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CONTENTS
1. APPLICATION
1.1. General application rule
1.2. Modifications and exclusions
2. CLIENT CLASSIFICATION
2.1. General requirements
2.2. Retail Clients
2.3. Professional Clients
2.4. Deemed Professional Clients
2.5. Assessed Professional Clients
2.6. Reclassification of a Professional Client as a Retail Client
2.7. Market Counterparties
2.8. Trusts and Funds
2.9. Agent as Client
2.10. Record keeping
3. COMMUNICATIONS WITH CLIENTS AND FINANCIAL PROMOTIONS
3.1. Application
3.2. Communications to be fair, clear and not misleading
3.3. Financial Promotions
3.4. Unsolicited Real Time Financial Promotions
3.5. Record keeping
4. KEY INFORMATION AND CLIENT AGREEMENT
4.1. Application
4.2. Client agreement
4.3. Content of client agreement
4.4. Content of key information
4.5. Record keeping
5. CONDUCT OF INVESTMENT BUSINESS
5.1. Application
5.2. Suitability assessment
5.3. Appropriateness assessment
5.4. Information about the Client
5.5. Record keeping
5.6. Packaged products—additional disclosure
6. ORDER EXECUTION AND ORDER HANDLING
6.1. Best execution
6.2. Client order handling
6.3. Voice and electronic communications
6.4. Direct Electronic Access
7. CONFLICTS OF INTEREST
7.1. The general obligation
7.2. Identifying a conflict of interest
7.3. Managing a conflict of interest
7.4. Inducements
7.5. Personal Transactions
8. CLIENT ASSETS
8.1. Application
8.2. Client Money: Investment Business
8.3. Client Investments Rules
8.4. Mandates
8.5. Client money: Insurance Intermediation and Insurance Management
9. REPORTING TO CLIENTS
9.1. Trade confirmations
9.2. Periodic statements
10. INVESTMENT RESEARCH
10.1. Application
10.2. Conflicts of interest
10.3. Restrictions on transactions
10.4. Physical separation
10.5. Key information
10.6. Disclosure of conflicts of interests
10.7. Restrictions on publication during public offer
10.8. Offers of securities
11. INSURANCE INTERMEDIARIES
11.1. Application
11.2. Disclosure requirements
11.3. Disclosure of costs and remuneration
11.4. Obligation on Client to disclose material facts
11.5. Statement of demands and needs
11.6. Information about Contract of Insurance or Takaful Contract
11.7. Other requirements
12. TRUST SERVICE PROVIDERS
12.1. Application
12.2. Obligations of the Trust Service Provider
12.3. Exercise of discretion
12.4. Delegation of duties or powers
12.5. Professional indemnity insurance
12.6. Internal reporting
12.7. Use of third parties
12.8. Qualification and experience
12.9. Books and records
12.10.Due diligence
12.11.Fitness and Propriety of Persons acting as trustees
13. ANCILLARY SERVICE PROVIDERS
13.1. Application
13.2. Principles for Ancillary Service Providers
14. CREDIT RATING AGENCIES
14.1. Application
14.2. Principles for Credit Rating Agencies
15. COMPLAINTS HANDLING AND DISPUTE RESOLUTION
15.1. Application
15.2. Complaints handling
15.3. Referrals
15.4. Record keeping
16. RECORD KEEPING AND INTERNAL AUDIT
16.1. Record keeping requirements
16.2. Table summarising record keeping requirements
16.3. Internal Audit of Client Statements
17. OPERATORS OF A DIGITAL ASSET BUSINESS
17.1. Application
17.2. Rules Applicable to an Authorised Digital Asset Trading Facility
17.3. Admission of Digital Assets to trading
17.4. Additional disclosure requirements
17.5. The risks to be disclosed pursuant to COB 17.4
17.6. Complaints
17.7. Obligation to report transactions
17.8. AFSA power to impose a prohibition or requirement
18. BANKS
18.1. Application
18.2. Accepting Deposits
18.3. Terms of business for Accepting Deposits — general requirements
18.4. Terms of business for Accepting Deposits — contract
18.5. Terms of business for Accepting Deposits — multiple documents
18.6. Terms of business for Accepting Deposits — amendment
18.7. Terms of business for Accepting Deposits — recordkeeping
18.8. Terms of business for Accepting Deposits — minimum content
19. CONDUCT OF INSURANCE AND TAKAFUL BUSINESS
19.1. Insurance and Takaful business—general
19.2. Cancelling Life Policies—Retail Clients
19.3. Cancelling Non-Investment Insurance Contracts
19.4. Cancelling Contracts of Insurance—recordkeeping
19.5. Claims handling
20. INSURANCE MANAGEMENT
20.1. Application
20.2. General
20.3. Disclosure requirements
20.4. Claims handling
SCHEDULE 1: TRANSACTION RECORDS
SCHEDULE 2: KEY INFORMATION AND CONTENT OF CLIENT AGREEMENT
SCHEDULE 3: TRADE CONFIRMATION
SCHEDULE 4: PERIODIC STATEMENTS
SCHEDULE 5: FINANCIAL PROMOTIONS
Guidance: Purpose of this rulebook
The purpose of this rulebook, «COB», is to ensure that financial services firms operating in the AIFC meet the standards of conduct expected of such firms, particularly with regard to the treatment of their clients, but also in their dealings with counterparties and other market participants. COB also includes rules to ensure that the behaviour of firms operating in the AIFC contributes to fostering and maintaining the integrity of financial markets in the AIFC.
This will assist the AFSA to meet the regulatory objectives specified in the Financial Services Framework Regulations (the «Framework Regulations»), including the AFSA's objectives of:
· protecting the interests of investors and users of financial services;
· ensuring that the AIFC's financial markets are fair, efficient, transparent and orderly; and
· fostering and maintaining confidence in the AIFC's financial system and regulatory regime.
Chapter 1 (Application) states that the requirements in the COB rulebook generally apply to Authorised Firms licensed to carry on a Regulated Activity. Some requirements may be modified or disapplied altogether depending on the type of Authorised Firm involved, the nature of its activities, and/or the classification of the Client to whom the Authorised Firm provides services.
In particular, the majority of the COB rules do not apply to Insurance Intermediaries, Trust Service Providers, or Ancillary Service Providers, which are instead required to comply with the requirements set out in Chapters 11, 12 or 13 of COB respectively.
For the avoidance of doubt, COB does not apply to Representative Offices or Authorised Market Institutions.
Chapter 2 (Client classification) requires an Authorised Firm to classify each of its Clients as either a Retail Client, Professional Client, or Market Counterparty, depending on the Client's financial resources and knowledge and experience of Financial Services. The Authorised Firm must inform the Client of its classification. The purpose of this classification is to ensure that the COB rules are applied in a risk-sensitive manner in proportion to the risks faced by a Client and the level of protection which that Client requires. In particular, the COB rules seek to ensure that the Client receives an adequate level of protection based on its resources and understanding of the Financial Products and Financial Services involved. For example, a Retail Client is assumed to need more protection than a Market Counterparty, so an Authorised Firm dealing with a Retail Client will be required to comply with more stringent requirements in COB.
Chapter 3 (Communications with Clients and Financial Promotions) imposes a general duty on Authorised Firms to ensure that their communications with Clients are fair, clear and not misleading. In addition, there are specific requirements for the handling of Financial Promotions (that is, marketing materials directed at potential investors). This is to ensure the protection of Clients, including potential clients.
Chapter 4 (Key information and client agreement) provides the key information to be provided by Authorised Firms to their Clients, and the requirement to enter into a client agreement with their Clients. The purpose of this requirement is to ensure that Clients receive the information which they need in order to come to an informed decision about the Financial Products and Financial Services being offered, and to ensure that there is a binding contract containing the rights and obligations of both parties.
Chapter 5 (Conduct of Investment Business) states that an Authorised Firm that is Advising on Investments or Managing Investments for a Client must assess whether the Financial Product or Financial Service being offered is «suitable» for that Client. If the Authorised Firm is Dealing in Investments or receiving and transmitting orders for a Client, the Authorised Person must assess whether the Financial Product or Financial Service is «appropriate» for the Client. The respective nature of assessments of suitability or appropriateness are described in detail in COB 5. It also contains additional detailed disclosure requirements in respect of Life Policies and Family Takaful Policies.
Chapter 6 (Order execution and order handling) sets out the obligation for an Authorised Firm, when executing an order on behalf of a Client, to obtain the best possible result for the Client. The Authorised Firm is required to handle orders according to a specified order allocation policy.
Chapter 7 (Conflicts of interest) builds on the requirement in GEN that an Authorised Firm must identify a conflict of interest between itself and a Client, or between one Client and another Client, and where appropriate manage such conflicts. COB 7 provides further detail on how such conflicts should be managed and disclosed to the Client. COB 7 is also intended to prevent a third party making payments or providing other benefits to an Authorised Firm in a way that may damage the Client's interests.
Chapter 8 (Client assets) is intended to ensure that, where an Authorised Firm holds or controls Money or Investments belonging to a Client, such Money or Investments will be protected in the event of that Authorised Firm's insolvency.
Chapter 9 (Reporting to clients) states the requirements on an Authorised Firm to report to the Client. COB 9 is intended to ensure that the Authorised Firm provides the Client with post-trade confirmation of the Client's purchases and sales of Investments as well as regular periodic statements on the value of the Investments held by the Authorised Firm on behalf of the Client.
Chapter 10 (Investment research) sets out requirements in relation to the production of investment research by an Authorised Firm. This is intended to prevent any conflict of interest from acting to the detriment of the Client.
Chapter 11 (Insurance intermediaries) deals with specific conduct of business rules that apply to insurance intermediaries.
Chapter 12 (Trust Service Providers) sets out the conduct of business requirements that apply to Trust Service Providers.
Chapter 13 (Ancillary Service Providers) sets out high-level principles that apply to Ancillary Service Providers.
Chapter 14 (Credit Rating Agencies) sets out high-level principles that apply to Credit Rating Agencies.
Chapter 15 (Complaints handling and dispute resolution) contains high-level requirements setting out how a Client may issue a complaint against an Authorised Firm and how this may be escalated in the event of a dispute.
Chapter 16 (Record keeping) sets out how records must be maintained by an Authorised Firm.
Chapter 17 (Operators of a Digital Asset Business) sets out the conduct of business requirements that apply to Operators of a Digital Asset Business.
Chapter 18 (Banks) sets out the conduct of business requirements that apply to Banks.
Chapter 19 (Insurance Business) sets out the conduct of business requirements that apply to Insurers. These requirements relate to the cancellation of Contracts of Insurance and the handling of claims under Contracts of Insurance.
Chapter 20 (Insurance Management) contains provisions which apply to Insurance Managers. These include restrictions upon the services that Insurance Managers are permitted to provide, disclosures that they are required to make and requirements which apply where Insurance Managers handle claims under Contracts of Insurance.
1. APPLICATION
1.1. General application rule
The requirements in COB apply to an Authorised Firm with respect to any Regulated Activity carried on by an Authorised Firm operating within the jurisdiction of the AIFC as specified in Part 1 of the Framework Regulations.
1.2. Modifications and exclusions
1.2.1. Modifications and exclusions stated in a COB rule
The general application rule in COB 1.1 may be modified or excluded to the extent stated in the relevant provision in COB, depending on the type of Authorised Firm involved, the nature of its activities, and/or the classification of the Client to whom it provides services.
1.2.2. Exclusions in relation to certain categories of Centre Participant
For the avoidance of doubt, the requirements in COB do not apply to:
(a) a Representative Office;
(b) an Authorised Market Institution (other than an Authorised Crowdfunding Platform and an Authorised Digital Asset Trading Facility), except for COB 3 (Communications with Clients and Financial Promotions);
(c) an Authorised Crowdfunding Platform, except for COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement), COB 7 (Conflicts of Interest), COB 8 (Client Assets) and COB Schedule 2 (Key Information and Content of Client Agreement);
(d) an Authorised Digital Asset Trading Facility, except for COB 2 (Client Classification) and COB 3 (Communications with Clients and Financial Promotions); or
(e) a MTF Operator and an OTF Operator, except for COB 15 (Complaints Handling and Dispute Resolution).
For the purposes of 1.2.2(c), references in COB 3, COB 4, COB 7, COB 8 and COB Schedule 2 to:
(a) «Authorised Firms» shall be read as if it were a reference to «an Authorised Crowdfunding Platforms»;
(b) «Regulated Activities» shall be read as if it were a reference to «Market Activities»;
(c) references to «Professional Client» or a «Market Counterparty» shall be read as if they were a reference to «Accredited Lender or Accredited Investor»; and
(d) references to «Retail Client» shall be read as if they were a reference to «Retail Lender or Retail Investor».
For the purposes of 1.2.2(d), references in COB 2 and COB 3 to:
(a) «Authorised Firms» shall be read as if it were a reference to «an Authorised Digital Asset Trading Facility»; and
(b) «Regulated Activities» shall be read as if it were a reference to «Market Activities».
For the purposes of 1.2.2(e), references in COB 15 to «Retail Client» shall be read as if they were a reference to «Member, who is a natural person with Direct Electronic Access».
Guidance: Other applicable requirements
Although the Centre Participants listed in COB 1.2.2 are not generally subject to the requirements in COB, they will be subject to requirements in other Rules, which may include but are not limited to requirements in REP, AMI and GEN as applicable.
1.2.3. Application in respect of Insurance Intermediaries
The requirements in COB do not apply to Insurance Intermediaries, with the exception of COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement), COB 8.5 (Client money: Insurance Intermediation and Insurance Management) and COB 11 (Insurance Intermediaries).
Guidance: Insurance Intermediaries
Given the different nature of their activities compared with other Authorised Firms, Insurance Intermediaries are subject to specific conduct of business requirements that are set out in COB 11.
1.2.4. Application in respect of Trust Service Providers
The requirements in COB do not generally apply to Trust Service Providers, with the exception of COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement), COB 5.2 (Suitability Assessments), COB 7 (Conflicts of Interest), COB 12 (Trust Service Providers), and COB 15 (Record Keeping).
Guidance: Trust Service Providers
Trust Service Providers provide services that are distinct from those provided by other Authorised Firms, so they are not required to comply with all of the COB rules. COB 12 imposes a specific framework on Trust Service Providers that takes into account the nature of their activities and the risk profile that they represent compared with other Authorised Firms.
1.2.5. Application in respect of Ancillary Service Providers
The requirements in COB do not apply to Ancillary Service Providers, with the exception of COB 13 (Ancillary Service Providers).
Guidance: Ancillary Service Providers
Ancillary Service Providers may already be subject to professional standards, regulation by professional bodies, and/or codes of conduct. As a result, they are not required to comply with most of the requirements in COB. Instead, they are subject to duties and obligations under COB 13, which sets out high-level principles applicable to these firms.
1.2.6. Application in respect of Credit Rating Agencies
The requirements in COB do not apply to Credit Rating Agencies, with the exception of COB 14 (Credit Rating Agencies).
Guidance: Credit Rating Agencies
In order to ensure that Credit Rating Agencies provide independent analyses and opinions, COB 14 requires Credit Rating Agencies to comply with high-level principles that are based on international standards promoted by the International Organisation of Securities Commissions.
1.2.7. Table summarising modifications and exclusions
The general application rule in COB 1.1 is modified or excluded to the extent stated in this table in COB 1.2.7 by reference to the category of Client receiving services from the Authorised Firm («who?") and/or the nature of the activity («what?").
| Part 1: Who? Modifications and exclusions from the general application rule according to the category of Client who is receiving services from the Authorised Firm |
| A: The following provisions do not apply in respect of Market Counterparty Business: |
| COB 3.4 | Unsolicited Real Time Financial Promotions |
| COB 4.2.1(b) | Requirement to enter into a client agreement |
| COB 5 | Suitability and appropriateness |
| COB 6 | Order execution and order handling, except for COB 6.2.9 (see COB 6.1.1(a)) |
| COB 11.2. 11.3.2, 11.3.3, 11.4, 11.5, 11.6, 11.7.3-11.7.6 | Insurance Intermediaries (see COB 11.1.2) |
| COB 15 | Complaints handling and dispute resolution |
| B: The following provisions are modified in respect of Market Counterparty Business: |
| COB 3.3 | Financial Promotions (see COB 3.3.3(a)) |
| COB 4.2.1(a) | Requirement to provide key information (see COB 4.4) |
| COB 8.2 | Client Money Rules (see COB 8.2.2) |
| COB 9.1 | Reporting to clients: Trade confirmations (see COB 9.1.4) |
| С: The following provisions do not apply in respect of business carried on with Professional Clients: |
| COB 3.4 | Unsolicited Real Time Financial Promotions |
| COB 4.2.1(b) | Requirement to enter into a written client agreement |
| COB 11.2.2, 11.5.2, 11.6.2 | Insurance Intermediaries (see COB 11.1.2) |
| D: The following provisions are modified in respect of business carried on with Professional Clients: |
| COB 3.3 | Financial Promotions (see COB 3.3.3(a)) |
| COB 4.2.1(a) | Requirement to provide key information (see COB 4.4) |
| COB 5.2.2 | Nature of suitability assessment (see COB 5.2.7) |
| COB 5.3.4 | Nature of appropriateness assessment (see COB 5.3.6) |
| COB 8.2 | Client Money Rules (see COB 8.2.2) |
| COB 9.1 | Reporting to clients: Trade confirmations (see COB 9.1.4) |
| Part 2: What? Modifications and exclusions from the general application rule according to the nature of the activity |
| A: The following provisions do not apply in respect of an Authorised Firm carrying out the Regulated Activity of providing financing using Shari'ah-compliant contracts |
| COB 4 | Key Information and Client Agreement |
| B: The following provisions do not apply in respect of a Fund Manager offering the Units of a Fund it manages |
| COB 4 | Key Information and Client Agreement |
| C: The following provisions do not apply in respect of an Authorised Firm that executes a Transaction in the course of Managing Investments for a Client |
| COB 9.1 | Reporting to clients: Trade confirmations |
2. CLIENT CLASSIFICATION
2.1. General requirements
2.1.1. Obligation to classify Clients
An Authorised Firm providing any Financial Products or Financial Services to any Person must classify that Person as one of the following categories of Client:
(a) a Retail Client;
(b) a Professional Client; or
(c) a Market Counterparty.
2.1.2. Obligation to notify classification to Clients
An Authorised Firm must notify a new Client of its classification as a Retail Client, Professional Client, or Market Counterparty in accordance with COB 2.1.1 in respect of the Financial Product or Financial Service being provided to that Client.
2.1.3. Person may be classified as more than one category of Client
An Authorised Firm may classify a Person as belonging to different categories of Client in respect of:
(a) a specific Financial Product, Financial Service, or Transaction; or
(b) different types of Financial Product or Transaction,
which are to be provided to, or carried out on behalf of, that Person.
2.2. Retail Clients
2.2.1. Classification as a Retail Client
An Authorised Firm must classify as a Retail Client any Client that is not a Professional Client or a Market Counterparty.
2.2.2. Authorised Firm may choose to treat any Person as a Retail Client
An Authorised Firm may choose to provide Financial Products or Financial Services to any Person as a Retail Client simply by classifying that Person as a Retail Client. If the Authorised Firm classifies the Person as a Retail Client in this way, it will not be required to assess whether that Person would otherwise be classified as a Professional Client or a Market Counterparty.
2.3. Professional Clients
2.3.1. Classification as a Professional Client
An Authorised Firm may classify a Person as a Professional Client if that Person:
(a) meets the requirements to be a Deemed Professional Client; or
(b) meets the requirements to be an Assessed Professional Client, in accordance with COB 2.5.1 or 2.5.5, provided that Person has not been classified as a Retail Client in accordance with COB 2.6.
2.4. Deemed Professional Clients
2.4.1. Requirements to be a Deemed Professional Client
For the purposes of COB 2.3.1, each of the following entities is a Deemed Professional Client unless it is a Market Counterparty or is given a different classification under COB 2:
(a) a national or regional government;
(b) a public body that manages public debt;
(c) a central bank;
(d) an international or supranational institution (such as the World Bank, the International Monetary Fund, or the European Investment Bank) or other similar international organisation;
(e) an Authorised Firm, or any other authorised or regulated financial institution, including a bank, securities firm or insurance company;
(f) an Authorised Market Institution, or any other authorised or regulated exchange, trading facility, central securities depository, or clearing house;
(g) a Collective Investment Scheme or its management company, or any other authorised or regulated collective investment undertaking or the management company of such an undertaking;
(h) a pension fund or the management company of a pension fund;
(і) a commodity dealer or a commodity derivatives dealer;
(j) a Large Undertaking as specified in COB 2.4.2;
(k) a Body Corporate whose shares are listed or admitted to trading on any exchange of an IOSCO member country;
(l) a trustee of a trust which has, or had during the previous 12 months, assets of at least USD 10 million; or
(m) any other institutional investor whose main activity is to invest in financial instruments, including an entity dedicated to the securitisation of assets or other financial transactions.
2.4.2. Large Undertakings
A Person is a Large Undertaking for the purposes of COB 2.4.1(j) if it met, as at the date of its most recent financial statements, at least two of the following requirements:
(a) it has total assets of at least USD 20 million on its balance sheet;
(b) it has a net annual turnover of at least USD 40 million; or
(c) it has own funds of at least USD 2 million.
2.5. Assessed Professional Clients
2.5.1. Assessed Professional Clients: Individual Clients
For the purposes of COB 2.3.1, an Authorised Firm may treat an individual Client as an Assessed Professional Client if:
(a) the Client has net assets of at least USD 100,000; and
(b) either:
(і) the Authorised Firm assesses the Client, on reasonable grounds, to have sufficient experience and understanding of relevant Financial Products, Financial Services, Transactions and any associated risks; or
(ii) the Client works or has worked in the previous two years in an Authorised Firm or any other authorised or regulated financial institution, including a bank, securities firm or insurance company, in a position that requires knowledge of the type of Financial Products, Financial Services or Transactions envisaged; and
(c) the following procedure is followed:
(і) the Client must confirm in writing to the Authorised Firm that it wishes to be treated as a Professional Client either:
(1) generally;
(2) in respect of a specific Financial Product, Financial Service, or Transaction; or
(3) in respect of a type of Financial Product, Financial Service, or Transaction;
(ii) the Authorised Firm must give the Client a clear warning in writing setting out the protections that the Client may lose as a result of giving up its classification as a Retail Client; and
(iii) the Client must confirm in writing, in a separate document from the client agreement or other contract, that it is aware of the consequences of losing such protections.
Guidance: Meaning of an «individual»
For the purposes of COB 2.5.1, an «individual» means a Person who is a natural person and not an Undertaking.
2.5.2. Calculation of an individual's net assets
For the purposes of COB 2.5.1(a), the calculation of an individual Client's net assets:
(a) must exclude the value of the primary residence of the Client; and
(b) may include any assets held directly or indirectly by the Client.
2.5.3. Assessment of experience and understanding
For the purposes of the assessment required under COB 2.5.1(b)(і) and 2.5.6(a), an Authorised Firm must, where applicable, consider the following matters:
(a) the Person’s knowledge and understanding of:
(і) the relevant Financial Products, Financial Services, and Transactions; and
(ii) any associated risks, either generally or in relation to a specific Financial Product, Financial Service, or Transaction;
(b) the length of time during which the Person has participated in financial market activity;
(c) the frequency with which the Person has carried out Transactions;
(d) the extent to which the Person has previously relied on professional financial advice;
(e) the size and nature of Transactions that have been undertaken by, or on behalf of, the Person in financial markets;
(f) the Person’s relevant qualifications or training;
(g) the composition and size of the Person’s portfolio of Investments;
(h) in the case of insurance Transactions, relevant experience in relation to similar Transactions to be able to understand the risks associated with such Transactions; and
(і) any other matters which the Authorised Firm considers relevant.
2.5.4. Legal structures or vehicles containing an individual's investment portfolio
An Authorised Firm may classify as an Assessed Professional Client a legal structure or vehicle, including an Undertaking, trust or foundation, that is set up solely for the purpose of managing the investment portfolio of an individual where that individual has been assessed as meeting the requirements in COB 2.5.1.
2.5.5. Individual joint account holders
An Authorised Firm may classify as a Professional Client an individual (the «joint account holder») who has a joint account with an individual assessed as meeting the requirements in COB 2.5.1 (the «primary account holder») if:
(a) the joint account holder is a Family Member of the primary account holder;
(b) the account is used for the purposes of managing Investments for the primary account holder and the joint account holder;
(c) the following procedure is followed:
(і) the joint account holder must confirm in writing to the Authorised Firm that investment decisions relating to the joint account are generally made for, or on behalf of, him by the primary account holder;
(ii) the joint account holder must confirm in writing to the Authorised Firm that he wishes to be treated as a Professional Client either:
(1) generally;
(2) in respect of a specific Financial Product, Financial Service or Transaction; or
(3) in respect of a type of Financial Product or Transaction;
(ii) the Authorised Firm must give the joint account holder a clear warning in writing setting out the protections that the joint account holder may lose as a result of giving up his classification as a Retail Client; and
(iii) the joint account holder must confirm in writing, in a separate document from the client agreement or other contract, that he is aware of the consequences of losing such protections.
2.5.6. Assessed Professional Clients: Undertakings
For the purposes of COB 2.3.1, an Authorised Firm may treat an Undertaking as an Assessed Professional Client if:
(a) the Authorised Firm assesses the Undertaking (which may involve assessing an individual or individuals authorised to make investment decisions on behalf of the Undertaking), on reasonable grounds, to have sufficient experience and understanding of the relevant Financial Products, Financial Services or Transactions and any associated risks; and
(b) the Undertaking has own funds of at least USD 1 million.
2.5.7. Other types of Undertaking
An Authorised Firm may also classify an Undertaking as an Assessed Professional Client if the Undertaking has:
(a) a Controller;
(b) a Holding Company;
(c) a Subsidiary (whether direct or indirect); or
(d) a joint venture partner,
that meets the requirements in COB 2.5.6 to be classified as an Assessed Professional Client.
2.5.8. Client no longer meeting the requirements to be a Professional Client
If an Authorised Firm becomes aware that a Client no longer meets the requirements to be classified as a Professional Client, the Authorised Firm must, as soon as possible, inform the Client that this is the case and, where appropriate, discuss with the Client the steps that the Authorised Firm and the Client may take to address the situation, which may include the Authorised Firm notifying the Client of its reclassification.
2.6. Reclassification of a Professional Client as a Retail Client
2.6.1. Obligation to notify Professional Client of right to be treated as a Retail Client
If an Authorised Firm provides services to Retail Clients and Professional Clients, it must, when first establishing a relationship with a Person as a Professional Client, notify that Person in writing of:
(a) that Person’s right to be classified as a Retail Client;
(b) the higher level of protection available to Retail Clients; and
(c) the period of time within which the Person may choose to be classified as a Retail Client.
If the Person does not choose to be classified as a Retail Client within the time specified by the Authorised Firm, the Authorised Firm may classify that Person as a Professional Client.
2.6.2. Authorised Firm not providing services to Retail Clients
If an Authorised Firm does not provide services to Retail Clients, it must inform its Clients of this fact and any relevant consequences.
2.6.3. Professional Client that asks to be treated as a Retail Client
If a Professional Client makes a request to the Authorised Firm to be treated as a Retail Client, the Authorised Firm must classify it as a Retail Client, unless the Authorised Firm does not provide services to Retail Clients.
Guidance: Request to an Authorised Firm that does not provide services to Retail Clients
An Authorised Firm that does not provide services to Retail Clients may receive a request from a Professional Client asking to be classified as a Retail Client. If the nature of the Client or the level of protection that it requires are such that it no longer meets the requirements to be a Professional Client, then the Authorised Firm should cease providing services to that Client.
2.7. Market Counterparties
2.7.1. Classification as a Market Counterparty
An Authorised Firm may classify a Person as a Market Counterparty, unless and to the extent that Person is given a different classification under this chapter COB 2, if that Person meets the requirements to be:
(a) a Deemed Professional Client; or
(b) an Assessed Professional Client and is the subsidiary of a Holding Company that is a Deemed Professional Client by virtue of being a Large Undertaking falling within COB 2.4.1(j),
provided that the arrangement meets the conditions in COB 2.7.2.
2.7.2. Requirement for confirmation by the Client
In order for an Authorised Firm to classify a Person as a Market Counterparty, the Authorised Firm must ensure that:
(a) the Person has been given prior written notification of its classification as a Market Counterparty; and
(b) the Person has not requested to be classified other than as a Market Counterparty within the time specified in the notification.
2.8. Trusts and Funds
2.8.1. Trusts
If an Authorised Firm intends to provide Financial Products or Financial Services to a trust, it must, unless otherwise provided in COB, treat the trustee of the trust, and not the beneficiaries of the trust, as its Client.
2.8.2. Funds
If an Authorised Firm provides a Financial Product or Financial Service to a Fund that does not have a separate legal personality, that Fund will be the Client of the Authorised Firm.
2.9. Agent as Client
2.9.1. General application of the «agent as client» rule
Subject to COB 2.9.2, if an Authorised Firm is aware that a Person (the «agent»), with or for whom it is intending to provide a service is acting as an agent for another Person (the «underlying client») in relation to that service, then the Authorised Firm must treat the agent as its Client in respect of the service.
2.9.2. Exclusion from the «agent as client» rule
The underlying client is treated, for the purposes of these Rules, as the Client of the Authorised Firm in respect of the service, if:
(a) the Authorised Firm has agreed with the agent in writing to treat the underlying client as its Client; or
(b) the agent is neither:
(1) another Authorised Firm; or
(2) an Authorised Market Institution,
and the main purpose of the arrangements between the parties is the avoidance of duties that the Authorised Firm would otherwise have to the underlying client.
2.9.3. Agreement in relation to more than one underlying client
If an Authorised Firm makes an agreement with the agent under COB 2.9.2(a) in relation to more than one underlying client, the Authorised Firm may rely upon the agent to act as a single point of contact for all communications between the Authorised Firm and all of the underlying clients for which the agent is acting. Accordingly, where the Authorised Firm communicates with the underlying clients, the Authorised Firm may send to, or receive from, the agent a single communication covering all of the underlying clients, without having to notify or obtain consent from each underlying client. However, where the Authorised Firm is required to provide any communications to any single underlying client, relating to matters specific to that underlying client, the Authorised Firm will still be required to provide to the agent the information specific to that underlying client, including the following:
