1.1.1. Definition of Regulated Activities

An activity shall be a Regulated Activity that may be carried on by an Authorised Firm, subject to the terms of its Licence, if that activity:

1. (a) is specified in the list of activities in Schedule 1; and
2. (b) is carried on by way of business as described in GEN 1.1.9; and
3. (c) is not otherwise excluded in accordance with any other provision in GEN 1.1.

The Regulated Activities that may be carried on by an Authorised Firm, subject to the terms of its Licence, are specified in Schedule 1 and 1.4.1(b).

1.1.2. Form and content of application for a Licence

A Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on one or more Regulated Activities by:

1. (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
2. (b) providing such further information as the AFSA may require; and
3. (c) paying the fee prescribed in the Fees Rules.

Guidance: AFSA discretion to waive requirements A Person may apply to the AFSA to waive the requirements as to the contents of the Form prescribed in Schedule 3 pursuant to section 32(4) of the Framework Regulations.

1.1.3. Adequate and appropriate financial resources

This section was added on 2 December 2018.

1.1.4. Adequate and appropriate non-financial resources

In assessing whether an applicant has adequate and appropriate non‐financial resources for the purposes of section 34(1)(a) of the Framework Regulations, the AFSA will consider:

1. (a) the skills and experience of those who will manage the applicant's affairs;
2. (b) the applicant's resources to identify, monitor, measure and take action to remove or reduce risks as to its safety and soundness;
3. (c) the effectiveness of the applicant's business management; and
4. (d) whether the applicant's non‐financial resources are sufficient to enable the applicant to comply with the Regulations and Rules that are likely to be relevant to the applicant.

1.1.5. Fitness and propriety

In assessing whether an applicant is fit and proper for the purposes of section 34(1)(b) of the Framework Regulations, the AFSA will consider:

1. (a) the fitness and propriety of the members of its Governing Body;
2. (b) the applicant's connection with any Person or membership of any Group;
3. (c) the fitness and propriety of the applicant's Controllers or any other Person associated with the applicant;
4. (d) the impact a Controller might have on the applicant's ability to comply with the applicable requirements;
5. (e) the Regulated Activities undertaken or to be undertaken by the applicant and the risks to their continuity;
6. (f) the nature (including the scale and complexity) of the activities of the applicant and any associated risks that those activities pose to the AFSA’s Regulatory Objectives;
7. (g) the complexity of any products or services that the applicant may offer or provide in carrying on those activities;
8. (h) whether the applicant's business model will allow for its affairs and business to be conducted and managed in a sound and prudent manner, having regard to, amongst other things, the interests of its Clients and the integrity of the AIFC;
9. (i) any matter which may harm or may have harmed the integrity or the reputation of the AFSA or AIFC, including through the carrying on of a business by the applicant for a purpose connected with a Financial Crime; and
10. (j) any other relevant matters.

1.1.6. Effective supervision

In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 34(1)(c) of the Framework Regulations, the AFSA will consider:

1. (a) the nature, including the complexity, of the Regulated Activities that the applicant will carry on; and
2. (b) the way in which the applicant's business is organised; and
3. (c) (if the applicant is a member of a Group) whether membership of the Group is likely to prevent the AFSA’s effective supervision of the applicant; and
4. (d) whether the applicant is subject to consolidated supervision.

1.1.7. Compliance arrangements

In assessing whether an applicant has adequate compliance arrangements for the purposes of section 34(1)(d) of the Framework Regulations, the AFSA will consider whether it has:

1. (a) clear and comprehensive policies and procedures relating to compliance with all applicable legal requirements; and
2. (b) adequate means to implement those policies and procedures and monitor that they are operating effectively and as intended.

1.1.8. Modification or withdrawal of an Authorised Firm’s Licence

An Authorised Firm may apply to the AFSA to change the scope of its Licence, to have a condition or restriction varied or withdrawn, or to have its Licence withdrawn by:

1. (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
2. (b) providing such further information as the AFSA may require; and
3. (c) paying the fee prescribed in the Fees Rules.

1.1.9. Activities carried on by way of business

A Person carries on an activity by way of business for the purposes of GEN 1.1.1 if that Person:

1. (a) engages in the activity in a manner which in itself constitutes the carrying on of a business;
2. (b) holds himself out as willing and able to engage in that activity; or
3. (c) regularly solicits other Persons to engage with him in transactions constituting that activity.

1.1.10. Exclusion in respect of Dealing in Investments as Principal

A Person does not carry on the Regulated Activity specified in paragraph 1 of Schedule 1 by entering into a transaction, unless that Person:

1. (a) holds himself out as willing, as principal, to buy, sell or subscribe for Investments at prices determined by him generally and continuously rather than in respect of each particular transaction;
2. (b) holds himself out as engaging in the business of buying Investments with a view to selling them;
3. (c) holds himself out as engaging in the business of underwriting Investments; or
4. (d) regularly solicits members of the public with the purpose of inducing them to enter into transactions.

1.1.11. Exclusion in respect of acting as nominee

A Person does not carry on any of the Regulated Activities specified in paragraphs 1, 2, 3, 5, 6, 10, 11, 12 or 15 of Schedule 1 where that Person enters into a transaction solely as a nominee for another Person and is bound to and does act on that other Person’s instructions.

1.1.12. Exclusion in respect of acting with or for Group companies

A Person does not carry on any of the Regulated Activities specified in paragraphs 1, 2, 3, 5, 6, 10, 11, 12, 15 or 18 of Schedule 1 where that Person is a Body Corporate and carries on that activity solely as principal with or for other Bodies Corporates:

1. (a) which are within the same Group as that Person; or
2. (b) which are or propose to become participators in a joint enterprise and the transaction is entered into for the purposes of or in connection with that enterprise;

and for the purposes of the activities specified in paragraphs 3, 5, 6 and 12 of Schedule 1 the assets in question belong to a Body Corporate falling within (a) or (b).

This Exclusion does not apply to a Credit Provider that only provides Commercial Captive Finance.

1.1.13. . Exclusion in respect of non-financial business

A Person does not carry on any of the Regulated Activities specified in paragraphs 1, 2, 3, 5, 6, 10, 11, 12 or 15 of Schedule 1 where that the Person carries on the activity solely for the purposes of or in connection with the sale of goods or the supply of services to a customer of the Person or a member of the same Group, provided that:

1. (a) the supplier’s main business is to sell goods or supply services and not to carry on any Financial Service; and
2. (b) the customer is not an individual; and for the purposes of the activities specified in paragraphs 3, 5, 6 and 2 of Schedule 1 the assets in question belong to that customer or member.

This Exclusion does not apply to a Credit Provider that only provides Commercial Captive Finance.

1.1.14. Exclusion in respect of dealing in Commodity Derivatives or Environmental Instruments

A Person who is a Body Corporate does not carry on the Regulated Activity specified in paragraphs 1 or 2 of Schedule 1, where:

• (a) the Person carries on such activities as a member of an Authorised Market Institution or Recognised Non-AIFC Market Institution;
• (b) the Person carries on such activities for its own account or for another Body Corporate which is in the same Group as the Person, provided that any such member of the Group for which the Person acts is a wholly-owned Subsidiary of a Holding Company within the Group or is the Holding Company itself;
• (c) the Person restricts such activities to transactions involving or relating only to Commodity Cerivatives or Environmental Instruments on that Authorised Market Institution or Recognised Non-AIFC Market Institution;
• (d) the main business of the Person is dealing in relation to Commodity Derivatives or Environmental Instruments; and
• (e) the Person is not part of a Group whose main business is the provision of financial services.

1.1.15. Exclusion in respect of acquisition or disposal of a Body Corporate

A Person does not carry on a Regulated Activity specified in paragraphs 1, 2, 10 or 11 of Schedule 1 if the activity is carried on solely for the purposes of or in connection with the acquisition or disposal of Shares in a Body Corporate, other than an Investment Company, provided that:

1. (a) such Shares carry at least 50 per cent of the voting rights or the acquisition will take an existing holding to at least 50 per cent; or
2. (b) the object of the transaction may reasonably be regarded as being the acquisition of day to day control of the Body Corporate.

1.1.16. Exclusion in respect of acting as a trustee

1. (a) A Person who is a trustee does not carry on a Regulated Activity specified in paragraphs 1, 3, or 5 of Schedule 1 in circumstances where he is acting as a trustee.
2. (b) A Person does not carry on a Regulated Activity specified in paragraph 7 of Schedule 1 by way of business where he is:
3. (i) acting as trustee, enforcer or protector; or
4. (ii) where he is arranging for a Person to act as trustee, in respect of less than three (3) trusts.
5. (c) A Person falling within paragraph (d) or (e) of the definition of a DNFBP does not provide Trust Services where it only:
6. (i) arranges for a Person to act as trustee in respect of an express trust; or
7. (ii) provides services with respect to the creation of an express trust; provided that:
8. (1) the provision of such services is solely incidental to the practice of law or accounting as the case may be; and
9. (2) the DNFBP is not holding itself out as Providing Trust Services.
10. (d) A Person is not Providing Trust Services if that Person is the Trustee of a Fund and the activities are in connection with, or arise from, acting as the Trustee of the Fund. Guidance Acting as trustee, protector or enforcer are not activities incidental to the practice of law or accounting and require a License.

1.1.17. Exclusion in respect of Single Family Offices

A Person does not carry on a Regulated Activity specified in paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, or 15 of Schedule 1 if:

• (a) that Person is a Single Family Office; and
• (b) the activity is carried on exclusively for the purposes of, and only in so far as it is, carrying out its duties as a Single Family Office.

1.2.1. Form and content of application for a Licence

A Person may apply to the AFSA for a Licence for a Centre Participant to carry on one or more Market Activities in the AIFC by:

• (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
• (b) providing such information and documents as the AFSA may require; and
• (c) paying the fee prescribed in the Fees Rules to the AFSA.

1.2.2. Adequate and appropriate financial resources

In assessing whether an applicant has adequate and appropriate financial resources for the purposes of section 37(1)(a) of the Framework Regulations, the AFSA will consider:

• (a) how the applicant will comply with the applicable provisions of AMI 2.2;
• (b) the provision the applicant makes in respect of any liabilities, including contingent and future liabilities;
• (c) the means by which the applicant manages the risks to its business;
• (d) the rationale for, and basis of, the applicant's business plan;
• (e) whether the applicant's assets are appropriate given the applicant's liabilities;
• (f) the liquidity of the applicant's resources;
• (g) the nature and scale of the business which will be carried on by the applicant;
• (h) the risks to the continuity of the services which will be provided by the applicant;
• (i) the applicant's membership of a Group and any relevant effect which that membership may have; and
• (j) whether the applicant is capable of meeting its debts as they fall due.

1.2.3. Adequate and appropriate non-financial resources

In assessing whether an applicant has adequate and appropriate non‐financial resources for the purposes of section 37(1)(a) of the Framework Regulations, the AFSA will consider:

• (a) the skills and experience of those who will manage the applicant's affairs;
• (b) the applicant's resources to identify, monitor, measure and take action to remove or reduce risks as to its safety and soundness;
• (c) the applicant’s resources to control and monitor access to, and the use of, its facilities in a manner designed to protect the orderly functioning of the market and the interests of investors;
• (d) the applicant’s resources to reduce the extent to which its facilities can be used for a purpose connected with Market Abuse, Financial Crime or money laundering, and to facilitate their detection and monitor their incidence;
• (e) the applicant’s resources to monitor and take action in the event of a member of an applicant being unable to meet his obligations in respect of one or more Market Contracts;
• (f) the effectiveness of the applicant's business management; and
• (g) whether the applicant's non‐financial resources are sufficient to enable the applicant to comply with the Regulations and Rules that are likely to be relevant to the applicant.

1.2.4. Adequate and appropriate technology resources

In assessing whether an applicant has adequate and appropriate technology resources for the purposes of section 37(1)(a) of the Framework Regulations, the AFSA will consider:

• (a) the applicant’s resources for the evaluation, selection and on-going monitoring of the information technology systems used by the applicant;
• (b) the applicant’s willingness and ability to use development and testing methodologies in line with internationally accepted testing standards in order to test the viability and effectiveness of such systems; and
• (c) the means by which the applicant will secure and maintain the confidentiality of the data and ensure that the systems used by the applicant are reliable and adequately protected from external attack or incident.

1.2.5. Fitness and propriety

In assessing whether an applicant is fit and proper for the purposes of section 37(1)(b) of the Framework Regulations, the AFSA will consider:

• (a) the fitness and propriety of the members of its Governing Body;
• (b) the applicant's connection with any Person or membership of any Group;
• (c) the fitness and propriety of the applicant's Controllers or any other Person associated with the applicant;
• (d) the impact a Controller might have on the applicant's ability to comply with the applicable requirements;
• (e) the Market Activities concerned and the risks to their continuity;
• (f) the nature (including the scale and complexity) of the activities of the applicant and any associated risks that those activities pose to the AFSA’s objectives;
• (g) whether the applicant's business model will allow for its facilities to function in a fair and orderly manner, having regard to, amongst other things, the orderly functioning of the market and the interests of investors;
• (h) any matter which may harm or may have harmed the integrity or the reputation of the AIFC or AFSA , including through the carrying on of a business by the applicant for a purpose connected with Market Abuse or a Financial Crime; and

(i) any other relevant matters.

1.2.6. Effective supervision

In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 37(1)(c) of the Framework Regulations, the AFSA will consider:

1. (a)      the nature, including the complexity, of the Market Activities that the applicant will carry on;
2. (b)      if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, a Loan Crowdfunding Platform or an Investment Crowdfunding Platform, the size, nature and complexity of any markets in respect of which the applicant will offer its facilities in carrying on that Market Activity;
3. (c)      if the applicant seeks a licence to carry on the Market Activity of Operating a Clearing House, the complexity of the Investments and transactions, and the size of the likely transaction values and volumes in respect of which the applicant will offer clearing and settlement services in carrying on that Market Activity;
4. (c)      the way in which the applicant's business is organised;
5. (d)      (if the applicant is a member of a Group) whether membership of the Group is likely to prevent the AFSA’s effective supervision of the applicant; and
6. (e)      whether the applicant is subject to consolidated supervision.

1.2.7. Compliance arrangements

In assessing whether an applicant has adequate compliance arrangements for the purposes of section 37(1)(d) of the Framework Regulations, the AFSA will consider whether it has:

1. (a)      clear and comprehensive policies and procedures relating to compliance with all applicable legal requirements; 
2. (b)      adequate means to implement those policies and procedures and monitor that they are operating effectively and as intended;
3. (c)      effective arrangements for monitoring and enforcing compliance of its Members with its own rules and, if relevant, its clearing and settlement arrangements; and
4. (d)     if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, effective arrangements to verify that issuers admitted to trading on its facilities comply with the Market Rules; 
5. (e)    [intentionally omitted]

1.2.8. Modification or withdrawal of an Authorised Market Institution’s Licence

An Authorised Market Institution may apply to the AFSA to change the scope of its Licence, to have a condition or restriction varied or withdrawn, or to have its Licence withdrawn by:

• (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
• (b) providing such further information as the AFSA may require; and
• (c) paying the fee prescribed in the Fees Rules to the AFSA.

1.3.1. Definition of Ancillary Service

The Ancillary Services that may be carried on by an Ancillary Service Provider, subject to the terms of its Licence, are specified in Schedule 2.

1.3.2. Form and content of application for a Licence

A Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on one or more Ancillary Services in the AIFC by:

• (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
• (b) providing such further information as the AFSA may require; and
• (c) paying the fee prescribed in the Fees Rules to the AFSA.

1.3.3. Fitness and propriety

In assessing whether an applicant is fit and proper for the purposes of section 41 of the Framework Regulations, the AFSA will consider:

1. (a) the applicant’s standing with any relevant regulatory body;
2. (aa) registration with the AIFC Legal Services Board of at least one employee of the applicant applying for a Licence to carry on an Ancillary Service of Providing Legal Services;
3. (b) the applicant’s disciplinary record;
4. (c) the applicant’s procedures for monitoring and preventing Financial Crime;
5. (d) the risk posed to the AIFC by the applicant’s activities; and
6. (e) such other matters as the AFSA considers relevant.

1.3.3-1 Effective supervision

In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 41(1) of the Framework Regulations, the AFSA will consider:

(a)     the nature, including the complexity, of the Ancillary Services that the applicant will carry on; and

(b)     the way in which the applicant's business is organised; and

(c)     (if the applicant is a member of a Group) whether membership of the Group is likely to prevent the AFSA’s effective supervision of the applicant; and

(d)     whether the applicant is subject to consolidated supervision.

1.3.4. Notifications

An Ancillary Service Provider must promptly notify the AFSA of any change in its:

• (a) name; or
• (b) legal status; or
• (c) address; or
• (e) beneficial ownership.

1.3.5. Application to modify or withdraw an Ancillary Service Provider’s Licence

An Ancillary Service Provider may apply to the AFSA to change the scope of its Licence, to have a condition or restriction varied or withdrawn, or to have its Licence withdrawn by:

• (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
• (b) providing such further information as the AFSA may require; and
• (c) paying the fee prescribed in the Fees Rules.

1.3.6. Withdrawal of an Ancillary Service Provider’s Licence by the AFSA

The AFSA may withdraw the Licence of an Ancillary Service Provider:

1. (a) on the application of the Ancillary Service Provider; or
2. (b) [intentionally omitted]
3. (c) following a request by the Registrar of Companies; or
4. (d) in the event of the insolvency or the entering into administration of the Ancillary Service Provider; or
5. (e) if the AFSA considers it necessary or desirable in the interests of the AIFC.

1.4.1. Activities performed in FinTech Lab

1. (a)      the Regulated and/or Market Activities that are specified in Schedule 1 and 4 of GEN can be carried on by a Person subject to the terms and Licence issued under FINTECH.
2. (b)      a Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on activities not specified in (a).
3. (c)For the purposes of (b), the AFSA may grant a Licence for a Person to carry on activities as specified in the Licence.

2.1.1. Appointments to be filled by Approved Individuals

(1) Subject to (2) an Authorised Person, must make the following appointments and ensure that they are held by one or more Approved Individuals at all times:

(a) Senior Executive Officer;

(b) Finance Officer; 

(c) Compliance Officer; and

(d) Money Laundering Reporting Officer

(2) For an Authorised Person Operating a Representative Office the mandatory appointments in (1) may be carried on by its Principal Representative.

2.1.2. Appointments to be filled by Approved Individuals or Designated Individuals

[intentionally omitted]

2.2.1. Designation of roles as Controlled Functions

The functions specified in GEN 2.2.2 to 2.2.5 are Controlled Functions.

2.2.2. Senior Executive Officer

The Senior Executive Officer function is carried out by an individual who:

• (a) has, either alone or jointly with other Approved Individuals, ultimate responsibility for the day‐to‐day management, supervision and control of one or more (or all) parts of an Authorised Person's Regulated Activities; and
• (b) is a Director, Partner or Senior Manager of the Authorised Person

2.2.3. Director

The Director function is carried out by an individual who is a director of an Authorised Person which is a Body Corporate.

2.2.4. Finance Officer

The Finance Officer function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person who has responsibility for monitoring the Authorised Person's compliance with the applicable Rules in the Prudential Rulebook.

2.2.5. Compliance Officer

The Compliance Officer function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person who has responsibility for compliance matters in relation to the Authorised Person's Regulated Activities.

2.2.5-1. Money Laundering Reporting Officer

The Money Laundering Reporting Officer function must be carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for the implementation of an Authorised Person's anti‐money laundering policies, procedures, systems and controls and day to day oversight of its compliance with the Rules in AML and any relevant anti‐money laundering Rules.

2.2.6. Application for Approved Individual status

An Authorised Person may apply for its officer or Employee or future officer or Employee to be granted Approved Individual status by:

1. (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
2. (b) providing such further information as the AFSA may require; and
3. (c) paying the Fee prescribed in the Fees Rules to the AFSA.

Guidance: criteria for approval of Approved Individual Section 43 of the Framework Regulations provides

(1) The AFSA may only authorise an individual to carry on a Controlled Function if it is satisfied that the individual is fit and proper to be an Approved Individual.

(2) In making this assessment, the AFSA must have regard to:

1. (a) the individual's integrity; and
2. (b) the individual's competence and capability; and
3. (c) the individual's financial soundness; and
4. (d) the individual's proposed role within the Authorised Person; and
5. (e) any other matters that the AFSA considers to be relevant to the application.

(3) The AFSA will not regard an individual as fit and proper if the individual:

1. (a) is bankrupt; or
2. (b) has been convicted of a serious criminal offence; or
3. (c) is the subject of an administrative or civil finding; or
4. (d) is incapable, through mental or physical incapacity, of managing his affairs.

2.2.7. AFSA discretion to waive requirements

An Authorised Person may apply to the AFSA to waive the requirements made pursuant to Section 43(1) of the Framework Regulations in the light of any registration, authorisation or approval the relevant officer or Employee may have in a jurisdiction outside the AIFC.

2.2.8. Modification or withdrawal of an Approved Individual’s registration

An Authorised Person or an Approved Individual may apply to the AFSA to modify or withdraw the Approved Individual’s status by:

• (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
• (b) providing such further information as the AFSA may require; and
• (c) paying the fee prescribed in the Fees Rules to the AFSA.

2.2.9. Dismissal or resignation of an Approved Individual

In the event of an Approved Individual ceasing to be employed by an Authoised Person to perform a Controlled Function, the Authoised Person must:

• (a) request the withdrawal of the Approved Individual status within seven days of the Approved Individual ceasing to be employed;
• (b) inform the AFSA of any circumstances which lead the Authoised Person to consider that the individual is no longer fit and proper; and
• (c) if the Approved Individual was dismissed or requested to resign, provide the AFSA with a statement of the reason, or reasons, for the dismissal or resignation.

2.3.1. Designation of roles as Designated Functions

The functions specified in GEN 2.3.2 to 2.3.6 are Designated Functions.

2.3.2. Senior Manager

The Senior Manager function is carried out by an individual who is responsible either alone or jointly with other individuals for the management, supervision or control of one or more parts of an Authorised Person's Regulated Activities who is:

• (a) an Employee of the Authorised Person; and
• (b) not a Director or Partner of the Authorised Person.

2.3.3. Responsible Officer

The Responsible Officer function is carried out by an individual who:

• (a) has significant responsibility for the management of one or more aspects of an Authorised Person’s affairs; and
• (b) exercises a significant influence on the Authorised Person as a result of (a); but
• (c) is not an Employee of the Authorised Person

2.3.4. Money Laundering Reporting Officer

[intentionally omitted]

2.3.5. Risk Manager

The Risk Manager function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for all aspects of the risk management function in relation to the Authorised Person's Regulated Activities.

2.3.6. Internal Audit Manager

The Internal Audit Manager function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for all aspects of the internal audit function in relation to the Authorised Person's Regulated Activities.

Guidance: criteria for appointment of Designated Individual

Section 46 of Framework Regulations provides:

(1) Before appointing an individual to carry on a Designated Function, an Authorised Person must take reasonable steps to satisfy itself that the individual is fit and proper to be a Designated Individual.

(2) In making this assessment the Authorised Person must have regard to:

1. (a) the individual's integrity; and
2. (b) the individual's competence and capability; and
3. (c) the individual's financial soundness; and
4. (d) the individual's proposed role within the Authorised Person; and
5. (e) any other matters that the AFSA may prescribe by Rules.

(3) An Authorised Person may not regard an individual as fit and proper if the individual:

1. (a) is bankrupt; or
2. (b) has been convicted of a serious criminal offence; or
3. (c) is the subject of an administrative or civil finding; or
4. (d) is incapable, through mental or physical incapacity, of managing his affairs

2.3.7. Appointment of Designated Individual

In respect of each Designated Individual that it appoints, an Authorised Person must keep records of the assessment process that it has undertaken in accordance with section 46 of the Framework Regulations to satisfy itself that the relevant individual is a fit and proper Person. Such records must be kept for a minimum of six years from the date of the assessment

3.1.1. Definition of a Controller

A Controller is a Person who, either alone or with any Associate:

• (a) holds 10% or more of the shares in either the Authorised Person or a Holding Company of that Authorised Person; or
• (b) is entitled to exercise, or controls the exercise of, 10% or more of the voting rights in either the Authorised Person or a Holding Company of that Authorised Person; or
• (c) is able to exercise significant influence over the management of the Authorised Person as a result of holding shares or being able to exercise voting rights in the Authorised Person or a Holding Company of that Authorised Person or having a current exercisable right to acquire such shares or voting rights.

3.1.2. Definition of “share” and “holding”

A reference in this chapter to the term:

• (a) “share” means:

(i) in the case of an Authorised Person, or a Holding Company of an Authorised Person, which has a share capital, its allotted shares;

(ii) in the case of an Authorised Person, or a Holding Company of an Authorised Person, with capital but no share capital, rights to a share in its capital; and

(iii) in the case of an Authorised Person, or a Holding Company of an Authorised Person, without capital, any interest conferring a right to share in its profits or losses or any obligation to contribute to a share of its debt or expenses in the event of its winding up; and

(iv)      in the case of an Authorised Person, or a Holding Company of an Authorised Person going through a Resolution, a capital instrument or share issued as a result of the Resolution Authority exercising its Conversion Power; and 

• (b) “a holding” means, in respect of a Person, shares, voting rights or a right to acquire shares or voting rights in an Authorised Person or a Holding Company of that Authorised Person held by that Person either alone or with any Associate.

3.1.3. Disregarded holdings

For the purposes of determining whether a Person is a Controller, any shares, voting rights or rights to acquire shares or voting rights that a Person holds, either alone or with any Associate, in an Authorised Person or a Holding Company of that Authorised Person are disregarded if:

• (a) they are shares held for the sole purpose of clearing and settling within a short settlement cycle; or
• (b) they are shares held in a custodial or nominee capacity and the voting rights attached to the shares are exercised only in accordance with written instructions given to that Person by another Person; or
• (c) the Person is an Authorised Person or a Regulated Financial Institution and it:

(i) acquires the shares as a result of an underwriting of a share issue or a placement of shares on a firm commitment basis;

(ii) does not exercise the voting rights attaching to the shares or otherwise intervene in the management of the issuer; and

(iii) retains the shares for a period less than one year.

3.2.1. Threshold for approval requirement

For the purposes of section 48(b) of the Framework Regulations, the thresholds at which the prior written approval of the AFSA is required are when the relevant holding is increased:

• (a) from below 30% to 30% or more; or
• (b) from below 50% to 50% or more.

3.2.2. Approval process

(1) A Person who is required to obtain the prior written approval of the AFSA pursuant to section 48 of the Framework Regulations must make an application to the AFSA using the form prescribed in Schedule 3.

(2) Where the AFSA proposes to approve a proposed change of control, it will:

• (a) do so as soon as practicable and in any event within 30 days of the receipt of a duly completed application, unless a different period is considered appropriate by the AFSA and notified to the applicant in writing; and
• (b) issue to the applicant, and where appropriate to the Authorised Person, an approval notice as soon as practicable after making that decision.

(3) Where the AFSA proposes to object to or grant a conditional approval to a proposed change of control, it will follow the procedures in Schedule 1 to the Framework Regulations

3.2.3. Effect of AFSA approval or conditional approval

(1) An approval, including a conditional approval granted by the AFSA pursuant to GEN 3.2.1, is valid for a period of one year from the date of the approval, unless an extension is granted by the AFSA in writing.

(2) A Person who has been approved by the AFSA as a Controller of an Authorised Person subject to any conditions must comply with the relevant conditions of approval.

3.3.1. Notification for decrease in the level of control of Authorised Person incorporated in the AIFC

A Controller of an Authorised Person which is incorporated in the AIFC must submit, using the form prescribed in Schedule 3, a written notification to the AFSA where that Person:

• (a) proposes to cease being a Controller; or
• (b) proposes to decrease that Person’s holding from more than 50% to 50% or less.

3.3.2. Notification of changes relating to control of Branches

(1) In the case of an Authorised Person which is a Branch, a written notification to the AFSA must be submitted by a Controller or a Person proposing to become a Controller of that Authorised Person in accordance with (3) in respect of any one of the events specified in (2).

(2) For the purposes of (1), a notification to the AFSA is required when:

• (a) a Person becomes a Controller;
• (b) an existing Controller proposes to cease being a Controller; or
• (c) an existing Controller’s holding is:

(i) increased from below 30% to 30% or more;

(ii) increased from below 50% to 50% or more; or

(iii) decreased from more than 50% to 50% or less.

(3) The notification required under (1) must be made by a Controller or Person proposing to become a Controller of a Branch using the Form prescribed in Schedule 3 as soon as possible, and in any event, before making the relevant acquisition or disposal.

3.4.1. Obligations of Authorised Person relating to its Controllers

(1) An Authorised Person must have adequate systems and controls to monitor:

• (a) any change or proposed change of its Controllers; and
• (b) any significant changes in the conduct or circumstances of existing Controllers which might reasonably be considered to impact on the fitness and propriety of the Authorised Person or its ability to conduct business soundly and prudently.

(2) An Authorised Person must, subject to (3), notify the AFSA in writing of any event specified in (1) as soon as possible after becoming aware of that event.

(3) An Authorised Person need not comply with the requirement in (2) if it is satisfied on reasonable grounds that a proposed or existing Controller has either already obtained the prior approval of the AFSA or notified the event to the AFSA as applicable.

3.4.2. Annual report

(1) An Authorised Person must submit to the AFSA an annual report on its Controllers within four months of its financial year end.

(2) The Authorised Person’s annual report on its Controllers must include:

• (a) the name of each Controller; and
• (b) the current holding of each Controller, expressed as a percentage.

4.1.1. Application of the Principles for Authorised Persons

The Principles for Authorised Persons set out in Section 4.2 apply to Authorised Persons in respect of Regulated Activities and Market Activities.

4.1.2. Application of the Principles for Approved Individuals and Designated Individuals

The Principles for Approved Individuals and Designated Individuals set out in Section 4.3 apply to Approved Individuals and Designated Individuals in respect of Controlled Functions and Designated Functions.

4.2.1. Principle 1 ‐ Integrity

An Authorised Person must observe high standards of integrity and fair dealing.

4.2.2. Principle 2 ‐ Due skill, care and diligence

In conducting its business activities, an Authorised Person must act with due skill, care and diligence.

4.2.3. Principle 3 ‐ Management

An Authorised Person must ensure that its affairs are managed effectively and responsibly by its senior management.

4.2.4. Principle 4 ‐ Systems and controls

An Authorised Person must have adequate systems and controls to ensure, as far as is reasonably practical, that it complies with all relevant Regulations and Rules.

4.2.5. Principle 5 ‐ Resources

An Authorised Person must maintain and be able to demonstrate the existence of adequate resources to conduct and manage its affairs. These include adequate financial and system resources as well as adequate and competent human resources.

4.2.6. Principle 6 ‐ Market conduct

An Authorised Person must observe proper standards of conduct in financial markets.

4.2.7. Principle 7 ‐ Information and interests

An Authorised Person must pay due regard to the interests of its Clients and communicate information to them in a way which is clear, fair and not misleading.

4.2.8. Principle 8 ‐ Conflicts of interest

An Authorised Person must take all reasonable steps to ensure that conflicts of interest between itself and its Clients, between its Employees and Clients and between one Client and another are identified and then prevented or managed, or disclosed, in such a way that the interests of a Client are not adversely affected.

4.2.9. Principle 9 ‐ Suitability

An Authorised Person must take reasonable care to ensure the suitability of its Advice and discretionary decisions for Clients who are entitled to rely upon its judgment.

4.2.10. Principle 10 ‐ Client assets and money

Where an Authorised Person has control of or is otherwise responsible for assets or money belonging to a Client which it is required to safeguard, it must arrange proper protection for them in accordance with the responsibility it has accepted.

4.2.11. Principle 11 ‐ Relations with the AFSA

An Authorised Person must deal with the AFSA in an open and co‐operative manner and keep the AFSA promptly informed of significant events or anything else relating to the Authorised Person of which the AFSA would reasonably expect to be notified.

4.2.12. Principle 12 ‐ Compliance with high standards of corporate governance

An Authorised Person must have a corporate governance framework as appropriate to the nature, scale and complexity of its business and structure, which is adequate to promote the sound and prudent management and oversight of the Authorised Person's business and to protect the interests of its Clients and stakeholders.

4.2.13. Principle 13 ‐ Remuneration practices

An Authorised Person must have a Remuneration structure and strategies which are well aligned with the long-term interests of the Authorised Person, and are appropriate to the nature, scale and complexity of its business.

4.3.1. Principle 1 ‐ Integrity

Each Approved Individual and Designated Individual must observe high standards of integrity and fair dealing in carrying out every Controlled Function or Designated Function.

4.3.2. Principle 2 ‐ Due skill, care and diligence

Each Approved Individual and Designated Individual must act with due skill, care and diligence in carrying out every Controlled Function or Designated Function.

4.3.3. Principle 3 ‐ Market conduct

Each Approved Individual and Designated Individual must observe proper standards of conduct in financial markets in carrying out every Controlled Function or Designated Function.

4.3.4. Principle 4 ‐ Relations with the AFSA

Each Approved Individual and Designated Individual must deal with the AFSA in an open and co‐operative manner and must disclose appropriately any information of which the AFSA would reasonably be expected to be notified.

4.3.5. Principle 5 ‐ Management, systems and control

Each Approved Individual and Designated Individual who has significant responsibility must take reasonable care to ensure that the business of the Authorised Person for which he is responsible is organised so that it can be managed and controlled effectively.

4.3.6. Principle 6 ‐ Compliance

Each Approved Individual and Designated Individual who has significant responsibility must take reasonable care to ensure that the business of the Authorised Person for which he is responsible complies with any Regulations or Rules.

5.1.1. Requirement to maintain systems and controls

An Authorised Person must establish and maintain systems and controls, including but not limited to financial and risk systems and controls that ensure that its affairs are managed effectively and responsibly by its senior management.

5.1.2. Review of systems and controls

An Authorised Person must undertake regular reviews of its systems and controls.

5.1.3. Business plan and strategy

(1) An Authorised Person must produce a business plan which enables it, amongst other things, to manage the risks to which it and its Clients are exposed.

(2) The business plan must take into account the Authorised Person's current business activities and the business activities forecast for the next twelve months.

(3) The business plan must be documented and updated as appropriate to take account of changes in the business environment and to reflect changes in and the complexities of the business of the Authorised Person.

5.1.4. Prevention of market abuse, financial crime and other illegal conduct

An Authorised Person must establish and maintain systems and controls that ensure, as far as reasonably practical, that the Authorised Person and its Employees do not engage in conduct, or facilitate others to engage in conduct, which may constitute:

• (a) Market Abuse, wherever committed;
• (b) a Financial Crime under any applicable laws; or
• (c) a contravention of applicable Regulations or Rules.

5.2.1. Responsibility for compliance

An Authorised Person which outsources any of its functions or activities directly related to Regulated Activities or Market Activities to a service provider (including a service provider within its Group) is not relieved of its regulatory obligations and remains responsible for compliance with the Framework Regulations and Rules.

5.2.2. Outsourced function deemed to be carried on by Authorised Person

The outsourced function under GEN 5.2.1 shall be deemed to be carried out by the Authorised Person itself.

5.2.3. Due diligence and supervision

An Authorised Person which uses a service provider as referred to in GEN 5.2.1 must ensure that it:

• (a) has undertaken due diligence in choosing a suitable service provider;
• (b) effectively supervises the outsourced functions or activities; and
• (c) deals effectively with any act or failure to act by the service provider that leads, or might lead, to a breach of any Regulations or Rules.

5.2.4. Notification of AFSA of material outsourcing arrangements

An Authorised Person must inform the AFSA about any material outsourcing arrangements.

Guidance: material outsourcing arrangement An outsourcing arrangement will be considered to be material if it is a service of such importance that weakness or failure of that service would cast serious doubt on the Authorised Person's continuing ability to remain fit and proper or to comply with the Framework Regulations and Rules administered by the AFSA.

5.2.5. Material outsourcing arrangements

An Authorised Person which has a material outsourcing arrangement must:

• (a) establish and maintain comprehensive outsourcing policies, contingency plans and outsourcing risk management programmes;
• (b) enter into an appropriate and written outsourcing contract; and
• (c) ensure that the outsourcing arrangements neither reduce its ability to fulfil its obligations to Clients and the AFSA, nor hinder supervision of the Authorised Person by the AFSA.

5.2.6. Terms of outsourcing contracts

An Authorised Person must ensure that the terms of its outsourcing contract with each service provider under a material outsourcing arrangement require the service provider to:

1. (a) provide information and documents where required by the AFSA under section 96 of the Framework Regulations; and
2. (b) deal in an open and co‐operative way with the AFSA.

5.3.1. Governing Body

An Authorised Person must have a Governing Body that meets the requirements of GEN 5.3.2 (membership), 5.3.3 (responsibilities) and 5.3.4 (competence, training and access to information).

5.3.2. Governing Body – membership

An Authorised Person’s Governing Body must comply with the requirements set out below:

• (a) the composition of the Governing Body of an Authorised Person must reflect an adequately broad range of experience;
• (b) the Governing Body must possess adequate collective knowledge, skills and experience in order to understand the Authorised Person’s activities and risks; and
• (c) members of the Governing Body must:

(i) commit sufficient time to perform their functions on the Governing Body; and

(ii) act with honesty, integrity and independence of mind; and

(iii) effectively assess and challenge, where necessary, the decisions of the senior management, and oversee and monitor decision making.

5.3.3. Governing Body – responsibilities

The Governing Body of an Authorised Person must:

• (a) define and oversee the implementation of governance arrangements that ensure the effective and prudent management of the Authorised Person in a manner which promotes the integrity of the market, which at least must include: the segregation of duties in the organisation; and the prevention of conflicts of interest in its operation;
• (b) monitor and periodically assess the effectiveness of the Authorised Person’s governance arrangements; and
• (c) take appropriate steps to address any deficiencies found as a result of the monitoring under sub-paragraph (b).

5.3.4. Governing Body – competence, training and access to information

An Authorised Person must:

• (a) devote adequate human and financial resources to the induction and training of members of the Governing Body;
• (b) ensure that the Governing Body has access to the information and documents it requires to oversee and monitor management decision-making; and
• (c) engage a broad set of qualities and competences when recruiting Persons to the Governing Body, and for that purpose have a policy promoting diversity on the management body; and
• (d) notify the AFSA of the identity of all the members of its Governing Body.

5.3.5. Senior management

An Authorised Person must ensure that the senior management of the Authorised Person have clear responsibility for the day‐to‐day management of the Authorised Person's business in accordance with the business objectives and strategies approved or set by the Governing Body.

5.3.6. Management information

An Authorised Person must establish and maintain arrangements to provide its Governing Body and senior management with the information necessary to organise, monitor and control its activities, to comply with all relevant Regulations and Rules and to manage risks. The information must be relevant, accurate, comprehensive, timely and reliable.

5.3.7. Remuneration structure and strategy

The Governing Body of an Authorised Person must ensure that the Remuneration structure and strategy of that Authorised Person:

• (a) are consistent with the business objectives and strategies and the identified risk parameters within which the Authorised Person's business is to be conducted;
• (b) provide for effective alignment of risk outcomes and the roles and functions of the Employees, taking account of:

(i) the nature of the roles and functions of the relevant Employees; and

(ii) whether the actions of the Employees may expose the Authorised Person to unacceptable financial, reputational and other risks;

• (c) at a minimum, include the members of its Governing Body, the senior management, Approved Individuals and any Designated Individuals; and
• (d) are implemented and monitored to ensure that they operate, on an on‐going basis, effectively and as intended.

5.4.1. Requirement to maintain compliance arrangements

An Authorised Person must establish and maintain compliance arrangements, including processes and procedures that ensure and evidence, as far as reasonably practicable, that the Authorised Person complies with all relevant Regulations and Rules.

5.4.2. Documentation of compliance arrangements

An Authorised Person must document the organisation, responsibilities and procedures of the compliance function.

5.4.3. Compliance Officer – sufficient resources

An Authorised Person must ensure that the Compliance Officer has access to sufficient resources, including an adequate number of competent staff, to perform his duties objectively and independently of operational and business functions.

5.4.4. Compliance Officer – access to records and management

An Authorised Person must ensure that the Compliance Officer has unrestricted access to relevant records and to the Authorised Person’s Governing Body and senior management.

5.4.5. Monitoring and reporting arrangements

An Authorised Person must establish and maintain monitoring and reporting processes and procedures to ensure that any compliance breaches are readily identified, reported and promptly acted upon.

5.4.6. Documentation of monitoring and reporting arrangements and breaches

An Authorised Person must document the monitoring and reporting processes and procedures as well as keep records of breaches of any relevant Regulations or Rules.

5.5.1. Requirement to maintain internal audit function

An Authorised Person must establish and maintain an internal audit function with responsibility for monitoring the appropriateness and effectiveness of its systems and controls.

5.5.2. Independence of internal audit function

An Authorised Person must ensure that its internal audit function is independent from operational and business functions.

5.5.3. Access to records and resources

An Authorised Person must ensure that its internal audit function has unrestricted access to all relevant records and recourse when needed to the Authorised Person's Governing Body or the relevant committee, established by its Governing Body for this purpose.

5.5.4. Documentation of organisation, responsibilities and procedures

An Authorised Person must document the organisation, responsibilities and procedures of the internal audit function.

5.6.1. Identification of conflicts of interest

An Authorised Person or Ancillary Service Provider must take all reasonable steps to identify conflicts of interest that may arise between:

• (a) the Authorised Person or Ancillary Service Provider, including its managers and Employees, and the Clients of the Authorised Person or Ancillary Service Provider, or any Person directly or indirectly linked to the Ancillary Service Provider by control; or
• (b) one Client of the Authorised Person or Ancillary Service Providerand another Client, in the course of the Authorised Person carrying on any Regulated Activity or Market Activity, or Ancillary Service Provider carrying on Ancillary Services.

5.6.2. Factors relevant to the existence of a conflict of interest in the provision of a service

For the purposes of identifying the types of conflict of interest that arise, or may arise, in the course of providing a service and whose existence may entail a material risk of damage to the interests of a Client, an Authorised Person or Ancillary Service Provider must take into account, as a minimum, whether the Authorised Person or Ancillary Service Provider, or a Person directly or indirectly linked by control to the Authorised Person  or Ancillary Service Provider:

• (a) is likely to make a financial gain, or avoid a financial loss, at the expense of the Client; or
• (b) has an interest in the outcome of a service provided to the Client or of a transaction carried out on behalf of the Client, which is distinct from the Client's interest in that outcome; or
• (c) has a financial or other incentive to favour the interest of another Client or group of Clients over the interests of the Client; or
• (d) carries on the same business as the Client; or
• (e) receives or will receive from a Person other than the Client an inducement in relation to a service provided to the Client, in the form of monies, goods or services, other than the standard commission or fee for that service.

5.6.3. Management of conflicts of interest

If arrangements made by an Authorised Person or Ancillary Service Provider to manage conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a Client will be prevented, the Authorised Person or Ancillary Service Provider must clearly disclose the general nature and/or sources of conflicts of interest to the Client before undertaking business for the Client.

5.6.4. Disclosure of conflicts of interest

The disclosure in GEN 5.6.3 must:

• (a) be made in a durable medium; and
• (b) include sufficient detail, taking into account the nature of the Client, to enable that Client to take an informed decision with respect to the service in the context of which the conflict of interest arises.

5.7.1. Establishment of information barriers

When an Authorised Person establishes and maintains an information barrier (that is, an arrangement that requires information held by an Authorised Person in the course of carrying on one part of the business to be withheld from, or not to be used for, Persons with or for whom it acts in the course of carrying on another part of its business) it may:

• (a) withhold or not use the information held; and
• (b) for that purpose, permit Employees in the first part of its business to withhold the information held from Employees in the other part of the business, but only to the extent that the business of one of those parts involves the carrying on of Regulated Activities or Market Activities.

5.7.2. Information barriers with a group

Information may also be withheld or not used by an Authorised Person when this is required by an established arrangement maintained between different parts of the business (of any kind) in the same group.

5.7.3. Relevance of information barrier to Market Abuse

Acting in conformity with GEN 5.7.1 and 5.7.2 does not amount to Market Abuse.

5.7.4. Effect of information barrier

When an Authorised Person manages a conflict of interest using the arrangements in GEN 5.7.1 and 5.7.2 which take the form of an information barrier, individuals on the other side of the information barrier will not be regarded as being in possession of knowledge denied to them as a result of the information barrier.

5.8.1. Operational risk

An Authorised Person must establish a robust operational risk management framework with appropriate systems and controls to identify, monitor and manage operational risks that key participants, other Authorised Persons, service providers (including outsources) and utility providers might pose to itself.

5.8.2. Legal risk

An Authorised Person must have a well‐founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions.

5.8.3. Fraud risk

An Authorised Person must establish and maintain effective systems and controls to:

• (a) deter and prevent suspected fraud against the Authorised Person; and
• (b) report suspected fraud and other financial crimes to the AFSA and other relevant authorities.

5.8.4. Business continuity plan

An Authorised Person must have a business continuity plan, which is subjected to periodic review and scenario testing, that addresses events posing a significant risk of disrupting operations, including events that could cause a widespread or major disruption.

5.9.1. Record keeping obligation

An Authorised Person or Ancillary Service Provider must make and retain records of matters and dealings, including Accounting Records and corporate governance practices which are the subject of requirements and standards under the Framework Regulations and Rules.

5.9.2. Retrieval of records

An Authorised Person or Ancillary Service Provider must ensure that records stored pursuant to GEN 5.9.1 are capable of reproduction on paper within a reasonable period not exceeding five Business Days.

6.1.1. Notification of requirement to produce a report

Where the AFSA requires an Authorised Person to provide it with a report under section 97 of the Framework Regulations (Power to require the production of a report) it will give written notification to the Authorised Person of:

1. (a) the purpose of its report, and
2. (b) its scope, and
3. (c) the timetable for completion and
4. (d) any other relevant matters.

6.1.2. Nomination or approval of Skilled Person

• (a) The Person appointed to produce a report shall be referred to as the “Skilled Person”.
• (b) Where the AFSA nominates the Skilled Person, the Authorised Person must appoint the Person so nominated.
• (c) Where the AFSA invites the Authorised Person to nominate a Skilled Person, the Authorised Person must provide the AFSA with the details of an appropriately qualified Person within such period as the AFSA may direct. The AFSA will confirm within a reasonable period where it approves the appointment of the Person so nominated. If the AFSA does not approve the Person so nominated, it may require the Authorised Person to nominate another Person or itself nominate a Person.

6.1.3. Obligations of Skilled Person

When an Authorised Person appoints a Skilled Person, it must enter into a written contract with the Skilled Person whose terms:

• (a) require and permit the Skilled Person to co‐operate with the AFSA in relation to the Authorised Person and to communicate to the ASFA information on, or his opinion on, matters of which he has, or had, become aware in his capacity as a Skilled Person reporting on the Authorised Person in the following circumstances:

(i) the Skilled Person reasonably believes that, as regards the Authorised Person concerned:

(A) there is or has been, or may be or may have been, a contravention of any requirement that applies to the Authorised Person concerned; and

(B) that the contravention may be of material significance to the AFSA in determining whether to exercise, in relation to the Authorised Person concerned, any powers conferred on the AFSA under any provision of the Framework Regulations;

(ii) the Skilled Person reasonably believes that the information on, or his opinion on, those matters may be of material significance to the AFSA in determining whether the Authorised Person concerned satisfies and will continue to satisfy the fit and proper requirements; or

(iii) the Skilled Person reasonably believes that the Authorised Person is not, may not be, or may cease to be, a going concern;

• (b) require the Skilled Person to prepare a report within the time specified by the AFSA; and
• (c) waive any duty of confidentiality owed by the Skilled Person to the Authorised Person which might limit the provision of information or opinion by that Skilled Person to the AFSA in accordance with (a) or (b).

6.1.4. Contract with Skilled Person

An Authorised Person must ensure that the contract required under GEN 6.1.2:

• (a) is governed by the law of the AIFC; and
• (b) expressly provides that the AFSA has a right to enforce the provisions included in the contract under GEN 6.1.2; and
• (c) expressly provides that, in proceedings brought by the AFSA for the enforcement of those provisions, the skilled Person is not to have available by way of defence, set‐off or counter claim any matter that is not relevant to those provisions; and
• (d) if the contract includes an arbitration agreement, expressly provides that the AFSA is not, in exercising the right in (b) to be treated as a party to, or bound by, the arbitration agreement; and
• (e) provides that the provisions included in the contract under GEN 6.1.2 are irrevocable and may not be varied or rescinded without the AFSA's consent.

6.2.1. Core information

An Authorised Person or Ancillary Service Provider must provide the AFSA with reasonable advance notice of a change in:

• (a) the Authorised Person’s or Ancillary Service Provider's name; or
• (b) any business or trading name under which the Authorised Person or Ancillary Service Provider carries on a Regulated Activity or Market Activity;
•  or Ancillary Service; or
• (c) the address of the Authorised Person’s or Ancillary Service Provider's principal place of business in the AIFC; or
• (d) in the case of a Branch, its registered office or head office address; or
• (e) its legal structure; or
• (f) an Approved Individual’s name or any material matters relating to his fitness and propriety.

6.2.2. Branches

An Authorised Person which is incorporated in the AIFC must provide the AFSA with reasonable advance notice of the establishment or closure of a branch office anywhere in the world from which it carries on financial services.

6.2.3. Regulatory impact

An Authorised Person or Ancillary Service Provider must advise the AFSA immediately if it becomes aware, or has reasonable grounds to believe, that any of the following matters may have occurred or may be about to occur:

1. (a) the Authorised Person’s or Ancillary Service Provider's failure to satisfy the fit and proper requirements; or
2. (b) any matter which could have a significant adverse effect on the Authorised Person’s or Ancillary Service Provider's reputation; or
3. (c) any matter in relation to the Authorised Person or Ancillary Service Provider which could result in serious adverse financial consequences to the financial system or to other Authorised Persons or Ancillary Service Provider; or
4. (d) a significant breach of a Rule by the Authorised Person or Ancillary Service Provider, or any of its Employees; or
5. (e) a breach by the Authorised Person or Ancillary Service Provider, or any of its Employees of any requirement imposed by any applicable law by the Authorised Person or Ancillary Service Provider, or any of its Employees; or
6. (f) any proposed restructuring, merger, acquisition, reorganisation or business expansion which could have a significant impact on the Authorised Person’s or Ancillary Service Provider's risk profile or resources; or
7. (g) any significant failure in the Authorised Person’s or Ancillary Service Provider's systems or controls, including a failure reported to the Authorised Person by the Authorised Person’s or Ancillary Service Provider's Auditor; or
8. (h) any action that would result in a material change in the capital adequacy or solvency of the Authorised Person or Ancillary Service Provider; or
9. (i) non-compliance with Rules due to an emergency outside the Authorised Person’s or Ancillary Service Provider's control and the steps being taken by the Authorised Person or Ancillary Service Provider.

6.2.4. Major Acquisitions

(1) A Bank as defined in BBR Rules, which makes or proposes to make a Major Acquisition as defined in (2) must:

1. (a) if it is incorporated in the AIFC, comply with the requirements in Rule 6.2.4 (4) of GEN rules; and
2. (b) if it is a Branch, comply with the requirements in Rule 6.2.4 (7) of GEN rules.

(2) Subject to (3), a Major Acquisition is an acquisition in which the relevant Bank acquires or proposes to acquire, directly or indirectly, a shareholding in a Body Corporate where that acquisition:

1. (a) is of a value (whether by one acquisition or a series of acquisitions) of 10% or more of:
2. (i) the Bank’s Capital, as defined in BBR Rules; or

(ii) the capital resources of the Bank calculated in accordance with the requirements of the Financial Services Regulator in its home jurisdiction, if it is operating as a Branch in the AIFC; or

1. (b) even if it does not exceed the 10% threshold referred to in (a), it is reasonably likely to have a significant regulatory impact on the Bank’s activities.

(3) An acquisition is not a Major Acquisition for the purposes of (2) if it is an investment made by a Bank:

1. (a) in accordance with the terms of a contract entered into by the Bank as an incidental part of its ordinary business; or
2. (b) as a routine transaction for managing the Bank’s own investment portfolio and therefore can reasonably be regarded as made for a purpose other than acquiring management or control of a Body Corporate either directly or indirectly.

Guidance

(1) Examples of the kind of investments referred to in Rule 6.2.4(2)(b) include an acquisition of a stake in a small specialised trading firm that engages in high risk trades or other activities that could pose a reputational risk to the Bank.

(2) The onus is on a Bank proposing to make an acquisition to consider whether it qualifies as a Major Acquisition under Rule 6.2.4(2)(b). Generally, in the case of a Bank that is operating as a Branch in the AIFC), the significant regulatory impact referred to in Rule 6.2.4 (2) (b) should be prudential risk to the Bank as a whole. If a Bank is uncertain about whether or not a proposed acquisition qualifies as a Major Acquisition under Rule 6.2.4 (2)(b), the Bank may seek guidance from the AFSA.

(3) Examples of contractual arrangements of the kind referred to in Rule 6.2.4 (3)(a) include enforcement of a security interest in the securities of the investee Body Corporate or a loan workout pursuant to a loan agreement entered into between a bank and its client.

(4) Examples of the kind of investments referred to in Rule 6.2.4(3)(b) include temporary investments, such as investments included in the Bank’s trading book or which are intended to be disposed of within a short term (e.g. within 12 months).

(4) A Bank which is an Authorised Firm incorporated in the AIFC must:

1. (a) before making a Major Acquisition:
2. (i) notify the AFSA in writing of the proposed Major Acquisition at least 45 days prior to the proposed date for effecting the Major Acquisition; and

(ii) provide the AFSA with all the relevant information relating to that Major Acquisition to enable the AFSA to assess the regulatory impact of the proposed Major Acquisition on the Bank; and

1. (b) not effect the proposed Major Acquisition unless:
2. (i) it has either received written advice from the AFSA that it has no objection to that Major Acquisition or has not received any written objection or request for additional information from the AFSA within 45 days after the date of the notification; and

(ii) if the AFSA has imposed any conditions relating to the proposed Major Acquisition, it has complied with, and has the on-going ability to comply with, the relevant conditions.

(5) The AFSA may only object to a proposed Major Acquisition if it is of the view that the proposed Major Acquisition is reasonably likely to have a material adverse impact on the Bank’s ability to comply with its applicable regulatory requirements or on the financial services industry in the AIFC as a whole. The AFSA may also impose any conditions it considers appropriate to address any concerns it may have in relation to the proposed Major Acquisition.

(6) Without limiting the generality of its powers, the factors that the AFSA may take into account for the purposes of (2) include:

1. (a) the financial and other resources available to the Bank to carry out the proposed Major Acquisition;
2. (b) the possible impact of the proposed Major Acquisition upon the Bank’s resources, including its capital, both at the time of the acquisition and on an on-going basis;
3. (c) the managerial capacity of the Bank to ensure that the activities of the investee Body Corporate are conducted in a prudent and reputable manner;
4. (d) the place of incorporation or domicile of the investee Body Corporate and whether or not the laws applicable to that entity are consistent with the laws applicable to the Bank. In particular, whether there are any restrictions in relation to exchange of confidential regulatory information that are likely to pose challenges to the AFSA in carrying out its supervisory duties including those relating to consolidated supervision where applicable; and
5. (e) any other undue risks to the Bank or the financial services industry in the AIFC as a whole arising from the proposed Major Acquisition. Guidance Factors which the AFSA may take into account in assessing whether there are any undue risks arising from the proposed Major Acquisition include the size and nature of the business of the investee Body Corporate, its reputation and standing, its present and proposed management structure and the quality of management, the reporting lines and other monitoring and control mechanisms available to the Bank and the past records of the Bank relating to acquisitions of a similar nature.

(7) A Bank which operates as a branch in the AIFC:

1. (a) notify the AFSA in writing of any Major Acquisition in accordance with the notification requirement applying to the Bank under the requirements of the Financial Services Regulator in its home jurisdiction (the home regulator); and
2. (b) if there is no notification requirement applying to the Bank under (a), comply with the requirements in Rule 6.2.4 (4) as if it were a Bank incorporated in the AIFC. The AFSA must follow the same procedures, and shall have the same powers, as set out in Rule

6.2.4 (6) in relation to such a notification.

(8) A Bank which gives to the AFSA a notification under (7)(a) must:

1. (a) notify the AFSA of the Major Acquisition at the same time as it notifies the home regulator;
2. (b) provide to the AFSA the same information as it is required to provide to the home regulator; and
3. (c) provide to the AFSA copies of any communications it receives from the home regulator relating to the notification it has provided to the home regulator as soon as practicable upon receipt.

(9) The AFSA may, for the purposes of the requirements in this section, require from the Bank any additional information relating to the Major Acquisition as it may consider appropriate. A Bank must provide any such additional information to the AFSA promptly.

(10) The AFSA may, where it considers appropriate, withdraw its no objection position or modify or vary any condition it has imposed or any remedial action it has required under the Rules in this section. Guidance The AFSA will generally not withdraw a no objection position it has conveyed to a Bank, except in very limited circumstances. An example of such a situation is where the Bank is found to have provided to the AFSA inaccurate or incomplete information and that commission or omission has a material impact on the AFSA’s no objection decision.

(11) The procedures in Section 11 of the AIFC Financial Services Framework Regulations apply to a decision of the AFSA under this Rule 6.2.4, to object to an acquisition or to impose or vary conditions.

(12) If the AFSA decides to exercise its power under this Rule to object to an acquisition or to impose or vary conditions, the Authorised Firm may appeal to the AIFC Court for a review of the decision.

6.2.5. Suspected Market Abuse

(1) An Authorised Person must notify the AFSA immediately if it:

• (a) receives an order from a Client, or arranges or executes a transaction with or for a Client; and
• (b) has reasonable grounds to suspect that the order or transaction may constitute Market Abuse.

(2) The notification under (1) must specify:

• (a) sufficient details of the order or transaction; and
• (b) the reasons for the Authorised Person suspecting that the order or transaction may constitute Market Abuse.

(3) An Authorised Person must not inform the Client, or any other Person involved in the order or transaction, of a notification under this Rule.

6.2.6. Fraud and errors

An Authorised Person or Ancillary Service Provider must notify the AFSA immediately if one of the following events arises in relation to its activities:

• (a) it becomes aware that an Employee may have committed a fraud against one of its or another Person’s Clients; or
• (b) a fraud has been committed against it; or
• (c) it has reason to believe that a Person is acting with intent to commit a serious fraud against it; or
• (d) it identifies significant irregularities in its accounting or other records, whether or not there is evidence of fraud; or
• (e) it suspects that one of its Employees who is connected with the Authorised Person’s or Ancillary Service Provider's Regulated Activities or Market Activities may be guilty of serious misconduct.

6.2.7. Other regulators

An Authorised Person must advise the AFSA immediately of:

• (a) the granting or refusal of any application for or revocation of authorisation to carry on financial services in any jurisdiction; or
• (b) the granting, withdrawal or refusal of an application for, or revocation of, membership of the Authorised Person of any regulated exchange or clearing house; or
• (c) the Authorised Person becoming aware that a Financial Services Regulator or another enforcement or regulatory agency has started an investigation into the affairs of the Authorised Person; or
• (d) the appointment of inspectors, howsoever named, by a Financial Services Regulator or another enforcement or regulatory agency to investigate the affairs of the Authorised Person; or
• (e) the imposition of disciplinary measures or disciplinary sanctions on the Authorised Person in relation to its financial services or governance by any Financial Services Regulator or any regulated exchange or clearing house.

6.2.8. Action against an Authorised Person

An Authorised Person must notify the AFSA immediately if:

• (a) civil proceedings are brought against the Authorised Person and the amount of the claim is significant in relation to the Authorised Person’s financial resources or its reputation; or
• (b) the Authorised Person is prosecuted for, or convicted of, any offence involving fraud or dishonesty, or any penalties are imposed on it for tax evasion.

6.2.9. Winding up, bankruptcy, insolvency and resolution

An Authorised Person or Ancillary Service Provider must notify the AFSA immediately on:

• (a) the calling of a meeting to consider a resolution for winding up the Authorised Person or Ancillary Service Provider; or
• (b) an application to dissolve the Authorised Person or Ancillary Service Provider, or to strike it from the register maintained by the AIFC Registrar of Companies, or a comparable register in another jurisdiction; or
• (c) the presentation of a petition for the winding up of the Authorised Person or Ancillary Service Provider;or
• (d) the making of, or any proposals for the making of, a composition or arrangement with creditors of the Authorised Person or Ancillary Service Provider; or
• (e) the application of any Person against the Authorised Person or Ancillary Service Provider for the commencement of any insolvency proceedings, resolution action, appointment of any receiver, administrator or provisional liquidator under the law of any country.

6.2.10. Information relating to corporate governance and remuneration

An Authorised Person must provide to the AFSA notice as soon as practicable of any significant changes to its corporate governance framework or the remuneration structure or strategy that affect its Regulated Activities or Market Activities.

6.2.11. Accuracy of information

An Authorised Person or Ancillary Service Provider must take reasonable steps to ensure that all information that it provides to the AFSA in accordance with any applicable legislation is:

• (a) factually accurate or, in the case of estimates and judgements, fairly and properly based; and
• (b) complete, in that it should include anything of which the AFSA would reasonably expect to be notified.

6.2.12. Correction of inaccurate information

An Authorised Person or Ancillary Service Provider must notify the AFSA immediately it becomes aware, or has information that reasonably suggests, that it:

• (a) has or may have provided the AFSA with information which was or may have been false, misleading, incomplete or inaccurate; or
• (b) has or may have changed in a material particular.

6.3.1. Financial statements

An Authorised Person must prepare financial statements in accordance with the International Financial Reporting Standards ("IFRS") for each financial year of the Authorised Person.

6.3.2. Approval of financial statements

The financial statements of an Authorised Person must be approved by the Directors and signed on its behalf by at least one of the Directors.

6.3.3. Accounting records and regulatory returns

An Authorised Person must keep Accounting Records which are sufficient to show and explain transactions are such as to:

• (a) be capable of disclosing the financial position of the Authorised Person on an ongoing basis;
• (b) record the financial position of the Authorised Person as at its financial year end; and
• (c) ensure that any financial statements prepared by the Authorised Person comply with the Framework Regulations and Rules.

6.3.4. Retention of and access to records

An Authorised Person must ensure that its Accounting Records are:

• (a) retained by the Authorised Person for at least six years from the date to which they relate;
• (b) at all reasonable times, open to inspection by the AFSA or the Auditor of the Authorised Person; and
• (c) if requested by the AFSA capable of reproduction, within a reasonable period not exceeding five Business Days, in hard copy and in English.

6.3.5. Financial year end

An Authorised Person must not change its financial year end without the prior consent of the AFSA.

6.3.6. Appointment and termination of Auditors

An Authorised Person must:

• (a) notify the AFSA of the appointment of an Auditor using the form prescribed in Schedule 3;
• (b) prior to the appointment of the Auditor, take reasonable steps to ensure that the Auditor has the required skills, resources and experience to audit the business of the Authorised Person for which the Auditor has been appointed;
• (c) notify the AFSA immediately if the appointment of the Auditor is or is about to be terminated, or on the resignation of its Auditor, using the form prescribed in Schedule 3;
• (d) appoint an Auditor to fill any vacancy in the office of Auditor and ensure that the replacement Auditor can take up office at the time the vacancy arises or as soon as reasonably practicable; and
• (e) comply with any request by the AFSA to replace an Auditor previously appointed by that Authorised Person.

6.3.7. Independence of the Auditor

An Authorised Person must:

• (a) take reasonable steps to ensure that the Auditor and the relevant audit staff of the Auditor are independent of and not subject to any conflict of interest with respect to the Authorised Person; and
• (b) notify the AFSA if it becomes aware, or has reason to believe, that the Auditor or the relevant audit staff of the Auditor are no longer independent of the Authorised Person, or have a conflict of interest which may affect their judgement in respect of the Authorised Person.

6.3.8. Co‐operation with Auditors

An Authorised Person must take reasonable steps to ensure that it and its Employees:

• (a) provide any information to its Auditor that its Auditor reasonably requires, or is entitled to receive as Auditor;
• (b) give the Auditor right of access at all reasonable times to relevant records and information within its possession;
• (c) allow the Auditor to make copies of any records or information referred to in (b);
• (d) do not interfere with the Auditor's ability to discharge its duties;
• (e) report to the Auditor any matter which may significantly affect the financial position of the Authorised Person; and
• (f) provide such other assistance as the Auditor may reasonably request it to provide.

6.3.9. Audit reports

An Authorised Person must:

• (a) require, in writing, its Auditor to:
• (i) conduct an audit of and produce a report on the Authorised Person’s financial statements in accordance with the International Standards on Auditing; and
• (ii) such other reports as the AFSA may require; and
• (b) submit any reports so produced to the AFSA within four months of the Authorised Person’s year end.

1.2.1. Modifications and exclusions stated in a COB rule

The general application rule in COB 1.1 may be modified or excluded to the extent stated in the relevant provision in COB, depending on the type of Authorised Firm involved, the nature of its activities, and/or the classification of the Client to whom it provides services.

1.2.2. Exclusions in relation to certain categories of Centre Participant

For the avoidance of doubt, the requirements in COB do not apply to:

(a) a Representative Office;

(b) unless otherwise provided under Rules made by the AFSA, an Authorised Market Institution (other than an Authorised Crowdfunding Platform), except for COB 3 (Communications with Clients and Financial Promotions), unless otherwise provided under Rules made by the AFSA;

(c) an Authorised Crowdfunding Platform, except for COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement);

(d) intentionally omitted

(e) unless otherwise provided under Rules made by the AFSA, a MTF Operator and an OTF Operator, except for COB 15 (Complaints Handling and Dispute Resolution).

For the purposes of 1.2.2(c), references in COB 3, COB 4, COB 7, COB 8 and COB Schedule

2 to:

(a) "Authorised Firms" shall be read as if it were a reference to "an Authorised Crowdfunding Platforms";

(b) "Regulated Activities" shall be read as if it were a reference to "Market Activities";

(c) references to "Professional Client" or a "Market Counterparty" shall be read as if they were a reference to "Accredited Lender or Accredited Investor"; and

(d) references to "Retail Client" shall be read as if they were a reference to "Retail Lender or Retail Investor".

For the purposes of 1.2.2(e), references in COB 15 to "Retail Client" shall be read as if they were a reference to "Member, who is a natural person with Direct Electronic Access".

Guidance: Other applicable requirements

Although the Centre Participants listed in COB 1.2.2 are not generally subject to the requirements in COB, they will be subject to requirements in other Rules, which may include but are not limited to requirements in REP, AMI and GEN as applicable.

1.2.3. Application in respect of Insurance Intermediaries

The requirements in COB do not apply to Insurance Intermediaries, with the exception of COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement), COB 8.5 (Client money: Insurance Intermediation and Insurance Management) and COB 11</a> (Insurance Intermediaries).

Guidance: Insurance Intermediaries

Given the different nature of their activities compared with other Authorised Firms, Insurance Intermediaries are subject to specific conduct of business requirements that are set out in COB 11.

1.2.4. Application in respect of Trust Service Providers

The requirements in COB do not generally apply to Trust Service Providers, with the exception of COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement), COB 5.2 (Suitability Assessments), COB 7 (Conflicts of Interest), COB 12 (Trust Service Providers), and COB 15 (Record Keeping).

Guidance: Trust Service Providers

Trust Service Providers provide services that are distinct from those provided by other Authorised Firms, so they are not required to comply with all of the COB rules. COB 12 imposes a specific framework on Trust Service Providers that takes into account the nature of their activities and the risk profile that they represent compared with other Authorised Firms.

1.2.5. Application in respect of Ancillary Service Providers

The requirements in COB do not apply to Ancillary Service Providers, with the exception of COB 13 (Ancillary Service Providers).

Guidance: Ancillary Service Providers

Ancillary Service Providers may already be subject to professional standards, regulation by professional bodies, and/or codes of conduct. As a result, they are not required to comply with most of the requirements in COB. Instead, they are subject to duties and obligations under COB 13, which sets out high-level principles applicable to these firms.

1.2.6. Application in respect of Credit Rating Agencies

The requirements in COB do not apply to Credit Rating Agencies, with the exception of COB 14 (Credit Rating Agencies).

Guidance: Credit Rating Agencies

In order to ensure that Credit Rating Agencies provide independent analyses and opinions, COB 14 requires Credit Rating Agencies to comply with high-level principles that are based on international standards promoted by the International Organisation of Securities Commissions.

1.2.7. Table summarising modifications and exclusions

The general application rule in COB 1.1 is modified or excluded to the extent stated in this table in COB 1.2.7 by reference to the category of Client receiving services from the Authorised Firm ("who?") and/or the nature of the activity ("what?").

2.1.1. Obligation to classify Clients

An Authorised Firm providing any Financial Products or Financial Services to any Person must classify that Person as one of the following categories of Client:

• (a) a Retail Client;
• (b) a Professional Client; or
• (c) a Market Counterparty

2.1.2. Obligation to notify classification to Clients

An Authorised Firm must notify a new Client of its classification as a Retail Client, Professional Client, or Market Counterparty in accordance with COB 2.1.1 in respect of the Financial Product or Financial Service being provided to that Client.

2.1.3. Person may be classified as more than one category of Client

An Authorised Firm may classify a Person as belonging to different categories of Client in respect of:

• (a) a specific Financial Product, Financial Service, or Transaction; or
• (b) different types of Financial Product or Transaction, which are to be provided to, or carried out on behalf of, that Person.

2.2.1. Classification as a Retail Client

An Authorised Firm must classify as a Retail Client any Client that is not a Professional Client or a Market Counterparty.

2.2.2. Authorised Firm may choose to treat any Person as a Retail Client

An Authorised Firm may choose to provide Financial Products or Financial Services to any Person as a Retail Client simply by classifying that Person as a Retail Client. If the Authorised Firm classifies the Person as a Retail Client in this way, it will not be required to assess whether that Person would otherwise be classified as a Professional Client or a Market Counterparty.

2.3.1. Classification as a Professional Client

An Authorised Firm may classify a Person as a Professional Client if that Person:

1. (a) meets the requirements to be a Deemed Professional Client; or
2. (b) meets the requirements to be an Assessed Professional Client, in accordance with COB 2.5.1 or 2.5.5, provided that Person has not been classified as a Retail Client in accordance with COB 2.6.

2.4.1. Requirements to be a Deemed Professional Client

For the purposes of COB 2.3.1, each of the following entities is a Deemed Professional Client unless it is a Market Counterparty or is given a different classification under COB 2:

1. (a) a national or regional government;
2. (b) a public body that manages public debt;
3. (c) a central bank;
4. (d) an international or supranational institution (such as the World Bank, the International

Monetary Fund, or the European Investment Bank) or other similar international organisation;

1. (e) an Authorised Firm, or any other authorised or regulated financial institution, including a bank, securities firm or insurance company;
2. (f) an Authorised Market Institution, or any other authorised or regulated exchange, trading facility, central securities depository, or clearing house;
3. (g) a Collective Investment Scheme or its management company, or any other authorised or regulated collective investment undertaking or the management company of such an undertaking;
4. (h) a pension fund or the management company of a pension fund;
5. (i) a commodity dealer or a commodity derivatives dealer;
6. (j) a Large Undertaking as specified in COB 2.4.2;
7. (k) a Body Corporate whose shares are listed or admitted to trading on any exchange of an IOSCO member country;
8. (l) a trustee of a trust which has, or had during the previous 12 months, assets of at least USD 10 million; or
9. (m) 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.

2.4.2. Large Undertakings

A Person is a Large Undertaking for the purposes of COB 2.4.1(j) if it met, as at the date of its most recent financial statements, at least two of the following requirements:

• (a) it has total assets of at least USD 20 million on its balance sheet;
• (b) it has a net annual turnover of at least USD 40 million; or
• (c) it has own funds of at least USD 2 million.

2.5.1. Assessed Professional Clients: Individual Clients

For the purposes of COB 2.3.1, an Authorised Firm may treat an individual Client as an Assessed Professional Client if:

• (a) the Client has net assets of at least USD 100,000; and
• (b) either:

(i) the Authorised Firm assesses the Client, on reasonable grounds, to have sufficient experience and understanding of relevant Financial Products, Financial Services, Transactions and any associated risks; or

(ii) the Client works or has worked in the previous two years in an Authorised Firm or any other authorised or regulated financial institution, including a bank, securities firm or insurance company, in a position that requires knowledge of the type of Financial Products, Financial Services or Transactions envisaged; and

• (c) the following procedure is followed:

(i) the Client must confirm in writing to the Authorised Firm that it wishes to be treated as a Professional Client either:

(1) generally;

2) in respect of a specific Financial Product, Financial Service, or Transaction; or

(3) in respect of a type of Financial Product, Financial Service, or Transaction;

(ii) the Authorised Firm must give the Client a clear warning in writing setting out the protections that the Client may lose as a result of giving up its classification as a Retail Client; and

(iii) the Client must confirm in writing, in a separate document from the client agreement or other contract, that it is aware of the consequences of losing such protections.

Guidance: Meaning of an "individual"

For the purposes of COB 2.5.1, an "individual" means a Person who is a natural person and not an Undertaking.

2.5.2. Calculation of an individual's net assets

For the purposes of COB 2.5.1(a), the calculation of an individual Client's net assets:

• (a) must exclude the value of the primary residence of the Client; and
• (b) may include any assets held directly or indirectly by the Client.

2.5.3. Assessment of experience and understanding

For the purposes of the assessment required under COB 2.5.1(b)(i) and 2.5.6(a), an Authorised Firm must, where applicable, consider the following matters:

• (a) the Person’s knowledge and understanding of:

(i) the relevant Financial Products, Financial Services, and Transactions; and

(ii) any associated risks, either generally or in relation to a specific Financial Product, Financial Service, or Transaction;

• (b) the length of time during which the Person has participated in financial market activity;
• (c) the frequency with which the Person has carried out Transactions;
• (d) the extent to which the Person has previously relied on professional financial advice;
• (e) the size and nature of Transactions that have been undertaken by, or on behalf of, the Person in financial markets;
• (f) the Person’s relevant qualifications or training;
• (g) the composition and size of the Person’s portfolio of Investments;
• (h) in the case of insurance Transactions, relevant experience in relation to similar Transactions to be able to understand the risks associated with such Transactions; and
• (i) any other matters which the Authorised Firm considers relevant.

2.5.4. Legal structures or vehicles containing an individual's investment portfolio

An Authorised Firm may classify as an Assessed Professional Client a legal structure or vehicle, including an Undertaking, trust or foundation, that is set up solely for the purpose of managing the investment portfolio of an individual where that individual has been assessed as meeting the requirements in COB 2.5.1.

2.5.5. Individual joint account holders

An Authorised Firm may classify as a Professional Client an individual (the “joint account holder”) who has a joint account with an individual assessed as meeting the requirements in COB 2.5.1 (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;
• (c) the following procedure is followed:

(i) the joint account holder must confirm in writing to the Authorised Firm that investment decisions relating to the joint account are generally made for, or on behalf of, him by the primary account holder;

(ii) the joint account holder must confirm in writing to the Authorised Firm that he wishes to be treated as a Professional Client either:

(1) generally;

(2) in respect of a specific Financial Product, Financial Service or Transaction; or

(3) in respect of a type of Financial Product or Transaction;

(ii) the Authorised Firm must give the joint account holder a clear warning in writing setting out the protections that the joint account holder may lose as a result of giving up his classification as a Retail Client; and

(iii) the joint account holder must confirm in writing, in a separate document from the client agreement or other contract, that he is aware of the consequences of losing such protections.

2.5.6. Assessed Professional Clients: Undertakings

For the purposes of COB 2.3.1, an Authorised Firm may treat an Undertaking as an Assessed Professional Client if:

• (a) the Authorised Firm assesses the Undertaking (which may involve assessing an individual or individuals authorised to make investment decisions on behalf of the Undertaking), on reasonable grounds, to have sufficient experience and understanding of the relevant Financial Products, Financial Services or Transactions and any associated risks; and
• (b) the Undertaking has own funds of at least USD 1 million.

2.5.7. Other types of Undertaking

An Authorised Firm may also classify an Undertaking as an Assessed Professional Client if the Undertaking has:

• (a) a Controller;
• (b) a Holding Company;
• (c) a Subsidiary (whether direct or indirect); or
• (d) a joint venture partner,

that meets the requirements in COB 2.5.6 to be classified as an Assessed Professional Client.

2.5.8. Client no longer meeting the requirements to be a Professional Client

If an Authorised Firm becomes aware that a Client no longer meets the requirements to be classified as a Professional Client, the Authorised Firm must, as soon as possible, inform the Client that this is the case and, where appropriate, discuss with the Client the steps that the Authorised Firm and the Client may take to address the situation, which may include the Authorised Firm notifying the Client of its reclassification.

2.6.1. Obligation to notify Professional Client of right to be treated as a Retail Client

If an Authorised Firm provides services to Retail Clients and Professional Clients, it must, when first establishing a relationship with a Person as a Professional Client, notify that Person in writing of:

• (a) that Person’s right to be classified as a Retail Client;
• (b) the higher level of protection available to Retail Clients; and
• (c) the period of time within which the Person may choose to be classified as a Retail Client.

If the Person does not choose to be classified as a Retail Client within the time specified by the Authorised Firm, the Authorised Firm may classify that Person as a Professional Client.

2.6.2. Authorised Firm not providing services to Retail Clients

If an Authorised Firm does not provide services to Retail Clients, it must inform its Clients of this fact and any relevant consequences.

2.6.3. Professional Client that asks to be treated as a Retail Client

If a Professional Client makes a request to the Authorised Firm to be treated as a Retail Client, the Authorised Firm must classify it as a Retail Client, unless the Authorised Firm does not provide services to Retail Clients.

Guidance: Request to an Authorised Firm that does not provide services to Retail Clients

An Authorised Firm that does not provide services to Retail Clients may receive a request from a Professional Client asking to be classified as a Retail Client. If the nature of the Client or the level of protection that it requires are such that it no longer meets the requirements to be a Professional Client, then the Authorised Firm should cease providing services to that Client.

2.7.1. Classification as a Market Counterparty

An Authorised Firm may classify a Person as a Market Counterparty, unless and to the extent that Person is given a different classification under this chapter COB 2, if that Person meets the requirements to be:

1. (a) a Deemed Professional Client; or
2. (b) an Assessed Professional Client and is the subsidiary of a Holding Company that is a Deemed Professional Client by virtue of being a Large Undertaking falling within COB 2.4.1(j), provided that the arrangement meets the conditions in COB 2.7.2.

2.7.2. Requirement for confirmation by the Client

In order for an Authorised Firm to classify a Person as a Market Counterparty, the Authorised Firm must ensure that:

• (a) the Person has been given prior written notification of its classification as a Market Counterparty; and
• (b) the Person has not requested to be classified other than as a Market Counterparty within the time specified in the notification.

2.8.1. Trusts

If an Authorised Firm intends to provide Financial Products or Financial Services to a trust, it must, unless otherwise provided in COB, treat the trustee of the trust, and not the beneficiaries of the trust, as its Client.

2.8.2. Funds

If an Authorised Firm provides a Financial Product or Financial Service to a Fund that does not have a separate legal personality, that Fund will be the Client of the Authorised Firm.

2.9.1. General application of the "agent as client" rule

Subject to COB 2.9.2, if an Authorised Firm is aware that a Person (the "agent"), with or for whom it is intending to provide a service is acting as an agent for another Person (the "underlying client") in relation to that service, then the Authorised Firm must treat the agent as its Client in respect of the service.

2.9.2. Exclusion from the "agent as client" rule

The underlying client is treated, for the purposes of these Rules, as the Client of the Authorised Firm in respect of the service, if:

• (a) the Authorised Firm has agreed with the agent in writing to treat the underlying client as its Client; or
• (b) the agent is neither:

(1) another Authorised Firm; or

(2) an Authorised Market Institution, and the main purpose of the arrangements between the parties is the avoidance of duties that the Authorised Firm would otherwise have to the underlying client.

2.9.3. Agreement in relation to more than one underlying client

If an Authorised Firm makes an agreement with the agent under COB 2.9.2(a) in relation to more than one underlying client, the Authorised Firm may rely upon the agent to act as a single point of contact for all communications between the Authorised Firm and all of the underlying clients for which the agent is acting. Accordingly, where the Authorised Firm communicates with the underlying clients, the Authorised Firm may send to, or receive from, the agent a single communication covering all of the underlying clients, without having to notify or obtain consent from each underlying client. However, where the Authorised Firm is required to provide any communications to any single underlying client, relating to matters specific to that underlying client, the Authorised Firm will still be required to provide to the agent the information specific to that underlying client, including the following:

• (a) any risk warnings required by COB;
• (b) trade confirmations for the purposes of COB 9</a>; and
• (c) periodic statements for the purposes of COB 9.

2.10.1. Requirement to keep records

An Authorised Firm must keep records of:

• (a) the procedures which it has followed under COB 2, including any documents that evidence the Client’s classification; and
• (b) any notification sent to the Client under COB 2, together with evidence of despatch.

2.10.2. Length of recordkeeping requirement

The records in COB 2.10.1 must be kept for at least six years from the date on which the business relationship with a Client ended.

2.10.3. Date on which the business relationship ended

For the purposes of COB 2.10.2, an Authorised Firm may, if the date on which the business relationship with the Client ended is unclear, treat the date of the completion of the last transaction with the Client as the date on which the business relationship ended.

2.10.4. Obligation to provide access to the AFSA

An Authorised Firm must ensure that the AFSA has access to all of the records required under COB 2.10.1, 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. An Authorised Firm must notify the AFSA immediately if, for any reason, it is no longer able to provide access to these records.

3.1.1. General requirement

COB 3 applies to:

• (a) an Authorised Firm communicating with a Client in relation to a Regulated Activity; and/or
• (b) an Authorised Firm communicating or approving a Financial Promotion.

3.1.2. Territorial scope

This chapter COB 3 applies to:

1. (a) any communications of an Authorised Firm to a Client; and/or
2. (b) any Financial Promotions communicated or approved by an Authorised Firm, in relation to a Regulated Activity carried on by an Authorised Firm operating within the jurisdiction of the AIFC as specified in Part 1 of the Framework Regulations.

3.2.1. General requirement

An Authorised Firm must ensure that:

• (a) any communication with a Client in relation to a Financial Product or Financial Service; or
• (b) any Financial Promotion that it communicates or approves, is fair, clear and not misleading.

3.2.2. No avoidance of regulatory liability

Any communication by an Authorised Firm with a Client, or any Financial Promotion that it communicates or approves, must not attempt to limit or avoid any duty or liability it may have to that Client or any other Person under any applicable AIFC Rules or Regulations.

3.2.3. Information to be communicated directly to Client

Where a Rule in COB requires information to be provided to a Client, the Authorised Firm must provide that information directly to the Client and not to another Person, unless it is on the written instructions of the Client.

Guidance: Meaning of "communication"

For the purposes of COB 3, a communication includes, but is not limited to, 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 Product or Financial Service and any other communication which relates in whole or in part to the provision of a Financial Product or Financial Service.

3.3.1. Prohibition on Financial Promotions

A Person must not make a Financial Promotion in relation to a Regulated Activity carried on an Authorised Firm licensed by the AFSA unless:

1. (a) the Person is an Authorised Firm;
2. (b) the content of the Financial Promotion is approved by an Authorised Firm; or
3. (c) the Financial Promotion is exempt under COB 3.3.3.

Persons who make a Financial Promotion falling within (a), (b) or (c) above shall be "Authorised Promoters" for the purposes of this COB 3.

3.3.2. Financial Promotion by a Representative Office

A Representative Office may make a Financial Promotion only in relation to a Financial Product or Financial Service offered both:

• (a) in a jurisdiction other than the AIFC; and
• (b) by a related party of the Representative Office.

3.3.3. Exempt Financial Promotions

For the purposes of COB 3.3.1(c), a communication is an exempt Financial Promotion if it is:

• (a) directed at and capable of acceptance exclusively by a Person who is believed by the Person making the Financial Promotion, on reasonable grounds, to be a Professional Client or Market Counterparty;
• (b) made to a Person as a result of an unsolicited request by that Person to receive the Financial Promotion;
• (c) made or issued by or on behalf of a government or non-commercial government entity, including a central bank;
• (d) made by a Person in the course of providing legal or accountancy services and may reasonably be regarded as incidental to and a necessary part of the provision of such services;
• (e) included in a Prospectus approved by the AFSA in accordance with MAR; or
• (f) included in any document required or permitted to be published under the Listing Rules.

3.3.4. Other exclusions from the Financial Promotions Prohibition

A Person does not breach the Financial Promotions Prohibition if:

• (a) the Person acts as a mere conduit for the making of the Financial Promotion, such as:

(i) a newspaper or magazine;

(ii) a website carrying third-party banner advertisements;

(iii) a postman or courier;

(iv) a person paid to hand out promotional material to the public and an event venue, unless in each case that Person created the Financial Promotion; or

• (b) the Financial Promotion is not made for a commercial or business purpose.

3.3.5. Content of a Financial Promotion

An Authorised Promoter must ensure that any Financial Promotion that it communicates or approves contains the information in Schedule 5.

3.3.6. Financial Promotions included in other communications

If an Authorised Promoter communicates information to a Client (whether in a document required by these Rules or otherwise), the Person must not include or embed a Financial Promotion in the communication in a way that obscures:

• (a) the objectives or purpose of the communication; or
• (b) the nature or purpose of the Financial Promotion.

3.3.7. Withdrawal of a financial promotion

If an Authorised Promoter becomes aware that a Financial Promotion that it has previously communicated or approved does not comply or no longer complies with this Rule, it must ensure that the Financial Promotion is withdrawn as soon as practicable by either:

• (a) ceasing to make the Financial Promotion and telling any other Person known to be relying on it that the promotion is withdrawn; or
• (b) withdrawing its approval and telling any Person known to be relying on it that the promotion is withdrawn.

3.3.8. Restriction on communicating Financial Promotions

An Authorised Promoter that communicates or approves a Financial Promotion must ensure that:

• (a) the Financial Promotion complies with any applicable AIFC laws, Rules or Regulations;
• (b) any material statements of fact in the Financial Promotion are accurate and up to date;
• (c) it does not distribute a Financial Promotion if it becomes aware that the Financial Product or Financial Service that is the subject of the Financial Promotion is in breach of legal or regulatory requirements;
• (d) any Financial Promotion intended for Professional Clients and/or Market Counterparties is not communicated to any persons who are not Professional Clients and/or Market Counterparties, as appropriate;
• (e) no person communicates or otherwise uses the Financial Promotion on behalf of the Authorised Firm in a manner that amounts to a breach of the requirements in this Rule; and
• (f) the Financial Promotion does not mention an approval or authorisation of the AFSA that has not been given in writing by the AFSA.

3.3.9. Financial promotions for Retail Clients

Before an Authorised Promoter makes or approves a Financial Promotion directed at Retail Clients, it must ensure that the Financial Promotion:

• (a) is accurate and does not emphasise any potential benefits of a specified Financial Product without also giving a fair and prominent indication of any relevant risks;
• (b) is sufficient for the needs of, and presented in a way that is likely to be understood by, the average member of the group to whom it is addressed or by whom it is likely to be received; and
• (c) does not disguise, diminish or obscure important items, statements or warnings.

3.3.10. Comparisons and contrasts

If an Authorised Promoter makes or approves a Financial Promotion that contains a comparison or contrast, it must ensure that:

• (a) the comparison is meaningful and presented in an objective and balanced way;
• (b) the sources of the information used for the comparison are stated; and
• (c) the key facts and assumptions used to make the comparison are included.

3.3.11. Past performance and forecasts

An Authorised Promoter must ensure that any information or representation in a Financial Promotion relating to past performance, or any future forecast based on past performance or other assumptions, which is provided to or targeted at Retail 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.

3.4.1. Application

COB 3.4 applies to an Authorised Promoter in relation to the communication to a Retail Client of an Unsolicited Real Time Financial Promotion.

Guidance: Non-application to Professional Clients and Market Counterparties The restrictions on Unsolicited Real Time Financial Promotion in COB 3.4 do not apply to Professional Clients or Market Counterparties because it is expected that these categories of Client are better able to assess the risks of a Financial Product or Financial Service, including when engaging in interactive dialogue with a representative of an Authorised Firm.

3.4.2. Meaning of an Unsolicited Real Time Financial Promotion

A Financial Promotion is considered to be an Unsolicited Real Time Financial Promotion if it is made by way of interactive dialogue:

• (a) which:

(i) was not initiated by the recipient of the Financial Promotion; and

(ii) does not take place in response to an express request from the recipient of the Financial Promotion; or

• (b) in relation to which it was not clear from all the circumstances when the dialogue was initiated or requested, that during the course of the dialogue, communications would be made concerning the kind of controlled activities and controlled investments to which the communications in fact made relate.

Guidance: Examples of Unsolicited Real Time Financial Promotions An Unsolicited Real Time Financial Promotion would normally be expected to involve or require an immediate response from the recipient, such as a personal visit, interactive voice communication (including a telephone conversation), or other interactive dialogue. Unsolicited Real Time Financial Promotions are considered to present higher risks to Retail Clients and therefore require additional safeguards compared with solicited and/or non-real time Financial Promotions. Non-real time Financial Promotions include a letter, email, publication, website, television advertisement, or radio broadcast, which generally lack the interactive element and immediacy of a real time Financial Promotion.

3.4.3. No express request for a real time Financial Promotion

For these purposes, a Person is not to be treated as expressly requesting a real time Financial Promotion:

• (a) because he omits to indicate that he does not wish to engage in any or any further dialogue; or
• (b) because he agrees to standard terms that state that such dialogue will take place, unless he has signified clearly that, in addition to agreeing to the terms, he is willing for them to take place. If the dialogue is initiated or requested by a recipient (R), it is treated as also having been initiated or requested by any other person to whom it is made at the same time as it is made to R if that other recipient is a Family Member of R or expected to engage in any investment activity jointly with R.

3.4.4. Exemption for image advertising

COB 3.4 does not apply if the Financial Promotion consists only of:

• (a) the name of the Authorised Promoter;
• (b) a logo or other image associated with the Authorised Promoter;
• (c) a contact point; and
• (d) a reference to the types of Financial Product or Financial Service provided by the Authorised Promoter, or to its fees.

3.4.5. Restriction on Unsolicited Real Time Financial Promotions

An Authorised Promoter must not make an Unsolicited Real Time Financial Promotion unless the recipient is an existing Client of the Authorised Promoter and the relationship is such that the Authorised Promoter reasonably believes that:

• (a) the recipient understands the risks associated with the relevant Investment; and
• (b) the recipient would expect to be contacted by the Authorised Promoter for the purpose of communicating Financial Promotions in real time; and

3.4.6. Restriction on nature of Investments

An Unsolicited Real Time Financial Promotion must only relate to an Investment that is:

• (a) a government Security; or
• (b) a listed Security that is regularly traded on an Authorised Investment Exchange or other authorised and regulated exchange, except that it is not permitted to communicate a Financial Promotion in real time in relation to Warrants or any Security that embeds a derivative.

3.4.7. Procedure for Unsolicited Real Time Financial Promotions

An Authorised Promoter must not communicate an Unsolicited Real Time Financial Promotion to a Client who is not at the Authorised Promoter's premises, unless the Person communicating it:

• (a) only does so at an appropriate time of the day;
• (b) identifies himself and the firm he represents at the outset and makes clear the purpose of the communication;
• (c) clarifies if the Client would like to continue with or terminate the communication, and terminates the communication at any time that the Client requests it; and
• (d) gives a contact point to any Client with whom he arranges an appointment.

3.5.1. Record keeping requirement

An Authorised Promoter must keep a record of each Financial Promotion that it makes or approves.

3.5.2. Content of records

The record must include at least the following detail:

• (a) the name of the senior Employee who reviewed the Financial Promotion;
• (b) the date the Financial Promotion was made or approved;
• (c) if the Financial Promotion was in writing, a copy of the Financial Promotion; and
• (d) if the Financial Promotion was not in writing, details of the Financial Promotion and its outcome, including a note stating if the Client requested the termination of a real time Financial Promotion. The Authorised Promoter must keep the records for at least 6 years after the Financial Promotion is no longer made.

4.2.1. Requirement to enter into a client agreement

Subject to COB 4.2.3, an Authorised Firm must not carry on a Regulated Activity with or for a Person unless:

1. (a) the Authorised Firm has provided to that Person the key information specified in Schedule 2 in good time before the service is provided to enable the Person to make an informed decision relating to the relevant Regulated Activity; and
2. (b) if the Person is classified as a Retail Client, there is a written client agreement entered into between the Authorised Firm and that Person.

Guidance: Meaning of "key information"

In this COB 4.2, "key information" means the information specified in Schedule 2.

4.2.2. Relationship between key information and client agreement

An Authorised Firm may either:

• (a) provide a person with a copy of the proposed client agreement containing the key information; or
• (b) provide the key information separately from the client agreement.

4.2.3. Where it is impracticable to provide key information or enter into a client agreement

An Authorised Firm may provide a Financial Product or Financial Service to a Retail Client or Professional Client without having to provide key information and/or enter into a client agreement in accordance with COB 4.2.1 where it is impracticable to do so, provided that the Authorised Firm:

• (a) first explains to the Client why it is impracticable to enter into a client agreement; and
• (b) enters into a client agreement as soon as practicable thereafter.

Guidance: Example of where it may be impracticable

It may be impracticable to provide the key information or enter into a client agreement if a Client requests the Authorised Firm to execute a transaction on a time-critical basis.

4.2.4. Records of explanation to the Client

Where an Authorised Firm has given the explanation referred to in COB 4.2.3(a) verbally, it should maintain sufficient records to enable the Authorised Firm to demonstrate to the AFSA that it has provided that explanation to the Client.

5.1.1. Application of requirement to assess suitability

COB 5.2 applies where an Authorised Firm:

1. (a) Advises on Investments;
2. (b) Manages Investments; or
3. (c) Provides Trust Services (subject to COB 5.2.8)

5.1.2. Application of requirement to assess appropriateness

COB 5.3 applies where an Authorised Firm is:

• (a) Dealing in Investments as Principal;
• (b) Dealing in Investments as Agent, or
• (c) receiving and transmitting orders for a Client, and is not Advising on Investments or Managing Investments.

Guidance: Receiving and transmitting orders An Authorised Firm carries on this activity of "receiving and transmitting orders" if it both receives an order from a Client for a transaction in an Investment and transmits it to another party, such as a broker, for execution or for onward transmission to the executing broker or venue.

5.1.3. Market Counterparties

COB 5 does not apply where the Authorised Firm provides a Financial Service to a Market Counterparty.

5.2.1. Requirement to assess suitability

When Advising on Investments or Managing Investments for a Client or Providing Trust Services, an Authorised Firm must take reasonable steps to ensure that any recommendation of a service or recommendation or decision to trade on behalf of a Client is suitable for the Client.

5.2.2. Nature of suitability assessment

When making its recommendation of a service or recommendation or decision to trade on behalf of a Client, the Authorised Firm must assess the Client's:

1. (a) investment or other objectives;
2. (b) financial situation; and
3. (c) knowledge and experience in relation to the type of Investment or Investment Service concerned, so as to ensure that the recommendation or decision to trade is suitable for that particular Client.

5.2.3. Investment objectives

The Authorised Firm must assess the Client's investment objectives by, where appropriate, considering the length of time for which the Client intends to hold Investments, and taking into account the Client's risk profile and tolerance for risk, and the purpose of the relevant Investment.

5.2.4. Financial situation

The Authorised Firm must assess the Client's financial situation by, where appropriate, requesting information on the source and extent of the Client's income, assets, Investments, Real Property, and any regular financial commitments or liabilities.

5.2.5. Knowledge and experience

The Authorised Firm must consider the Client's knowledge and experience by taking into account, to the extent appropriate for the circumstances:

• (a) the types of Investment, Investment Service and Transaction with which the Client is familiar;
• (b) the nature, volume, and frequency of the Client’s Transactions in Investments and the period over which they have been carried out;
• (c) the level of education, and profession or relevant former profession of the Client; and
• (d) the Client's knowledge and understanding of any associated risks.

5.2.6. Insufficient information

If an Authorised Firm does not obtain sufficient information to assess suitability for the purposes of COB 5.2.2, the Authorised Firm must not recommend an Investment or Investment Service, or make a decision to trade.

5.2.7. Professional Clients

An Authorised Firm may assume, when making a recommendation, or decision to trade, for or on behalf of a Professional Client, that:

• (a) the Client has the necessary knowledge and experience for the purposes of COB 5.2.2(c); and
• (b) if the Client is a Deemed Professional Client, the Client has an adequate financial situation and the necessary knowledge and experience for the purposes of COB 5.2.2(b) and (c).

5.2.8. Firms providing trust services

An Authorised Firm Providing Trust Services does not have to assess the Client's knowledge and experience or risk tolerance when assessing the suitability of the service to a particular Client, because these considerations are not considered to be relevant to the Regulated Activity of Providing Trust Services.

5.2.9. Suitability reports

When Advising on Investments for a Retail Client, an Authorised Firm must provide the Client with a suitability report that must include:

• (a) an outline of the advice given;
• (b) an explanation of why the recommendation is suitable, including how it meets the client's objectives and personal circumstances; and
• (c) a statement bringing to the client's attention the need for periodic review of suitability (where relevant).

5.3.1. Requirement to assess appropriateness

When Dealing in Investments as Principal, Dealing in Investments as Agent, or receiving and transmitting orders for a Client, an Authorised Firm must ask for information about the Client's knowledge and experience in relation to the type of Investment or Investment Service concerned to assess whether the Investment or Investment Service are appropriate for that Client.

Guidance: Client engaged in a course of dealings If a Client engages in a course of dealings involving a specific type of Investment or Investment Service through the services of an Authorised Firm, the Authorised Firm is not required to make a new assessment on the occasion of each separate Transaction. An Authorised Firm complies with COB 5.3 provided that it makes the necessary appropriateness assessment before providing the relevant service.

5.3.2. Exemption from requirement to assess appropriateness

An Authorised Firm is not required to assess appropriateness if:

• (a) the service provided to the Client:

(i) only consists of the execution and/or the reception and transmission of orders;

(ii) relates to the Investments specified in COB 5.3.3 below; and

(iii) is provided at the initiative of the Client;

• (b) the Client has been clearly informed that in the provision of this service the Authorised Firm is not required to assess the appropriateness of the Investment or Investment Service provided or offered and that therefore he does not benefit from the protection of the rules on assessing appropriateness; and
• (c) the Authorised Firm complies with its obligations in relation to conflicts of interest.

5.3.3. Exempt Investments for the purposes of COB 5.3.2

The Investments that are exempted in accordance with COB 5.3.2(a)(ii) are:

• (a) Shares admitted to trading on an Authorised Investment Exchange or other authorised and regulated exchange; or
• (b) bonds or other forms of securitised debt (excluding those bonds or securitised debt that embed a Derivative); or
• (c) other non-complex Investments.

Guidance: Non-complex Investments An Investment is non-complex if it satisfies the following criteria:

• (a) it is not a Derivative or a Security giving the right to acquire or sell a transferable security or giving rise to a cash settlement determined by reference to transferable Securities, currencies, interest rates or yields, commodities or other indices or measures;
• (b) there are frequent opportunities to dispose of, redeem, or otherwise realise the Investment at prices that are publicly available to the market participants and that are either market prices or prices made available, or validated, by valuation systems independent of the issuer;
• (c) it does not involve any actual or potential liability for the client that exceeds the cost of acquiring the Investment; and
• (d) adequately comprehensive information on its characteristics is publicly available and is likely to be readily understood so as to enable the average Retail Client to make an informed judgment as to whether to enter into a Transaction in that Investment.

5.3.4. Nature of appropriateness assessment

The Authorised Firm must assess whether the Client has the necessary knowledge and experience in order to understand the risks involved in relation to the relevant Investment or Investment Service.

5.3.5. Client's knowledge and experience

When assessing the appropriateness of the Investment or Investment Service for the Client, the Authorised Firm must consider the Client's knowledge and experience by taking into account, to the extent appropriate for the circumstances:

• (a) the types of Investment Service, Investment and Transaction with which the Client is familiar;
• (b) the nature, volume, and frequency of the Client’s Transactions in Investments and the period over which they have been carried out;
• (c) the level of education, and profession or relevant former profession of the Client; and
• (d) the Client's knowledge and understanding of any associated risks.

5.3.6. Professional Clients

An Authorised Firm may assume that a Professional Client has the necessary knowledge and experience for the purposes of COB 5.3.4.

5.3.7. Warning the Client

If an Authorised Firm considers that the Investment Service, Investment or Transaction is not appropriate for the Client, it must issue a warning to the Client that it is not considered to be appropriate.

5.6.1. Product disclosure document—preparation

An Authorised Firm must prepare a Product Disclosure Document for each Packaged Product it produces.

5.6.2. Product disclosure document—provision requirement

(1) An Authorised Firm (the selling firm) must not sell, or arrange for the sale of, a Packaged Product to a Retail Client unless it has given the Client, not later than a reasonable time before the Client becomes contractually bound in relation to the sale of the Packaged Product:

1. (a) a Product Disclosure Document for the Packaged Product; or
2. (b) if the Packaged Product was produced by another Authorised Firm—a Product Disclosure Document that complies with subrule (2); or
3. (c) if the Packaged Product was produced by a person in a jurisdiction other than the AIFC—disclosure documentation that complies with subrule (3).

(2) If the Packaged Product was produced by another Authorised Firm, the Product Disclosure Document given to the Retail Client under subrule (1) (b):

1. (a) must be the Product Disclosure Document prepared by the other Authorised Firm; but
2. (b) must prominently display each of the following:
3. (i) the name of the selling firm;

(ii) either the address of the selling firm or a contact point from which the address is available;

(iii) the selling firm’s regulatory status

(3) If the Packaged Product was produced by a person in a jurisdiction other than the AIFC, the disclosure documentation given to the Retail Client under subrule (1) (c) complies with this subrule if:

1. (a) the selling firm is satisfied on reasonable grounds that:
2. (i) the disclosure documentation was prepared by the person in accordance with the requirements of the law of the other jurisdiction; and

(ii) those requirements are broadly equivalent to the requirements of this division; and

1. (b) the disclosure documentation prominently displays:
2. (i) the information mentioned in subrule (2) (b) (i) to (iii); and

(ii) if the Packaged Product is a Life Policy or a Family Takaful Contract:

(A) a statement to the effect that the person who produced the Packaged Product (the insurer or the Takaful Operator) is not authorised or regulated by the AFSA; and

(B) an explanation of any differences between the cancellation rights (if any) applying in relation to the Packaged Product (including the length of any period to exercise the rights) and those that would be provided under these rules if the insurer or the Takaful Operator as the case may be, were an Authorised Firm; and

(C) a warning to the effect that the claims handling procedures applying in relation to the Packaged Product may differ from those provided under these rules.

(4) If a Life Policy or a Family Takaful Contract sold by an Authorised Firm to a Retail Client is varied and, because of the variation, the Client has a right to cancel the relevant Life Policy or the Family Takaful Contract as the case may be, under COB 19.2.2 (Variations of Life Policies or Family Takaful Contract —right to cancel), the firm must:

1. (a) update the document that it gave the Client under subrule (1) in relation to the Life Policy or the Family Takaful Contract to reflect the variation; and
2. (b) give a copy of the updated document to the Client. Guidance for COB 5.6.2 (2) and (3)

1 An Authorised Firm may comply with COB 5.6.2 (2) (b) or (3) (b) by including the required information in a sticker or wrapper attached to the Product Disclosure Document or disclosure documentation.

2 The purpose of COB 5.6.2 (3) is to allow an Authorised Firm to give disclosure documentation that meets the disclosure objectives of a Product Disclosure Document, even if the form or content is different in matters of detail from that required by this division. For example, an Authorised Firm could provide a disclosure document that uses a projection or illustration prepared in accordance with rules prescribed by an overseas regulator, if these ensure a fair projection based on objective and reasonable assumptions.

5.6.3. Product disclosure document—form

An Authorised Firm must ensure that a Product Disclosure Document given by it to a Retail Client for a Packaged Product:

1. (a) is produced and presented to at least the same quality and standard as the sales or marketing material used by it to promote the Packaged Product; and
2. (b) is separate from any other material given to the Client; and
3. (c) displays the product provider’s brand at least as prominently as any other brand displayed; and
4. (d) does not disguise, diminish or obscure important items, statements or warnings.

5.6.4. Product disclosure document—content

(1) An Authorised Firm must ensure that a Product Disclosure Document prepared by it for a Packaged Product includes each of the following:

1. (a) the firm’s name;
2. (b) either the address of the firm or a contact point from which the address is available;
3. (c) the firm’s regulatory status;
4. (d) the following statement prominently displayed:

‘The Astana Financial Services Authority is the independent financial services regulator for the Astana International Financial Centre. It requires us, [insert Authorised Firm’s name], to give you this important information to help you to decide whether this [insert ‘product’ or product name] is right for you. You should read this document carefully so that you understand what you are buying, and then keep it safely for future reference.’;

1. (e) a description, appropriate for the Packaged Product’s complexity, of its nature, its particular characteristics, how it works, and any limitations or minimum standards that apply;
2. (f) enough information about the material benefits and risks of buying the product for a Retail Client to be able to make an informed decision about whether to buy;
3. (g) the availability of the firm’s internal complaint-handling procedures and how a complaint may be made to the firm;
4. (h) whether there is a right to cancel and, if there is a right to cancel, the consequences of exercising this right, and enough details to enable the right to be exercised by a Retail Client.

(2) An Authorised Firm must not, in a Product Disclosure Document prepared by it, do or say (or fail to do or say) anything that might reasonably lead a Retail Client to be mistaken about the product provider’s identity.

5.6.5. Life policies and Family Takaful Contracts —additional content

(1) An Authorised Firm must ensure that a Product Disclosure Document prepared by it for a Life Policy or for a Family Takaful Contract, intended to be sold to a Retail Client includes the following:

1. (a) a definition of each benefit and option;
2. (b) the term of the contract;
3. (c) details of how the contract may be terminated;
4. (d) how and when premiums are payable;
5. (e) details of how bonuses are calculated and distributed, including the following information:
6. (i) how profits that are allocated for the payment of bonuses are distributed;

(ii) whether increased benefits resulting from bonuses are payable (subject to any adjustments) even if the contract is terminated early by either party to the contract;

(iii) if bonuses increase benefits—whether increases are likely to be made each year or only when the policy amounts become payable to the policyholder;

(iv) the basis on which bonuses are distributed to policyholders;

1. (v) whether policies share equitably in the allocation of all the profits of the long-term fund, or only certain elements of the profits;
2. (f) an illustration prepared in accordance with COB 5.6.6 (Life policies or Family Takaful Contracts —illustrations), except if the benefits of the Life Policy or Family Takaful Contract do not depend on future investment returns;
3. (g) information about charges and expenses that, subject to subrule (2), includes:
4. (i) a description of the nature of the charges and expenses the Retail Client will, or may be expected to, pay; and

(ii) 2 tables (one for the lower projection, and the other for the higher projection, calculated on the basis of a rate of return mentioned in COB 5.6.6 (2)), each prepared in accordance with COB 5.6.7 (Life policies— effect of charges and expenses table) illustrating the effect of charges and expenses on the policy;

1. (h) information on premiums or Takaful Contributions for each benefit, including, if appropriate, both main benefits and supplementary benefits;
2. (i) if the Retail Client has been charged for rider benefits or increased underwriting benefits—the amount of premiums charged for those benefits;
3. (j) if the policy is a unit-linked policy—a definition of the units to which benefits are linked and the nature of the underlying assets.

(2) If the Authorised Firm is exempt from including an illustration mentioned in rule (1) (f) because the benefits of the Life Policy or Family Takaful Contract do not depend on future investment returns, the Product Disclosure Document prepared by it for the Life Policy or Family Takaful Contract must include:

1. (a) an indication of guaranteed benefits, surrender benefits, paid-up values and any other benefits (whichever are applicable) under the policy; and
2. (b) the likely amount, and a general description, of the charges and expenses the Retail Client will, or may be expected to, pay under the policy.

5.6.6. Life policies or Family Takaful Contract —illustrations

(1) For COB 5.6.5 (1) (f), the illustration must indicate how the main terms of the Life Policy or Family Takaful Contract, as the case may be, apply to the Retail Client and contain projections of the final surrender value of the policy calculated in accordance with COB 5.6.8 (Life policies or Family Takaful Contract —projection calculation rules).

(2) The illustration must contain at least 2 projections, with:

1. (a) a lower projection calculated on the basis of a rate of return to be set at no more than 5%; and
2. (b) a higher projection calculated on the basis of a rate of return that the Authorised

Firm reasonably expects the Life Policy or Family Takaful Contract to achieve, but that, in any event, must be no more than 9%.

5.6.7. Life policies or Family Takaful Contracts —effect of charges and expenses tables

(1) For COB 5.6.5(1) (g), each table illustrating the effect of charges and expenses on the policy must include the contents of the following table (The Effects of Charges and Expenses Table).

The Effects of Charges and Expenses Table

(2) An Authorised Firm may change the Effects of Charges and Expenses Table so far as necessary to reflect the nature and effect of the charges and expenses inherent in the particular product.

(3) In completing the Effects of Charges and Expenses Table, the Authorised Firm must:

1. (a) include figures for the first 5 years of the Life Policy or the Family Takaful Contract; and
2. (b) if the policy is a whole-Life Policy or Family Takaful Contract or the illustration covers more than 25 years—include figures for the 10th and every subsequent 10th year of the policy’s term; and
3. (c) if the policy is neither a whole-Life Policy nor a Family Takaful Contract and the illustration covers 25 years or less—include figures for the 10th and every subsequent 5th year of the policy’s term; and
4. (d) include:
5. (i) the final year of the policy; or

(ii) for a whole-Life Policy or a single premium Life Policy without a fixed term—an appropriate end date for the policy; and

1. (e) if there is discontinuity in the trend of surrender values—include the appropriate intervening years; and
2. (f) in the ‘Total paid in to date’ column, show cumulative totals of contributions paid to the end of each relevant year; and
3. (g) in the ‘Effect of charges and expenses to date’ column, show the figure calculated by taking the accumulated value of the fund without taking charges and expenses into account and then subtracting from that figure the figure in the ‘What you might get back’ column for the same year; and
4. (h) in the ‘What you might get back’ column, show the projection of the surrender value for the policy calculated in accordance with COB 5.6.8 (Life policies— projection calculation rules) and accumulated at the rate of return selected by the firm for the lower or higher projection mentioned in COB 5.6.6 (2) (Life policies— illustrations), as the case requires; and
5. (i) if the Retail Client is entitled to exercise, and has chosen or expressed the intention to exercise, the right to make partial surrenders include a column headed ‘Withdrawals’ showing the cumulative total of the withdrawals.

(4) The Authorised Firm must include a statement at the bottom of the table expressing the effect of charges and expenses on the Life Policy or Family Takaful Contract in terms of a reduction in the rate of return.

Guidance

The reduction in the rate of return (A) may be calculated as follows:

A = B – C

where:

B is the rate of return selected by the firm for the lower or higher projection mentioned in COB 5.6.6(2), as the case requires.

C is the annual rate of return worked out by:

1. (a) carrying out a projection using B; and
2. (b) then calculating the annual rate of return (rounded to the nearest tenth of 1%) required to achieve the same projection value if charges and expenses were not taken into account.

5.6.8. Life policies or Family Takaful Contract —projection calculation rules

(1) For COB 5.6.6 (Life policies—illustrations) and COB 5.6.7 (Life policies—effect of charges and expenses table), any projection of the surrender value of a Life Policy or Family Takaful Contract used in an illustration or an Effects of Charges and Expenses Table must be calculated in accordance with a methodology and set of assumptions prepared and approved by the Approved Actuary of the AIFC Insurer preparing the Product Disclosure Document.

(2) In preparing the methodology and assumptions mentioned in subrule (1), the Approved Actuary must have regard to relevant professional standards and any requirements of this division.

(3) A projection must be specific to the Retail Client and be calculated on the basis of the Client’s age and sex, the amount assured, the premium and other factors material to the Life Policy or the Family Takaful Contract.

(4) However, if a projection is calculated for the purposes of a financial promotion or in relation to a single premium Life Policy, it must be calculated on the basis of factors that represent the average member of the group to whom it is directed or by whom it is likely to be received.

(5) In calculating the projection, contributions must be net of any rider benefits and extra premiums charged for increased underwriting benefits.

5.6.9. Life policies or Family Takaful Contracts —provision of policy document

If an Authorised Firm finalises a Life Policy or a Family Takaful Contract with or for a Client, the firm must, immediately after finalising the policy, give the Client, in a durable medium, a policy document containing all the terms of the policy.

5.6.10. Life policies or Family Takaful Contracts —recordkeeping

(1) An Authorised Firm must ensure that a copy of a Product Disclosure Document given by it to a Retail Client in relation to a Life Policy or a Family Takaful Contract is made and kept for at least 6 years, unless the Client does not take out the policy.

(2) An Authorised Firm must ensure that a copy of any other disclosure documentation given by it to a Retail Client in relation to a Life Policy or a Family Takaful Contract is made and kept for at least 6 years, unless the Client does not take out the policy.

(3) An Authorised Firm must ensure that a record of the methodology and set of assumptions prepared and approved by the Approved Actuary for COB 5.6.8 (1) for the firm is made and kept for at least 6 years after the day the methodology or set of assumptions is replaced by a new methodology or set of assumptions.

(4) An Authorised Firm must ensure that a copy of each policy document given to a Client for a Life Policy or a Family Takaful Contract under COB 5.6.9 is kept for at least 6 years after the day the policy ends.

5.6.11. Takaful Contracts – Specific Disclosure requirements

(1) A Takaful Operator or an Insurance Intermediary or an Insurance Manager making a comparison between a Takaful Contract and conventional Contract of Insurance, in the course of offering a policy to their Client, must highlight the principal differences between these products as part of their marketing communications or promotional materials. These differences may relate to the following aspects, but are not limited to:

1. (a) presence of contractual right to claims or benefits or whether these are discretionary on the part of the firm;
2. (b) the basis on which benefits and surpluses are allocated to, and between policyholders or participants, as the case may be; and
3. (c) whether there is any future liability for policyholders or participants, either individually or collectively, to meet deficits in the policyholders’ or participants' funds.

(2) Takaful Operators must ensure that, the participants in the Takaful funds operated by them are provided with clear information about the performance of the funds. The disclosures to meet this requirement must comply with relevant AAOIFI standards, in particular Standard 13 (Disclosure of Bases for Determining and Allocating Surplus or Deficit in Islamic Insurance Companies) and 12 (General Presentation and Disclosure in the Financial Statements of Islamic Insurance Companies).

(3) Takaful Operators must disclose to the participants in the Takaful Funds operated by them, the amount of Wakala fee and Mudaraba share of profits paid by the Takaful fund to the Takaful Operator, as well as the methodology for determining such amounts. In the case of Takaful Operators adopting Takaful models employing contracts other than Wakala or Mudaraba, the compensation paid by the Takaful Funds to the Takaful Operator and the relevant methodologies must be disclosed.

6.1.1. Application

COB 6 applies to an Authorised Firm that executes orders for or on behalf of a Client. The Rules in COB 6 do not apply to an Authorised Firm with respect to any transaction which:

1. (a) it undertakes with a Market Counterparty, except for COB 6.2.9;
2. (b) it carries out for the purposes of managing a Fund of which it is the Fund Manager; or
3. (c) is an Execution-Only Transaction. Where an Authorised Firm executes an Execution-Only Transaction with or for a Client, the Authorised Firm is not relieved from providing best execution in respect of any aspect of that transaction which lies outside the Client’s specific instructions.

6.1.2. Best execution obligation

Subject to COB 6.1.3, when an Authorised Firm executes any transaction with or for a Client in an Investment, it must take all sufficient steps to obtain the best possible result for the Client taking into account the information available, including the following factors:

• (a) price;
• (b) costs;
• (c) speed;
• (d) likelihood of execution and settlement;
• (e) size;
• (f) nature; and
• (g) any other consideration relevant to execution

6.1.3. Best execution with or for Retail Clients

When an Authorised Firm executes a transaction in an Investment for a Retail Client, the best possible result will be determined by reference to the price and other costs, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order.

6.1.4. Specific instructions

When an Authorised Firm executes a transaction in accordance with specific instructions from the Client, it should be treated as having met its best execution obligation in relation to that part of the order covered by those instructions.

6.2.1. Application

The Rules in COB 6.2 do not apply to an Authorised Firm with respect to any transaction which:

• (a) it undertakes with a Market Counterparty; or
• (b) it carries out for the purposes of managing a Fund of which it is the Fund Manager.

6.2.2. General requirement

An Authorised Firm that executes orders on behalf of Clients must ensure that it has in place procedures that provide for the prompt, fair and expeditious execution of orders for a Client, relative to orders for itself or for other Clients.

6.2.3. General obligation in relation to orders for a Client

An Authorised Firm must satisfy the following conditions when executing orders for a Client:

• (a) orders executed for Clients must be promptly and accurately recorded and allocated;
• (b) comparable orders for Clients must be executed sequentially and promptly unless the characteristics of the order or prevailing market conditions make this impracticable, or the interests of the Client require otherwise;
• (c) a Retail Client must be informed of any material difficulty relevant to the proper execution of orders promptly when the Authorised Firm becomes aware of the difficulty; and
• (d) make and maintain a record of:

(i) the date and time of the allocation;

(ii) the relevant Investments;

(iii) the identity of each Client concerned; and

(iv) the amount allocated to each Client and to the Authorised Firm recorded against the intended allocation as required by (a).

6.2.4. Aggregation of orders

An Authorised Firm may aggregate an order for a Client with an order for other Clients or with an order for its own account only where:

• (a) it is unlikely that the aggregation will operate to the disadvantage of any Client whose orders have been aggregated;
• (b) the Authorised Firm has disclosed in writing to the Client that his order may be aggregated and that the effect of the aggregation may be to his disadvantage;
• (c) the Authorised Firm has made a record of the intended basis of allocation and the identity of each Client before the order is effected; and
• (d) the Authorised 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.

6.2.5. Allocation of Investments

Where an Authorised Firm has aggregated a Client order with an order for other Clients or with an order for its own account, and part or all of the aggregated order has been filled, it must:

• (a) promptly allocate the Investments concerned;
• (b) allocate the Investments in accordance with the stated intention; and
• (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

6.2.6. Churning

An Authorised Firm must not execute a transaction for a Client in its discretion or advise any Client to transact with a frequency or in amounts to the extent that those transactions might be deemed to be excessive. The onus will be on the Authorised Firm to ensure that such Transactions were fair and reasonable at the time they were entered into.

6.2.7. Timely execution

Once an Authorised Firm has agreed or decided to enter into a transaction for a Client, it must do so as soon as reasonably practical. An Authorised Firm may postpone the execution of a transaction if it has taken reasonable steps to ensure that it is in the best interests of the Client.

6.2.8. Averaging of prices

An Authorised Firm may execute a series of transactions on behalf of a Client within the same trading day or within such other period as may be agreed in writing by the Client, to achieve one investment decision or objective, or to meet transactions which it has aggregated. If the Authorised Firm does so, it may determine a uniform price for the transactions executed during the period, calculated as the weighted average of the various prices of the transactions in the series.

6.2.9. Records of orders and transactions

When an Authorised Firm:

• (a) receives a Client order or in the exercise of its discretion decides upon a transaction;
• (b) executes a transaction; or
• (c) passes a Client order to another Person for execution, it must promptly make a record of the information set out in Schedule 1.

6.3.1. General requirement

An Authorised Firm must, subject to COB 6.3.4, take reasonable steps to ensure that it makes and retains:

• (a) recordings of voice communications, including telephone conversations, other than communications where both parties are physically present; and
• (b) copies of electronic communications, when such communications are with a Client or with another Person in relation to a Transaction, including the receiving or transmitting of related instructions.

6.3.2. Notification to Clients

The Authorised Firm must notify new and existing Clients that relevant voice communications between the Authorised Firm and its Clients in relation to a Transaction will be recorded. The Authorised Firm is only required to inform its Clients once, prior to the provision of any Investment Service to a new Client or when this obligation applies for the first time in relation to an existing Client.

6.3.3. Privately owned equipment

An Authorised Firm must take all reasonable steps to prevent an Employee or contractor from making, sending, or receiving relevant voice and electronic communications on privately owned equipment which the Authorised Firm is unable to record or copy.

6.3.4. Exemption for non-specific communications

The obligation in COB 6.3.1 does not apply in relation to relevant voice and electronic communications which are not intended to lead to the conclusion of a specific Transaction and are general conversations or communications about market conditions.

6.3.5. Record keeping

The records retained under COB 6.3.1 must be:

• (a) kept accessible, such that the Authorised Firm is able to demonstrate that all relevant records are capable of being promptly accessed;
• (b) maintained in comprehensible form or capable of being promptly reproduced; and
• (c) protected from unauthorised alteration.

6.3.6. Length of retention period

Recordings of relevant voice communications and copies of electronic communication recordings must be retained for a minimum of six months.

7.4.1. General requirement

An Authorised Firm must have policies and procedures in place to ensure that it, or its Employee or Associate, does not offer, give, solicit or accept any inducement from a third party, such as a fee, commissions or other direct or indirect benefit, where the inducement is reasonably likely to conflict with any duty that the Authorised Firm owes to its Clients.

7.4.2. Introductions

In circumstances where an Authorised Firm introduces a Client to a third party and receives a fee, commission or other benefit in respect of that introduction, such fee, commission or other benefit received in respect of such a referral would not be a prohibited inducement under this Rule, provided that the Authorised Firm has acted in the best interests of the Client.

7.4.3. Requirement to disclose inducements

An Authorised Firm must, before providing a Financial Product or Financial Service to a Client, disclose to that Client any inducement which it, or any Associate or Employee of it, has received or may or will receive as a result of providing the Financial Product or Financial Service.

7.4.4. Disclosure in summary form

An Authorised Firm may provide the information required by COB 7.4.3 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.

7.4.5. Record keeping

An Authorised Firm shall maintain record of inducements disclosed under COB 7.4.3 for a period of six years after such inducement was disclosed.

7.5.1. Conditions for Personal Transactions

An Authorised Firm must establish and maintain adequate policies and procedures so as to ensure that:

• (a) an Employee does not undertake a Personal Transaction unless:

(i) the Authorised Firm has, in a written notice, drawn to the attention of the Employee the conditions upon which the Employee may undertake Personal Transactions and that the contents of such a notice are made a term of his contract of employment or services;

(ii) the Authorised Firm has given its written permission to that Employee for that transaction or to transactions generally in Investments of that kind; and

(iii) the transaction will not conflict with the Authorised Firm’s duties to its Clients;

• (b) it receives prompt notification or is otherwise aware of each Employee’s Personal Transactions; and
• (c) if an Employee’s Personal Transactions are conducted with the Authorised Firm, each Employee’s account must be clearly identified and distinguishable from other Clients’ accounts.

7.5.2. Content of written notice

The written notice in COB 7.5.1(a)(i) must make it explicit that, if an Employee is prohibited from undertaking a Personal Transaction, he must not, except in the proper course of his employment:

• (a) procure another Person to enter into such a Transaction; or
• (b) communicate any information or opinion to another Person if he knows, or ought to know, that the Person will as a result, enter into such a Transaction or procure some other Person to do so.Where an Authorised Firm has taken reasonable steps to ensure that an Employee will not be involved to any material extent in, or have access to information about, the Authorised Firm’s Regulated Activities, then the Authorised Firm need not comply with the requirements in COB 7.5.1 in respect of that Employee.

8.1.1. Purpose of COB 8

The purpose of this section is providing protection for the Client, in the event that an Authorised Firm becomes insolvent or is otherwise unable to fulfil its obligations, in relation to any Money or Investments that are held by the Authorised Firm for that Client.

8.1.2. Application of COB 8

This section applies to an Authorised Firm which:

• (a) receives Money from, or holds or controls Money for or on behalf of, a Client in the course of, or in connection with, the carrying on of Investment Business in or from the AIFC;
• (b) holds or controls Instruments belonging to a Client in the course of, or in connection with, the carrying on of Investment Business in or from the AIFC; or
• (c) Provides Custody in or from the AIFC.

8.1.3. Meaning of "hold" and "control"

Client Assets are held or controlled by an Authorised Firm if they are:

• (a) directly held by the Authorised Firm;
• (b) held in an account in the name of the Authorised Firm;
• (c) held by a Person, or in an account in the name of a Person, controlled by the Authorised Firm; or
• (d) held in the Client’s own name, but the Authorised Firm has a mandate from the Client to manage those assets on a discretionary basis.

Guidance: Examples of Client Assets controlled by an Authorised Firm

For the purposes of COB 8.1.3, the AFSA would consider:

(i) a Person to be controlled by an Authorised Firm if that Person is inclined to act in accordance with the instructions of the Authorised Firm;

(ii) an account to be controlled by an Authorised Firm if that account is operated in accordance with the instructions of the Authorised Firm; and

(iii) if an Authorised Firm has a discretionary portfolio mandate from a Client, even though the assets are to be held in the name of the Client (for example, under a power of attorney arrangement), the Authorised Firm controls those assets as it can execute transactions relating to those assets, within the parameters set out in the mandate, in which situation the rules on mandates in COB 8.4 shall apply.

8.1.4. General requirements

An Authorised Firm which receives Money from, or holds Money for or on behalf of, a Client in the course of, or in connection with, the carrying on of Investment Business in or from the AIFC must comply with COB 8.2.

An Authorised Firm which holds Investments belonging to a Client in the course of, or in connection with, the carrying on of Investment Business in or from the AIFC or Provides Custody in or from the AIFC must comply with COB 8.3. A Client whose Investments or Money is required to be held in compliance with either COB 8.2 or COB 8.3 is a "Segregated Client". An Authorised Firm which controls Money or Investments belonging to a Client under a Mandate but does not receive or hold that Money or those Investments itself must comply with COB 8.4.

8.1.5. Arranging Custody

An Authorised Firm which Arranges Custody must comply with the requirements in COB 8.3.7 (on assessing the suitability of Third Party Account Providers), COB 8.3.13 (on disclosure), COB 8.3.14(2) (on client reporting) and COB 8.3.15 (on record keeping).

8.2.1. Meaning of "Client Money"

All Money received or held on behalf of a Client in the course of, or in connection with, the carrying on of Investment Business in or from the AIFC is Client Money, except Money which is:

• (a) (where the Authorised Firm is a Bank) held as a deposit by the Authorised Firm;
• (b) due and payable by the Client to the Authorised Firm for the account of the Authorised Firm. Examples of situations where Money is due and payable to an Authorised Firm includes Money which is payable to the Authorised Firm in respect of its charges or a Client purchase or in settlement of a margin payment;
• (c) belongs to another Person within the Authorised Firm’s Group (unless that Person notified the Authorised Firm in writing that the beneficial owner of the Money is a Person who is not part of the Authorised Firm’s Group and has requested that the Client Money Rules should apply to such Money);
• (d) in an account in the Client’s name over which the Authorised Firm has a Mandate or similar authority and which is subject to COB 8.4;
• (e) received in the form of a cheque, or other payable order, made payable to a third party other than a Person or account controlled by the Authorised Firm, provided the cheque or other payable order is intended to be forwarded to the third party within one business day of receipt; or
• (f) Fund Property of a Fund.Where the Authorised Firm is a Bank and holds the Client's Money as a Deposit in accordance with (a) above, it must prior to providing the Investment Business in respect of that Money notify the Client in writing that:
• (a) the Money held by the Authorised Firm is held as a Deposit and will not be subject to the Client Money Rules; and
• (b) in the event that the Authorised Firm fails, the Client Money Distribution Rules will not apply.

8.2.2. Exclusion of the Client Money Rules

Where the Client is a Market Counterparty or a Professional Client, the Authorised Firm and the Client may agree to exclude the application of the Client Money Rules. Any such agreement with the Client must be in writing and must be entered into before the Authorised Firm provides Investment Business in respect of that Money.

Where the Authorised Firm proposes to exclude the application of the Client Money Rules under this COB 8.2.2, it must prior to obtaining the Client's agreement disclose to the Client in writing that the Money held by the Authorised Firm will not be subject to the protections conferred by the Client Money Rules.

8.2.3. General requirements

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

• (a) comply with the Client Money Rules in relation to that Client Money; and
• (b) have systems and controls in place to be able to evidence its compliance with the Client Money Rules.

8.2.4. Client Money Accounts

A Client Money Account in relation to Client Money is an account which:

• (a) is held with a Third Party Account Provider;
• (b) is established for the purpose of holding Client Money;
• (c) is maintained in the name of the Authorised Firm or a Nominee Company controlled by the Authorised Firm; and
• (d) includes the words 'Client Account' in its title.

8.2.5. Requirement to pay Client Money into Client Money Account

Where an Authorised Firm receives or holds Client Money it must ensure (except where otherwise provided in COB 8.2.8) that the Client Money is paid into one or more Client Money Accounts within one day of receipt.

Where an Authorised Firm deposits any Money into a Client Money Account, such Money is Client Money until the Money is withdrawn from the Client Money Account in accordance with the Client Money Rules.

8.2.6. Client Money held for Segregated Clients in a Client Money Account

An Authorised Firm may hold Client Money belonging to a Segregated Client:

• (a) in a Client Money Account solely for that Client; or
• (b) in a Client Money Account containing the pooled Client Money of more than one Segregated Client.

8.2.7. Client Money Account to contain Client Money only

An Authorised Firm must:

• (a) not deposit its own Money into a Client Money Account, other than where:

(i) a minimum sum is required to open the Client Money Account, or to keep it open;

(ii) 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);

(iii) interest credited to the account exceeds the amount payable to Segregated Clients (provided that the Money is removed within twenty-five days); or

(iv) it is to meet a shortfall in Client Money;

• (b) maintain systems and controls for identifying Money which must not be in a Client Money Account and for transferring it without delay;
• (c) not use Client Money belonging to one Client to satisfy an obligation of another Client; and
• (d) ensure that no off-setting or debit balances occur on Client Money Accounts.

8.2.8. Exceptions to Holding Client Money in Client Money Accounts

The requirement for an Authorised Firm to pay Client Money into a Client Money Account does not apply with respect to 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; or
• (c) in connection with a Delivery Versus Payment Transaction where:

(i) in respect of a purchase by the Client, the Client Money will be due to the Authorised Firm within one day following the Authorised Firm's fulfilment of its delivery obligation to the Client; or

(ii) in respect of a sale by the Client, the Client Money will be due to the Client within one day following the Client's fulfilment of its delivery obligation to the Authorised Firm. Where (b) or (c) apply, the Authorised Firm must pay the Client Money into a Client Money

Account where it has not fulfilled its delivery or payment obligation within three days of receipt of the Money or Investments, except where the circumstances in (c)(ii) apply and the Authorised Firm instead safeguards Client Investments of a value at least equal to the value of such Client Money.

An Authorised Firm must maintain adequate records of all cheques and payment orders received in accordance with (a) above including, in respect of each payment, the date of receipt, the name of the Client for whom payment is to be credited and the date on which the cheque or payment order was presented to the Authorised Firm's Third Party Account Provider. The records must be kept for a minimum of six years.

8.2.9. Conditions for use of Third Party Account Providers

Save as provided in this COB 8.2.9, an Authorised Firm may only pass, or permit to be passed, Client Money to a Third Party Account Provider 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;
• (c) the Third Party Account Provider is a Bank or a Regulated Financial Institution which is authorised to accept or take Deposits; or
• (d) the Client Money is put into a Shari'ah product that is offered by a Third Party Account

Provider and that has been approved by the AFSA as being suitable for the holding of Client Money.

In respect of (a) and (b) above, an Authorised Firm must not hold the Client Money with the Third Party Account Provider longer than necessary to effect a Transaction or satisfy the Client's obligation.

8.2.10. Holding Client Money with Third Party Account Providers

An Authorised Firm may only pay, or permit to be paid, Client Money to a Third Party Account Provider pursuant to COB 8.2.9 (c) or (d) above where it has:

• (a) undertaken appropriate due diligence on the Third Party Account Provider and concluded on reasonable grounds that the Third Party Account Provider is suitable to hold that Client Money; and
• (b) confirmed that the laws and regulations of both:

(i) the jurisdiction in which the Client Money will be held; and

(ii) the jurisdiction in which the relevant Bank or Regulated Financial Institution is legally established (if different), recognise that Client Money belongs beneficially to the Client and will not be available to satisfy any debts of the Bank or Regulated Financial Institution.

8.2.11. Due diligence on Third Party Account Providers

When undertaking due diligence on a Third Party Account Provider, an Authorised Firm should have regard to the following:

• (a) the following characteristics of the Third Party Account Provider:

(i) its expertise and market reputation;

(ii) its credit rating;

(iii) its capital and financial resources;

(iv) the amount of Client Money placed, as a proportion of its overall capital and deposits;

(v) the extent to which the Client Money would be protected under a deposit guarantee protection scheme;

(vi) where such information is available, the level of risk in the investment and loan activities undertaken by it or members of its Group;

(vii) its use of agents and service providers; and

(viii) the financial position of its Group; and

• (b) (without prejudice to the obligation under (a) above) any legal requirements or market practices in the jurisdiction in which it is located (including the insolvency regime in that jurisdiction) which may adversely affect the protections available in respect of any Client Money placed with the Third Party Account Provider.

When assessing the suitability of the Third Party Account Provider, the Authorised Firm must ensure that the Third Party Account Provider will provide protections equivalent to the protections conferred by the Client Money Rules.

An Authorised Firm must have systems and controls in place to ensure that the Third Party Account Provider remains suitable to hold Client Money for its Segregated Clients. This includes undertaking appropriate due diligence, in the manner described above, on an ongoing basis.

An Authorised Firm must be able to demonstrate to the AIFC's satisfaction the grounds upon which the Authorised Firm considers the Third Party Account Provider to be suitable to hold that Client Money.

8.2.12. Obtaining written acknowledgments from Third Party Account Providers

When an Authorised Firm opens a Client Money Account with a Third Party Account Provider it must obtain a written acknowledgement from the Third Party Account Provider stating that:

• (a) the Third Party Account Provider is under an obligation to keep its own Money separate from the Money it holds for its Clients;
• (b) all Money standing to the credit of the account is held by the Authorised Firm as agent and that the Third Party Account Provider 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
• (c) the title of the account is, or will be, sufficient to distinguish that account from any account containing Money that belongs to the Authorised Firm. The Authorised Firm must obtain the written acknowledgement referred to above prior to placing any Client Money into an account with the Third Party Account Provider.

8.2.13. Payments of Client Money from Client Money Accounts

Client Money must remain in a Client Money 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 or to a duly authorised representative of such Client;
• (c) paid in accordance with an instruction from the Client 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 AIFC.

Money paid out by way of cheque or other payable order under this Rule must remain in a Client Money Account until the cheque or payable order is presented to the Client's bank and cleared by the paying agent

8.2.14. Client Money arising from Client Investments

Money arising from, or in connection with, the holding of Client Investments and which is due to a Client must be treated as Client Money in accordance with the Client Money Rules.

8.2.15. Distribution Event

Following a Distribution Event, an Authorised Firm must comply with the Client Money Distribution Rules and all Client Money will be subject to such Rules.

8.2.16. Client Money Distribution Rules (Investment Business)

(1) The requirements in this COB 8.2.16 are the Client Money Distribution Rules (Investment Business) and to the extent that these Rules are inconsistent with the AIFC Insolvency Regulations, these Rules will prevail.

(2) Following a Distribution Event, the Authorised Firm must distribute Money in the following order of priorities:

1. (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;
2. (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 in respect of their Client Assets but not satisfied from the application of (a) above;
3. (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
4. (d) fourthly, upon satisfaction of all claims in (a), (b) and (c) above, in the event of:
5. (i) the appointment of a liquidator, receiver or administrator, or trustee in bankruptcy over the Authorised Firm or the Nominee Company, payment must be made in accordance with the AIFC Insolvency Regulations; or

(ii) all other Distribution Events, payment must be made in accordance with the direction of the AFSA.

8.2.17. Procedures relating to Client Money Accounts

An Authorised Firm must have procedures for identifying Client Money received by the Authorised Firm (by whatever means they are received) 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.

An Authorised Firm must have procedures for ensuring all withdrawals from a Client Money Account are authorised and carried out in accordance with this COB 8.2.17.

8.2.18. Client disclosures

An Authorised Firm that holds Client Money belonging to a Client in must in good time before it provides the relevant Investment Business disclose the following information to the Client:

• (a) that the Client is subject to the protection conferred by the Client Money Rules 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 AIFC, the Client's Money will be subject to the Client Money Distribution Rules;

• (b) whether the Client Money of that Client may be held by a third party on behalf of the Authorised Firm, and if so, what degree of responsibility the Authorised Firm has for any acts or omissions of the third party; and what the likely consequences are for the Client of the insolvency of the third party;
• (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 AIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the AIFC;
• (e) if applicable, details about how any Client Money arising out of Islamic Financial Business are to be held; and
• (f) 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.

8.2.19. Client reporting

In relation to each Client for whom it receives or holds Client Money, an Authorised Firm must provide at least once a year a statement of the Client Money unless such a statement has been provided in a periodic statement in accordance with COB 9.

8.2.20. Record keeping

An Authorised Firm must maintain records which enable it to determine promptly the total amount of Client Money that it holds for each of its Clients.An Authorised Firm must maintain records:

• (a) which enable the Authorised Firm to demonstrate compliance with the Client Money Rules; and
• (b) which enable the Authorised Firm to demonstrate and explain all entries of Money held in accordance with the Client Money Rules. Records must be kept for a minimum of six years.

8.2.21. Reconciliations

An Authorised Firm must maintain a system to ensure that accurate reconciliations of the Client Accounts are carried out at least once in every calendar month.

8.2.22. Nature of reconciliation

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 Account Providers showing account balances as at the date of reconciliation.

8.2.23. Requirements for reconciliation

An Authorised Firm must:

• (a) reconcile the individual credit ledger balances, Client Account cash book balances, and the Third Party Account Provider 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 Account Provider and the Authorised Firm, are investigated and, where applicable, corrective action taken as soon as possible. An Authorised Firm must perform the reconciliations in the preceding paragraph within 10 days of the date to which the reconciliation relates. An Authorised Firm must ensure that the process of reconciliation does not give rise to a conflict of interest.

8.2.24. Review of reconciliation

When performing reconciliations in accordance with COB 8.2.21, an Authorised Firm should:

1. (a) 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; and
2. (b) ensure that the reconciliations are reviewed by a member of the Authorised Firm who has adequate seniority. The member in question must provide a written statement confirming the reconciliation has been undertaken in accordance with the requirements of COB 8.3.21- 8.2.23.

Guidance: Material discrepancies The Authorised Firm should notify the AFSA where there has been a material discrepancy with the reconciliation which has not been rectified. A material discrepancy includes discrepancies which have the cumulative effect of being material, such as longstanding discrepancies.

8.3.1. Meaning of Client Investments

A Client Investment is an Investment held by an Authorised Firm on behalf of a Client in the course of, or in connection with, the carrying on of Investment Business by the Authorised Firm.

8.3.2. Exceptions to the Client Investments Rules

The Client Investments Rules do not apply to Client Investments held as Collateral in accordance with the provisions of this COB 8.3.2. Before an Authorised Firm holds Collateral from a Client it must disclose to that Client:

• (a) the terms governing the arrangement under which the Collateral will be held, including any rights which the Authorised Firm may have to realise the Collateral and the terms governing the termination of the arrangement;
• (b) if applicable, that the Collateral will not be registered in that Client’s own name;
• (c) if applicable, that the Authorised Firm proposes to return to the Client Collateral other than the original Collateral, or original type of Collateral; and
• (d) that in the event of the insolvency, winding up or other Distribution Event stipulated by the AFSA, any excess Collateral will be sold and the resulting Client Money shall be distributed in accordance with the Client Money Distribution Rules. An Authorised Firm must take reasonable steps to ensure that the Collateral is properly safeguarded. Before an Authorised Firm deposits a Client’s Collateral with a Third Party Account Provider it must notify the Third Party Account Provider that:
• (a) the Collateral does not belong to the Authorised Firm and must be held by the Third Party Account Provider in a segregated Client Investment Account in a name that clearly identifies it as belonging to the Authorised Firm’s Clients; and
• (b) the Third Party Account Provider is not entitled to claim any lien or right of retention or sale over the Collateral 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 the Collateral. Notwithstanding that the Client Investments Rules do not apply to Collateral held by an Authorised Firm in accordance with this COB 8.3.2, the Authorised Firm must carry out appropriate due diligence in relation to the Third Party Account Provider to at least the standards specified in COB 8.3.7. An Authorised Firm must withdraw the Collateral from the third party where the Collateral is not being properly safeguarded unless the Client has indicated otherwise in writing.

8.3.3. Safeguarding Client Investments

An Authorised Firm which holds Client Investments must have systems and controls in place to ensure the proper safeguarding of Client Investments.

An Authorised Firm which Provides Custody or holds Client Investments must ensure that Client Investments are recorded, registered and held in an appropriate manner to safeguard and control such property.

8.3.4. Client Investment Accounts

A Client Investment Account is an account which:

• (a) is held with a Third Party Account Provider or by an Authorised Firm which is authorised under its Licence to Provide Custody;
• (b) is established for the purpose of holding Client Investments;
• (c) when held by a Third Party Account Provider, is maintained in the name of the Authorised Firm or a Nominee Company controlled by the Authorised Firm; and
• (d) includes the words 'Client Account' in its title.

8.3.5. Registration and recording of Client Investments

An Authorised Firm which Provides Custody or holds Client Investments must register or record all Client Investments in the name of:

• (a) the Client;
• (b) a Nominee Company that is controlled by the Authorised Firm; or
• (c) the Authorised Firm where, due to the nature of the law or market practice, it is not feasible to do otherwise.

Save as provided in (c) above, an Authorised Firm which Provides Custody or holds or controls Client Investments must record, register and hold Client Investments separately from its own Investments.

8.3.6. Registration and recording of Client Investments

An Authorised Firm may record, register or hold a Client Investment in:

• (a) a Client Investment Account solely for that Client; or
• (b) a Client Investment Account containing the pooled Investments of more than one Client.

8.3.7. Holding Client Investments with Third Party Account Providers

An Authorised Firm may only hold a Client Investment with a Third Party Account Provider where it has:

• (a) undertaken appropriate due diligence on the Third Party Account Provider and concluded on reasonable grounds that the Third Party Account Provider is suitable to hold those Client Investments; and
• (b) confirmed that the laws and regulations of both:

(i) the jurisdiction in which the Client Investments will be held; and

(ii) the jurisdiction in which the relevant Bank or Regulated Financial Institution is legally established (if different), recognise that Client Investments belong beneficially to the Client and will not be available to satisfy any debts of the Bank or Regulated Financial Institution.

8.3.8. Due diligence on Third Party Account Providers

When undertaking due diligence on a Third Party Account Provider, an Authorised Firm should have regard to the following:

• (a) the following characteristics of the Third Party Account Provider:

(i) its expertise and market reputation;

(ii) its credit rating;

(iii) its capital and financial resources;

(iv) the value of the Client Investments held, as a proportion of its overall capital and deposits;

(v) the extent to which the Client Investments would be protected under a deposit guarantee protection scheme;

(vi) where such information is available, the level of risk in the investment and loan activities undertaken by it or members of its Group;

(vii) its use of agents and service providers; and

(viii) the financial position of its Group; and

• (b) (without prejudice to the obligation under (a) above) any legal requirements or market practices in the jurisdiction in which it is located (including the insolvency regime in that jurisdiction) which may adversely affect the protections available in respect of any Client Investments placed with the Third Party Account Provider. When assessing the suitability of the Third Party Account Provider, the Authorised Firm must ensure that the Third Party Account Provider will provide protections equivalent to the protections conferred by the Client Investments Rules. An Authorised Firm must have systems and controls in place to ensure that the Third Party Account Provider remains suitable to hold Client Investments for its Segregated Clients. This includes undertaking appropriate due diligence, in the manner described above, on an ongoing basis. An Authorised Firm must be able to demonstrate to the AIFC's satisfaction the grounds upon which the Authorised Firm considers the Third Party Account Provider to be suitable to hold Client Investments.

8.3.9. Entering into written agreements with Third Party Account Providers

Before an Authorised Firm passes, or permits to be passed, Client Investments to a Third Party Account Provider, it must enter into a written agreement with the Third Party Account Provider under which the Third Party Account Provider agrees that:

• (a) it shall keep the Client Investments separately from assets belonging to the Third Party Account Provider;
• (b) all Investments standing to the credit of the account are held by the Authorised Firm as agent and that the Third Party Account Provider 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 Investments in that account in respect of any sum owed to it on any other account of the Authorised Firm;
• (c) the title of the account is, or will be, sufficient to distinguish that account from any account containing Investments that belong to the Authorised Firm or the Third Party Account Provider; and
• (d) it shall provide a written statement on at least a monthly basis identifying all of the Client Investments that it holds for the Authorised Firm.

8.3.10. Contents of agreements with Third Party Account Providers

The written agreement between the Authorised Firm and the Third Party Provider must also address the following:

• (a) the procedures for the passing of instructions to or by the Authorised Firm;
• (b) the procedures for dealing with dividends, interest payments and other entitlements accruing to the Client in connection with the Client Investments that are held by the Third Party Account Provider; and
• (c) the extent to which the Third Party Account Provider is liable in the event of loss of a Client Investment caused by the acts or omissions of the Third Party Account Provider or any agent of the Third Party Account Provider.

8.3.11. Use of Client Investments for the purposes of the Authorised Firm or another Person

An Authorised Firm must not use a Client Investment for its own purpose or that of another Person without the prior written permission of the relevant Client. An Authorised Firm which intends to use a Client Investment for its own purpose or that of another Person, must have systems and controls in place to ensure that:

• (a) it obtains the prior written permission of the relevant Client to the use of the Client Investment;
• (b) adequate records are maintained to protect Client Investments which are applied as collateral or used for stock lending activities;
• (c) the equivalent Investments are returned to the Client Investment Account of the Client; and
• (d) the Client is not disadvantaged by the use of its Client Investments.

8.3.12. Procedures relating to Client Investment Accounts

An Authorised Firm must have procedures for ensuring that Client Investments are promptly identified and held in accordance with the provisions of this COB 8.3.

8.3.13. Client disclosure

An Authorised Firm that holds Client Investments belonging to a Segregated Client must disclose the following information to the Client:

• (a) that the Client is subject to the protections conferred by the Client Investments Rules;
• (b) the arrangements for recording and registering Client Investments, claiming and receiving dividends and other entitlements and interest and the giving and receiving instructions relating to those Client Investments (including, if applicable, a statement that the Authorised Firm intends to mix the Client Investments of the Client with those of other Clients);
• (c) whether the Client Investments of that Client may be held by a third party on behalf of the Authorised Firm, and if so, what degree of responsibility the Authorised Firm has for any acts or omissions of the third party; and what the likely consequences are for the Client of the insolvency of the third party;
• (d) if applicable, that the Client Investments may be held in a jurisdiction outside the AIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the AIFC;
• (e) details of any rights which the Authorised Firm may have to realise Client Investments held on behalf of the Client in satisfaction of a default by the Client or otherwise; and
• (f) the method and frequency upon which the Authorised Firm will report to the Client in relation to its Client Investments.

8.3.14. Client reporting

(1)In relation to each Client for whom it receives or holds Client Investments, an Authorised Firm must provide at least once a year a statement of the Client Investments unless such a statement has been provided in a periodic statement in accordance with (2) or COB 9.

(2)An Authorised Person which Provides Custody for safeguarding and administering Digital Assets belonging to a Retail Client must send a statement to its Retail Clients at least monthly. The statement must include the list, description and amount of each Digital Asset held by the Authorised Person as at the date of reporting.

8.3.15. Record keeping

An Authorised Firm must maintain records:

• (a) which enable the Authorised Firm to demonstrate compliance with the Client Investments Rules; and
• (b) which enable the Authorised Firm at any time and without delay to distinguish Client Investments held for one Client from those held for another Client and from the Authorised Firm's own assets; and
• (c) of all agreements entered into with Third Party Account Providers pursuant to COB 8.3.7 and any instructions given by the Authorised Firm to the Third Party Account Provider under the terms of such agreements. Records must be kept for a minimum of six years.

8.3.16. Reconciliations

An Authorised Firm must:

(a)     at least once every calendar month, reconcile its records of Client Accounts held with Third Party Account Providers with monthly statements received from those Third Party Account Providers;

(b)     at least every six months, count all Client Investments physically held by the Authorised Firm, or its Nominee Company, and reconcile the result of that count to the records of the Authorised Firm; and

(c)      at least every six months, reconcile individual Client ledger balances with      the Authorised Firm’s records of Client Investment balances held in Client Accounts.

An Authorised Firm must ensure that the process of reconciliation does not give rise to a conflict of interest.

Where Authorised Persons Provide Custody for safeguarding and administering Digital Assets belonging to another Person, all reconciliations required under COB 8.3.16 shall be conducted at least every week.

8.3.17. Review of reconciliation

When performing reconciliations in accordance with COB 8.3.16, an Authorised Firm should:

1. (a) 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; and
2. (b) ensure that the reconciliations are reviewed by a member of the Authorised Firm who has adequate seniority. The member in question must provide a written statement confirming the reconciliation has been undertaken in accordance with the requirements of COB 8.3.16.

Guidance: Material discrepancies The Authorised Firm should notify the AFSA where there has been a material discrepancy with the reconciliation which has not been rectified. A material discrepancy includes discrepancies which have the cumulative effect of being material, such as longstanding discrepancies.

8.5.1. Application

COB 8.5 applies to an Insurance Intermediary or Insurance Manager that receives or holds Money for, or on behalf of, a Client in the course of carrying on Insurance Intermediation or Insurance Management. This section also applies to an Insurance Intermediary or Insurance Manager that carries on Insurance Intermediation or Insurance Management for a Takaful Operator.

Guidance: Application to Takaful Business

All provisions in this section 8.5 of AIFC COB rules apply to Insurance Intermediation or Insurance Management activities carried out for a Takaful Operator or for a Takaful Business. All references to Insurance Contract include references to Takaful Contract.

8.5.2. Meaning of “Segregated Client”

A Client whose Money is required to be held in compliance with COB 8.5 is a "Segregated Client". Guidance: Nature of Client Money in context of Insurance Intermediation and Insurance Management Client Money in this context may include the following to the extent that they are received or held by the Insurance Intermediary or Insurance Manager:

1. (a) premiums, additional premiums and return premiums of all kinds;
2. (b) claims and other payments due under Contracts of Insurance;
3. (c) refunds;
4. (d) fees, charges, taxes and similar fiscal levies relating to Contracts of Insurance; or
5. (e) discounts, commissions and brokerage
6. (f) monies received from or on behalf of a Client of an Insurance Manager, in relation to his Insurance Management business.

8.5.3. Exception

COB 8.5 does not apply to an Authorised Firm that receives or holds Client Money in accordance with the Rules in COB 8.2 (Client Money: Investment Business).

8.5.4. Client Money

All Money received or held on behalf of a Client in the course of, or in connection with, carrying on Insurance Intermediation or Insurance Management in or from the AIFC is Client Money, except Money which is:

1. (a) due and payable by the Client to the Insurance Intermediary or Insurance Manager:
2. (i) for its own account; or

(ii) in its capacity as agent of an insurer where the Insurance Intermediary or Insurance Manager acts in accordance with COB 8.5.5 (Holding money as agent of an insurer);

1. (b) otherwise received by the Insurance Intermediary or Insurance Manager under an arrangement made between an insurer and another Person that has authority to underwrite risks, settle claims, or handle refunds of premiums on behalf of that insurer outside the AIFC and where the Money relates to that business.

8.5.5. Holding money as agent of an insurer

Money received or held by an Insurance Intermediary or Insurance Manager is not Client Money for the purposes of this COB 8.5 where there is a written agreement in place between the Insurance Intermediary or Insurance Manager and the insurer to whom the relevant money is to be paid (or from whom they have been received) under which the insurer agrees that:

1. (a) the Insurance Intermediary or Insurance Manager holds as agent for the insurer all money received by it in connection with Contracts of Insurance effected or to be effected by the insurer;
2. (b) insurance cover is maintained for the Client once the money is received by the Insurance Intermediary; and
3. (c) the insurer's obligation to make a payment to the Client is not discharged until actual receipt of the relevant money by the Client.

8.5.6. Duty to segregate Client Money

An Insurance Intermediary or Insurance Manager when dealing with Client Money must hold Client Money separate from its money. The Insurance Intermediary or Insurance Manager must segregate the Client Money by either:

1. (a) paying it as soon as is practicable into a Client Money Account; or
2. (b) paying it out in accordance with COB 8.5.7 (Money due to a Client from an Insurance Intermediary or Insurance Manager).

8.5.7. Money due to a Client from an Insurance Intermediary or Insurance Manager

If an Insurance Intermediary or Insurance Manager is liable to pay Money to a Client, it must as soon as possible:

1. (a) pay the Money into a Client Money Account; or
2. (b) pay it to, or to the order of, the Client.

8.5.8. Use of a Client Money Account

An Insurance Intermediary or Insurance Manager must not hold Money other than Client Money in a Client Money Account, other than:

1. (a) a minimum sum required to open the Client Money Account, or to keep it open;
2. (b) Money withdrawn as commission from the Client Money Account (where the Insurance Intermediary or Insurance Manager has received a premium from a Client or on behalf of the Client in accordance with its terms of business with that Client and the relevant insurer, and the commission is withdrawn before onward payment of that premium to the insurer);
3. (c) Money received by way of mixed remittance (that is, part Client Money and part other Money) (provided the Insurance Intermediary or Insurance Manager pays the full amount into the Client Money Account, and transfers out that part of the payment which is not Client Money not later than 25 days after the day on which the remittance is cleared);
4. (c) interest credited to the account which exceeds the amount payable to Clients as interest.