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8.5. Client money: Insurance Intermediation and Insurance Management
FINANCIAL SERVICES LEGISLATION
RULES
CONDUCT OF BUSINESS RULES
Guidance: Purpose of this rulebook
SCHEDULE 1: TRANSACTION RECORDS
SCHEDULE 2: KEY INFORMATION AND CONTENT OF CLIENT AGREEMENT
SCHEDULE 3: TRADE CONFIRMATION
SCHEDULE 4: PERIODIC STATEMENTS
SCHEDULE 5: FINANCIAL PROMOTIONS
Entire Act

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:

  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.

8.5.9. Client Money Account

An Insurance Intermediary or Insurance Manager must:

  1. (a) ensure that Client Money is held in one or more Client Money Accounts with one or more Third Party Account Providers;
  2. (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;
  3. (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
  4. (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:
  5. (a) the capital of the Third Party Account Provider;
  6. (b) the amount of Client Money placed, as a proportion of its overall capital and deposits;
  7. (c) the credit rating of the Third Party Account Provider (if available);
  8. (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:

  1. (a) he has taken reasonable steps to trace the Client and to inform him that he is entitled to the money; and
  2. (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:

  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 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;
  3. (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
  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 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.