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.