Entire Section

  • '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 three Financial Services and not for any other Financial Service provided to the same Client. If such a Client also obtains other Financial Services from the same firm, unless the Client can qualify either as a 'deemed' or 'assessed' Professional Client, that Client will need to be classified as a Retail Client for those other Financial 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), a Person is a 'service-based' Professional Client if:
      (a) the Financial Service provided to that Person is Providing Credit;
      (b) the Person is an Undertaking; and
      (c) the Credit Facility in question is provided for use in the business activities of:
      (i) the Person;
      (ii) a controller of the Person;
      (iii) any member of the Group to which the Person belongs; or
      (iv) a joint venture of a Person referred to in (i)–(iii).
      (2) In (1)(c)(ii), a controller is an individual who:
      (a) owns a majority of the shares of the Undertaking;
      (b) is able to appoint or remove a majority of the board members of the Undertaking; or
      (c) controls a majority of the voting rights of the Undertaking (or that of a Holding Company of the Undertaking).
      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 an Authorised Firm to classify an Undertaking as a Professional Client for the purposes of Providing Credit for businesses purposes, not only for the Undertaking itself, but also for its related entities (such as a controller or member of its Group) as specified in that Rule, provided that the Undertaking has not opted-in to be classified as a Retail Client.
        2. It is possible that an Undertaking 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). An Authorised Firm may Provide Credit to such a Person 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. An Undertaking 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 the Undertaking under Rule 2.3.5.
        4. While an Authorised 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 a Person as falling within the circumstances specified in this Rule (or Rule 2.3.6). For example, to verify that an Undertaking is obtaining credit for use in the business of its Holding Company or another member of its Group, a firm would need some documentation to demonstrate the Group member relationship. Such documents may include a diagram of the Group 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 Person is a 'service-based' Professional Client if:
      (a) the Financial Service provided to that Person 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 any Advising on Financial Products, Arranging Deals in Investments or Arranging 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, a Person is a 'service-based' Professional Client if:

        (a) the Financial Service being provided to the Person is Loan Crowdfunding or Investment Crowdfunding; and
        (b) the Person is a Body 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 an Authorised Firm to classify a Person obtaining advice or arranging credit for the purposes of corporate structuring and financing as a Professional Client based on the nature of such activities, which are generally sought by Persons with greater expertise and resources than Retail Clients. Such advice and arranging occurs in the context of takeovers and merger activities and capital raising activities of companies, including any Initial Public Offerings or other offers of securities for capital raising purposes.
          2. If a Client seeking corporate structuring and financing services is also a Person who falls within the category of a 'deemed' Professional Client under Rule 2.3.4, an Authorised Firm may provide to such a Person 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 management Client for the purposes of their investment activities or portfolio management are excluded because such Clients are not necessarily Professional Clients. Therefore, for such a Client to qualify as a Professional 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]