Appendix 2

In this appendix, the draft COB module presented herein does not indicate the
amendments proposed to the current in-force COB module in the usual manner, by
underlining or striking through, because there have been material revisions made to the
current in-force COB module.

There is a COB Transition Map, located at Annexure A, which specifies the new locations
of the current COB Rules.

The DFSA Rulebook

Conduct of Business Module

(COB)
 CONDUCT OF BUSINESS (COB)

Contents
The contents of this module are divided into the following chapters, sections and
appendices:

1 INTRODUCTION............................................................................................. 1

1.1 Application 1

2 CLIENT CLASSIFICATION ............................................................................ 2

2.1 Application 2
2.2 A Client acting through an agent 2
2.3 Types of Client 3
2.4 Net assets 6
2.5 Analysis 6
2.6 Record keeping 7

3 CORE RULES – INVESTMENT BUSINESS, ACCEPTING DEPOSITS,

PROVIDING CREDIT AND PROVIDING TRUST SERVICES ........................ 2

3.1 Application 8
3.2 Communication of information and marketing material 8
3.3 Key information and Client Agreement 10
3.4 Suitability 12
3.5 Best interest of Client 13
3.6 Record Keeping 17

4 ADDITIONAL RULES - ACCEPTING DEPOSITS AND PROVIDING

CREDIT......................................................................................................... 18

4.1 Application 18
4.2 Accepting Deposits 18
4.3 Providing Credit 18

5 ADDITIONAL RULES – PROVIDING TRUST SERVICES ........................... 19

5.1 Application 19
5.2 General 19
5.3 Reviews 20
5.4 Professional indemnity insurance cover 20
5.5 Dual control 20
5.6 Internal reporting 21
 CONDUCT OF BUSINESS (COB)

5.7 Recording of Selection Criteria 21

5.8 Qualification and experience of Trust Service Provider staff 22
5.9 Books and records 22
5.10 Due diligence 23
5.11 Fitness and Propriety of Persons acting as trustees 23

6 ADDITIONAL RULES - INVESTMENT BUSINESS ..................................... 24

6.1 Application 24
6.2 Personal account transactions 24
6.3 Investment research and offers of securities 26
6.4 Best execution 30
6.5 Non-market price transactions 31
6.6 Aggregation and allocation 32
6.7 Record keeping – transactions and orders 33
6.8 Other dealing rules 34
6.9 Confirmation notes 35
6.10 Periodic statements 36
6.11 Client Assets 37
6.12 Client money 38
6.13 Client investments 41
6.14 Record keeping 43
6.15 ATS Operators 43

7 CORE RULES - INSURANCE ...................................................................... 46

7.1 Application 46
7.2 Restrictions 46
7.3 Communication of information and marketing material 47
7.4 Client’s duty of disclosure 48
7.5 Authorised Firm’s duty of disclosure 48
7.6 Disclosure of costs and remuneration 49
7.7 Information about the proposed insurance 50
7.8 Suitability 51
7.9 Managing conflicts of interest 52
7.10 Placement of Insurance 53
7.11 Providing an ongoing service 53
7.12 Insurance monies 54

APP1 RECORDS OF ORDERS AND TRANSACTIONS........................................ 59

A1.1 Minimum contents of transaction records 59

APP2 KEY INFORMATION AND CLIENT AGREEMENT ...................................... 61

A2.1 Key Information and content of the Client Agreement 61

 CONDUCT OF BUSINESS (COB)

APP3 CONFIRMATION OF TRANSACTIONS ....................................................... 64

A3.1 Content of confirmation notes 64

APP4 PERIODIC STATEMENTS............................................................................ 66

A4.1 Content of periodic statements: investment management 66

APP5 CLIENT MONEY PROVISIONS.................................................................... 68

A5.1 Application 68
A5.2 General requirements 68
A5.3 Payment of client money into client accounts 68
A5.4 Client accounts 70
A5.5 Exceptions to holding client money in client accounts 71
A5.6 Appointment of a third party agent 72
A5.7 Payment of client money to a third party agent 72
A5.8 Payment of client money from client accounts 73
A5.9 Client disclosure 74
A5.10 Client reporting 75
A5.11 Reconciliation 75
A5.12 Auditor’s reporting requirements 77
A5.13 Client money distribution rules 77
A5.14 Failure to comply with this appendix 78

APP6 SAFE CUSTODY PROVISIONS................................................................... 79

A6.1 Application 79
A6.2 General requirements 79
A6.3 Recording, registration and holding requirements 79
A6.4 Client accounts 79
A6.5 Holding or arranging custody with third party agents 81
A6.6 Safe custody agreements with third party agents 82
A6.7 Client disclosure 83
A6.8 Client reporting 84
A6.9 Reconciliation 85
A6.10 Auditor’s reporting requirements 85
 CONDUCT OF BUSINESS (COB)

1 INTRODUCTION

1.1 Application

1.1.1 This module (COB) applies to every Authorised Firm with respect to the carrying
on, in or from the DIFC, of any:

(a) Financial Service; or

(b) activity which is carried on, or held out as being carried on, in connection
with or for the purposes of such a Financial Service;

except to the extent that a provision of COB provides for a narrower application.

1
 CONDUCT OF BUSINESS (COB)

2 CLIENT CLASSIFICATION

2.1 Application

2.1.1 (1) This chapter applies to an Authorised Firm, other than an Authorised
ISPV, carrying on or intending to carry on any Financial Service with or
for a Person.

(2) For the purposes of this chapter, a Person includes a Fund or trust, even if
it does not have a separate legal personality.

2.2 Overview

Guidance

1. This chapter describes the manner in which an Authorised Firm classifies and treats its
Clients. The modules of the Rulebook may apply to an Authorised Firm differently
depending on whether the Person with or for whom it is carrying on Financial Services is,
or is to be treated as, a Retail Client, Professional Client, or Market Counterparty.

2. An Authorised Firm may choose to provide Financial Services and products to both Retail
Clients and Professional Clients. In these circumstances, the Authorised Firm must
determine the appropriate classification of its Clients. As a consequence of the analysis
under Rule 2.3.2, it may be that a Client is:

a. a Retail Client;

b. a Professional Client; or

c. a Professional Client in relation to certain services and products and a Retail Client in
relation to other services and products.

3. An Authorised Firm may choose to treat all Persons with whom it deals as Retail Clients.
In these circumstances, Rule 2.3.1(2)(a) provides that the Authorised Firm is not required to
undertake the determination in Rule 2.3.1(1).

4. An Authorised Firm may choose to deal only with Professional Clients provided the
Authorised Firm is able to classify those Persons as Professional Clients. See Rule 2.3.2. In
such case a Person who is classified as a Professional Client in relation to any Financial
Service or product offered by the Authorised Firm cannot be a Client of the Authorised
Firm in relation to other Financial Services or products, in relation to which he does not
have the necessary expertise.

5. A Market Counterparty is a Professional Client who has expressly agreed to be treated as a

Market Counterparty. Treatment as a Market Counterparty means that, for example, Rules
relating to Client Agreements, suitability, inducements, best execution, aggregation and
allocation do not apply to such Clients.

2
 CONDUCT OF BUSINESS (COB)

2.3 Types of Client

2.3.1 (1) Subject to (2), before carrying on a Financial Service with or for a Person,
an Authorised Firm must determine whether such a Person is a
Professional Client in accordance with Rule 2.3.2, in respect of all or
particular Financial Services or products offered by the Authorised Firm.

(2) An Authorised Firm is not required to comply with (1) where it:

(a) treats a Person as a Retail Client;

(b) refers a Person to another Authorised Firm or any entity regulated

by a Financial Services Regulator without providing any other
Financial Services to that Person; or

(c) gives generic advice as defined in GEN Rule 2.11.1(3) to a

prospective Client.

(3) If an Authorised Firm is aware that a Client with or for whom it is intending
to carry on a Financial Service is acting as an agent for another Person (the
‘second person’) in relation to a particular Transaction then, unless the
Client is another Authorised Firm or a Regulated Financial Institution, the
Authorised Firm must treat that second person as its Client in relation to
that Transaction.

Guidance

1. An Authorised Firm conducts the activity of arranging as defined in GEN section 2.9 and
2.19 when making referrals. However, an Authorised Firm is not required to undertake the
Client classification process set out in Rule 2.3.2 where it makes a referral within the
parameters in Rule 2.3.1(2)(b). Under other provisions in this module, an Authorised Firm
is also exempt from other specific requirements when making such referrals under Rules
3.3.1(d) and 3.4.1(d).

2. In regard to Rule 2.3.1(2)(c), if generic advice is included in marketing material, an

Authorised Firm should take care to comply with the requirements in chapter 3, in
particular Rules 3.2.4 and 3.2.5. However, an Authorised Firm is not required to comply
with the provisions relating to client information and Client Agreement and suitability
requirements in chapter 3 when giving generic advice.

3
 CONDUCT OF BUSINESS (COB)

Professional Client

2.3.2 (1) An Authorised Firm may classify a Person as a Professional Client only if
such a Person:

(a) either:

(i) has net assets of at least $500,000 calculated in accordance

with Rule 2.4.1; or

(ii) is an Employee of an Authorised Firm;

(b) subject to (2), appears, on reasonable grounds, to the Authorised

Firm, to have sufficient experience and understanding of relevant
financial markets products or transactions and any associated risks
following the analysis specified in Rule 2.5.1; and

(c) has not elected to be treated as a Retail Client in accordance with

Rule 2.3.3.

(2) An Authorised Firm may consider the following Persons as possessing the
necessary degree of experience and understanding of relevant financial
markets, products or transactions without having to undertake the analysis
referred to in (1)(b):

(a) an Authorised Firm or Regulated Financial Institution;

(b) a properly constituted government, government agency, central

bank or other national monetary authority of any country or
jurisdiction;

(c) a public authority or state investment body;

(d) a supranational organisation whose members are either countries,

central banks or national monetary authorities;

(e) an Authorised Market Institution, regulated exchange or regulated

clearing house;

(f) a Body Corporate whose shares are listed or admitted to trading on

any regulated exchange of an IOSCO member country ;

(g) a Body Corporate which has called up share capital of at least

$10,000,000; or

(h) a Collective Investment Fund.

4
 CONDUCT OF BUSINESS (COB)

(3) A personal investment vehicle may be classified as a Professional Client

without having to meet the requirements in (1)(a)(i) if it is established and
operated for the sole purpose of facilitating the management of the
investment portfolio of an existing Professional Client.

Guidance

1. A Professional Client is responsible for keeping an Authorised Firm informed

about any changes that could affect his current classification. Should the
Authorised Firm become aware that a Professional Client no longer fulfils the
conditions which made him eligible to be classified as a Professional Client, the
Authorised Firm should take appropriate action.

2. A personal investment vehicle may be a Body Corporate, Partnership, trust or

foundation.

Option of a Professional Client to be treated as a Retail Client

2.3.3 (1) Subject to (3), for the purpose of Rule 2.3.2(1)(c), an Authorised Firm
must, when first establishing a relationship with a Person as a
Professional Client for the purposes of carrying on a Financial Service,
inform that Person of his option to be treated as a Retail Client, the higher
level of protection available to Retail Clients, and the time within which
the Person may elect to be treated as a Retail Client.

(2) If the Person does not expressly elect to be treated as a Retail Client
within the time specified by the Authorised Firm, the Authorised Firm may,
pursuant to Rule 2.3.2, classify that Person as a Professional Client.

(3) In the event that an Authorised Firm only carries on Financial Services
with or for Professional Clients, it must inform the Person of this fact and
any relevant consequences.

(4) An Authorised Firm must, during the course of its dealings with a
Professional Client, treat such Client as a Retail Client if he expressly
requests the Authorised Firm to do so.

Guidance

1. The obligation in Rule 2.3.3(1) applies to an Authorised Firm when it deals for the
first time with a Professional Client.

2. For the purposes of Rule 2.3.3(4), it is the responsibility of a Professional Client to

ask for a higher level of protection as a Retail Client.

Market Counterparty

2.3.4 (1) An Authorised Firm may treat a Professional Client as a Market

Counterparty where such a Client falls within Rule 2.3.2(2) and has
expressly consented to being treated as a Market Counterparty.

5
 CONDUCT OF BUSINESS (COB)

(2) The express consent referred to in (1) can be either in the form of a general
agreement or in respect of each individual Transaction.

Retail Client

2.3.5 A Client is a Retail Client to the extent he is not a Professional Client.

2.4 Net assets

2.4.1 An Authorised Firm, when calculating net assets of a Person who is an individual
for the purposes of the requirement under Rule 2.3.2(1)(a)(i):

(a) must exclude the value of the primary residence of that Person; and

(b) may include any assets held directly or indirectly by that Person.

2.5 Analysis

2.5.1 (1) For the purpose of Rule 2.3.2(1)(b), the analysis undertaken by an
Authorised Firm must include, where applicable, consideration of the
following matters:

(a) the Person’s knowledge and understanding of the relevant financial

markets, types of financial products or arrangements and the risks
involved either generally or in relation to the proposed Transaction;

(b) the length of time the Person has participated in relevant financial
markets, the frequency of dealings and the extent to which the
Person has relied on financial advice from financial institutions;

(c) the size and nature of transactions that have been undertaken by or
on behalf of the Person in relevant financial markets;

(d) the Person’s relevant qualifications relating to financial markets;

(e) the composition and size of the Person’s existing financial

investment portfolio;

(f) in the case of credit or insurance transactions, relevant experience

in relation to similar transactions to be able to understand the risks
associated with such transactions; and

(g) any other matters which the Authorised Firm considers relevant.

6
 CONDUCT OF BUSINESS (COB)

(2) Where the analysis is being carried out in respect of an Undertaking, the
analysis must be applied to those individuals who are authorised to
undertake transactions on behalf of the Undertaking.

Guidance

Generally, an Authorised Firm may consider a Person to have relevant experience and understanding
where such a Person:

a. has been involved in similar transactions in a professional or personal capacity sufficiently

frequently to give the Authorised Firm reasonable assurance that the Person is able to make
decisions of that kind, understanding the type of risks involved;

b. in the case of an Employee, has worked in the financial services industry for at least one
year in a professional capacity which requires knowledge of the transactions or services
involved; or

c. is found to be acting in relation to the particular transaction involved, on reliance of a

recommendation made by an Authorised Firm or Regulated Financial Institution.

2.6 Record keeping

2.6.1 An Authorised Firm must keep records of:

(a) the process undertaken under the Rules in this chapter including any
documents which evidence the Client’s classification; and

(b) any notice sent to the Client under the Rules in this chapter and evidence of
despatch.

2.6.2 These records must be kept for at least six years from the date on which the
business relationship with a Client has ended. If the date on which the business
relationship ended remains unclear, it may be taken to have ended on the date of
the completion of the last Transaction.

7
 CONDUCT OF BUSINESS (COB)

3 CORE RULES – INVESTMENT BUSINESS, ACCEPTING

DEPOSITS, PROVIDING CREDIT AND PROVIDING TRUST
SERVICES

Guidance

1. The Rules in this chapter give support to the Principles in GEN section 4.2 and in particular
Principles 1, 2, 6 and 7.

2. There are additional Rules that apply to Authorised Firms in other chapters of this module,
which are more specific to the nature of the Financial Service conducted by the Authorised
Firm.

3.1 Application

3.1.1 This chapter applies to an Authorised Firm which carries on or intends to carry
on:

(a) Investment Business;

(b) Accepting Deposits;

(c) Providing Credit; or

(d) Providing Trust Services,

except where it is expressly provided otherwise.

3.2 Communication of information and marketing material

General

3.2.1 When communicating information to a Person in relation to a financial product or

financial service, an Authorised Firm must take reasonable steps to ensure that the
communication is clear, fair and not misleading.

3.2.2 An Authorised Firm must not, in any form of communication with a Person, attempt
to limit or avoid any duty or liability it may have to that Person or any other Person
under the Regulatory Law 2004 or Rules.

3.2.3 Where a Rule in COB requires information to be sent to a Client, the Authorised
Firm must provide that information directly to the Client and not to another Person,
unless it is on the written instructions of the Client.

8
 CONDUCT OF BUSINESS (COB)

Marketing material

3.2.4 (1) An Authorised Firm must ensure that any marketing material communicated
to a Person contains the following information:

(a) the name of the Authorised Firm communicating the marketing

material or, on whose behalf the marketing material is being
communicated;

(b) the Authorised Firm’s regulatory status as required under GEN

section 6.4; and

(c) if the marketing material is intended only for Professional Clients, a

clear statement to that effect and that no other Person should act
upon it.

(2) In (1), marketing material includes any invitation or inducement to enter into
an agreement:

(a) in relation to a financial product or to engage in a Financial Service

with the Authorised Firm; or

(b) in relation to a financial product or financial service offered by a

Person other than the Authorised Firm.

(3) An Authorised Firm which communicates marketing material in (2)(b) must:

(a) ensure that the marketing material complies with the applicable
Rules and any legislation administered by the DFSA; and

(b) not distribute such marketing material if it becomes aware that the
Person offering the financial product or financial service to which the
material relates is in breach of the regulatory requirements that
apply to that Person in relation to that product or service.

3.2.5 An Authorised Firm must take reasonable steps to ensure that:

(a) any marketing material intended for Professional Clients is not sent or
directed to any Persons who are not Professional Clients; and

(b) no Person communicates or otherwise uses the marketing material on

behalf of the Authorised Firm in a manner that amounts to a breach of the
requirements in this section.

9
 CONDUCT OF BUSINESS (COB)

Past performance and forecasts

3.2.6 An Authorised Firm must ensure that any information or representation relating to
past performance, or any future forecast based on past performance or other
assumptions, which is provided to or targeted at Retail Clients:

(a) presents a fair and balanced view of the financial products or financial
services to which the information or representation relates;

(b) identifies, in an easy to understand manner, the source of information

from which the past performance is derived and any key facts and
assumptions used in that context are drawn; and

(c) contains a prominent warning that past performance is not necessarily a

reliable indicator of future results.

Guidance

In presenting information relating to past performance of a financial product or financial service,

the Authorised Firm should follow, to the extent relevant, the Global Investment Performance
Standards (GIPS) issued by Institute of Chartered Financial Analysts of the USA or a reputable
independent actuarial, financial or statistical reporting service provider.

3.3 Key information and Client Agreement

Application

3.3.1 The Rules in this section do not apply to an Authorised Firm when it is:

(a) carrying on a Financial Service with or for a Market Counterparty;

(b) Accepting Deposits;

(c) Providing Credit;

(d) providing generic advice as defined in GEN Rule 2.11.1(3) or making a

referral under Rule 2.3.1(2)(b); or

(e) an Operator of a Fund Offering the Units of a Fund it operates.

10
 CONDUCT OF BUSINESS (COB)

3.3.2 (1) Subject to (2), an Authorised Firm must not carry on a Financial Service
with or for a Person unless:

(a) there is a Client Agreement entered into between the Authorised

Firm and that Person containing the key information specified in
App2; and

(b) before entering into the Client Agreement with the Person, the
Authorised Firm has provided to that Person the key information
referred to in (a) in good time to enable him to make an informed
decision relating to the relevant Financial Service.

(2) An Authorised Firm may provide a Financial Service to a Client without

having to comply with the requirement in (1);

(a) subject to (3), where it is, on reasonable grounds, impracticable to

comply; or

(b) where the Client has expressly agreed to dispense with the
requirement in regard to a personal investment vehicle.

(3) When (2)(a) applies, an Authorised Firm providing the Financial Service
must:

(a) first explain to the Person why it is impracticable to comply; and

(b) enter into a Client Agreement as soon as practicable thereafter.

Guidance

1. App 2 sets out the core information that must be included in every Client Agreement and
additional disclosure for certain types of activities to which this chapter applies. The
information content for Client Agreements with Retail Clients is more detailed than for
Professional Clients.

2. For the purposes of Rule 3.3.2(1)(b), an Authorised Firm may either provide a Person with a
copy of the proposed Client Agreement, or give that information in a separate form. If there
are any changes to the terms and conditions of the proposed agreement, the Authorised Firm
should ensure that the Client Agreement to be signed with the Person accurately incorporates
those changes.

3. For the purposes of Rule 3.3.2(2)(a), an Authorised Firm may consider it is reasonably
impracticable to provide the key information to a Person if that Person requests the
Authorised Firm to execute a Transaction on a time critical basis. Where an Authorised Firm
has given the explanation referred to in Rule 3.3.2(3)(a) verbally, it should maintain records to
demonstrate to the DFSA that it has provided that information to the Client.

11
 CONDUCT OF BUSINESS (COB)

Changes to the client agreement

3.3.3 If the Client Agreement provided to a Retail Client allows an Authorised Firm to
amend the Client Agreement without the Client’s prior written consent, the
Authorised Firm must give at least 14 days notice to the Client before providing a
Financial Service to that Client on any amended terms, unless it is impracticable
to do so.

3.4 Suitability

Application

3.4.1 The Rules in this section do not apply where the Authorised Firm:

(a) undertakes a Transaction with a Market Counterparty;

(b) undertakes an Execution-Only Transaction;

(c) undertakes the activities of Accepting Deposits or Providing Credit; or

(d) provides generic advice as defined under GEN Rule 2.11.1(3) or makes a
referral under Rule 2.3.1(2)(b).

Suitability assessment

3.4.2 (1) Subject to (2), an Authorised Firm must not recommend to a Client a
financial product or financial service, or execute a Transaction on a
discretionary basis for a Client, unless the Authorised Firm has a
reasonable basis for considering the recommendation or Transaction to
be suitable for that particular Client. For this purpose, the Authorised
Firm must:

(a) undertake an appropriate assessment of the particular Client’s

needs and objectives, and, financial situation, and also, to the
extent relevant, risk tolerance, knowledge, experience and
understanding of the risks involved; and

(b) take into account any other relevant requirements and

circumstances of the Client of which the Authorised Firm is, or
ought reasonably to be aware.

12
 CONDUCT OF BUSINESS (COB)

(2) An Authorised Firm may, subject to (3), limit the extent to which it will
consider suitability when making a recommendation to, or undertaking a
Transaction on a discretionary basis for or on behalf of, a Professional
Client if, prior to carrying on that activity, the Authorised Firm:

(a) has given a written warning to the Professional Client in the form
of a notice clearly stating either that the Authorised Firm will not
consider suitability, or will consider suitability only to the extent
specified in the notice; and

(b) the Professional Client has given his express consent, after a
proper opportunity to consider the warning, by signing that
notice.

(3) Where an Authorised Firm manages a Discretionary Portfolio Management

Account for a Professional Client, it must ensure that the account remains
suitable for the Professional Client, having regard to the matters specified in
(1) (a) and (b).

Guidance

An Authorised Firm Providing Trust Services does not have to undertake an assessment of the
factors such as risk tolerance, knowledge and experience of a Client when assessing the suitability
of the service to a particular Client. This is because those considerations are not relevant to the
activity of Providing Trust Services.

3.4.3 An Authorised Firm must take reasonable steps to ensure the information it holds
about a Client is accurate, complete and up to date.

3.5 Conflicts of interest

Fair treatment

3.5.1 (1) An Authorised Firm must take reasonable steps to ensure that conflicts
and potential conflicts of interest between itself and its Clients and
between one Client and another are identified and then prevented or
managed in such a way that the interests of a Client are not adversely
affected and to ensure that all its Clients are fairly treated and not
prejudiced by any such conflicts of interest.

(2) Where an Authorised Firm is aware of a conflict or potential conflict of

interest, it must prevent or manage that conflict of interest by using one
or more of the following arrangements as appropriate:

(a) establishing and maintaining effective Chinese Walls to restrict

the communication of the relevant information;

13
 CONDUCT OF BUSINESS (COB)

(b) disclosing the conflict of interest to the Client in writing either

generally or in relation to a specific Transaction; or

(c) relying on a written policy of independence, which requires an

Employee to disregard any conflict of interest when advising a
Client or exercising a discretion.

(3) If an Authorised Firm is unable to prevent or manage a conflict or

potential conflict of interest as provided in (2), it must decline to act for
that Client.

Attribution of knowledge

3.5.2 When a COB Rule applies to an Authorised Firm that acts with knowledge, the
Authorised Firm will not be taken to act with knowledge for the purposes of that
Rule as long as none of the relevant individuals involved for on behalf of the
Authorised Firm acts with that knowledge as a result of a Chinese Wall
arrangement established under Rule 3.5.1(2)(a).

Inducements

3.5.3 (1) An Authorised Firm must have systems and controls including policies
and procedures to ensure that neither it, nor an Employee or Associate of
it, offers, gives, solicits or accepts inducements such as commissions or
other direct or indirect benefits where such inducements are reasonably
likely to conflict with any duty that it owes to its Clients.

(2) Subject to (3), an Authorised Firm must, before recommending a financial

product as defined in GEN Rule 2.11.1(5) to, or Executing a Transaction
for, a Retail Client, disclose to that Client any commission or other direct
or indirect benefit which it, or any Associate or Employee of it, has
received or may or will receive, in connection with or as a result of the
firm making the recommendation or executing the Transaction.

(3) An Authorised Firm need not disclose to a Retail Client under (2) any
details about inducements where it:

(a) has reasonable grounds to believe that the Retail Client is already
aware of the relevant inducements;

(b) is undertaking an Execution-Only Transaction for that Retail

Client; or

(c) is executing a Transaction pursuant to the terms of a Discretionary

Portfolio Management Agreement for that Retail Client.

14
 CONDUCT OF BUSINESS (COB)

(4) An Authorised Firm may provide the information required under (2) in
summary form, provided it informs the Client that more detailed
information will be provided to the Client upon request and complies with
such a request.

Guidance

In some cases, Authorised Firms may be able to satisfy the disclosure requirement in Rule 3.5.3(2)
by including that information in the Client Agreement. However, where this is not possible, such
information should be provided to a Retail Client at the time of making the recommendation or
undertaking the Transaction on a discretionary basis. Transactions undertaken for Retail Clients
under a Discretionary Portfolio Management Agreement are excluded because such a firm
undertakes Transactions on a discretionary basis within agreed parameters. However, there are
additional disclosure obligations applying to such services.

3.5.4 An Authorised Firm may only accept goods and services under a Soft Dollar
Agreement if the goods and services are reasonably expected to:

(a) assist in the provision of Investment Business services to the Authorised

Firm’s Clients by means of:

(i) specific advice on dealing in, or on the value of, any Investment;

(ii) research or analysis relevant to (i) or about Investments generally;

or

(iii) use of computer or other information facilities to the extent that

they are associated with specialist computer software or research
services, or dedicated telephone lines;

(b) provide custody services relating to Investments belonging to, or

managed for, Clients;

(c) provide services relating to portfolio valuation or performance

measurement services; or

(d) provide market price services.

Guidance

An Authorised Firm should undertake a thorough assessment of the nature of the goods and
services and the terms upon which they are to be provided under a Soft Dollar Agreement to
ensure that the receipt of such goods and services provide commensurate value. This is
particularly the case if any costs of such goods and services are to be passed through to Clients.
Where the Client bears the cost of the goods and services, the disclosure obligation relating to
costs and charges under Rule 3.3.2 (see App 2) will apply to such costs.

15
 CONDUCT OF BUSINESS (COB)

3.5.5 An Authorised Firm must not Deal in Investments as Agent for a Client, either
directly or indirectly, through any broker under a Soft Dollar Agreement, unless:

(a) the agreement is a written agreement for the supply of goods or services
described in Rule 3.5.4, which do not take the form of, or include, cash or
any other direct financial benefit;

(b) Transaction execution by the broker is consistent with any best execution
obligations owed to the Client;

(c) the Authorised Firm has taken reasonable steps to ensure that the
services provided by the broker are competitive, with no comparative
price disadvantage, and take into account the interests of the Client;

(d) for Transactions in which the broker acts as principal, the Authorised Firm
has taken reasonable steps to ensure that Commission paid under the
agreement will be sufficient to cover the value of the goods or services to
be received and the costs of execution; and

(e) the Authorised Firm makes adequate disclosure in accordance with Rules
3.5.6 and 3.5.7.

3.5.6 Before an Authorised Firm enters into a Transaction for or on behalf of a Retail
Client or Professional Client, either directly or indirectly, with or through the
agency of another Person, in relation to which there is a Soft Dollar Agreement
which the Authorised Firm has, or knows that another member of its Group has,
with that other Person, it must disclose to its Client:

(a) the existence of a Soft Dollar Agreement; and

(b) the Authorised Firm’s or its Group’s policy relating to Soft Dollar
Agreements.

3.5.7 (1) If an Authorised Firm or member of its Group has a Soft Dollar Agreement
under which either the Authorised Firm or member of its Group Deals for
a Client, the Authorised Firm must provide that Client with the following
information:

(a) the percentage paid under Soft Dollar Agreements of the total
Commission paid by or at the direction of:

(i) the Authorised Firm; and

(ii) any other member of the Authorised Firm’s Group which is

a party to those agreements;

(b) the value, on a cost price basis, of the goods and services
received by the Authorised Firm under Soft Dollar Agreements,
expressed as a percentage of the total Commission paid by or at
the direction of:

16
 CONDUCT OF BUSINESS (COB)

(i) the Authorised Firm; or

(ii) other members of the Authorised Firm’s Group;

(c) a summary of the nature of the goods and services received by

the Authorised Firm under the Soft Dollar Agreements; and

(d) the total Commission paid from the portfolio of that Client.

(2) The information in (1) must be provided to that Client at least once a year,
covering the period since the Authorised Firm last reported to that Client.

3.6 Record Keeping

3.6.1 An Authorised Firm must, for a minimum of six years, maintain sufficient records
in relation to each activity and function of the Authorised Firm. These must
include, where applicable, the following:

(a) any marketing material issued by, or on behalf of, the Authorised Firm;

(b) any financial products or Financial Services provided to a Client and each
advice or recommendation made to a Client,

(c) a record of each Client Agreement including any subsequent

amendments to it as agreed with the Client;

(d) records relating to the suitability assessment undertaken by the

Authorised Firm to demonstrate compliance with Rule 3.4.2;

(e) records to demonstrate compliance with the requirements relating to

inducements under section 3.5, including any disclosure made to Clients
under that section and if any goods and services are received by the
Authorised Firm under a Soft Dollar Agreement, the details relating to
those agreements; and

(f) any other disclosures made to Clients.

3.6.2 For the purposes of Rule 3.6.1, the six year period commences:

(a) in the case of the requirement in Rule 3.6.1(a), from the date on which the
marketing material was last provided to a Person;

(b) in the case of the requirement in Rule 3.6.1(b) to (d), from the date the
Client ceases to be a Client of the Authorised Firm; and

(c) in the case of the requirement in Rule 3.6.1(e), from the date on which the
relevant inducements were last received.

17
 CONDUCT OF BUSINESS (COB)

4 ADDITIONAL RULES - ACCEPTING DEPOSITS AND PROVIDING

CREDIT

4.1 Application

4.1.1 The Rules in this chapter apply to an Authorised Firm with respect to Accepting
Deposits or Providing Credit through an establishment maintained by it in the
DIFC.

4.2 Accepting Deposits

4.2.1 A Bank, in the course of Accepting Deposits, must not:

(a) Accept Deposits from the State’s markets;

(b) Accept Deposits in the U.A.E. Dirham;

(c) undertake currency or foreign exchange transactions involving the U.A.E.

Dirham; or

(d) Accept Deposits from Retail Clients.

4.3 Providing Credit

4.3.1 (1) An Authorised Firm may, subject to (2), Provide Credit to a:

(a) Market Counterparty;

(b) Professional Client; and

(c) Retail Client, but only where:

(i) the Retail Client is an Undertaking; and

(ii) the Credit Facility is provided to the Retail Client for a

business purpose.

(2) An Authorised Firm, in the course of Providing Credit, must not:

(a) Provide Credit in the U.A.E. Dirham; or

(b) undertake currency or foreign exchange transactions involving the

U.A.E. Dirham.

18
 CONDUCT OF BUSINESS (COB)

5 ADDITIONAL RULES – PROVIDING TRUST SERVICES

5.1 Application

5.1.1 This chapter applies to a Trust Service Provider with respect to the conduct of
Providing Trust Services.

Guidance

The requirements in chapter 3 also apply to Trust Service Providers.

5.2 General

5.2.1 For the purposes of this chapter, a settlor, a trustee or a named beneficiary of a
trust in respect of which the Trust Service Provider Provides Trust Services may
be treated as a Client of the Authorised Firm.

5.2.2 A Trust Service Provider must maintain adequate knowledge of, and comply with,
all applicable DIFC laws, Rules and Regulations relevant to Providing Trust
Services.

5.2.3 A Trust Service Provider must be able to demonstrate that it is in compliance with
appropriate standards of corporate governance.

5.2.4 A Trust Service Provider must transact its business (including the establishing,
transferring or closing of business relationships with its Clients) in an expeditious
manner where appropriate unless there are reasonable grounds to do otherwise.

Exercise of Discretion

5.2.5 Where a Trust Service Provider is responsible for exercising discretion for, or in
relation to, its Clients, it must take all reasonable steps to obtain sufficient
information in order to exercise, subject to Rule 5.2.6, its discretion or other
powers in a proper manner.

5.2.6 A Trust Service Provider must only exercise its power or discretion for a proper
purpose.

5.2.7 The Trust Service Provider must ensure that its understanding of a Client’s
business is refreshed by means of regular reviews.

5.2.8 The Trust Service Provider must ensure that any trustee exercises his discretion
in accordance with his fiduciary and other duties under the laws governing the
trust of which he is a trustee.

19
 CONDUCT OF BUSINESS (COB)

Delegation of duties or powers

5.2.9 Any delegation of duties or powers by a Trust Service Provider, whether by

Power of Attorney or otherwise, must only be entered into for a proper purpose,
permissible by law and limited and monitored as appropriate.

5.3 Reviews

5.3.1 A Trust Service Provider must ensure that adequate procedures are
implemented to ensure that regular reviews at appropriate intervals are
conducted in respect of Providing Trust Services to its Clients.

5.4 Professional indemnity insurance cover

5.4.1 A Trust Service Provider must maintain professional indemnity insurance cover
appropriate to the nature and size of the Trust Service Provider’s business.

5.4.2 A Trust Service Provider must:

(a) provide the DFSA with a copy of its professional indemnity insurance
cover; and

(b) notify the DFSA of any changes to the cover including termination and
renewal.

5.4.3 A Trust Service Provider must provide the DFSA on a yearly basis, with the
details of the arrangements in force together with evidence of the cover. Any
claims in excess of $10,000 or changes to the arrangements previously notified
to the DFSA under this Rule must be notified to the DFSA as they arise.

5.5 Dual control

5.5.1 The Trust Service Provider must have adequate internal controls, including
having two Persons with appropriate skills and experience managing the
business.

20
 CONDUCT OF BUSINESS (COB)

5.5.2 While a Trust Service Provider may have a single Person with overall
responsibility, at least another Person must have the skills and experience to be
able to run the business of the Trust Service Provider in the absence of the
senior Person and must be in a position to challenge the actions of the senior
Person where they consider that those actions may be contrary to the provisions
of DIFC Laws, Rules or Regulations or any other applicable legislation, may not
be in the interests of the Client, or may be contrary to sound business principles.

5.6 Internal reporting

5.6.1 A Trust Service Provider must have arrangements for internal reporting to ensure
that the directors or the partners can satisfy themselves that:

(a) the requirements of the relevant legislation are being met on an on going
basis;

(b) the Trust Service Provider’s business is being managed according to

sound business principles and, in particular, that it can meet its financial
commitments as they fall due;

(c) the affairs of its Clients are being managed in accordance with the service
agreements;

(d) the trustees are acting in accordance with their fiduciary and other duties;

(e) the affairs of its Clients are being properly monitored and in particular that
the Client is not using the trust structure to hide assets from legitimate
enquiry, to avoid proper obligations in other jurisdictions or to engage in
illegal activities in other jurisdictions;

(f) the assets of its Clients are properly managed and safeguarded; and

(g) the recruitment, training and motivation of staff is sufficient to meet the
obligations of the business.

5.7 Recording of Selection Criteria

5.7.1 Where the Trust Service Provider seeks the advice of a third party in connection
with a Client’s affairs, for example to advise on or manage investments, the Trust
Service Provider must record the criteria for selection of the adviser and the
reasons for the selection made.

5.7.2 The Trust Service Provider must monitor the performance of the adviser and
ensure that it is in a position to change advisers if it is in the interests of the
Client.

21
 CONDUCT OF BUSINESS (COB)

5.8 Qualification and experience of Trust Service Provider staff

5.8.1 Staff employed or Persons recommended by the Trust Service Provider must
have appropriate qualifications and experience.

5.8.2 A Trust Service Provider must ensure that all transactions or decisions entered
into, taken by or on behalf of Clients are properly authorised and handled by
Persons with an appropriate level of knowledge, experience, qualifications and
status according to the nature and status of the transactions or decisions
involved (this applies also to decisions taken by trustees who are recommended
by, but not employed by, a Trust Service Provider).

5.8.3 A Trust Service Provider must ensure that, each of its officers and employees,
agents, Persons acting with its instructions and Persons it recommends to act as
trustees have an appropriate understanding of the fiduciary and other duties of a
trustee and any duties arising under the laws relevant to the administration and
affairs of Clients for which they are acting in the jurisdictions in which they are
carrying on business and in which the assets being managed are held.

5.8.4 A Trust Service Provider must ensure that staff competence is kept up to date
through training and continuous professional development as appropriate.

5.8.5 A Trust Service Provider must ensure that staff receive appropriate training on
the defences against money laundering and terrorist financing.

5.9 Books and records

5.9.1 The books and records of a Trust Service Provider must be sufficient to
demonstrate adequate and orderly management of Clients’ affairs. A Trust
Service Provider must prepare proper accounts, at appropriately regular intervals
on the trusts and underlying companies administered for its Clients. Where trusts
and underlying companies are governed by the laws of a jurisdiction that require
accounts to be kept in a particular form, the Trust Service Provider must meet
those requirements. In any case, the Trust Service Provider’s books and records
must be sufficient to allow the recreation of the transactions of the business and
its Clients and to demonstrate what assets are due to each Client and what
liabilities are attributable to each Client.

22
 CONDUCT OF BUSINESS (COB)

5.10 Due diligence

5.10.1 A Trust Service Provider must, at all times, have verified documentary evidence
of the settlors, trustees (in addition to the Trust Service Provider itself) and
principal named beneficiaries of trusts for which it Provides Trust Services. In the
case of discretionary trusts with the capacity for the trustee to add further
beneficiaries, a Trust Service Provider must also have verified, where reasonably
possible, documentary evidence of any Person who receives a distribution from
the trust and any other Person who is named in a memorandum or letter of
wishes as being a likely recipient of a distribution from a trust.

5.10.2 A Trust Service Provider must demonstrate that it has knowledge of the source of
funds that have been settled into trusts or have been used to provide capital to
companies, or have been used in transactions with which the Trust Service
Provider has an involvement.

5.11 Fitness and Propriety of Persons acting as trustees

5.11.1 Where a Trust Service Provider arranges for a Person who is not an employee of
the Trust Service Provider to act as trustee for a Client of the Trust Service
Provider, the Trust Service Provider must ensure that such Person is fit and
proper.

5.11.2 A Trust Service Provider must notify the DFSA of the appointment of a Person
under Rule 5.11.1, including the name and business address if applicable and
the date of commencement of the appointment.

5.11.3 Prior to the appointment of such a Person to act as a trustee, the Trust Service
Provider must take reasonable steps to ensure that the Person has the required
skills, experience and resources to act as a trustee for a Client of the Trust
Service Provider.

5.11.4 A Trust Service Provider must notify the DFSA immediately if the appointment of
such a Person is or is about to be terminated, or on the resignation of such
Person, giving the reasons for the resignation and the measures which have
been taken to ensure that a new trustee has been appointed.

5.11.5 A Person appointed to act as trustee for a Client of a Trust Service Provider who
is not an Employee of the Trust Service Provider, must agree in writing to be
bound by and comply with the same legal and regulatory requirements as if he
were an Employee of the Trust Service Provider.

23
 CONDUCT OF BUSINESS (COB)

6 ADDITIONAL RULES - INVESTMENT BUSINESS

6.1 Application

6.1.1 The Rules in this chapter apply to an Authorised Firm when conducting
Investment Business. The requirements in this chapter apply to an Authorised
Firm regardless of the classification of the Client, unless expressly provided
otherwise.

Guidance

The requirements in chapter 3 also apply to the conduct of Investment Business.

6.2 Personal account transactions

Conditions for personal account transactions

6.2.1 An Authorised Firm must establish and maintain adequate policies and
procedures so as to ensure that:

(a) an Employee does not undertake a Personal Account Transaction unless:

(i) the Authorised Firm has, in a written notice, drawn to the attention
of the Employee the conditions upon which the Employee may
undertake Personal Account Transactions and that the contents of
such a notice are made a term of his contract of employment or
services;

(ii) the Authorised Firm has given its written permission to that
Employee for that transaction or to transactions generally in
Investments of that kind; and

(iii) the transaction will not conflict with the Authorised Firm’s duties to
its Clients;

(b) it receives prompt notification or is otherwise aware of each Employee’s

Personal Account Transactions; and

(c) if an Employee’s Personal Account Transactions are conducted with the

Authorised Firm, each Employee’s account must be clearly identified and
distinguishable from other Clients’ accounts.

24
 CONDUCT OF BUSINESS (COB)

6.2.2 The written notice in Rule 6.2.1(a)(i) must make it explicit that, if an Employee is
prohibited from undertaking a Personal Account Transaction, he must not, except
in the proper course of his employment:

(a) procure another Person to enter into such a Transaction; or

(b) communicate any information or opinion to another Person if he knows, or

ought to know, that the Person will as a result, enter into such a
Transaction or procure some other Person to do so.

6.2.3 Where an Authorised Firm has taken reasonable steps to ensure that an
Employee will not be involved to any material extent in, or have access to
information about, the Authorised Firm’s Investment Business, then the
Authorised Firm need not comply with the requirements in Rule 6.2.1 in respect
of that Employee.

6.2.4 An Authorised Firm must establish and maintain procedures and controls so as
to ensure that an Investment Analyst does not undertake a Personal Account
Transaction in an Investment if the Investment Analyst is preparing Investment
Research:

(a) on that Investment or its Issuer; or

(b) on a related investment, or its Issuer;

until the Investment Research is published or made available to the Authorised

Firm’s Clients.

Record Keeping

6.2.5 (1) An Authorised Firm must maintain and keep a record of:

(a) the written notice setting out the conditions for Personal Account
Transactions under Rule 6.2.1(a)(i);

(b) each permission given or denied by the Authorised Firm under

Rule 6.2.1(a)(ii);

(c) each notification made to it under Rule 6.2.1(b); and

(d) the basis upon which the Authorised Firm has ascertained that an
Employee will not be involved in to any material extent, or have
access to information about, the Authorised Firm’s Investment
Business for the purposes of Rule 6.2.3.

25
 CONDUCT OF BUSINESS (COB)

(2) The records in (1) must be retained for a minimum of six years from the
date of:

(a) in (1)(a) and (1)(d), termination of the employment contract of

each Employee;

(b) in (1)(b), each permission given or denied by the Authorised Firm;

and

(c) in (1)(c), each notification made to the Authorised Firm.

6.3 Investment research and offers of securities

Application

6.3.1 This section applies to an Authorised Firm preparing or publishing Investment

Research.

Guidance

Investment Research is seen as a significant potential source of conflicts of interest within an

Authorised Firm and therefore an Authorised Firm preparing or publishing investment research is
expected to have adequate procedures, systems and controls to manage effectively any conflicts
that arise.

6.3.2 An Authorised Firm that prepares and publishes Investment Research must have
adequate procedures and controls to ensure:

(a) the effective supervision and management of Investment Analysts;

(b) that the actual or potential conflicts of interest are proactively managed in
accordance with section 3.5 ;

(c) that the Investment Research issued to Clients is impartial; and

(d) that the Investment Research contains the disclosures described under
Rules 6.3.3 and 6.3.4.

Guidance

An Authorised Firm’s procedures, controls and internal arrangements, which may include Chinese
Walls, should limit the extent of Investment Analysts participation in corporate finance business
and sales and trading activities, and ensure remuneration structures do not affect their
independence.

26
 CONDUCT OF BUSINESS (COB)

Disclosures in investment research

6.3.3 When an Authorised Firm publishes Investment Research, it must take

reasonable steps to ensure that the Investment Research:

(a) clearly identifies the types of Clients for whom it is principally intended;

(b) distinguishes fact from opinion or estimates, and includes references to

sources of data and any assumptions used;

(c) specifies the date when it was first published;

(d) specifies the period the ratings or recommendations are intended to

cover;

(e) contains a clear and unambiguous explanation of the rating or

recommendation system used;

(f) includes a distribution of the different ratings or recommendations, in

percentage terms:

(i) for all Investments;

(ii) for Investments in each sector covered; and

(iii) for Investments, if any, where the Authorised Firm has undertaken
corporate finance business with or for the Issuer over the past 12
months; and

(g) if intended for use only by a Professional Client or Market Counterparty,

contains a clear warning that it should not be relied upon by or distributed
to Retail Clients.

Guidance

An Authorised Firm may consider including a price chart or line graph depicting the performance
of the Investment for the period that the Authorised Firm has assigned a rating or recommendation
for that investment, including the dates on which the ratings were revised for the purposes of the
requirements such as in (d) and (e) of Rule 6.3.3.

27
 CONDUCT OF BUSINESS (COB)

6.3.4 For the purposes of this section, an Authorised Firm must take reasonable steps
to ensure that when it publishes Investment Research, and in the case where a
representative of the Authorised Firm makes a Public Appearance, disclosure is
made of the following matters:

(a) any financial interest or material interest that the Investment Analyst or a
Close Relative of the analyst has, which relates to the Investment;

(b) any shareholding by the Authorised Firm or its Associate of 1% or more of

the total issued share capital of the Issuer;

(c) if the Authorised Firm or its Associate acts as corporate broker for the
Issuer;

(d) any material shareholding by the Issuer in the Authorised Firm;

(e) any corporate finance business undertaken by the Authorised Firm with or
for the Issuer over the past 12 months, and any future relevant corporate
finance business initiatives; and

(f) that the Authorised Firm is a Market Maker in the Investment, if that is the
case.

Restrictions on publication

6.3.5 If an Authorised Firm acts as a manager or co-manager of an initial public

offering or a secondary offering, it must take reasonable steps to ensure that:

(a) it does not publish Investment Research relating to the Investment during
a Quiet Period; and

(b) an Investment Analyst from the Authorised Firm does not make a Public
Appearance relating to that Investment during a Quiet Period.

Guidance

The DFSA does not consider the same conflicts of interest mentioned in this section arise if an
Investment Analyst prepares Investment Research solely for an Authorised Firm’s own use and
not for publication. For example, if the research material is prepared solely for the purposes of the
Authorised Firm’s proprietary trading then the use of this information would fall outside the
restrictions placed on publications.

28
 CONDUCT OF BUSINESS (COB)

Restriction on own account transactions

6.3.6 (1) Unless Rule 6.2.2 applies, an Authorised Firm or its Associate must not
knowingly execute an Own Account Transaction in an Investment or related
Investments, which is the subject of Investment Research, prepared either
by the Authorised Firm or its Associate, until the Clients for whom the
Investment Research was principally intended have had a reasonable
opportunity to act upon it.

(2) The restriction in (1) does not apply if:

(a) the Authorised Firm or its Associate is a Market Maker in the

relevant Investment;

(b) the Authorised Firm or its Associate undertakes an Execution-Only

Transaction for a Client; or

(c) it is not expected to materially affect the price of the Investment.

Guidance

The exceptions in Rule 6.3.6(2) allow an Authorised Firm to continue to provide key services to
the market and to its Clients even if the Authorised Firm would be considered to have knowledge
of the timing and content of the Investment Research which is intended for publication to Clients,
for example when it is impractical for an Authorised Firm to put in place a Chinese Wall because
the Authorised Firm has few Employees or cannot otherwise separate its functions.

Offers of securities

6.3.7 When an Authorised Firm carries out a mandate to manage an Offer of

Securities, it must implement adequate internal arrangements, in
accordance with section 3.5, to manage any conflicts of interest that may
arise as a result of the Authorised Firm’s duty to two distinct sets of Clients
namely the corporate finance Client and the investment Client.

Disclosure

6.3.8 For the purposes of Rule 6.3.7, when an Authorised Firm accepts a
mandate to manage an Offer, it must take reasonable steps to disclose to
its corporate finance Client:

(a) the process the Authorised Firm proposes to adopt in order to

determine what recommendations it will make about allocations for
the Offer;

(b) details of how the target investor group, to whom it is planned to

Offer the Securities, will be identified;

(c) the process through which recommendations are prepared and by

whom; and

29
 CONDUCT OF BUSINESS (COB)

(d) (if relevant) that it may recommend placing Securities with a Client
of the Authorised Firm for whom the Authorised Firm provides other
services, with the Authorised Firm’s own proprietary book, or with an
Associate, and that this represents a potential conflict of interest.

Guidance

It is the DFSA’s expectation that an Authorised Firm’s procedures to identify and manage
conflicts of interest should extend to the allocation process for an offering of Securities.

6.4 Best execution

Application

6.4.1 The Rules in this section do not apply to an Authorised Firm with respect to any
Transaction which:

(a) it undertakes with a Market Counterparty;

(b) it carries out for the purposes of operating a Fund of which it is the
Operator; or

(c) is an Execution-Only Transaction.

Providing best execution

6.4.2 (1) When an Authorised Firm agrees, or decides in the exercise of its
discretion, to Execute any Transaction with or for a Client in an
Investment, it must provide best execution.

(2) An Authorised Firm provides best execution if it takes reasonable care to

determine the best overall price available for that Investment under the
prevailing market conditions and deals at a price which is no less
advantageous to that Client.

(3) An Authorised Firm which is an ATS Operator is not required to provide

best execution for Persons who are its Clients in circumstances where
such Persons are dealing with each other on the Authorised Firm’s ATS
and the Authorised Firm is not acting for or on behalf of any such Persons
in relation to a deal on that ATS.

30
 CONDUCT OF BUSINESS (COB)

Requirements

6.4.3 In determining whether an Authorised Firm has taken reasonable care to provide
the best overall price for a Client in accordance with Rule 6.4.2, the DFSA will
have regard to whether an Authorised Firm has:

(a) discounted any fees and charges previously disclosed to the Client;

(b) not taken a Mark-up or Mark-down from the price at which it Executed the
Transaction, unless this is disclosed to the Client; and

(c) had regard to price competition or the availability of a range of price

sources for the execution of its Clients’ Transactions. In the case where
the Authorised Firm has access to prices of different Authorised Market
Institutions, other regulated financial markets or alternative trading
systems, it must Execute the Transaction at the best overall price
available having considered other relevant factors.

6.4.4 If another Person is responsible for the execution of a Transaction an Authorised

Firm may rely on that Person to provide best execution where that Person has
undertaken to provide best execution in accordance with this section.

Guidance

When determining best execution, an Authorised Firm should consider the direct costs and
indirect costs and the relevant order type and size, settlement arrangements and timing of a
Client’s order that could affect decisions on when, where and how to trade.

6.5 Non-market price transactions

Application

6.5.1 This section applies to an Authorised Firm conducting Investment Business

regardless of the classification of the Client.

General prohibition

6.5.2 (1) An Authorised Firm must not enter into a non-market price Transaction in
any capacity, with or for a Client, unless it has taken reasonable steps to
ensure that the Transaction is not being entered into by the Client for an
improper purpose.

(2) The requirement in (1) does not apply in relation to a non-market price
Transaction subject to the Rules of an Authorised Market Institution or
regulated exchange.

31
 CONDUCT OF BUSINESS (COB)

Record keeping

6.5.3 An Authorised Firm must make and retain, for a minimum of six years, a record
of the steps it has taken in relation to each Transaction under this section.

Guidance

1. A non-market price Transaction is a Transaction where the dealing rate or price paid by
the Authorised Firm or its Client differs from the prevailing market rate or price to a
material extent or the Authorised Firm or its Client gives materially more or less in value
than it receives in return.

2. In general, Authorised Firms should undertake transactions at the prevailing market price.
Failure to do this may result in an Authorised Firm participating, whether deliberately or
unknowingly, in the concealment of a profit or loss, or in the perpetration of a fraud.

6.6 Aggregation and allocation

Application

6.6.1 The Rules in this section do not apply to an Authorised Firm with respect to any
Transaction which it:

(a) undertakes with a Market Counterparty; or

(b) carries out for the purposes of operating a Fund of which it is the
Operator.

Aggregation of orders

6.6.2 An Authorised Firm may aggregate an order for a Client with an order for other
Clients or with an order for its own account only where:

(a) it is unlikely that the aggregation will operate to the disadvantage of any
of the Clients whose Transactions have been aggregated;

(b) the Authorised Firm has disclosed in writing to the Client that his order
may be aggregated and that the effect of the aggregation may operate on
some occasions to his disadvantage;

(c) the Authorised Firm has made a record of the intended basis of allocation
and the identity of each Client before the order is effected; and

(d) the Authorised Firm has in place written standards and policies on
aggregation and allocation which are consistently applied and should
include the policy that will be adopted when only part of the aggregated
order has been filled.

32
 CONDUCT OF BUSINESS (COB)

Allocation of investments

6.6.3 Where an Authorised Firm has aggregated a Client order with an order for other
Clients or with an order for its own account, and part or all of the aggregated
order has been filled, it must:

(a) promptly allocate the Investments concerned;

(b) allocate the Investments in accordance with the stated intention;

(c) ensure the allocation is done fairly and uniformly by not giving undue
preference to itself or to any of those for whom it dealt; and

(d) make and maintain a record of:

(i) the date and time of the allocation;

(ii) the relevant Investments;

(iii) the identify of each Client concerned; and

(iv) the amount allocated to each Client and to the Authorised Firm
recorded against the intended allocation as required in (b).

Record keeping

6.6.4 An Authorised Firm must retain the records required in Rules 6.6.2 (d) and 6.6.3
for six years from the date on which the order is allocated.

6.7 Record keeping – transactions and orders

Voice records

6.7.1 An Authorised Firm must make and retain voice recordings of its telephone calls
used for negotiating, agreeing, arranging and confirming Transactions and for the
passing of payment instructions.

6.7.2 (1) An Authorised Firm must be able to demonstrate prompt accessibility of

all records.

(2) Records must be maintained in comprehensible form or must be capable

of being promptly so reproduced.

(3) The Authorised Firm must make and implement appropriate procedures
to prevent unauthorised alteration of its records.

6.7.3 Voice recordings must be retained for a minimum of three months.

33
 CONDUCT OF BUSINESS (COB)

Records of orders and transactions

6.7.4 (1) When an Authorised Firm receives a Client order or in the exercise of its
discretion decides upon a Transaction, it must promptly make a record of
the information set out in App1 under Rule A1.1.1.

(2) When an Authorised Firm Executes a Transaction, it must promptly make

a record of the information set out in App1 under Rule A1.1.2.

(3) When an Authorised Firm passes a Client order to another Person for
Execution, it must promptly make a record of the information set out in
App 1 under Rule A1.1.3.

6.7.5 The records referred to in Rule 6.7.4 must be retained by an Authorised Firm for
a minimum of six years.

6.8 Other dealing rules

Application

6.8.1 The Rules in this section do not apply to an Authorised Firm with respect to any
Transaction which it:

(a) undertakes with a Market Counterparty; or

(b) carries out for the purposes of operating a Fund of which it is the
Operator.

Churning

6.8.2 (1) An Authorised Firm must not Execute a Transaction for a Client in its
discretion or advise any Client to transact with a frequency or in amounts
to the extent that those Transactions might be deemed to be excessive.

(2) The onus will be on the Authorised Firm to ensure that such Transactions
were fair and reasonable at the time they were entered into.

Timely execution

6.8.3 (1) Once an Authorised Firm has agreed or decided to enter into a
Transaction for a Client, it must do so as soon as reasonably practical.

(2) An Authorised Firm may postpone the execution of a Transaction in (1) if

it has taken reasonable steps to ensure that it is in the best interests of
the Client.

34
 CONDUCT OF BUSINESS (COB)

Fairly and in due turn

6.8.4 An Authorised Firm must deal with Own Account Transactions and Client
Transactions fairly and in due turn.

Averaging of prices

6.8.5 (1) An Authorised Firm may execute a series of Transactions on behalf of a

Client within the same trading day or within such other period as may be
agreed in writing by the Client, to achieve one investment decision or
objective, or to meet Transactions which it has aggregated.

(2) If the Authorised Firm does so, it may determine a uniform price for the
Transactions executed during the period, calculated as the weighted
average of the various prices of the Transactions in the series.

Timely allocation

6.8.6 (1) An Authorised Firm must ensure that a Transaction it Executes is

promptly allocated.

(2) The allocation must be:

(a) to the account of the Client on whose instructions the Transaction

was executed;

(b) in respect of a discretionary Transaction, to the account of the

Client or Clients with or for whom the Authorised Firm has made
and recorded, prior to the Transaction, a decision in principle to
execute that Transaction; or

(c) in all other cases, to the account of the Authorised Firm.

6.9 Confirmation notes

Application

6.9.1 The Rules in this section do not apply to an Authorised Firm with respect to any
Transaction which it:

(a) undertakes with a Market Counterparty; or

(b) carries out for the purposes of operating a Fund of which it is the
Operator.

35
 CONDUCT OF BUSINESS (COB)

Sending confirmation notes

6.9.2 (1) When an Authorised Firm Executes a Transaction in an Investment for a

Client, it must ensure a confirmation note is sent to the Client as soon as
possible and in any case no later than 2 business days following the date
of Execution of the Transaction.

(2) Where an Authorised Firm has executed a Transaction or series of

Transactions in accordance with Rule 6.8.5, the Authorised Firm must
send a confirmation note relating to those Transactions as soon as
possible, but no later than 2 business days following the last Transaction.

(3) The confirmation note must include the details of the Transaction in
accordance with App3 section A3.1.

(4) An Authorised Firm is not required to issue a confirmation note where a

Professional Client has advised in writing that he does not wish to receive
such confirmation notes.

Record keeping

6.9.3 An Authorised Firm must retain a copy of each confirmation note sent to a Client
and retain it for a minimum of six years from the date of despatch.

6.10 Periodic statements

Application

6.10.1 The Rules in this section do not apply to an Authorised Firm with respect to any
Transaction which it:

(a) undertakes with a Market Counterparty; or

(b) carries out for the purposes of operating a Collective Investment Fund of
which it is the Operator.

Investment management and contingent liability investments

6.10.2 (1) When an Authorised Firm:

(a) acts as an Investment Manager for a Client; or

(b) operates a Client’s account containing uncovered open positions in a

Contingent Liability Investment;

it must promptly and at suitable intervals in accordance with (2) provide the
Client with a written statement (“a periodic statement”) containing the
matters referred to in App4 section A4.1.

36
 CONDUCT OF BUSINESS (COB)

(2) For the purposes of (1), a “suitable interval” is:

(a) six-monthly;

(b) monthly, if the Client’s portfolio includes an uncovered open position

in Contingent Liability Investments; or

(c) at any alternative interval that a Client has on his own initiative agreed
with the Authorised Firm but in any case at least annually.

Record keeping

6.10.4 An Authorised Firm must make a copy of any periodic statement provided to a
Client and retain it for a minimum of six years from the date on which it was
provided.

6.11 Client Assets

Application

6.11.1 This section applies to an Authorised Firm which:

(a) holds or controls Client Assets; or

(b) Provides Custody or Arranges Custody.

General requirements

6.11.2 (1) An Authorised Firm which holds or controls Client Money must comply
with sections 6.12 and 6.14.

(2) An Authorised Firm which holds Client Investments or Provides Custody

or Arranges Custody must comply with sections 6.13 and 6.14.

6.11.3 (1) An Authorised Firm must have systems and controls to ensure that Client
Assets are identifiable and secure at all times.

(2) Where the Authorised Firm holds a mandate, or similar authority over an
account with a third party, in the Client’s own name, its systems and
controls must:

(a) include a current list of all such mandates and any conditions
placed by the Client or by the Authorised Firm on the use of the
mandate;

(b) include the details of the procedures and authorities for the giving
and receiving of instructions under the mandate; and

37
 CONDUCT OF BUSINESS (COB)

(c) ensure that all Transactions entered into using such a mandate
are recorded and are within the scope of the authority of the
Employee and the Authorised Firm entering into such
Transactions.

Holding or controlling client assets

6.11.4 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; or

(c) held by a Person, or in an account in the name of a Person, controlled by

the Authorised Firm.

Guidance

1 For the purposes pf Rule 6.11.4, the DFSA would consider 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.

2. The DFSA would consider an account to be controlled by an Authorised Firm if that

account is operated in accordance with the instructions of the Authorised Firm.

6.12 Client money

6.12.1 All Money held or controlled on behalf of a Client in the course of, or in
connection with, the carrying on of Investment Business in or from the DIFC is
Client Money, except Money which is:

(a) held by the Authorised Firm as a Bank in an account with itself, provided
the Authorised Firm notifies the Client in writing that the Client Money is
held by it as a Bank and not in accordance with this chapter;

(b) immediately due and payable by the Client to the Authorised Firm;

(c) belonging to another Person within the Authorised Firm’s Group unless
that Person is an Authorised Firm or Regulated Financial Institution and
that Person has confirmed to 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;

(d) in an account in the Client’s name over which the Authorised Firm has a
mandate or similar authority and who is in compliance with Rule 6.11.3
(2);

38
 CONDUCT OF BUSINESS (COB)

(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 1 business day of receipt; or

(f) Fund Property of a Fund.

Guidance

1. Authorised Firms are reminded that the exemption in Rule 6.12.1(a) would not apply to
Money which is passed to a third party i.e. not held in an account with the Authorised
Firm itself.

2. Pursuant to Rule 6.12.1(b), examples of Money which is immediately due and payable to
an Authorised Firm includes Money which is:

a. paid by the way of brokerage, fees and other charges to the Authorised Firm or
where it is entitled to deduct such remuneration from the Client Money held or
controlled;

b. paid by the Authorised Firm in relation to a Client purchase or in settlement of a

margin payment in advance of receiving a payment from the Client; or

c. owed by the Client to the Authorised Firm in respect of unpaid purchases by or

for the Client if delivery of Investments has been made to the Client or credited
to his account.

3. The CIR module contains specific provisions relating to the handing of Fund Property
and also provisions relating to a Fund Administrator holding or controlling monies or
assets belonging to third parties.

Client money provisions

6.12.2 (1) Subject to (2), an Authorised Firm which holds or controls Client Money
for a Client must comply with the Client Money Provisions in App5.

(2) An Authorised Firm may exclude the application of the Client Money
Provisions where it has obtained the prior written consent of a
Professional Client to do so.

Guidance

In accordance with GEN chapter 8, an Authorised Firm which holds or controls Client Money
must arrange for a Client Money Auditor’s Report to be submitted to the DFSA on an annual
basis.

39
 CONDUCT OF BUSINESS (COB)

Client disclosure

6.12.3 (1) If an Authorised Firm holds or controls Client Money which is not subject
to the Client Money Provisions pursuant to Rule 6.12.2 (2), it must
disclose to that Client in writing that:

(a) the protections conferred by the Client Money Provisions do not

apply to such Client Money;

(b) as a consequence of (a), such Client Money may be mixed with

Money belonging to the Authorised Firm, and may be used by the
Authorised Firm in the course of the Authorised Firm’s business;
and

(c) in the event of insolvency, winding up or other Distribution Event

stipulated by the DFSA:

(i) in the case of a Domestic Firm, such Client Money will be

subject to and distributed in accordance with the DFSA
Client Money Distribution Rules; and

(ii) in the case of a non-Domestic Firm, such Client Money will

be subject to a regime which may differ from the regime
applicable in the DIFC.

(2) The Authorised Firm must obtain that Client’s written acknowledgement of
the disclosures made in (1) prior to holding or controlling Client Money for
that Client.

Distribution event

6.12.4 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.

Record keeping

6.12.5 (1) An Authorised Firm must maintain records:

(a) which enable the Authorised Firm to demonstrate compliance with

Rule 6.11.2;

(b) which enable the Authorised Firm to demonstrate and explain all
entries of Money held or controlled in accordance with this
chapter; and

(c) of all cheques received and forwarded in accordance with Rule

6.12.1(e).

(2) Records must be kept for a minimum of six years.

40
 CONDUCT OF BUSINESS (COB)

Guidance

The DFSA expects an Authorised Firm to maintain proper books and accounts based on the
double-entry booking principle. They should be legible, up to date and contain narratives with the
entries which identify and provide adequate information about each transaction. Entries should be
made in chronological order and the current balance should be shown on each of the Authorised
Firm’s ledgers.

6.13 Client investments

6.13.1 An Authorised Firm must treat all Investments held or controlled on behalf of a
Client in the course of, or in connection with, the carrying on of Investment
Business as Client Investments.

6.13.2 An Authorised Firm which holds or controls Client Investments must have
systems and controls in place to ensure the proper safeguarding of Client
Investments.

Guidance

Instead of safeguarding Client Investments, an Authorised Firm may choose to safeguard Client
Money equal to the value of the Client Investments.

6.13.3 (1) Subject to (2), an Authorised Firm Providing Custody or Arranging

Custody in or from the DIFC must do so in accordance with the Safe
Custody Provisions in App6.

(2) The Safe Custody Provisions in App6 do not apply to Client Investments
held as Collateral unless stated otherwise.

Holding collateral

6.13.4 Before an Authorised Firm holds Collateral from a Client it must disclose to that
Client:

(a) the basis and any terms governing the way in which the Collateral will be
held, including any rights which the Authorised Firm may have to realise
the Collateral;

(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 DFSA:

41
 CONDUCT OF BUSINESS (COB)

(i) of a Domestic Firm, any excess Collateral will be sold and the
resulting Client Money shall be distributed in accordance with the
DFSA Client Money Distribution Rules; or

(ii) of a non-Domestic Firm, that Collateral will be subject to a regime

which may differ from the regime applicable in the DIFC.

6.13.5 Before an Authorised Firm deposits Client’s Collateral with a third party it must
notify the third party that:

(a) the Collateral does not belong to the Authorised Firm; and

(b) the third party 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.

6.13.6 (1) An Authorised Firm may only permit Client’s Collateral to be held by a
third party where it has reasonable grounds to believe that the third party
is, and remains, suitable to hold that Collateral.

(2) An Authorised Firm must be able to demonstrate to the DFSA’s

satisfaction the grounds upon which it considers the third party to be
suitable to hold Client’s Collateral.

6.13.7 (1) An Authorised Firm must take reasonable steps to ensure that the
Collateral is properly safeguarded.

(2) 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.

6.13.8 An Authorised Firm holding Client’s Collateral must send a statement every six
months to the Client in accordance with section A6.8.

6.13.9 An Authorised Firm must reconcile the Client’s Collateral in accordance with
section A6.9.

42
 CONDUCT OF BUSINESS (COB)

6.14 Record keeping

6.14.1 (1) An Authorised Firm must maintain records:

(a) which enable the Authorised Firm to demonstrate compliance with

Rule 6.11.2; and

(b) which enable the Authorised Firm to demonstrate and explain all
entries of Client Investments and Collateral held or controlled in
accordance with this chapter.
(2) Records must be kept for a minimum of six years.

6.15 ATS Operators

Application

6.15.1 This section applies to an Authorised Firm which is an ATS Operator.

Access to an ATS

6.15.2 An ATS Operator must not allow any Person to access an ATS operated by it,
unless that Person is a Professional Client.

Client Disclosures

6.15.3 Before granting a Client access to an ATS an ATS Operator must ensure that the
Client is provided in writing with the following details:

(a) sufficient information about how the ATS operates to enable the Client to
use the system efficiently and to understand any material risks involved in
using the system. Such information should include any dealing processes
and rules of the system;

(b) the arrangements for clearing and settlement of transactions and the
responsibilities of the ATS Operator in relation to this;

(c) a statement as to whether transactions executed using the ATS are

reported to an Authorised Market Institution or any other regulated
exchange. If transactions are to be reported then the ATS Operator must
provide details as to the identity of the Authorised Market Institution or
other regulated exchange and the arrangements for providing such
information;

(d) the trading procedures that may be adopted in the event of system
disruption; and

43
 CONDUCT OF BUSINESS (COB)

(e) the circumstances in which the ATS Operator may revise the terms of, or
terminate, a Client’s access to the ATS.

Systems and controls

6.15.4 An ATS Operator must establish and maintain systems and controls to ensure:

(a) fair and orderly trading;

(b) the equitable treatment of Clients;

(c) fair pricing of the Investments having regard to the time, quantity and
other specifications of the quote or order; and

(d) that sufficient information about quotes, orders and completed

transactions is made available to Clients of the system in a timely
manner.

Guidance

1. The appropriateness of different arrangements for particular systems and controls

depends upon a number of factors including the nature of the Investments being traded,
the nature and characteristics of the ATS and the significance of the ATS to the overall
market.

2. For the purposes of Rule 6.15.4(d), information should be available to Clients of the
system close to the time when the quote or order is given or the transaction is executed.

Information

6.15.5 An ATS Operator must provide, or be reasonably satisfied that there is publicly
available, sufficient information to enable Clients of the system to make a
reasonably informed judgement about the value of each Investment traded on
the ATS and the risks associated with that Investment.

6.15.6 Where Investments traded on the ATS are also traded on the facilities of an AMI
or other regulated exchange, or are substantially the same as Investments traded
on such facilities, an ATS Operator must establish and maintain systems and
controls to ensure details of:

(a) quotes and orders that the ATS displays to Clients of the system; and

(b) prices, volumes and times of completed transactions,

are made publicly available in a timely manner and on reasonable commercial

terms.

44
 CONDUCT OF BUSINESS (COB)

Guidance

1. For the purposes of Rule 6.15.6, information should be made publicly available within a
reasonable period.

2. An Authorised Firm may make information publicly available by publishing the

information itself, for example, by posting data on a web-site, or by arranging with a third
party to publish the information.

Monitoring and Disclosure

6.15.7 An ATS Operator must monitor transactions undertaken on the ATS to identify
suspected or actual breaches of any rules, procedures or agreements relating to
fair and orderly trading and Market Misconduct.

6.15.8 A breach of an ATS Operator's rules relating to fair and orderly trading on the
ATS is a prescribed matter for the purposes of Article 67(1)(e) of the Regulatory
Law 2004.

Record Keeping

6.15.9 An ATS Operator must keep records of transactions conducted through its
facilities for a period of not less than six years.

45
 CONDUCT OF BUSINESS (COB)

7 CORE RULES - INSURANCE

7.1 Application

7.1.1 (1) The Rules in this chapter apply to an Authorised Firm with respect to the
conduct in or from the DIFC of Insurance Business, Insurance
Intermediation or Insurance Management to the extent specified in any
Rule.

(2) The Rules in this chapter do not apply to an Insurer that is an Authorised
ISPV with the exception of the Rules in section 7.2.

7.2 Insurance business and intermediation restrictions

7.2.1 An Authorised Firm may only conduct Insurance Business or Insurance

Intermediation with or for a Client to the extent specified in this section.

7.2.2 An Authorised Firm must ensure that it does not:

(a) if it is an Insurer, Effect a Contract of Insurance or Carry Out a Contract of

Insurance through an establishment maintained by it in the DIFC; or

(b) if it is an Insurance Intermediary, act in relation to a Contract of

Insurance;

where the contract is in relation to a risk situated within the U.A.E, unless it is a
contract of re-insurance.

Guidance

The classes of insurance are set out in GEN App4.

7.2.3 An Insurer must ensure that it does not carry on, through an establishment
maintained by it in the DIFC, both Long-Term Insurance Business and General
Insurance Business unless the General Insurance Business is restricted to Class
1 or Class 2 or both.

7.2.4 An Insurer which is a Protected Cell Company must ensure that all Insurance
Business is attributable to a particular Cell of that Insurer.

7.2.5 An Insurer must not carry on any activity other than Insurance Business unless it
is an activity in direct connection with or for the purposes of such business. For
the purposes of this Rule, Managing Assets is not an activity in connection with
or for the purposes of Insurance Business.

46
 CONDUCT OF BUSINESS (COB)

Guidance

1. The following activities will normally be considered in direct connection with or for the
purposes of Insurance Business carried on by an Insurer:

a. investing, reinvesting or trading, as investor or rabb ul maal and for the Insurer’s
own account, that of its Subsidiary, its Holding Company or any Subsidiary of its
Holding Company but not any other party, in Securities, loans, investment accounts,
units or shares in collective investment funds, certificates of mudaraba, certificates of
musharaka or other forms of investments that are intended to earn profit or return for
the investor;

b. rendering other services related to Insurance Business operations including, but not
limited to, actuarial, risk assessment, loss prevention, safety engineering, data
processing, accounting, claims handling, loss assessment, appraisal and collection
services;

c. acting as agent for another insurer in respect of contracts of insurance in which both
insurers participate; and

d. establishing Subsidiaries or Associates engaged or organised to engage exclusively

in one or more of the businesses specified above.

2. The DFSA may give individual guidance on other business activities that may be
determined to be in direct connection with Insurance Business.

7.3 Communication of information and marketing material

General obligation

7.3.1 (1) When communicating any information in relation to Insurance Business,

Insurance Intermediation or Insurance Management to a Person, an
Authorised Firm must take reasonable steps to ensure that the
communication is clear, fair and not misleading.

(2) An Insurer, Insurance Intermediary or Insurance Manager must not, in

any form of communication with a Person, attempt to limit or avoid any
duty or liability it may have to that Person under the Regulatory Law 2004
or Rules.

(3) An Insurer or Insurance Intermediary must, when providing or directing

marketing material to a Retail Client, comply with the requirements in
section 3.2, if the marketing material relates to a Direct Long-Term
Insurance Contract.

47
 CONDUCT OF BUSINESS (COB)

7.4 Client’s duty of disclosure

7.4.1 An Insurer or Insurance Intermediary must explain to a Client:

(a) the Client’s duty to disclose all circumstances material to the insurance both
before the insurance commences and during the continuance of the policy;
and

(b) the consequence of any failure by the Client to make such disclosures.

7.4.2 An Insurance Intermediary must explain to a Client that all answers or statements
given on a proposal form, claim form or any other relevant document are the
Client’s own responsibility and that the Client is responsible for checking the
accuracy of such information.

7.4.3 If an Insurance Intermediary believes that any disclosure of material facts by a

Client is not true, fair or complete, it must request the Client to make the
necessary true, fair or complete disclosure, and if this is not forthcoming must
consider declining to continue acting on that Client’s behalf.

7.5 Authorised Firm’s duty of disclosure

7.5.1 (1) An Insurer or Insurance Intermediary must disclose to a Client:

(a) the name and address of the insurer or insurers effecting the
Contract of Insurance;

(b) its own name and address where different; and

(c) contact details of the Person to whom a claim is to be notified.

(2) The disclosures in (1) must be made before effecting or placing the
Contract of Insurance, or as soon as reasonably practicable thereafter.

48
 CONDUCT OF BUSINESS (COB)

7.5.2 (1) An Insurance Intermediary must, before providing any Insurance

Intermediation service to a Person as a Retail Client, disclose whether
any advice or information is or will:

(a) be provided on the basis of a fair analysis of the market;

(b) not be provided on the basis of a fair analysis of the market

because of any contractual agreement it has with any particular
insurer or insurers to deal with only their products; or

(c) even if there are no contractual agreements of the type referred to

in (b), not be provided on the basis of a fair analysis of the market.

(2) If (1) (b) or (c) applies, the Insurance Intermediary must, if requested by
the Retail Client, provide to that Client a list of insurers with whom it deals
or may deal in relation to the relevant Contracts of Insurance.

(3) An Insurance Intermediary must, before providing any Insurance

Intermediation service to a Client, disclose to that Client whether it acts
on behalf of an insurer or any other Person or acts independently on
behalf of Clients.

Guidance

An Insurance Intermediary should not represent itself as providing advice or information

on the basis of a fair analysis of the market unless it has considered a sufficiently broad
range of Contracts of Insurance and based its decision on an adequate analysis of those
contracts.

7.6 Disclosure of costs and remuneration

7.6.1 An Insurer, Insurance Intermediary or Insurance Manager must provide details of

the costs of each Contract of Insurance or Insurance Intermediation service or
Insurance Management service offered to a Client.

Guidance

1 The disclosure required by this Rule should include any premiums, fees, charges or taxes
payable by the Client, whether or not these are payable to the Authorised Firm.

2 The disclosure should be made in terms readily understandable by the Client, taking into
account the knowledge held by that Client in relation to the type of insurance in question.

7.6.2 An Insurer or Insurance Intermediary must, where any premium is payable

through a Credit Facility made available to a Retail Client, disclose any interest,
profit rate or charges payable by the Client for using that facility.

49
 CONDUCT OF BUSINESS (COB)

7.6.3 An Insurer, Insurance Intermediary or Insurance Manager must ensure that it

does not impose any new costs, fees or charges without first disclosing the
amount and the purpose of those charges to the Client.

7.6.4 (1) An Insurer, Insurance Intermediary or Insurance Manager must, on the

request of any Client, disclose to that Client all commissions and other
economic benefits accruing to the Authorised Firm or any member of the
same Group from:

(a) any Insurance Intermediation business;

(b) any Insurance Management business; or

(c) any other business connected to or related to the provision of

such business;

transacted by the Authorised Firm on behalf of that Client.

(2) The requirement to disclose the information under (1) does not apply
where an Insurance Intermediary acts solely on behalf of a single insurer,
and this fact has been disclosed to the Client.

7.7 Information about the proposed insurance

7.7.1 An Insurer or Insurance Intermediary must provide adequate information in a

comprehensive and timely manner to enable a Client to make an informed
decision about the Contract of Insurance that is being proposed.

7.7.2 Without limiting the generality of the disclosure obligation under section 7.5, an
Insurer or Insurance Intermediary must, for the purpose of complying with the
obligation under that section:

(a) provide to a Client information about the key features of any insurance
proposed including the essential cover and benefits, any significant or
unusual restrictions, exclusions, conditions or obligations, and the
applicable period of cover; and

(b) explain, except where the insurance cover is sourced from a single
insurer, the differences in and the relative costs of similar types of
insurance as proposed.

Guidance

When deciding to what extent it is appropriate to explain the terms and conditions of a particular
insurance the Insurer or Insurance Intermediary should take into consideration the knowledge held
by the Client in relation to the type of insurance in question.

50
 CONDUCT OF BUSINESS (COB)

Specific disclosure for Long-Term Insurance

7.7.3 Where an Insurer or an Insurance Intermediary proposes Direct Long-Term

Insurance to a Retail Client, the disclosure for the purposes of this section must
include:

(a) the method of calculation of any bonuses;

(b) an indication of surrender values and paid-up values, and the extent to
which any such values are guaranteed;

(c) for unit-linked insurance contracts, definition of the units to which they are
linked, and a description of the underlying assets;

(d) the basis of any projections included in the information; and

(e) any facts that are material to the decision to invest, including risks
associated with the investment and factors that may adversely affect the
performance of the investments.

Specific disclosure for Takaful business

7.7.4 Where an Insurer or an Insurance Intermediary conducts Takaful business with a

Retail Client, the disclosure for the purposes of this section must include:

(a) the nature of the contracts between the Takaful fund and the operator;

(b) the method of calculation of any fees or share of profits paid from the
Takaful fund to the operator;

(c) the basis on which any surpluses in the Takaful fund will be shared; and

(d) any circumstances in which additional contributions to the Takaful fund

may be required.

7.8 Suitability

7.8.1 An Insurer or an Insurance Intermediary must comply with the suitability

requirement set out in section 3.4 when conducting any Insurance or Insurance
Intermediation Business with or for a Retail Client in respect of Direct Long-Term
Insurance.

51
 CONDUCT OF BUSINESS (COB)

7.8.2 (1) Subject to Rule 7.8.3, an Insurer or Insurance Intermediary must only
make a recommendation to a Retail Client to enter into a Contract of
Insurance that is General Insurance where it has taken reasonable steps
to ensure that the recommended Contract of Insurance is suitable in light
of the Client’s demands and needs.

(2) The Insurer or Insurance Intermediary must obtain from a Retail Client
such information as is necessary to identify the Client’s circumstances
and objectives, and consider whether the terms of the particular contract
of General Insurance meet the requirements identified.

7.8.3 An Insurer and an Insurance Intermediary may only recommend to a Client a

contract of General Insurance that does not meet all the Client’s requirements if it
clearly explains to the Client, at the point of making the recommendation, that the
contract does not fully meet the Client’s requirements and the differences in the
insurance recommended.

Guidance

When deciding what level of explanation is appropriate for a Client to whom a contract of
insurance that does not fully meet that Client’s requirements is recommended, the Insurer or
Insurance Intermediary should take into consideration the knowledge held by the Client in relation
to the type of insurance in question.

7.8.4 Where an Insurance Intermediary is instructed to obtain insurance which is

contrary to the advice that it has given to a Client, the Insurance Intermediary
must obtain from the Client written confirmation of the Client’s instructions before
arranging or buying the relevant insurance.

7.9 Managing conflicts of interest

7.9.1 (1) An Insurance Intermediary or Insurance Manager must manage any

conflict of interest to ensure that all its Clients are fairly treated and not
prejudiced by any such interests.

(2) An Insurance Intermediary or Insurance Manager must manage the

conflict of interest by disclosing such conflict to the Clients in writing either
generally or in relation to a specific Transaction.

(3) If an Insurance Intermediary or Insurance Manager is unable to manage a

conflict of interest, it must decline to act for the Client.

52
 CONDUCT OF BUSINESS (COB)

7.10 Placement of Insurance

Instructions

7.10.1 An Insurance Intermediary must not place a Contract of Insurance with or on

behalf of an insurer unless it has satisfied itself on reasonable grounds that the
insurer may lawfully effect that contract under the laws of the jurisdictions in
which the insurer and the risk are located.

Quotations

7.10.2 When giving a quotation, an Insurance Intermediary must take due care to
ensure the accuracy of the quotation and its ability to obtain the insurance at the
quoted terms.

Confirmation of cover

7.10.3 (1) An Insurer or Insurance Intermediary must, as soon as reasonably

practicable, provide a Client with written confirmation and details of the
insurance which it has effected for the Client or has obtained on behalf of
the Client, including any changes to an existing Contract of Insurance.

(2) An Insurer or Insurance Intermediary must, as soon reasonably

practicable, provide the Client with the full policy documentation where
this was not included with the confirmation of cover.

7.11 Providing an ongoing service

Amendments to and renewal of insurance

7.11.1 (1) An Insurer or Insurance Intermediary must deal promptly with a Client’s
request for an amendment to the insurance cover and provide the Client
with full details of any premium or charges to be paid or returned.

(2) An Insurer or Insurance Intermediary must provide a Client with written

confirmation when the amendment is made and remit any return premium
or charges due to the Client without delay.

7.11.2 An Insurer or Insurance Intermediary must give adequate advance notification to

a Client of the renewal or expiration date of an existing insurance policy so as to
allow the Client sufficient time to consider whether continuing cover is required.

7.11.3 On expiry or cancellation of the insurance, at the request of the Client, an Insurer
or Insurance Intermediary must promptly make available all documentation and
information to which the Client is entitled.

53
 CONDUCT OF BUSINESS (COB)

Claims

7.11.4 Where an Insurance Intermediary handles insurance claims it must:

(a) on request, give the Client reasonable guidance in pursuing a claim under
the relevant policy;

(b) handle claims fairly and promptly and keep the Client informed of progress;

(c) inform the Client in writing, with an explanation, if it is unable to deal with
any part of a claim; and

(d) forward settlement of any claim, as soon as reasonably practicable, once it

has been agreed.

7.11.5 An Insurer must:

(a) handle claims fairly and promptly;

(b) keep the Client informed of the progress of the claim;

(c) not reject a claim unreasonably;

(d) if only part of a claim is accepted:

(i) provide a clear statement about the part of the claim that is
accepted; and

(ii) give clear reasons for rejecting that part of the claim that has not
been accepted; and

(e) settle the claim promptly.

7.12 Insurance monies

Application

7.12.1 This section applies to an Insurance Intermediary and an Insurance Manager, in

respect of activities carried on in or from the DIFC.

54
 CONDUCT OF BUSINESS (COB)

General

7.12.2 (1) Insurance Monies are, subject to (2), any monies arising from Insurance
Intermediation or the Insurance Management business which are any of
the following:

(a) premiums, additional premiums and return premiums of all kinds;

(b) claims and other payments due under Contracts of Insurance;

(c) refunds and salvages;

(d) fees, charges, taxes and similar fiscal levies relating to Contracts
of Insurance;

(e) discounts, commissions and brokerage; or

(f) monies received from or on behalf of a Client of an Insurance

Manager, in relation to his Insurance Management business.

(2) Monies are not Insurance Monies where there is a written agreement in
place between the Insurance Intermediary or Insurance Manager and the
insurer to whom the relevant monies are to be paid (or from whom they
have been received) under which the insurer agrees that:

(a) the Insurance Intermediary or Insurance Manager, as the case

may be, holds as agent for the insurer all monies 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 monies are
received by the Insurance Intermediary or the Insurance Manager,
as the case may be; and

(c) the insurer’s obligation to make a payment to the Client is not

discharged until actual receipt of the relevant monies by the
Client.

7.12.3 In this section, a Client of an Insurance Manager means:

(a) any insurer for which the Insurance Manager provides Insurance
Management;

(b) any shareholder of an insurer mentioned in (a); or

(c) any Person on whose behalf the Insurance Manager undertakes to

establish that Person as an insurer.

55
 CONDUCT OF BUSINESS (COB)

7.12.4 For the purposes of Rule 7.12.3:

(a) an Insurer includes a Cell of a Protected Cell Company which is an

Insurer; and

(b) a shareholder includes a holder of Cell Shares.

Insurance money segregation

7.12.5 An Insurance Intermediary or Insurance Manager when dealing with Insurance

Monies must:

(a) maintain one or more separate Insurance Bank Accounts with an Eligible
Bank in the U.A.E.;

(b) ensure that each Insurance Bank Account contains in its title the name of
the Authorised Firm, together with the designation Insurance Bank
Account (or IBA);

(c) prior to operating an Insurance Bank Account, give written notice to, and
receive written confirmation from, the Eligible Bank that the bank is not
entitled to combine the Insurance Bank Account with any other account
unless that account is itself an Insurance Bank 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
Insurance Bank Account;

(d) pay all Insurance Monies directly and without delay into an Insurance
Bank Account;

(e) use an Insurance Bank Account only for the following purposes:

(i) the receipt of Insurance Monies;

(ii) the receipt of such monies as may be required to be paid into the
Insurance Bank Account to ensure compliance by the Authorised
Firm with any conditions or requirements prescribed by the DFSA;

(iii) the payment to Clients or to insurers of monies due under

Insurance Intermediation Business transactions;

(iv) the payment of all monies payable by the Authorised Firm in

respect of the acquisition of or otherwise in connection with
Approved Assets;

56
 CONDUCT OF BUSINESS (COB)

(v) the withdrawal of brokerage, management fees and other income

related to Insurance Intermediation Business, either in cash or by
way of transfer to an account in the name of the Intermediary
which is not an Insurance Bank Account, provided that no such
sum may be withdrawn from the Insurance Bank Account before
the time at which that amount may be brought into account as
income of the Insurance Intermediary;

(vi) the withdrawal of monies paid into the Insurance Bank Account in
error; and

(vii) the withdrawal of any monies credited to the Insurance Bank

Account in excess of those required by any conditions and
requirements prescribed by the DFSA;

(f) ensure that any amount held in the Insurance Bank Account or other
Approved Assets, together with any amount due and recoverable from
insurance debtors, is equal to, or greater than the amount due to
insurance creditors; and

(g) take immediate steps to restore the required position if at any time it
becomes aware of any deficiency in the required segregated amount.

7.12.6 An Insurance Intermediary or Insurance Manager may not obtain a loan or

overdraft for any purpose relating to an Insurance Bank Account unless that
advance:

(a) is on a bank account which is designated as an Insurance Bank Account,

and the loan or overdraft is used for payment to Clients or to insurers of
monies due under Insurance Intermediation transactions;

(b) does not give rise to a breach of the requirements of Rule 7.12.5(e); and

(c) is of a temporary nature and is repaid as soon as reasonably practicable.

7.12.7 An Insurance Intermediary or Insurance Manager must hold Insurance Monies

either in an Insurance Bank Account or in Approved Assets.

7.12.8 An Insurance Intermediary must ensure that Approved Assets are:

(a) registered in the name of the Insurance Intermediary or Insurance

Manager and designated ‘Insurance Bank Account’; or

(b) held for the Insurance Bank Account of the Insurance Intermediary or
Insurance Manager at the bank at which such Insurance Bank Account is
held.

57
 CONDUCT OF BUSINESS (COB)

7.12.9 An Insurance Intermediary or Insurance Manager must ensure that monies, other
than interest, arising from Approved Assets or their realisation, sale or disposal
are paid into an Insurance Bank Account.

7.12.10 An Insurance Intermediary or Insurance Manager may not hold Insurance Monies
in Approved Assets until it has given written notice to and received written notice
from the bank referred to in Rule 7.12.8(b) that the bank is not entitled to any
charge, encumbrance, lien, right of set-off, compensation or retention against
Approved Assets held for the Insurance Intermediary's or Insurance Manager’s
Insurance Bank Account.

7.12.11 An Insurance Intermediary or Insurance Manager may only use Approved Assets
as security for a loan or overdraft where that loan or overdraft is for a purpose
relating to an Insurance Bank Account as permitted by Rule 7.12.6.

7.12.12 Where Insurance Monies are held in Approved Assets whose rating drops below
the minimum stipulated within the definitions, that investment or asset will cease
to be an Approved Asset and the Insurance Intermediary or Insurance Manager
must dispose of the investment or asset as soon as possible and no later than
within 30 days of the rating change.

7.12.13 An Insurance Intermediary or Insurance Manager may not use derivatives in the
management of Insurance Monies except for the prudent management of foreign
exchange risks.

7.12.14 An Insurance Intermediary who 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;

(b) at least six years from the date the credit was initially notified to the
Client; and

(c) Rule 7.12.5(f) will continue to be satisfied after the withdrawal of such
money.

7.12.15 An Insurance Intermediary must keep records of all sums withdrawn from the
Insurance Bank Account or realised Approved Assets as a result of credit taken
under Rule 7.12.14 for at least six years from the date of withdrawal or
realisation.

58
 CONDUCT OF BUSINESS (COB)

APP1 RECORDS OF ORDERS AND TRANSACTIONS

A1.1 Minimum contents of transaction records

Receipt of client order or discretionary decision to transact

A1.1.1 An Authorised Firm must, pursuant to Rule 6.7.4(1), make a record of the
following:

(a) the identity and account number of the Client;

(b) the date and time in the jurisdiction in which the instructions were
received or the decision was taken by the Authorised Firm to deal;

(c) the identity of the Employee who received the instructions or made the
decision to deal;

(d) the Investment, including the number of or its value and any price limit;
and

(e) whether the instruction relates to a purchase or sale.

Executing a transaction

A1.1.2 An Authorised Firm must, pursuant to Rule 6.7.4(2), make a record of the
following:

(a) the identity and account number of the Client for whom the Transaction
was Executed, or an indication that the Transaction was an Own Account
Transaction;

(b) the name of the counterparty;

(c) the date and time in the jurisdiction in which the Transaction was
Executed;

(d) the identity of the Employee executing the Transaction;

(e) the Investment, including the number of or its value and price; and

(f) whether the Transaction was a purchase or a sale.

59
 CONDUCT OF BUSINESS (COB)

Passing a client order to another person for execution

A1.1.3 An Authorised Firm must, pursuant to Rule 6.7.4(3), make a record of the
following:

(a) the identity of the Person instructed;

(b) the terms of the instruction; and

(c) the date and time that the instruction was given.

60
 CONDUCT OF BUSINESS (COB)

APP2 KEY INFORMATION AND CLIENT AGREEMENT

A2.1 Key Information and content of the Client Agreement

General

A2.1.1 The key information which an Authorised Firm is required to provide to a Client
and include in the Client Agreement with that Client pursuant to Rule 3.3.2 must
include:

(a) the core information set out in:

(i) Rule A2.1.2 (1) if it is a Retail Client; and

(ii) Rule A2.1.2(2) if it is a Professional Client; and

(b) where relevant, the additional information required under Rules A2.1.3
and A2.1.4.

Core information

A2.1.2 (1) In the case of a Retail Client, the core information for the purposes of
A2.1.1(a) is:

(a) the name and address of the Authorised Firm, and if it is a

Subsidiary, the name and address of the ultimate Holding Company;

(b) the regulatory status of the Authorised Firm;

(c) when and how the Client Agreement is to come into force and how
the agreement may be amended or terminated;

(d) sufficient details of the service that the Authorised Firm will provide,
including where relevant, information about any product or other
restrictions applying to the Authorised Firm in the provision of its
services and how such restrictions impact on the service offered by
the Authorised Firm. If there are no such restrictions, a statement to
that effect;

(e) details of fees, costs and other charges and the basis upon which
the Authorised Firm will impose those fees, costs and other
charges;

(f) details of any conflicts of interests for the purposes of disclosure

under Rule 3.5.1(2)(b);

(g) details of any Soft Dollar Agreement required to be disclosed under

Rules 3.5.6 and 3.5.7; and

61
 CONDUCT OF BUSINESS (COB)

(h) the details of the Authorised Firm’s internal complaints handling

procedures.

(2) In the case of a Professional Client, the core information for the purposes
of A2.1.1(a) is the information referred to in (1)(a), (b), (c) and (e).

Additional information for Investment Business

A2.1.3 The additional information required under A2.1.1(b) for Investment Business is:

(a) the arrangements for giving instructions to the Authorised Firm and
acknowledging those instructions;

(b) information about any agreed investment parameters;

(c) the arrangements for notifying the Client of any Transaction Executed on
his behalf;

(d) if the Authorised Firm may act as principal in a Transaction, when it will
do so;

(e) the frequency of any periodic statements and whether those statements
will include some measure of performance, and if so, what the basis of
that measurement will be;

(f) when the obligation to provide best execution can be and is to be waived,
a statement that the Authorised Firm does not owe a duty of best
execution or the circumstances in which it does not owe such a duty; and

(g) where applicable, the basis on which assets comprised in the portfolio are
to be valued.

Additional information for investment management activities

A2.1.4 The additional information required under A2.1.1(b) where an Authorised Firm
acts as an Investment Manager is:

(a) the initial value of the managed portfolio;

(b) the initial composition of the managed portfolio;

(c) the period of account for which periodic statements of the portfolio are to
be provided in accordance with section 6.10; and

(d) in the case of discretionary investment management activities:

(i) the extent of the discretion to be exercised by the Authorised Firm,

including any restrictions on the value of any one Investment or
the proportion of the portfolio which any one Investment or any

62
 CONDUCT OF BUSINESS (COB)

particular kind of Investment may constitute; or that there are no

such restrictions;

(ii) whether the Authorised Firm may commit the Client to supplement
the funds in the portfolio, and if it may include borrowing on his
behalf:

(A) the circumstances in which the Authorised Firm may do so;

(B) whether there are any limits on the extent to which the
Authorised Firm may do so and, if so, what those limits
are;

(C) any circumstances in which such limits may be exceeded;

and

(D) any margin lending arrangements and terms of those

arrangements;

(iii) that the Authorised Firm may enter into Transactions for the
Client, either generally or subject to specified limitation; and

(iv) where the Authorised Firm may commit the Client to any
obligation to underwrite or sub-underwrite any issue or offer for
sale of Securities:

(A) whether there are any restrictions on the categories of

Securities which may be underwritten and, if so, what
these restrictions are; and

(B) whether there are any financial limits on the extent of the
underwriting and, if so, what these limits are.

63
 CONDUCT OF BUSINESS (COB)

APP3 CONFIRMATION OF TRANSACTIONS

A3.1 Content of confirmation notes

General information

A3.1.1 (1) For the purposes of Rule 6.9.2, an Authorised Firm must include the
following general information:

(a) the Authorised Firm’s name and address;

(b) whether the Authorised Firm Executed the Transaction as

principal or agent;

(c) the Client’s name, account number or other identifier;

(d) a description of the Investment or Fund, including the amount

invested or number of units involved;

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

(f) the price or unit price at which the Transaction was Executed;

(g) if applicable, a statement that the Transaction was Executed on

an Execution-Only basis;

(h) the date and time of the Transaction;

(i) the total amount payable and the date on which it is due;

(j) the amount of the Authorised Firms charges in connection with the
Transaction, including Commission charges and the amount of
any Mark-up or Mark-down, Fees, taxes or duties;

(k) the amount or basis of any charges shared with another Person or
statement that this will be made available on request; and

(l) for Collective Investment Funds, at statement that the price at

which the Transaction has been Executed is on a Historic Price or
Forward Price basis, as the case may be.

(2) An Authorised Firm may combine items (f) and (j) in respect of a
Transaction where the Client has requested a note showing a single price
combining both of these items.

64
 CONDUCT OF BUSINESS (COB)

Additional information: derivatives

A3.1.2 For the purposes of Rule 6.9.2, and in relation to Transactions in Derivatives, an
Authorised Firm must include the following additional information:

(a) the maturity, delivery or expiry date of the Derivative;

(b) in the case of an Option, the date of exercise or a reference to the last
exercise date;

(c) whether the exercise creates a sale or purchase in the underlying asset;

(d) the strike price of the Option; and

(e) if the Transaction closes out an open Futures position, all essential details
required in respect of each contract comprised in the open position and
each contract by which it was closed out and the profit or loss to the
Client arising out of closing out that position (a difference account).

65
 CONDUCT OF BUSINESS (COB)

APP4 PERIODIC STATEMENTS

A4.1 Content of periodic statements: investment management

General information

A4.1.1 Pursuant to section 6.10, a periodic statement, as at the end of the period
covered, must contain the following general information:

(a) the number, description and value of each Investment;

(b) the amount of cash held;

(c) the total value of the portfolio; and

(d) a statement of the basis on which the value of each Investment has been
calculated.

Additional information: discretionary investment management activities

A4.1.2 In addition to Rule A4.1.1, where an Authorised Firm acts as an Investment

Manager on a discretionary basis, the periodic statement must also include the
following additional information:

(a) a statement of which Investments, if any, were at the closing date loaned
to any third party and which Investments, if any, were at that date
charged to secure borrowings made on behalf of the portfolio;

(b) the aggregate of any interest payments made and income received during
the account period in respect of loans or borrowings made during that
period;

(c) details of each Transaction which have been entered into for the portfolio
during the period;

(d) the aggregate of Money and details of all Investments transferred into and
out of the portfolio during the period;

(e) the aggregate of any interest payments, including the dates of their
application and dividends or other benefits received by the Authorised
Firm for the portfolio during that period;

(f) a statement of the aggregate Charges of the Authorised Firm and its
Associates; and

(g) a statement of the amount of any Remuneration received by the

Authorised Firm or its Associates or both from a third party.

66
 CONDUCT OF BUSINESS (COB)

Additional information: contingent liability investments

A4.1.3 In addition to Rules A4.1.1 and A4.1.1.2, in the case where Contingent Liability
Investments are involved, an Authorised Firm must include the following
additional information:

(a) the aggregate of Money transferred into and out of the portfolio during the
valuation period;

(b) in relation to each open position in the account at the end of the account
period, the unrealised profit or loss to the Client (before deducting or
adding any Commission which would be payable on closing out);

(c) in relation to each Transaction Executed during the account period to

close out a Client’s position, the resulting profit or loss to the Client after
deducting or adding any Commission;

(d) the aggregate of each of the following in, or relating to, the Client’s
portfolio at the close of business on the valuation date:

(i) cash;

(ii) Collateral value;

(iii) management fees; and

(iv) commissions; and

(e) Option account valuations in respect of each open Option contained in

the account on the valuation date stating:

(i) the Share, Future, index or other Investment involved;

(ii) the trade price and date for the opening Transaction, unless the
valuation statement follows the statement for the period in which
the Option was opened;

(iii) the market price of the contract; and

(iv) the exercise price of the contract.

67
 CONDUCT OF BUSINESS (COB)

APP5 CLIENT MONEY PROVISIONS

A5.1 Application

A5.1.1 This appendix applies to an Authorised Firm, in accordance with Rule 6.12.2

A5.2 General requirements

A5.2.1 (1) The provisions of this appendix are referred to as the Client Money
Provisions.

(2) The types of Client described in Rule 6.12.2 are referred to in this
appendix as Segregated Clients.

A5.2.2 An Authorised Firm which holds or controls Client Money for a Segregated Client
must:

(a) comply with the Client Money Provisions in relation to that Client Money;
and

(b) have systems and controls in place to be able to evidence compliance

with the Client Money Provisions.

A5.3 Payment of client money into client accounts

A5.3.1 Where an Authorised Firm holds or controls Client Money it must ensure, except
where otherwise provided in section A5.5 that the Client Money is paid into one
or more Client Accounts within one day of receipt.

A5.3.2 Subject to Rule A5.3.3, an Authorised Firm must not deposit its own Money into a
Client Account.

68
 CONDUCT OF BUSINESS (COB)

A5.3.3 An Authorised Firm may deposit its own Money in a Client Account where:

(a) it is a minimum sum required to open the account, or to keep it open;

(b) 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;

(c) interest credited to the account exceeds the amount payable to

Segregated Clients, provided that the Money is removed within twenty
five days; or

(d) it is to meet a shortfall in Client Money.

A5.3.4 An Authorised Firm must maintain systems and controls for identifying Money
which must not be in a Client Account and for transferring it without delay.

A5.3.5 Where an Authorised Firm is aware that a Person may make a payment of Client
Money to the Authorised Firm, it must take reasonable steps:

(a) to ensure that such payment of Client Money is directed to a Client

Account; and

(b) to ensure that the Authorised Firm is notified by that Person of such
payment as soon as reasonably practicable.

Guidance

An Authorised Firm should have procedures for identifying Client Money received by the
Authorised Firm, 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. The procedures
should cover Client Money received by the Authorised Firm through the mail, electronically or via
agents of the Authorised Firm or through any other means.

69
 CONDUCT OF BUSINESS (COB)

A5.4 Client accounts

A5.4.1 A Client Account is an account which:

(a) is held with a Third Party Agent;

(b) is established to hold Client Assets;

(c) is maintained in the name of;

(i) if a Domestic Firm, the Authorised Firm; or

(ii) if a non-Domestic Firm, a Nominee Company controlled by the

Authorised Firm; and

(d) includes the words ‘Client Account’ in its title.

A5.4.2 (1) An Authorised Firm must maintain a master list of all Client Accounts.

(2) The master list must detail:

(a) the name of the account;

(b) the account number;

(c) the location of the account;

(d) whether the account is currently open or closed; and

(e) the date of opening or closure.

(3) The details of the master list must be documented and maintained for at
least six years following the closure of an account.

Guidance

1. An Authorised Firm may hold or control Client Money belonging to a Segregated Client
in a Client Account solely for that Client. Alternatively, an Authorised Firm may choose
to pool that Client Money in a Client Account containing Client Money of more than one
Segregated Client.

2. The purpose of controlling or holding Client Money in a Client Account is to ensure that
Money belonging to Segregated Clients is readily identifiable from Money belonging to
the Authorised Firm such that, following a Distribution Event, Segregated Clients will
rank highest in line in terms of any subsequent distribution of Client Money in proportion
to each Client’s valid claim over that that Money.

3. Following a Distribution Event, a Segregated Client will not have a valid claim over
Client Money held or controlled in a Client Account if that Client Account was not
established to hold or control Client Money for that Client.

70
 CONDUCT OF BUSINESS (COB)

A5.5 Exceptions to holding client money in client accounts

A5.5.1 The requirement for an Authorised Firm to pay Client Money into a Client
Account does not, subject to Rule A5.5.2, apply with respect to such 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 Client purchase, Client Money from the Client will
be due to the Authorised Firm within one day upon the fulfilment of
a delivery obligation; or

(ii) in respect of a Client sale, Client Money will be due to the Client
within one day following the Client’s fulfilment of a delivery
obligation.

A5.5.2 An Authorised Firm must pay Client Money of the type described in Rule
A5.5.1(b) or (c) into a Client Account where it has not fulfilled its delivery or
payment obligation within three days of receipt of the Money or Investments
unless in the case of the type of Client Money referred to in Rule A5.5.1(c)(ii) it
instead safeguards Client Investments at least equal to the value of such Client
Money.

A5.5.3 (1) An Authorised Firm must maintain adequate records of all cheques and
payment orders received in accordance with Rule A5.5.1(a) including, in
respect of each payment, the:

(a) date of receipt;

(b) name of the Client for whom payment is to be credited; and

(c) date when the cheque or payment order was presented to the
Authorised Firm’s Third Party Agent.

(2) The records must be kept for a minimum of six years.

71
 CONDUCT OF BUSINESS (COB)

A5.6 Appointment of a third party agent

A5.6.1 (1) An Authorised Firm may only pay, or permit to be paid, Client Money to a
Third Party Agent in accordance with Rule A5.7.1 where it has
undertaken a prior assessment of the suitability of that agent and
concluded on reasonable grounds that the Third Party Agent is suitable to
hold that Client Money in a Client Account.

(2) When assessing the suitability of the Third Party Agent, the Authorised
Firm must ensure that the Third Party Agent will provide protections
equivalent to the protections conferred by this appendix.

(3) An Authorised Firm must have systems and controls in place to ensure
that the Third Party Agent remains suitable.

A5.6.2 An Authorised Firm must be able to demonstrate to the DFSA’s satisfaction the
grounds upon which the Authorised Firm considers the Third Party Agent to be
suitable to hold that Client Money.

Guidance

When assessing the suitability of a Third Party Agent, an Authorised Firm should have regard to:

a. its credit rating;

b. its capital and financial resources in relation to the amount of Client Money held;

c. the insolvency regime of the jurisdiction in which it is located;

d. its regulatory status and history;

e. its Group structure; and

f. its use of agents and service providers.

A5.7 Payment of client money to a third party agent

A5.7.1 (1) Subject to Rule A5.7.3, an Authorised Firm may only pass, or permit to be
passed, a Segregated Client’s Money to a Third Party Agent 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;

or

(c) the Third Party Agent is a bank.

72
 CONDUCT OF BUSINESS (COB)

(2) In respect of (1)(a) and (b), an Authorised Firm must not hold any excess
Client Money with the Third Party Agent longer than necessary to effect a
Transaction or satisfy the Client’s obligation.

A5.7.2 When an Authorised Firm opens a Client Account with a Third Party Agent it
must obtain, within a reasonable period, a written acknowledgement from the
Third Party Agent stating that:

(a) all Money standing to the credit of the account is held by the Authorised
Firm as agent and that the Third Party Agent 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

(b) the title of the account sufficiently distinguishes that account from any
account containing Money that belongs to the Authorised Firm, and is in
the form requested by the Authorised Firm.

Guidance

The DFSA would consider twenty days as being a reasonable period for an Authorised Firm to
receive a written acknowledgement from the Third Party Agent.

A5.7.3 If the Third Party Agent does not provide the acknowledgement referred to in
Rule A5.7.2 within a reasonable period, the Authorised Firm must refrain from
making further deposits of Client Money with that Third Party Agent and withdraw
any Client Money standing to the credit of that Client Account.

A5.8 Payment of client money from client accounts

A5.8.1 An Authorised Firm must have procedures for ensuring all withdrawals from a
Client Account are authorised.

A5.8.2 Subject to Rule A5.8.3, a Segregated Client’s Client Money must remain in a
Client 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;

(c) paid in accordance with a Client instruction 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 DFSA.

73
 CONDUCT OF BUSINESS (COB)

A5.8.3 Money paid out by way of cheque or other payable order under Rule A5.8.2 must
remain in a Client Account until the cheque or payable order is presented to the
Client’s bank and cleared by the paying agent.

A5.8.4 An Authorised Firm must not use Client Money belonging of one Client to satisfy
an obligation of another Client.

Guidance

The effect of Rule A5.8.4 is that an Authorised Firm would be required to deposit its own Money
into a Client Account to remedy a shortfall arising from a client debit balance.

A5.8.5 An Authorised Firm must have a system for ensuring no off-setting or debit
balances occur on Client Accounts.

A5.9 Client disclosure

A5.9.1 Before, or as soon as reasonably practicable after, an Authorised Firm receives

Client Money belonging to a Segregated Client, it must disclose to the Client on
whose behalf the Client Money is held:

(a) the basis and any terms governing the way in which the Client Money will
be held;

(b) that the Client is subject to the protection conferred by the DFSA’s Client
Money Provisions 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 DFSA, the Client’s
Money will be subject to the DFSA’s Client Money Distribution
Rules;

(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 DIFC and the market practices, insolvency and legal regime
applicable in that jurisdiction may differ from the regime applicable in the
DIFC;

(e) if applicable, details about how any Client Money arising out of Islamic
Financial Business are to be held;

(f) if applicable, that the Authorised Firm holds or intends to hold the Client
Money in a Client Account with a Third Party Agent which is in the same
Group as the Authorised Firm; and

74
 CONDUCT OF BUSINESS (COB)

(g) 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, and of any rights which the Authorised Firm may have to
close out or liquidate contracts or positions in respect of any of the
Client’s Investments.

A5.10 Client reporting

A5.10.1 (1) An Authorised Firm must send a statement to the Client at least monthly
or at other intervals as agreed in writing with the Client.

(2) The statement must include:

(a) the Client’s total Client Money balances held by the Authorised
Firm reported in the currency in which the Client Money is held, or
the relevant exchange rate if not reported in the currency in which
the Money is held;

(b) the amount, date and value of each credit and debit paid into and
out of the account since the previous statement; and

(c) any interest earned and charged on the Client Money since the
previous statement.

(3) The statement sent to the Client must be prepared within 25 days of the
statement date.

A5.11 Reconciliation

A5.11.1 (1) An Authorised Firm must maintain a system to ensure that accurate
reconciliations of the Client Accounts are carried out at least every 25
days.

(2) 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

75
 CONDUCT OF BUSINESS (COB)

(e) formal statements from Third Party Agents showing account

balances as at the date of reconciliation.

(3) An Authorised Firm must:

(a) reconcile the individual credit ledger balances, Client Account

cash book balances, and the Third Party Agent 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 Agent and the Authorised Firm, are investigated and, where
applicable, corrective action taken as soon as possible.

(4) An Authorised Firm must perform the reconciliations in (3) within 10 days
of the date to which the reconciliation relates.

Guidance

When performing the reconciliations, an Authorised Firm should:

a. include in the credit ledger balances:

i. unallocated Client Money;

ii. dividends received and interest earned and allocated;

iii. sale proceeds which have been received by the Authorised Firm and the Client
has delivered the Investments or the Authorised Firm holds or controls the
Investment; and

iv. Money paid by the Client in respect of a purchase where the Authorised Firm
has not remitted the Money to the counterparty or delivered the Investment to
the Client; and

b. deduct from the credit ledger balances:

i. Money owed by the client in respect of unpaid purchases by or for the Client if
delivery of those Investments has been made to the Client; and

ii. Money remitted to the Client in respect of sales transactions by or for the Client
if the Client has not delivered the Investments.

A5.11.2 An Authorised Firm must ensure that the process of reconciliation does not give
rise to a conflict of interest.

76
 CONDUCT OF BUSINESS (COB)

Guidance

When performing reconciliations, an Authorised Firm should 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 under Rule A5.11.1

A5.11.3 (1) Reconciliation performed in accordance with Rule A5.11.1 must be

reviewed by a member of the Authorised Firm who has adequate
seniority.

(2) The individual referred to in (1) must provide a written statement

confirming the reconciliation has been undertaken in accordance with the
requirements of this section.

A5.11.4 The Authorised Firm must notify the DFSA where there has been a material
discrepancy with the reconciliation which has not been rectified.

Guidance

A material discrepancy includes discrepancies which have the cumulative effect of being material,
such as longstanding discrepancies.

A5.12 Auditor’s reporting requirements

Guidance

In accordance with GEN chapter 8, an Authorised Firm which holds Client Money for Segregated
Clients must arrange for a Client Money Auditor’s Report to be submitted to the DFSA on an
annual basis.

A5.13 Client money distribution rules

A5.13.1 This section is referred to as the Client Money Distribution Rules and to the
extent that these Rules are inconsistent with part 4.13 of the Insolvency
Regulations, these Rules will prevail.

A5.13.2 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;

77
 CONDUCT OF BUSINESS (COB)

(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 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, payment must be
made accordance with the Insolvency Law 2004; or

(ii) all other Distribution Events, payment must be made in

accordance with the direction of the DFSA.

Guidance

A Segregated Client would not have a valid claim over Client Money held in a Client Account if
that Client Account was not established to hold Client Money for that Client.

A5.13.3 Following a Distribution Event, an Authorised Firm must sell all Collateral and
use the proceeds of the sale to satisfy claims made in accordance with Rule
A5.13.2

A5.14 Failure to comply with this appendix

A5.14.1 An Authorised Firm which becomes aware that it does not comply with this
appendix must, within one day, give notice of that fact to the DFSA.

78
 CONDUCT OF BUSINESS (COB)

APP6 SAFE CUSTODY PROVISIONS

A6.1 Application

A6.1.1 In accordance with Rule 6.13.3, this appendix applies to an Authorised Firm
which Provides Custody or Arranges Custody.

A6.2 General requirements

A6.2.1 The provisions of this appendix are referred to as the Safe Custody Provisions.

A6.2.2 An Authorised Firm which Provides Custody or Arranges Custody must:

(a) comply with the Safe Custody Provisions; and

(b) have adequate systems and controls in place to be able to evidence

compliance with the Safe Custody Provisions.

A6.3 Recording, registration and holding requirements

A6.3.1 An Authorised Firm which Provides Custody must ensure that Safe Custody
Investments are recorded, registered and held in an appropriate manner to
safeguard and control such property.

A6.3.2 Subject to Rule A6.4.1, an Authorised Firm which Provides Custody must record,
register and hold Safe Custody Investments separately from its own Investments.

A6.4 Client accounts

A6.4.1 An Authorised Firm which Provides Custody must register or record all Safe
Custody Investments in the legal title of:

(a) a Client Account; or

(b) the Authorised Firm where, due to the nature of the law or market practice,
it is not feasible to do otherwise.

79
 CONDUCT OF BUSINESS (COB)

A6.4.2 A Client Account is an account which:

(a) is held with a Third Party Agent;

(b) is established to hold Client Assets;

(c) is maintained in the name of;

(i) if incorporated in the DIFC, the Authorised Firm; or

(ii) if the Authorised Firm is not incorporated in the DIFC, a Nominee

Company controlled by the Authorised Firm; and

(d) includes the words ‘Client Account’ in its title.

A6.4.3 (1) An Authorised Firm must maintain a master list of all Client Accounts.

(2) The master list must detail:

(a) the name of the account;

(b) the account number;

(c) the location of the account;

(d) whether the account is currently open or closed; and

(e) the date of opening or closure.

(3) The details of the master list must be documented and maintained for a
minimum period of six years following the closure of an account.

Guidance

1. An Authorised Firm may record, register or hold a Client’s Investment in a Client

Account solely for that Client. Alternatively, an Authorised Firm may choose to pool
that Client’s Investment in a Client Account containing Investments of more than one
Client.

2. The purpose of recording, registering or holding Investments in a Client Account is to

ensure that Investments belonging to Clients are readily identifiable from Investments
belonging to the Authorised Firm such that, following a Distribution Event, any
subsequent distribution of Investments may be made in proportion to each Client’s valid
claim over those Investments.

3. Following a Distribution Event, a Client will not have a valid claim over Investments
registered, recorded or held in a Client Account if that Client Account was not
established to register, record or hold Investments for that Client.

80
 CONDUCT OF BUSINESS (COB)

A6.4.4 An Authorised Firm which Provides Custody must not use a Client’s Safe
Custody Investment for its own purpose or that of another Person without that
Client’s prior written permission.

A6.4.5 An Authorised Firm which intends to use a Client’s Safe Custody Investments for
its own purpose or that of another Person, must have systems and controls in
place to ensure that:

(a) it obtains that Client’s prior written permission;

(b) adequate records are maintained to protect Safe Custody Investments

which are applied as collateral or used for stock lending activities;

(c) the equivalent assets are returned to the Client Account of the Client; and

(d) the Client is not disadvantaged by the use of his Safe Custody
Investments.

A6.5 Holding or arranging custody with third party agents

A6.5.1 (1) Before an Authorised Firm holds a Safe Custody Investment with a Third
Party Agent or Arranges Custody through a Third Party Agent, it must
undertake an assessment of that Third Party Agent and have concluded
on reasonable grounds that the Third Party Agent is suitable to hold those
Safe Custody Investments.

(2) An Authorised Firm must have systems and controls in place to ensure
that the Third Party Agent remains suitable.

(3) When assessing the suitability of the Third Party Agent, the Authorised
Firm must ensure that the Third Party Agent will provide protections
equivalent to the protections conferred in this appendix.

A6.5.2 An Authorised Firm must be able to demonstrate to the DFSA’s satisfaction the
grounds upon which the Authorised Firm considers the Third Party Agent to be
suitable to hold Safe Custody Investments.

81
 CONDUCT OF BUSINESS (COB)

Guidance

When assessing the suitability of a Third Party Agent, an Authorised Firm should have regard to:

a. its credit rating;

b. its capital and financial resources in relation to the amount of Safe Custody Investments
held;

c. the insolvency regime of the jurisdiction in which it is located;

d. its arrangements for holding the Investments;

e. its regulatory status, expertise, reputation and history;

f. its Group structure;

g. its use of agents and service providers; and

h. any other activities of the agent.

A6.6 Safe custody agreements with third party agents

A6.6.1 Before an Authorised Firm Providing Custody passes, or permits to be passed,

Safe Custody Investments to a Third Party Agent it must have procured a written
acknowledgement from the Third Party Agent stating:

(a) that the title of the account sufficiently distinguishes that account from any
account containing Investments belonging to the Authorised Firm, and is
in the form requested by the Authorised Firm;

(b) that the Client Investment will only be credited and withdrawn in
accordance with the instructions of the Authorised Firm;

(c) that the Third Party Agent will hold Client Investments separately from
assets belonging to the Third Party Agent;

(d) the arrangements for recording and registering Client Investments,

claiming and receiving dividends and other entitlements and interest and
the giving and receiving of instructions;

(e) that the Third Party Agent will deliver a statement to the Authorised Firm
(including the frequency of such statement), which details the Client
Investments deposited to the account;

82
 CONDUCT OF BUSINESS (COB)

(f) that all Investments standing to the credit of the account are held by the
Authorised Firm as agent and that the Third Party Agent 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; and

(g) The extent of liability of the Third Party Agent in the event of default.

A6.6.2 (1) An Authorised Firm must maintain records of all Safe Custody
Agreements and any instructions given by the Authorised Firm to the
Third Party Agent under the terms of the agreement.

(2) The records must be maintained for at least of six years.

A6.7 Client disclosure

A6.7.1 (1) Before an Authorised Firm Arranges Custody for a Client it must disclose
to that Client, if applicable, that the Client’s Safe Custody Investments
may be held in a jurisdiction outside the DIFC and the market practices,
insolvency and legal regime applicable in that jurisdiction may differ from
the regime applicable in the DIFC.

(2) Before an Authorised Firm Provides Custody for a Client it must disclose
to the Client on whose behalf the Safe Custody Investments will be held:

(a) a statement that the Client is subject to the protections conferred

by the Safe Custody Provisions;

(b) the arrangements for recording and registering Safe Custody

Investments, claiming and receiving dividends and other
entitlements and interest and the giving and receiving instructions
relating to those Safe Custody Investments;

(c) the obligations the Authorised Firm will have to the Client in
relation to exercising rights on behalf of the Client;

(d) the basis and any terms governing the way in which Safe Custody
Investments will be held, including any rights which the Authorised
Firm may have to realise Safe Custody Investments held on
behalf of the Client in satisfaction of a default by the Client;

(e) the method and frequency upon which the Authorised Firm will
report to the Client in relation to his Safe Custody Investments;

(f) if applicable, a statement that the Authorised Firm intends to mix

Safe Custody Investments with those of other Clients;

83
 CONDUCT OF BUSINESS (COB)

(g) if applicable, a statement that the Client’s Safe Custody

Investments may be held in a jurisdiction outside the DIFC and the
market practices, insolvency and legal regime applicable in that
jurisdiction may differ from the regime applicable in the DIFC;

(h) if applicable, a statement that the Authorised Firm holds or intends

to hold Safe Custody Investments in a Client Account with a Third
Party Agent which is in the same Group as the Authorised Firm;
and

(i) the extent of the Authorised Firm’s liability in the event of default
by a Third Party Agent.

A6.8 Client reporting

A6.8.1 (1) An Authorised Firm which Provides Custody for a Client must send a
statement to that Client at least every six months or at other intervals as
agreed in writing with the Client.

(2) The statement must include:

(a) a list of that Client’s Safe Custody Investments as at the date of

reporting;

(b) a list of that Client’s Collateral and the market value of that
Collateral as at the date of reporting; and

(c) details of any Client Money held by the Authorised Firm as at the
date of reporting.

(3) The statement sent to the Client must be prepared within 25 business
days of the statement date.

84
 CONDUCT OF BUSINESS (COB)

A6.9 Reconciliation

A6.9.1 An Authorised Firm which Provides Custody must:

(a) at least every 25 business days, reconcile its records of Client Accounts
held with Third Party Agents with monthly statements received from those
Third Party Agents;

(b) at least every six months, count all Safe Custody 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 Safe Custody Investment balances held
in Client Accounts.

A6.9.2 An Authorised Firm must ensure that the process of reconciliation does not give
rise to a conflict of interest.
Guidance

An Authorised firm should maintain a clear separation of duties to ensure that an employee with
responsibility for operating Client Accounts, or an employee that has authority over Safe Custody
Investments, should not perform the reconciliations under Rule A6.9.1.

A6.9.3 (1) Reconciliation performed in accordance with section A6.9 must be

reviewed by a member of the Authorised Firm who has adequate
seniority.

(2) The person referred to in (1) must provide a written statement confirming
the reconciliation has been undertaken in accordance with the
requirements of this section.

A6.9.4 The Authorised Firm must notify the DFSA where there have been material
discrepancies with the reconciliation which have not been rectified.

Guidance

A material discrepancy includes discrepancies which have the cumulative effect of being material,
such as longstanding discrepancies.

A6.10 Auditor’s reporting requirements

Guidance

In accordance with GEN chapter 8, an Authorised Firm which Provides Custody must arrange for a
Safe Custody Auditor’s Report to be submitted to the DFSA on an annual basis.

85