Guidance: Purpose of this rulebook
The purpose of this rulebook, “COB”, is to ensure that financial services firms operating in the AIFC meet the standards of conduct expected of such firms, particularly with regard to the treatment of their clients, but also in their dealings with counterparties and other market participants. COB also includes rules to ensure that the behaviour of firms operating in the AIFC contributes to fostering and maintaining the integrity of financial markets in the AIFC. COB also includes certain requirements applicable to Ancillary Service Providers.
This will assist the AFSA to meet the regulatory objectives specified in the Financial Services Framework Regulations (the "Framework Regulations"), including the AFSA's objectives of:
· protecting the interests of investors and users of financial services;
· ensuring that the AIFC's financial markets are fair, efficient, transparent and orderly; and
· fostering and maintaining confidence in the AIFC's financial system and regulatory regime.
Chapter 1 (Application) states that the requirements in the COB rulebook generally apply to Authorised Firms licensed to carry on a Regulated Activity. Some requirements may be modified or disapplied altogether depending on the type of Authorised Firm involved, the nature of its activities, and/or the classification of the Client to whom the Authorised Firm provides services.
In particular, the majority of the COB rules do not apply to Insurance Intermediaries, Trust Service Providers, or Ancillary Service Providers, which are instead required to comply with the requirements set out in Chapters 11, 12 or 13 of COB respectively.
For the avoidance of doubt, COB does not apply to Representative Offices or Authorised Market Institutions, unless otherwise provided under Rules made by the AFSA.
Chapter 2 (Client classification) requires an Authorised Firm to classify each of its Clients as either a Retail Client, Professional Client, or Market Counterparty, depending on the Client's financial resources and knowledge and experience of Financial Services. The Authorised Firm must inform the Client of its classification. The purpose of this classification is to ensure that the COB rules are applied in a risk-sensitive manner in proportion to the risks faced by a Client and the level of protection which that Client requires. In particular, the COB rules seek to ensure that the Client receives an adequate level of protection based on its resources and understanding of the Financial Products and Financial Services involved. For example, a Retail Client is assumed to need more protection than a Market Counterparty, so an Authorised Firm dealing with a Retail Client will be required to comply with more stringent requirements in COB.
Chapter 3 (Communications with Clients and Financial Promotions) imposes a general duty on Authorised Firms to ensure that their communications with Clients are fair, clear and not misleading. In addition, there are specific requirements for the handling of Financial Promotions (that is, marketing materials directed at potential investors). This is to ensure the protection of Clients, including potential clients.
Chapter 4 (Key information and client agreement) provides the key information to be provided by Authorised Firms to their Clients, and the requirement to enter into a client agreement with their Clients. The purpose of this requirement is to ensure that Clients receive the information which they need in order to come to an informed decision about the Financial Products and Financial Services being offered, and to ensure that there is a binding contract containing the rights and obligations of both parties.
Chapter 5 (Conduct of Investment Business) states that an Authorised Firm that is Advising on Investments or Managing Investments for a Client must assess whether the Financial Product or Financial Service being offered is "suitable" for that Client. If the Authorised Firm is Dealing in Investments or receiving and transmitting orders for a Client, the Authorised Person must assess whether the Financial Product or Financial Service is "appropriate" for the Client. The respective nature of assessments of suitability or appropriateness are described in detail in COB 5. It also contains additional detailed disclosure requirements in respect of Life Policies and Family Takaful Policies.
Chapter 6 (Order execution and order handling) sets out the obligation for an Authorised Firm, when executing an order on behalf of a Client, to obtain the best possible result for the Client. The Authorised Firm is required to handle orders according to a specified order allocation policy.
Chapter 7 (Conflicts of interest) builds on the requirement in GEN that an Authorised Firm must identify a conflict of interest between itself and a Client, or between one Client and another Client, and where appropriate manage such conflicts. COB 7 provides further detail on how such conflicts should be managed and disclosed to the Client. COB 7 is also intended to prevent a third party making payments or providing other benefits to an Authorised Firm in a way that may damage the Client's interests.
Chapter 8 (Client assets) is intended to ensure that, where an Authorised Firm holds or controls Money or Investments belonging to a Client, such Money or Investments will be protected in the event of that Authorised Firm's insolvency.
Chapter 9 (Reporting to clients) states the requirements on an Authorised Firm to report to the Client. COB 9 is intended to ensure that the Authorised Firm provides the Client with post-trade confirmation of the Client's purchases and sales of Investments as well as regular periodic statements on the value of the Investments held by the Authorised Firm on behalf of the Client.
Chapter 10 (Investment research) sets out requirements in relation to the production of investment research by an Authorised Firm. This is intended to prevent any conflict of interest from acting to the detriment of the Client.
Chapter 11 (Insurance intermediaries) deals with specific conduct of business rules that apply to insurance intermediaries.
Chapter 12 (Trust Service Providers) sets out the conduct of business requirements that apply to Trust Service Providers.
Chapter 13 (Ancillary Service Providers) sets out high-level principles that apply to Ancillary Service Providers.
Chapter 14 (Credit Rating Agencies) sets out high-level principles that apply to Credit Rating Agencies.
Chapter 15 (Complaints handling and dispute resolution) contains high-level requirements setting out how a Client may issue a complaint against an Authorised Firm and how this may be escalated in the event of a dispute.
Chapter 16 (Record keeping) sets out how records must be maintained by an Authorised Firm.
Chapter 17 (Operators of a Digital Asset Business) sets out the conduct of business requirements that apply to Operators of a Digital Asset Business.
Chapter 18 (Banks) sets out the conduct of business requirements that apply to Banks.
Chapter 19 (Insurance Business) sets out the conduct of business requirements that apply to Insurers. These requirements relate to the cancellation of Contracts of Insurance and the handling of claims under Contracts of Insurance.
Chapter 20 (Insurance Management) contains provisions which apply to Insurance Managers. These include restrictions upon the services that Insurance Managers are permitted to provide, disclosures that they are required to make and requirements which apply where Insurance Managers handle claims under Contracts of Insurance.