducements are reasonably likely to conflict with any duty that it owes to itsClients .(2) Subject to (3), anAuthorised Firm must, before recommending a financial product as defined in GEN Rule 2.11.1(4) to, orExecuting a Transaction for, aRetail Client , disclose to thatClient any commission or other direct or indirect benefit which it, or anyAssociate orEmployee of it, has received or may or will receive, in connection with or as a result of the firm making the recommendation or executing theTransaction .(3) AnAuthorised Firm need not disclose to aRetail Client under (2) any details about inducements where it:(a) believes on reasonable grounds that theRetail Client is al aware of the relevant inducements;(b) is undertaking an Execution-OnlyTransaction for thatRetail Client ; or(c) is executing aTransaction pursuant to the terms of aDiscretionary Portfolio Management Agreement for thatRetail Client .(4) AnAuthorised Firm may provide the information required under (2) in summary form, provided it informs theClient that more detailed information will be provided to theClient upon request and complies with such a request.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 3.5.3 Guidance
In relation to COB Rule 3.5.3 (1), in circumstances where an
Authorised Firm believes on reasonable grounds that theClient's interests are better served by aPerson to whom the referral is to be made, any commission or other benefit which the firm or any of itsEmployees orAssociates receives in respect of such a referral would not be a prohibited inducement under that Rule.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.5.4 COB 3.5.4
An
Authorised Firm may only accept goods and services under aSoft Dollar Agreement if the goods and services are reasonably expected to:(a) assist in the provision ofInvestment Business services to theAuthorised Firm's Clients by means of:(i) specific advice on dealing in, or on the value of, anyInvestment ;(ii) research or analysis relevant to (i) or aboutInvestments generally; or(iii) use of computer or other information facilities to the extent that they are associated with specialist computer software or research services, or dedicated telephone lines;(b) provide custody services relating toInvestments belonging to, or managed for,Clients ;(c) provide services relating to portfolio valuation or performance measurement services; or(d) provide market price services.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.5.4 Guidance
An
Authorised Firm should undertake a thorough assessment of the nature of the goods and services and the terms upon which they are to be provided under aSoft Dollar Agreement to ensure that the receipt of such goods and services provide commensurate value. This is particularly the case if any costs of such goods and services are to be passed through toClients . Where theClient bears the cost of the goods and services, the disclosure obligation relating to costs and charges under COB Rule 3.3.2 (seeApp 2) will apply to such costs.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.5.5
An
Authorised Firm must notDeal inInvestments asAgent for aClient , either directly or indirectly, through any broker under aSoft Dollar Agreement , unless:(a) the agreement is a written agreement for the supply of goods or services described in COB Rule 3.5.4, which do not take the form of, or include, cash or any other direct financial benefit;(b)Transaction execution by the broker is consistent with any best execution obligations owed to theClient ;(c) theAuthorised Firm has taken reasonable steps to ensure that the services provided by the broker are competitive, with no comparative price disadvantage, and take into account the interests of theClient ;(d) forTransactions in which the broker acts as principal, theAuthorised Firm has taken reasonable steps to ensure thatCommission paid under the agreement will be sufficient to cover the value of the goods or services to be received and the costs of execution; andDerived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.5.6
Before an
Authorised Firm enters into aTransaction for or on behalf of aRetail Client orProfessional Client , either directly or indirectly, with or through the agency of anotherPerson , in relation to which there is aSoft Dollar Agreement which theAuthorised Firm has, or knows that another member of itsGroup has, with that otherPerson , it must disclose to itsClient :(a) the existence of aSoft Dollar Agreement ; and(b) theAuthorised Firm's or itsGroup's policy relating toSoft Dollar Agreements .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.5.7
(1) If anAuthorised Firm or member of itsGroup has aSoft Dollar Agreement under which either theAuthorised Firm or member of itsGroup Deals for aClient , theAuthorised Firm must provide thatClient with the following information:(a) the percentage paid underSoft Dollar Agreements of the totalCommission paid by or at the direction of:(i) theAuthorised Firm ; and(ii) any other member of theAuthorised Firm's Group which is a party to those agreements;(b) the value, on a cost price basis, of the goods and services received by theAuthorised Firm underSoft Dollar Agreements , expressed as a percentage of the totalCommission paid by or at the direction of:(i) theAuthorised Firm ; or(ii) other members of theAuthorised Firm's Group ;(c) a summary of the nature of the goods and services received by theAuthorised Firm under theSoft Dollar Agreements ; and(d) the totalCommission paid from the portfolio of thatClient .(2) The information in (1) must be provided to thatClient at least once a year, covering the period since theAuthorised Firm last reported to thatClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.6 COB 3.6 Record Keeping
COB 3.6.1
An
Authorised Firm must, for a minimum of six years, maintain sufficient records in relation to each activity and function of theAuthorised Firm . These must include, where applicable, the following:(a) any marketing material issued by, or on behalf of, theAuthorised Firm ;(b) any financial products orFinancial Services provided to aClient and each advice or recommendation made to aClient ,(c) a record of eachClient Agreement including any subsequent amendments to it as agreed with theClient ;(d) records relating to the suitability assessment undertaken by theAuthorised Firm to demonstrate compliance with COB Rule 3.4.2;(e) records to demonstrate compliance with the requirements relating to inducements under COB section 3.5, including any disclosure made toClients under that section and if any goods and services are received by theAuthorised Firm under aSoft Dollar Agreement , the details relating to those agreements; and(f) any other disclosures made toClients .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 3.6.2
For the purposes of COB Rule 3.6.1, the six year period commences:
(a) in the case of the requirement in COB Rule 3.6.1(a), from the date on which the marketing material was last provided to aPerson ;(b) in the case of the requirement in COB Rule 3.6.1(b) to (d), from the date theClient ceases to be aClient of theAuthorised Firm ; and(c) in the case of the requirement in COB Rule 3.6.1(e), from the date on which the relevant inducements were last received.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 4 COB 4 Additional Rules — Accepting Deposits and Providing Credit
COB 4.1 COB 4.1 Application
COB 4.1.1
The Rules in this chapter apply to an
Authorised Firm with respect toAccepting Deposits orProviding Credit through an establishment maintained by it in the DIFC.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 4.2 COB 4.2 Accepting Deposits
COB 4.2.1
A
Bank , in the course ofAccepting Deposits , must not:(a)Accept Deposits from the State's markets;(b)Accept Deposits in the U.A.E. Dirham;(c) undertake currency or foreign exchange transactions involving the U.A.E. Dirham; or(d)Accept Deposits fromRetail Clients .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 4.3 COB 4.3 Providing Credit
COB 4.3.1
(1) AnAuthorised Firm may, subject to (2),Provide Credit to a:(a)Professional Client or Market Counterparty ; and(b)Retail Client , but only where:(i) theRetail Client is anUndertaking ; and(ii) theCredit Facility is provided to theRetail Client for a business purpose.(2) AnAuthorised Firm , in the course ofProviding Credit , must not:(a)Provide Credit in the U.A.E. Dirham; or(b) undertake currency or foreign exchange transactions involving the U.A.E. Dirham.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Added] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 4.4 COB 4.4 Depositor protection
COB 4.4.1
(1) Subject to (2), to the extent that the Rules in this section are inconsistent with the Insolvency Law 2019 and any regulations made for the purposes of that law the Rules in this section will prevail.(2) The following provisions of laws, Rules and Regulations prevail over the Rules in this section:(a) parts A5.13.2 (a), (b), (c) and (d)(ii) of the Client Money Distribution Rules;(b) Article 98 of the Insolvency Law 2019;(c) the DIFC Preferential Creditor Regulations; and(d) Regulations 5.45.4 and 5.52 of the DIFC Insolvency Regulations.[Added] DFSA RM144/2014 (Made 24th August 2014). [VER23/08-14]
[Amended] DFSA RMI289/2020 (Made 16th December 2020). [VER37/02-21]COB 4.4.2
(1) In the event of:(a) the appointment of a provisional liquidator, liquidator, receiver or administrator, or trustee in bankruptcy, over aBank which is aDomestic Firm ; or(b) a direction by theDFSA to a Bank which is aDomestic Firm under Article 76 of the Regulatory Law 2004 to deal with all or substantially all itsDeposits in a specified manner,eligible depositors of theBank have priority over, and shall be paid in priority to, all other unsecured creditors of theBank .(2) In (1), an “eligible depositor” means, subject to (3), aPerson who, at the relevant time, is a creditor of aBank referred to in (1) by virtue of being owed an amount of Money held by theBank as aDeposit .(3) In (2), eligible depositor excludes any creditor which is:(i) aMarket Counterparty ; or(ii) a bank.[Added] DFSA RM144/2014 (Made 24th August 2014). [VER23/08-14]COB 4.4 Guidance
Article 136 of the DIFC Insolvency Law 2019 gives the
DFSA a power to modify the application of provisions of that law and the Regulations made for the purposes of it in particular cases or classes of case. It permits theDFSA to make Rules which provide for the orderly conduct of affairs or winding up of anAuthorised Firm and to prescribe procedures and priorities for dealing with assets of theAuthorised Firm or other persons in the event of pending or actual insolvency or other default.[Added] DFSA RM144/2014 (Made 24th August 2014). [VER23/08-14]
[Amended] DFSA RMI289/2020 (Made 16th December 2020). [VER37/02-21]COB 5 COB 5 Additional Rules — Providing Trust Services
COB 5.1 COB 5.1 Application
COB 5.1.1 COB 5.1.1
This chapter applies to a
Trust Service Provider with respect to the conduct ofProviding Trust Services .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.1.1 Guidance
The requirements in COB chapter 3 also apply to
Trust Service Providers .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.2 COB 5.2 General
COB 5.2.1
For the purposes of this chapter, a settlor, a trustee or a named beneficiary of a trust in respect of which the
Trust Service Provider is engaged inProviding Trust Services may be treated as aClient of theAuthorised Firm .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.2.2
A
Trust Service Provider must maintain adequate knowledge of, and comply with, all applicable DIFC laws, Rules andRegulations relevant toProviding Trust Services .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.2.3
A
Trust Service Provider must be able to demonstrate that it is in compliance with appropriate standards of corporate governance.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.2.4
A
Trust Service Provider must transact its business (including the establishing, transferring or closing of business relationships with itsClients ) in an expeditious manner where appropriate unless there are reasonable grounds to do otherwise.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Exercise of Discretion
COB 5.2.5
Where a
Trust Service Provider is responsible for exercising discretion for, or in relation to, itsClients , it must take all reasonable steps to obtain sufficient information in order to exercise, subject to COB Rule 5.2.6, its discretion or other powers in a proper manner.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.2.6
A
Trust Service Provider must only exercise its power or discretion for a proper purpose.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.2.7
The
Trust Service Provider must ensure that its understanding of aClient's business is refreshed by means of regular reviews.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.2.8
The
Trust Service Provider must ensure that any trustee exercises his discretion in accordance with his fiduciary and other duties under the laws governing the trust of which he is a trustee.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Delegation of Duties or Powers
COB 5.2.9
Any delegation of duties or powers by a
Trust Service Provider , whether byPower ofAttorney or otherwise, must only be entered into for a proper purpose, permissible by law and limited and monitored as appropriate.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.3 COB 5.3 Reviews
COB 5.3.1
A
Trust Service Provider must ensure that adequate procedures are implemented to ensure that regular reviews at appropriate intervals are conducted in respect ofProviding Trust Services to itsClients .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.4 COB 5.4 Professional Indemnity Insurance Cover
COB 5.4.1
A
Trust Service Provider must maintain professional indemnity insurance cover appropriate to the nature and size of theTrust Service Provider's business.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.4.2
A
Trust Service Provider must:(a) provide the DFSA with a copy of its professional indemnity insurance cover; and(b) notify the DFSA of any changes to the cover including termination and renewal.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.4.3
A
Trust Service Provider must provide the DFSA on a yearly basis, with the details of the arrangements in force together with evidence of the cover. Any claims in excess of $10,000 or changes to the arrangements previously notified to the DFSA under this Rule must be notified to the DFSA as they arise.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.5 COB 5.5 Dual Control
COB 5.5.1
The
Trust Service Provider must have adequate internal controls, including having twoPersons with appropriate skills and experience managing the business.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.5.2
While a
Trust Service Provider may have a singlePerson with overall responsibility, at least anotherPerson must have the skills and experience to be able to run the business of theTrust Service Provider in the absence of the seniorPerson and must be in a position to challenge the actions of the seniorPerson where they consider that those actions may be contrary to the provisions of DIFC Laws, Rules or Regulations or any other applicable legislation, may not be in the interests of theClient , or may be contrary to sound business principles.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.6 COB 5.6 Internal Reporting
COB 5.6.1
A
Trust Service Provider must have arrangements for internal reporting to ensure that the directors or the partners can satisfy themselves that:(a) the requirements of the relevant legislation are being met on an on going basis;(b) theTrust Service Provider's business is being managed according to sound business principles and, in particular, that it can meet its financial commitments as they fall due;(c) the affairs of itsClients are being managed in accordance with the service agreements;(d) the trustees are acting in accordance with their fiduciary and other duties;(e) the affairs of itsClients are being properly monitored and in particular that theClient is not using the trust structure to hide assets from legitimate enquiry, to avoid proper obligations in other jurisdictions or to engage in illegal activities in other jurisdictions;(f) the assets of itsClients are properly managed and safeguarded; and(g) the recruitment, training and motivation of staff is sufficient to meet the obligations of the business.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.7 COB 5.7 Recording of Selection Criteria
COB 5.7.1
Where the
Trust Service Provider seeks the advice of a third party in connection with aClient's affairs, for example to advise on or manage investments, theTrust Service Provider must record the criteria for selection of the adviser and the reasons for the selection made.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.7.2
The
Trust Service Provider must monitor the performance of the adviser and ensure that it is in a position to change advisers if it is in the interests of theClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.8 COB 5.8 Qualification and Experience of Trust Service Provider Staff
COB 5.8.1
Staff employed or
Persons recommended by theTrust Service Provider must have appropriate qualifications and experience.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.8.2
A
Trust Service Provider must ensure that all transactions or decisions entered into, taken by or on behalf ofClients are properly authorised and handled byPersons with an appropriate level of knowledge, experience, qualifications and status according to the nature and status of the transactions or decisions involved (this applies also to decisions taken by trustees who are recommended by, but not employed by, aTrust Service Provider ).Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.8.3
A
Trust Service Provider must ensure that, each of its officers and employees, agents,Persons acting with its instructions andPersons it recommends to act as trustees have an appropriate understanding of the fiduciary and other duties of a trustee and any duties arising under the laws relevant to the administration and affairs ofClients for which they are acting in the jurisdictions in which they are carrying on business and in which the assets being managed are held.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.8.4
A
Trust Service Provider must ensure that staff competence is kept up to date through training and continuous professional development as appropriate.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.8.5 [Deleted]
[Deleted] RM123/2013 (Made 13th June 2013). [VER22/07-13]COB 5.9 COB 5.9 Books and Records
COB 5.9.1
The books and records of a
Trust Service Provider must be sufficient to demonstrate adequate and orderly management of Clients' affairs. ATrust Service Provider must prepare proper accounts, at appropriately regular intervals on the trusts and underlying companies administered for itsClients . Where trusts and underlying companies are governed by the laws of a jurisdiction that require accounts to be kept in a particular form, theTrust Service Provider must meet those requirements. In any case, theTrust Service Provider's books and records must be sufficient to allow the recreation of the transactions of the business and itsClients and to demonstrate what assets are due to eachClient and what liabilities are attributable to eachClient . The books and records must also include sufficient details about service providers and agents engaged on behalf of the trust.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM232/2018 (Made 6th June 2018) [VER31/09-18]COB 5.10 COB 5.10 Due Diligence
COB 5.10.1
A
Trust Service Provider must, at all times, have verified documentary evidence of the settlors, trustees (in addition to theTrust Service Provider itself) and principal named beneficiaries of trusts for which itProvides Trust Services . In the case of discretionary trusts with the capacity for the trustee to add further beneficiaries, aTrust Service Provider must also have verified, where reasonably possible, documentary evidence of anyPerson who receives a distribution from the trust and any otherPerson who is named in a memorandum or letter of wishes as being a likely recipient of a distribution from a trust.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.10.2
A
Trust Service Provider must demonstrate that it has knowledge of the source of funds that have been settled into trusts or have been used to provide capital to companies, or have been used in transactions with which theTrust Service Provider has an involvement.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.11 COB 5.11 Fitness and Propriety of Persons Acting as Trustees
COB 5.11.1
Where a
Trust Service Provider arranges for aPerson who is not an employee of theTrust Service Provider to act as trustee for aClient of theTrust Service Provider , theTrust Service Provider must ensure that suchPerson is fit and proper.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.11.2
A
Trust Service Provider must notify the DFSA of the appointment of aPerson under COB Rule 5.11.1, including the name and business address if applicable and the date of commencement of the appointment.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.11.3
Prior to the appointment of such a
Person to act as a trustee, theTrust Service Provider must take reasonable steps to ensure that thePerson has the required skills, experience and resources to act as a trustee for aClient of theTrust Service Provider .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.11.4
A
Trust Service Provider must notify the DFSA immediately if the appointment of such aPerson is or is about to be terminated, or on the resignation of suchPerson , giving the reasons for the resignation and the measures which have been taken to ensure that a new trustee has been appointed.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.11.5
A
Person appointed to act as trustee for aClient of aTrust Service Provider who is not anEmployee of theTrust Service Provider , must agree in writing to be bound by and comply with the same legal and regulatory requirements as if he were anEmployee of theTrust Service Provider .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6 COB 6 Additional Rules — Investment Business
COB 6.1 COB 6.1 Application
COB 6.1.1 COB 6.1.1
(1) The Rules in this chapter apply to anAuthorised Firm when conductingInvestment Business .(2) COB Sections 6.11, 6.12, 6.13 and 6.14 also apply to anAuthorised Firm in respect ofClient Assets that it holds or controls (within the meaning of Rule 6.11.4) in the course of, or in connection with,Operating a Crowdfunding Platform or Providing Money Services . (3) Sections 6.2 and 6.3 also apply to an Authorised Firm when:(a) Operating an Employee Money Purchase Scheme; or(b) Acting as the Administrator of an Employee Money Purchase Scheme.(4) The requirements in this chapter apply to anAuthorised Firm regardless of the classification of theClient , unless expressly provided otherwise.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Added] DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Added] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 6.1.1 Guidance
The requirements in COB chapter 3 also apply to the conduct of
Investment Business .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.2 COB 6.2 Personal Account Transactions
Conditions for Personal Account Transactions
COB 6.2.1
An
Authorised Firm must establish and maintain adequate policies and procedures so as to ensure that:(a) anEmployee does not undertake aPersonal Account Transaction unless:(i) theAuthorised Firm has, in a written notice, drawn to the attention of theEmployee the conditions upon which theEmployee may undertakePersonal Account Transactions and that the contents of such a notice are made a term of his contract of employment or services;(ii) theAuthorised Firm has given its written permission to thatEmployee for that transaction or to transactions generally inInvestments of that kind; and(iii) the transaction will not conflict with theAuthorised Firm's duties to itsClients ;(b) it receives prompt notification or is otherwise aware of each Employee'sPersonal Account Transactions ; and(c) if anEmployee's Personal Account Transactions are conducted with theAuthorised Firm , eachEmployee's account must be clearly identified and distinguishable from other Clients' accounts.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.2.2
The written notice in COB Rule 6.2.1(a)(i) must make it explicit that, if an
Employee is prohibited from undertaking aPersonal Account Transaction , he must not, except in the proper course of his employment:(a) procure anotherPerson to enter into such aTransaction ; or(b) communicate any information or opinion to anotherPerson if he knows, or ought to know, that thePerson will as a result, enter into such aTransaction or procure some otherPerson to do so.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.2.3
Where an
Authorised Firm has taken reasonable steps to ensure that anEmployee will not be involved to any material extent in, or have access to information about, theAuthorised Firm's Investment Business , then theAuthorised Firm need not comply with the requirements in COB Rule 6.2.1 in respect of thatEmployee .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.2.4
An
Authorised Firm must establish and maintain procedures and controls so as to ensure that anInvestment Analyst does not undertake aPersonal Account Transaction in anInvestment if theInvestment Analyst is preparingInvestment Research :(a) on thatInvestment or itsIssuer ; or(b) on a related investment, or itsIssuer ;until the
Investment Research is published or made available to theAuthorised Firm's Clients .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Record Keeping
COB 6.2.5
(1) AnAuthorised Firm must maintain and keep a record of:(a) the written notice setting out the conditions forPersonal Account Transactions under COB Rule 6.2.1(a)(i);(b) each permission given or denied by theAuthorised Firm under COB Rule 6.2.1(a)(ii);(c) each notification made to it under COB Rule 6.2.1(b); and(d) the basis upon which theAuthorised Firm has ascertained that anEmployee will not be involved in to any material extent, or have access to information about, theAuthorised Firm's Investment Business for the purposes of COB Rule 6.2.3.(2) The records in (1) must be retained for a minimum of six years from the date of:(a) in (1)(a) and (1)(d), termination of the employment contract of eachEmployee ;(b) in (1)(b), each permission given or denied by theAuthorised Firm ; and(c) in (1)(c), each notification made to theAuthorised Firm .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.3 COB 6.3 Investment Research and Offers of Securities
Application
COB 6.3.1 COB 6.3.1
This section applies to an
Authorised Firm preparing or publishingInvestment Research .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.3.1 Guidance
Investment
Research is seen as a significant potential source of conflicts of interest within anAuthorised Firm and therefore anAuthorised Firm preparing or publishing investment research is expected to have adequate procedures, systems and controls to manage effectively any conflicts that arise.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.3.2 COB 6.3.2
An
Authorised Firm that prepares and publishesInvestment Research must have adequate procedures and controls to ensure:(a) the effective supervision and management ofInvestment Analysts ;(b) that the actual or potential conflicts of interest are proactively managed in accordance with COB section 3.5 ;(c) that theInvestment Research issued toClients is impartial; and(d) that theInvestment Research contains the disclosures described under Rules COB 6.3.3 and COB 6.3.4.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.3.2 Guidance
An
Authorised Firm's procedures, controls and internal arrangements, which may includeChinese Walls , should limit the extent ofInvestment Analysts participation in corporate finance business and sales and trading activities, and ensure remuneration structures do not affect their independence.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Disclosures in Investment Research
COB 6.3.3 COB 6.3.3
When an
Authorised Firm publishesInvestment Research , it must take reasonable steps to ensure that theInvestment Research :(a) clearly identifies the types ofClients for whom it is principally intended;(b) distinguishes fact from opinion or estimates, and includes references to sources of data and any assumptions used;(c) specifies the date when it was first published;(d) specifies the period the ratings or recommendations are intended to cover;(e) contains a clear and unambiguous explanation of the rating or recommendation system used;(f) includes a distribution of the different ratings or recommendations, in percentage terms:(i) for allInvestments ;(ii) forInvestments in each sector covered; and(iii) forInvestments , if any, where theAuthorised Firm has undertaken corporate finance business with or for theIssuer over the past 12 months; and(g) if intended for use only by aProfessional Client orMarket Counterparty , contains a clear warning that it should not be relied upon by or distributed toRetail Clients .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.3.3 Guidance
An
Authorised Firm may consider including a price chart or line graph depicting the performance of theInvestment for the period that theAuthorised Firm has assigned a rating or recommendation for that investment, including the dates on which the ratings were revised for the purposes of the requirements such as in (d) and (e) of COB Rule 6.3.3.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.3.4 COB 6.3.4
For the purposes of this section, an
Authorised Firm must take reasonable steps to ensure that when it publishesInvestment Research , and in the case where a representative of theAuthorised Firm makes aPublic Appearance , disclosure is made of the following matters:(a) any financial interest or material interest that theInvestment Analyst or aClose Relative of the analyst has, which relates to theInvestment ;(b) the reporting lines forInvestment Analysts and their remuneration arrangements where such matters give rise to any conflicts of interest which may reasonably be likely to impair the impartiality of theInvestment Research ;(c) any shareholding by theAuthorised Firm or itsAssociate of 1% or more of the total issued share capital of the Issuer;(d) if theAuthorised Firm or itsAssociate acts as corporate broker for theIssuer ;(e) any material shareholding by theIssuer in theAuthorised Firm ;(f) any corporate finance business undertaken by theAuthorised Firm with or for theIssuer over the past 12 months, and any future relevant corporate finance business initiatives; and(g) that theAuthorised Firm is aMarket Maker in theInvestment , if that is the case.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 6.3.4 Guidance
The requirements in COB Rule 6.3.4(a) and (b) apply to an
Authorised Firm in addition to other requirements in the DFSA Rulebook. For example, anAuthorised Firm is required to take reasonable steps to identify actual or potential conflicts of interest and then prevent or manage them under GEN Rule 4.2.7 (Principle 7 – Conflicts of Interest). Further, COB Rule 6.3.2 requires anAuthorised Firm to have adequate procedures and controls when it prepares or publishesInvestment Research .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Restrictions on Publication
COB 6.3.5 COB 6.3.5
If an
Authorised Firm acts as a manager or co-manager of an initial public offering or a secondary offering, it must take reasonable steps to ensure that:(a) it does not publishInvestment Research relating to theInvestment during aQuiet Period ; and(b) anInvestment Analyst from theAuthorised Firm does not make aPublic Appearance relating to thatInvestment during aQuiet Period .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.3.5 Guidance
The DFSA does not consider the same conflicts of interest mentioned in this section arise if an
Investment Analyst preparesInvestment Research solely for anAuthorised Firm's own use and not for publication. For example, if the research material is prepared solely for the purposes of theAuthorised Firm's proprietary trading then the use of this information would fall outside the restrictions placed on publications.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Restriction on Own Account Transactions
COB 6.3.6 COB 6.3.6
(1) Unless (2) applies, anAuthorised Firm or itsAssociate must not knowingly execute anOwn Account Transaction in anInvestment or relatedInvestments , which is the subject ofInvestment Research , prepared either by theAuthorised Firm or itsAssociate , until theClients for whom theInvestment Research was principally intended have had a reasonable opportunity to act upon it.(2) The restriction in (1) does not apply if:(a) theAuthorised Firm or itsAssociate is aMarket Maker in the relevantInvestment ;(b) theAuthorised Firm or itsAssociate undertakes an Execution-OnlyTransaction for aClient ; or(c) it is not expected to materially affect the price of theInvestment .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 6.3.6 Guidance
The exceptions in COB Rule 6.3.6(2) allow an
Authorised Firm to continue to provide key services to the market and to itsClients even if theAuthorised Firm would be considered to have knowledge of the timing and content of theInvestment Research which is intended for publication toClients , for example when it is impractical for anAuthorised Firm to put in place aChinese Wall because theAuthorised Firm has fewEmployees or cannot otherwise separate its functions.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Offers of Securities
COB 6.3.7
When an
Authorised Firm carries out a mandate to manage anOffer ofSecurities , it must implement adequate internal arrangements, in accordance with COB section 3.5, to manage any conflicts of interest that may arise as a result of theAuthorised Firm's duty to two distinct sets ofClients namely the corporate financeClient and the investmentClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Disclosure
COB 6.3.8 COB 6.3.8
For the purposes of COB Rule 6.3.7, when an
Authorised Firm accepts a mandate to manage anOffer , it must take reasonable steps to disclose to its corporate financeClient :(a) the process theAuthorised Firm proposes to adopt in order to determine what recommendations it will make about allocations for theOffer ;(b) details of how the target investor group, to whom it is planned toOffer theSecurities , will be identified;(c) the process through which recommendations are prepared and by whom; and(d) (if relevant) that it may recommend placingSecurities with aClient of theAuthorised Firm for whom theAuthorised Firm provides other services, with theAuthorised Firm's own proprietary book, or with anAssociate , and that this represents a potential conflict of interest.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.3.8 Guidance
It is the DFSA's expectation that an
Authorised Firm's procedures to identify and manage conflicts of interest should extend to the allocation process for an offering ofSecurities .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.4 COB 6.4 Best Execution
Application
COB 6.4.1
(1) The Rules in this section do not apply to an
Authorised Firm with respect to anyTransaction which:(a) it undertakes with aMarket Counterparty ;(b) it carries out for the purposes of managing aFund of which it is theFund Manager ; or(c) is an Execution-OnlyTransaction ; or.(d) it undertakes on anMTF which it operates.(2) Where an
Authorised Firm undertakes anExecution-Only Transaction with or for aClient , theAuthorised Firm is not relieved from providing best execution in respect of any aspect of thatTransaction which lies outside theClient's specific instructions.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM72/2010 (Made 11th July 2010) [VER19/07-10]
[Amended] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Providing Best Execution
COB 6.4.2
(1) When anAuthorised Firm agrees, or decides in the exercise of its discretion, toExecute anyTransaction with or for aClient in anInvestment , it must provide best execution.(2) AnAuthorised Firm provides best execution if it takes reasonable care to determine the best overall price available for thatInvestment under the prevailing market conditions and deals at a price which is no less advantageous to thatClient .(3) AnAuthorised Firm which is anATS Operator is not required to provide best execution forPersons who are itsClients in circumstances where suchPersons are dealing with each other on theAuthorised Firm's ATS and theAuthorised Firm is not acting for or on behalf of any suchPersons in relation to a deal on that ATS.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Requirements
COB 6.4.3
In determining whether an
Authorised Firm has taken reasonable care to provide the best overall price for aClient in accordance with COB Rule 6.4.2, the DFSA will have regard to whether anAuthorised Firm has:(a) discounted any fees and charges previously disclosed to theClient ;(b) not taken a Mark-up or Mark-down from the price at which itExecuted theTransaction , unless this is disclosed to theClient ; and(c) had regard to price competition or the availability of a range of price sources for the execution of its Clients'Transactions . In the case where theAuthorised Firm has access to prices of differentAuthorised Market Institutions , other regulated financial markets or alternative trading systems, it mustExecute theTransaction at the best overall price available having considered other relevant factors.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.4.4 COB 6.4.4
If another
Person is responsible for the execution of aTransaction anAuthorised Firm may rely on thatPerson to provide best execution where thatPerson has undertaken to provide best execution in accordance with this section.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.4.4 Guidance
When determining best execution, an
Authorised Firm should consider the direct costs and indirect costs and the relevant order type and size, settlement arrangements and timing of aClient's order that could affect decisions on when, where and how to trade.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.5 COB 6.5 Non-market Price Transactions
Application
COB 6.5.1
(1) Subject to (2), this section applies to an
Authorised Firm conductingInvestment Business regardless of the classification of theClient .(2) This section does not apply to a
Client to whom aPerson operating anMTF provides itsMTF services.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]General Prohibition
COB 6.5.2
(1) AnAuthorised Firm must not enter into a non-market priceTransaction in any capacity, with or for aClient , unless it has taken reasonable steps to ensure that theTransaction is not being entered into by theClient for an improper purpose.(2) The requirement in (1) does not apply in relation to a non-market priceTransaction subject to the Rules of anAuthorised Market Institution or regulated exchange.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Record Keeping
COB 6.5.3 COB 6.5.3
An
Authorised Firm must make and retain, for a minimum of six years, a record of the steps it has taken in relation to eachTransaction under this section.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.5.3 Guidance
1. A non-market priceTransaction is aTransaction where the dealing rate or price paid by theAuthorised Firm or itsClient differs from the prevailing market rate or price to a material extent or theAuthorised Firm or itsClient gives materially more or less in value than it receives in return.2. In general,Authorised Firms should undertake transactions at the prevailing market price. Failure to do this may result in anAuthorised Firm participating, whether deliberately or unknowingly, in the concealment of a profit or loss, or in the perpetration of a fraud.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.6 COB 6.6 Aggregation and Allocation
Application
COB 6.6.1
The Rules in this section do not apply to an
Authorised Firm with respect to anyTransaction which:(a) it undertakes with aMarket Counterparty ;(b) it carries out for the purposes of managing aFund of which it is theFund Manager , or(c) is undertaken on anMTF which it operates.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM72/2010 (Made 11th July 2010) [VER19/07-10]
[Amended] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Aggregation of Orders
COB 6.6.2
An
Authorised Firm may aggregate an order for aClient with an order for otherClients or with an order for its own account only where:(a) it is unlikely that the aggregation will operate to the disadvantage of any of theClients whoseTransactions have been aggregated;(b) theAuthorised Firm has disclosed in writing to theClient that his order may be aggregated and that the effect of the aggregation may operate on some occasions to his disadvantage;(c) theAuthorised Firm has made a record of the intended basis of allocation and the identity of eachClient before the order is effected; and(d) theAuthorised Firm has in place written standards and policies on aggregation and allocation which are consistently applied and should include the policy that will be adopted when only part of the aggregated order has been filled.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Allocation of Investments
COB 6.6.3
Where an
Authorised Firm has aggregated aClient order with an order for otherClients or with an order for its own account, and part or all of the aggregated order has been filled, it must:(a) promptly allocate theInvestments concerned;(b) allocate theInvestments in accordance with the stated intention;(c) ensure the allocation is done fairly and uniformly by not giving undue preference to itself or to any of those for whom it dealt; and(d) make and maintain a record of:(i) the date and time of the allocation;(ii) the relevantInvestments ;(iii) the identify of eachClient concerned; and(iv) the amount allocated to eachClient and to theAuthorised Firm recorded against the intended allocation as required in (b).Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.7 COB 6.7 Record Keeping — Voice and Electronic Communications
COB 6.7.1 COB 6.7.1
(1) AnAuthorised Firm must, subject to (2), take reasonable steps to ensure that it makes and retains recordings of its voice and electronic communications when such communications are with aClient or with anotherPerson in relation to aTransaction , including the receiving or passing of related instructions.(2) The obligation in (1) does not apply in relation to voice and electronic communications which are not intended to lead to the conclusion of a specificTransaction and are general conversations or communications about market conditions.[Amended] DFSA RM61/2008 (Made 4th January 2009) [VER15/01-09]
Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.7.1 Guidance
The effect of COB Rule 6.7.1 is that an
Authorised Firm may conduct the kind of business contemplated in (1) over a mobile phone or other handheld electronic communication device but only if theAuthorised Firm is able to record such communications. Further, mere transmission of instructions by front office personnel to back office personnel within anAuthorised Firm would not ordinarily be subject to this Rule.[Added] DFSA RM61/2008 (Made 4th January 2009) [VER15/01-09]COB 6.7.2
(1) AnAuthorised Firm must be able to demonstrate prompt accessibility of all records.(2) Records must be maintained in comprehensible form or must be capable of being promptly so reproduced.(3)The Authorised Firm must make and implement appropriate procedures to prevent unauthorised alteration of its records.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.7.3
Voice and electronic communication recordings must be retained for a minimum of six months.
[Amended] DFSA RM61/2008 (Made 4th January 2009) [VER15/01-09]
Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Records of Orders and Transactions
COB 6.7.4
(1) When anAuthorised Firm receives aClient order or in the exercise of its discretion decides upon aTransaction , it must promptly make a record of the information set out in App1 under COB Rule A1.1.1.(2) When anAuthorised Firm Executes a Transaction , it must promptly make a record of the information set out in App1 under COB Rule A1.1.2.(3) When anAuthorised Firm passes aClient order to anotherPerson forExecution , it must promptly make a record of the information set out inApp 1 under COB Rule A1.1.3.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.7.5
The records referred to in COB Rule 6.7.4 must be retained by an
Authorised Firm for a minimum of six years.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.8 COB 6.8 Other Dealing Rules
Application
COB 6.8.1
(1) Subject to (2), the Rules in this section, other than >COB Rule 6.8.7, do not apply to an
Authorised Firm with respect to anyTransaction which it:(a) undertakes with aMarket Counterparty ; or(b) carries out for the purposes of managing aFund of which it is theFund Manager .(2) The
Rules in this section do not apply to anAuthorised Firm in respect of anyTransactions which it undertakes on anMTF which it operates.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM72/2010 (Made 11th July 2010) [VER19/07-10]
[Amended] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]
[Amended] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Churning
COB 6.8.2
(1) AnAuthorised Firm must notExecute a Transaction for aClient in its discretion or advise anyClient to transact with a frequency or in amounts to the extent that thoseTransactions might be deemed to be excessive.(2) The onus will be on theAuthorised Firm to ensure that suchTransactions were fair and reasonable at the time they were entered into.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Timely Execution
COB 6.8.3
(1) Once anAuthorised Firm has agreed or decided to enter into aTransaction for aClient , it must do so as soon as reasonably practical.(2) AnAuthorised Firm may postpone the execution of aTransaction in (1) if it has taken reasonable steps to ensure that it is in the best interests of theClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Fairly and in Due Turn
COB 6.8.4
An
Authorised Firm must deal withOwn Account Transactions andClient Transactions fairly and in due turn.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Averaging of Prices
COB 6.8.5
(1) AnAuthorised Firm may execute a series ofTransactions on behalf of aClient within the same trading day or within such other period as may be agreed in writing by theClient , to achieve one investment decision or objective, or to meetTransactions which it has aggregated.(2) If theAuthorised Firm does so, it may determine a uniform price for theTransactions executed during the period, calculated as the weighted average of the various prices of theTransactions in the series.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Timely Allocation
COB 6.8.6
(1) AnAuthorised Firm must ensure that aTransaction itExecutes is promptly allocated.(2) The allocation must be:(a) to the account of theClient on whose instructions theTransaction was executed;(b) in respect of a discretionaryTransaction , to the account of theClient orClients with or for whom theAuthorised Firm has made and recorded, prior to theTransaction , a decision in principle to execute thatTransaction ; or(c) in all other cases, to the account of theAuthorised Firm .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Direct Electronic Access
COB 6.8.7 COB 6.8.7
Where an
Authorised Firm provides aClient (including aMarket Counterparty ) with direct electronic access to anAuthorised Market Institution ,Alternative Trading System ,Regulated Exchange or regulated multilateral trading facility, theAuthorised Firm must:(a) establish and maintain policies, procedures, systems and controls to limit or prevent a Client from placing an order that would result in the Authorised Firm exceeding its existing position limits or credit limits; and(b) ensure that such policies, procedures, systems and controls remain appropriate and effective on an on-going basis.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 6.8.7 Guidance
An
Authorised Firm should undertake on-going monitoring of its systems and controls to ensure that they are operating effectively and as intended and remain appropriate.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 6.9 COB 6.9 Confirmation Notes
Application
COB 6.9.1
The Rules in this section do not apply to an
Authorised Firm with respect to anyTransaction which it:(a) undertakes with aMarket Counterparty ; or(b) carries out for the purposes of managing aFund of which it is theFund Manager .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM72/2010 (Made 11th July 2010) [VER19/07-10]Sending Confirmation Notes
COB 6.9.2
(1) When anAuthorised Firm Executes a Transaction in anInvestment for aClient , it must ensure a confirmation note is sent to theClient as soon as possible and in any case no later than 2 business days following the date ofExecution of theTransaction .(2) Where anAuthorised Firm has executed aTransaction or series ofTransactions in accordance with COB Rule 6.8.5, theAuthorised Firm must send a confirmation note relating to thoseTransactions as soon as possible, but no later than 2 business days following the lastTransaction .(3) The confirmation note must include the details of theTransaction in accordance with App3 COB section A3.1.(4) AnAuthorised Firm is not required to issue a confirmation note where aProfessional Client has advised in writing that he does not wish to receive such confirmation notes.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Record Keeping
COB 6.9.3
An
Authorised Firm must retain a copy of each confirmation note sent to aClient and retain it for a minimum of six years from the date of despatch.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.10 COB 6.10 Periodic Statements
Application
COB 6.10.1
The Rules in this section do not apply to an
Authorised Firm with respect to anyTransaction which it:(a) undertakes with aMarket Counterparty ; or(b) carries out for the purposes of managing aCollective Investment Fund of which it is theFund Manager .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM72/2010 (Made 11th July 2010) [VER19/07-10]Investment Management and Contingent Liability Investments
COB 6.10.2
(1) When anAuthorised Firm :(a) acts as anInvestment Manager for aClient ; or(b) operates aClient's account containing uncovered open positions in aContingent Liability Investment ;it must promptly and at suitable intervals in accordance with (2) provide the Client with a written statement ("a periodic statement") containing the matters referred to in App4 COB section A4.1.(2) For the purposes of (1), a "suitable interval" is:(a) six-monthly;(b) monthly, if theClient's portfolio includes an uncovered open position inContingent Liability Investments ; or(c) at any alternative interval that aClient has on his own initiative agreed with theAuthorised Firm but in any case at least annually.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Record Keeping
COB 6.10.4
An
Authorised Firm must make a copy of any periodic statement provided to aClient and retain it for a minimum of six years from the date on which it was provided.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.11 COB 6.11 Client Assets
Application
COB 6.11.1 COB 6.11.1
(1) This section applies to anAuthorised Firm which:(a) holds or controlsClient Assets ; or(b)Provides Custody .(2) This section applies to anAuthorised Firm Arranging Custody only to the extent specified in COB Rule 6.11.2(3).Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 6.11.1 Guidance
1.Client Assets is defined in the GLO Module as "Client Money and Client Investments".2. Principle 9 of the Principles for Authorised Firms (Customer assets and money) requires anAuthorised Firm to arrange proper protection forClients' Assets when the firm is responsible for them. An essential part of that protection is that anAuthorised Firm must properly safeguardClient Money andClient Investments held or controlled on behalf of aClient in the course of, or in connection with, the carrying on ofInvestment Business in or from theDIFC .3. COB Rule 6.11.3 requires anAuthorised Firm to introduce adequate organisational arrangements to minimise the risk of the loss or diminution ofClient Assets , or of rights in connection withClient Assets , as a result of, for example, theAuthorised Firm's or a third party's insolvency, fraud, poor administration, inadequate recordkeeping or negligence.4. For information about the difference betweenProviding Custody andArranging Custody , see Guidance under GEN Rule 2.13.1.5. The Client Asset provisions apply only to a limited extent to anAuthorised Firm thatArranges Custody , as such a firm does not hold or controlClient Assets (see COB Rule 6.11.2(3)).6. If an Authorised Firm is Providing Money Services, the Client Asset provisions apply to funds or other assets it receives from a User (i.e. a payer or payee), or that are for the benefit of a User.[Added] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]
[Added] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]General Requirements
COB 6.11.2 COB 6.11.2
(1) AnAuthorised Firm which holds or controlsClient Money must comply with sections 6.12 and 6.14.(2) AnAuthorised Firm which holds or controlsClient Investments orProvides Custody must comply with sections 6.13 and 6.14.(3) An Authorised Firm which Arranges Custody must comply with the requirements in COB Rule A6.5.1A (on suitability of non-DIFC custodians) and A6.7.1(1) (on disclosure) in APP 6 and in section 6.14 (Record keeping).Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 6.11.2 Guidance
1. An Authorised Firm subject to COB Rule 6.11.2(1) will include an ATS Operator, where it holds or controls Client Money.2. Where an Authorised Firm holds or controls Client Investments which are Investment Tokens, or Provides Custody in relation to Investment Tokens, it must comply with the requirements in COB section 14.3 (in addition to those in COB sections 6.13 and 6.14).Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 6.11.3 COB 6.11.3
(1) AnAuthorised Firm must have systems and controls to ensure thatClient Assets are identifiable and secure at all times.(2) Where theAuthorised Firm holds a mandate, or similar authority over an account with a third party, in theClient's own name, its systems and controls must:(a) include a current list of all such mandates and any conditions placed by theClient or by theAuthorised Firm on the use of the mandate;(b) include the details of the procedures and authorities for the giving and receiving of instructions under the mandate; and(c) ensure that allTransactions entered into using such a mandate are recorded and are within the scope of the authority of theEmployee and theAuthorised Firm entering into suchTransactions .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.11.3 Guidance
Authorised Firms are reminded that they must ensure that their auditor produces aClient Money Auditor's Report, aSafe Custody Auditor's Report and a Money Services Auditor’s Report, as applicable, in accordance with GEN 8.6.[Added] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]
[Amended] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]Holding or Controlling Client Assets
COB 6.11.4 COB 6.11.4
Client
Assets are held or controlled by anAuthorised Firm if they are:(a) directly held by theAuthorised Firm ;(b) held in an account in the name of theAuthorised Firm ;(c) held by aPerson , or in an account in the name of aPerson , controlled by theAuthorised Firm ; or(d) held in the Client's own name, but theAuthorised Firm has a mandate from theClient to manage those assets on a discretionary basis.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 6.11.4 Guidance
1For the purposes of COB Rule 6.11.4, the DFSA would consider aPerson to be controlled by anAuthorised Firm if thatPerson is inclined to act in accordance with the instructions of theAuthorised Firm .2. The DFSA would consider an account to be controlled by anAuthorised Firm if that account is operated in accordance with the instructions of theAuthorised Firm .3. If anAuthorised Firm has a discretionary portfolio mandate from aClient , even though the assets are to be held in the name of theClient (for example, under a power of attorney arrangement), the firm controls those assets as it can execute transactions relating to those assets, within the parameters set out in the mandate.4. In relation to assets referred to in Guidance item 3 that are held in theClient's name, only specificRules in App 5 (Client Money Provisions) and App 6 (Safe Custody Provisions) are likely to be relevant, as the assets are al held in theClient's own name and the firm will control rather than hold the assets. A firm with such a discretionary mandate will also need to comply with other relevant requirements in theRulebook , such as GEN Rule 2.2.10A requiring an endorsement to hold or controlClient Assets , and GEN 8.6 section requiring an audit report relating toClient Assets .5. If an Authorised Firm is Providing Money Services, funds or assets that it receives from, or that are for the benefit of, a User will be Client Assets held or controlled by the firm.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]
[Amended] DFSA RM226/2018 (Made 6th June 2018). [VER30/08-18]
[Added] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 6.12 COB 6.12 Client Money
COB 6.12.1 COB 6.12.1
All
Money held or controlled on behalf of aClient in the course of, or in connection with, the carrying on ofInvestment Business, theOperation of a Crowdfunding Platform, or Providing Money Services, in or from the DIFC isClient Money , exceptMoney which is:(a) held by theAuthorised Firm as aBank in an account with itself, provided theAuthorised Firm notifies theClient in writing that theClient Money is held by it as aBank and not in accordance with this chapter;(b) immediately due and payable by theClient to theAuthorised Firm ;(c) belonging to anotherPerson within theAuthorised Firm's Group unless thatPerson is anAuthorised Firm orRegulated Financial Institution and thatPerson has confirmed to theAuthorised Firm , in writing, that the beneficial owner of theMoney is aPerson who is not part of theAuthorised Firm's Group ;(d) in an account in theClient's name over which theAuthorised Firm has a mandate or similar authority and where theAuthorised Firm is in compliance with COB Rule 6.11.3 (2), provided it is not a mandate to manage theMoney on a discretionary basis;(e) received in the form of a cheque, or other payable order, made payable to a third party other than aPerson or account controlled by theAuthorised Firm , provided the cheque or other payable order is intended to be forwarded to the third party within 1 business day of receipt; or(f)Fund Property of aFund .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RM226/2018 (Made 6th June 2018). [VER30/08-18]
[Amended] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 6.12.1 Guidance
1. AuthorisedFirms are reminded that the exemption in COB Rule 6.12.1(a) would not apply toMoney which is passed to a third party i.e. not held in an account with theAuthorised Firm itself.2. Pursuant to COB Rule 6.12.1(b), examples ofMoney which is immediately due and payable to anAuthorised Firm includesMoney which is:a. paid by the way of brokerage, fees and other charges to theAuthorised Firm or where it is entitled to deduct such remuneration from theClient Money held or controlled;b. paid by theAuthorised Firm in relation to aClient purchase or in settlement of a margin payment in advance of receiving a payment from theClient ; orc. owed by theClient to theAuthorised Firm in respect of unpaid purchases by or for theClient if delivery ofInvestments has been made to theClient or credited to his account.3. The CIR module contains specific provisions relating to the handing ofFund Property and also provisions relating to aFund Administrator holding or controlling monies or assets belonging to third parties.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.12.1A
(1) All Money received from, or for the benefit of, a User in connection with Providing Money Services is Client Money, including Stored Value and Money received from another Money Services Provider for the execution of a Payment Instruction on behalf of a User.
(2) Where:
(a) only a portion of the Money referred to in (1) is to be used for Money Services; and(b) the precise portion attributable to Money Services is variable or unknown in advance,the Client Money is such amount as the Authorised Firm reasonably estimates, based on historical data, to be representative of the portion attributed to Money Services.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]Client Money Provisions
COB 6.12.2 COB 6.12.2
(1) AnAuthorised Firm inCategory 4 must not holdClient Money , except if it does so in connection with it Operating an Alternative Trading System,Operating a Crowdfunding Platform or providingMoney Transmission. (2) AnAuthorised Firm which holds or controlsClient Money for aClient must, subject to (3), comply with theClient Money Provisions in COB App5.(3) Where theClient is aMarket Counterparty , anAuthorised Firm may exclude the application of theClient Money Provisions but only where it has obtained the prior written consent of theMarket Counterparty to do so.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]
[Amended] DFSA RM113/2012 (Made 15th October 2012). [VER21/12-12]
[Amended] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Added] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]
[Added] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 6.12.2 Guidance
1. Providing Money Transmission is an activity that is included in the Financial Service of Providing Money Services – see the definition in GEN Rule 2.6.1(2).2. In accordance with GEN chapter 8, an Authorised Firm which holds or controls Client Money must arrange for a Client Money Auditor’s Report and, if it is Providing Money Services, a Money Services Auditor’s Report to be submitted to the DFSA on an annual basis.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Added] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]Client Disclosure
COB 6.12.3
(1) If anAuthorised Firm holds or controlsClient Money which is not subject to theClient Money Provisions pursuant to COB Rule 6.12.2 (2), it must disclose to thatMarket Counterparty in writing that:(a) the protections conferred by theClient Money Provisions do not apply to suchClient Money ;(b) as a consequence of (a), suchClient Money may be mixed withMoney belonging to theAuthorised Firm , and may be used by theAuthorised Firm in the course of theAuthorised Firm's business; and(c) in the event of insolvency, winding up or otherDistribution Event stipulated by the DFSA:(i) in the case of aDomestic Firm , suchClient Money will be subject to and distributed in accordance with the DFSAClient Money Distribution Rules ; and(ii) in the case of a non-DomesticFirm , suchClient Money will be subject to a regime which may differ from the regime applicable in the DIFC.(2)The Authorised Firm must obtain thatMarket Counterparty's written acknowledgement of the disclosures made in (1) prior to holding or controllingClient Money for thatMarket Counterparty .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]Distribution Event
COB 6.12.4
Following a
Distribution Event , anAuthorised Firm must comply with theClient Money Distribution Rules and allClient Money will be subject to such Rules.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Record Keeping
COB 6.12.5 COB 6.12.5
(1) AnAuthorised Firm must maintain records:(a) which enable theAuthorised Firm to demonstrate compliance with COB Rule 6.11.2;(b) which enable theAuthorised Firm to demonstrate and explain all entries ofMoney held or controlled in accordance with this chapter; and(c) of all cheques received and forwarded in accordance with COB Rule 6.12.1(e).(2) Records must be kept for a minimum of six years.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.12.5 Guidance
The DFSA expects an
Authorised Firm to maintain proper books and accounts based on the double-entry booking principle. They should be legible, up to date and contain narratives with the entries which identify and provide adequate information about each transaction. Entries should be made in chronological order and the current balance should be shown on each of theAuthorised Firm's ledgers.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.13 COB 6.13 Client Investments
COB 6.13.1
An
Authorised Firm must treat allInvestments held or controlled on behalf of aClient in the course of, or in connection with, the carrying on ofInvestment Business asClient Investments .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.13.2 COB 6.13.2
An
Authorised Firm which holds or controlsClient Investments must have systems and controls in place to ensure the proper safeguarding ofClient Investments .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.13.2 Guidance
Instead of safeguarding
Client Investments , anAuthorised Firm may choose to safeguardClient Money equal to the value of theClient Investments .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.13.3 COB 6.13.3
(1) Subject to (2), anAuthorised Firm :(a) holding or controllingClient Investments ; or(b)Providing Custody ,in or from the DIFC must do so in accordance with theSafe Custody Provisions in App6.(2)The Safe Custody Provisions in App6 do not apply toClient Investments held asCollateral unless stated otherwise.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 6.13.3 Guidance
An
Authorised Firm Arranging Custody must comply with the requirements specified in Rule 6.11.2(3).Derived from DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]Holding Collateral
COB 6.13.4
Before an
Authorised Firm holdsCollateral from aClient it must disclose to thatClient :(a) the basis and any terms governing the way in which theCollateral will be held, including any rights which theAuthorised Firm may have to realise theCollateral ;(b) if applicable, that theCollateral will not be registered in thatClient's own name;(c) if applicable, that theAuthorised Firm proposes to return to theClient Collateral other than the originalCollateral , or original type ofCollateral ; and(d) that in the event of the insolvency, winding up or otherDistribution Event stipulated by the DFSA:(i) of aDomestic Firm , any excessCollateral will be sold and the resultingClient Money shall be distributed in accordance with the DFSAClient Money Distribution Rules ; or(ii) of a non-DomesticFirm , thatCollateral will be subject to a regime which may differ from the regime applicable in the DIFC.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.13.5
Before an
Authorised Firm depositsClient's Collateral with a third party it must notify the third party that:(a) theCollateral does not belong to theAuthorised Firm and must therefore be held by the third party in a segregatedClient Account in a name that clearly identifies it as belonging to theAuthorised Firm's Clients ; and(b) the third party is not entitled to claim any lien or right of retention or sale over theCollateral except to cover the obligations owed to the third party which gave rise to that deposit, pledge, charge or security arrangement or any charges relating to the administration or safekeeping of theCollateral .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB 6.13.6
(1) AnAuthorised Firm may only permitClient's Collateral to be held by a third party where it has reasonable grounds to believe that the third party is, and remains, suitable to hold thatCollateral .(2) AnAuthorised Firm must be able to demonstrate to the DFSA's satisfaction the grounds upon which it considers the third party to be suitable to holdClient's Collateral .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.13.7
(1) AnAuthorised Firm must take reasonable steps to ensure that theCollateral is properly safeguarded.(2) AnAuthorised Firm must withdraw theCollateral from the third party where theCollateral is not being properly safeguarded unless theClient has indicated otherwise in writing.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.13.8
An
Authorised Firm holdingClient's Collateral must send a statement every six months to theClient in accordance with COB section A6.8.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.13.9
An
Authorised Firm must reconcile theClient's Collateral in accordance with COB section A6.9.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.14 COB 6.14 Record Keeping
COB 6.14.1
(1) AnAuthorised Firm must maintain records:(a) which enable theAuthorised Firm to demonstrate compliance with COB Rule 6.11.2; and(b) which enable theAuthorised Firm to demonstrate and explain all entries ofClient Investments andCollateral held or controlled in accordance with this chapter.(2) Records must be kept for a minimum of six years.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 6.15 COB 6.15 Advising on or Arranging Direct Long-Term Insurance
COB 6.15.1 COB 6.15.1
If an
Authorised Firm advises on or arrangesDirect Long-Term Insurance for aRetail Client , it must disclose to theClient :(a) the method of calculation of any bonuses;(b) an indication of surrender values and paid-up values, and the extent to which any such values are guaranteed;(c) for unit-linked insurance contracts, definition of the units to which they are linked, and a description of the underlying assets;(d) the basis of any projections included in the information; and(e) any facts that are material to the decision to invest, including any risks associated with the investment and factors that may adversely affect the performance of the investments.Derived from DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 6.15.1 Guidance
An
Authorised Firm can only advise onLong-Term Insurance , or arrangeLong-Term Insurance , if it has an authorisation for theFinancial Services in GEN Rule 2.9.1 or GEN Rule 2.11.1, as is relevant.Derived from DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 6.15 COB 6.15 Advising on or Arranging Direct Long-Term Insurance
[Deleted]
COB 6.15.1 [Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13][Deleted]
COB 6.15.2 [Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13][Deleted]
COB 6.15.3
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13][Deleted]
COB 6.15.4 COB 6.15.4 [Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13][Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13][Deleted]
COB 6.15.5 [Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 6.15.6 COB 6.15.6 [Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13][Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13][Deleted]
COB 6.15.7 [Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 6.15.8 [Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13][Deleted]
COB 6.15.9 [Deleted]
[Deleted] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 6.16 COB 6.16 Restricted Speculative Investments
Application
COB 6.16.1 COB 6.16.1
The Rules in this section apply to an Authorised Firm which carries on or intends to carry on:
(a) Dealing in Investments as Principal;(b) Dealing in Investments as Agent;(c) Arranging Deals in Investments; or(d) Advising on Financial Products;in relation to a Restricted Speculative Investment.
Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.1 Guidance
In addition to the requirements in this section that apply to an Authorised Firm carrying on certain activities in relation to Restricted Speculative Instruments:
(a) a person who makes a Financial Promotion relating to a Restricted Speculative Investment is required to comply with the requirements in GEN Chapter 3 (Financial Promotions), including GEN Rule 3.5.3, which specifically relates to a Restricted Speculative Investment; and(b) a Representative Office carrying on marketing activities relating to a Restricted Speculative Investment is required to comply with the requirements in the REP module, including REP Rule 4.10.1, which relates to the marketing of a Restricted Speculative Investment.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Interpretation
COB 6.16.2 COB 6.16.2
In this section:
(a) “contract for differences (CFD)” means an instrument that falls within paragraph (b)(ii) of the definition of a Future in GEN Rule A2.3.1, other than a rolling spot forex contract;(b) “Deal in a Restricted Speculative Investment” means Deal in Investments as Principal in relation to a Restricted Speculative Investment;(c) “Margin” means the pre-agreed amount a Retail Client is required to pay in the form of money to open a position in relation to a Restricted Speculative Investment;(d) “over-the-counter Derivative” means an instrument that is not formed or traded on an Exchange or a Regulated Exchange;(e) “Restricted Speculative Investment” means an over-the-counter Derivative which is:(i) a leveraged contract for differences;(ii) a leveraged rolling spot forex contract;(iii) an Option over a contract referred to in (i) or (ii); or(iv) any other leveraged Investment similar in nature to an instrument referred to in (i), (ii) or (iii); and(f) “rolling spot forex contract” means an instrument that falls within paragraph (b)(ii) of the definition of a Future in GEN Rule A2.3.1 where the value of the contract is ultimately determined by reference, wholly or in part, to fluctuations in an exchange rate or the value of a currency.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.2 Guidance
1. A Margin cannot be paid by a Retail Client through arrangements such as set-off or using credit cards (see COB Rule 6.16.10).2. For the purposes of the definition of Restricted Speculative Investment, the term ‘leverage’ refers to a person’s exposure (potential gain or loss) being multiple times the gain or loss based on the actual value, price or level of an underlying reference factor referred to in the Derivative contract.3. The types of Derivatives which fall within the definition of a Restricted Speculative Investment may have labels such as ‘turbo certificates’, ‘knock out options’ and ‘delta options’. Where a contract has similar features to the contracts listed in COB Rule 6.16.2(e)(i), (ii) or (iii), it will also be subject to the requirements of this section (if offered or marketed to a Retail Client). In determining whether a contract is a Restricted Speculative Investment, the DFSA will look at the substance of an arrangement, as opposed to its mere form.4. Restricted Speculative Investments include binary options and other derivatives that have similar characteristics. Before an Authorised Firm offers or deals in such products, it should take appropriate steps, such as obtaining professional advice, to ensure that such contracts do not contravene the prohibition against gambling in the U.A.E Penal Code.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Appropriateness Assessment
COB 6.16.3 COB 6.16.3
An Authorised Firm must not Deal in a Restricted Speculative Investment with a Retail Client, unless the Authorised Firm has carried out an appropriateness assessment of the person and formed a reasonable view that the person has:
(a) adequate skills and expertise to understand the risks involved in trading in the type of Restricted Speculative Investment; and(b) the ability to absorb potential significant losses resulting from trading in the Restricted Speculative Investment due to leverage.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.3 Guidance
1. For the purpose of forming the reasonable view referred to in COB Rule 6.16.3 in relation to a person, an Authorised Firm needs to consider at a minimum whether that person:(a) has sufficient knowledge and experience in relation to the Restricted Speculative Investment of the type offered, having regard to factors such as:(i) how often and in what volumes that person has traded in the relevant type of Restricted Speculative Investment; and(ii) the person’s relevant qualifications, profession or former profession;(b) understands the characteristics and risks, including those relating to the underlying reference and the degree of volatility of the markets or prices affecting that underlying reference;(c) understands the impact of leverage, due to which, there is potential to make significant losses in trading in a Restricted Speculative Investment; and(d) has the ability, particularly in terms of net assets and liquidity available to the person, to absorb and manage any losses that may result from trading in the Restricted Speculative Investment offered.2. To be able to demonstrate to the DFSA that it has undertaken a proper appropriateness assessment, an Authorised Firm should have in place systems and controls that include:(a) pre-determined and clear criteria against which a Retail Client’s ability to trade in a Restricted Speculative Investment can be assessed;(b) adequate records to demonstrate that the Authorised Firm has undertaken the appropriateness assessment in respect of each Retail Client (see COB Rule 6.16.14); and(c) in the case of an existing Retail Client with whom the Authorised Firm has previously traded in a Restricted Speculative Investment, procedures to undertake a fresh appropriateness assessment if:(i) a new Restricted Speculative Investment with a materially different risk profile is offered to that Retail Client; or(ii) there has been a material change in the Retail Client’s circumstances.3. Where an Authorised Firm forms the view that it is not appropriate for a person to trade in a Restricted Speculative Investment, the Authorised Firm needs to refrain from offering that service. As a matter of good practice, the Authorised Firm should inform the person of the firm’s decision.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Risk Warning
COB 6.16.4 COB 6.16.4
(1) An Authorised Firm must, before opening an account for a Retail Client to trade in Restricted Speculative Investments with the Authorised Firm, provide that Retail Client with a risk warning, which states that:(a) the types of contracts which the Authorised Firm will be entering into with the person are complex financial instruments where the loss or profit of the person is determined by reference to the movement of the value or price of the underlying reference;(b) this type of trading in complex financial instruments has a high probability of the person losing money rapidly, particularly due to the gain or loss being leveraged, based on the fluctuation of the price of the underlying reference; and(c) before deciding to trade in a Restricted Speculative Investment, the person needs to consider carefully whether they understand how the Restricted Speculative Investments offered work, and whether they can afford to take the high risk of losing money.(2) The risk warning in (1) must be:(a) given in writing and in good time before the Authorised Firm opens an account for the Retail Client to trade in Restricted Speculative Investments; and(b) provided in a stand alone document and not be part of the Client Agreement or any other document provided to the Retail Client.(3) The warning:(a) in (1)(a) must include the type of Restricted Speculative Investment to which the warning relates (e.g. the type of leveraged contracts for difference offered by the Authorised Firm) and the relevant underlying reference factor (e.g. the type of commodity, index, interest rate or exchange rate); and(b) in (1)(b) must, except as provided in (4), include the percentage of Restricted Speculative Investment accounts of Retail Clients that made a loss during the relevant period (relative to all Restricted Speculative Investment accounts of Retail Clients).(4) An Authorised Firm that is a start-up and is a member of a Group where one or more Group Members conduct trading in Restricted Speculative Investments with Retail Clients must, during the first 12 months of its business, include, for the purposes of (3)(b):(a) the percentage of Restricted Speculative Investment accounts of the Group Members’ Retail Clients that have made a loss during the relevant period (relative to all Restricted Speculative Investment accounts of Retail Clients in the Group); and(b) the percentage of Restricted Speculative Investment accounts of the Authorised Firm’s Retail Clients that made a loss for the period it has been in business (relative to all Restricted Speculative Investment accounts of Retail Clients).(5) For the purposes of (3)(b) and (4)(a), the “relevant period” is the period of twelve months before the date of the issue of the risk warning.(6) An Authorised Firm must provide to a Retail Client an update of the information required under (3)(b) and (4) at least on a quarterly basis.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.4 Guidance
1. The provision of a risk warning in good time before opening an account for a Retail Client to trade in Restricted Speculative Investments under COB Rule 6.16.4(2) is intended to give a Retail Client sufficient time to consider the information in the risk warning and to be able to make an informed decision before agreeing to obtain the relevant service from the Authorised Firm.2. An Authorised Firm should be able to demonstrate that the risk warning required under COB Rule 6.16.4 has been provided to the Retail Client, for example, through a record of emails or other communications sent to the Retail Client (see also COB Rule 6.16.14).3. The ratio of Retail Client accounts that made a loss as against the Authorised Firm’s total number of accounts referred to in COB Rule 6.16.4(3)(b) and (4) should present a fair and balanced view of all the relevant retail accounts operated by the Authorised Firm or, where relevant, its Group members. The data should not be used on a selective basis to create a misleading impression (i.e. not cherry picked).4. For the purposes of calculating the losses of trading accounts under COB Rule 6.16.4(3)(b) and (4), an Authorised Firm needs to take into account all realised and unrealised profits and losses arising from trading in Restricted Speculative Investments, less fees and charges levied to the relevant account. The calculation should not include any profits or losses from investments other than Restricted Speculative Investments. Any new investment of funds, as well as withdrawals from the relevant accounts, need to be excluded from the calculation of profits and losses.5. An Authorised Firm would have to consider the need to give a new warning to an existing Retail Client where there is a material change to the risk profile of the type of Restricted Speculative Investments offered to the Retail Client i.e. from those specified in a warning previously given to that Retail Client under COB Rule 6.16.4(1). The DFSA considers issuing a new warning will be appropriate, if the risks associated with a new Restricted Speculative Investment to be offered to the Retail Client are materially different to those previously offered, due to factors such as the volatility of the underlying reference or leverage.6. For the purposes of COB Rule 6.16.4(6), if the Authorised Firm provides more frequent reporting to a Retail Client, for example, under COB Rule 6.10.2(2), the update may be included as part of that report.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Risk Warning on marketing and other communications
COB 6.16.5 COB 6.16.5
(1) Where an Authorised Firm presents any marketing or educational materials and other communications relating to a Restricted Speculative Investment on a website, in general media or as part of a distribution made to existing or potential new clients, it must include a risk warning in a prominent place at or near the top of each page of the materials or communication.(2) The risk warning referred to in (1) must set out the risks associated with trading in the Restricted Speculative Investment of the type referred to in the materials or communications, in a clear, concise and easy to understand manner.(3) If the material referred to in (1) is provided on a website or an application that can be downloaded to a mobile device, the warning must be:(a) statically fixed and visible at the top of the screen even when a person scrolls up or down the webpage; and(b) included on each linked webpage on the website.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.5 Guidance
1. The warning required under COB Rule 6.16.5 is different to the risk warning required under COB Rule 6.16.4. The latter applies only to an Authorised Firm that Deals in a Restricted Speculative Investment with a Retail Client. The requirement in COB Rule 6.16.5 is more general and applies to all communications made by any Authorised Firm that:(a) deals in Restricted Speculative Investments, whether as principal or as agent;(b) advises on Restricted Speculative Investments; or(c) arranges deals in Restricted Speculative Investments.2. These requirements supplement the overarching obligations applicable to an Authorised Firm under GEN Rules 3.2.1 and 4.2.6.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Margin Requirements for Retail Clients
COB 6.16.6
(1) An Authorised Firm that Deals in a Restricted Speculative Investment must not open a position with a Retail Client unless the Retail Client has posted a Margin of at least:(a) 3.3% of the value of the exposure that the trade provides when the underlying asset is a major currency pair;(b) 5% of the value of the exposure that the trade provides when the underlying asset is a non-major currency pair, major equity index, treasury asset or gold;(c) 10% of the value of the exposure that the trade provides when the underlying asset is a non-major equity index or a commodity other than gold;(d) 50% of the value of the exposure that the trade provides when the underlying asset is a cryptocurrency; or(e) 20% of the value of the exposure that the trade provides when the underlying asset is an asset not referred to in (a) to (d).(2) In this Rule:(a) “major currency pair” means a pairing of any two of the following major currencies:(i) United States Dollar;(ii) Euro;(iii) Japanese Yen;(iv) Pound Sterling;(v) Swiss Franc;(vi) Canadian Dollar;(vii) Australian Dollar; or(viii) New Zealand Dollar;(b) “major equity index” means an index specified in the following table:Australia All Ordinaries Austria Austrian Traded Index Belgium BEL 20 Canada TSE 35, TSE 100, TSE 300 France CAC 40, SBF 250 Germany DAX European Dow Jones Stoxx 50 Index, FTSE Eurotop 300, MSCI Euro Index Hong Kong Hang Seng Italy MIB 30 Japan Nikkei 225, Nikkei 300, TOPIX Korea Kospi Netherlands AEX Singapore Straits Times Index Spain IBEX 35 Sweden OMX Switzerland SMI UK FTSE 100, FTSE Mid 250, FTSE All Share US S&P 500, Dow Jones Industrial Average, NASDAQ Composite, Russell 2000 ;and(c) “treasury asset” means an issue of public debt by or on behalf of:(i) the United Kingdom;(ii) the United States of America;(iii) France;(iv) Australia;(v) Germany;(vi) Japan;(vii) Canada; or(viii) Switzerland.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Margin close out requirements for Retail Clients
COB 6.16.7
(1) An Authorised Firm that Deals in a Restricted Speculative Investment must ensure that the net equity in a Retail Client’s account does not fall below 50% of the overall Margin deposited in that account.(2) For the purposes of (1), where a Retail Client’s net equity falls below 50% of the overall Margin deposited in that account, the Authorised Firm must close all open positions in the Retail Client’s account:(a) as soon as market conditions allow; and(b) in accordance with the best execution requirement in COB Rule 6.4.2.(3) In this Rule, “net equity” means the sum of the Retail Client’s net profit and loss on their open position(s) and the Retail Client’s deposited Margin.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Negative Balance Protection
COB 6.16.8 COB 6.16.8
The liability of a Retail Client, for all Restricted Speculative Investments connected to that Retail Client’s trading account with an Authorised Firm that Deals in Restricted Speculative Investments, is limited to the funds in that trading account.
Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.8 Guidance
1. The effect of the above Rule is to prevent a Retail Client from incurring losses exceeding the funds the Retail Client has specifically dedicated to trading in Restricted Speculative Investments. As a result, an Authorised Firm that has opened a trading account for a Retail Client to trade in Restricted Speculative Investments will not be able to recover any losses from the Retail Client that go beyond the funds in the Retail Client’s trading account.2. Funds in the Retail Client’s trading account are generally cash in the account, and include unrealised net profits from open positions (i.e. the sum of unrealised gains and losses of all open positions recorded in the Retail Client’s account) in respect of all Restricted Speculative Investments held in the Retail Client’s trading account.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Offer of incentives prohibited
COB 6.16.9 COB 6.16.9
(1) An Authorised Firm must not offer or provide to a Retail Client any incentive that influences, or is reasonably likely to influence, the Retail Client to trade in a Restricted Speculative Investment.(2) An Authorised Firm’s systems and controls must include adequate measures to ensure compliance with (1).Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.9 Guidance
1. The prohibition in COB Rule 6.16.9 applies to an Authorised Firm who Deals in Restricted Speculative Investments either as principal or as agent with or for Retail Clients, as well as an Authorised Firm that gives advice on or arrange deals in Restricted Speculative Investments. An Authorised Firm’s systems and controls need to have measures to prevent not only the Authorised Firm, but also any person acting for or on behalf of the Authorised Firm, from offering or providing incentives (see also COB Rule 3.5.3(1)).2. Offering incentives is also likely to conflict with the Authorised Firm’s overarching duty to act in the best interest of the Retail Client (see also GEN Rules 4.2.1 and 4.2.7).3. Incentives include bonus offers, gifts, rebates of fees (including volume-based rebates), trading credits or any form of reward in relation to the opening of a new account or trading in a new type of Restrictive Speculative Investment offered to an existing or potential new Retail Client.4. While offers, such as lower fees that are not linked to volumes of trade, or access to information services or research tools relating to RSIs, will not generally be viewed as forms of prohibited incentives, an Authorised Firm would need to be able to demonstrate that these were not offered in a manner that was reasonably likely to influence the client to deal in RSIs.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Prohibition on the use of credit to fund an account
COB 6.16.10 COB 6.16.10
An Authorised Firm that Deals in a Restricted Speculative Investment must take reasonable steps to ensure that a Retail Client does not use a credit card or third party credit facility to pay a Margin.
Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.10 Guidance
1. An Authorised Firm trading in Restricted Speculative Investments may provide margin lending under GEN Rule 2.5.2 to its Retail Clients to fund Margins.2. The above Rule does not prevent an Authorised Firm from allowing a Retail Client to use a debit card to fund Margins, provided the Authorised Firm has adequate systems in place to distinguish between a debit and credit card.3. An Authorised Firm should have in place controls and measures to ensure that a Retail Client does not use third party credit to fund an account, such as procedures to:a. verify the source of funds;b. issue a warning to Retail Clients that third party credit should not to be used to fund Margins; andc. obtain written confirmation from the Retail Client that third party credit is not being used to fund Margins.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Restrictions relating to certain Restricted Speculative Investments
COB 6.16.11
An Authorised Firm must not Deal in a Restricted Speculative Investment with a Retail Client unless:
(a) the Restricted Speculative Investment has a transparent pricing mechanism available for determining the price movement of the underlying reference, by reference to which the profit or loss of each party to the contract is determined; or(b) the Authorised Firm provides a two way pricing mechanism that allows the Retail Client to trade at those quoted prices during the currency of the Restricted Speculative Investment.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Referrals from an unregulated Person prohibited
COB 6.16.12 COB 6.16.12
(1) An Authorised Firm must not accept a referral of a Retail Client made by an unregulated Person for reward.(2) An Authorised Firm’s systems and controls must include adequate measures to ensure compliance with (1).(3) For the purposes of (1), an “unregulated Person” means a Person who is not an Authorised Person or a Regulated Financial Institution.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.12 Guidance
1. An Authorised Firm is not prohibited from accepting referrals from sources where the referral is not made for reward.2. A reward includes a monetary payment or any other type of incentive or gift from any source. An Authorised Firm’s systems and controls need to have measures to prevent not only the Authorised Firm, but also any person acting for or on behalf of the Authorised Firm, from offering or providing rewards for referrals (see also COB Rule 3.5.3(1)).Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Restriction relating to dealing as agent, arranging, advising or making referrals relating to Restricted Speculative Investments
COB 6.16.13 COB 6.16.13
(1) An Authorised Firm must not Deal in Investments as Agent or Arrange Deals in Investments with or for a Retail Client, or give Advice on Financial Products to a Retail Client, in relation to a Restricted Speculative Investment, unless it is reasonably satisfied that the issuer of the Restricted Speculative Investment is either:(a) an Authorised Firm; or(b) a Regulated Financial Institution outside the DIFC that is subject to substantially similar requirements to those set out in this section.(2) An Authorised Firm must not refer a Retail Client to a person providing any service related to a Restricted Speculative Investment, unless it is reasonably satisfied that the issuer of the Restricted Speculative Investment is either:(a) an Authorised Firm; or(b) a Regulated Financial Institution outside the DIFC that is subject to substantially similar requirements to those set out in this section.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 6.16.13 Guidance
An Authorised Firm needs to carry out proper due diligence to satisfy itself, on reasonable grounds, that Restricted Speculative Investments offered by a non-DIFC issuer are subject to substantially similar requirements to those that apply under this section. This due diligence needs to be undertaken before carrying on the relevant service with or for the Retail Client. The Authorised Firm should be able to demonstrate to the DFSA the basis upon which it has reasonably concluded that the requirements are substantially similar, even if they are not identical.
Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Record Keeping
COB 6.16.14
(1) An Authorised Firm must maintain records to demonstrate its compliance with the requirements in this section.(2) Records referred to in (1) must be kept for a minimum of six years.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Fee Disclosure
Guidance
See the Guidance under COB Rule A2.1.2 for requirements relating to fee disclosure.
Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]COB 7 COB 7 Core Rules — Insurance
COB 7.1 COB 7.1 Application and Interpretation
COB 7.1.1
(1)The Rules in this chapter apply to anAuthorised Firm with respect to the conduct in or from the DIFC ofInsurance Business ,Insurance Intermediation orInsurance Management to the extent specified in any Rule.(2)The Rules in this chapter do not apply to anInsurer that is anAuthorised ISPV with the exception of the Rules in COB section 7.2.(3) Only COB section 7.2, COB Rules 7.3.1, 7.6.1 and 7.9.1 and COB sections 7.10 and 7.12 in this chapter apply to anInsurer ,Insurance Intermediary orInsurance Manager when it carries on aFinancial Service with or for aMarket Counterparty .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.1.2
In this chapter, unless otherwise stated, a reference to an "insurer" is a reference to both an
Insurer and aNon-DIFC insurer .Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.1.3
(1) In this chapter, unless otherwise stated, a reference to aClient of anInsurance Manager is a reference to:(a) an insurer to whom theInsurance Manager provides itsInsurance Management services; and(b) aPolicyholder with whom theInsurance Manager interacts when carrying out itsInsurance Management activities.(2) In COB section 7.12, when anInsurance Manager providesInsurance Management services to aCaptive Insurer , a reference to aClient in (1)(a) is a reference to:(a) theCaptive Insurer ;(b) any shareholder of theCaptive Insurer ; and(c) anyPerson on whose behalf theInsurance Manager undertakes to establish thatPerson as an insurer.(3) In (2):(a) aCaptive Insurer includes aCell of aProtected Cell Company which is anInsurer ; and(b) a shareholder includes a holder ofCell Shares .Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]Guidance
The Rules in this chapter apply to
Authorised Firms conductingInsurance Business andInsurance Management in relation to all classes ofContracts of Insurance . However, those Rules apply toAuthorised Firms conductingInsurance Intermediation only in relation toContracts of Insurance that are not contracts ofLong-Term Insurance . Other COB Rules relating to theFinancial Services ofAdvising on Financial Products or Credit andArranging Credit or Deals in Investments will apply to advising and arranging on contracts ofLong-Term Insurance .Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.1A COB 7.1A Table Illustrating the Application of the Rules in this Chapter
Guidance
Rule Insurer Insurance Intermediary Insurance Manager Section 7.1: Application and interpretation ✓ ✓ ✓ Section 7.1A: Table illustrating the application of Rules ✓ ✓ ✓ Section 7.2: Insurance business, management and intermediation restrictions ✓ ✓ (other than COB Rules 7.2.3, 7.2.4 and 7.2.5) ✓ (only COB Rules 7.2.2 and 7.2.6) Section 7.3: Communication of information and marketing material ✓ ✓ ✓ (other than COB Rule 7.3.1(3) Section 7.4: Client's duty of disclosure ✓ (other than COB Rules 7.4.2, 7.4.3) ✓ X Section 7.5: Authorised Firm's duty of disclosure ✓ (other than COB Rules 7.5.2 and 7.5.3) ✓ ✓ (other than COB Rule 7.5.3) Section 7.6: Disclosure of costs and remuneration ✓ ✓ ✓ (other than COB Rule 7.6.2) Section 7.7: Information about the proposed insurance ✓ ✓ X Section 7.8: Suitability ✓ ✓ X Section 7.9: Managing Conflicts of Interests X ✓ ✓ Section 7.10: Placement of Insurance X ✓ ✓ Section 7.11: Providing an ongoing service ✓ ✓ X Section 7.12: Insurance Monies X ✓ ✓
Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.2 COB 7.2 Insurance Business, Management and Intermediation Restrictions
COB 7.2.1
An
Authorised Firm may only conductInsurance Business orInsurance Intermediation with or for aClient to the extent specified in this section.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.2.2 COB 7.2.2
(1) AnInsurer must ensure that it does notEffect aContract of Insurance orCarry Out aContract of Insurance through an establishment maintained by it in theDIFC where the contract is in relation to a risk situated within theState , unless the risk is situated in theDIFC or another Financial Free Zone, or the contract is one of re-insurance. (2) AnInsurance Intermediary must ensure that it does not act as agent in relation to aContract of Insurance where the contract is in relation to a risk situated within theState , unless the risk is situated in theDIFC or another Financial Free Zone, or the contract is one of re-insurance. (3) AnInsurance Manager must ensure that it does not act in relation to aContract of Insurance where the contract is in relation to a risk situated within theState , unless the risk is situated in theDIFC or another Financial Free Zone, or the contract is one of re-insurance. [Amended] DFSA RM61/2008 (Made 4th January 2009) [VER15/01-09]
Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]
[Added] DFSA RMI289/2020 (Made 16th December 2020). [VER37/02-21]COB 7.2.2 Guidance
The classes of insurance are set out in GEN App4. These include both insurance and reinsurance contracts relating to life insurance and non-life insurance (such as accident, sickness, property and travel insurance). However, the prohibitions in COB Rule 7.2.2 only apply to a
Contract of Insurance that is not a contract of re-insurance.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB 7.2.3
An
Insurer must ensure that it does not carry on, through an establishment maintained by it in the DIFC, both Long-TermInsurance Business andGeneral Insurance Business unless theGeneral Insurance Business is restricted toClass 1 orClass 2 or both.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.2.4
An
Insurer which is aProtected Cell Company must ensure that allInsurance Business is attributable to a particularCell of thatInsurer .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.2.5 COB 7.2.5
An
Insurer must not carry on any activity other thanInsurance Business unless it is an activity in direct connection with or for the purposes of such business. For the purposes of this Rule,Managing Assets is not an activity in connection with or for the purposes ofInsurance Business .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.2.5 Guidance
1. The following activities will normally be considered in direct connection with or for the purposes ofInsurance Business carried on by anInsurer :a. investing, reinvesting or trading, as investor or rabb ul maal and for theInsurer's own account, that of itsSubsidiary , itsHolding Company or anySubsidiary of itsHolding Company but not any other party, inSecurities , loans, investment accounts, units or shares in collective investment funds, certificates of mudaraba, certificates of musharaka or other forms of investments that are intended to earn profit or return for the investor;b. rendering other services related toInsurance Business operations including, but not limited to, actuarial, risk assessment, loss prevention, safety engineering, data processing, accounting, claims handling, loss assessment, appraisal and collection services;c. acting as agent for another insurer in respect of contracts of insurance in which both insurers participate;d. establishingSubsidiaries orAssociates engaged or organised to engage exclusively in one or more of the businesses specified above; ande. giving advice relating to its ownContracts of Insurance .2. The DFSA may give individual guidance on other business activities that may be determined to be in direct connection withInsurance Business .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.2.6 COB 7.2.6
An
Insurance Manager must not underwrite on behalf of aNon-DIFC insurer in relation to aContract of Insurance with or for aRetail Client , unless theInsurance Manager has obtained the prior written approval of theDFSA in respect of that insurer.Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.2.6 Guidance
For the purposes of COB Rule 7.2.6, an
Insurance Manager should submit to theDFSA sufficient information to establish that theNon-DIFC insurer for which it proposes to act is fit and proper and is subject to adequate regulation in its home jurisdiction.Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.3 COB 7.3 Communication of Information and Marketing Material
General Obligation
COB 7.3.1
(1) When communicating any information in relation toInsurance Business ,Insurance Intermediation orInsurance Management to aPerson , anAuthorised Firm must take reasonable steps to ensure that the communication is clear, fair and not misleading.(2) AnInsurer ,Insurance Intermediary orInsurance Manager must not, in any form of communication with aPerson , including an agreement, attempt to limit or avoid any duty or liability it may have to thatPerson under legislation administered by theDFSA .(3) AnInsurer orInsurance Intermediary must, when providing or directing marketing material to aClient , comply with the requirements in COB section 3.2, if the marketing material relates to aDirect Long-Term Insurance Contract .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM154/2015 (Made 9th December 2015) [VER25/02-16]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.4 COB 7.4 Client's Duty of Disclosure
COB 7.4.1
An
Insurer orInsurance Intermediary must explain to aClient :(a) theClient's duty to disclose all circumstances material to the insurance both before the insurance commences and during the continuance of the policy; and(b) the consequence of any failure by theClient to make such disclosures.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.4.2
An
Insurance Intermediary must explain to aClient that all answers or statements given on a proposal form, claim form or any other relevant document are theClient's own responsibility and that theClient is responsible for checking the accuracy of such information.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.4.3
If an
Insurance Intermediary believes that any disclosure of material facts by aClient is not true, fair or complete, it must request theClient to make the necessary true, fair or complete disclosure, and if this is not forthcoming must consider declining to continue acting on thatClient's behalf.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.5 COB 7.5 Authorised Firm's Duty of Disclosure
COB 7.5 Guidance
If an
Authorised Firm is required to provide information to aClient or potentialClient under this section or any other section in this Chapter before providing a service or doing anything, then the information should be provided in good time before providing the service or doing the thing so that theClient has sufficient time to make an informed decision.Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.5.1
(1) AnInsurer ,Insurance Intermediary orInsurance Manager must, subject to (3), disclose to aClient :(a) the name and address of the insurer or insurers effecting theContract ofInsurance ;(b) its own name and address where different; and(c) contact details of thePerson to whom a claim is to be notified.(2) The disclosures in (1) must be made before effecting or placing theContract ofInsurance , or as soon as reasonably practicable thereafter.(3) AnInsurance Manager is not required to make the disclosure under (1) to an insurer to whom it providesInsurance Management services.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.5.2 COB 7.5.2
(1) AnInsurance Intermediary orInsurance Manager must, subject to (3), disclose to aClient if:(a) it has a direct or indirect holding representing 10% or more of the voting rights or capital in an insurer; or(b) an insurer, or its parent undertaking, has a direct or indirect holding representing 10% or more of the voting rights or capital in theInsurance Intermediary orInsurance Manager .(2) The disclosures in (1) must be made before providingInsurance Intermediation orInsurance Management services to theClient .(3) AnInsurance Manager is not required to make a disclosure under (1) to an insurer to whom it providesInsurance Management services.Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.5.2 Guidance
An
Insurance Intermediary orInsurance Manager is required to disclose the information under COB Rule 7.5.1(1) and COB Rule 7.5.2(1) to anyPolicyholder with whom it interacts when carrying out itsInsurance Intermediation orInsurance Management activities.Derived from DFSA DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.5.3 COB 7.5.3
(1) AnInsurance Intermediary must, before providing anyInsurance Intermediation service to aPerson as aRetail Client , disclose whether any advice or information is or will:(a) be provided on the basis of a fair analysis of the market;(b) not be provided on the basis of a fair analysis of the market because of any contractual agreement it has with any particular insurer or insurers to deal with only their products; or(c) even if there are no contractual agreements of the type referred to in (b), not be provided on the basis of a fair analysis of the market.(2) If (1) (b) or (c) applies, theInsurance Intermediary must, if requested by theRetail Client , provide to thatClient a list of insurers with whom it deals or may deal in relation to the relevantContracts ofInsurance .(3) AnInsurance Intermediary must, before providing anyInsurance Intermediation service to aClient , disclose to thatClient whether it acts on behalf of an insurer or any otherPerson or acts independently on behalf ofClients .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.5.3 Guidance
1. AnInsurance Intermediary should not represent itself as providing advice or information on the basis of a fair analysis of the market under COB Rule 7.5.3(1) unless it has considered a sufficiently broad range ofContracts ofInsurance and based its decision on an adequate analysis of those contracts.2.Insurance Brokers act forClients who arePolicyholders . In doing so, they may claim under COB Rule 7.5.3(3) that they act 'independently' for theClients .3. TheDFSA expects anInsurance Broker which holds itself out to aClient as acting 'independently' for theClient to be able to demonstrate its independence to theDFSA . Factors that theDFSA would take into account when assessing if anInsurance Broker has acted independently include whether that broker:(a) has assessed a sufficiently large number of insurance products available on the market, and those products are sufficiently diverse in terms of their types and the issuers, to be able to suit theClient's needs and objectives;(b) is free to select insurance products from a sufficiently large number of insurers — for example, if a broker has close links with insurers, or exclusivity clauses in arrangements with insurers whose products they can select, the broker may not be able to claim it is independent; and(c) has disclosed clearly to theClient all commissions and other economic benefits it or aGroup member receives from insurers with whom it places insurance.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.6 COB 7.6 Disclosure of Costs and Remuneration
COB 7.6.1 COB 7.6.1
An
Insurer ,Insurance Intermediary orInsurance Manager must provide details of the costs of eachContract ofInsurance orInsurance Intermediation service orInsurance Management service offered to aClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.6.1 Guidance
1 The disclosure required by this Rule should include any premiums, fees, charges or taxes payable by theClient , whether or not these are payable to theAuthorised Firm .2 The disclosure should be made in terms readily understandable by theClient , taking into account the knowledge held by thatClient in relation to the type of insurance in question.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.6.2
An
Insurer orInsurance Intermediary must, where any premium is payable through aCredit Facility made available to aRetail Client , disclose any interest, profit rate or charges payable by theClient for using that facility.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.6.3
An
Insurer ,Insurance Intermediary orInsurance Manager must ensure that it does not impose any new costs, fees or charges without first disclosing the amount and the purpose of those charges to theClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.6.4
(1) AnInsurer ,Insurance Intermediary orInsurance Manager must, on the request of anyClient , disclose to thatClient all commissions and other economic benefits accruing to theAuthorised Firm or any member of the sameGroup from:(a) anyInsurance Intermediation business;(b) anyInsurance Management business; or(c) any other business connected to or related to the provision of such business;transacted by the Authorised Firm on behalf of that Client.(2) The requirement to disclose the information under (1) does not apply where anInsurance Intermediary acts solely on behalf of a single insurer, and this fact has been disclosed to theClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.7 COB 7.7 Information About the Proposed Insurance
COB 7.7.1
An
Insurer orInsurance Intermediary must provide adequate information in a comprehensive and timely manner to enable aClient to make an informed decision about theContract ofInsurance that is being proposed.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.7.2 COB 7.7.2
Without limiting the generality of the disclosure obligation under COB section 7.5, an
Insurer orInsurance Intermediary must, for the purpose of complying with the obligation under that section:(a) provide to aClient information about the key features of any insurance proposed including the essential cover and benefits, any significant or unusual restrictions, exclusions, conditions or obligations, and the applicable period of cover; and(b) explain, except where the insurance cover is sourced from a single insurer, the differences in and the relative costs of similar types of insurance as proposed.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.7.2 Guidance
When deciding to what extent it is appropriate to explain the terms and conditions of a particular insurance the
Insurer orInsurance Intermediary should take into consideration the knowledge held by theClient in relation to the type of insurance in question.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Specific Disclosure for Long-Term Insurance
COB 7.7.3
Where an
Insurer or anInsurance Intermediary proposesDirect Long-Term Insurance to aRetail Client , the disclosure for the purposes of this section must include:(a) the method of calculation of any bonuses;(b) an indication of surrender values and paid-up values, and the extent to which any such values are guaranteed;(c) for unit-linked insurance contracts, definition of the units to which they are linked, and a description of the underlying assets;(d) the basis of any projections included in the information; and(e) any facts that are material to the decision to invest, including risks associated with the investment and factors that may adversely affect the performance of the investments.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08][Deleted]
[Deleted] DFSA RM69/2010 (Made 1st March 2010). [VER18/03-10]COB 7.7.4 [Deleted]
[Deleted] DFSA RM69/2010 (Made 1st March 2010). [VER18/03-10]COB 7.8 COB 7.8 Suitability
COB 7.8.1
An
Insurer or anInsurance Intermediary must comply with the suitability requirement set out in COB section 3.4 when conducting anyInsurance orInsurance Intermediation Business with or for aRetail Client in respect ofDirect Long-Term Insurance .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.8.2 COB 7.8.2
(1) Subject to COB Rule 7.8.3, anInsurer orInsurance Intermediary must only make a recommendation to aRetail Client to enter into aContract ofInsurance that isGeneral Insurance where it has taken reasonable steps to ensure that the recommendedContract ofInsurance is suitable in light of theClient's demands and needs.(2)The Insurer orInsurance Intermediary must obtain from aRetail Client such information as is necessary to identify theClient's circumstances and objectives, and consider whether the terms of the particular contract ofGeneral Insurance meet the requirements identified.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.8.2 Guidance
Simple and easy to understand general insurance products, such as motor insurance, do not require a detailed suitability assessment. However, in other cases, the information which an Insurer or Insurance Intermediary would generally need to have about the Client’s needs and demands, before making a recommendation about a product, include:a. details relating to the purpose for which the Client is seeking to obtain insurance cover (e.g., what risks the Client wishes to cover);b. the Client’s circumstances, including financial, to assess the type of exclusions and level of excess the Client wishes to accept, or is suitable for the particular Client; andc. any other matters relevant to the particular type of insurance product or market.[Added] DFSA RMI259/2019 (Made 1st January 2020). [VER/34/01-20]COB 7.8.3 COB 7.8.3
An
Insurer and anInsurance Intermediary may only recommend to aClient a contract ofGeneral Insurance that does not meet all theClient's requirements if it clearly explains to theClient , at the point of making the recommendation, that the contract does not fully meet theClient's requirements and the differences in the insurance recommended.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.8.3 Guidance
When deciding what level of explanation is appropriate for a
Client to whom a contract of insurance that does not fully meet thatClient's requirements is recommended, theInsurer orInsurance Intermediary should take into consideration the knowledge held by theClient in relation to the type of insurance in question. The explanation should include sufficient information so that the Client can understand easily the differences between what is recommended and the Client’s requirements, and the advantages and disadvantages of the recommended insurance, including any financial or other risks the Client may face if the recommended policy does not fully meet the Client’s requirements.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Added] DFSA RMI259/2019 (Made 1st January 2020). [VER/34/01-20]COB 7.8.4
Where an
Insurance Intermediary is instructed to obtain insurance which is contrary to the advice that it has given to aClient , theInsurance Intermediary must obtain from theClient written confirmation of theClient's instructions before arranging or buying the relevant insurance.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.9 COB 7.9 Managing Conflicts of Interest
COB 7.9.1 COB 7.9.1
(1) AnInsurance Intermediary orInsurance Manager must manage any conflict of interest to ensure that all itsClients are fairly treated and not prejudiced by any such interests.(2) AnInsurance Intermediary orInsurance Manager must manage the conflict of interest by disclosing such conflict to theClients in writing either generally or in relation to a specificTransaction .(3) If anInsurance Intermediary orInsurance Manager is unable to manage a conflict of interest, it must decline to act for theClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.9.1 Guidance
1. AnInsurance Intermediary , when considering how it manages conflicts of interests, should clearly identify the capacity in which it acts and to whom it owes duties. For example, if it is acting as anInsurance Broker , it is acting as an agent for the policyholder and it has a duty to act in the best interests of the policyholder. If it is acting as anInsurance Agent , it has a duty to act in the best interests of its principal i.e. the insurer or insurers from whom it holds an authority to act as agent.2. While the Rules do not prohibit anInsurance Intermediary from acting for both an insurer and policyholder in relation to the same risk, such an arrangement could result in conflicts of interest that are hard to manage. If anInsurance Intermediary proposes to act for both an insurer and policyholder in relation to the same risk, it should, under COB Rule 7.9.1(2), clearly disclose that information in a timely manner. TheDFSA expects the firm to at least:a. notify both parties about the procedures it will follow if acting in the interest of the policyholder or the insurer is likely to impair its ability to act in the interests of the other party; andb. if one or both parties express concerns relating to the proposed process, decline to act for both parties under COB Rule 7.9.1(3) and instead act for only one party.3. AnInsurance Manager will also need to identify and manage conflicts of interest that arise in the course of carrying on its business, for example, in the course of settling claims.Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.10 COB 7.10 Placement of Insurance
Instructions
COB 7.10.1
An
Insurance Intermediary orInsurance Manager must not place aContract ofInsurance with or on behalf of an insurer unless it has satisfied itself on reasonable grounds that the insurer may lawfully effect that contract under the laws of the jurisdictions in which the insurer and the risk are located.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]Quotations
COB 7.10.2
When giving a quotation, an
Insurance Intermediary orInsurance Manager must take due care to ensure the accuracy of the quotation and its ability to obtain the insurance at the quoted terms.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]Confirmation of Cover
COB 7.10.3
(1) AnInsurer , inEffecting Contracts of Insurance , must promptly document the principal economic and coverage terms and conditions agreed upon under anyContract of Insurance and finalise such contract in a timely manner.(2) AnInsurer ,Insurance Intermediary orInsurance Manager must, as soon as reasonably practicable, provide aClient with written confirmation and details of the insurance which it has effected for theClient or has obtained on behalf of theClient , including any changes to an existingContract ofInsurance .(3) AnInsurer ,Insurance Intermediary orInsurance Manager must, as soon as reasonably practicable, provide theClient with the full policy documentation where this was not included with the confirmation of cover.(4) In (2) and (3), aClient of anInsurance Manager is anyPolicyholder with whom theInsurance Manager interacts when carrying on itsInsurance Management activities.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.11 COB 7.11 Providing an Ongoing Service
Amendments to and Renewal of Insurance
COB 7.11.1
(1) AnInsurer orInsurance Intermediary must deal promptly with aClient's request for an amendment to the insurance cover and provide theClient with full details of any premium or charges to be paid or returned.(2) AnInsurer orInsurance Intermediary must provide aClient with written confirmation when the amendment is made and remit any return premium or charges due to theClient without delay.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.11.2
An
Insurer orInsurance Intermediary must give adequate advance notification to aClient of the renewal or expiration date of an existing insurance policy so as to allow theClient sufficient time to consider whether continuing cover is required.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.11.3
On expiry or cancellation of the insurance, at the request of the
Client , anInsurer orInsurance Intermediary must promptly make available all documentation and information to which theClient is entitled.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Claims
COB 7.11.4
Where an
Insurance Intermediary handles insurance claims it must:(a) on request, give theClient reasonable guidance in pursuing a claim under the relevant policy;(b) handle claims fairly and promptly and keep theClient informed of progress;(c) inform theClient in writing, with an explanation, if it is unable to deal with any part of a claim; and(d) forward settlement of any claim, as soon as reasonably practicable, once it has been agreed.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.11.5
An
Insurer must:(a) handle claims fairly and promptly;(b) keep theClient informed of the progress of the claim;(c) not reject a claim unreasonably;(d) if only part of a claim is accepted:(i) provide a clear statement about the part of the claim that is accepted; and(ii) give clear reasons for rejecting that part of the claim that has not been accepted; and(e) settle the claim promptly.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12 COB 7.12 Insurance Monies
Application
COB 7.12.1
This section applies to an
Insurance Intermediary and anInsurance Manager , in respect of activities carried on in or from the DIFC.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]General
COB 7.12.2 COB 7.12.2
(1)Insurance Monies are, subject to (2), any monies arising fromInsurance Intermediation or theInsurance Management business which are any of the following:(a) premiums, additional premiums and return premiums of all kinds;(b) claims and other payments due underContracts ofInsurance ;(c) refunds and salvages;(d) fees, charges, taxes and similar fiscal levies relating toContracts ofInsurance ;(e) discounts, commissions and brokerage; or(f) monies received from or on behalf of aClient of anInsurance Manager , in relation to hisInsurance Management business.(2)Monies are notInsurance Monies where there is a written agreement in place between theInsurance Intermediary orInsurance Manager and the insurer to whom the relevant monies are to be paid (or from whom they have been received) under which the insurer agrees that:(a) theInsurance Intermediary orInsurance Manager , as the case may be, holds as agent for the insurer all monies received by it in connection withContracts ofInsurance effected or to be effected by the insurer;(b) insurance cover is maintained for theClient once the monies are received by theInsurance Intermediary or theInsurance Manager , as the case may be; and(c) the insurer's obligation to make a payment to theClient is not discharged until actual receipt of the relevant monies by theClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12.2 Guidance
If an
Insurance Manager does not have in place risk transfer arrangements referred to in COB Rule 7.12.2(2), theInsurance Manager holdsInsurance Monies , so far as they belong toPolicyholders , at the risk of thosePolicyholders .Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.12.3 [Deleted]
[Deleted] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.12.4 [Deleted]
[Deleted] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]Insurance Money Segregation
COB 7.12.5
(1) AnInsurance Intermediary orInsurance Manager when dealing withInsurance Monies must:(a) maintain one or more separateInsurance Bank Accounts with anEligible Bank ;(b) ensure that eachInsurance Bank Account contains in its title the name of theAuthorised Firm , together with the designationInsurance Bank Account (or IBA);(c) prior to operating anInsurance Bank Account , give written notice to, and request written confirmation from, theEligible Bank that the bank is not entitled to combine theInsurance Bank Account with any other account unless that account is itself anInsurance Bank Account held by theAuthorised Firm , or to any charge, encumbrance, lien, right of set-off, compensation or retention against monies standing to the credit of theInsurance Bank Account ;(d) pay allInsurance Monies directly and without delay into anInsurance Bank Account ;(e) use anInsurance Bank Account only for the following purposes:(i) the receipt ofInsurance Monies ;(ii) the receipt of such monies as may be required to be paid into theInsurance Bank Account to ensure compliance by theAuthorised Firm with any conditions or requirements prescribed by the DFSA;(iii) the payment toClients or to insurers of monies due underInsurance Intermediation Business transactions;(iv) the payment of all monies payable by theAuthorised Firm in respect of the acquisition of or otherwise in connection withApproved Assets ;(v) the withdrawal of brokerage, management fees and other income related toInsurance Intermediation Business , either in cash or by way of transfer to an account in the name of theIntermediary which is not anInsurance Bank Account , provided that no such sum may be withdrawn from theInsurance Bank Account before the time at which that amount may be brought into account as income of theInsurance Intermediary ;(vi) the withdrawal of monies that are required to be transferred under (2) or COB Rule 7.12.9A;(vii) the withdrawal of monies paid into theInsurance Bank Account in error; and(viii) the withdrawal of any monies credited to theInsurance Bank Account in excess of those required by any conditions and requirements prescribed by the DFSA;(f) ensure that any amount held in theInsurance Bank Account or otherApproved Assets , together with any amount due and recoverable from insurance debtors, is equal to, or greater than the amount due to insurance creditors; and(g) take immediate steps to restore the required position if at any time it becomes aware of any deficiency in the required segregated amount.(2) If anEligible Bank has not provided the written confirmation referred to in (1)(c) within 40 business days after theAuthorised Firm made the request, theAuthorised Firm must as soon as possible withdraw Insurance Monies held in theInsurance Bank Account with thatEligible Bank and deposit them in an Insurance Bank Account with another Eligible Bank.(3) An Insurance Intermediary orInsurance Manager is not required to comply with the requirement in (1)(c) if it has no account, other than one or moreInsurance Bank Accounts , with theEligible Bank .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.12.6
An
Insurance Intermediary orInsurance Manager may not obtain a loan or overdraft for any purpose relating to anInsurance Bank Account unless that advance:(a) is on a bank account which is designated as anInsurance Bank Account , and the loan or overdraft is used for payment toClients or to insurers of monies due underInsurance Intermediation transactions;(b) does not give rise to a breach of the requirements of COB Rule 7.12.5(e); and(c) is of a temporary nature and is repaid as soon as reasonably practicable.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12.7
An
Insurance Intermediary orInsurance Manager must holdInsurance Monies either in anInsurance Bank Account or inApproved Assets .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12.8
An
Insurance Intermediary orInsurance Manager must ensure thatApproved Assets are:(a) registered in the name of theInsurance Intermediary orInsurance Manager and designated as being an 'Insurance Bank Account'; or(b) held for theInsurance Bank Account of theInsurance Intermediary orInsurance Manager at the bank at which suchInsurance Bank Account is held.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.12.9
An
Insurance Intermediary orInsurance Manager must ensure that monies, other than interest, arising fromApproved Assets or their realisation, sale or disposal are paid into anInsurance Bank Account .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12.9A
(1) AnInsurance Intermediary orInsurance Manager must not holdInsurance Monies for aClient in anInsurance Bank Account with anEligible Bank outside theState , unless it has previously disclosed in writing to theClient :(a) that the money may be held in anInsurance Bank Account outside theState ;(b) that in such circumstances, the legal and regulatory regime applying to theEligible Bank may be different from that in theState ;(c) in the event of failure of theEligible Bank , the money may be treated in a different way to that which would apply if the money were held by a bank in theState ;(d) if it is the case, that the particularEligible Bank has not accepted that it has no right of set-off or counterclaim against money held in theInsurance Bank Account in respect of any sum owed on any other account of theAuthorised Firm ; and(e) that theClient may notify theAuthorised Firm if he does not wish the money to be held in anInsurance Bank Account outside theState or in a particular jurisdiction.(2) If aClient notifies anInsurance Intermediary orInsurance Manager in writing that he does not wish theInsurance Monies to be held in anInsurance Bank Account outside theState or in a particular jurisdiction, the Insurance Intermediary or Insurance Manager must ensure that, no later than 20 days after receiving the notice, either:(a) theInsurance Monies are transferred into anInsurance Bank Account with anEligible Bank in theState , or in a jurisdiction to which theClient has not objected, as the case may be; or(b) if no such alternative arrangement can be made, theInsurance Monies are returned to theClient .Derived from DFSA RM182/2016 (Made 19th June 2016) [VER27/08-16]COB 7.12.10
An
Insurance Intermediary orInsurance Manager may not holdInsurance Monies inApproved Assets until it has given written notice to and received written notice from the bank referred to in COB Rule 7.12.8(b) that the bank is not entitled to any charge, encumbrance, lien, right of set-off, compensation or retention againstApproved Assets held for theInsurance Intermediary's orInsurance Manager's Insurance Bank Account .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12.11
An
Insurance Intermediary orInsurance Manager may only useApproved Assets as security for a loan or overdraft where that loan or overdraft is for a purpose relating to anInsurance Bank Account as permitted by COB Rule 7.12.6.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12.12
Where
Insurance Monies are held inApproved Assets whose rating drops below the minimum stipulated within the definitions, that investment or asset will cease to be anApproved Asset and theInsurance Intermediary orInsurance Manager must dispose of the investment or asset as soon as possible and no later than within 30 days of the rating change.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12.13
An
Insurance Intermediary orInsurance Manager may not use derivatives in the management ofInsurance Monies except for the prudent management of foreign exchange risks.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12.14
An
Insurance Intermediary who has a credit balance for aClient who cannot be traced should not take credit for such an amount except where:(a) he has taken reasonable steps to trace theClient and to inform him that he is entitled to the money;(b) at least six years from the date the credit was initially notified to theClient ; and(c) COB Rule 7.12.5(f) will continue to be satisfied after the withdrawal of such money.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 7.12.15
An
Insurance Intermediary must keep records of all sums withdrawn from theInsurance Bank Account or realisedApproved Assets as a result of credit taken under COB Rule 7.12.14 for at least six years from the date of withdrawal or realisation.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 8 COB 8 Specific Rules – Operating A Credit Rating Agency
COB 8.1 COB 8.1 Application
COB 8.1.1 COB 8.1.1
(1) This chapter applies to everyPerson who carries on, or intends to carry on, theFinancial Service ofOperating a Credit Rating Agency in or from the DIFC.(2) In this chapter, where a reference is made to aRating Subject which is a credit commitment, a debt or a debt-like Investment referred to in GEN Rule 2.27.1(3)(b) or (c), that reference is to be read, where the context requires, as a reference to thePerson responsible for obtaining theCredit Rating .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.1.1 Guidance
1. TheFinancial Service ofOperating a Credit Rating Agency is defined in GEN Rule 2.27.1. This chapter contains the specific conduct requirements that apply toPersons carrying on theFinancial Service ofOperating a Credit Rating Agency .Code of conduct/ethics
2. The outcome intended by some of the specific conduct requirements in this chapter can be achieved by adopting a code of conduct/ethics. Whilst not proposing to prescribe that aCredit Rating Agency must have a code of conduct/ethics, aCredit Rating Agency should consider, particularly where noted in relation to specific Rules, adopting such a code as a means of achieving the outcome intended by the relevant requirements. However, where aCredit Rating Agency does not adopt such a code, the onus is on theCredit Rating Agency to demonstrate how it achieves compliance with the relevant requirements through other means.Persons responsible for obtaining a Credit Rating
3. Not allRating Subjects are bodies corporate. For example,Credit Ratings can be provided in respect of a credit commitment given by aPerson , or a debt or debt-like Investment. In such instances, where a Rule in this chapter requires theRating Subject to carry out some activity, such a reference is to be read, pursuant to COB Rule 8.1.1(2), as a reference to thePerson who is responsible for obtaining theCredit Rating . Such aPerson would generally be the originator, arranger or sponsor of the relevant financial product which is being rated. TheCredit Rating Agency should clearly identify thePerson responsible for aRating Subject before proceeding with itsCredit Rating Activities relating to thatRating Subject .4. However, there is no restriction against more than onePerson being identified asPersons responsible for obtaining aCredit Rating relating to aRating Subject . In such cases, aCredit Rating Agency should clearly identify thosePersons as responsiblePersons relating to the relevantRating Subject .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.2 COB 8.2 Additional Principles for Credit Rating Agencies
COB 8.2 Guidance
Credit Rating Agencies are required to comply with, in addition to the Principles in sections GEN 4.1 and GEN 4.2, three further Principles set out in this section.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Principle 1 – Quality and integrity
COB 8.2.1
A
Credit Rating Agency must take all reasonable steps to ensure that itsCredit Ratings are well founded and are based on a fair and thorough analysis of all relevant information which is reasonably known or available to theCredit Rating Agency .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Principle 2 – Independence and conflicts of interest
COB 8.2.2
A
Credit Rating Agency must take all reasonable steps to ensure that its decisions relating toCredit Ratings are independent and free from political or economic pressures and not affected by conflicts of interest arising due to its ownership structure or business or other activities or conflicts of interest of itsEmployees .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Principle 3 – Transparency and disclosure
COB 8.2.3 COB 8.2.3
A
Credit Rating Agency must take all reasonable steps to ensure that it conducts itsCredit Rating Activities in a transparent and responsible manner.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.2.3 Guidance
Acting in a responsible manner means that a
Credit Rating Agency undertakes the level of due diligence and care expected of an entity undertaking similar business in conducting itsCredit Rating Activities . What is reasonable would depend on the nature, scale and complexity of its operations, including models and methodologies it has adopted in order to formulateCredit Ratings .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.3 COB 8.3 Quality of the rating process
Policies and procedures
COB 8.3.1 COB 8.3.1
(1) ACredit Rating Agency must adopt, implement and enforce policies, procedures and controls that are adequate to ensure that:(a) itsCredit Ratings are based on a thorough and fair analysis of all theRelevant Information ;(b) it has clearly defined methodologies and models for the purposes of preparing and reviewingCredit Ratings ; and(c) itsRating Analysts , in preparing and reviewingCredit Ratings , adhere to the relevant methodologies and models adopted by theCredit Rating Agency , including any updates of such methodologies and models.(2) For the purposes of (1)(a),Relevant Information is information which is:(a) reasonably known or available to theCredit Rating Agency ; and(b) required, pursuant to the established rating methodologies and models adopted by theCredit Rating Agency .(3) For the purposes of (1)(c), aRating Analyst means anEmployee of aCredit Rating Agency who performs analytical functions in relation to the preparation or review of aCredit Rating .(4) ACredit Rating Agency must have adequate mechanisms to monitor whether its policies, procedures and controls are implemented in such a way so as to ensure that they operate, on an on-going basis, effectively and as intended.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.3.1 Guidance
Application to Groups and Branches
1. Where aCredit Rating Agency is a member of aGroup , theCredit Rating Agency may rely on the policies, procedures and controls adopted at the group-wide level. Where this is the case, theCredit Rating Agency should ensure that the group-wide policies, procedures and controls are consistent with the requirements applicable to it and do not constrain its ability to comply with the applicable requirements in the DIFC.2. In the case ofBranc h operations, the DFSA will only grant an authorisation to conduct theFinancial Service ofOperating a Credit Rating Agency where it is satisfied with the adequacy of the home jurisdiction regulation of the relevant legal entity.3. Considerations set out in Guidance No 1 and 2 are equally relevant to the other requirements applicable to CRAs which are set out in this chapter.Periodic review
4. ACredit Rating Agency should ensure that there is a formal and rigorous periodic review (at least annually) of the effectiveness of its systems and controls, including the methodologies and models it uses, to ensure that they remain effective and adequate in light of factors such as changing market conditions and practices and matters that have a material impact on the users ofCredit Ratings .5. Such a review should be carried out by individuals who are not involved in the day-today management or operations of theCredit Rating Agency . Taking into account the nature, scale and complexity of its business, aCredit Rating Agency may undertake such a review through a designated function at the group-wide level, or using external consultants. The DFSA expects the findings of such a review to be made available to theGoverning Body and the senior management of theCredit Rating Agency , and that any inadequacies identified are promptly and effectively addressed.Analysts
6. By definition, theEmployees of aCredit Rating Agency includeRating Analysts who are either employed by theCredit Rating Agency or appointed under a contract for services to perform analytical functions in relation to the preparation ofCredit Ratings . Such appointedRating Analysts may, in the case of aCredit Rating Agency which is part of aGroup , be employed by another entity within theGroup . In that case, theCredit Rating Agency should ensure that suchRating Analysts comply with the applicable DFSA Rules when conductingCredit Rating Activities on its behalf.Relevant Information
7. See Guidance under Rule 8.3.4.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Methodologies and models
COB 8.3.2 COB 8.3.2
For the purposes of producing and reviewing
Credit Ratings , aCredit Rating Agency must adopt and use rating methodologies and models, including any key rating assumptions, which:(a) are rigorous and systematic;(b) to the extent possible, result inCredit Ratings that can be subjected to some form of objective validation based on historical experience;(c) are subject to periodic review as appropriate; and(d) are made public, including any changes made to such methodologies and models.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.3.2 Guidance
1. ACredit Rating Agency will need to establish proper procedures for the regular review of its methodologies and models, including any key rating assumptions used in such methodologies and models, in order to be able to properly assess theRelevant Information and prepare credible and high qualityCredit Ratings . Any changes to the methodologies and models should incorporate cumulative experience gained through on-going market surveillance.2. Where any material modifications are made to the methodologies or models used by theCredit Rating Agency , it should make prior disclosure to the public of such modifications before applying the modified methodologies and models, especially to existingCredit Ratings .3. ACredit Rating Agency should assess whether existing methodologies and models for providing aCredit Rating in respect of structured financial products remain appropriate where the risk characteristics of the assets underlying a structured product change materially.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Rating Analysts
COB 8.3.3 COB 8.3.3
A
Credit Rating Agency must ensure that itsRating Analysts :(a) have adequate and appropriate knowledge and experience to carry outCredit Rating Activities assigned to them;(b) have access to, and use, all theRelevant Information ;(c) apply the relevant methodologies and models in a transparent and consistent manner;(d) act without bias in carrying out their functions; and(e) observe high standards of integrity.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.3.3 Guidance
1. See Rules GEN 5.3.18 and GEN 5.3.19 with regard to the assessment that aCredit Rating Agency , as anAuthorised Firm , needs to undertake to ensure that itsEmployees (includingRating Analysts ) are fit and proper and have adequate competencies in order to carry out their functions.2. ACredit Rating Agency should structure its rating teams in such a way so as to promote continuity of adequate skills and expertise within a relevant team, and avoidance of bias in the preparation or review of aCredit Rating . For the purpose of promoting objectivity and lack of bias in preparing or reviewingCredit Ratings , measures such as periodic rotation ofRating Analysts , as appropriate, should be considered.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Credit Ratings
COB 8.3.4 COB 8.3.4
A
Credit Rating Agency must ensure that:(a) the role and responsibility of assigning aCredit Rating rests clearly on theCredit Rating Agency and not on any of itsRating Analysts ;(b) the information it uses for the purposes of preparing or reviewing aCredit Rating is of sufficient quality to support a credibleCredit Rating ;(c) itsCredit Ratings :(i) reflect all theRelevant Information ;(ii) do not contain any misrepresentations, and are not misleading in respect of the creditworthiness of theRating Subject ; and(iii) contain clear and prominent statements if they are premised on limited historical data, are not subject to on-going surveillance or are subject to any other limitation which has or may have a material impact on the relevantCredit Rating ; and(d) it does not produce aCredit Rating where it has reasonable doubts as to whether a credibleCredit Rating can be produced due to the complexity of, or the lack of adequate information relating to, a potentialRating Subject .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.3.4 Guidance
Relevant Information is defined in COB Rule 8.3.1(2). ACredit Rating Agency should adopt adequate measures to ensure that the quality of information it uses is reliable to support a credibleCredit Rating . Such measures may include:a. relying on independently audited financial statements and public disclosures where available;b. conducting random sampling examination of the information received; andc. having contractual arrangements withPersons who request aCredit Rating , or any third party source from whom information is obtained, that render suchPersons liable if they knowingly provide materially false or misleading information, or fail to conduct due diligence they are reasonably expected to carry out to verify the accuracy of theRelevant Information .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]On-going monitoring and review of the Credit Ratings
COB 8.3.5 COB 8.3.5
(1) Unless aCredit Rating clearly states that it will not be subject to ongoing review, aCredit Rating Agency must:(a) have adequate personnel and financial resources committed for the on-going surveillance of the creditworthiness of theRating Subject ;(b) ensure a review of aCredit Rating is undertaken regularly, and in any case, promptly upon becoming aware of information reasonably likely to result in aRating Action ; and(c) take any appropriateRating Action promptly.(2) For the purposes of (1), aRating Action is an upward or downward move of aCredit Rating , a confirmation of an existingCredit Rating or a withdrawal of aCredit Rating .(3) Following the review in (1)(b), aCredit Rating Agency must issue a notice of itsRating Action . Such a notice must:(a) be promptly disseminated to the public or distributed by subscription, as applicable; and(b) contain a clear and prominent statement specifying:(i) the date on which theCredit Rating was last updated; and(ii) the date on which the newCredit Rating is effective; or(iii) if theCredit Rating is withdrawn, the effective date from which it is withdrawn and the reasons for such withdrawal.(4) Without prejudice to the obligation to conduct on-going surveillance and review of aCredit Rating , where aCredit Rating Agency forms an opinion on reasonable grounds that it does not have adequate or credibleRelevant Information , it must not support an existingCredit Rating , and must withdraw such aCredit Rating immediately. Where it does so, it must issue a notice of withdrawal of theCredit Rating in accordance with (3).[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.3.5 Guidance
1. ACredit Rating Agency may use separate teams ofRating Analysts for determining initialCredit Ratings and subsequent review of such ratings. It should ensure that each team has the requisite level of expertise and resources to perform its functions effectively.2. ACredit Rating Agency should undertake both periodic and ad hoc reviews of itsCredit Ratings as appropriate to the nature of theRating Subject , the market conditions and reasonable expectations of users of suchCredit Ratings . Such reviews should apply any changes in its rating methodologies and models, including rating assumptions.3. ACredit Rating Agency should have clear and published parameters relating to the review ofCredit Ratings , including, to the extent possible, when it will undertake any ad hoc reviews. Such parameters should include any material change in the risk characteristics of theRating Subject or significant changes in the markets which relate to, or affect, theRating Subject .4. ACredit Rating Agency may place under surveillance aRating Subject upon becoming aware of any material changes relating to, or affecting, it. ACredit Rating Agency should consider whether, in such circumstances, it is appropriate to give any prior notice that the relevantRating Subject is under surveillance.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.4 COB 8.4 Integrity of the credit rating process
Policies and procedures
COB 8.4.1 COB 8.4.1
To promote integrity of its credit rating process, a
Credit Rating Agency must implement adequate policies, procedures and controls to ensure that it and itsEmployees :(a) comply with all the applicable legal and other requirements, including those relating to itsCredit Rating Activities , regardless of where such activities are carried on;(b) deal fairly and honestly withRating Subjects andPersons using or relying on itsCredit Ratings , such as investors and other market participants, including the public; and(c) do not, either expressly or implicitly, give any assurances or guarantees of a particular rating outcome before undertaking a full analysis of theRelevant Information in accordance with the applicable methodologies and models.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.4.1 Guidance
1. Where aCredit Rating Agency undertakes activities in a number of jurisdictions, the effect of COB Rule 8.4.1 is that it will need to ensure that respective obligations arising in all those jurisdictions are effectively met as appropriate. In doing so, it will need to take account of the application of the DFSA regime toGroup andBranch operations (see Guidance 1 and 2 under Rule 8.3.1).2. ACredit Rating Agency is required, under GEN Rule 7.5.1(2), to have anAuthorised Individual as itsCompliance Officer . It is the responsibility of theCompliance Officer to ensure proper observance by theCredit Rating Agency and itsEmployees , particularlyRating Analysts , of the applicable legal and other obligations, including any code of conduct/ethics adopted by theCredit Rating Agency . Such a code should generally set out matters relating to unacceptable and unethical behaviour which should be avoided by itsEmployees . See also Guidance 2 under section 8.1.1.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.5 COB 8.5 Conflicts of interest and independence
COB 8.5 Guidance
1. There is a significant overlap between conflicts of interest and lack of independence ofEmployees (who includeRating Analysts ). Therefore, some of the requirements set out in this section, while promoting independence ofCredit Rating Agencies , are equally relevant for the purpose of addressing conflicts of interest. For convenience, they are set out under distinct headings.2. The more detailed requirements set out in this section are designed to enable aCredit Rating Agency to meet the requirements set out under COB Rule 8.2.2 (Principle 2 – Independence and transparency). For this purpose, aCredit Rating Agency should have a detailed code of conduct/ethics that sets out its policies and procedures for meeting the requirements including those in this module covering aspects relating to conflicts of interest, as well as independence, of itsEmployees . See also Guidance 2 under section 8.1.1.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Policies and procedures
COB 8.5.1 COB 8.5.1
A
Credit Rating Agency must have adequate, clear and well documented policies, procedures and controls to:(a) promote high standards of care, independence and objectivity in decision making by itsEmployees ;(b) ensure that itsCredit Ratings are not influenced by any considerations other than those which are relevant in accordance with its published methodologies and models as applicable to the particularRating Subject ; and(c) identify, and eliminate or manage, as appropriate, including through disclosure, any conflicts of interest that may influence itsCredit Ratings , including those conflicts of interest which may influence itsEmployees who are involved in producing or reviewingCredit Ratings .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.5.1 Guidance
1. ACredit Rating Agency should neither take, nor forbear or refrain from taking, anyRating Action based on its potential effect (economic, political or otherwise) on theCredit Rating Agency , itsRating Subjects , investors or any other market participants (for example, the existence or non-existence of business relationship between theCredit Rating Agency or a member of itsGroup and theRating Subject ).2. The determination of aCredit Rating should be influenced only by factors relevant to the credit assessment in accordance with its published methodologies and models as applicable to the particularRating Subject .3. ACredit Rating Agency should, at a minimum, set out clearly when conflicts of interest arise and, in relation to what type of business or commercial dealings or transactions, and between whom, such conflicts of interest can arise.4. Where theRating Subject (such as a government) has, or is simultaneously pursuing, any oversight function relating to theCredit Rating Agency , theCredit Rating Agency should avoid assigningEmployees involved in theCredit Rating of theRating Subject for also discharging any function relating to theCredit Rating Agency's oversight.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Provision of consultancy and ancillary services
COB 8.5.2 COB 8.5.2
(1) ACredit Rating Agency must not provide to aRating Subject or aRelated Party of aRating Subject consultancy or advisory services relating to the corporate or legal structure, assets, liabilities or activities of suchRating Subject orRelated Party .(2) For the purposes of (1), aRelated Party of aRating Subject is:(a) an undertaking which is in the sameGroup as theRating Subject ;(b) anyPerson who interacts with theCredit Rating Agency in respect of theCredit Rating ; or(c) anyPerson who has a significant business or other relationship with theRating Subject or anyPerson referred to in (a) or (b).(3) Without prejudice to (1), aCredit Rating Agency may provide services which are ancillary to itsCredit Rating Activities to aRating Subject or aRelated Party of theRating Subject where it:(a) has a clear definition of what services it considers as ancillary services;(b) documents why such services are considered not to raise any conflicts of interest with itsCredit Rating Activities ; and(c) has in place adequate mechanisms to minimise the potential for any conflicts of interest arising.(4) If a member of theGroup in which theCredit Rating Agency is also a member provides services of the kind referred to in (1) to aRating Subject of theCredit Rating Agency or aRelated Party of such aRating Subject , such services must be operationally and functionally separated from the business of theCredit Rating Agency .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.5.2 Guidance
1. The prohibition in COB Rule 8.5.2(1) includes, for example, making proposals or recommendations regarding the design or structure ofRating Subjects , including suggestions as to how a desired rating could be achieved. Therefore, such services cannot be provided.2. Some of the activities which are prohibited under COB Rule 8.5.2(1) may constitute aFinancial Service other thanOperating a Credit Rating Agency . Even if aCredit Rating Agency has an authorisation to provide such aFinancial Service , it is prevented from providing such services to aRating Subject or aRelated Party because of the prohibition in COB Rule 8.5.2(1).3. Ancillary services referred to in COB Rule 8.5.2(3) include, for example, market forecasts, estimates of economic trends, pricing analysis and other general data analysis as well as related distribution services. These services can be provided toRating Subjects and theirRelated Parties where the requirements in COB Rule 8.5.2(3) are met. These services are also unlikely to constitute otherFinancial Services .4. ACredit Rating Agency should separate operationally itsCredit Rating Activities from any ancillary services it provides in accordance with COB Rule 8.5.2(3). For example,Rating Analysts and other key individuals involved inCredit Rating Activities should not also be involved in the provision of such services.5. Where aGroup member provides to aRating Subject of aCredit Rating Agency any ancillary services, theCredit Rating Agency and theGroup member should not shareEmployees or premises to ensure operational separation.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Credit Rating Agency fees
COB 8.5.3
A
Credit Rating Agency must not enter into fee arrangements for providingCredit Ratings where the fee depends on the rating outcome or on any other result or outcome of theCredit Rating Activities .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Other conflicts of interest
COB 8.5.4 COB 8.5.4
A
Credit Rating Agency must not engage in any securities or derivatives transactions with, relating to, or in respect of, aRating Subject or itsRelated Party in circumstances where such a transaction would amount to, or pose a risk of, a conflict of interest with respect to itsCredit Rating Activities .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.5.4 Guidance
Examples of investments which would not present conflicts of interest include investments in collective investment funds which might contain investments in a
Rating Subject or itsRelated Party .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6 COB 8.6 Independence of Rating Analysts and other Employees
Policies and procedures
COB 8.6.1
A
Credit Rating Agency must have adequate policies, procedures and controls to ensure that itsEmployees , as far as practicable, avoid relationships which compromise or are reasonably likely to compromise the independence and objectivity of itsCredit Rating Activities .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6.2 COB 8.6.2
(1) ACredit Rating Agency must ensure that itsEmployees who are directly involved in preparing or reviewing aCredit Rating of aRating Subject do not initiate, or participate in, discussions regarding fees or payments with theRating Subject or aRelated Party of theRating Subject .(2) ACredit Rating Agency must ensure that itsEmployees who are directly involved in preparing or reviewing aCredit Rating of aRating Subject , and theirClose Relatives , do not engage in any securities or derivative transactions with, relating to, or in respect of, theRating Subject or aRelated Party of theRating Subject in circumstances where such a transaction would amount to, or pose a risk of, a conflict of interest with respect to the activities of the relevantEmployee .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6.2 Guidance
This Rule should be read in conjunction with COB Rule 8.2.2, pursuant to which,
Employees of aCredit Rating Agency need to be independent and free from conflicts of interest. Such conflicts of interest include the appearance of being compromised as result of a personal relationship which he or hisClose Relatives have with aRating Subject or aRelated Party of aRating Subject . TheCredit Rating Agency's policies and procedures should clearly set out where a personal relationship should be considered to create the potential for any real or apparent conflicts of interest and therefore be subject to the conflicts of interest provisions.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6.3 COB 8.6.3
(1) ACredit Rating Agency must ensure that itsEmployees who have a relevant material interest in aRating Subject or itsRelated Party are not involved in the preparation or review of the relevantCredit Rating or able to influence that process.(2) For the purposes of COB Rule 8.6.3(1), anEmployee of aCredit Rating Agency has a material interest in aRating Subject if theEmployee :(a) owns a security or a derivative relating to aRating Subject or itsRelated Party , other than holdings in diversified collective investment funds;(b) has had a recent employment or other significant business relationship with aRating Subject or itsRelated Party which may cause, or may be perceived as causing, conflicts of interest; or(c) has aClose Relative who is currently employed by aRating Subject or itsRelated Party .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6.3 Guidance
A
Credit Rating Agency should, where it has a code of conduct/ethics, set out unacceptable conduct forEmployees , such as soliciting money, gifts, or favours from anyone with whom theCredit Rating Agency does business, or accepting gifts offered in the form of cash or any gifts which are reasonably capable of influencing their opinions or decisions relating toCredit Ratings . There should also be guidance relating to minimal value of gifts or benefits that may be accepted, and clearance and disclosure procedures relating to such gifts and benefits. See also Guidance 2 under Rule 8.1.1.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6.4
A
Credit Rating Agency must establish policies and procedures for reviewing the past work of aRating Analyst who leaves the employment of the firm to join aRating Subject or itsRelated Party where theRating Analyst had been involved in producing or reviewing theCredit Rating assigned to suchRating Subject orRelated Party .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Remuneration and reporting lines
Remuneration and reporting lines Guidance
A
Credit Rating Agency is required, pursuant to GEN Rule 5.3.31, to have remuneration structures and strategies which, amongst other things, are consistent with the business objectives and identified risk parameters within which the firm operates, and provide for effective alignment of risk outcomes and the roles and functions of the relevantEmployees . The requirements set out in this section are designed to augment those remuneration requirements set out in GEN.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6.5
A
Credit Rating Agency must ensure thatEmployees involved in the provision ofCredit Ratings have reporting lines and remuneration arrangements that are designed to eliminate, or effectively manage, actual and potential conflicts of interest.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6.6 COB 8.6.6
A
Credit Rating Agency must ensure that itsEmployees are not remunerated, or their performance evaluated, based on the amount of revenue generated or expected from theCredit Ratings in which theEmployee was involved.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6.6 Guidance
The
Employees intended to be covered by this Rule areRating Analysts and otherEmployees who are directly involved in producing or reviewing aCredit Rating , or who are able to influence the credit rating process (such as the senior management).[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.6.7
A
Credit Rating Agency must conduct formal and periodic reviews of its remuneration policies and practices relating toEmployees who participate in, or who might otherwise have an effect on, the rating process to ensure that those policies and practices do not compromise the objectivity of theCredit Rating Activities .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.7 COB 8.7 Transparency and disclosure
Policies and procedures
COB 8.7.1 COB 8.7.1
(1) ACredit Rating Agency must, subject to (2), have adequate policies, procedures and controls to ensure that it discloses in a timely manner:(a) itsCredit Ratings and any updates thereof;(b) its policies for distributingCredit Ratings and updates thereof;(c) the methodologies and models used and key assumptions made in preparing itsCredit Ratings and any updates thereof; and(d) any other significant element relating to (a), (b) or (c) above.(2) ACredit Rating Agency is not required to disclose information where the information is subject to confidentiality requirements.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.7.1 Guidance
1. The level of detail required in the disclosure of information concerning methodologies, models and key assumptions should be such as to give adequate information to the users ofCredit Ratings to enable them to perform their own due diligence when assessing whether, or to what extent, reliance can be placed on thoseCredit Ratings (see COB Rule 8.8.1). Disclosure of information must not, however, reveal confidential information of, or relating to, theRating Subject or itsGroup pursuant to COB Rule 8.9.1.2. The information referred to in Guidance No. 1 should generally include the meaning of each rating category and the definition of default or recovery, and the time horizon theCredit Rating Agency used when making aCredit Rating .3. ACredit Rating Agency should adequately and clearly disclose applicable risks which may affect aCredit Rating , including a sensitivity analysis of the relevant assumptions and an explanation of how various market developments affect the parameters built into the methodologies and models and may influence or impinge on theCredit Rating (for example volatility).4. If the nature of aCredit Rating or other circumstances make a historical default rate inappropriate or otherwise likely to mislead investors, theCredit Rating Agency should provide appropriate clarifications.5. ACredit Rating Agency should provide information to assist users of itsCredit Ratings to develop a greater understanding of what aCredit Rating is, and the limitations on the use ofCredit Ratings with respect to the particular type of financial product that theCredit Rating Agency rates. ACredit Rating Agency should clearly indicate the attributes and limitations of eachCredit Rating , and the limits to which the firm verifies information provided to it by theRating Subject , itsRelated Party or any external source.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Communication of information
COB 8.7.2 COB 8.7.2
A
Credit Rating Agency must ensure that its communications relating to itsCredit Ratings ,Credit Rating Activities and its other business are clear, fair and not misleading.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.7.2 Guidance
1. ACredit Rating Agency should, taking into account the nature, scale and complexity of its operations, have a function within its organisation charged with the responsibility for communicating with market participants and the public on questions, concerns or complaints it receives.2. The objective of this function should be to help ensure that theCredit Rating Agency's officers and management are informed of those issues that such officers and management would reasonably need to be informed about when setting and implementing theCredit Rating Agency's systems and controls.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.8 COB 8.8 Disclosure and presentation of Credit Ratings
General Disclosure
COB 8.8.1 COB 8.8.1
(1) Subject to the confidentiality requirements applicable to aCredit Rating Agency , it must ensure that itsCredit Ratings :(a) are published promptly, and as far as practicable, on a n ive basis and free of charge;(b) contain sufficient information to enable users of suchCredit Ratings to understand how theCredit Rating was reached, including information relating to the methodologies, models and key underlying assumptions used;(c) contain a clear statement if theCredit Rating is initiated by theCredit Rating Agency on its own initiative (unsolicited), and information relating to theCredit Rating Agency's policy relating to providing unsolicitedCredit Ratings ;(d) contain sufficient information about the historical default rates of itsCredit Ratings which are of the same category as theCredit Rating being published so that interested parties can understand the historical performance of itsCredit Ratings ; and(e) include any other information relevant to the particularCredit Rating , as specified in this module.(2) ACredit Rating Agency must ensure that any press release which accompanies aCredit Rating contains key elements underlying theCredit Rating .(3) Before publishing a new or an updatedCredit Rating or withdrawing aCredit Rating , theCredit Rating Agency must, to the extent practicable and appropriate, give to theRating Subject sufficient advance notice to enable thatPerson to draw to the attention of theCredit Rating Agency any factual errors on which theCredit Rating Agency may have based the relevantCredit Rating .(4) Subject to the confidentiality requirements applicable to aCredit Rating Agency , any information which theCredit Rating Agency is required to publish pursuant to any Rules must also be made available on the website of the relevantCredit Rating Agency .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.8.1 Guidance
In relation to Rule 8.8.1(3), a
Credit Rating Agency should inform theRating Subject at least 12 hours before publication of a newCredit Rating or an update or withdrawal of an existingCredit Rating of the principal grounds on which suchCredit Rating is based in order to give theRating Subject an opportunity to draw to the attention of theCredit Rating Agency any factual errors. TheRating Subject has the meaning given to it in GEN Rule 2.27.1(3) and should be read in conjunction with COB Rule 8.1.1(2).[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Specific Disclosure - Fees and Charges
COB 8.8.2
(1) ACredit Rating Agency must include in its announcements relating toCredit Ratings and its annual report the general nature of its arrangements relating to fees and charges with, or relating to, theRating Subject including:(a) whether theCredit Rating Agency or any member of itsGroup receives any fees, charges or other monetary benefits which are unrelated to the provision by theCredit Rating Agency of itsCredit Ratings , and if so, the proportion of such benefits relating to the aggregate fees and charges in respect of the provision ofCredit Ratings ; and(b) if theCredit Rating Agency receives 10% or more of its aggregate annual revenue from a singleRating Subject or itsRelated Party , information about that source.(2) Where aCredit Rating Agency is a member of aGroup , the 10% aggregate annual income referred to in (1)(b) may be calculated by aggregating the net revenue of allCredit Rating Agencies within theGroup .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]Specific Disclosure – Structured financial products
COB 8.8.3 COB 8.8.3
ACredit Rating Agency must, where theRating Subject is a structured financial product disclose in itsCredit Ratings whether theRelevant Information is made publicly available by theRating Subject , or whether all, or some of, such information remains non-public.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.8.3 Guidance
1. The information which aCredit Rating Agency provides relating to structured financial products should include sufficient information such as information relating to the profit and loss statement and cash flow analysis to enable users of theCredit Ratings to understand the basis of theCredit Rating . Such information should also include the degree to which, in accordance with its analysis, theCredit Rating is sensitive to changes in market conditions.2. ACredit Rating Agency should differentiate ratings of structured finance products from traditional corporate bond ratings, preferably through a different rating symbology. ACredit Rating Agency must also disclose how this differentiation operates.3. ACredit Rating Agency should use reasonable efforts to encourage theRating Subject to disclose to the public all Relevant Information to enable investors and users of theCredit Ratings to conduct their own due diligence relating to that product.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.9 COB 8.9 Confidential information
COB 8.9.1
A
Credit Rating Agency must have policies, procedures and controls to ensure that it and itsEmployees do not:(a) use any information given to or obtained by theCredit Rating Agency on a confidential basis ("Confidential Information") for a purpose other than that for which it was given or obtained;(b) disclose theConfidential Information to any otherPerson , except:(i) in accordance with (a);(ii) with the prior written consent of thePerson to whom a duty of confidentiality in respect of suchConfidential Information is owed; or(iii) where obliged to do so by any legislation applicable to theCredit Rating Agency ; and(c) disclose any pendingRating Action except to theRating Subject or as agreed with theRating Subject .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.9.2
Subject to COB Rule 8.9.1(b), a
Credit Rating Agency and itsEmployees must not discloseConfidential Information in any manner, including in press releases, through research conferences, to future employers, or in conversations with investors, other issuers, other persons, or by other means.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.9.3
A
Credit Rating Agency must have adequate measures to ensure that it and itsEmployees :(a) take all reasonable steps to protect all property and records belonging to or in possession of theCredit Rating Agency against fraud, theft or misuse; and(b) do not shareConfidential Information entrusted to theCredit Rating Agency with any third parties except where permitted under COB Rule 8.9.1(b).[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 8.10 COB 8.10 Record keeping
COB 8.10.1 COB 8.10.1
(1) ACredit Rating Agency must, for a minimum of six years, maintain sufficient records in relation to each activity and function of theCredit Rating Agency and, where appropriate, audit trails of itsCredit Rating Activities . These must include, where applicable, the following:(a) for eachCredit Rating :(i) the identity of theRating Analysts participating in the determination of theCredit Rating ;(ii) the identity of the individuals who have approved theCredit Rating ;(iii) information as to whether theCredit Rating was solicited or unsolicited;(iv) information to support theCredit Rating ;(v) theAccounting Records relating to fees and charges received from or in respect of theRating Subject ;(vi) the internal records and files, including non-public information and working papers, used to form the basis of anyCredit Rating ; and(vii) credit analysis and credit assessment reports including any internal records and non-public information and working papers used to form the basis of the opinions expressed in such reports;(b) theAccounting Records relating to fees received from any person in relation to services provided by theCredit Rating Agency ;(c) theAccounting Records for each subscriber to theCredit Rating Agency's services;(d) the records documenting the established procedures, methodologies, models and assumptions used by theCredit Rating Agency to determineCredit Ratings ; and(e) copies of internal and external communications, including electronic communications, received and sent by theCredit Rating Agency and itsEmployees that relate toCredit Rating Activities .(2) For the purposes of (1), the six year period commences from the date theCredit Rating is disclosed to the public or distributed by subscription.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]
[Amended] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 8.10.1 Guidance
1. Information to support aCredit Rating includes information received from theRating Subject or information obtained through publicly available sources or third parties and verification procedures adopted in relation to information such as those obtained from public sources or third parties. In accordance with GEN Rule 5.3.24, records should be kept in such a manner as to be readily accessible.2. Where aCredit Rating is subject to on-going surveillance and review, theCredit Rating Agency should retain records required under COB Rule 8.10.1 in relation to the initialCredit Rating as well as subsequent updates where such records are required to support the latestCredit Rating .[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]COB 9 COB 9 Additional Rules: Operating an Alternative Trading System
COB 9.1 COB 9.1 Application and interpretation
COB 9.1.1 COB 9.1.1
This chapter applies to an
Authorised Firm whichOperates anAlternative Trading System (ATS Operator).[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.1.1 Guidance
1. TheFinancial Service ofOperating anAlternative Trading System can be either operating aMultilateral Trading Facility (MTF) or operating anOrganised Trading Facility (OTF). See GEN Rule 2.22.1.2. An ATS Operator that is Operating a Facility for Investment Tokens is, in addition to the requirements in this chapter, subject to the applicable requirements in chapter 14.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Added] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 9.1.2 COB 9.1.2
In this chapter:
(a) a reference to a “member” is a reference to aClient of theATS Operator who has been granted access to its facilities in accordance with the requirements in this chapter and, unless otherwise specified, includes a Direct Access Member;(b) a reference to a “facility” is a reference to aMultilateral Trading Facility (MTF) and anOrganised Trading Facility (OTF), except where specific reference is made only to anMTF orOTF ;(c) a reference to an “ATS Operator ” is a reference to aPerson operating anMTF and aPerson operating anOTF , except where specific reference is made only to aPerson operating anMTF or aPerson operating anOTF ; and(d) where aRule in this chapter conflicts with any other provision in theDFSA Rulebook , theRule in this chapter prevails over those other provisions.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Added] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 9.1.2 Guidance
Under COB Rule 9.3.1(1)(e), an ATS Operator that is Operating a Facility for Investment Tokens is permitted to admit certain additional Persons as members, where their access is only for trading or clearing of Investment Tokens. Such Persons are defined in GLO and referred to in this module as Direct Access Members.
Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 9.2 COB 9.2 Main requirements relating to trading on the facility
COB 9.2.1 COB 9.2.1
(1) An
ATS Operator must, at the time aLicence is granted and at all times thereafter, have:(a) transparent and non-discriminatory rules and procedures to ensure fair and orderly trading of Investments on its facility (“Operating Rules ”);(b) objective criteria governing access to its facility (“Access Criteria ”);(c) objective and transparent criteria for determining theInvestments that can be traded on its facility (“Investment Criteria ”);(d) adequate technology resources (“Technology Resources ”); and(e) rules and procedures to ensure onlyInvestments in which there is aProper Market are traded on its facilities (“Proper Markets ”).(2) A breach of the
Operating Rules of anATS Operator is a prescribed matter for the purposes of Article 67(1)(b) of the Regulatory Law 2004.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.2.1 Guidance
Pursuant to Article 67(1) of the Regulatory Law 2004, an
Authorised Firm is required to disclose to theDFSA anything which reasonably tends to show breaches or likely breaches of requirements as prescribed inRules . Rule 9.2.1(2) prescribes a breach of Operating Rules as a the matter which is reportable to theDFSA by anATS Operator .[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Operating Rules
COB 9.2.2
(1) The
Operating Rules of anATS Operator must be:(a) based on objective criteria;(b) non-discriminatory;(c) clear and fair;(d) legally binding and enforceable against each member and where relevant, any otherPerson who has been allowed access to the facility through the member; and(e) in the case of aPerson operating anMTF , non-discretionary and made publicly available.(2) The
Operating Rules of anATS Operator must place obligations uponPersons who are admitted to trading on its facility (“members”):(i) when undertaking transactions on its facilities; and(iii) relating to professional standards applicable to staff and otherPersons allowed access to the facility through such a member.(3) Without limiting the generality of (1) and (2), the
Operating Rules of anATS Operator must contain:(a) criteria for admission of members to its facility, in accordance with Rule 9.3.1;(b) criteria relating toInvestments traded on its facility, in accordance with Rule 9.4.1;(c) the rules and procedures governing trading on the facility;(d) default rules;(e) the rules and procedures for the clearing and settlement of transactions executed on the facility; and(f) any other matters necessary for the proper functioning of its facility.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Material changes to Current Arrangements
COB 9.2.3 COB 9.2.3
(1) An
ATS Operator may only make material changes to its existing arrangements to meet the requirements in this chapter in accordance with the requirements in thisRule .(2) The reference to "
Existing Arrangements " in (1) is a reference to both the arrangements which were in place at the time of the initial grant of theLicence and any changes made to such arrangements in accordance with the requirements in thisRule .(3) For the purposes of obtaining the
DFSA approval, anATS Operator must provide to theDFSA , at least 30 days before the proposed change is intended to come into effect, a notice setting out:(a) the proposed change;(b) the reasons for the proposed change; and(c) what impact the proposed change would have on its members and its ability to operate the facility.(4) The
DFSA must, upon receipt of a notice referred to in (1), approve or disapprove the proposed change as soon as practicable and in any event within 30 days of the receipt of the notice, unless that period has been extended by notification to the applicant.(5) The
DFSA may, in circumstances where a material change toCurrent Arrangements is shown on reasonable grounds to be urgently needed, accept an application for approval of such a change on shorter notice than 30 days.(6) The procedures in Schedule 3 to the Regulatory Law apply to a decision of the
DFSA to reject a proposed change under this Rule.(7) Where the
DFSA decides to reject a proposed change, theATS Operator may refer the matter to theFMT for review.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Amended] DFSA RM175/2016 (Made 10th February 2016). [VER26/04-16]COB 9.2.3 Guidance
1. The period of 30 days runs from the time the
DFSA has received all the relevant information to assess the application.2. An
ATS Operator should consider submitting its application for theDFSA approval well in advance of the date on which a proposed amendment is intended to come into effect, especially in the case of significant material changes to its existing arrangements, to allow theDFSA sufficient time to consider the application. If additional time is reasonably required to properly assess the impact of a proposed change due to its nature, scale and complexity, theDFSA may make an appropriate extension of time beyond 30 days. Such an extension would be made in consultation with the applicant.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Amended] DFSA RM175/2016 (Made 10th February 2016). [VER26/04-16]COB 9.3 COB 9.3 Member access criteria
COB 9.3.1 COB 9.3.1
(1) AnATS Operator may, subject to (2), (3) and (4), accept as a member:(a) anAuthorised Firm ;(b) aRecognised Member ;(c) a Person who meets the criteria in GEN Rule 2.3.2(2);(d) a Person who is classified as aProfessional Client pursuant to COB Rule 2.3.4(1)(g), (h) and (i); or(e) a Person not referred to in (a) to (d), only if:(i) the facility is one on which Investment Tokens are traded; and(ii) the Person’s access is only for trading Investment Tokens.(2) AnATS Operator must not admit aPerson referred to in (1)(c) or (d) unless suchPerson :(a) agrees in writing to submit unconditionally to the jurisdiction of theDFSA in relation to any matters which arise out of or which relate to its use of the facility;(b) agrees in writing to submit unconditionally to the jurisdiction of theDIFC Courts in relation to any proceedings in theDIFC , which arise out of or relate to its use of the facility;(c) agrees in writing to subject itself to theDIFC laws and the jurisdiction of theDIFC Courts in relation to its use of the facility; and(d) appoints and maintains at all times an agent for service of process in theDIFC and requires such agent to accept its appointment for service of process.(3) Prior to admitting aPerson referred to in (1)(c) or (d) as a member, anATS Operator must undertake due diligence to ensure that such aPerson :(a) is of sufficiently good repute;(b) has a sufficient level of competence and experience; and(c) has adequate organisational arrangements, including financial and technological resources, which are no less than those required of anAuthorised Firm appropriate to the nature of its operations.(4) Prior to admitting a Person referred to in (1)(e), an ATS Operator must undertake due diligence to ensure that the Person:(a) meets the criteria in (3)(a) and (b);(b) has adequate financial and technological resources to meet the Operating Rules of the facility; and(c) does not pose any operational risks to the orderly and efficient functioning of the facility’s trading systems.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Amended] DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]
[Amended] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 9.3.1 Guidance
1. See also the requirements relating to Direct Access Members in COB section 14.2.2. Members who are not Direct Access Members may also trade in Investment Tokens.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]Direct electronic access
COB 9.3.2
An
ATS Operator must have adequate rules and procedures to ensure that:(a) a Direct Access Member does not allow any other Person to have Direct Electronic Access to the facility; and(b) in any other case, its members do not allow any otherPerson to haveDirect Electronic Access to the facility unless such otherPerson meets the requirements in COB Rule 9.3.1(1).[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Added] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 9.3.3
An
ATS Operator must, where it permits any of its members to provide to anotherPerson Direct Electronic Access to its facilities, have adequate systems and controls including:(a) appropriate standards regarding risk controls and thresholds on trading throughDirect Electronic Access ;(b) mechanisms to identify and distinguish orders placed by thosePersons who are allowed to place orders throughDirect Electronic Access ; and(c) if necessary, the ability to stop orders of, or trading by, thePersons allowedDirect Electronic Access .[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Added] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]Monitoring of compliance
COB 9.3.4
An
ATS Operator must establish and maintain adequate and effective systems and controls, including policies and procedures, to ensure that its members and otherPersons to whom access to its facility is provided through members comply with itsOperational Rules and where any gaps or deficiencies are identified, they are promptly addressed.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.4 COB 9.4 Investment criteria
COB 9.4.1 COB 9.4.1
An
ATS Operator must ensure in respect of everyInvestment traded on its facility that:(a) only Investments which meet the requirements in (i), (ii) or (iii) are traded on its facility:(i) in the case ofSecurities , theSecurities are admitted to trading on anAuthorised Market Institution or otherRegulated Exchange ;(ii) in the case of Security Tokens that do not meet the criteria in (i):(A) there is a current Approved Prospectus relating to the Security Tokens;(B) the ATS Operator has taken adequate steps before admitting the Security Tokens to trading, to satisfy itself that both the Security Tokens and the relevant Reporting Entity meet the general eligibility requirements in MKT section 9.3; and(C) the ATS Operator has adequate systems and controls in place to effectively monitor and enforce a Reporting Entity’s compliance with the requirements in MKT Chapter 9B; or(iii) in the case ofDerivatives , the instruments meet the contract specification criteria set out in AMI Rule 6.3.2;(b) there is sufficient information relating to theInvestments traded on the facility available to members and otherPersons having access to the facility through such members to enable suchPersons to make informed decisions relating to suchInvestments ; and(c) if it is anInvestment that references to an underlying benchmark or index provided by aPrice Information Provider , the requirements in COB Rule 9.4.2 are met.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Amended] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 9.4.1 Guidance
1. A Reporting Entity of Security Tokens that are admitted to trading by an ATS Operator under COB Rule 9.4.1(a)(ii) will be subject to the requirements imposed on Reporting Entities in MKT. An ATS Operator should therefore assess whether a prospective Reporting Entity is capable of meeting those requirements before admitting its Security Tokens to trading.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]Use of price information providers
COB 9.4.2 COB 9.4.2
(1) An
ATS Operator may only tradeInvestments that reference to an underlying benchmark or index provided by aPrice Information Provider where it has undertaken appropriate due diligence to ensure that thePrice Information Provider , on an on-going basis, meets the requirements set out in (3).(2) A
Price Information Provider is a price reporting agency or an index provider which constructs, compiles, assesses or reports, on a regular and systematic basis, prices ofInvestments , rates, indices, commodities or figures, which are made available to users.(3) For the purposes of (1), the
Price Information Provider must:(a) have fair and non-discriminatory procedures for establishing prices of Investments which are made public.(b) demonstrate adequate and appropriate transparency over the methodology, calculation and inputs to allow users to understand how the benchmark or index is derived and its potential limitations;(c) where appropriate, give priority to concluded transactions in making assessments and adopt measures to minimise selective reporting;(d) be of good standing and repute as an independent and objective price reporting agency or index provider;(e) have a sound corporate governance framework;(f) have adequate arrangements to avoid its staff having any conflicts of interest where such conflicts have, or are likely to have, a material adverse impact on price establishment process; and(g) adequate complaint resolution mechanisms to resolve any complaints about thePrice Information Provider's assessment process and methodology.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.4.2 Guidance
An
ATS Operator , when assessing the suitability of aPrice Information Provider (the provider), should take into account factors such as:a. the provider's standing and reliability in the relevant physical or derivatives markets as a credible price reporting agency;b. the quality of corporate governance adopted, covering areas such as independent members of the board, independence of its internal audit and risk management function;c. whether the methodologies and processes (including any material changes to such methodologies and processes) adopted by the provider for the purposes of pricing are made publicly available;d. whether there are adequate procedures adopted to ensure that conflicts between the provider's commercial interests and those of users of its services, including those of itsEmployees involved in pricing process, are adequately addressed, including through codes of ethics;e. whether there is a clear conveyance to its users of the economic realities of the underlying interest thePrice Information Provider seeks to measure; and,f. the degree to which thePrice Information Provider has given consideration to the characteristics of the underlying interests measured, such as:• the size and liquidity: Whether the size of the market informs the selection of an appropriate compilation mechanism and governance processes. For example, a benchmark or index that measures a smaller market may be impacted by single trades and therefore be more prone to potential manipulation, whereas a benchmark for a larger market may not be well represented by a small sample of participants;• the relative market size. Where the size of a market referencing a benchmark is significantly larger than the volume of the underlying market, the potential incentive for benchmark manipulation to increase; and• Transparency: Where there are varying levels of transparency regarding trading volumes and positions of market participants, particularly in non-regulated markets and instruments, whether the benchmark represents the full breadth of the market, the role of specialist participants who might be in a position to give an overview of the market, and the feasibility, costs and benefits of providing additional transparency in the underlying markets.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.5 COB 9.5 Technology resources
COB 9.5.1 COB 9.5.1
(1) An
ATS Operator must:(a) have sufficient technology resources to operate, maintain and supervise the facility it operates;(b) be able to satisfy theDFSA that its technology resources are established and maintained in such a way as to ensure that they are secure and maintain the confidentiality of the data they contain; and(c) ensure that its members and other participants on its facility have sufficient technology resources which are compatible with its own.(2) For the purposes of meeting the requirement in (1)(c), an
ATS Operator must have adequate procedures and arrangements for the evaluation, selection and on-going monitoring of information technology systems. Such procedures and arrangements must, at a minimum, provide for:(a) problem management and system change;(b) adequate procedures for testing information technology systems before live operations, which are in conformity with the requirements that would apply to anAuthorised Market Institution under App 1 ofAMI ;(c) monitoring and reporting on system performance, availability and integrity; and(d) adequate measures to ensure:(i) the information technology systems are resilient and not prone to failure;(ii) business continuity in the event that an information technology system fails;(iii) protection of the information technology systems from damage, tampering, misuse or unauthorised access; and(iv) the integrity of data forming part of, or being processed through, information technology systems.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.5.1 Guidance
1. In assessing the adequacy of an
ATS Operator's systems and controls used to operate and carry on its functions, theDFSA will consider:a. the organisation, management and resources of the information technology department of the firm;b. the arrangements for controlling and documenting the design, development, implementation and use of technology systems; andc. the performance, capacity and reliability of information technology systems.2. The
DFSA will also, during its assessment of technology systems, have regard to the:a. procedure for the evaluation and selection of information technology systems;b. procedures for problem management and system change;c. arrangements for testing information technology systems before live operations;d. arrangements to monitor and report system performance, availability and integrity;e. arrangements made to ensure information technology systems are resilient and not prone to failure;f. arrangements made to ensure business continuity in the event that an information technology system fails;g. arrangements made to protect information technology systems from damage, tampering, misuse or unauthorised access;h. arrangements made to ensure the integrity of data forming part of, or being processed through, information technology systems; andi. third party outsourcing arrangements.3. In particular, when assessing whether an
ATS Operator has adequate information technology resourcing, theDFSA will consider:a. whether its systems have sufficient electronic capacity to accommodate reasonably foreseeable volumes of messaging and orders, andb. whether such systems are adequately scalable in emergency conditions that might threaten the orderly and proper operations of its facility.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Regular review of systems and controls
COB 9.5.2 COB 9.5.2
(1) An
ATS Operator must undertake regular review and updates of its systems and controls as appropriate to the nature, scale and complexity of its operations.(2) For the purposes of (1), an
ATS Operator must adopt well defined and clearly documented development and testing methodologies which are in line with internationally accepted testing standards.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.5.2 Guidance
Through the use of such testing methodologies, the
ATS Operator should be able to ensure, amongst other things, that:a. its systems and controls are compatible with its operations and functions;b. compliance and risk management controls embedded in its system operate as intended (for example by generating error reports automatically); andc. it can continue to work effectively in stressed market conditions.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6 COB 9.6 Proper Markets
COB 9.6.1
(1) Without limiting the generality of the other requirements in this chapter, an
ATS Operator must, for the purposes of meeting the requirement in Rule 9.2.1(e) relating toProper Markets , ensure that:(a) ifDerivatives are traded on its facilities, suchDerivatives meet the contract design specifications in AMI Rule 6.3.2;(b) relevant market information is made available toPersons engaged in dealing on an equitable basis, including pre-trade and post-trade orders, in accordance with Rules 9.6.2{and 9.6.3;(c) there are adequate mechanisms to discontinue, suspend or remove from trading on its facilities anyInvestments in circumstances where the requirements in this chapter are not met;(d) there are controls to prevent volatility in the markets that is not caused by market forces, in accordance with Rule 9.6.4;(e) error trades are managed, in accordance with Rule 9.6.5;(f)Short Selling and position concentration are monitored and managed, in accordance with Rule 9.6.5;(g) there are fair and non-discretionary algorithm operating in respect of matching of orders on its facilities;(h) there are adequate controls to monitor and manage any foreign ownership restrictions applying toInvestments traded on its facilities, in accordance with Rule 9.6.7;(i) liquidity incentive schemes are offered only in accordance with Rule 9.6.8; and(j) there are adequate rules and procedures to addressMarket Abuse and financial crime, in accordance with Rules 9.6.9 and 9.6.10.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Pre-trade transparency
COB 9.6.2 COB 9.6.2
(1) An
ATS Operator must disclose the information specified in (2) relating to trading ofInvestments on its facility in the manner prescribed in (3).(2) The information required to be disclosed pursuant to (1) includes:
(a) the current bid and offer prices and volume;(b) the depth of trading interest shown at the prices and volumes advertised through its systems for theInvestments ; and(c) any other information relating toInvestments which would promote transparency relating to trading.(3) The information referred to in (2) must be made available to members and the public as appropriate on a continuous basis during normal trading.
[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6.2 Guidance
1. When making disclosure, an
ATS Operator should adopt a technical mechanism by which the public can differentiate between transactions that have been transacted in the central order book and transactions that have been reported to the facility as off-order book transactions. Any transactions that have been cancelled pursuant to its rules should also be identifiable.2. An
ATS Operator should use appropriate mechanisms to enable pre-trade information to be made available to the public in an easy to access and uninterrupted manner at least during business hours. AnATS Operator may charge a reasonable fee for the information which it makes available to the public.3. An ATS Operator may seek a waiver or modification from the disclosure requirement in Rule 9.6.1(1) in relation to certain transactions where the order size is predetermined, exceeds a pre-set and published threshold level and the details of the exemption are made available to its members and the public.
4. In assessing whether an exemption from pre-trade disclosure should be allowed, the
DFSA will take into account factors such as:a. the level of order threshold compared with normal market size for theInvestment ;b. the impact such an exemption would have on price discovery, fragmentation, fairness and overall market quality;c. whether there is sufficient transparency relating to trades executed without pre-trade disclosure (as a result of dark orders), whether or not they are entered in transparent markets;d. whether theATS Operator supports transparent orders by giving priority to transparent orders over dark orders, for example, by executing such orders at the same price as transparent orders; ande. whether there is adequate disclosure of details relating to dark orders available to members and other participants on the facility to enable them to understand the manner in which their orders will be handled and executed on the facility.5. Dark pools are orders executed on execution platforms without pre-trade transparency.
[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Post-trade transparency requirements
COB 9.6.3 COB 9.6.3
(1) An
ATS Operator must disclose the information specified in (2) in the manner prescribed in (3).(2) The information required to be disclosed pursuant to (1) is the price, volume and time of the transactions executed in respect of
Investments .(3) The information referred to in (2) must be made available to the public as close to real-time as is technically possible on reasonable commercial terms and on a non-discretionary basis.
[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6.3 Guidance
An
ATS Operator should use adequate mechanism to enable post-trade information to be made available to the public in an easy to access and uninterrupted manner at least during business hours. AnATS Operator may charge a reasonable fee for the information which it makes available to the public.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Volatility controls
COB 9.6.4 COB 9.6.4
(1) An
ATS Operator's Operating Rules must include effective systems, controls and procedures to ensure that its trading systems:(a) are resilient;(b) have adequate capacity to deal with peak orders and message volumes; and(c) are able to operate in an orderly manner under conditions of market stress.(2) Without limiting the generality of its obligations arising under (1) or any other
Rule , anATS Operator must be able under its rules, systems, controls and procedures to:(a) reject orders that exceed its pre-determined volume and price thresholds, or are clearly erroneous;(b) temporarily halt trading of Investments traded on its facility if there is a significant price movement in relation to thoseInvestments on its market or a related market during a short period; and(c) where appropriate, cancel, vary or correct any transaction.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6.4 Guidance
An
ATS Operator should test its trading systems to ensure that they are resilient and capable of operating orderly trading under conditions of market stress and other contingencies.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Error Trade policy
COB 9.6.5 COB 9.6.5
(1) An
ATS Operator must be able to cancel, amend or correct any error trades.(2) An “
Error Trade ” is the execution of an order resulting from:(a) an erroneous order entry;(b) malfunctioning of the system of a member or of theATS Operator ; or(c) a combination of (a) and (b).(3) For the purposes of (1), an
ATS Operator must include a comprehensive error trade policy in itsOperating Rules , which sets out clearly the extent to which transactions can be cancelled by it at its sole discretion, at the request of a member or by mutual consent of members involved.(4) An
ATS Operator must have adequate systems and controls to:(a) prevent or minimise error trades;(b) promptly identify and rectify error trades where they occur; and(c) identify whether error trades are related to disorderly market activity.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6.5 Guidance
When assessing whether an
ATS Operator has an appropriate and adequate error trade policy, theDFSA will consider whether the rules and procedures included in itsOperating Rules :a. are adequate to minimise the impact of error trades where prevention of such trades is not possible;b. are sufficiently flexible in the design to address varying scenarios;c. establish a predictable and timely process for dealing withError Trades , including measures specifically designed to detect and identifyError Trade messages to market users;d. promote transparency to market users with regard to any cancellation decisions involving material transactions resulting from the invocation of theError Trade policy;e. include adequate surveillance conducted in the markets to detectError Trades ;f. promote predictability, fairness and consistency of actions taken under theError Trade policy; andg. enable sharing of information with other markets when possible concerning the cancellation of trades.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Short Selling
COB 9.6.6 COB 9.6.6
(1) An
ATS Operator must have in place effective systems, controls and procedures to monitor and manage:(a)Short Selling inSecurities ; and(b) position concentrations.(2) For the purposes of (1), an
ATS Operator must have adequate powers over its members to address risks to an orderly functioning of its facility arising from unsettled positions inInvestments .(3)
Short Selling for the purposes of thisRule constitutes the sale of aSecurity by aPerson who does not own theSecurity at the point of entering into the contract to sell.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6.6 Guidance
1. An
ATS Operator should, when developing its controls and procedures with regard to short selling and position management, have regard to:a. its own settlement cycle, so that any short selling activities on its facilities do not result in any delay or prevent effective settlement within such cycle; andb. orderly functioning of its facilities, so that any long or short position concentration onInvestments that remain unsettled does not interrupt such functioning;2. Examples of circumstances that would not be treated as short selling in Rule 6.7.1(3) include where the seller:
a. has entered into an unconditional contract to purchase the relevantSecurities but has not received their delivery at the time of the sale;b. has title to other securities which are convertible or exchangeable for theSecurities to which the sale contract relates;c. has exercised an option to acquire theSecurities to which the sale contract relates;d. has rights or warrants to subscribe and receiveSecurities to which the sale contract relates; ande. is making a sale ofSecurities that trades on a “when issued” basis and has entered into a binding contract to purchase suchSecurities , subject only to the condition of issuance of the relevantSecurities .[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Foreign ownership restrictions
COB 9.6.7 COB 9.6.7
An
ATS Operator must not permit its facility to be used for tradingInvestments which are subject to foreign ownership restrictions unless it has adequate and effective arrangements to:(a) monitor applicable foreign ownership restrictions;(b) promptly identify and take appropriate action where any breaches of such restrictions occur without any undue interruption or negative impact to its trading activities; and(c) suspend trading in the relevantInvestments where the ownership restrictions are, or are about to be, breached and reinstate trading when the breaches are remedied.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6.7 Guidance
The kind of arrangements an
ATS Operator should implement to meet the requirements in Rule 9.6.7 are such as those specified in AMI Rule 6.8.1(2).[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Liquidity providers
COB 9.6.8
(1) An
ATS Operator must not introduce a liquidity incentive scheme unless:(a) participation of such a scheme is limited to:(i) a member as defined in Rule 9.3.1(1); or(ii) any otherPerson where:(A) it has undertaken due diligence to ensure that thePerson is of sufficient good repute and has adequate competencies and organisational arrangements; and(B) thePerson has agreed in writing to comply with itsOperating Rules so far as those rules are applicable to thatPerson's activities; and(b) it has obtained the prior approval of theDFSA .(2) For the purposes of this section, a “liquidity incentive scheme” means an arrangement designed to provide liquidity to the market in relation to
Investments traded on the facility.(3) Where an
ATS Operator proposes to introduce or amend a liquidity incentive scheme, it must lodge with theDFSA , at least 10 days before the date by which it expects to obtain theDFSA approval, a statement setting out:(a) the details of the relevant scheme, including benefits to theATS and members arising from that scheme; and(b) the date on which the scheme is intended to become operative.(4) The
DFSA must within 10 days of receiving the notification referred to in (3), approve a proposed liquidity incentive scheme unless it has reasonable grounds to believe that the introduction of the scheme would be detrimental to the facility or markets in general. Where theDFSA does not approve the proposed liquidity incentive scheme, it must notify theATS Operator of its objections to the introduction of the proposed liquidity incentive scheme, and its reasons for that decision.(5) An
ATS Operator must, as soon practicable, announce the introduction of the liquidity incentive scheme, including the date on which it becomes operative and any other relevant information.(6) If the
DFSA decides not to approve a liquidity incentive scheme, theATS Operator may refer the decision to the FMT for review.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Amended] DFSA RM175/2016 (Made 10th February 2016). [VER26/04-16]Prevention of Market Abuse
COB 9.6.9 COB 9.6.9
(1) An
ATS Operator must:(a) implement and maintain appropriate measures to identify, deter and preventMarket Abuse on and through its facility; and(b) report promptly to theDFSA anyMarket Abuse .(2) For the purposes of (1)(a), an
ATS Operator must:(a) include in itsOperating Rules a regime to preventMarket Abuse , which is applicable to its members and theirClients ; and(b) implement and maintain adequate measures to ensure that its members comply with that regime.(3) The regime to prevent
Market Abuse referred to in (2)(a) must, at a minimum, include rules and procedures in relation to compliance with the applicable requirements in Part 6 of the Market Law, including adequate compliance arrangements applicable to its members and staff and the clients of members, record keeping, transaction monitoring, risk assessment and appropriate training.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6.9 Guidance
1. AnATS Operator should have an effective surveillance system in place for:a. the coordinated surveillance of all activity on or through its facilities and activity in relatedInvestments conducted elsewhere; andb. communicating information aboutMarket Abuse or suspected abuse, to theDFSA or appropriate regulatory authorities.2. In determining whether anATS Operator is ensuring that business conducted on its facilities is conducted in an orderly manner, theDFSA will consider:a. arrangements for pre and post trade transparency taking into account the nature and liquidity of theInvestments traded; andb. the need to provide anonymity for trading participants.3. AnATS Operator will also have appropriate procedures allowing it to influence trading conditions, suspend trading promptly when required, and to support or encourage liquidity when necessary to maintain an orderly market. TheDFSA will consider the transparency of such procedures and the fairness of their application and potential application.4. An ATS Operator that is Operating a Facility for Investment Tokens should, where relevant, ensure measures under COB Rule 9.6.9(1) include effective measures to identify, deter and prevent Market Abuse by Persons permitted to access and update records held on any DLT or similar technology based application used in connection with the operation of its facility.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
[Added] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 9.6.10 COB 9.6.10
(1) An
ATS Operator must:(a) before accepting a prospective member, ensure that the applicant has in place adequate arrangements, including systems and controls to comply with its regime for preventingMarket Abuse ;(b) monitor and regularly review compliance by its members with that regime; and(c) take appropriate measures to ensure that its members rectify to the extent feasible any contraventions of its regime without delay.(2) An
ATS Operator must promptly notify theDFSA of any:(a) material breach of its regime to preventMarket Abuse by a member, or by staff or clients of the member; and(b) circumstances in which a member will not or cannot rectify a breach of its regime.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6.10 Guidance
1.
An Authorised Firm is subject to the requirements in theDFSA's AML module.Members of anAuthorised Firm which are themselvesAuthorised Firms are also subject, by virtue of beingAuthorised Firms , to the requirements in theDFSA's AML module.2. In determining whether an
ATS Operator's measures are adequate and appropriate to reduce the extent to which its facilities can be used forMarket Abuse , theDFSA will consider:a. whether theATS Operator has appropriate staff, surveillance systems, resources and procedures for this purpose;b. the monitoring conducted for possible patterns of normal, abnormal or improper use of those facilities;c. how promptly and accurately information is communicated aboutMarket Abuse to theDFSA and other appropriate organisations; andd. how theATS Operator co-operates with relevant bodies in the prevention, investigation and pursuit ofMarket Abuse .3. An
ATS Operator must have regard to Part 6 of the Markets Law in relation to forms ofMarket Abuse . Practices that amount to market manipulation (which isMarket Abuse ) in an automated trading environment which anATS should be able to identify and prevent in order to promote proper markets include the following:a. entering small orders in order to ascertain the level of hidden orders, particularly used to assess what is resting on a dark platform, calledPing Orders ;b. entering large numbers of orders and/or cancellations/updates to orders to create uncertainty for other market participants, to slow down their process and to camouflage theATS Operator's own strategy, calledQuote Stuffing ;c. entry of orders or a series of orders intended to start or exacerbate a trend, and to encourage other participants to accelerate or extend the trend in order to create an opportunity to unwind/open a position at a favourable price, calledMoment Ignition ; andd. submitting multiple orders often away from one side of the order book with the intention of executing a trade on the other side of the order book, where once that trade has taken place, the manipulative orders will be removed, calledLayering and Spoofing .[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]Clearing and settlement arrangements
COB 9.6.11 COB 9.6.11
(1) An
ATS Operator must:(a) ensure that there are satisfactory arrangements in place for securing the timely discharge of the rights and liabilities of the parties to transactions conducted on or through its facility; and(b) inform its members and otherPersons having access to its facility through members of details relating to such arrangements.(2) For the purposes of (1)(a), an
ATS Operator must ensure that:(a) thePerson who provides clearing and settlement services to a member is either:(i) anAuthorised Person appropriately licensed to carry on clearing or settlement services; or(ii) an entity which is authorised and supervised by aFinancial Services Regulator acceptable to theDFSA for the activity of clearing and settlement services and is operating under broadly equivalent standards as defined under Chapter 7 of the AMI module; and(b) notification of such arrangements (including any changes thereto) is provided to theDFSA at least 30 days before making the arrangements and theDFSA has not objected to such arrangements within that period.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.6.11 Guidance
An
ATS Operator is not authorised under itsLicence to provide clearing and settlement services. Therefore, it must make suitable arrangements relating to clearing and settlement of transactions that are undertaken on its facility. For this purpose, it may arrange for its members to obtain such services from an appropriately licensedPerson .[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.7 COB 9.7 Specific requirements applicable to Persons operating an OTF
COB 9.7.1
A
Person operating anOTF must not execute any orders made on the facility against its own proprietary capital.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 9.8 COB 9.8 Use of ‘Investment Token Market’ and Similar Terms to Refer to a Facility
COB 9.8.1 COB 9.8.1
An ATS Operator must not refer to a facility it operates as an ‘investment token market’, ‘security token market’, ‘derivative token market’, or using any other similar term, unless it is a facility on which only Investment Tokens are traded.
Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 9.8.1 Guidance
1. An ATS Operator should not refer to a facility, where both Investment Tokens and conventional Investments are traded, using terms referred to in COB Rule 9.8.1.2. An ATS Operator that trades both conventional Investments and Investment Tokens may operate a distinct facility on which only Investment Tokens are traded, provided it is able to effectively maintain and demonstrate a clear separation between that facility and its other facilities on which conventional Investments are traded or cleared.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 10 COB 10 Custody Providers Acting as a Central Securities Depository ("CSD")
COB 10.1 COB 10.1 Application and interpretation
COB 10.1.1 COB 10.1.1
(1) This chapter applies to an
Authorised Firm which operates aCentral Securities Depository (CSD).(2) Such an
Authorised Firm is referred to in this chapter as aCSD .[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 10.1.1 Guidance
The
Financial Service ofProviding Custody includes the activity of operating aCSD . See GEN Rule 2.13.1(1)(c) and (3)[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 10.2 COB 10.2 Additional requirements for CSDs
COB 10.2.1
(1) A
CSD must have rules and procedures, including robust accounting practices and controls that:(a) ensure the integrity of the securities issues; and(b) minimise and manage risks associated with the safekeeping and transfer of securities.(2) A
CSD must ensure that securities referred to in (1)(a) are recorded in book-entry form prior to the trade date.(3) For the purposes of (1)(a), a
CSD's systems and controls must ensure that:(a) the unauthorised creation or deletion of securities is prevented;(b) appropriate intraday reconciliation is conducted to verify that the number of securities making up a securities issue or part of a securities issue submitted to theCSD is equal to the sum of securities recorded on the securities accounts of theMembers and other participants of theCSD ;(c) where entities other than theCSD are involved in the reconciliation process for a securities issue, such as the issuer, registrars, issuance agents, transfer agents or otherCSDs , theCSD has adequate arrangements for cooperation and information exchange between all involved parties so that the integrity of the issue is maintained; and(d) there are no securities overdrafts or debit balances in securities accounts.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]CSD links
COB 10.2.2 COB 10.2.2
(1) A
CSD must not establish any link with anotherCSD (CSD link) unless it:(a) has, prior to establishing theCSD link, identified and assessed potential risks, for itself and its members and other participants using its facilities, arising from establishing such a link:(b) has adequate systems and controls to effectively monitor and manage, on an on-going basis, the risks identified under (a) above; and(c) is able to demonstrate to theDFSA , prior to the establishment of theCSD link, that theCSD link satisfies the requirements referred to in (2).(2) The requirements referred to in (1)(c) are that:
(a) the link arrangement between theCSD and all linkedCSDs contains adequate mitigants against possible risks taken by the relevantCSDs , including credit, concentration and liquidity risks, as a result of the link arrangement;(b) each linkedCSD has robust daily reconciliation procedures to ensure that its records are accurate;(c) if it or another linkedCSD uses an intermediary to operate a link with anotherCSD , theCSD or the linkedCSD has adequate systems and controls to measure, monitor, and manage the additional risks arising from the use of the intermediary;(d) to the extent practicable and feasible, linkedCSDs provide forDelivery Versus Payment (DVP) settlement of transactions between participants in linkedCSDs and, where such settlement is not practicable or feasible, reasons for non-DVP settlement are notified to theDFSA ; and(e) where interoperable securities settlement systems andCSDs use a common settlement infrastructure, there are:(i) identical moments established for the entry of transfer orders into the system;(ii) irrevocable transfer orders; and(iii) finality of transfers of securities and cash.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 10.2.2 Guidance
A
CSD should include in its notification to theDFSA relating to the establishment ofCSD links the results of due diligence undertaken in respect of the matters specified in Rule 10.2.2(2) to demonstrate that those requirements are met. Where aCSD changes any existingCSD arrangements, fresh notification relating to such changes, along with its due diligence relating to the newCSD link, should be provided to theDFSA in advance of the proposed change.[Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]COB 11 COB 11 Crowdfunding
COB 11.1 COB 11.1 Overview
COB 11.1 Guidance
1. This chapter applies to anAuthorised Firm thatOperates a Crowdfunding Platform (an 'operator').2. ACrowdfunding Platform may be:(a) aLoan Crowdfunding Platform ;(b) anInvestment Crowdfunding Platform ; or(c) aProperty Investment Crowdfunding Platform .3. The terminology used in this chapter varies according to the type ofCrowdfunding :
(a) 'borrower', 'lender' and 'loan' forLoan Crowdfunding ;(b) 'Issuer ', 'investor' and 'Investment ' forInvestment Crowdfunding ; and(c) 'seller', 'investor' and 'Investment' forProperty Investment Crowdfunding .In this chapter, lenders, investors, borrowers,Issuers and sellers are collectively referred to as 'users' of aCrowdfunding Platform .4. In this chapter, sections 1, 2 and 3 apply to allCrowdfunding Platforms (unless specified otherwise); section 4 sets out additional requirements forLoan Crowdfunding ; section 5 sets out additional requirements forInvestment Crowdfunding and section 6 sets out additional requirements forProperty Investment Crowdfunding .5. In addition to theRules in this section, an operator is required to comply with other parts of COB such as chapters 1, 2 and 3 and, if it holds or controlsClient Assets , COB sections 6.11 to 6.14.6. Both users of aCrowdfunding Platform who are providing funding and users who are seeking funding will beClients of the operator. COB requirements will apply in relation to both types ofClients . Under COB section 3.3 and App 2, additional terms are required to be included inClient Agreements between aCrowdfunding Operator and itsClients (see COB Rules A2.1.5 and A2.1.6).7. An operator will need to comply with relevant AML requirements, such as carrying out customer due diligence onClients .8. In the case ofInvestment Crowdfunding and Property Investment Crowdfunding , the issue ofInvestments may result in the application of requirements under theMarkets Law such asMarket Abuse provisions or, if an offer is not anExempt Offer ,Prospectus requirements.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.2 COB 11.2 Application and interpretation
Application
COB 11.2.1
This chapter applies to an
Authorised Firm with respect to theOperation of a Crowdfunding Platform .[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]Interpretation
COB 11.2.2
In this chapter:
(a) 'borrower' means aPerson that has borrowed or is seeking to borrow money using aLoan Crowdfunding Platform ;(b) 'commitment period' means the period specified by the operator during which lenders may commit to lending money to a particular borrower or investors may commit to investing with a particularIssuer or in a particular property;(c) 'cooling-off period', forInvestment Crowdfunding orProperty Investment Crowdfunding , means the period referred to in COB Rule 11.5.2 or 11.6.5 when an investor may withdraw his commitment to invest;(d) 'investor' means an investor or potential investor using anInvestment Crowdfunding Platform or aProperty Investment Crowdfunding Platform ;(e) 'lender' means aPerson who:
(i) lends money under a loan agreement; or(ii) by assignment has assumed the rights and obligations of aPerson who has lent money under a loan agreement;(f) 'loan agreement' means a loan agreement between a borrower and lender referred to in COB Rule 11.4.1;(g) 'operator' means aCrowdfunding Operator ;(h) "property" means land or buildings and includes a part of a building, such as an apartment;(i) 'platform' means the website or other electronic media used to provide the service;(j) "seller" means a person selling a property using aProperty Investment Crowdfunding Platform ;(k) 'service' meansOperating a Crowdfunding Platform ;(l) 'transfer', in relation to a loan agreement, means the assignment by the lender of his rights and obligations under the agreement to anotherPerson .(m) “user” means a borrower,Issuer , seller, lender or investor who uses aCrowdfunding Platform .[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3 COB 11.3 Requirements for Crowdfunding Platforms
Crowdfunding risk disclosure
COB 11.3.1
(1) An operator must disclose prominently on its website the main risks to lenders or investors of using a
Crowdfunding Platform , including that:(a) the lender or investor may lose all or part of their money or may experience delays in being paid;(b) except in the case ofProperty Investment Crowdfunding , borrowers orIssuers on the platform may include new businesses and, as many new businesses fail, a loan to such a borrower or an investment with such anIssuer may involve high risks;(c) the lender may not be able to transfer their loan, or the investor may not be able to sell theirInvestment , when they wish to, or at all; and(d) if for any reason the operator ceases to carry on its business, the lender or investor may lose their money, incur costs or experience delays in being paid; and(e) the use of credit or borrowed monies to invest or lend on a platform creates greater risk. For example, even if the loan orInvestment declines in value or is not repaid, the lender or investor will still need to meet their repayment obligations.(2) For
Property Investment Crowdfunding , in addition to the risk warnings in (1), the operator must disclose the following risks prominently on its website:(a) an investment in property is speculative as the market value of property can fall and rental income is not guaranteed;(b) the investor will not own the property, rather the investor will have an interest in a Special Purpose Vehicle that owns the property;(c) as the investor's interest in theSpecial Purpose Vehicle is not listed or traded, it is likely to be an 'illiquid' investment. That is, it may be difficult to sell the interest because of a lack of investors willing to buy such an interest;(d) it may be difficult to sell the property at the end of the investment period, resulting in the investor experiencing a delay in receiving their capital or the property being sold at a loss; and(e) in some cases, there may be government restrictions on the sale of a property to foreign owners, which may restrict the range of potential buyers.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Information about default or failure rates
COB 11.3.2 COB 11.3.2
(1) An operator must disclose prominently on its website:(a) forLoan Crowdfunding: (i) the number and aggregate value of loans in default;(ii) the actual default rates as a percentage of loans entered into on the platform; and(iii) the expected default or failure rates; and(b) forInvestment Crowdfunding , the actual and expected failure rate of Issuers who use the platform.(2) The information referred to in (1) must:(a) for actual default or failure rates, cover the period since the operator began providing the service;(b) for expected default or failure rates, set out a summary of the assumptions used in determining those expected rates; and(c) be presented in a way that is fair, clear and not misleading.(3) ALoan Crowdfunding Operator must, in addition to the information referred to in (1) and (2), disclose prominently on its website, as at the end of each quarter of a calendar year (being March 31, June 30, September 30 and December 31), the total number of loans entered into on the platform for which repayment has not been made by the due date, and include a breakdown of late payments according to the following categories:(a) 60 days or less past the due date;(b) 61 to 90 days past the due date;(c) 91 to 120 days past the due date;(d) 121 to 180 days past the due date; and(e) more than 180 days past the due date.(4) The disclosures required under this Rule must be updated within seven days after the end of each relevant quarter.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI289/2020 (Made 16th December 2020). [VER37/02-21]COB 11.3.2 Guidance
1. COB Rule 11.3.2 requires aLoan Crowdfunding Operator to disclose historical information about the default rates of loans entered into on the platform. It also requires the operator to set out expected default rates in the future for loans entered into on the platform.2. AnInvestment Crowdfunding Operator is required to disclose similar information about the failure rates ofIssuers on its platform. In this context, failure of an Issuer should include where an Issuer defaults on payments, becomes insolvent, is wound up or ceases to carry on business.3. Information about default and failure rates is intended to assist potential lenders or investors to assess the risks of lending or investing using the platform.4. If an operator is a start-up entity, it may base the information on crowdfunding services provided by other members of theGroup , provided it states clearly the basis for the information it provides.5. COB Rule 11.3.2 does not apply toProperty Investment Crowdfunding due to the different nature of theInvestment i.e. theInvestment is in a property rather than a business or project.6. In compiling information relating to loan defaults, aLoan Crowdfunding Operator is expected to:(a) consider loans where it reasonably believes full repayment is unlikely, regardless of whether the loan is currently past the due date or not; and(b) treat loans that are over 90 days past the due date as being in default.7. In order to meet the requirements in COB Rule 11.3.2 (3), theLoan Crowdfunding Operator should measure the number of days past the due date from the earliest contractual date on which a payment is due but has not been made.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]
[Added] DFSA RMI289/2020 (Made 16th December 2020). [VER37/02-21]Information about the service
COB 11.3.3
(1) An operator must disclose prominently on its website key information about how its service operates, including:
(a) details of how the platform functions;(b) details of how and by whom the operator is remunerated for the service it provides, including fees and charges it imposes;(c) any financial interest of the operator or aRelated Person that may create a conflict of interest;(d) the eligibility criteria for borrowers, orIssuers or sellers that use the service;(e) the minimum and maximum value, if any, of loans orInvestments that may be sought by a borrower or anIssuer using the service, or of property that may be sold by a seller using the service;(f) what, if any, security is usually sought from borrowers orIssuers , when it might be exercised and any limitations on its use;(g) the eligibility criteria for lenders or investors that use the service;(h) any limits on the amounts a lender may lend or an investor may invest using the service, including limits for individual loans or investments and limits that apply over any 12 month period;(i) when a lender or an investor may withdraw a commitment to provide funding, and the procedure for exercising such a right;(j) what will happen if loans sought by a borrower or funds sought by anIssuer or seller, either fail to meet, or exceed, the target level;(k) steps the operator will take and the rights of the relevant parties if there is a material change in:(i) borrower's or anIssuer's circumstances, in the case ofLoan Crowdfunding orInvestment Crowdfunding ; and(ii) a property orInvestment , in the case ofProperty Investment Crowdfunding ;(l) how the operator will deal with overdue payments or a default by a borrower or anIssuer ;(m) which jurisdiction's laws will govern the loan agreement;(n) arrangements and safeguards forClient Assets held or controlled by the operator, including details of any legal arrangements (such as nominee companies) that may be used to holdClient Assets ;(o) any facility it provides to facilitate the transfer of loans or the sale ofInvestments , the conditions for using the facility and any risks relating to the use of that facility;(p) measures it has in place to ensure the platform is not used for money-laundering or other unlawful activities;(q) measures it has in place for the security of information technology systems and data protection; and(r) contingency arrangements it has in place to ensure the orderly administration of loans orInvestments if it ceases to carry on business.(2) For
Property Investment Crowdfunding , in addition to the information in (1), the operator must disclose prominently on its website:(a) the property selection criteria, for example, whether the platform is looking to balance income and capital returns or looking for high growth opportunities;(b) details of theSpecial Purpose Vehicle that will be used to hold title to the property, including its legal nature, role and duties and how it will protect the interests of investors;(c) the precise nature of the investor's legal interest in relation to the property;(d) what income the investor is expected to receive from the property and when it will be paid;(e) the rights or obligations, if any, an investor has in relation to the property after he has invested, for example, whether the investor will be expected to contribute any further capital to cover any costs related to the property or theSpecial Purpose Vehicle ;(f) details of any service provider that will be required to supply property services such as valuation, management, maintenance and insurance and how any potential conflicts of interest will be prevented or managed;(g) expenses likely to be incurred in relation to the property, including valuation, management, maintenance, insurance and taxation costs and how they will be paid for; and(h) the term of the investment, what happens at the end of the term, the circumstances, if any, in which the property may be sold before the end of the term and whether the term may be extended.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Operator not to provide both regulated and unregulated crowdfunding services
COB 11.3.4 COB 11.3.4
An operator must ensure that it does not provide both regulated and unregulated crowdfunding services.
[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 11.3.4 Guidance
Some crowdfunding services may not need to be authorised e.g. reward or donation crowdfunding that do not involve an
Investment or loan or other services carried on withPersons in certain jurisdictions. An operator needs to ensure that it does not provide both regulated and unregulated crowdfunding services from the same legal entity. If it wishes to provide unregulated crowdfunding services, it should do so using a separate legal entity. This removes any risk thatClients of theAuthorised Firm will not understand that parts of the service are unregulated.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]Crowdfunding Due diligence
COB 11.3.5 COB 11.3.5
An operator must not permit a borrower or an
Issuer to use its service unless the borrower orIssuer is aBody Corporate .[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 11.3.5 Guidance
This
Rule does not apply to the seller of a property using aProperty Investment Crowdfunding Platform who may be a natural person, body corporate, partnership or other entity.Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.6 COB 11.3.6
(1) An operator must conduct due diligence on each borrower,Issuer or seller before allowing it to use its service.(2) For Loan Crowdfunding or Investment Crowdfunding, the due diligence under (1) must include, as a minimum, taking reasonable steps to verify in relation to the borrower orIssuer :
(a) its identity, including details of its incorporation and business registration;(b) the identity and place of domicile of each of its directors, officers and controllers;(c) its fitness and propriety and that of each of thePersons referred to in (b);(d) its financial strength, including checking financial statements;(e) its financial history and past performance and its credit history, including checking with external credit agencies;(f) any credentials or expertise it claims to have;(g) the valuation of its business, current borrowing or funding levels (if any) and the source of any existing borrowing or funding;(h) its business proposal;(i) its commitment and that of its directors, officers and controllers to the business, including how much capital they have provided and any potential flight risk; and(j) that its business is being carried on in accordance with applicable laws in the jurisdiction where it is based.(3) ForProperty Investment Crowdfunding , the due diligence under (1) must include, as a minimum, taking reasonable steps to verify:(a) the identity of the seller, including, if it is aBody Corporate , details of its incorporation and business registration;(b) the condition of the property;(c) that the seller holds valid legal title to the property and is able to sell the property free of any encumbrance;(d) that construction of the property has been completed; and(e) whether the property is let or in a lettable condition and, if it requires renovation or other work before it can be let, whether planning permission for the renovation or other work can be readily obtained.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.6 Guidance
1. The type of background checks the DFSA expects an operator to conduct under COB Rule 11.3.6 (2)(c) include, for example, whether thePerson has been:
a. found guilty of a criminal offence;b. the subject of any finding in a civil proceeding of fraud, misfeasance or other misconduct;c. the subject of a judgment or agreed settlement in a civil proceeding exceeding $10,000;d. disqualified from acting as a director or taking part in the management of a company; ore. bankrupt or the director, or a person concerned in the management, of a company which has gone into liquidation or administration.2. The purpose of the due diligence under COB Rule 11.3.6(2)(j) is to check that the business itself is lawful in the place in which it is being carried on i.e. that the owner has the necessary permits and that the activity is lawful. The borrower orIssuer should certify these matters and provide relevant documents where appropriate.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]Disclosure of information about the borrower, Issuer or seller
COB 11.3.7 COB 11.3.7
(1) An operator of an
Investment Crowdfunding Platform or aLoan Crowdfunding Platform , must disclose prominently on its website relevant information about each borrower orIssuer , including as a minimum:(a) the name of the borrower orIssuer , the full name and position of each of its directors and officers and the full name of each controller;(b) the place of incorporation of the borrower orIssuer and the place of domicile of each director, officer and controller;(c) a description of the borrower's orIssuer's business;(d) except as provided in COB Rule 11.3.7A, the most recent financial statements, if any, of the borrower orIssuer and a warning that the operator gives no assurances about their accuracy;(e) the valuation of theIssuer's business and, for a borrower and an Issuer, their current borrowing or funding levels and the source of their borrowing and liquidity;(f) a detailed description of the proposal for which it is seeking funding including:
(i) the total funding sought;(ii) how the funds will be used; and(iii) the target level of funding sought and what will happen if that level is not met or is exceeded;(g) the results of the due diligence carried out by the operator on the borrower orIssuer and any limits on the due diligence that could be carried out;(h) any grading or rating by the operator of the borrower's orIssuer's creditworthiness, including:
(i) how the grading or rating has been assessed;(ii) an explanation of what the different grading or rating levels mean; and(iii) a clear statement that this should not be taken as advice about whether money should be lent to the borrower or invested with theIssuer ;(i) for a loan orDebenture , the duration of the loan orDebenture , details of interest payable and any other rights attaching to the loan orDebenture ;(j) for aShare issue, any rights attaching to theShare , such as dividend, voting or pre-emption rights;(k) whether any security is being provided and, if so, the circumstances in which it might be exercised and any limitations on its use;(l) if applicable, any other reward or benefit attaching to the loan orInvestment and the terms on which it is available;(m) for aShare issue, whether investors have any protection from their shareholding being diluted by the issue of furtherShares ; and(n) that the borrower orIssuer , and information provided about the borrower orIssuer , are not checked or approved by the DFSA.(2) An operator of a
Property Investment Crowdfunding Platform must disclose prominently on its website relevant information about each seller and property, including as a minimum:(a) full details about the property, including its location and condition, and whether it is currently rented;(b) full details about the seller's legal title to the property such as whether it is freehold, leasehold or strata title, and whether the seller is able to sell the property free of any encumbrance;(c) whether the property is let or in a lettable condition including whether it requires renovation or other work before it can be let;(d) the independent valuation report on the property referred to in COB Rule 11.6.3;(e) the estimated annual charges and expenses relating to the property;(f) the estimated annual rental income on the property, after deducting charges and expenses;(g) the results of the due diligence carried out by the operator on the property and any limits on the due diligence that could be carried out; and(h) that the seller, the property and the information provided about the seller and the property are not checked or approved by the DFSA.Derived from DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RM239/2019 (Made 20th February 2019). [VER32/02-19]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.7 Guidance
1. The information required under COB Rule 11.3.7 is specific to each loan or
Investment and is in addition to information about the service the operator is required to disclose under COB Rule 11.3.3.2. Under COB Rule 11.3.7(2)(e) and (f), the operator should disclose the potential for increased expenses and/or reduced rental income if the property is held for longer than expected.
3. In accordance with COB Rule 3.2.6, if an operator makes any representation about the future performance of the investment, this should be fair and balanced and should set out the key facts and assumptions that have been used.
Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.7A
(1) An operator who, but for thisRule , would be obliged to disclose the financial statements of a borrower under COB Rule 11.3.7(d), may instead disclose on its website financial ratios relating to the borrower in accordance with thisRule .(2) The operator must disclose the following financial ratios relating to the borrower:(a) current assets ratio: consisting of the current assets of the borrower divided by the total current liabilities of the borrower;(b) quick assets ratio: consisting of the cash and current receivables of the borrower (liquid assets) divided by the total current liabilities of the borrower;(c) debt ratio: consisting of the total debt of the borrower divided by the total assets of the borrower;(d) debt to equity ratio: consisting of the total liabilities of the borrower divided by the total equity of the borrower;(e) return on assets ratio: consisting of the total net income of the borrower divided by the average total assets of the borrower;(f) profit margin: consisting of subtracting the total expenses of the borrower from the total revenue of the borrower; and(g) operating cash flow: consisting of cash flows from operations of the borrower divided by current liabilities of the borrower.(3) An operator must ensure that the financial ratios:(a) cover at least the two most recently ended fiscal years or, if the business has operated only for a shorter period, that period;(b) are disclosed in a clear and easily understandable way that:(i) includes an explanation of what the ratios mean and how they are calculated; and(ii) allows comparison between borrowers; and(c) specify whether the information on which the ratios are based has been audited.(4) An operator must:(a) verify, either itself or by using a suitably qualified third party, that the financial ratios are correct; and(b) disclose with the financial ratios:(i) that it has verified that the ratios are correct; or(ii) if it has used a third party to verify the accuracy of the ratios, the identity and relevant qualifications of the third party that has verified that the ratios are correct.Derived from DFSA RM239/2019 (Made 20th February 2019). [VER32/02-19]Proposals not to be advertised outside platform
COB 11.3.8 COB 11.3.8
An operator must:
(a) not advertise a specific lending orInvestment proposal that is available on its platform; and(b) take reasonable steps to ensure that borrowers,Issuers and sellers that use its platform do not advertise the lending orInvestment proposal,unless the advertisement is made on the platform and is accessible only to existing
Clients who use the platform.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.8 Guidance
1. COB Rule 11.3.8 does not prevent users of a platform who are seeking funding from referring otherPersons to the operator or providing a link to the operator's website homepage. However, a link to a specific lending or investment proposal should not be displayed outside the platform if it is accessible toPersons who are notClients of the operator.2. If anInvestment proposal is advertised toPersons who are notClients of the operator, in addition to breaching COB Rule 11.3.8, this may constitute anOffer of Securities to thePublic that requires aProspectus , as the offer may no longer meet the conditions of theExempt Offer exclusion forCrowdfunding Platforms in MKT Rule 2.3.1(m).3. COB Rule 11.3.8 does not prevent an operator from generally promoting its crowdfunding service to potentialClients , provided it does not advertise a specific proposal.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Material changes affecting a borrower, Issuer or property
COB 11.3.9 COB 11.3.9
(1) ThisRule applies if a material change occurs relating to:(a) in the case ofLoan Crowdfunding andInvestment Crowdfunding , a borrower orIssuer , its business, its proposal or the carrying out of its proposal; or(b) in the case ofProperty Investment Crowdfunding , a property or anInvestment in a property.(2) In thisRule , a "material change" means any change or new matter that may significantly affect(a) the borrower's ability to meet its payment obligations under the loan agreement in the case ofLoan Crowdfunding (b) anIssuer's business or its ability to carry out its proposal in the case ofInvestment Crowdfunding ; or(c) the value of, or return on, anInvestment in the case ofProperty Investment Crowdfunding .(3) If the material change occurs during the commitment period, the operator must:
(a) disclose prominently on its website details of the material change;(b) notify committed lenders or investors of the material change and require them to reconfirm their commitment within 5 business days; and(c) if reconfirmation is not provided within the period specified in (b), cancel the commitment.(4) If the material change occurs after the commitment period, the operator must disclose prominently on its website:
(a) details of the material change;(b) any change in the rights of users arising from the material change; and(c) what steps, if any, the operator is proposing to take as a result of the change.(5) A disclosure or notification under (3) or (4) must be made as soon as practicable after the operator becomes aware of the material change.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.9 Guidance
1. COB Rule 11.3.9 sets out the requirements that an operator must comply with if there is a material change affecting a borrower orIssuer , either during the commitment period or at a later time. A material change might include, for example:a. forInvestment and Loan Crowdfunding , a change in the management, control or structure of the business, an event affecting its profitability, a change relating to its assets or a default in meeting another obligation; andb. forProperty Investment Crowdfunding , a significant expense that arises in relation to the property.2. A borrower or an Issuer is required, under itsClient Agreement , to give reasonable advance notice to the operator of any material change in its circumstances (see COB Rule A2.1.6).3. The DFSA expects that it would be only in limited circumstances that a material change would occur during the commitment period. This is because full information about the borrower, Issuer, seller or property will only recently have been verified and published (see COB Rules 11.3.6 and 11.3.7). As a material change during the commitment period could significantly affect a lender or investor's decision, in addition to notifying investors or lenders, the operator must require anyone who has al committed to lend or invest to reconfirm their commitment. This reconfirmation is separate from the cooling-off period for investors under COB Rule 11.5.2 or 11.6.5 which starts when the commitment period ends.4. If a material change occurs after the commitment period, in addition to notifying lenders or investors of the details, the operator is required to inform lenders or investors whether this affects their rights and whether the operator is proposing to take further steps e.g. to clarify the situation or to take action for a default.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Borrower, or Issuer or seller not to use other platforms
COB 11.3.10 COB 11.3.10
An operator must take reasonable steps to restrict a borrower,
Issuer or seller from seeking funding on another crowdfunding platform during the commitment period.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.10 Guidance
Allowing users of a platform who are seeking funding, to use different platforms at the same time creates the risk that they might offer different terms and information about the proposal, causing potential confusion for lenders or investors and creating the potential for arbitrage by users of a platform who are seeking funding. This restriction only applies during the commitment period i.e. the period during which lenders may commit to making loans to the borrower or investors may commit to investing with the
Issuer or in the property.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Equal treatment of lenders and investors
COB 11.3.11
An operator must ensure that lenders or investors who use its service are able to have access to the same information on its website about a borrower,
Issuer , seller or a lending or investment proposal or a property, and that access to the information is provided at the same time.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.12 COB 11.3.12
If an operator provides an auto-lending system or auto-investing system, or any other facility that provides some lenders or investors with the opportunity to lend or invest money ahead of other lenders or investors, it must disclose prominently on its website that some lenders or investors may have preferential access to better proposals.
[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 11.3.12 Guidance
1. An 'auto-lending system' or 'auto-investing system' is a facility that automatically allocates certain loans orInvestments to a lender or investor according to parameters chosen by the lender or investor. The availability of this type of facility creates the risk that other lenders may not be aware that the best lending or investment opportunities have al been allocated and that remaining lending or investment opportunities may be of lower quality.2. Further, if an operator permits some lenders or investors using its service to lend or invest on terms that are better than those offered to other lenders or investors on the platform, a potential conflict of interest may arise between the interests of the different lenders or investors. The operator will need to consider under COB Rule 3.5.1 what steps it should take to ensure that otherClients are not prejudiced by the conflict of interest.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]No suitability disclosure
COB 11.3.13
If an operator provides an auto-lending system or auto-investing system, it must disclose prominently to lenders or investors who use the facility that no assessment is made that any loan or Investment selected by the system is suitable for the lender or investor.
[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]Operator not to permit staff to use the platform
COB 11.3.14 COB 11.3.14
An operator must take reasonable steps to ensure that its officers and employees and their family members do not:
(a) in the case ofInvestment Crowdfunding orLoan Crowdfunding :(i) lend money or provide finance to a borrower or anIssuer ;(ii) borrow money from a lender or receive funding from an investor; or(iii) hold any direct or indirect interest in the capital or voting rights of a borrower or lender or anIssuer or investor; and(b) in the case ofProperty Investment Crowdfunding :(i) invest in a property using the platform;(ii) rent a property that has been purchased using the platform; or(iii) sell a property or any interest in a property using the platform.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.14 Guidance
1. COB Rule 11.3.14 is intended to ensure that staff of an operator do not enter into transactions with clients of the operator. This is because staff may have access to additional confidential information about a borrower,Issuer , seller or property that is not available to clients. Such transactions may also create other conflicts of interest.2. TheRule does not prohibit an operator itself from lending money to a borrower, or investing in anIssuer or in the property of a seller, that uses the platform. However, if it does so, it is likely to be carrying on a separateFinancial Service ofProviding Credit orDealing in Investments as Principal and require an additional authorisation for that activity. As well as complying with additionalRules relating to capital and the conduct of that business, it would need to take reasonable steps to prevent or manage conflicts of interests that may arise between its interests and those of itsClients (see COB Rule 3.5.1). If the operator discloses conflicts of interests toClients under COB Rule 3.5.1, it should disclose details of each specific transaction that creates a potential conflict of interest.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Forums
COB 11.3.15
If an operator provides a means of communication (a "forum") for users to discuss funding proposals made using the service, it must:
(a) refer lenders or investors to the forum as a place where they can find, or take part in, further discussion about proposals, while clearly stating that the operator does not conduct due diligence on information on the forum;(b) restrict posting of comments on the forum toPersons who areClients using the service;(c) ensure that allClients using the forum have equal access to information posted on the forum;(d) require aPerson posting a comment on the forum to disclose clearly if he is affiliated in any way with a borrower,Issuer , or seller or is being compensated, directly or indirectly, to promote a proposal by a borrower,Issuer or seller;(e) take reasonable steps to monitor and prevent posts on the forum that are potentially misleading or fraudulent;(f) immediately take steps to remove a post, or to require a post to be deleted or amended, if the operator becomes aware that (d) or (e) have not been complied with; and(g) not participate in discussions on the forum except to moderate posts or to take steps referred to in (f).[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Facility for transfer of loans or Investments
COB 11.3.16 COB 11.3.16
If an operator provides a facility that assists the transfer of rights or obligations under a loan agreement or the sale of
Investments , it must ensure that:(a) the facility relates only to loans orInvestments originally facilitated using its service;(b) transfers can take place only between lenders or investors who are alClients using the service and have initially lent money under loan agreements or initially subscribed forInvestments using the service;(c) in the case of a loan agreement, the facility allows only a lender (and not the borrower) to transfer rights and obligations under the agreement;(d) in the case of a loan agreement, a lender must transfer the rights and obligations relating to the whole of a loan made (and not just a part of the loan);(e) potential transferees or buyers have access to all information on the website about the borrower, orIssuer , seller or property that was available to earlier lenders or investors; and(f) fees it charges for the use of the facility are designed to recover its costs of providing the facility, rather than generating additional income.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.3.16 Guidance
1. A facility for the transfer of rights and obligations under loan agreements or for the sale ofInvestments should exist mainly to provide an exit route for lenders or investors rather than being a facility for the active trading of loans orInvestments . For example, the operator should ensure that transferees or buyers areClients who al initially lent money to either the particular borrower or another borrower, or initially invested funds in theIssuer or property or anotherIssuer or property, using the platform. That is, the facility should not be used by persons who are only involved in secondary trading of loans orInvestments .2. The conditions in COB Rule 11.3.16 apply only to a transfer or sale using the facility provided by the operator. They do not affect transfers of rights and obligations or sales ofInvestments that may occur outside that facility, for example, by operation of law such as under a will or by aCourt order.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Information technology
COB 11.3.17
(1) An operator must have adequate measures in place to ensure:
(a) its information technology systems are resilient and not prone to failure;(b) business continuity in the event that an information technology system fails;(c) protection of its information technology systems from damage, tampering, misuse or unauthorised access; and(d) the integrity of data forming part of, or being processed through, its information technology systems.(2) An operator must review the measures referred to in (1) at least annually to ensure they are adequate.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]Business cessation plan
COB 11.3.18
The operator must:
(a) maintain a business cessation plan that sets out appropriate contingency arrangements to ensure the orderly administration of loan agreements orInvestments in the event that it ceases to carry on its business; and(b) ensure, as far as reasonably practicable, that the contingency arrangements can be implemented if necessary.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 11.3.19 COB 11.3.19
The operator must review its business cessation plan at least annually and must update the plan as necessary to take into account any changes to its business model or to the risks to which it is exposed.
Derived from DFSA RM239/2019 (Made 20th February 2019). [VER32/02-19]COB 11.3.19 Guidance
1. The business cessation plan should contain enough information that, in the event of a wind down of the business, it will assist in the orderly administration of loan agreements or Investments. It should as a minimum include:a. a business overview i.e. a factual description of how the platform conducts its activities;b. analysis of the critical functions of the business;c. trigger events that might cause a wind down of its business (these events should be specific to the particular business, rather than generic);d. analysis of what functions are required and need to be undertaken for an orderly wind down of the business; ande. how communications withClients , business partners and creditors will be undertaken during the wind down period.2. The operator should put in place measures that, as far as reasonably practicable, ensure that the contingency arrangements can be implemented if necessary e.g. by entering into an agreement with a third party to provide certain services. The operator should consider the need to obtain professional advice about the likelihood of the arrangements being effectively implemented. The operator will need to disclose the contingency arrangements it has in place (see COB Rule 11.3.3 (r)).Derived from DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RM239/2019 (Made 20th February 2019). [VER32/02-19]Credit cards not to be used
COB 11.3.20 COB 11.3.20
The operator must take reasonable steps to ensure that a
Retail Client does not use a credit card to lend or invest using the platform.Derived from DFSA RM239/2019 (Made 20th February 2019). [VER32/02-19]COB 11.3.20 Guidance
An operator may permit an investor to use a debit card to fund a loan or investment provided it has adequate systems in place to distinguish between a debit and a credit card.
Derived from DFSA RM239/2019 (Made 20th February 2019). [VER32/02-19]COB 11.4 COB 11.4 Loan Crowdfunding — extra requirements
Written loan agreement
COB 11.4.1
A
Loan Crowdfunding Operator must ensure that, when a loan is made using its service, there is a written loan agreement in place between the borrower and lender that is legally enforceable and sets out sufficient details of the loan, the terms of repayment and the rights and obligations of the borrower and lender.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]Lending limits
COB 11.4.2
A
Loan Crowdfunding Operator must maintain effective systems and controls to ensure that aRetail Client does not lend more than:(a) US$5,000 to any single borrower using its service; and(b) US$50,000 in total in any calendar year using its service.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 11.5 COB 11.5 Investment Crowdfunding — extra requirements
Risk acknowledgement form
COB 11.5.1
(1) AnInvestment Crowdfunding Operator must ensure that aRetail Client provides a signed risk acknowledgement form for eachInvestment that it makes using the platform.(2) The risk acknowledgement form under (1) must:
(a) set out clearly the risks referred to in COB Rule 11.3.1;(b) require theRetail Client to confirm that he understands those risks; and(c) be provided before, or at the same time as, theRetail Client commits to making theInvestment .[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]Cooling-off period
COB 11.5.2 COB 11.5.2
(1) AnInvestment Crowdfunding Operator must ensure that investors who have committed to providing funding to a particularIssuer may withdraw that commitment, without any penalty and without giving a reason, during the cooling-off period.(2) In (1), "cooling-off period" means the period of at least 48 hours starting at the end of the commitment period.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 11.5.2 Guidance
An operator may provide investors with a cooling-off period that is longer than the period specified in COB Rule 11.5.2(2).
[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]Investment limit
COB 11.5.3
An
Investment Crowdfunding Operator must maintain effective systems and controls to ensure that aRetail Client does not invest more than US$50,000 in total in any calendar year using its service.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]COB 11.6 COB 11.6 Property Investment Crowdfunding – extra requirements
COB 11.6.1
This section applies to a
Property Investment Crowdfunding Operator .Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Property characteristics
COB 11.6.2
The operator must ensure that each property listed for sale on its platform satisfies both of the following conditions:
(a) the property consists of an individual apartment, house or building with a single discrete title deed; and(b) the property may be used only for residential purposes.Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.6.2 Guidance
Property Investment Crowdfunding permits investors to invest in one or moreSpecial Purpose Vehicles that each hold a single property. The operator should not facilitate investments in a pool of properties held in a singleSpecial Purpose Vehicle ; as such a pooling arrangement is likely to constitute aCollective Investment Fund . GEN Rule 2.2.10E prohibits an operator from operating such a Fund.Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Valuation Report
COB 11.6.3
(1) The operator must obtain an independent valuation report for each property listed on the platform.
(2) The valuation must be provided by a
Person :(a) who is a professional and reputable valuer;(b) who is not Related to the platform operator or to the seller; and(c) whom the operator reasonably believes will provide an objective valuation.(3) The report must:
(a) be prepared on the basis of an 'open market' valuation;(b) include the valuation and all material details about the basis of the valuation and assumptions used;(c) outline the overall structure of the market including market trends;(d) include a brief description of the property, its location, its existing use, any encumbrances concerning or affecting the property, the capital value and net monthly income expected from the property;(e) confirm the professional status of the valuer and that the valuation report is prepared on a fair and unbiased basis; and(f) be disclosed to investors as soon as it is available.(4) The valuation must be carried out before a property is listed on the platform and not more than three months before a property is due to be sold.
(5) The operator must disclose the valuation report to investors and potential investors immediately after it becomes available.
Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Risk acknowledgement form
COB 11.6.4
(1) The operator must ensure that a
Retail Client provides a signed risk acknowledgement form for eachInvestment that it makes using the platform.(2) The risk acknowledgement form under (1) must:
(a) set out clearly the risks referred to in COB Rule 11.3.1;(b) require theRetail Client to confirm that he understands those risks; and(c) be provided before, or at the same time as, theRetail Client commits to making theInvestment .Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Cooling-off period
COB 11.6.5
(1) The operator must ensure that investors who have committed to make an
Investment in a property may withdraw that commitment, without any penalty and without giving a reason, during the cooling-off period.(2) In (1), “cooling-off period” means the period of at least 48 hours starting at the end of the commitment period.
Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Special Purpose Vehicle
COB 11.6.6
The operator must ensure that a separate
Special Purpose Vehicle is established to hold title to each property.Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Credit cards not to be used
COB 11.6.7
The operator must take reasonable steps to ensure that a
Retail Client does not use a credit card to invest using the platform.Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.6.7 Guidance
An operator may permit an investor to use a debit card to fund an
Investment provided it has adequate systems in place to distinguish between a debit and credit card.Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Investment limit
COB 11.6.8
The operator must maintain effective systems and controls to ensure that a
Retail Client does not invest more than US$50,000 in total in any calendar year using its service.Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Restriction on remuneration sources
COB 11.6.9
(1) The operator must ensure that it, and a person
Related to it, does not receive any remuneration, fee, payment or commission for, or in connection with, its service, except from investors or sellers who use the platform.(2) Without limiting (1), an operator, or a person
Related to the operator, must not receive any remuneration, fee, payment or commission from a real estate agent, property manager, valuer, custodian or any other person providing a service related to the property.Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Property not to be mortgaged
COB 11.6.10
The operator must ensure that no mortgage, lien or other security is granted over a property that investors invest in using its platform.
Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 11.6.10 Guidance
COB Rule 11.6.10 prevents an operator or a
Special Purpose Vehicle from taking a loan secured against the property.Derived from DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB 12 COB 12 OPERATING OR ACTING AS THE ADMINISTRATOR OF AN EMPLOYEE MONEY PURCHASE SCHEME
COB 12.1 Application and Interpretation COB 12.1 Application and Interpretation
COB 12.1 Guidance
The terms “Member”, “Participating Employer” and “Scheme” are defined in GEN Rule 2.30.1 and the terms “DIFC Scheme” and “Non-DIFC Scheme” are defined in GLO.
Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Added] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]Application Application
COB 12.1.1
The Rules in this chapter apply to an Authorised Firm when:
(a) Operating an Employee Money Purchase Scheme; or(b) Acting as the Administrator of an Employee Money Purchase Scheme.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.1.1 Guidance
1. The Rules in this Chapter apply to an Operator or Administrator of a Scheme regardless of whether the Scheme is established in the DIFC (a DIFC Scheme) or outside the DIFC (a Non-DIFC Scheme), unless otherwise provided. For example, the requirements in COB Rule 12.2.3 apply only in relation to a Non-DIFC Scheme.2. GEN Rule 2.2.10H prohibits an Authorised Firm from Operating or Acting as the Administrator of a Non-DIFC Scheme if the Scheme receives contributions from:a. a DIFC employer in respect of its employees under the Employment Law; orb. an employer in respect of its employees under another Dubai law.Derived from DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]Interpretation Interpretation
COB 12.1.2
In this Chapter:
(a) “Administrator” means an Authorised Firm Acting as the Administrator of an Employee Money Purchase Scheme;(b) “Basic Wage” means an employee’s annual wage, excluding allowances and additional payments (such as bonuses);(c) “Beneficiary” means a Person nominated by a Member, or a Person legally entitled to a benefit if there is no valid nomination by a Member;(d) “Constitution”, in relation to an Employee Money Purchase Scheme, means:(i) if the Scheme uses a trust structure, the trust deed and trust rules of the trust;(ii) if the Scheme is a body corporate, the articles of association or other equivalent governing documents of the body corporate; or(iii) in any other case, the documents that set out the relevant terms of the scheme;(e) “Core Benefits” means the benefits required to be paid to an Employee Money Purchase Scheme by:(i) a DIFC employer in respect of its employees under the Employment Law; or(ii) an employer in respect of its employees under a Dubai law;(f) “Operator” means an Authorised Firm that is acting as the Operator of an Employee Money Purchase Scheme;(g) “Payment Schedule” has the meaning given in COB Rule 12.3.7; and(h) “Salary Sacrifice” means an amount that a Member has agreed in writing with the Member’s Participating Employer to have deducted from the Member’s Basic Wage; and(i) “Third Party Service Provider” means a Person to whom the Operator of a Scheme has delegated or outsourced an activity relating to the Scheme.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Amended] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]COB 12.2 General duties and functions COB 12.2 General duties and functions
General duties General duties
COB 12.2.1 COB 12.2.1
The Operator and Administrator of a Scheme must:
(a) act in the best interests of the Members of the Scheme and, if there is a conflict between the interests of the Operator or Administrator of a Scheme and the interests of Members of the Scheme, give priority to the interests of Members;(b) not improperly make use of information acquired through being the Operator or Administrator of a Scheme to:(i) gain an advantage for itself or another Person; or(ii) cause detriment to Members of the Scheme;(c) ensure that its officers, employees and agents do not improperly make use of information acquired through being officers, employees or agents of the Operator or Administrator of a Scheme to:(i) gain an advantage for itself or another Person; or(ii) cause detriment to Members of the Scheme;(d) ensure that any Related Party Transaction is on terms at least as favourable to the Scheme as any comparable arrangement on normal commercial terms negotiated at arm’s length with an independent third party; and(e) report to the DFSA, any breach of legislation administered by the DFSA or other applicable laws that relates to the Scheme and has had, or is likely to have, a materially adverse effect on the interests of Members of the Scheme, as soon as practicable after it becomes aware of the breach.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.2.1 Guidance
1. The general duties set out in COB Rule 12.2.1 that apply to an Operator and Administrator, are in addition to the Principles for Authorised Firms that also apply to all firms.Application of AML procedures2. An Administrator that performs AML functions on behalf of an Operator of a Scheme, is required to satisfy applicable AML requirements. The AML module provides flexibility to apply a risk-based approach, taking into account the nature of the product or service involved, and the customer relationship. For example, the Administrator:a. is required to undertake a risk-based assessment of every Participating Employer of the Scheme, and assign a risk rating proportionate to that employer (see AML Rule 6.1.1);b. may assign to Members of an Employee Money Purchase Scheme a low AML risk rating, taking into account the low AML risks associated with schemes or arrangements that provide employment benefits, such as pension, gratuity, retirement and superannuation schemes where:(i) the contributions are made by the Participating Employer in respect of each Member, and not by the Member;(ii) the employment benefits of the Member are not assignable to a third-party; and(iii) there are no other factors that suggest a higher risk of money laundering3. AML Rule 6.1.2 sets out factors that may indicate higher money laundering risks and AML Rule 6.1.3 sets out factors that may indicate lower money laundering risks.4. AML screening of a Member may be warranted before accepting voluntary contributions to a Scheme in certain circumstances, such as where the voluntary contributions:a. substantially exceed the amount of mandatory contributions for that Member; orb. are fully or freely withdrawable or assignable by the Member before the release of the mandatory contributions.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Added] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]Approval of Scheme
COB 12.2.2
An Operator of a Scheme must obtain the DFSA’s prior written approval for:
(a) that Scheme before it operates the Scheme in or from the DIFC; and(b) any material change to the Scheme after it has been approved under (a).Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Added] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21][Deleted]
Additional oversight functions
[Deleted]
Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Deleted] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21][Deleted]
Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Deleted] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]COB 12.2.2A COB 12.2.2A
(1) This Rule applies to a DIFC Scheme that is exempted under the Employment Regulations from the requirement to have a Supervisory Body.(2) The Operator of a DIFC Scheme referred to in (1) must ensure that each employer making contributions to the Scheme:(a) carries out the oversight function for the Scheme that would, but for the exemption, be carried out by the Supervisory Body;(b) has sufficient information relating to the operation of the Scheme to be able to properly carry out the oversight function;(c) has the power under the Constitution of the Scheme, to appoint and remove the Operator of the Scheme, in accordance with the requirements under the Employment Law or any other applicable law; and(d) covenants, in the Constitution of the Scheme, to negotiate the fees and charges of the Operator and to assess the performance of the Operator, in the best interests of the Members of the Scheme.Derived from DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]COB 12.2.2A Guidance
1. Under the Employment Law and the DFSA requirements, all Schemes established in the DIFC are required to be constituted as a trust.2. Under the Employment Regulations, a Qualifying Scheme must have a Supervisory Body, unless an exemption has been granted by the DIFCA Board. The DIFCA Board will grant an exemption from the requirement for a Supervisory Body, where the employer making contributions to the Scheme is able to demonstrate certain matters to the Board. COB Rule 12.2.2A(2) reflects the matters that the employer must be able to demonstrate. If an exemption is granted, the oversight function in respect of the Scheme may be carried out either by the employer itself or by a delegate acting on its behalf.Derived from DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]Additional requirements for a Non-DIFC Scheme
COB 12.2.3 COB 12.2.3
The Operator and Administrator of a Non-DIFC Scheme must:
(a) in addition to complying with any applicable requirements of legislation in the DIFC, comply with the applicable requirements of legislation in the jurisdiction in which the Scheme is established; and(b) notify the DFSA, as soon as is practicable, of any event or matter that has, or could have, a material adverse impact on its ability to comply with the requirements referred to in (a).Derived from DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]COB 12.2.3 Guidance
An Operator or Administrator is prohibited under GEN Rule 2.2.10H from Operating or Acting as the Administrator of a Non-DIFC Scheme if that Scheme receives contributions required to be made by a DIFC employer under the Employment Law or contributions required to be made by any other employer under a Dubai law.
Derived from DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]Constitution of the Scheme
COB 12.2.4
An Operator of a Scheme must:
(a) manage the Scheme and any property of the Scheme in accordance with the terms of the Constitution and any applicable laws;(b) perform the functions and duties conferred on it by the Constitution and applicable laws; and(c) ensure that the Administrator carries out the functions and duties in accordance with the Constitution and applicable laws.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.2.5
An Operator of a Scheme must ensure that the Constitution of the Scheme:
(a) does not contain any provision that is inconsistent with the requirements of legislation administered by the DFSA that apply to the Operator or Administrator of a Scheme or a Third Party Service Provider;(b) requires the property of the Scheme to be held irrevocably for the benefit of the Members of the Scheme;(c) does not permit the payment of benefits in circumstances contrary to any applicable legislation; and(d) provides for any amount due to a Member, which has not been paid by a Participating Employer, to be recoverable as a debt due to the Scheme.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.2.6
Any provision in the Constitution of a Scheme is void to the extent that it is inconsistent with a requirement in these Rules.
Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Delegations and Outsourcing
COB 12.2.6 Guidance
1. GEN Rules 5.3.21 and 5.3.22 provide overarching requirements that govern outsourcing of functions and activities by an Authorised Firm. The Rules in this section apply in addition to the requirements in GEN Rules where an Operator of a Scheme delegates or outsources functions and activities in relation to the Scheme.2. Under GEN Rule 5.3.21, if the Operator of a Scheme delegates any activities or outsources any functions to an Administrator of a Scheme or a Third Party Service Provider, it is not relieved of its regulatory obligations and remains responsible for its compliance with the legislation applicable in the DIFC.3. Where the Operator of a Scheme delegates any activities or outsources any functions to an Administrator of a Scheme, and there is a failure to comply with the regulatory obligations by that Administrator, while the Operator is liable for that non-compliance, the Administrator will still be liable for breach of its regulatory obligations to conduct its licensed activities properly.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.2.7
An Operator of a Scheme must ensure that if it delegates or outsources an activity that is a financial service, the activity is carried on by a person who is either:
(a) authorised by the DFSA to carry on that activity; or(b) regulated and supervised for that activity by a Financial Services Regulator.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Amended] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]COB 12.3 Key Information about the Scheme COB 12.3 Key Information about the Scheme
Information for prospective members
COB 12.3.1 COB 12.3.1
An Operator of a Scheme must ensure that before a person becomes a Member of the Scheme, that person is provided with the following information:
(a) the name of the Scheme;(b) the name and address of the Operator and Administrator of the Scheme and how they can be contacted;(c) how the person can obtain up-to-date information about the Participating Employer’s contributions in respect of the Member;(d) a short description of:(i) the type of investment options offered on the Investment Platform;(ii) the investment objectives of each investment option, the strategy for achieving those objectives and any associated risks;(iii) how detailed information relating to each investment option can be obtained, and who is responsible for providing that information; and(iv) the comparative risk rating for each investment option, if available;(e) how and when a Member can switch their investments;(f) costs for which Members are responsible, with costs and charges associated with the administration of the Scheme, and the management fees and charges of the investment options offered on the Investment Platform, shown separately;(g) whether voluntary contributions can be:(i) made by a Member and, if so, how such contributions will be managed, including fees and charges; and(ii) withdrawn before the mandatory contributions, and if so, any limits on the frequency and amount of withdrawals that can be made, and the fees and charges associated with withdrawals;(h) the events upon which Member benefits are payable, and the method of calculating such benefits;(i) details relating to how Member inquiries and complaints will be handled and the contact details for inquiries and complaints; and(j) that the investment managers of the investment options offered on the Investment Platform are responsible for the information provided to Members relating to those investment options.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Added] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]COB 12.3.1 Guidance
1. An Operator in providing the information under COB Rule 12.3.1 must not offer investment selection assistance tools to Members, as such tools may be construed as Advising on Financial Products. However, if such a tool is offered by an investment manager of an investment option, the Operator may let Members know how the tool may be accessed and the investment manager responsible for the tool.2. A human resources department may provide information and conduct information sessions for Members and prospective Members about the Employee Money Purchase Scheme to which contributions will be made in respect of the Members. However, a human resource department should not give advice to Members on matters such as selecting investment options, or the merits of making voluntary contributions. Such advice should be given by a firm authorised to give advice on financial products.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Added] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]Notification of any material change
COB 12.3.2
An Operator of a Scheme must ensure that a person to whom information is provided under COB Rule 12.3.1 is notified promptly if there is any material change to information referred to in that Rule, whether the change occurs before or after the person becomes a Member of the Scheme.
Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Segregation of Scheme Property
COB 12.3.3
An Operator of a Scheme must ensure that property of the Scheme is:
(a) held by an Eligible Custodian;
(b) clearly identified as the property of the Scheme; and
(b) held separately from the property of the Operator or Administrator of a Scheme or any Third Party Service Provider.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Valuation of Scheme Property
COB 12.3.4
The Operator of a Scheme must ensure that:
(a) the property of the Scheme is valued, at least annually, for the purposes of the annual report of the Scheme; and(b) a valuation of the property of the Scheme specific to each Member’s benefits is carried out for each valuation period set out in the Constitution of the Scheme, and the valuation is made available to the respective Member as soon as possible after the valuation.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Fees and charges
COB 12.3.5 COB 12.3.5
The Operator of a Scheme must ensure that fees or charges payable by Members of the Scheme:(a) represent good value for the Members of the Scheme;(b) can be demonstrated by the Operator to be reasonable, taking into account the fees and charges of similar schemes in comparable jurisdictions;(c) do not exceed any ceiling specified in the Constitution or any applicable laws;(d) are expressly permitted under the terms of the Constitution or applicable laws or agreements;(e) are communicated clearly to the Members of the Scheme at the time of joining the scheme and in the event of any subsequent change; and(f) are not materially increased, unless the DFSA has given its prior written consent to such an increase.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.3.5 Guidance
1. In considering if fees and charges represent good value for the Members of the Scheme, the Operator should take into account established principles, such as guidance issued by the UK Pension Regulator on what constitutes good value for members.2. In ensuring that the fees and charges of a Scheme are reasonable and represent value for money for Members, an Operator should take into account any reduction in costs that should be achievable due to economies of scale as assets under management increase, and due to efficiencies gained from market and technological advances.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.3.6 COB 12.3.6
(1) A Participating Employer may make a payment to meet, in whole or in part, the administration costs of the Scheme.(2) Where a Participating Employermakes a payment under (1), the Operator must use that payment to defray the costs the administrative costs of the Scheme on Member contributions.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.3.6 Guidance
The payments referred to in COB Rule 12.3.6(1) are voluntary payments a Participating Employer may make, over and above Member contributions in respect of its Employees’ gratuity. If such payments are made, the Operator needs to ensure that they are used for defraying costs borne by Members, rather than treated as additional contributions available for investment.
Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Voluntary Contributions
COB 12.3.6A COB 12.3.6A
The Operator of a Scheme may accept a Member’s voluntary contributions to the Scheme, on the following conditions:
(a) the voluntary contributions must be made by Salary Sacrifice by the Member and paid by the Member’s Participating Employer to the Scheme;(b) the voluntary contributions must be managed in the same manner as the mandatory contributions made in respect of that Member; and(c) if the voluntary contributions, or any part of them, are permitted to be withdrawn, the withdrawal must:(i) under the Constitution of the Scheme not be permitted to:(A) be made more than twice yearly; and(B) exceed, for any withdrawal, 30% of the amount that represents the Member’s voluntary contributions and earnings on those contributions, except on the grounds of extreme financial hardship as defined in the Constitution; and(ii) not adversely affect the rights and interests of:(A) the Member’s Core Benefits;(B) the Core Benefits of the other Members of the Scheme; or(C) the Scheme itself.Derived from DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]COB 12.3.6A Guidance
1. An Operator may accept voluntary contributions under COB Rule 12.3.6A to a DIFC Scheme or Non-DIFC Scheme only if the Constitution of the Scheme permits it and, subject to the requirements applicable to voluntary contributions.2. A Member will only be able to make voluntary contributions as long as the contributions are made by the employer who is also making mandatory contributions. If the Member decides to retain the accrued benefit beyond the termination of employment with that employer, no further contributions to the Scheme can be made by the Member.3. The Authorised Firm is required to have adequate systems and controls in place to be able to clearly distinguish between mandatory contributions and voluntary contributions in respect of a Member, including the assets in which those contributions are invested.4. The defininition of extreme financial hardship in the Constitution of the Scheme (see COB Rule 12.3.6A(c)(i)) should be consistent with industry practice and may include, for example, circumstances such as the ill health of a Member or immediate family, death of a family member or other justifiable grounds.5. See Guidance items 2, 3 and 4 under COB Rule 12.2.1 relating to AML screening if a Member makes voluntary contributions.Derived from DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]Payment Schedule
COB 12.3.7
The Operator of a Scheme must ensure that a Payment Schedule is prepared setting out in respect of each Participating Employer:(a) the rates, including the due dates, of all contributions payable to the Scheme by the Participating Employer;(b) each Member’s name, address and nominated Beneficiary; and(c) the amounts likely to be payable by each Member by way of fees or charges for the relevant year.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.3.8
(1) The Operator of a Scheme must ensure that the Administrator notifies a Member of the Scheme in respect of whom a payment is due:(a) if payment under the Payment Schedule is not paid on the due date; and(b) if the amount is not recovered, of the consequences of the nonpayment to the Member.(2) The Administrator of the Scheme must notify the Operator:(a) if any payment under the Payment Schedule is not paid on the due date; and(b) if the amount is not recovered, of the consequences of the nonpayment for the Members of the Scheme.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Investment Options
COB 12.3.9
(1) The Operator of a Scheme must:(a) establish a range of investment options offered on the Investment Platform, which are suitable for the investment objectives and risk profile of the different classes of Members of the Scheme;(b) ensure that the investment options include investments that are suitable for Members who are:(i) highly risk averse, and therefore, for whom capital preservation is paramount; or(ii) seeking Shari’a compliant options;(c) take appropriate action to remove any investment option that is found to not be meeting the applicable criteria; and(d) implement adequate measures to protect the interests of Members when an investment option is to be removed from the Investment Platform.(2) The Operator of a Scheme must consult with a Professional Adviser before carrying out its functions under (1).(3) Where the Operator of a Scheme does not act on a recommendation provided by the Professional Adviser, the Operator must do so on reasonable grounds which are clearly documented.(4) The Professional Adviser referred to in (2) must be a person who:(a) is either:(i) authorised under its Licence for Advising on Financial Products; or(ii) regulated and supervised for that activity by a Financial Services Regulator;(b) has appropriate skills and expertise relating to the type of investment options that are to be offered on the Investment Platform; and(c) is independent of the Operator and Administrator of the Scheme.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]
[Amended] DFSA RMI302/2021 (Made 30th June 2021). [VER38/09-21]COB 12.3.10
The Operator of a Scheme must:
(a) enter into an agreement with each person who is responsible for an investment option (investment manager) to be offered on the Investment Platform, that sets out:(i) the criteria to be met by the investment manager;(ii) a requirement for the investment manager to ensure that its fees and charges are reasonable, taking into account the fees and charges of similar investments;(iii) the obligation of the investment manager to provide information relating to the investment options which Members are to use when making their investment options;(iv) the circumstances in which an investment option is to be removed from the Investment Platform and the procedures that apply to the removal; and(v) the measures to protect the interests of Members on the removal of an investment option from the Investment Platform;(b) make available to Members and prospective members of the Scheme, information relating to each investment option offered on the Investment Platform; and(c) provide Members with a facility to switch, free of charge at specified intervals, between investment options offered on the Investment Platform.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Register of Members
COB 12.3.11
The Operator of the Scheme must ensure that the Administrator:(a) maintains a register of the Members of the Scheme and the Participating Employer in respect of each Member;(b) keeps the register at the principal place of business of the Administrator in the DIFC;(c) includes in the register the name of each Member and the date on which contributions commenced in respect of the Member; and(d) permits a Member and Participating Employer to access the relevant part of the register that contains information relevant to the Member or the Participating Employer during normal working hours and free of charge.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Member enquiries
COB 12.3.12 COB 12.3.12
The Operator of a Scheme must ensure that the Administrator has in place adequate arrangements to deal efficiently and effectively with enquiries from Members and Participating Employers.
Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.3.12 Guidance
See GEN chapter 9.2 and Guidance under GEN Rule 9.2.2 for complaints handling procedures that an Operator or Administrator needs to have in place to deal with Member complaints.
Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.4 Financial Statements, Reports and Audit Requirements COB 12.4 Financial Statements, Reports and Audit Requirements
Financial Statements
COB 12.4.1
The Operator of a Scheme must ensure that:(a) financial statements relating to the Scheme are prepared in respect of each financial year of the Scheme; and(b) the financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) or any other standard approved by the DFSA.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Annual and half year Reports
COB 12.4.2
The Operator of a Scheme must:(a) prepare a financial report relating to the Scheme in respect of each(i) financial year of the Scheme; and(ii) half year of the Scheme;(b) prepare and maintain all financial statements in accordance with IFRS or any other reporting standard approved by the DFSA;(c) keep accounting records in sufficient detail to enable the financial statements of the Scheme to be prepared for the relevant financial year and half year that shows the financial position of the Scheme, including:(i) records of contributions received in respect of Members of the Scheme;(ii) investment earnings of the underlying investment options in which Member contributions are invested;(iii) fees and charges of the Scheme, and any other outgoings, showing separately:(A) the Operator’s overall fees and charges, with a breakdown of the amounts paid to the Administrator, Eligible Custodian and other Third Party Service Providers and, the fees and charges of the Professional Adviser; and(B) the fees and charges of the investment managers whose products are offered on the Investment Platform;(iv) an annual illustration of the overall impact of fees and charges of the Scheme on Member contributions;(v) transactions in respect of Scheme property; and(vi) any other matters as specified by the DFSA;(d) retain the accounting records for at least six years from the date to which the record relates; and(e) have the accounting records open for inspection by the Registered Auditor of the Scheme and the DFSA.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Annual Statements and Exit Statements
COB 12.4.3
The Operator of a Scheme must ensure that the Administrator prepares and provides to each Member an annual statement for each financial year, in respect of the Member’s account, setting out:(a) the mandatory contributions received for or on behalf of the Member;(b) the voluntary contributions, if any, received from the Member;(c) the value of the investments attributed to the Member’s account, whether chosen by the Member or applying by default;(d) the earnings attributed to the Member’s account in respect of the investments referred to in (c);(e) the fees and charges deducted from the Member’s account; and(f) any other information required by the DFSA.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.4.4
The Operator of the Scheme must ensure that the Administrator prepares and provides upon the exit of a Member an exit statement setting out the full details of the benefit payment, including any permitted deductions made from the benefit payment.
Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Auditor
COB 12.4.5
The Operator of a Scheme must ensure that:(a) an Auditor is appointed for the Scheme;(b) the Auditor conducts an audit of the financial statements of the Scheme in accordance with the requirements of the relevant standards published by the IAASB; and(c) the Auditor produces an Auditor’s Report on the audited financial statements of the Scheme.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.5 Management of financial resources COB 12.5 Management of financial resources
General duty
COB 12.5.1
An Operator of a Scheme must ensure:(a) that the financial resources of the Scheme are managed soundly and prudently; and(b) that there are sufficient liquid assets in the Scheme to meet:(i) the payment of Member benefits; and(ii) expenses and other charges relating to the operation of the Scheme.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]Policies and strategies
COB 12.5.2
(1) The Operator of a Scheme must ensure that there are well documented policies and strategies to meet the requirements in COB Rule 12.5.1, which include:(a) maintaining appropriate liquid buffers (including any reserves) and limits on illiquid assets; and(b)access to other resources (such as lines of credit).(2) The policies and strategies referred to in (1) must take into account, among other things:(a) the nature of the liquidity of the underlying investments in which Member contributions and earnings are invested;(b) if the underlying investments are securities traded on an exchange, liquidity on the exchange;(c) the benefit Payment Schedule, including any contingencies;(d) reserves established to meet fees, charges and any other outgoings of the Scheme; and(e) any other factors that may potentially affect the liquidity of the assets available for the payment of Member benefits.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.5.3
The Operator of a Scheme must ensure that the Administrator adopts and implements appropriate mechanisms to:(a) measure, monitor, stress-test and manage the policies and strategies referred to in COB Rule 12.5.2;(b) assess whether the policies and strategies are adequate and are operating as intended in both normal and stressed conditions; and(c) address any gaps and failures identified.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 12.5.4
The Operator of a Scheme must:(a) ensure that there are:(i) clear measures to identify and address liquidity stresses arising within the Scheme; and(ii) clear triggers to require the exercise of those measures; and(b) report promptly to the DFSA if any liquidity stresses are identified, and any action that is taken or to be taken.Derived from DFSA RMI261/2019 (Made 18th December 2019). [VER35/01-20]COB 13 COB 13 Providing Money Services And Arranging Or Advising On Money Services
COB 13.1 COB 13.1 Application
COB 13.2 COB 13.2 Requirements relating to use of currencies
COB 13.3 COB 13.3 General requirements
COB 13.4 COB 13.4 Additional Disclosure Requirements
COB 13.5 COB 13.5 Rights And Obligations Of Parties
COB 13.6 COB 13.6 Specific Requirements For Issuers Of Stored Value
COB 13.1.1 COB 13.1.1
This chapter applies to an Authorised Firm that:(a) Provides Money Services; or(b) Arranges or Advises on Money Services.Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.2.1 COB 13.2.1
An Authorised Firm must execute Payment Transactions, and carry out any other instructions for or on behalf of the User, in the specific currency agreed with the User.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.3.1 COB 13.3.1
Where there is a dispute between a User and an Authorised Firm about whether a requirement in this chapter has been complied with, it is for the Authorised Firm to prove that it complied with the relevant requirement.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.4.1 COB 13.4.1
An Authorised Firm must comply with the additional disclosure requirements:(a) in App 7 section A7.1, if it is Providing Money Services; or(b) in Rules A7.1.1 to A7.1.4 of that section, if it is Arranging or Advising on Money Services.Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.5.1 COB 13.5.1
An Authorised Firm Providing Money Services must comply with the requirements relating to the rights and obligations of parties specified in COB App7 section COB A7.2.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.6.1
An Authorised Firm that issues Stored Value must comply with the requirements relating to Stored Value in COB App7 COB section A7.3.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.1.2 COB 13.1.2
A requirement in this chapter (other than a restriction in section 13.2) does not apply in relation to a Market Counterparty, if the Market Counterparty has given prior notice in writing to the Authorised Firm that it has elected to waive the requirement.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.2.2 COB 13.2.2
An Authorised Firm must not, in connection with Providing Money Services, receive or provide physical notes or coins.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.3.2 COB 13.3.2
Where an Authorised Firm relies on a third party to execute some parts of a Payment Transaction for a User, the Authorised Firm must take reasonable steps to ensure that the third party carries out those parts of the transaction (even if the firm is not responsible for those parts of the transaction).
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.4.2 COB 13.4.2
An Authorised Firm Providing Money Services or Arranging or Advising on Money Services does not need to comply with the requirement in COB Rule 13.4.1, if it reasonably believes that another regulated entity, such as a Payment Account Provider, has provided that information to the User in a timely manner.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.5.2 COB 13.5.2
An Authorised Firm Arranging or Advising on Money Services must comply with:(a) the requirements in COB App7 COB section A7.2, if it is providing Payment Initiation Services; and(b) only Rules A7.2.2, A7.2.3, A7.2.14 and A7.2.15, if it is providing Account Information Services.Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.1.2 Guidance
This chapter uses a number of key terms defined in GEN and GLO that are set out below for reference:1. “Account Information Service” means an online service to provide consolidated information on one or more accounts held by the User with one or more providers, and includes such a service whether information is provided:(a) in its original form or after processing; and(b) to the User or to another person in accordance with the User’s instructions.2. “Payment Account” means an account held in the name of one or more Users which is used to execute Payment Transactions.3. “Payment Account Provider” means a Person that provides or operates a Payment Account;4. “Payment Initiation Services” means an online service to initiate a Payment Order at the request of the User with respect to a Payment Account held at another Payment Service Provider, but does not include:(a) a service that involves contact with any funds at any stage of the Payment Transaction; or(b) the issue of a Payment Instrument.5. “Payment Instrument” means a:(a) personalised device; or(b) personalised set of procedures agreed between the User and the provider,that is used by the User to initiate a Payment Order.6. “Payment Order” means an instruction by a payer or payee to their respective Payment Service Provider requesting the execution of a Payment Transaction.7. “Payment Service” means an activity referred to in the definition of “Providing Money Services” other than providing currency exchange or issuing Stored Value.8. “Payment Service Provider" means a Person providing a Payment Service.9. “Payment Transaction” means an act initiated by the payer or payee, or on behalf of the payer, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and payee.10. Providing Money Services means:(a) providing currency exchange;(b) providing Money Transmission;(c) providing or operating a Payment Account;(d) executing Payment Transactions on a Payment Account provided or operated by another Person;(e) issuing Payment Instruments; or(f) issuing Stored Value.11. "Stored Value" means any electronically (including magnetically) stored monetary value as represented by a claim on the issuer which is issued on receipt of funds or other assets for the purpose of making Payment Transactions, but does not include monetary value excluded under GEN Rule 2.6.4.12. “User” means a Client using the service of Providing Money Services or Arranging or Advising on Money Services and includes, in relation to a Payment Service, a Person acting in the capacity of payer, payee or both.Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.2.3 COB 13.2.3
Where an Authorised Firm Provides Money Services involving the UAE Dirham, it must ensure that all Dirham transactions related to the provision of those services are settled through the accounts of a financial institution that is licensed by the Central Bank to accept deposits.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.3.3 COB 13.3.3
An Authorised Firm must ensure any information it is required to provide to a User under this chapter is made available:(a) in an easily accessible manner;(b) in a durable medium that can be easily stored and retrieved by the User;(c) in easily understandable language and in a clear and comprehensible form;(d) in English or in the language agreed by the parties; and(e) unless specified otherwise in these Rules, in good time before the service is provided.Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 13.5.3
An Authorised Firm must ensure that Client Agreements do not contain any provisions that are inconsistent with the rights and obligations of parties specified in COB App7 section A7.2.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB 14 COB 14 Additional Requirements for Firms Providing Financial Services Relating to Investment Tokens
COB 14.1 COB 14.1 Technology and governance requirements for Operating a Facility for Investment Tokens
COB 14.1.1 COB 14.1.1
Without limiting the generality of the technology resources requirements in COB section 9.5, an Authorised Firm Operating a Facility for Investment Tokens must:
(a) ensure that any DLT application used by the facility operates on the basis of ‘permissioned’ access, so that it allows the operator to have and maintain adequate control over the Persons who are permitted to access and update records held on that DLT application;(b) establish and maintain adequate measures to ensure that the DLT application used by the facility, and the associated rules and protocols, contain:(i) clear criteria governing Persons who are permitted to access and update records for the purposes of trading or clearing Investment Tokens on the facility, including criteria about the integrity, credentials and competencies appropriate to the roles played by such persons;(ii) measures to address risks, including to network security and network compatibility, that may arise through systems used by Persons permitted to update the records on the DLT application; and(iii) processes to ensure that the Authorised Firm undertakes sufficient due diligence and adequate monitoring of ongoing compliance, relating to the matters referred to in (i) and (ii);(3) ensure any DLT application used by its facility is fit for purpose; and(4) have regard to industry best practices in developing its technology design and technology governance relating to DLT that is used by the facility.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.1.1 Guidance
1. To be fit for purpose, the technology design of the DLT application used by an Authorised Firm Operating a Facility for Investment Tokens should be able to address how the rights and obligations relating to the Investment Tokens traded on that facility are properly managed and are capable of being exercised or performed. For example, where a Security Token confers rights and obligations substantially similar to those conferred by a Share in a company, the DLT application would generally need to enable the management and exercise of the shareholder’s rights. This may, for example, include the right to receive notice of, and vote in, shareholder meetings, receive any declared dividends and participate in the assets of the company in a winding up.2. To ensure the technology governance of any DLT application used by its facility is fit for purpose, an Authorised Firm should, as a minimum, have regard to the following:a. careful maintenance and development of the relevant systems and architecture in terms of its code version control, implementation of updates, issue resolution, and regular internal and third party testing;b. security measures and procedures for the safe storage and transmission of data in accordance with agreed protocols;c. procedures to address changes in the protocol which result in the splitting of the underlying distributed ledger into two or more separate ledgers (often referred to as a ‘fork’). These procedures should be effective whether or not the new protocol is backwards compatible with the previous version (soft fork), or not (hard fork), and should address access to information where such a fork is created;d. procedures to deal with system outages, whether planned or not;e. decision-making protocols and accountability for decisions;f. procedures for establishing and managing interfaces with providers of Digital Wallets; andg. whether the protocols, smart contracts and other inbuilt features of the DLT application meet at least a minimum acceptable level of reliability and safety requirements, including to deal with a cyber or hacking attack, and determine how any resulting disruptions would be resolved.3. Some parts of trading Investment Tokens, for example, order matching, may take place ‘off-chain’ (i.e. not using DLT). In those circumstances, the operator should still maintain adequate control over Persons who are undertaking those activities, as they are agents or delegates of the operator.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.2 COB 14.2 Operating a Facility for Investment Tokens which permits direct access
Application
COB 14.2.1 COB 14.2.1
This section applies to an ATS Operator that has Direct Access Members.
Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.2.1 Guidance
1. A Direct Access Member is defined in GLO as a Person that an ATS Operator has admitted as a member under COB Rule 9.3.1(1)(e).2. A Person will only be admitted as a Direct Access Member where that Person does not meet any of the criteria at COB 9.3.1(1)(a)-(d), although a Person admitted as a member under any of those criteria may also trade Investment Tokens. A Direct Access Member may be an individual or a Body Corporate, but will not, for example, be an Authorised Firm or an institutional investor whose main activity is to invest in financial instruments.3. See also the requirements relating to Direct Access Members in COB Rule 9.3.1(4).Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]Requirements
COB 14.2.2
An ATS Operator must ensure that:
(a) it treats each Direct Access Member as its Client;(b) its Operating Rules clearly set out:(i) the duties owed by the ATS Operator to the Direct Access Member and how the ATS Operator is held accountable for any failure to fulfil those duties; and(ii) the duties owed by the Direct Access Member to the ATS Operator and how the member is held accountable for any failure to fulfil those duties;(c) appropriate investor redress mechanisms are available, in accordance with GEN chapter 9, and disclosed to each member permitted to trade Investment Tokens on its facility; and(d) its facility contains a prominent disclosure of the risks associated with the use of DLT for trading and clearing Investments, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.2.3 COB 14.2.3
(1) Without limiting the generality of the systems and controls obligations of the ATS Operator, an ATS Operator must have in place adequate systems and controls to address market integrity, AML, CTF or investor protection risks in permitting a Direct Access Member to trade on its facility, including procedures to:(a) identify the ultimate beneficial owner of a Direct Access Member, where such a member is a body corporate;(b) ensure that appropriate customer due diligence sufficient to address AML and CTF risks has been conducted on each Direct Access Member, prior to permitting that member to trade on its facility;(c) detect and address market manipulation and abuse;(d) ensure that there is adequate disclosure relating to the Investment Tokens that are traded on the facility, including through prospectus and on-going disclosure under MKT chapters 2, 4 and 6.(2) An ATS Operator must have adequate controls and procedures to ensure that trading in Investment Tokens by Direct Access Members does not pose any risks to the orderly and efficient functioning of the facility’s trading system, including controls and procedures to:(a) mitigate counterparty risks that may arise from defaults by Direct Access Members through adequate collateral management measures, such as margin requirements, based on the settlement cycle adopted by the ATS Operator;(b) identify and distinguish orders that are placed by Direct Access Members, and, if necessary, enable the ATS Operator to stop orders of, or trading by, such members;(c) prevent Direct Access Members from allowing access to other persons to trade on the trading facility; and(d) ensure that Direct Access Members fully comply with the Operating Rules of the facility and promptly address any gaps and deficiencies that are identified.(3) An ATS Operator must have adequate resources and systems to carry out front-line monitoring of the trading activities of Direct Access Members.(4) An ATS Operator must ensure that, to the extent that any of the systems and controls referred to in (1) are embedded within, or otherwise facilitated through DLT, they are included within the scope of the annual audit and the written report required under COB Rule 14.5.1.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.2.3 Guidance
1. To satisfy the DFSA of the matters referred to in COB Rule 14.2.3(1), an ATS Operator should, as a minimum, be able to demonstrate that it has effective procedures built into its DLT or similar technology application being used that enable:(a) the clear identification of each Direct Access Member accessing its facility to trade; and(b) the monitoring of bid and offer prices and volatility for any indications of market manipulation or abuse.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.3 COB 14.3 Requirements for Providing Custody of Investment Tokens
Interpretation
COB 14.3.1
In this section:
(a) “Digital Wallet Service Provider” means an Authorised Firm Providing Custody of Investment Tokens by holding and controlling the public and private cryptographic keys relating to the Investment Tokens;(b) “Third Party Digital Wallet Service Provider” means:(i) a Digital Wallet Service Provider other than an ATS Operator Providing Custody of Investment Tokens traded on its facility; or(ii) a Person in another jurisdiction Providing Custody of Investment Tokens by holding and controlling the public and private cryptographic keys relating to the Investment Tokens, who is authorised and supervised for that activity by a Financial Services Regulator; and(c) “Self-Custody of Investment Tokens” means the holding and controlling of Investment Tokens by their owner, through the owner holding and controlling the public and private cryptographic keys relating to the Investment Tokens.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]Application
COB 14.3.2 COB 14.3.2
This section applies to an Authorised Firm that is a Digital Wallet Service Provider.
Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.3.2 Guidance
1. An Investment Token is an Investment, as defined in GEN Rule A2.1.1. The Financial Service of Providing Custody, as defined in GEN Rule 2.13.1, therefore includes Providing Custody of an Investment Token, and a Person carrying on that Financial Service will require a Licence to do so.2. An Authorised Firm which is Providing Custody of Investment Tokens is, in addition to the requirements in this section, subject to other relevant requirements that apply to a firm Providing Custody of Investments. Other requirements include the Client Asset requirements in section COB section 6.11, the Client Investment requirements in COB section 6.13 and the Safe Custody Provisions in COB App 6.3. The Rules in this section will not apply to a Person providing a Digital Wallet to a Person who uses it for Self Custody of Investment Tokens, as the Security Tokens in that Digital Wallet are then held and controlled by that Person at their own risk.4. Private and public keys, which correspond to an electronic address, provide the mechanism to own and control Investment Tokens, (and other crypto assets). A private key is generated first, with the public key derived from the private key using a known one-way algorithm which varies across protocols. The corresponding electronic address, which is used to send and receive crypto assets, is a cryptographic hash (i.e. a shorter representation created through a processing algorithm) of the public key (which is a longer string of characters). It is the private key that grants the user the right to dispose of the crypto asset at a given address. Losing the private key often results in the loss of ability to transfer the crypto asset.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]Requirements
COB 14.3.3 COB 14.3.3
(1) A Digital Wallet Service Provider must ensure that:(a) any DLT application it uses in Providing Custody of Investment Tokens is resilient, reliable and compatible with any relevant facility on which the Investment Tokens are traded or cleared;(b) it is able to clearly identify and segregate Investment Tokens belonging to different Clients; and(c) it has in place appropriate procedures to enable it to confirm Client instructions and transactions, maintain appropriate records and data relating to those instructions and transactions and to conduct a reconciliation of those transactions at appropriate intervals.(2) A Digital Wallet Service Provider must ensure that, in developing and using DLT applications and other technology to Provide Custody of Investment Tokens:(a) the architecture of any Digital Wallet used adequately addresses compatibility issues and associated risks;(b) the technology used and its associated procedures have adequate security measures (including cyber security) to enable the safe storage and transmission of data relating to the Investment Tokens;(c) the security and integrity of cryptographic keys are maintained through the use of that technology, taking into account the password protection and methods of encryption used;(d) there are adequate measures to address any risks specific to the methods of usage and storage of cryptographic keys (or their equivalent) available under the DLT application used; and(e) the technology is compatible with the procedures and protocols built into the Operating Rules, or equivalent procedures and protocols on any facility on which the Investment Tokens are traded or cleared or both traded and cleared.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.3.3 Guidance
Where an Authorised Firm that is a Digital Wallet Service Provider delegates any function to a Third Party Digital Wallet Service Provider, it must ensure that the delegate fully complies with the requirements of COB Rule 14.3.3. The outsourcing and delegation requirements of GEN Rule 5.3.21 and 5.3.22 will also apply to the Authorised Firm in those circumstances.
Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.3.4 COB 14.3.4
An ATS Operator that appoints a Third Party Digital Wallet Service Provider to Provide Custody of Investment Tokens traded on its facility, must ensure that the person is either:
(a) an Authorised Firm appropriately authorised to be a Digital Wallet Service Provider; or(b) an entity that is regulated by a Financial Services Regulator to an equivalent level of regulation to that provided for under the DFSA regime for Providing Digital Wallet Services.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.3.4 Guidance
Where an ATS Operator appoints a non-DIFC firm regulated by a Financial Services Regulator, it must undertake sufficient due diligence to establish that the non-DIFC firm is subject to an equivalent level of regulation as under the DFSA regime in respect of that service.
Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.3.5
A Digital Wallet Service Provider must ensure that the report required under COB Rule 14.5.1 includes confirmation as to whether it has complied with the requirements in COB Rule 14.3.3.
Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.4 COB 14.4 Provision of key features document for Investment Tokens
Application
COB 14.4.1
This section applies to an Authorised Firm which carries on any one or more of the following Financial Services in respect of Investment Tokens:
(a) Dealing in Investments as Principal;(b) Dealing in Investments as Agent;(c) Arranging Deals in Investments;(d) Managing Assets;(e) Advising on Financial Products;(f) Providing Custody; or(g) Arranging Custody.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.4.2
(1) An Authorised Firm must not provide a Financial Service to which this section applies to a Person unless it has provided the Person with a key features document containing the information in (2).(2) The key features document must contain the following information relating to each Investment Token that is the subject of the Financial Services that the Authorised Firm will provide to the Person:(a) the risks associated with and essential characteristics of the Issuer (or other Person responsible for discharging the obligations associated with the rights conferred), and guarantor if any, of the Investment Token, including their assets, liabilities and financial position;(b) the risks associated with and essential characteristics of the Investment Token, including the rights and obligations conferred and the type or types of Investment which it constitutes;(c) whether the Investment Token is or will be admitted to trading and if so, the details relating to the admission, including details of the facility and whether the facility is within the DIFC;(d) whether the Client can directly access the trading facility, or whether access is only through an intermediary, and the process for accessing the facility;(e) risks associated with the use of DLT, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation;(f) whether the Client, the Authorised Firm or a third party is responsible for providing a Digital Wallet service in respect of the Investment Token, and any related risks (including at whose risk the Client’s Investment Tokens are held in the Digital Wallet, whether it is accessible online or stored offline, what happens if keys to the Digital Wallet are lost and what procedures can be followed in such an event);(g) how the Client may exercise any rights conferred by the Investment Tokens such as voting or participation in shareholder actions; and(h) any other information relevant to the particular Investment Token that would reasonably assist the Client to understand the product and technology better and to make informed decisions in respect of it.(3) The key features document must be provided in good time before the relevant Financial Service is provided to the Person, to enable that Person to make an informed decision about whether to use the relevant Financial Service.(4) The key features document does not need to be provided to a Person to whom the Authorised Firm has previously provided that information, if there has been no significant change since the information was previously provided.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.5 COB 14.5 Technology audit reports
COB 14.5.1 COB 14.5.1
(1) This Rule applies to an Authorised Firm that:(a) is Operating a Facility for Investment Tokens;(b) holds or controls Client Investments that include Investment Tokens;(c) relies on DLT or similar technology to carry on one or more of the Financial Services specified in COB Rule 14.4.1 relating to Investment Tokens; or(d) is Managing a Collective Investment Fund where:(i) Units of the Fund are Security Tokens; or(ii) 10% or more of the gross asset value of the Fund Property of the Fund consists of Investment Tokens.(2) The Authorised Firm must:(a) appoint a suitably qualified independent third party professional to:(i) carry out an annual audit of the Authorised Firm’s compliance with the technology resources and governance requirements that apply to it, including those specified in this chapter; and(ii) produce a written report which sets out the methodology and results of that annual audit, confirms whether the requirements referred to in (i) have been met and lists any recommendations or areas of concern;(b) submit to the DFSA a copy of the report referred to in (a)(ii) within 4 months of the Authorised Firm’s financial year end; and(c) be able to satisfy the DFSA that the independent third party professional appointed to carry out the annual audit has the relevant expertise to do so, and that the Authorised Firm has done proper due diligence to satisfy itself of that fact.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB 14.5.1 Guidance
1. An Authorised Firm may appoint an Auditor to carry out the functions specified in COB Rule 14.5.1(2)(a), provided it is satisfied that the Auditor has the relevant expertise.2. Credentials that may indicate an independent third party professional is suitably qualified under COB Rule 14.5.1(2)(a):a. designation as a Certified Information Systems Auditor (CISA) or Certified Information Security Manager (CISM) by the Information Systems Audit and Control Association (ISACA);b. designation as a Certified Information Systems Security Professional (CISSP) by the International Information System Security Certification Consortium (ISC); orc. accreditation by a recognised and reputable body to certify compliance with relevant ISO/IEC 27000 series standards.Derived from DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]COB App 1 COB App 1 Records of Orders and Transactions
COB A1.1 COB A1.1 Minimum Contents of Transaction Records
Receipt of Client Order or Discretionary Decision to Transact
COB A1.1.1
An
Authorised Firm must, pursuant to COB Rule 6.7.4(1), make a record of the following:(a) the identity and account number of theClient ;(b) the date and time in the jurisdiction in which the instructions were received or the decision was taken by theAuthorised Firm to deal;(c) the identity of theEmployee who received the instructions or made the decision to deal;(d) theInvestment , including the number of or its value and any price limit; and(e) whether the instruction relates to a purchase or sale.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Executing a Transaction
COB A1.1.2
An
Authorised Firm must, pursuant to COB Rule 6.7.4(2), make a record of the following:(a) the identity and account number of theClient for whom theTransaction wasExecuted , or an indication that theTransaction was anOwn Account Transaction ;(b) the name of the counterparty;(c) the date and time in the jurisdiction in which theTransaction wasExecuted ;(d) the identity of theEmployee executing theTransaction ;(e) theInvestment , including the number of or its value and price; and(f) whether theTransaction was a purchase or a sale.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Passing a Client Order to Another Person for Execution
COB A1.1.3
An
Authorised Firm must, pursuant to COB Rule 6.7.4(3), make a record of the following:(a) the identity of thePerson instructed;(b) the terms of the instruction; and(c) the date and time that the instruction was given.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB App 2 COB App 2 Key Information and Client Agreement
COB A2.1 COB A2.1 Key Information and Content of the Client Agreement
General
COB A2.1.1
The key information which an
Authorised Firm is required to provide to aClient and include in theClient Agreement with thatClient pursuant to COB Rule 3.3.2 must include:(a) the core information set out in:(i) COB Rule A2.1.2(1) if it is aRetail Client ; and(ii) COB Rule A2.1.2(2) if it is aProfessional Client ;(b) where relevant, the additional information required under COB Rule A2.1.3 forInvestment Business and COB Rule A2.1.4 forInvestment Management ;(c) the additional terms set out in COB Rules A2.1.5 and A2.1.6 if theClient Agreement relates to the use of aCrowdfunding Platform ; and(d) the additional terms set out in COB Rule A2.1.7 if the Client Agreement relates to Providing Money Services or Arranging or Advising on Money Services.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Added] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]Core Information
COB A2.1.2 COB A2.1.2
(1) In the case of aRetail Client , the core information for the purposes of COB A2.1.1(a) is:(a) the name and address of theAuthorised Firm , and if it is aSubsidiary , the name and address of the ultimateHolding Company ;(b) the regulatory status of theAuthorised Firm ;(c) when and how theClient Agreement is to come into force and how the agreement may be amended or terminated;(d) sufficient details of the service that theAuthorised Firm will provide, including where relevant, information about any product or other restrictions applying to theAuthorised Firm in the provision of its services and how such restrictions impact on the service offered by theAuthorised Firm . If there are no such restrictions, a statement to that effect;(e) details of fees, costs and other charges and the basis upon which theAuthorised Firm will impose those fees, costs and other charges;(f) details of any conflicts of interests for the purposes of disclosure under COB Rule 3.5.1(2)(b);(g) details of anySoft Dollar Agreement required to be disclosed under Rules COB 3.5.6 and COB 3.5.7; and(h) key particulars of theAuthorised Firm's Complaints handling procedures and a statement that a copy of the procedures is available free of charge upon request in accordance with GEN Rule 9.2.11.(2) In the case of aProfessional Client , the core information for the purposes of COB A2.1.1(a) is the information referred to in (1)(a), (b), (c) and (e).Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A2.1.2 Guidance COB A2.1.2 Guidance
Fee Disclosure for Retail Clients trading in Restricted Speculative Investments
1. An Authorised Firm is required, as part of the core information that is included in the Client Agreement under COB App A2.1.2, to disclose all of the detailed fees and charges which a Retail Client will or may incur. An Authorised Firm that Deals in a Restricted Speculative Investment would therefore be expected to disclose under that Rule:(a) any trading commissions charged, whether a general commission or a commission on each trade, e.g. on the opening and closing of a trading account;(b) if the Authorised Firm adds any mark-up to market prices it receives from an external source, thereby increasing the spread for the Retail Client, the amount of that mark-up or, if the amount cannot be pre-determined, a reasonable range specified as precisely as possible for the relevant class of Restricted Speculative Investments that are being offered;(c) any financing charges that are applicable, e.g. daily and overnight financing charges for Restricted Speculative Investments;(d) if the Authorised Firm adds a mark-up when calculating any financing charges, the amount of that mark-up; and(e) any applicable costs and charges to be applied if the Retail Client is seeking to sell or exit early.2. If any material changes are proposed to fees and charges that have been previously disclosed in the Client Agreement, a new fee disclosure statement needs to be given to the Retail Client before making the changes to the fees and charges (see also COB Rule 3.3.3).3. An Authorised Firm providing other Financial Services relating to a Restricted Speculative Investment is also required to disclose the fees, charges and commissions relating to those services.Derived from DFSA RMI299/2021 (Made 21st April 2021). [VER38/09-21]Additional Information for Investment Business
COB A2.1.3
The additional information required under COB A2.1.1(b) for
Investment Business is:(a) the arrangements for giving instructions to theAuthorised Firm and acknowledging those instructions;(b) information about any agreed investment parameters;(c) the arrangements for notifying theClient of anyTransaction Executed on his behalf;(d) if theAuthorised Firm may act as principal in aTransaction , when it will do so;(e) the frequency of any periodic statements and whether those statements will include some measure of performance, and if so, what the basis of that measurement will be;(f) when the obligation to provide best execution can be and is to be waived, a statement that theAuthorised Firm does not owe a duty of best execution or the circumstances in which it does not owe such a duty; and(g) where applicable, the basis on which assets comprised in the portfolio are to be valued.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Additional Information for Investment Management Activities
COB A2.1.4
The additional information required under COB A2.1.1(b) where an
Authorised Firm acts as anInvestment Manager is:(a) the initial value of the managed portfolio;(b) the initial composition of the managed portfolio;(c) the period of account for which periodic statements of the portfolio are to be provided in accordance with COB section 6.10; and(d) in the case of discretionary investment management activities:(i) the extent of the discretion to be exercised by theAuthorised Firm , including any restrictions on the value of any oneInvestment or the proportion of the portfolio which any oneInvestment or any particular kind ofInvestment may constitute; or that there are no such restrictions;(ii) whether theAuthorised Firm may commit theClient to supplement the funds in the portfolio, and if it may include borrowing on his behalf:(A) the circumstances in which theAuthorised Firm may do so;(B) whether there are any limits on the extent to which theAuthorised Firm may do so and, if so, what those limits are;(C) any circumstances in which such limits may be exceeded; and(D) any margin lending arrangements and terms of those arrangements;(iii) that theAuthorised Firm may enter intoTransactions for theClient , either generally or subject to specified limitation; and(iv) where theAuthorised Firm may commit theClient to any obligation to underwrite or sub-underwrite any issue or offer for sale ofSecurities :(A) whether there are any restrictions on the categories ofSecurities which may be underwritten and, if so, what these restrictions are; and(B) whether there are any financial limits on the extent of the underwriting and, if so, what these limits are.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Additional terms for Crowdfunding Platforms
COB A2.1.5
The following terms must be included in a
Client Agreement between aCrowdfunding Operator and aClient that is a lender or an investor:(a) the operator's obligations to administer the loan orInvestment , including:
(i) how payments made by the borrower,Issuer , or in respect of a property, will be transferred to the lender or investor; and(ii) steps that will be taken if payments by a borrower,Issuer , or in respect of a property are overdue or the borrower orIssuer is in default;(b) if theClient is aRetail Client , the steps that will be taken by the operator and lender or investor to ensure that the lender or investor complies with any applicable limits relating to the amounts of loans or investments that may be made using the platform;(c) forInvestment Crowdfunding or Property Investment Crowdfunding, if theClient is aRetail Client , that theClient agrees to sign a risk acknowledgement form each time before he makes anInvestment using the platform; and(d) the contingency arrangements that the operator will put in place to deal with a platform failure or if the operator ceases to carry on its business.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]COB A2.1.6
The following terms must be included in a
Client Agreement between aCrowdfunding Operator and aClient that is a borrower,Issuer or seller:(a) a restriction on the borrower,Issuer , or seller using any other crowdfunding service to raise funds during the commitment period;(b) a restriction on the borrower,Issuer , or seller anyPerson that isConnected to the borrower,Issuer , or seller lending or financing, or arranging lending or finance for a lender or an investor using the service;(c) a restriction on the borrower,Issuer , or seller advertising its proposal, or soliciting potential lenders or investors, outside the platform during the commitment period;(d) a requirement on the borrower orIssuer to give reasonable advance notice to the operator of any material change affecting the borrower orIssuer , its business or the carrying out of its proposal;(e) the obligations of the borrower orIssuer if there is any material change after funds have been provided; and(f) an obligation on the borrower orIssuer to produce financial statements at least annually.[Added] DFSA RMI202/2017 (Made 14th June 2017). [VER29/08-17]
[Amended] DFSA RMI254/2019 (Made 26th June 2019). [VER33/07-19]Additional Information For Money Service Activities
COB A2.1.7
An Authorised Firm Providing Money Services or Arranging or Advising on Money Services must include in the Client Agreement:(a) if the Authorised Firm is entitled to unilaterally vary or terminate the Client Agreement, the terms and conditions under which it can do so;(b) the applicable currency, the currency rate (actual or indicative) and all fees and charges relating to a Payment Transaction;(c) if quoted currency rates are indicative, a clear statement that they are ‘indicative rates’; and(d) clear procedures relating to unauthorised or incorrectly executed Payment Transactions, which include that the Client is:(i) not entitled to redress unless he notifies the Authorised Firm without delay and, in any case, no later than six months after the unauthorised or incorrectly executed Payment Transaction; and(ii) liable in full, if he acted fraudulently or with gross negligence.Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB App 3 COB App 3 Confirmation of Transactions
COB A3.1 COB A3.1 Content of Confirmation Notes
General Information
COB A3.1.1
(1) For the purposes of COB Rule 6.9.2, anAuthorised Firm must include the following general information:(a) theAuthorised Firm's name and address;(b) whether theAuthorised Firm Executed theTransaction as principal or agent;(c) theClient's name, account number or other identifier;(d) a description of theInvestment orFund , including the amount invested or number of units involved;(e) whether theTransaction is a sale or purchase;(f) the price or unit price at which theTransaction wasExecuted ;(g) if applicable, a statement that theTransaction wasExecuted on an Execution-Only basis;(h) the date and time of theTransaction ;(i) the total amount payable and the date on which it is due;(j) the amount of theAuthorised Firms charges in connection with theTransaction , includingCommission charges and the amount of any Mark-up or Mark-down,Fees , taxes or duties;(k) the amount or basis of any charges shared with anotherPerson or statement that this will be made available on request; and(l) forCollective Investment Funds , at statement that the price at which theTransaction has beenExecuted is on aHistoric Price orForward Price basis, as the case may be.(2) AnAuthorised Firm may combine items (f) and (j) in respect of aTransaction where theClient has requested a note showing a single price combining both of these items.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Additional Information: Derivatives
COB A3.1.2
For the purposes of COB Rule 6.9.2, and in relation to
Transactions inDerivatives , anAuthorised Firm must include the following additional information:(a) the maturity, delivery or expiry date of theDerivative ;(b) in the case of anOption , the date of exercise or a reference to the last exercise date;(c) whether the exercise creates a sale or purchase in the underlying asset;(d) the strike price of theOption ; and(e) if theTransaction closes out an openFutures position, all essential details required in respect of each contract comprised in the open position and each contract by which it was closed out and the profit or loss to theClient arising out of closing out that position (a difference account).Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB App 4 COB App 4 Periodic Statements
COB A4.1 COB A4.1 Content of Periodic Statements: Investment Management
General Information
COB A4.1.1
Pursuant to COB section 6.10, a periodic statement, as at the end of the period covered, must contain the following general information:
(a) the number, description and value of eachInvestment ;(b) the amount of cash held;(c) the total value of the portfolio; and(d) a statement of the basis on which the value of eachInvestment has been calculated.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Additional Information: Discretionary Investment Management Activities
COB A4.1.2
In addition to COB Rule A4.1.1, where an
Authorised Firm acts as anInvestment Manager on a discretionary basis, the periodic statement must also include the following additional information:(a) a statement of whichInvestments , if any, were at the closing date loaned to any third party and whichInvestments , if any, were at that date charged to secure borrowings made on behalf of the portfolio;(b) the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during that period;(c) details of eachTransaction which have been entered into for the portfolio during the period;(d) the aggregate ofMoney and details of allInvestments transferred into and out of the portfolio during the period;(e) the aggregate of any interest payments, including the dates of their application and dividends or other benefits received by theAuthorised Firm for the portfolio during that period;(f) a statement of the aggregateCharges of theAuthorised Firm and itsAssociates ; and(g) a statement of the amount of anyRemuneration received by theAuthorised Firm or itsAssociates or both from a third party.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]Additional Information: Contingent Liability Investments
COB A4.1.3
In addition to Rules COB A4.1.1 and COB A4.1.1.2, in the case where
Contingent Liability Investments are involved, anAuthorised Firm must include the following additional information:(a) the aggregate ofMoney transferred into and out of the portfolio during the valuation period;(b) in relation to each open position in the account at the end of the account period, the unrealised profit or loss to theClient (before deducting or adding anyCommission which would be payable on closing out);(c) in relation to eachTransaction Executed during the account period to close out aClient's position, the resulting profit or loss to theClient after deducting or adding anyCommission ;(d) the aggregate of each of the following in, or relating to, theClient's portfolio at the close of business on the valuation date:(i) cash;(ii)Collateral value;(iii) management fees; and(iv) commissions; and(e) Option account valuations in respect of each openOption contained in the account on the valuation date stating:(i) theShare ,Future , index or otherInvestment involved;(ii) the trade price and date for the openingTransaction , unless the valuation statement follows the statement for the period in which theOption was opened;(iii) the market price of the contract; and(iv) the exercise price of the contract.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB App 5 COB App 5 Client Money Provisions
COB A5.1 COB A5.1 Application
COB A5.1.1
This appendix applies to an
Authorised Firm , in accordance with COB Rule 6.12.2Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.2 COB A5.2 General Requirements
COB A5.2.1
(1) The provisions of this appendix are referred to as theClient Money Provisions .(2) The types ofClient described in COB Rule 6.12.2 are referred to in this appendix asSegregated Clients .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.2.2
An
Authorised Firm which holds or controlsClient Money for aSegregated Client must:(a) comply with theClient Money Provisions in relation to thatClient Money ; and(b) have systems and controls in place to be able to evidence compliance with theClient Money Provisions .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.3 COB A5.3 Payment of Client Money into Client Accounts
COB A5.3.1
Where an
Authorised Firm holds or controlsClient Money it must ensure, except where otherwise provided in COB section A5.5 that theClient Money is paid into one or moreClient Accounts within one day of receipt.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.3.2
Subject to COB Rule A5.3.3, an
Authorised Firm must not deposit its ownMoney into aClient Account .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.3.3
(1) AnAuthorised Firm may deposit its ownMoney in aClient Account where:(a) it is a minimum sum required to open the account, or to keep it open;(b) theMoney is received by way of mixed remittance provided theAuthorised Firm transfers out that part of the payment which is notClient Money within one day of the day on which theAuthorised Firm would normally expect the remittance to be cleared;(c) interest credited to the account exceeds the amount payable toSegregated Clients , provided that theMoney is removed within twenty five days; or(d) it is to meet a shortfall inClient Money .(2) Where anAuthorised Firm deposits anyMoney into aClient Account suchMoney isClient Money until such time as theMoney is withdrawn from theClient Account in accordance with theClient Money Provisions .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A5.3.4
An
Authorised Firm must maintain systems and controls for identifyingMoney which must not be in aClient Account and for transferring it without delay.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.3.5 COB A5.3.5
Where an
Authorised Firm is aware that aPerson may make a payment ofClient Money to theAuthorised Firm , it must take reasonable steps:(a) to ensure that such payment ofClient Money is directed to aClient Account ; and(b) to ensure that theAuthorised Firm is notified by thatPerson of such payment as soon as reasonably practicable.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.3.5 Guidance
An
Authorised Firm should have procedures for identifyingClient Money received by theAuthorised Firm , and for promptly recording the receipt of theMoney either in the books of account or a register for later posting to theClient cash book and ledger accounts. The procedures should coverClient Money received by theAuthorised Firm through the mail, electronically or via agents of theAuthorised Firm or through any other means.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.4 COB A5.4 Client Accounts
COB A5.4.1
A
Client Account in relation toClient Money is an account which:(a) is held with aThird Party Agent ;(b) is established to holdClient Assets ;(c) is maintained in the name of;(i) if aDomestic Firm , theAuthorised Firm ; or(ii) if a non-DomesticFirm , aNominee Company controlled by theAuthorised Firm ; and(d) includes the words 'Client Account' in its title.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A5.4.2 COB A5.4.2
(1) AnAuthorised Firm must maintain a master list of allClient Accounts .(2) The master list must detail:(a) the name of the account;(b) the account number;(c) the location of the account;(d) whether the account is currently open or closed; and(e) the date of opening or closure.(3) The details of the master list must be documented and maintained for at least six years following the closure of an account.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB 5.4.2 Guidance
1. AnAuthorised Firm may hold or controlClient Money belonging to aSegregated Client in aClient Account solely for thatClient . Alternatively, anAuthorised Firm may choose to pool thatClient Money in aClient Account containingClient Money of more than oneSegregated Client .2. The purpose of controlling or holdingClient Money in aClient Account is to ensure thatMoney belonging toSegregated Clients is readily identifiable fromMoney belonging to theAuthorised Firm such that, following aDistribution Event ,Segregated Clients will rank highest in line in terms of any subsequent distribution ofClient Money in proportion to eachClient's valid claim over thatMoney .3. Following aDistribution Event , aSegregated Client may not have a valid claim overClient Money held or controlled in aClient Account if thatClient Account was not established to hold or controlClient Money for thatClient or a pool ofClients of which thatClient was a part.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A5.5 COB A5.5 Exceptions to Holding Client Money in Client Accounts
COB A5.5.1
The requirement for an
Authorised Firm to payClient Money into aClient Account does not, subject to COB Rule A5.5.2 and COB Rule A5.5.4, apply with respect to suchClient Money :(a) received in the form of cheque, or other payable order, until theAuthorised Firm , or aPerson or account controlled by theAuthorised Firm , is in receipt of the proceeds of that cheque;(b) temporarily held by anAuthorised Firm before forwarding to aPerson nominated by theClient ;(c) in connection with aDelivery Versus Payment Transaction where:(i) in respect of aClient purchase,Client Money from theClient will be due to theAuthorised Firm within one day upon the fulfilment of a delivery obligation; or(ii) in respect of aClient sale,Client Money will be due to theClient within one day following theClient's fulfilment of a delivery obligation; or(d) held in theClient's own name where theAuthorised Firm has a mandate to manage theMoney on a discretionary basis.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM226/2018 (Made 6th June 2018). [VER30/08-18]
[Added] DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB A5.5.2
An
Authorised Firm must payClient Money of the type described in COB Rule A5.5.1(b) or (c) into aClient Account where it has not fulfilled its delivery or payment obligation within three days of receipt of theMoney orInvestments unless in the case of the type ofClient Money referred to in COB Rule A5.5.1(c)(ii) it instead safeguardsClient Investments at least equal to the value of suchClient Money .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.5.3
(1) AnAuthorised Firm must maintain adequate records of all cheques and payment orders received in accordance with COB Rule A5.5.1(a) including, in respect of each payment, the:(a) date of receipt;(b) name of theClient for whom payment is to be credited; and(c) date when the cheque or payment order was presented to theAuthorised Firm's Third Party Agent .(2) The records must be kept for a minimum of six years.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.5.4
The exceptions in COB Rule A5.5.1(b) to (d) do not apply to Client Money held for, or in connection with, Providing Money Services.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB A5.6 COB A5.6 Appointment of a Third Party Agent
COB A5.6.1
(1) AnAuthorised Firm may only pay, or permit to be paid,Client Money to aThird Party Agent in accordance with COB Rule A5.7.1 where it has undertaken a prior assessment of the suitability of that agent and concluded on reasonable grounds that theThird Party Agent is suitable to hold thatClient Money in aClient Account .(2) When assessing the suitability of theThird Party Agent , theAuthorised Firm must ensure that theThird Party Agent will provide protections equivalent to the protections conferred by this appendix.(3) AnAuthorised Firm must have systems and controls in place to ensure that theThird Party Agent remains suitable.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.6.2 COB A5.6.2
An
Authorised Firm must be able to demonstrate to the DFSA's satisfaction the grounds upon which theAuthorised Firm considers theThird Party Agent to be suitable to hold thatClient Money .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.6.2 Guidance
When assessing the suitability of a
Third Party Agent , anAuthorised Firm should have regard to:a. its credit rating;b. its capital and financial resources in relation to the amount ofClient Money held;c. the insolvency regime of the jurisdiction in which it is located;d. its regulatory status and history;e. itsGroup structure; andf. its use of agents and service providers.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.7 COB A5.7 Payment of Client Money to a Third Party Agent
COB A5.7.1
(1) Subject to COB Rule A5.7.3, anAuthorised Firm may only pass, or permit to be passed, aSegregated Client's Money to aThird Party Agent if:(a) theClient Money is to be used in respect of aTransaction or series orTransactions for thatClient ;(b) theClient Money is to be used to meet an obligation of thatClient ; or(c) theThird Party Agent is aBank or aRegulated Financial Institution which is authorised to accept or takeDeposits .(2) In respect of (1)(a) and (b), anAuthorised Firm must not hold any excessClient Money with theThird Party Agent longer than necessary to effect aTransaction or satisfy theClient's obligation.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A5.7.2 COB A5.7.2
When an
Authorised Firm opens aClient Account with aThird Party Agent it must obtain, within a reasonable period, a written acknowledgement from theThird Party Agent stating that:(a) allMoney standing to the credit of the account is held by theAuthorised Firm as agent and that theThird Party Agent is not entitled to combine the account with any other account or to exercise any charge, mortgage, lien, right of set-off or counterclaim againstMoney in that account in respect of any sum owed to it on any other account of theAuthorised Firm ; and(b) the title of the account sufficiently distinguishes that account from any account containingMoney that belongs to theAuthorised Firm , and is in the form requested by theAuthorised Firm .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.7.2 Guidance
The DFSA would consider twenty days as being a reasonable period for an
Authorised Firm to receive a written acknowledgement from theThird Party Agent .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.7.3
If the
Third Party Agent does not provide the acknowledgement referred to in COB Rule A5.7.2 within a reasonable period, theAuthorised Firm must refrain from making further deposits ofClient Money with thatThird Party Agent and withdraw anyClient Money standing to the credit of thatClient Account .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.8 COB A5.8 Payment of Client Money from Client Accounts
COB A5.8.1
An
Authorised Firm must have procedures for ensuring all withdrawals from aClient Account are authorised.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.8.2
Subject to COB Rule A5.8.3, a
Segregated Client's Client Money must remain in aClient Account until it is:(a) due and payable to theAuthorised Firm ;(b) paid to theClient on whose behalf theClient Money is held;(c) paid in accordance with aClient instruction on whose behalf theClient Money is held;(d) required to meet the payment obligations of theClient on whose behalf theClient Money is held; or(e) paid out in circumstances that are otherwise authorised by the DFSA.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.8.3
Money paid out by way of cheque or other payable order under COB Rule A5.8.2 must remain in a
Client Account until the cheque or payable order is presented to theClient's bank and cleared by the paying agent.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.8.4 COB A5.8.4
An
Authorised Firm must not useClient Money belonging of oneClient to satisfy an obligation of anotherClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.8.4 Guidance
The effect of COB Rule A5.8.4 is that an
Authorised Firm would be required to deposit its ownMoney into aClient Account to remedy a shortfall arising from a client debit balance.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.8.5
An
Authorised Firm must have a system for ensuring no off-setting or debit balances occur onClient Accounts .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.9 COB A5.9 Client Disclosure
COB A5.9.1
Before, or as soon as reasonably practicable after, an
Authorised Firm receivesClient Money belonging to aSegregated Client , it must disclose to theClient on whose behalf theClient Money is held:(a) the basis and any terms governing the way in which theClient Money will be held;(b) that theClient is subject to the protection conferred by the DFSA'sClient Money Provisions and as a consequence:(i) thisMoney will be held separate fromMoney belonging to theAuthorised Firm ; and(ii) in the event of theAuthorised Firm's insolvency, winding up or otherDistribution Event stipulated by the DFSA, theClient's Money will be subject to the DFSA'sClient Money Distribution Rules ;(c) whether interest is payable to theClient and, if so, on what terms;(d) if applicable, that theClient Money may be held in a jurisdiction outside the DIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the DIFC;(e) if applicable, details about how anyClient Money arising out ofIslamic Financial Business are to be held;(f) if applicable, that theAuthorised Firm holds or intends to hold theClient Money in aClient Account with aThird Party Agent which is in the sameGroup as theAuthorised Firm ; and(g) details of any rights which theAuthorised Firm may have to realiseClient Money held on behalf of theClient in satisfaction of a default by theClient or otherwise, and of any rights which theAuthorised Firm may have to close out or liquidate contracts or positions in respect of any of theClient's Investments .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.10 COB A5.10 Client Reporting
COB A5.10.1
(1) In relation to aClient to whom theClient Money Provisions are applicable, anAuthorised Firm must send a statement to aRetail Client at least monthly or in the case of a Professional Client, at other intervals as agreed in writing with theProfessional Client .(2) The statement must include:(a) theClient's totalClient Money balances held by theAuthorised Firm reported in the currency in which theClient Money is held, or the relevant exchange rate if not reported in the currency in which theMoney is held;(b) the amount, date and value of each credit and debit paid into and out of the account since the previous statement; and(c) any interest earned or charged on theClient Account since the previous statement.(3) The statement sent to theClient must be prepared within 25 days of the statement date.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A5.11 COB A5.11 Reconciliation
COB A5.11.1 COB A5.11.1
(1) AnAuthorised Firm must maintain a system to ensure that accurate reconciliations of theClient Accounts are carried out at least every 25 days.(2) The reconciliation must include:(a) a full list of individualSegregated Client credit ledger balances, as recorded by theAuthorised Firm ;(b) a full list of individualSegregated Client debit ledger balances, as recorded by theAuthorised Firm ;(c) a full list of unpresented cheques and outstanding lodgements;(d) a full list ofClient Account cash book balances; and(e) formal statements fromThird Party Agents showing account balances as at the date of reconciliation.(3) AnAuthorised Firm must:(a) reconcile the individual credit ledger balances,Client Account cash book balances, and theThird Party Agent Client Account balances;(b) check that the balance in theClient Accounts as at the close of business on the previous day was at least equal to the aggregate balance of individual credit ledger balances as at the close of business on the previous day; and(c) ensure that all shortfalls, excess balances and unresolved differences, other than differences arising solely as a result of timing differences between the accounting systems of theThird Party Agent and theAuthorised Firm , are investigated and, where applicable, corrective action taken as soon as possible.(4) AnAuthorised Firm must perform the reconciliations in (3) within 10 days of the date to which the reconciliation relates.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.11.1 Guidance
When performing the reconciliations, an
Authorised Firm should:a. include in the credit ledger balances:i. unallocatedClient Money ;ii. dividends received and interest earned and allocated;iii. sale proceeds which have been received by theAuthorised Firm and theClient has delivered theInvestments or theAuthorised Firm holds or controls theInvestment ; andiv. Money paid by theClient in respect of a purchase where theAuthorised Firm has not remitted theMoney to the counterparty or delivered theInvestment to theClient ; andb. deduct from the credit ledger balances:i. Money owed by the client in respect of unpaid purchases by or for theClient if delivery of thoseInvestments has been made to theClient ; andii. Money remitted to theClient in respect of sales transactions by or for theClient if theClient has not delivered theInvestments .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.11.2 COB A5.11.2
An
Authorised Firm must ensure that the process of reconciliation does not give rise to a conflict of interest.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.11.2 Guidance
When performing reconciliations, an
Authorised Firm should maintain a clear separation of duties to ensure that an employee with responsibility for operatingClient Accounts , or an employee that has the authority to make payments, does not perform the reconciliations under COB Rule A5.11.1Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.11.3
(1) Reconciliation performed in accordance with COB Rule A5.11.1 must be reviewed by a member of theAuthorised Firm who has adequate seniority.(2) The individual referred to in (1) must provide a written statement confirming the reconciliation has been undertaken in accordance with the requirements of this section.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.11.4 COB A5.11.4
The
Authorised Firm must notify the DFSA where there has been a material discrepancy with the reconciliation which has not been rectified.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.11.4 Guidance
A material discrepancy includes discrepancies which have the cumulative effect of being material, such as longstanding discrepancies.
Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.12 COB A5.12 Auditor's Reporting Requirements
COB A5.12 Guidance
In accordance with GEN chapter 8, an
Authorised Firm which holds or controlsClient Money forSegregated Clients must arrange for aClient Money Auditor's Report to be submitted to the DFSA on an annual basis.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM226/2018 (Made 6th June 2018). [VER30/08-18]COB A5.13 COB A5.13 Client Money Distribution Rules
COB A5.13.1
This section is referred to as the
Client Money Distribution Rules and to the extent that these Rules are inconsistent with part 5.52 of the DIFC Insolvency Regulations, and the DIFC Preferential Creditor Regulations, these Rules will prevail.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM144/2014 (Made 24th August 2014). [VER23/08-14]COB A5.13.2 COB A5.13.2
Following a
Distribution Event , theAuthorised Firm must distributeMoney in the following order of priorities:(a) firstly, in relation toClient Money held in aClient Account on behalf ofSegregated Clients , claims relating to thatMoney must be paid to eachSegregated Client in full or, where insufficient funds are held in aClient Account , proportionately, in accordance with eachSegregated Client's valid claim over thatMoney ;(b) secondly, where the amount ofClient Money in aClient Account is insufficient to satisfy the claims ofSegregated Clients in respect of thatMoney , or not being immediately available to satisfy such claims, all otherMoney held by theAuthorised Firm must be used to satisfy any outstanding amounts remaining payable toSegregated Clients but not satisfied from the application of (a) above;(c) thirdly, upon resolution of claims in relation toSegregated Clients , anyMoney remaining with theAuthorised Firm must be paid to eachClient in full or, where insufficient funds are held by theAuthorised Firm , proportionately, in accordance with eachClient's valid claim over thatMoney ; and(d) fourthly, upon satisfaction of all claims in (a), (b) and (c) above, in the event of:(i) the appointment of a liquidator, receiver or administrator, or trustee in bankruptcy over theAuthorised Firm , payment must be made accordance with the Insolvency Law 2019; or(ii) all otherDistribution Events , payment must be made in accordance with the direction of the DFSA.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]
[Amended] DFSA RMI289/2020 (Made 16th December 2020). [VER37/02-21]COB A5.13.2 Guidance
A
Segregated Client would not have a valid claim overClient Money held in aClient Account if thatClient Account was not established to holdClient Money for thatClient .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.13.3
Following a
Distribution Event , anAuthorised Firm must sell allCollateral and use the proceeds of the sale to satisfy claims made in accordance with COB Rule A5.13.2Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A5.14 COB A5.14 Failure to Comply with this Appendix
COB A5.14.1
An
Authorised Firm which becomes aware that it does not comply with any Rule in this appendix must, within one day, give notice of that fact to the DFSA.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB App 6 COB App 6 Safe Custody Provisions
COB A6.1 COB A6.1 Application
COB A6.1.1
This appendix applies to an
Authorised Firm in accordance with COB Rule 6.13.3.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.2 COB A6.2 General Requirements
COB A6.2.1
The provisions of this appendix are referred to as the
Safe Custody Provisions .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.2.2
An
Authorised Firm must:(a) comply with theSafe Custody Provisions ; and(b) have adequate systems and controls in place to be able to evidence compliance with theSafe Custody Provisions .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.3 COB A6.3 Recording, Registration and Holding Requirements
COB A6.3.1
An
Authorised Firm whichProvides Custody or holds or controlsClient Investments must ensure thatSafe Custody Investments are recorded, registered and held in an appropriate manner to safeguard and control such property.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.3.2
Subject to COB Rule A6.4.1, an
Authorised Firm whichProvides Custody or holds or controlsClient Investments must record, register and holdSafe Custody Investments separately from its ownInvestments .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.4 COB A6.4 Client Accounts in relation to Client Investments
COB A6.4.1
An
Authorised Firm whichProvides Custody or holds or controlsClient Investments must register or record allSafe Custody Investments in the legal title of:(a) aClient Account ; or(b) theAuthorised Firm where, due to the nature of the law or market practice, it is not feasible to do otherwise.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.4.2
A
Client Account in relation toClient Investments is an account which:(a) is held with aThird Party Agent or by anAuthorised Firm which is authorised under itsLicence toProvide Custody ;(b) is established to holdClient Assets ;(c) when held by aThird Party Agent , is maintained in the name of;(i) if aDomestic Firm , theAuthorised Firm ; or(ii) if not aDomestic Firm , aNominee Company controlled by theAuthorised Firm ; and(d) includes the words 'Client Account' in its title.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.4.3 COB A6.4.3
(1) AnAuthorised Firm must maintain a master list of allClient Accounts .(2) The master list must detail:(a) the name of the account;(b) the account number;(c) the location of the account;(d) whether the account is currently open or closed; and(e) the date of opening or closure.(3) The details of the master list must be documented and maintained for a minimum period of six years following the closure of an account.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.4.3 Guidance
1. AnAuthorised Firm may record, register or hold aClient's Investment in aClient Account solely for thatClient . Alternatively, anAuthorised Firm may choose to pool thatClient's Investment in aClient Account containingInvestments of more than oneClient .2. The purpose of recording, registering or holdingInvestments in aClient Account is to ensure thatInvestments belonging toClients are readily identifiable fromInvestments belonging to theAuthorised Firm such that, following aDistribution Event , any subsequent distribution ofInvestments may be made in proportion to eachClient's valid claim over thoseInvestments .3. Following aDistribution Event , aClient may not have a valid claim overInvestments registered, recorded or held in aClient Account if thatClient Account was not established to register, record or holdInvestments for thatClient or a pool ofClients of which thatClient was a part.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.4.4
An
Authorised Firm must not use aClient's Safe Custody Investment for its own purpose or that of anotherPerson without thatClient's prior written permission.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.4.5
An
Authorised Firm which intends to use aClient's Safe Custody Investments for its own purpose or that of anotherPerson , must have systems and controls in place to ensure that:(a) it obtains thatClient's prior written permission;(b) adequate records are maintained to protectSafe Custody Investments which are applied as collateral or used for stock lending activities;(c) the equivalent assets are returned to theClient Account of theClient ; and(d) theClient is not disadvantaged by the use of hisSafe Custody Investments .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.5 COB A6.5 Holding or Arranging Custody with Third Party Agents
COB A6.5.1
(1) Before anAuthorised Firm holds aSafe Custody Investment with aThird Party Agent , it must undertake an assessment of thatThird Party Agent and have concluded on reasonable grounds that theThird Party Agent is suitable to hold thoseSafe Custody Investments .(2) AnAuthorised Firm must have systems and controls in place to ensure that theThird Party Agent remains suitable.(3) When assessing the suitability of theThird Party Agent , theAuthorised Firm must ensure that theThird Party Agent will provide protections equivalent to the protections conferred in this appendix.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB A6.5.1A
(1) Before anAuthorised Firm arranges custody with a non-DIFC custodian authorised and supervised by aFinancial Services Regulator , it must undertake an assessment of that custodian and have concluded, on reasonable grounds, that it is suitable to hold theSafe Custody Investments .(2) When assessing the suitability of a non-DIFC custodian, theAuthorised Firm must ensure that the non-DIFC custodian will provide protections equivalent to the protections conferred in this appendix.Derived from DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB A6.5.2 COB A6.5.2
An
Authorised Firm must be able to demonstrate to the DFSA's satisfaction the grounds upon which theAuthorised Firm considers theThird Party Agent or a non-DIFC custodian to be suitable to holdSafe Custody Investments .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]COB A6.5.2 Guidance
When assessing the suitability of a
Third Party Agent , anAuthorised Firm should have regard to:a. its credit rating;b. its capital and financial resources in relation to the amount ofSafe Custody Investments held;c. the insolvency regime of the jurisdiction in which it is located;d. its arrangements for holding theInvestments ;e. its regulatory status, expertise, reputation and history;f. itsGroup structure;g. its use of agents and service providers; andh. any other activities of the agent.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.6 COB A6.6 Safe Custody Agreements with Third Party Agents
COB A6.6.1
Before an
Authorised Firm passes, or permits to be passed,Safe Custody Investments to aThird Party Agent it must have procured a written acknowledgement from theThird Party Agent stating:(a) that the title of the account sufficiently distinguishes that account from any account containingInvestments belonging to theAuthorised Firm , and is in the form requested by theAuthorised Firm ;(b) that theClient Investment will only be credited and withdrawn in accordance with the instructions of theAuthorised Firm ;(c) that theThird Party Agent will holdClient Investments separately from assets belonging to theThird Party Agent ;(d) the arrangements for recording and registeringClient Investments , claiming and receiving dividends and other entitlements and interest and the giving and receiving of instructions;(e) that theThird Party Agent will deliver a statement to theAuthorised Firm (including the frequency of such statement), which details theClient Investments deposited to the account;(f) that allInvestments standing to the credit of the account are held by theAuthorised Firm as agent and that theThird Party Agent is not entitled to combine the account with any other account or to exercise any charge, mortgage, lien, right of set-off or counterclaim againstInvestments in that account in respect of any sum owed to it on any other account of theAuthorised Firm ; and(g) the extent of liability of theThird Party Agent in the event of default.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.6.2
(1) AnAuthorised Firm must maintain records of allSafe Custody Agreements and any instructions given by theAuthorised Firm to theThird Party Agent under the terms of the agreement.(2) The records must be maintained for at least of six years.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.7 COB A6.7 Client Disclosure
COB A6.7.1
(1) Before anAuthorised Firm Arranges Custody for aClient it must disclose to thatClient , if applicable, that theClient's Safe Custody Investments may be held in a jurisdiction outside the DIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the DIFC.(2) Before anAuthorised Firm Provides Custody for aClient it must disclose to theClient on whose behalf theSafe Custody Investments will be held:(a) a statement that theClient is subject to the protections conferred by theSafe Custody Provisions ;(b) the arrangements for recording and registeringSafe Custody Investments , claiming and receiving dividends and other entitlements and interest and the giving and receiving instructions relating to thoseSafe Custody Investments ;(c) the obligations theAuthorised Firm will have to theClient in relation to exercising rights on behalf of theClient ;(d) the basis and any terms governing the way in whichSafe Custody Investments will be held, including any rights which theAuthorised Firm may have to realiseSafe Custody Investments held on behalf of theClient in satisfaction of a default by theClient ;(e) the method and frequency upon which theAuthorised Firm will report to theClient in relation to hisSafe Custody Investments ;(f) if applicable, a statement that theAuthorised Firm intends to mixSafe Custody Investments with those of otherClients ;(g) if applicable, a statement that theClient's Safe Custody Investments may be held in a jurisdiction outside the DIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the DIFC;(h) if applicable, a statement that theAuthorised Firm holds or intends to holdSafe Custody Investments in aClient Account with aThird Party Agent which is in the sameGroup as theAuthorised Firm ; and(i) the extent of theAuthorised Firm's liability in the event of default by aThird Party Agent .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.8 COB A6.8 Client Reporting
COB A6.8.1
(1) AnAuthorised Firm whichProvides Custody or which holds or controlsClient Investments for aClient must send a statement to aRetail Client at least every six months or in the case of aProfessional Client at other intervals as agreed in writing with theProfessional Client .(2) The statement must include:(a) a list of thatClient's Safe Custody Investments as at the date of reporting;(b) a list of thatClient's Collateral and the market value of thatCollateral as at the date of reporting; and(c) details of anyClient Money held by theAuthorised Firm as at the date of reporting.(3) The statement sent to theClient must be prepared within 25 business days of the statement date.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.9 COB A6.9 Reconciliation
COB A6.9.1
An
Authorised Firm must:(a) at least every 25 business days, reconcile its records ofClient Accounts held withThird Party Agents with monthly statements received from thoseThird Party Agents ;(b) at least every six months, count allSafe Custody Investments physically held by theAuthorised Firm , or itsNominee Company , and reconcile the result of that count to the records of theAuthorised Firm ; and(c) at least every six months, reconcile individualClient ledger balances with theAuthorised Firm's records ofSafe Custody Investment balances held inClient Accounts .Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.9.2 COB A6.9.2
An
Authorised Firm must ensure that the process of reconciliation does not give rise to a conflict of interest.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.9.2 Guidance
An
Authorised firm should maintain a clear separation of duties to ensure that an employee with responsibility for operatingClient Accounts , or an employee that has authority overSafe Custody Investments , should not perform the reconciliations under COB Rule A6.9.1.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.9.3
(1) Reconciliation performed in accordance with COB section A6.9 must be reviewed by a member of theAuthorised Firm who has adequate seniority.(2) The individual referred to in (1) must provide a written statement confirming that the reconciliation has been undertaken in accordance with the requirements of this section.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB A6.9.4 COB A6.9.4
The
Authorised Firm must notify the DFSA where there have been material discrepancies with the reconciliation which have not been rectified.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.9.4 Guidance
A material discrepancy includes discrepancies which have the cumulative effect of being material, such as longstanding discrepancies.
Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]COB A6.10 COB A6.10 Auditor's Reporting Requirements
COB A6.10 Guidance
In accordance with GEN chapter 8, an
Authorised Firm to which this appendix applies must arrange for aSafe Custody Auditor's Report to be submitted to the DFSA on an annual basis.Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
[Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]COB App 7 COB App 7 Providing Money Services And Arranging Or Advising On Money Services Provisions
COB A7.1 COB A7.1 Additional Disclosure Requirements
COB A7.1 Guidance
This table sets out the information required to be provided by an Authorised Firm under COB section 13.4.A7.1.1 Details of Providing Money Services or Arranging or Advising on Money ServicesAn Authorised Firm must provide to a User:(a) a description of the services including the types of Payment Order or Payment Transaction that the firm is authorised to perform;(b) the information needed for a Payment Order or Payment Transaction to be properly initiated or executed and the consequence of providing incorrect information;(c) the form and procedure for giving consent to the initiation or execution of a Payment Order and the procedure to withdraw consent;(d) details of when a Payment Order is deemed received (including information about cut-off times, future dated payments and recurring transactions);(e) an indication of the maximum time for the funds or Stored Value to be received by the beneficiary or payee; and(f) any spending limits not al known by the User.A7.1.2 Details of rates, fees and chargesAn Authorised Firm must provide to a User:(a) details of all fees and charges payable by the User and, where applicable, a breakdown of the fees and charges including fees and charges:(i) for rejections or refusals of Payment Transactions;(ii) for any information provided or made available to the User beyond what is required under these Rules;(iii) imposed by third parties involved in Payment Transactions if the firm is aware of such charges;(b) any applicable exchange rates, the process for notifying changes to rates and when the changes take effect; and(c) details of any fees and charges for adding funds to Stored Value and for early or late redemption of Stored Value.A7.1.3 Transmission of InformationAn Authorised Firm must inform a User of:(a) how, and in what form, information and communications relating to the services will be transmitted to the User, including timing, frequency and language;(b) any technical requirements for the User’s equipment and software to receive information and communications; and(c) the User’s right to obtain a copy of such information or communications and the Client Agreement.A7.1.4 Safeguards and corrective measuresAn Authorised Firm must provide to a User:(a) a description of the steps the User needs to take in order to keep a Payment Instrument safe;(b) information on how the User may notify the firm of the loss, theft or misappropriation of a Payment Instrument;(c) details of the procedure the firm will follow to contact the User in the event of suspected or actual fraud or a security threat;(d) details of the circumstances under which the firm proposes to reserve the right to stop or prevent the use of a Payment Instrument;(e) information on the circumstances in, and the extent to which, the User may be liable for unauthorised Payment Transactions;(f) information:(i) on how the User must notify the firm of any unauthorised transactions; and(ii) informing the User that, to obtain redress, the notification must be made to the firm no later than 6 months from the date of the unauthorised transaction;(g) information about the firm’s liability for unauthorised transactions; and(h) information about the conditions under which a refund is payable to the User in relation to an unauthorised transaction initiated by a third party.A7.1.5 Confirmation of transactionsAn Authorised Firm must provide to the User:(a) confirmation of the successful initiation of the Payment Transaction;(b) a reference to identify the Payment Transaction, and, where appropriate, information relating to the payee or payer;(c) the amount of the Payment Transaction in the currency of the Payment Order or currency of the relevant Payment Account;(d) any charges payable by the User in relation to the Payment Transaction, in accordance with Rule A7.1.2(a);(e) the currency exchange rate applied for the Payment Transaction and the amount of payment after conversion to that currency; and(f) the date the Money Services Provider received the Payment Order.1. The form and procedure for giving consent referred to in Rule A7.1.1(c) may include, for example, that consent may be given or verified:(a) in writing;(b) by a signature;(c) by the use of a fingerprint;(d) by means of a payment card and PIN number:(e) over a secure password-protected website;(f) by telephone; or(g) by use of a password pin, password, verification code or phone number.2. In Rule A7.1.1(f) the spending limits include, for example, any card limits that apply to the User.Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB A7.2 COB A7.2 Rights And Obligations Of Parties
A7.2 Guidance
This table sets out the requirements that must be complied with by an Authorised Firm under COB section 13.5.
A7.2.1 Charges(1) An Authorised Firm must ensure that fees and charges imposed on a User are reasonable.(2) An Authorised Firm must ensure that the quoted currency rate, fees and charges accurately reflect the rates, fees and charges expected to be applied when the Payment Transaction is executed.(3) The Authorised Firm must ensure, except where the payer and payee have agreed otherwise, that:(a) the payee pays any charges levied by the payee’s Money Services Provider; and(b) the payer pays any charges levied by the payer’s Money Services Provider.(4) An Authorised Firm may impose a charge where a User has failed to fulfil its obligations only where the charge relates to:(a) refusal of a Payment Order (see Rule A7.2.9);(b) revoking a Payment Order (see Rule A7.2.10); or(c) liability arising from the use of incorrect unique identifiers by the User (see Rule A7.2.13).(5) An Authorised Firm may impose a charge or fee for a Stored Value redemption only where the relevant charge or fee:(a) is agreed in the Client Agreement; and(b) relates to early termination or late redemption (that is, a redemption that occurs more than one year after the Client Agreement is terminated).(6) An Authorised Firm must ensure that any changes to the exchange rate are communicated to the User as soon as possible and implemented in a manner which ensures priority is given to the interests of the User.(7) An Authorised Firm, other than a Stored Value Issuer, must ensure:(a) any charges payable by the User on termination are:(i) proportionate to the cost and time of terminating the relevant services; and(ii) not imposed where the termination occurs after 6 months from the date of the Client Agreement; and(b) any amounts prepaid by a User are reimbursed on termination.A7.2.2 Consent and withdrawal of consentAn Authorised Firm must:(a) recognise a Payment Transaction as a duly authorised transaction by the User only if the User has given its consent to the execution of that transaction;(b) allow a User’s consent to be given in any form as agreed between the User and the Money Service Provider executing the Payment Transaction; and(c) not allow the User to withdraw consent to a Payment Transaction except where:(i) the consent relates to a future scheduled Payment Transaction; and(ii) the withdrawal of consent is in accordance with the terms and conditions agreed between the User and the Authorised Firm.A7.2.3 Authorised Firm’s access to Payment Accounts and informationAn Authorised Firm must:(a) access a User’s Payment Account for Payment Transactions or information only as agreed with, or with the explicit consent of, the User;(b) ensure that access to a Payment Account is restricted to information essential to provide services requested by the relevant User and only for the time needed to provide that service;(c) not use, access or store a User’s information or data for any purpose, except to provide the services explicitly requested by the User;(d) ensure that a User’s security credentials are not accessible to other parties; and(e) ensure that a contract with a Payment Account Provider includes sufficient obligations on the provider to adequately protect customer information and security credentials in accordance with this Rule.A7.2.4 User’s access to the services(1) An Authorised Firm may only restrict or stop a User’s access to its service:(a) as explicitly set out in the Client Agreement; and(b) on reasonable grounds, limited to:(i) specific limits agreed with the User;(ii) valid security reasons or suspected unauthorised or fraudulent use; or(iii) a significant increased risk that the User may be unable to meet its liability to repay, where a credit line is used.(2) An Authorised Firm must inform the User that it intends to restrict or stop access to its service and of its reasons for doing so:(a) before restricting or stopping access to the service; or(b) where prior notice is not possible, immediately after restricting or stopping access to the service,unless it is unlawful to do so or there is a valid security reason for not doing so.(3) An Authorised Firm must restore access to the service, or offer another service, as soon as practicable after the reasons for restricting or stopping use of the service cease to be valid.A7.2.5 Obligations in relation to Payment Instruments(1) An Authorised Firm issuing a Payment Instrument must ensure that:(a) a User to whom a Payment Instrument is issued notifies the firm in the agreed manner and without delay on becoming aware of the loss, theft, misappropriation or unauthorised use of the Payment Instrument;(b) a User’s security credentials are not accessible to any Person except the User to whom the Payment Instrument is issued;(c) no Payment Instrument is issued on an unsolicited basis except to replace an existing instrument as agreed with the User; and(d) the User is provided with an appropriate means to notify the firm of loss or unauthorised use of a Payment Instrument issued to the User.(2) An Authorised Firm is responsible for the loss of the Payment Instrument or of the User’s security credentials if that occurs within its control.A7.2.6 Unauthorised or incorrectly executed Payment Transactions(1) If an Authorised Firm is responsible for an unauthorised or incorrectly executed Payment Transaction, or for the non-execution of a Payment Transaction, and the User’s Payment Account has been incorrectly debited, it must promptly and within 3 business days put the User's Payment Account to the state it would have been had the Payment Transaction been correctly executed.(2) An Authorised Firm may charge the User for unauthorised transactions from lost or stolen Payment Instruments up to $50, except where the User did not detect the loss prior to the Payment Transaction or the loss is caused by the negligence or wilful misconduct of the Authorised Firm’s employees or agents.A7.2.7 Refunds and funds block for Payment Transactions initiated by third parties(1) Where a Payment Transaction is initiated by or through a payee or a third party, the Authorised Firm must:(a) not block funds in the User's Payment Account unless the payer has authorised the exact amount of funds to be blocked;(b) release the blocked funds without undue delay after receipt of the Payment Order with the exact amount; and(c) if the amount of the Payment Transaction is unreasonable, taking into account the User's previous spending pattern and the conditions in the Client Agreement, refund the User, or justify not providing a refund, within 10 business days.(2) The right to a refund referred to in (1)(c) does not apply if the User:(a) received information about the proposed Payment Transaction at least 4 weeks before its execution;(b) gave consent directly to the Money Service Provider for the Payment Transaction; or(c) requests a refund more than 8 weeks from the date the funds were debited from the User’s account.A7.2.8 Debiting account only on receipt of Payment OrdersAn Authorised Firm must not debit the User's Payment Account before receipt of a Payment Order.A7.2.9 Grounds for refusal of Payment Orders(1) An Authorised Firm that refuses to execute or initiate a Payment Order must, except where it is unlawful to do so, notify the User of the refusal:(a) in the agreed manner;(b) no later than on the next business day; and(c) if possible, with the reasons for the refusal.(2) An Authorised Firm, must notify the User, if applicable, of the procedure for rectifying any factual errors that led to the refusal.(3) An Authorised Firm may not refuse to execute an authorised Payment Order except in the circumstances specified in the Client Agreement, or where execution is unlawful.(4) Where the execution of a Payment Order is refused, the Payment Order is deemed not to be received.A7.2.10 Revocation of a Payment OrderAn Authorised Firm must allow the User to revoke a Payment Order once received by the Authorised Firm if it relates to a future transaction to be executed at least one business day after the order is received.A7.2.11 Amounts transferred and amounts receivedAn Authorised Firm acting for a payer or a payee must ensure that the full amount of a Payment Transaction is transferred and received and that no charges are deducted from the amount transferred unless such charges are agreed with the payer and payee (as applicable).A7.2.12 Value date and availability of fundsAn Authorised Firm must:(a) ensure that the date on which an amount is credited to the Payment Account of the User is not later than the business day on which the amount is received by the Payment Services Provider acting for the User;(b) ensure that the date on which an amount is recorded as debited to the Payment Account of a payer is not earlier than the actual time at which the amount of the Payment Transaction is debited to that Payment Account; and(c) in the case of a Payment Transaction initiated by the payee, take reasonable steps to ensure that the firm acting for the payee submits the Payment Instruction to the Authorised Firm in time to allow for the settlement to occur on the agreed date.A7.2.13 Liability for the use of incorrect unique identifiers(1) Where an Authorised Firm executes a Payment Order in accordance with a unique identifier provided by the User, the Payment Order is deemed to be correctly executed by the firm irrespective of any other information provided by the User.(2) Where a unique identifier provided by the User is incorrect, the Authorised Firm is not liable for non-execution or defective execution of the Payment Transaction but must take reasonable steps to recover the funds involved in the Payment Transaction.A7.2.14 Right of recourseNothing in this section restricts or prevents an Authorised Firm’s or User’s right of recourse against another person who is at fault.A7.2.15 Incident ReportingIf an Authorised Firm becomes aware of a major operational or security incident, the firm must, without undue delay:(a) inform its Users of the incident and of all measures that it is taking to limit the adverse effects of the incident; and(b) notify the DFSA in accordance with the requirements in GEN Rules 4.2.10 and 11.10.7.A7.2.16 No interest or other return permittedAn Authorised Firm must not pay any interest or other return on amounts in a Payment Account.A7.2.17 Payment Accounts only to be used for Payment TransactionsAn Authorised Firm must not permit a Payment Account to be used for a purpose other than making Payment Transactions.1. The references to a “unique identifier” in Rule A7.2.13 are to letters, combination of letters, numbers or symbols that identify unambiguously a specific Payment Account or User.2. A credit line under Rule A7.2.4(1)(b)(iii) can only be provided if the Authorised Firm or the other person providing the credit line has the appropriate authorisation to Provide Credit, or it is incidental to, and in connection with, a Financial Service referred to in GEN Rule 2.5.2.3. In relation to User security credentials referred to in Rule A7.2.5, PIB Rule 6.13.3 sets out systems and controls an Authorised Firm must implement to maintain the integrity of User security credentials.Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]COB A7.3 COB A7.3 Additional Requirements For Issuers Of Stored Value
A7.3 Guidance
This table sets out the requirements that must be complied with under COB section 13.6 by an Authorised Firm issuing Stored Value.
A7.3.1 Issue and redemption of Stored ValueAn Authorised Firm must:(a) on receipt of funds from a User, issue Stored Value at par without delay; and(b) upon the request of a Stored Value holder, redeem at par the Stored Value held, except where such a request is received more than 6 years from the termination of the relevant Client Agreement to issue Stored Value.A7.3.2 No interest or other return permittedAn Authorised Firm must not pay any interest or other return on Stored Value.A7.3.3 Limit on stored value issued and transactionsAn Authorised Firm must maintain effective systems and controls which ensure that:(a) the total amount of Stored Value on issue to any individual User at any point in time does not exceed $5,000; and(b) no single Payment Transaction relating to Stored Value exceeds $1,000.Rule A7.3.2 prohibits an Authorised Firm from paying any interest or other return on Stored Value. This prohibition is intended to remove the likelihood or perception that the funds are held as deposits. However, the Rule does not prevent the Authorised Firm from offering incentives that encourage the use of stored value, such as reward points or merchant discounts.
Derived from DFSA RMI267/2020 (Made 26th February 2020). [VER36/04-20]