Entire Section

  • COB 3.5 COB 3.5 Conflicts of Interest

    • Fair Treatment

      • COB 3.5.1

        (1) An Authorised Firm must take reasonable steps to ensure that conflicts and potential conflicts of interest between itself and its Clients and between one Client and another are identified and then prevented or managed in such a way that the interests of a Client are not adversely affected and to ensure that all its Clients are fairly treated and not prejudiced by any such conflicts of interest.
        (2) Where an Authorised 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 effective Chinese Walls to restrict the communication of the relevant information;
        (b) disclosing the conflict of interest to the Client in writing either generally or in relation to a specific Transaction; or
        (c) relying on a written policy of independence, which requires an Employee to disregard any conflict of interest when advising a Client or exercising a discretion.
        (3) If an Authorised Firm is unable to prevent or manage a conflict or potential conflict of interest as provided in (2), it must decline to act for that Client.
        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, the Authorised 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 the Authorised Firm acts with that knowledge as a result of a Chinese 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) An Authorised Firm must have systems and controls including policies and procedures to ensure that neither it, nor an Employee or Associate 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 its Clients.
        (2) Subject to (3), an Authorised Firm must, before recommending a financial product as defined in GEN Rule 2.11.1(4) to, or Executing a Transaction for, a Retail Client, disclose to that Client any commission or other direct or indirect benefit which it, or any Associate or Employee of it, has received or may or will receive, in connection with or as a result of the firm making the recommendation or executing the Transaction.
        (3) An Authorised Firm need not disclose to a Retail Client under (2) any details about inducements where it:
        (a) believes on reasonable grounds that the Retail Client is al aware of the relevant inducements;
        (b) is undertaking an Execution-Only Transaction for that Retail Client; or
        (c) is executing a Transaction pursuant to the terms of a Discretionary Portfolio Management Agreement for that Retail Client.
        (4) An Authorised Firm may provide the information required under (2) in summary form, provided it informs the Client that more detailed information will be provided to the Client 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 the Client's interests are better served by a Person to whom the referral is to be made, any commission or other benefit which the firm or any of its Employees or Associates 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 a Soft Dollar Agreement if the goods and services are reasonably expected to:

        (a) assist in the provision of Investment Business services to the Authorised Firm's Clients by means of:
        (i) specific advice on dealing in, or on the value of, any Investment;
        (ii) research or analysis relevant to (i) or about Investments 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 to Investments 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 a Soft 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 to Clients. Where the Client bears the cost of the goods and services, the disclosure obligation relating to costs and charges under COB Rule 3.3.2 (see App 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 not Deal in Investments as Agent for a Client, either directly or indirectly, through any broker under a Soft 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 the Client;
        (c) the Authorised 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 the Client;
        (d) for Transactions in which the broker acts as principal, the Authorised Firm has taken reasonable steps to ensure that Commission paid under the agreement will be sufficient to cover the value of the goods or services to be received and the costs of execution; and
        (e) the Authorised Firm makes adequate disclosure in accordance with Rules COB 3.5.6 and COB 3.5.7.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB 3.5.6

        Before an Authorised Firm enters into a Transaction for or on behalf of a Retail Client or Professional Client, either directly or indirectly, with or through the agency of another Person, in relation to which there is a Soft Dollar Agreement which the Authorised Firm has, or knows that another member of its Group has, with that other Person, it must disclose to its Client:

        (a) the existence of a Soft Dollar Agreement; and
        (b) the Authorised Firm's or its Group's policy relating to Soft Dollar Agreements.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB 3.5.7

        (1) If an Authorised Firm or member of its Group has a Soft Dollar Agreement under which either the Authorised Firm or member of its Group Deals for a Client, the Authorised Firm must provide that Client with the following information:
        (a) the percentage paid under Soft Dollar Agreements of the total Commission paid by or at the direction of:
        (i) the Authorised Firm; and
        (ii) any other member of the Authorised 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 the Authorised Firm under Soft Dollar Agreements, expressed as a percentage of the total Commission paid by or at the direction of:
        (i) the Authorised Firm; or
        (ii) other members of the Authorised Firm's Group;
        (c) a summary of the nature of the goods and services received by the Authorised Firm under the Soft Dollar Agreements; and
        (d) the total Commission paid from the portfolio of that Client.
        (2) The information in (1) must be provided to that Client at least once a year, covering the period since the Authorised Firm last reported to that Client.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]