'Service-based' Professional Clients
Rule 2.3.5, Rule 2.3.6 and Rule 2.3.6A each set out different circumstances in which a
Personcan be classified as a 'service-based' Professional Client. The professional status allowed under these three 'service-based' Professional Clientcategories can only be used for those three Financial Servicesand not for any other Financial Serviceprovided to the same Client. If such a Clientalso obtains other Financial Servicesfrom the same firm, unless the Clientcan qualify either as a 'deemed' or 'assessed' Professional Client, that Clientwill need to be classified as a Retail Clientfor those other Financial Services.
COB 2.3.5 COB 2.3.5(1) For the purposes of Rule 2.3.3(1)(a)(ii), a
Personis a 'service-based' Professional Clientif:(a) the Financial Serviceprovided to that Personis Providing Credit;(b) the Personis an Undertaking; and(c) the Credit Facilityin question is provided for use in the business activities of:(i) the Person;(ii) a controller of the Person;(iii) any member of the Groupto which the Personbelongs; or(iv) a joint venture of a Personreferred 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 Companyof the Undertaking).
COB 2.3.5 Guidance1. Rule 2.3.5(1)(c) enables an
Authorised Firmto classify an Undertakingas a Professional Clientfor the purposes of Providing Creditfor businesses purposes, not only for the Undertakingitself, but also for its related entities (such as a controller or member of its Group) as specified in that Rule, provided that the Undertakinghas not opted-in to be classified as a Retail Client.2. It is possible that an Undertakingobtaining credit may also fall within the category of a 'deemed' Professional Clientunder Rule 2.3.4 — see, for example, a Large Undertaking under Rule 2.3.4(2). An Authorised Firmmay Provide Credit to such a Personwithout having to meet the requirements in Rule 220.127.116.11. Joint ventures are generally contractual arrangements under which parties contribute their assets and/or expertise to develop or to undertake specified business activities. An Undertakingcan 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 Undertakingunder Rule 18.104.22.168. While an Authorised Firmis 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 Personas falling within the circumstances specified in this Rule (or Rule 2.3.6). For example, to verify that an Undertakingis obtaining credit for use in the business of its Holding Companyor another member of its Group, a firm would need some documentation to demonstrate the Groupmember relationship. Such documents may include a diagram of the Groupstructure and copies of certificates of incorporation and shareholdings of the relevant companies.
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' Professional Person Clientif:(a) the Financial Serviceprovided to that Personis " 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 Investmentsor 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.
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 Personis a 'service-based' Professional Clientif:(a) the Financial Servicebeing provided to the Personis Loan Crowdfundingor Investment Crowdfunding; and(b) the Personis a Body Corporateand 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 Guidance1. This Rule enables an
Authorised Firmto classify a Personobtaining advice or arranging credit for the purposes of corporate structuring and financing as a Professional Clientbased on the nature of such activities, which are generally sought by Personswith 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 Offeringsor other offers of securities for capital raising purposes.2. If a Clientseeking corporate structuring and financing services is also a Personwho falls within the category of a 'deemed' Professional Clientunder Rule 2.3.4, an Authorised Firmmay provide to such a Personthose services without having to meet the requirements in Rule 22.214.171.124. Under Rule 2.3.6(2)(b), any advisory and arranging services given to an individual who is a wealth management Clientfor the purposes of their investment activities or portfolio management are excluded because such Clientsare not necessarily Professional Clients. Therefore, for such a Clientto 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.