Entire Section

  • 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 6.12.2

        Derived 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 the Client Money Provisions.
        (2) The types of Client described in COB Rule 6.12.2 are referred to in this appendix as Segregated Clients.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.2.2

        An Authorised Firm which holds or controls Client Money for a Segregated Client must:

        (a) comply with the Client Money Provisions in relation to that Client Money; and
        (b) have systems and controls in place to be able to evidence compliance with the Client 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 controls Client Money it must ensure, except where otherwise provided in COB section A5.5 that the Client Money is paid into one or more Client 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 own Money into a Client Account.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.3.3

        (1) An Authorised Firm may deposit its own Money in a Client Account where:
        (a) it is a minimum sum required to open the account, or to keep it open;
        (b) the Money is received by way of mixed remittance provided the Authorised Firm transfers out that part of the payment which is not Client Money within one day of the day on which the Authorised Firm would normally expect the remittance to be cleared;
        (c) interest credited to the account exceeds the amount payable to Segregated Clients, provided that the Money is removed within twenty five days; or
        (d) it is to meet a shortfall in Client Money.
        (2) Where an Authorised Firm deposits any Money into a Client Account such Money is Client Money until such time as the Money is withdrawn from the Client Account in accordance with the Client Money Provisions.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 identifying Money which must not be in a Client 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 a Person may make a payment of Client Money to the Authorised Firm, it must take reasonable steps:

        (a) to ensure that such payment of Client Money is directed to a Client Account; and
        (b) to ensure that the Authorised Firm is notified by that Person 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 identifying Client Money received by the Authorised Firm, and for promptly recording the receipt of the Money either in the books of account or a register for later posting to the Client cash book and ledger accounts. The procedures should cover Client Money received by the Authorised Firm through the mail, electronically or via agents of the Authorised 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 to Client Money is an account which:

        (a) is held with a Third Party Agent;
        (b) is established to hold Client Assets;
        (c) is maintained in the name of;
        (i) if a Domestic Firm, the Authorised Firm; or
        (ii) if a non-Domestic Firm, a Nominee Company controlled by the Authorised 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) An Authorised Firm must maintain a master list of all Client 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. An Authorised Firm may hold or control Client Money belonging to a Segregated Client in a Client Account solely for that Client. Alternatively, an Authorised Firm may choose to pool that Client Money in a Client Account containing Client Money of more than one Segregated Client.
          2. The purpose of controlling or holding Client Money in a Client Account is to ensure that Money belonging to Segregated Clients is readily identifiable from Money belonging to the Authorised Firm such that, following a Distribution Event, Segregated Clients will rank highest in line in terms of any subsequent distribution of Client Money in proportion to each Client's valid claim over that Money.
          3. Following a Distribution Event, a Segregated Client may not have a valid claim over Client Money held or controlled in a Client Account if that Client Account was not established to hold or control Client Money for that Client or a pool of Clients of which that Client 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 pay Client Money into a Client Account does not, subject to COB Rule A5.5.2 and COB Rule A5.5.4, apply with respect to such Client Money:

        (a) received in the form of cheque, or other payable order, until the Authorised Firm, or a Person or account controlled by the Authorised Firm, is in receipt of the proceeds of that cheque;
        (b) temporarily held by an Authorised Firm before forwarding to a Person nominated by the Client;
        (c) in connection with a Delivery Versus Payment Transaction where:
        (i) in respect of a Client purchase, Client Money from the Client will be due to the Authorised Firm within one day upon the fulfilment of a delivery obligation; or
        (ii) in respect of a Client sale, Client Money will be due to the Client within one day following the Client's fulfilment of a delivery obligation; or
        (d) held in the Client's own name where the Authorised Firm has a mandate to manage the Money 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 pay Client Money of the type described in COB Rule A5.5.1(b) or (c) into a Client Account where it has not fulfilled its delivery or payment obligation within three days of receipt of the Money or Investments unless in the case of the type of Client Money referred to in COB Rule A5.5.1(c)(ii) it instead safeguards Client Investments at least equal to the value of such Client Money.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.5.3

        (1) An Authorised 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 the Client for whom payment is to be credited; and
        (c) date when the cheque or payment order was presented to the Authorised 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) An Authorised Firm may only pay, or permit to be paid, Client Money to a Third 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 the Third Party Agent is suitable to hold that Client Money in a Client Account.
        (2) When assessing the suitability of the Third Party Agent, the Authorised Firm must ensure that the Third Party Agent will provide protections equivalent to the protections conferred by this appendix.
        (3) An Authorised Firm must have systems and controls in place to ensure that the Third 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 the Authorised Firm considers the Third Party Agent to be suitable to hold that Client 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, an Authorised Firm should have regard to:

          a. its credit rating;
          b. its capital and financial resources in relation to the amount of Client Money held;
          c. the insolvency regime of the jurisdiction in which it is located;
          d. its regulatory status and history;
          e. its Group structure; and
          f. 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, an Authorised Firm may only pass, or permit to be passed, a Segregated Client's Money to a Third Party Agent if:
        (a) the Client Money is to be used in respect of a Transaction or series or Transactions for that Client;
        (b) the Client Money is to be used to meet an obligation of that Client; or
        (c) the Third Party Agent is a Bank or a Regulated Financial Institution which is authorised to accept or take Deposits.
        (2) In respect of (1)(a) and (b), an Authorised Firm must not hold any excess Client Money with the Third Party Agent longer than necessary to effect a Transaction or satisfy the Client'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 a Client Account with a Third Party Agent it must obtain, within a reasonable period, a written acknowledgement from the Third Party Agent stating that:

        (a) all Money standing to the credit of the account is held by the Authorised Firm as agent and that the Third 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 against Money in that account in respect of any sum owed to it on any other account of the Authorised Firm; and
        (b) the title of the account sufficiently distinguishes that account from any account containing Money that belongs to the Authorised Firm, and is in the form requested by the Authorised 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 the Third 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, the Authorised Firm must refrain from making further deposits of Client Money with that Third Party Agent and withdraw any Client Money standing to the credit of that Client 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 a Client 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 a Client Account until it is:

        (a) due and payable to the Authorised Firm;
        (b) paid to the Client on whose behalf the Client Money is held;
        (c) paid in accordance with a Client instruction on whose behalf the Client Money is held;
        (d) required to meet the payment obligations of the Client on whose behalf the Client 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 the Client'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 use Client Money belonging of one Client to satisfy an obligation of another Client.

        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 own Money into a Client 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 on Client 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 receives Client Money belonging to a Segregated Client, it must disclose to the Client on whose behalf the Client Money is held:

        (a) the basis and any terms governing the way in which the Client Money will be held;
        (b) that the Client is subject to the protection conferred by the DFSA's Client Money Provisions and as a consequence:
        (i) this Money will be held separate from Money belonging to the Authorised Firm; and
        (ii) in the event of the Authorised Firm's insolvency, winding up or other Distribution Event stipulated by the DFSA, the Client's Money will be subject to the DFSA's Client Money Distribution Rules;
        (c) whether interest is payable to the Client and, if so, on what terms;
        (d) if applicable, that the Client 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 any Client Money arising out of Islamic Financial Business are to be held;
        (f) if applicable, that the Authorised Firm holds or intends to hold the Client Money in a Client Account with a Third Party Agent which is in the same Group as the Authorised Firm; and
        (g) details of any rights which the Authorised Firm may have to realise Client Money held on behalf of the Client in satisfaction of a default by the Client or otherwise, and of any rights which the Authorised Firm may have to close out or liquidate contracts or positions in respect of any of the Client'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 a Client to whom the Client Money Provisions are applicable, an Authorised Firm must send a statement to a Retail Client at least monthly or in the case of a Professional Client, at other intervals as agreed in writing with the Professional Client.
        (2) The statement must include:
        (a) the Client's total Client Money balances held by the Authorised Firm reported in the currency in which the Client Money is held, or the relevant exchange rate if not reported in the currency in which the Money 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 the Client Account since the previous statement.
        (3) The statement sent to the Client 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) An Authorised Firm must maintain a system to ensure that accurate reconciliations of the Client Accounts are carried out at least every 25 days.
        (2) The reconciliation must include:
        (a) a full list of individual Segregated Client credit ledger balances, as recorded by the Authorised Firm;
        (b) a full list of individual Segregated Client debit ledger balances, as recorded by the Authorised Firm;
        (c) a full list of unpresented cheques and outstanding lodgements;
        (d) a full list of Client Account cash book balances; and
        (e) formal statements from Third Party Agents showing account balances as at the date of reconciliation.
        (3) An Authorised Firm must:
        (a) reconcile the individual credit ledger balances, Client Account cash book balances, and the Third Party Agent Client Account balances;
        (b) check that the balance in the Client 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 the Third Party Agent and the Authorised Firm, are investigated and, where applicable, corrective action taken as soon as possible.
        (4) An Authorised 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. unallocated Client Money;
          ii. dividends received and interest earned and allocated;
          iii. sale proceeds which have been received by the Authorised Firm and the Client has delivered the Investments or the Authorised Firm holds or controls the Investment; and
          iv. Money paid by the Client in respect of a purchase where the Authorised Firm has not remitted the Money to the counterparty or delivered the Investment to the Client; and
          b. deduct from the credit ledger balances:
          i. Money owed by the client in respect of unpaid purchases by or for the Client if delivery of those Investments has been made to the Client; and
          ii. Money remitted to the Client in respect of sales transactions by or for the Client if the Client has not delivered the Investments.
          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 operating Client Accounts, or an employee that has the authority to make payments, does not perform the reconciliations under COB Rule A5.11.1

          Derived 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 the Authorised 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 controls Client Money for Segregated Clients must arrange for a Client 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, the Authorised Firm must distribute Money in the following order of priorities:

        (a) firstly, in relation to Client Money held in a Client Account on behalf of Segregated Clients, claims relating to that Money must be paid to each Segregated Client in full or, where insufficient funds are held in a Client Account, proportionately, in accordance with each Segregated Client's valid claim over that Money;
        (b) secondly, where the amount of Client Money in a Client Account is insufficient to satisfy the claims of Segregated Clients in respect of that Money, or not being immediately available to satisfy such claims, all other Money held by the Authorised Firm must be used to satisfy any outstanding amounts remaining payable to Segregated Clients but not satisfied from the application of (a) above;
        (c) thirdly, upon resolution of claims in relation to Segregated Clients, any Money remaining with the Authorised Firm must be paid to each Client in full or, where insufficient funds are held by the Authorised Firm, proportionately, in accordance with each Client's valid claim over that Money; 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 the Authorised Firm, payment must be made accordance with the Insolvency Law 2019; or
        (ii) all other Distribution 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 over Client Money held in a Client Account if that Client Account was not established to hold Client Money for that Client.

          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.13.3

        Following a Distribution Event, an Authorised Firm must sell all Collateral and use the proceeds of the sale to satisfy claims made in accordance with COB Rule A5.13.2

        Derived 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]