3.9.1. Content of confirmation notes

For the purposes of COB 9.1.3., a Digital Asset Service Provider must include the following general information:

(a) the Digital Asset Service Provider’s name and address;

(b) whether the Digital Asset Service Provider executed the Transaction as principal or agent;

(c) a description of the Digital Asset;

(d) whether the Transaction is a sale or purchase;

(e) the price or unit price at which the Transaction was executed;

(f) if applicable, a statement that the Transaction was executed on an execution-only basis;

(g) the date and time of the Transaction;

(h) the total amount payable by the Client and the date on which it is due;

(i) the amount the Digital Asset Service Provider charges in connection with the Transaction, including Commission charges and the amount of any Mark-up or Mark-down, Fees, taxes or duties; and

(j) the amount or basis of any amounts received from another Person in connection with the services.

(2) A Digital Asset Service Provider may combine items (f) and (j) above in respect of a Transaction where the Client has requested a note showing a single price combining both of these items.

3.9.2. Appropriateness test

(1) A Digital Asset Service Provider Dealing in Investments as Principal or Agent must not carry on a Regulated Activity with or for a Retail Client unless the Digital Asset Service Provider has carried out an appropriateness test of the Retail Client and formed a reasonable view that the Retail Client has:

(a) adequate skills and expertise to understand the risks involved in trading in Digital Assets or Digital Asset Derivatives (as the case may be); and

(b) the ability to absorb potentially significant losses resulting from trading in Digital Assets or Digital Asset Derivatives (as the case may be).

(2) A Digital Asset Service Provider must maintain records of the appropriateness test that it carries out in respect of each Retail Client and make such records available to the AFSA on request.

(3) A Digital Asset Service Provider must have appropriate systems and controls and policies and procedures to determine the appropriateness of Retail Clients

Guidance:

(1) To form a reasonable view referred to in DAA 3.9.2.(1) in relation to a Retail Client, a Digital Asset Service Provider should consider issues such as whether the Retail Client:

(a) has sufficient knowledge and experience relating to the type of a Digital Asset or Digital Asset Derivative offered, having regard to such factors as:

(i) how often and in what volumes that Person has traded in the relevant type of a Digital Asset or Digital Asset Derivative; and

(ii) the Retail Client’s relevant qualifications, profession or former profession;

(b) understands the characteristics and risks relating to Digital Assets or Digital Asset Derivatives, and the volatility of their prices;

(c) understands the impact of leverage, due to which, there is potential to make significant losses in trading in Digital Assets or Digital Asset Derivatives; and

(d) has the ability, particularly in terms of net assets and liquidity available to the Retail Client, to absorb and manage any losses that may result from trading in the Digital Assets or Digital Asset Derivatives offered.

(2) To be able to demonstrate to the AFSA that it complies with DAA 3.9.2., a Digital Asset Service Provider should have in place systems and controls that include:

(a) pre-determined and clear criteria against which a Retail Client’s ability to trade in Digital Assets or Digital Asset Derivatives can be assessed;

(b) adequate records to demonstrate that the Digital Asset Service Provider has undertaken the appropriateness test for each Retail Client; and

(c) in the case of an existing Retail Client with whom the Digital Asset Service Provider has previously traded in Digital Assets or Digital Asset Derivatives, procedures to undertake a fresh appropriateness test on at least an annual basis, and if:

(i) a new Digital Asset or Digital Asset Derivative with a materially different risk profile is offered to the Retail Client; or

(ii) there has been a material change in the Retail Client’s circumstances.

(3) If a Digital Asset Service Provider forms the view that it is not appropriate for a Person to trade in Digital Assets or Digital Asset Derivatives, the Digital Asset Service Provider should refrain from offering that service to the Person. As a matter of good practice, the Digital Asset Service Provider should inform the Person of its decision.