4.1. Application

This chapter applies to an Authorised Firm intending to carry out Regulated Activities with or for a Client. The obligation in this section to enter into a written client agreement does not apply to an Authorised Firm when it is carrying on a Regulated Activity with or for a Professional Client or Market Counterparty, but the Authorised Firm must still provide specified key information to a Professional Client or Market Counterparty, in accordance with this chapter, before providing services. This chapter does not apply to an Authorised Firm when it is:

• (a) carrying out the Regulated Activity of providing financing using Shari'ah- compliant Financial Contracts; or
• (b) a Fund Manager offering the Units of a Fund it manages.

Guidance: Other information requirements Other information requirements will apply to the provision of Shari'ah-compliant Financial Contracts, which are in the AIFC IFR Rules. Similarly, specific disclosure requirements apply to the Offering Materials provided in relation to Units in a Fund, as set out in the AIFC CIS Rules.

4.2. Client agreement

4.3. Content of client agreement

If the Authorised Firm is required to enter into a written client agreement with the Client, the agreement must set out the essential rights and obligations of both parties.

4.4. Content of key information

Schedule 2 sets out:

• (a) the core key information that must be included in every client agreement, or otherwise provided to a Client in accordance with COB 4.2.2 (and specifies that, more information is to be disclosed to Retail Clients than to Professional Clients or Market Counterparties); and
• (c) additional key information that must be included in any client agreement or otherwise provided to a Client in relation to certain activities.

4.5. Record keeping

The Authorised Firm should retain a copy of the client agreement for a period of six years from the date on which the relationship with the relevant Client has terminated.

4.6. Provision of key features document relating to Investment Tokens and Qualified Investment Tokens

(1)   An Authorised Firm must not provide a Financial Service to which this section applies to a Person unless it has provided that Person with a key features document containing the information in (2).

(2)   The key features document must contain the following information in respect of each Investment Token or Quilified Investment Token relevant to the Financial Services that the Authorised Firm will provide to the Person:

(a) the risks associated with and essential characteristics of the Issuer, other Person responsible for discharging the obligations associated with the rights conferred (if different to the Issuer) and guarantor if any, of the Investment Token or Qualified Investment Token, including their assets, liabilities and financial position;

(b) the risks associated with and essential characteristics of the Investment Token or Qualified Investment Token, including the rights and obligations conferred and the type or types of Investment which it constitutes;

(c) whether the Investment Token or Qualified Investment Token is or will be admitted to trading and, if so, the details relating to such admission, including details of the facility and whether the facility is within the AIFC;

(d) whether the Client can directly access the trading facility, or whether access is only through an intermediary, and the process for accessing the facility;

(e) risks associated with the use of DLT, particularly those relating to Digital wallets and the susceptibility of private cryptographic keys to misappropriation;

(f) whether the Client, the Authorised Firm or a third party is responsible for providing a Digital wallet service in respect of the Investment Token or Qualified Investment Token, and any related risks (for example, at whose risk the Client’s Investment Tokens or Qualified Investment Token are held in the Digital wallet, whether it is accessible online or stored offline, what happens if keys to the Digital wallet are lost and what procedures can be followed in such an event);

(g) how the Client may exercise any rights conferred by the Investment Tokens or Qualified Investment Tokens such as voting or participation in shareholder actions; and

(h) any other information relevant to the particular Investment Token or Qualified Investment Token that would reasonably assist the Client to understand the product and technology better and to make informed decisions in respect of it.

      (3)   The key features document must be provided in good time before the relevant Financial Service is provided to the Person, to enable that Person to make an informed decision about whether to use the relevant Financial Service.

      (4)   The key features document does not need to be provided to a Person to whom the Authorised Firm has previously provided that information, if there has been no significant change since the information was previously provided.

4.7. Provision of key features document relating to Derivatives

(1)   An Authorised Firm must not provide a Financial Service relating to Derivatives unless it has provided the Client with a key features document containing the information in (2) and taken reasonable steps to ensure that the Client understands the nature of the risks involved.

(2)   The key features document must contain the applicable information in respect of each Derivative relevant to the Financial Services that the Authorised Firm will provide to the Client:

(a) the description, risk warning on risks associated with and essential characteristics of Derivative instrument;

(b) the risks associated with and essential characteristics of type of transaction, including the need for margin payments, the potential for total loss, and the specific risks of transactions;

(c) the importance of understanding all commissions and charges before engaging in transactions, particularly when these charges are expressed as percentages rather than in monetary terms;

(d) the risks associated with and essential characteristics of trading suspensions, including the difficulty or impossibility of liquidating positions during rapid price movements, and the stop-loss orders will not necessarily limit losses to the intended amounts, because market conditions may make it impossible to execute such an order at the stipulated price.

(3) The key features document must be provided:

(a) in writing and in good time before the relevant Financial Service is provided to the Person, to enable that Person to make an informed decision about whether to use the relevant Financial Service;

(b) in a stand alone document and not be part of the Client Agreement or any other document provided to the Client.

(4) The key features document does not need to be provided to a Person to whom the Authorised Firm has previously provided that information, if there has been no significant change since the information was previously provided.

(5) The AFSA may, by written notice or Guidance, set more detailed requirements to key features document relating to Derivatives.

Guidance: risk warning

An Authorised Firm should provide that Client with a risk warning, which states that:

(a) the types of contracts which the Authorised Firm will be entering into with the person are complex financial instruments where the loss or profit of the person is determined by reference to the movement of the value or price of the underlying reference;

(b) this type of trading in complex financial instruments has a high probability of the person losing money rapidly, particularly due to the gain or loss being leveraged, based on the fluctuation of the price of the underlying reference; and

(c) before deciding to trade in a Derivative, the person needs to understand how the Derivative offered work, and whether the person can afford to take the risk of losing money.