8. CLIENT ASSETS

8.1. Application

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. Client Money: Investment Business

The rules in this COB 8.2 are the Client Money Rules.

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:

(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;
(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;
(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
(d) fourthly, upon satisfaction of all claims in (a), (b) and (c) above, in the event of:
(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:

(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
(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. Client Investments Rules

The rules in COB 8.3 are the Client Investments Rules.

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:

(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
(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.

8.4. Mandates

Where an Authorised Firm holds a Mandate, it must establish adequate records and systems and controls in respect of its use of the Mandates. Where an Authorised Firm holds Mandates, it must:

(a) maintain an up-to-date list of all such Mandates, including any conditions placed by the Client or by the Authorised Firm on the use of the Mandate and details of the procedures and authorities for the giving and receiving of instructions under the Mandate;
(b) maintain a record of each Transaction entered into under each Mandate; and
(c) ensure that all Transactions entered into using such a Mandate are are within the scope of the authority of the Employee and the Authorised Firm entering into such Transactions.

8.5. Client money: Insurance Intermediation and Insurance Management

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:

(a) premiums, additional premiums and return premiums of all kinds;
(b) claims and other payments due under Contracts of Insurance;
(c) refunds;
(d) fees, charges, taxes and similar fiscal levies relating to Contracts of Insurance; or
(e) discounts, commissions and brokerage
(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:

(a) due and payable by the Client to the Insurance Intermediary or Insurance Manager:
(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);

(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:

(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;
(b) insurance cover is maintained for the Client once the money is received by the Insurance Intermediary; and
(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:

(a) paying it as soon as is practicable into a Client Money Account; or
(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:

(a) pay the Money into a Client Money Account; or
(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:

(a) a minimum sum required to open the Client Money Account, or to keep it open;
(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);
(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);
(c) interest credited to the account which exceeds the amount payable to Clients as interest.

8.5.9. Client Money Account

An Insurance Intermediary or Insurance Manager must:

(a) ensure that Client Money is held in one or more Client Money Accounts with one or more Third Party Account Providers;
(b) take reasonable steps before opening a Client Money Account, and as often as is appropriate on a continuing basis (and no less than once in each financial year), to ensure that the Third Party Account Provider is appropriate for that purpose;
(c) prior to operating a Client Money Account, give written notice to, and request written confirmation from, the Third Party Account Provider that the bank is not entitled to combine the Client Money Account with any other account unless that account is itself an Client Money Account held by the Authorised Firm, or to any charge, encumbrance, lien, right of set-off, compensation or retention against monies standing to the credit of the Client Money Account; and
(d) ensure that each Client Money Account contains in its title the name of the Insurance Intermediary or Insurance Manager, together with the designation "Client Account". Guidance: Due diligence When assessing a Third Party Account Provider, an Insurance Intermediary or Insurance Manager should consider taking into account, among other matters:
(a) the capital of the Third Party Account Provider;
(b) the amount of Client Money placed, as a proportion of its overall capital and deposits;
(c) the credit rating of the Third Party Account Provider (if available);
(d) where such information is available, the level of risk in the investment and loan activities undertaken by it or members of its Group.

8.5.10. No confirmation from Third Party Account Provider

If a Third Party Account Provider has not provided the written confirmation referred to in COB 8.5.9(c) within 40 business days after the Authorised Firm made the request, the Authorised Firm must as soon as possible withdraw the Client Money held in the Client Money Account with that Third Party Account Provider and deposit them in a Client Money Account with another Third Party Account Provider.

8.5.11. Derivatives in management of Client Money

An Insurance Intermediary or Insurance Manager may not use derivatives in the management of Client Money except for the prudent management of foreign exchange risks

8.5.12. Untraceable clients

An Insurance Intermediary or Insurance Manager that has a credit balance for a Client who cannot be traced should not take credit for such an amount except where:

(a) he has taken reasonable steps to trace the Client and to inform him that he is entitled to the money; and
(b) at least six years has lapsed from the date the credit was initially notified to the Client.

8.5.13. Record keeping

(1) An Insurance Intermediary or Insurance Manager must keep a copy of any agreement entered into between an insurer and that Insurance Intermediary or Insurance Manager acting as agent pursuant to COB 8.5.5 (Holding money as agent of an insurer) for at least six years from the date on which that agreement is terminated.

(2) An Insurance Intermediary or Insurance Manager must keep records of all sums withdrawn from the Insurance Bank Account as a result of credit taken under COB 8.5.12 (Untraceable clients) for at least six years from the date of withdrawal or realisation.

8.5.14. Distribution Event

Following a Distribution Event, an Insurance Intermediary or Insurance Manager must comply with the Client Money Distribution Rules and all Client Money will be subject to such Rules.

8.5.15. Client Money Distribution Rules (Insurance Intermediation and Insurance Management)

(1) The requirements in this COB 8.5.15 are the Client Money Distribution Rules (Insurance Intermediation and Insurance Management) and to the extent that these Rules are inconsistent with the AIFC Insolvency Regulations, these Rules will prevail.

(2) Following a Distribution Event, the Insurance Intermediary or Insurance Manager must distribute Money in the following order of priorities:

(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;
(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 Insurance Intermediary or Insurance Manager must be used to satisfy any outstanding amounts remaining payable to Segregated Clients but not satisfied from the application of (a) above;
(c) thirdly, upon resolution of claims in relation to Segregated Clients, any Money remaining with the Insurance Intermediary or Insurance Manager must be paid to each Client in full or, where insufficient funds are held by the Insurance Intermediary, proportionately, in accordance with each Client’s valid claim over that Money; and
(d) fourthly, upon satisfaction of all claims in (a), (b) and (c) above, in the event of:
(i) the appointment of a liquidator, receiver or administrator, or trustee in bankruptcy over the Insurance Intermediary, payment must be made accordance with the AIFC Insolvency Regulations; or

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

8.5.16. Client reporting

In relation to each Client for whom it receives or holds Client Money, an Insurance Intermediary or Insurance Manager must provide at least once a year a statement of the Client Money.