FINANCIAL SERVICES LEGISLATION
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FINANCIAL SERVICES LEGISLATION

REGULATIONS

FINANCIAL SERVICES FRAMEWORK REGULATIONS

Financial Services Framework Regulations

PART 1: INTRODUCTION

1. Title pro

These Regulations may be cited as the Framework Regulations.

2. Legislative Authority

These Regulations are enacted by the Governor in exercise of the powers conferred on the AIFC Bodies, including the Governor by the Constitutional Statute, and specifically by Article 4(3) of the Constitutional Statute.

3. Application of these Regulations

These Regulations apply in the AIFC.

4. Commencement

These Regulations will commence on 1 January 2018.

5. Interpretation

Words and expressions used in these Regulations and interpretative provisions applying to these Regulations are set out in the Glossary.

6. Meaning of “in the AIFC

(1) A Person will be deemed to be carrying on activities in the AIFC for the purposes of these Regulations if:

  • (a) that Person is a Centre Participant and the day-to-day management of those activities (even if those activities are undertaken in whole or in part from outside the AIFC) is the responsibility of the Centre Participant in its capacity as such; or
  • (b) that Person’s head office is outside the AIFC but the activity is carried on from a branch maintained by it in the AIFC; or
  • (c) the activities are conducted in circumstances that are deemed to amount to activities carried on in the AIFC under Rules made by the AFSA.

(2) The AFSA may issue Rules and guidance as to the circumstances in which activities capable of having an effect in the AIFC are or are not to be regarded as conducted in the AIFC.

PART 2: THE FRAMEWORK OF REGULATION

CHAPTER 1–The AFSA

7. Main functions, powers and objectives of the AFSA

(1) The AFSA has such functions and powers as are conferred, or expressed to be conferred, on it:

  • (a) by or under the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Centre” (“the Constitutional Statute”); and
  • (b) by or under any other law made by the Governor or the Management Council.

(2) The AFSA has power to do whatever it deems necessary for or in connection with, or reasonably incidental to, performing its functions and exercising its powers conferred in accordance with (1).

(3) In performing its functions and exercising its powers, the AFSA will pursue the following objectives (“the Regulatory Objectives”):

  • (a) the regulation, control and supervision of financial activities in the AIFC by Centre Participants with a view to the maintenance of the safety and soundness of the financial system within the AIFC;
  • (b) ensuring that financial markets in the AIFC are fair, efficient, transparent and orderly;
  • (c) creating fair, transparent and non-discriminatory conditions for Centre Participants;
  • (d) fostering and maintaining confidence in the AIFC’s financial system and regulatory regime;
  • (e) fostering and maintaining the financial stability of the AIFC’s financial services industry and capital markets, including the reduction of systemic risks;
  • (f) preventing, detecting and restraining actions that may cause damage to the reputation of the AIFC or to the financial activities carried out in the AIFC by taking appropriate measures, including by imposing sanctions;
  • (g) protecting interests of investors and users of financial services;
  • (h) implementing in the AIFC a regulatory regime that complies with international standards in the sphere of regulation of financial services;
  • (i) fostering the development of financial technologies in the AIFC; and

  • (j) pursuing such other objectives as may be specified by AIFC’s Regulations from time to time.

(4) The AFSA may prepare and make available forms for any purpose under these Regulations or Rules made hereunder and may give instructions for their completion.

8. AFSA power to make Rules

(1)      Any provision in these Regulations to the effect that the AFSA may make Rules on a particular issue is without prejudice to the general rulemaking power of the AFSA and other Centre Bodies under Article 4(3) of the Constitutional Statute.

(2)      The Rules, in such cases or classes of cases as may be prescribed by them, may extend, exclude, waive and/or modify the application of provisions of these Regulations, the Rules or any other legislation administered by the AFSA, with the exception of Part 9 (Enforcement) of these Regulations, if the Board of Directors of the AFSA considers it necessary or desirable order to facilitate the pursuit of AFSA’s Regulatory Objectives.

9. AFSA power to modify or waive Rules

(1) The AFSA may, on the application of a Person or on its own initiative and by written notice, direct that:

(a) 1 or more relevant provisions: (i) apply to the Person with the modifications mentioned in the notice; or (ii) do not apply in relation to the Person.

(b) the AFSA does not intend to take regulatory action over a particular state of affairs or particular conduct.

(2) The AFSA must not make a direction under (1)(a) unless it is satisfied that:

(a) compliance by the Person with the relevant provisions, or with the relevant provisions as unmodified, would be unduly burdensome or would not achieve the purpose for which the relevant provisions were made, and

(b) the direction would not adversely affect the advancement of any of the AFSA’s Regulatory Objectives.

(2-1) The AFSA shall make public by way of guidance the criteria applicable to the making of directions under (1)(b) after the date of publication of the guidance

(3) A direction under (1) may be given subject to conditions.

(4) The AFSA, on the application of the Person or on its own initiative, may: (a) revoke a direction; or (b) vary it.

(5) In this section: “Relevant provisions” means any provision (a) of these Regulations, the Rules or any other legislation administered by the AFSA, and (b) of any other Regulations and Rules which (i) relate to the functions of the AFSA and (ii) are declared by Rules adopted by the Board of Directors of the AFSA to be a provision to which this section applies.

(6) Unless the AFSA is satisfied that it is inappropriate or unnecessary to do so, it must publish a notice under subsection (1) in a way the AFSA considers appropriate for bringing the notice to the attention of: (a) person(s) likely to be affected by it; and (b) others who may be likely to become subject to a similar notice.

(7) The application for a direction, revocation of a direction or its variation must be accompanied by the filing fee prescribed in the Rules by the AFSA from time to time.

10. AFSA decision making procedure

(1) Where a provision in these Regulations or Rules made thereunder requires the AFSA to make a decision, the AFSA will follow the decision making procedures set out in Schedule 1.

(2) Should it consider it necessary or desirable to do so, the AFSA may establish a mechanism whereby a decision made in accordance with (1) may be reviewed by officers of the AFSA who were not involved in making such decision or an objective independent third party competent to carry out such function.

11. Appeals against decisions of the AFSA, and the AFSA's statutory immunity

(1) A Person aggrieved by a decision of the AFSA may appeal to the AIFC Court against the decision.

(2) The grounds of an appeal under this section are that:

  • (a) the decision was ultra vires or there was some other error of law;
  • (b) the decision was unreasonable;
  • (c) the decision was made in bad faith;
  • (d) there was a lack of proportionality; or
  • (e) there was a material error as to the procedure.

(3) The procedure to be adopted by parties to an appeal and by the AIFC Court on such an appeal is set out in Schedule 2.

(4) Neither the AFSA nor any Person who is, or is acting as, a director, officer or member of staff of the AFSA shall be held liable for anything done or omitted to be done in the performance or purported performance of its functions, or in the exercise or purported exercise of its powers, under these Regulations or any other AIFC Regulations or Rules, unless the act or omission is shown to have been done in bad faith.

CHAPTER 2 – Centre Participants

12. Definition of Centre Participant

A Centre Participant is defined under Article 1(5) of the Constitutional Statute.

13. Definition of Authorised Firm

An Authorised Firm is a Centre Participant which has been licensed by the AFSA to carry on one or more Regulated Activities.

14. Definition of Authorised Market Institution

An Authorised Market Institution is a Centre Participant which has been licensed by the AFSA to carry on one or more Market Activities.

15. Definition of Authorised Person

An Authorised Person is either an Authorised Firm or an Authorised Market Institution.

16. Definition of Ancillary Service Provider

An Ancillary Service Provider is a Centre Participant which has been licensed by the AFSA to carry on one or more Ancillary Services.

CHAPTER 3 – Activities performed by Centre Participants

17. Definition of Regulated Activity

The AFSA may make Rules prescribing which kinds of Regulated Activities, with such modifications or limitations as may be specified, may be carried on by an Authorised Firm.

18. Definition of Market Activity

(1) The activities specified in Schedule 4 of AIFC General Rules constitute Market Activities for the purposes of these Regulations and Rules made thereunder.

(2) The AFSA may make Rules adding to, removing activities from, or otherwise modifying the lists of Market Activities prescribed under section 18(1).

19. Definition of Ancillary Service

The AFSA may make Rules prescribing which kinds of Ancillary Services, with such modifications or limitations as may be specified, may be carried on by an Ancillary Service Provider.

CHAPTER 4 – Controlled and Designated Functions

20. Definition of Controlled Function

(1) The AFSA may make Rules prescribing functions (“Controlled Functions”) of an Authorised Person that may only be carried out by individuals who have been approved by the AFSA to carry out those functions.

(2) Controlled Functions prescribed under section 20(1) may include the functions of senior officers or employees with material responsibility for both or either:

21. Definition of Approved Individual

An Approved Individual is an individual who is approved by the AFSA to carry out a Controlled Function.

22. Definition of Designated Function

The AFSA may make Rules prescribing functions (“Designated Functions”) of an Authorised Person that may only be carried out by individuals who have been appointed by the Authorised Person as a Designated Individual in relation to that function

23. Definition of Designated Individual

A Designated Individual is an individual who is appointed by an Authorised Person to carry out a Designated Function.

CHAPTER 5 – Prohibitions

24. The General Prohibition

A Centre Participant must not carry on a Regulated Activity, Market Activity or Ancillary Service unless it is licensed to do so by the AFSA.

25. Prohibition relating to Controlled Functions

(1) A Person must not carry out a Controlled Function for an Authorised Person unless he is approved by the AFSA as an Approved Individual to carry out that Controlled Function for the Authorised Person.

(2) An Authorised Person must take all reasonable steps to ensure that no Person performs a Controlled Function on its behalf:

26. Prohibition relating to Designated Functions

An Authorised Person must take all reasonable steps to ensure that no Person performs a Designated Function on its behalf

27. Prohibition relating to Financial Promotions

(1) A “Financial Promotion” is any communication (made via any medium including brochures, telephone calls and presentations) the purpose or effect of which is:

  • (a) to promote or advertise
  • (i) Investments or
  • (ii) any Regulated Activity; or
  • (b) to invite or induce any Person
  • (i) to enter into an agreement with any Person in relation to Investments or
  • (ii) to engage in any Regulated Activity.

(2) A Centre Participant may not make a Financial Promotion except as provided by or under these Regulations.

(3) The AFSA may make Rules relating to:

28. Enforceability of Agreements

(1) Subject to section 28(5), a Centre Participant who makes an agreement whilst acting in breach of the General Prohibition, or who makes an agreement as a result of the making by himself or another Person of a Financial Promotion which is in breach of the Financial Promotions Prohibition, will not be entitled to enforce such agreement against any party (a "relevant party") to the agreement.

(2) Subject to any agreement that may otherwise be reached between the parties, a relevant party may apply to the AIFC Court to recover:

  • (a) any money paid or property transferred by him under the agreement;
  • (b) compensation reflecting any loss sustained by the relevant party as a direct result of such payment or transfer; and
  • (c) compensation for an amount becoming due that is dependent upon a contingency occurring under the relevant agreement, provided that such contingency has occurred prior to the relevant party being notified by the other party or by the AFSA that the agreement was entered into in breach of the General Prohibition or the Financial Promotions Prohibition.

(3) If the relevant party chooses not to perform the agreement or, under section 28(2), recovers money paid or property transferred by him under the agreement, he must in turn repay any money or property received under the agreement.

(4) The compensation recoverable under section 28(2)(b) is the amount agreed between the parties to the agreement or, following an application to the AIFC Court, the amount determined by the AIFC Court.

(5) If the AIFC Court is satisfied that the Centre Participant:

and that it is fair and just in the circumstances to make such an order, it may make one or more of the following orders:

  • (d) an order that the agreement be enforced between the parties to such extent and under such terms and conditions as the AIFC Court sees fit; or
  • (e) an order that money paid or property transferred under the agreement be retained or dealt with in accordance with the agreement or in such manner as the AIFC Court deems fit.

(6) For the purposes of (5), it is not relevant that the relevant Centre Participant was unaware of the existence of either the General Prohibition or the Financial Promotion Prohibition.

(7) Where property transferred under the agreement has been transferred to a third party, a reference in this section to such property will be interpreted as a reference to the value of the property at the time of the transfer under the agreement.

(8) In this section, "agreement" means an agreement, the making or performance of which constitutes, purports to constitute or is part of, the carrying on of a Regulated Activity, Market Activity or Ancillary Service.

29. False claims to be a Centre Participant

(1) A Person who is not a Centre Participant must not represent that he is a Centre Participant.

(2) A Centre Participant who is not an Authorised Firm, an Authorised Market Institution or an Ancillary Service Provider must not represent that he is such a Person.

PART 3: LICENSING OF CENTRE PARTICIPANTS

CHAPTER 1 – Licensing of Authorised Firms

30. Application for a Licence to carry on Regulated Activities

(1) A Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on one or more Regulated Activities.

(2) An Authorised Firm may apply to the AFSA to extend, vary or withdraw its Licence to carry on Regulated Activities.

(3) The applicant for a Licence, variation of a Licence or withdrawal of a Licence may withdraw its application by giving the AFSA notice at any time before the AFSA issues, varies or withdraws the Licence or rejects the application.

31. Form and content of application for a Licence

(1) An application for a Licence or variation or withdrawal of a Licence must be in such form and contain such information as may be prescribed by the AFSA from time to time.

(2) The AFSA may make Rules providing that certain Centre Participants or types of Centre Participant may not be granted a Licence to carry on particular Regulated Activities.

(3) The AFSA may make Rules providing for such requirements referred to in 31(1) to be varied in cases where an application is made by or on behalf of a Centre Participant which is, at the time of application, regulated in a jurisdiction other than the AIFC.

(4) The AFSA may waive all or any part of its generally adopted requirements as to form and contents either in individual cases or generally, provided it is satisfied in either case that:

  • (a) materially similar, up-to-date information is provided in other documentation already issued or completed by the applicant; or
  • (b) such information is not necessary in the light of any registration or authorisation of the applicant in another jurisdiction; or
  • (c) such information is not considered by the AFSA to be relevant in the context of any particular application.

(5) The AFSA may require the applicant to provide additional information reasonably required for the AFSA to be able to decide the application.

(6) If at any time between the filing of an application and the grant of a Licence or the grant of an extension to a Licence the applicant becomes aware of a material change reasonably likely to be relevant to the application under consideration, it must inform the AFSA in writing of such change without delay.

32. Financial technology

The AFSA may, on the application of a Person or its own initiative and by written notice, waive or modify the requirements of these Regulations or Rules made thereunder where it considers it necessary or desirable to do so in the field of financial technology.

33. Exemption

The AFSA may issue an order or make Rules:

(ii) the requirements referred to in section 34(1); and

  • (b) providing for any such exemptions to be:
  • (i) limited to certain Regulated Activities or specified circumstances; or

(ii) subject to certain conditions and restrictions.

34. Criteria for the grant of a Licence to carry on Regulated Activities

(1) The AFSA may only grant a Licence authorising a Centre Participant to carry on one or more Regulated Activities if it is satisfied that the Centre Participant:

  • (a) has adequate and appropriate resources, including financial resources;
  • (b) is fit and proper;
  • (c) is capable of being effectively supervised; and
  • (d) has adequate compliance arrangements, including policies and procedures, that will enable it to comply with all the applicable legal requirements.

(2) The AFSA may make Rules prescribing the matters to which the AFSA will have regard in making the above assessment.

35. Grant or rejection of application

(1) The AFSA may:

  • (a) grant an application for a Licence, variation or withdrawal of a Licence either without conditions, restrictions or requirements or with such conditions, restrictions or requirements as it considers appropriate; or
  • (b) reject the application.

(2) Where the AFSA grants an application for a Licence or variation or withdrawal of a Licence, the AFSA will notify the applicant of:

  • (a) such decision;
  • (b) the date on which the Licence or extension will be deemed to take effect;
  • (c) the Regulated Activity or Regulated Activities that the applicant is authorised to carry on; and
  • (d) any conditions and restrictions applicable to the Licence or the newly extended Licence.

(3) Where the AFSA rejects an application for Authorisation or variation or withdrawal of an Authorisation, the AFSA will inform the applicant in writing of such refusal and, where requested by the applicant, the reasons for such refusal, and of the applicant’s right to appeal that decision to the AIFC Court.

CHAPTER 2 – Licensing of Authorised Market Institutions

36. Application for a Licence to carry on Market Activities

(1) A Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on one or more Market Activities.

(2) An Authorised Market Institution may apply to the AFSA to extend, vary or withdraw its Licence to carry on Market Activities.

(3) The applicant for a Licence, variation of a Licence or withdrawal of a Licence may withdraw its application by giving the AFSA notice at any time before the AFSA issues, varies or withdraws the Licence or rejects the application.

(4) An application under this section must be made in such manner as the AFSA may require.

37. Criteria for the grant of a Licence to carry on Market Activities

(1) The AFSA may only grant a Licence authorising a Centre Participant to carry on one or more Market Activities if it is satisfied that the Centre Participant:

  • (a) has adequate and appropriate resources, including financial resources and technology resources;
  • (b) is fit and proper;
  • (c) is capable of being effectively supervised; and
  • (d) has adequate compliance arrangements, including policies and procedures, that will enable it to comply with all the applicable legal requirements, including the Rules.

(2) The AFSA may make Rules prescribing the matters to which the AFSA will have regard in making the above assessment.

38. Grant or rejection of application

(1) The AFSA may:

  • (a) grant an application under section 36, either without conditions, restrictions or requirements or with such conditions, restrictions or requirements as it considers appropriate; or
  • (b) reject the application.

(2) Where the AFSA grants an application under section 36, the AFSA will notify the applicant of:

  • (a) such decision;
  • (b) the date on which the Licence will be deemed to take effect;
  • (c) the Market Activity or Market Activities that the applicant is authorised to carry on; and
  • (d) any conditions and restrictions applicable to the Licence.

(3) Where the AFSA rejects an application under section 36, the AFSA will inform the applicant in writing of such refusal and, where requested by the applicant, the reasons for such refusal, and of the applicant’s right to appeal that decision to the AIFC Court .

(4) The AFSA may vary the terms of a Licence granted by it under this section, either on the application of the Authorised Market Institution or upon its own initiative.

39. Exemption for Authorised Market Institutions

(1)      An Authorised Investment Exchange is exempt from the General Prohibition in respect of any Regulated Activity:

  1. (a)which is carried on as a part of the Authorised Investment Exchange's business as an investment exchange; or
  2. (b)which is carried on for the purposes of, or in connection with, the provision by the Authorised Investment Exchange of services designed to facilitate the provision of clearing services by another Person.

(2)      An Authorised Clearing House is exempt from the General Prohibition in respect of any Regulated Activity:

  1. (a)which is carried on for the purposes of, or in connection with, the provision of clearing services by the Authorised Clearing House; or
  2. (b)which is carried on for the purposes of, or in connection with, the provision by the Authorised Clearing House of services designed to facilitate the provision of clearing services by another Person.

(3)      An Authorised Private E-currency Trading Facility is exempt from the General Prohibition in respect of any Regulated Activity:

  1. (a)which is carried on as a part of the Authorised Private E-currency Trading Facility's business as a private E-currency trading facility; or
  2. (b)which is carried on for the purposes of, or in connection with, the provision by the Authorised Private E-currency Trading Facility of services designed to facilitate the provision of clearing services by another Person.

(4)      Subject to AMI 7.2, an Authorised Crowdfunding Platform is exempt from the General Prohibition in respect of any Regulated Activity which is carried on as a part of the Authorised Crowdfunding Platform's business as a private crowdfunding platform.

CHAPTER 3 – Licensing of Ancillary Service Providers

40. Application for a License to carry on Ancillary Services

(1) A Person may apply to the AFSA for a License permitting a Centre Participant to carry on one or more Ancillary Services.

(2) An Ancillary Service Provider may apply to the AFSA to extend, vary or withdraw its Licence to carry on Ancillary Services.

(3) An application under this section must be made in such manner as the AFSA may by Rules require.

41. Criteria for the grant of a Licence to carry on Ancillary Services

(1) The AFSA may only grant a Licence permitting a Centre Participant to carry on one or more Ancillary Services if it is satisfied that the Centre Participant is fit and proper.

(2) The AFSA may prescribe by Rules:

  • (a) the Centre Participants or class of Centre Participants who may be permitted to carry on Ancillary Services;
  • (b) the requirements for the grant of such a Licence; and
  • (c) the circumstances in which the AFSA may revoke such a Licence.

PART 4: CONTROLLED AND DESIGNATED FUNCTIONS

CHAPTER 1 – Controlled Functions

42. Applications for Controlled Function approval

(1) The AFSA may make Rules detailing:

  • (a) the procedure for application to the AFSA for registration as an Approved Individual including requirements as to the form and content of the application, any fees payable by an Authorised Person in respect of its Approved Individuals and the procedures for modification or withdrawal of an Approved Individual’s registration;
  • (b) principles or other requirements to which Approved Individuals are required to adhere in the performance of Controlled Functions;
  • (c) requirements for Approved Individuals to report to the AFSA; and
  • (d) the circumstances in which registration of an Approved Individual may be withdrawn at the instance of the AFSA.

(2) The AFSA may waive all or any part of its generally adopted requirements as to the form and content of an application under section 42(1) if it is satisfied that such information is not necessary in the light of any registration, authorisation or approval the relevant individual may have in a jurisdiction outside the AIFC.

43. Criteria for approval

(1) The AFSA may only authorise an individual to carry on a Controlled Function if it is satisfied that the individual is fit and proper to be an Approved Individual.

(2) In making this assessment the AFSA must have regard to:

  • (a) the individual's integrity;
  • (b) the individual's competence and capability;
  • (c) the individual's financial soundness;
  • (d) the individual's proposed role within the Authorised Person; and
  • (e) any other matters that the AFSA considers to be relevant to the application.

(3) The AFSA will not regard an individual as fit and proper if the individual:

  • (a) is bankrupt; or
  • (b) has been convicted of a serious criminal offence; or
  • (c) is the subject of an administrative or civil finding; or
  • (d) is incapable, through mental or physical incapacity, of managing his affairs.

44. Grant or rejection of application

(1) The AFSA may:

  • (a) grant or vary an approval under section 42 either without conditions restrictions or requirements or with such conditions restrictions or requirements as it considers appropriate; or
  • (b) reject the application.

(2) Where the AFSA grants an application for approval or variation of an approval under section 42, the AFSA will notify the Authorised Person accordingly.

(3) Where the AFSA rejects an application for approval or variation of an approval under section 42, the AFSA will inform the Authorised Person in writing of such refusal and, where requested by the Authorised Person, the reasons for such refusal, and of the Authorised Person’s right to appeal that decision to the AIFC Court.

45. Residency requirement for Authorised Individual

The AFSA may require an Authorised Person to ensure that a particular Controlled Function is carried on by an Authorised Individual who is resident in the Republic of Kazakhstan.

CHAPTER 2 – Designated Functions

46. Criteria for appointment of Designated Individual

(1) Before appointing an individual to carry on a Designated Function, an Authorised Person must take reasonable steps to satisfy itself that the individual is fit and proper to be a Designated Individual and to carry on the relevant Designated Function.

(2) In making this assessment the Authorised Person must have regard to:

  • (a) the individual's integrity;
  • (b) the individual's competence and capability;
  • (c) the individual's financial soundness;
  • (d) the individual's proposed role within the Authorised Person; and
  • (e) any other matters that the AFSA may prescribe by Rules.

(3) An Authorised Person may not regard an individual as fit and proper if the individual:

  • (a) is bankrupt; or
  • (b) has been convicted of a serious criminal offence; or
  • (c) is the subject of an administrative or civil finding; or
  • (d) is incapable, through mental or physical incapacity, of managing his affairs.

47. Review of appointments by the AFSA

(1) An Authorised Person must maintain records of the assessment process that it conducts in respect of each Designated Individual appointed by it.

(2) An Authorised Person must make such records available to the AFSA on request.

(3) If the AFSA considers that a Designated Individual is not fit and proper, it may take such steps as it considers necessary or desirable in the interests of the AIFC.

PART 5: CONTROL OF AUTHORISED PERSONS

48. Requirement for AFSA approval to change in control

A Person must not take any steps to:

49. Rules governing controllers

The AFSA may make Rules in connection with the change of control of Authorised Persons incorporated in the AIFC, including Rules as to:

  • (a) when a Person becomes or ceases to be a Controller of an Authorised Person;
  • (b) when the acquisition or increase in the level of control of an Authorised Person requires either the prior approval of, or notification to, the AFSA;
  • (c) when the AFSA is likely object to an existing Controller;
  • (d) the procedures relating to the approval, notification and objections referred to in section 49(b) and 49(c); and
  • (e) any other matter necessary or incidental to give effect to the provisions governing controllers.

50. Powers of the AFSA in respect of Controllers

(1) Without limiting the generality of the AFSA powers, the AFSA may:

  • (a) approve or object to a Person becoming a Controller of an Authorised Person incorporated in the AIFC;
  • (b) approve or object to an increase in the level of control of an existing controller of an Authorised Person incorporated in the AIFC;
  • (c) object to an existing controller of an Authorised Person incorporated in the AIFC where it has reasonable grounds to believe that such a Person is no longer an acceptable controller; and
  • (d) approve a Person as a Controller or approve an increase of control by an existing Controller subject to such conditions as it considers appropriate.

(2) Where the AFSA considers an existing Controller of an Authorised Person incorporated in the AIFC to be an unacceptable Controller it may:

(3) Without limiting the generality of the AFSA powers, the AFSA may, for the purposes of section 50(2)(b):

  • (a) require an Authorised Person incorporated in the AIFC to take such action as specified by the AFSA in relation to an unacceptable Controller; or
  • (b) where an Authorised Person has failed to comply with a requirement referred to in section 50(3)(a) to the satisfaction of the AFSA, either withdraw, or impose conditions, on the Authorised Person’s licence; or
  • (c) require the unacceptable Controller to take such action as specified by the AFSA.

PART 6: CAPITAL MARKETS

CHAPTER 1 – Authorised Market Institutions

51. Requirement to have Business Rules

An Authorised Market Institution must establish rules (“Business Rules”) governing relations between itself and the participants in the market and dealing with such matters as may be prescribed for this purpose in rules by the AFSA.

52. Approval and consultation on Business Rules

(1) An Authorised Market Institution may only bring its Business Rules and any amendment thereto into effect after such rules have been approved by the AFSA.

(2) The AFSA may require an Authorised Market Institution to make its Business Rules and any amendment thereto available for public consultation prior to their becoming effective.

53. Legal effect of Business Rules

The Business Rules (other than Listing Rules) of an Authorised Market Institution have effect as a contract:

54. Enforcement of Business Rules

(1) If a Person who is under an obligation to comply with or enforce any of an Authorised Market Institution’s Business Rules fails to meet that obligation, an application to the AIFC Court may be made by:

  1. (a) the AFSA; or
  2. (b) the Authorised Market Institution; or
  3. (c) the operator of a clearing and settlement facility with which the Authorised Market Institution has clearing and settlement arrangements; or
  4. (d) a Person aggrieved by the failure.

(2) After giving an opportunity to be heard to the applicant and the Person against whom the order is sought, the AIFC Court may make orders giving directions to:

  1. (a) the Person against whom the order is sought; or
  2. (b) if that Person is a Body Corporate, the directors of the Body Corporate; or
  3. (c) if that Person is a Listed Fund, the Fund Manager of the Listed Fund, about compliance with, or enforcement of, the Business Rules.

(3) For the purposes of this section:

  1. (a) if a Body Corporate fails to comply with or enforce provisions of the Business Rules of an Authorised Market Institution, a Person who holds Securities of that Body Corporate that are able to be traded on a market operated by the Authorised Market Institution is taken to be a Person aggrieved by the failure;
  2. (b) if a Fund Manager of a Listed Fund fails to comply with or enforce provisions of the Business Rules of an Authorised Market Institution in respect of that Listed Fund, a person who holds Units in that Listed Fund is taken to be a Person aggrieved by the failure.

(4) There may be other circumstances in which a Person may be aggrieved by a failure for the purposes of this section.

55. Persons eligible for Membership

(1) Subject to such further admission criteria as the AFSA may prescribe by Rules, an Authorised Market Institution may only admit as a Member:

(2) An Authorised Person engaged in the activity of Operating a Private E-currency Business may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and which is either:

  • (a) an Authorised Firm;
  • (b) a Recognised Non-AIFC Member; or
  • (c) a body corporate or an individual (natural person) that carries on the activity solely as principal.

56. AFSA power to require report from an Authorised Market Institution

Without prejudice to its powers under section 96 (Power to gather information), the AFSA may require, at such frequency and in such manner and in such form as it may prescribe in Rules, an Authorised Market Institution to provide the AFSA with a report or reports relating to the conduct of or the performance of the regulatory functions of an Authorised Market Institution, including but not limited to a report or reports addressing:

57. AFSA power to impose requirements on an Authorised Market Institution

Without limiting the powers available to the AFSA under Part 8 (Supervision of Authorised Persons), the AFSA may direct an Authorised Market Institution to do or not do specified things that the AFSA considers are necessary or desirable or to ensure the integrity of the AIFC financial markets, including but not limited to directions:

  1. (a)requiring compliance with any duty, requirement, prohibition, obligation or responsibility applicable to an Authorised Market Institution; or
  2. (b)requiring an Authorised Market Institution to act in a specified manner in relation to a transaction conducted on or through the facilities operated by an Authorised Market Institution, or in relation to a specified class of transactions; or
  3. (c)requiring an Authorised Market Institution to act in a specified manner or to exercise its powers under any rules that the Authorised Market Institution has made; or
  4. (d)excluding the application of any requirements for engaging in the activity of Operating a Private E-currency Business imposed by the Rules; or
  5. (e)imposing on an Authorised Person engaged in the activity of Operating a Private E-currency Business any additional requirements that the AFSA considers appropriate.

58. AFSA power to give directions to an Authorised Market Institution

Without limiting the application of section 95 (Exercise of supervisory powers by the AFSA), the AFSA may direct an Authorised Market Institution to:

  1. (a)close the market or facilities operated by an Authorised Market Institution in a particular manner or for a specified period; or
  2. (b)suspend transactions on the market or through the facilities operated by the Authorised Market Institution; or
  3. (c)suspend transactions in Securities, Units of a Listed Fund or Private E-currencies conducted on the market or through the facilities operated by the Authorised Market Institution; or
  4. (d)prohibit trading in Securities, Units of a Listed Fund or Private E-currencies conducted on the market or through the facilities operated by the Authorised Market Institution; or
  5. (e)defer for a specified period the completion date of transactions conducted on the market or through the facilities operated by the Authorised Market Institution; or
  6. (f)prohibit a specified Person from undertaking any transactions on the facilities operated by the Authorised Market Institution; or
  7. (g)do any act or thing, or not do any act or thing, in order to ensure an orderly market, or reduce risk to the AFSA’s objectives.

59. Liability of Authorised Market Institutions and their Employees

Neither an Authorised Market Institution nor any Employee of an Authorised Market Institution may be held liable for anything done or omitted to be done in the performance or discharge or purported performance or discharge of their respective duties and regulatory functions if the act or omission is shown to have been committed or omitted in good faith.

CHAPTER 2 – Offer of Securities

60. Prohibition – Offer of Securities

A Person must not make an Offer of Securities except as provided in Rules made by the AFSA

61. Definition of an Offer of Securities

An Offer of Securities means a communication to any Person in any form or by any means, presenting information on the terms of the Offer and the Securities offered, so as to enable an investor to decide whether or not to buy or subscribe to those Securities but excluding:

  1. (a) any communication in connection with the trading of Securities admitted to trading on an Authorised Investment Exchange; or
  2. (b) any communication made for the purposes of complying with the on-going reporting requirements of the AFSA or an Authorised Market Institution; or
  3. (c) any other communication prescribed in the Rules by the AFSA.

Guidance: Offers of Units in a Listed Fund

For the avoidance of doubt, this Chapter 2 does not apply to the Offer of Units in a Listed Fund. While a Unit of a Listed Fund is, in general terms, a type of security, it is not a Security for the purposes of the Framework Regulations (as defined in the Glossary (GLO)) or any other AIFC Financial Services Regulations or Rules to which GLO applies. Rules in relation to the Offer of Units in a Listed Fund are set out, inter alia, in the AIFC Collective Investment Scheme Rules. Fund Managers should also refer to the applicable Business Rules.

CHAPTER 3 – Admission to trading

62. Prohibition – Admission to trading

A Person may not have Securities or Units in a Listed Fund admitted to trading on an Authorised Investment Exchange unless:

  1. (a) such Investments have been admitted to the Official List maintained by the Authorised Investment Exchange; and
  2. (b) in relation to Securities, a Prospectus in relation to the relevant Securities containing the information prescribed for this purpose by the AFSA has been approved by the Authorised Investment Exchange; and
  3. (c) in relation to Units in Listed Funds other than Overseas Listed Funds:
  4. (i) the Fund is a Non-Exempt Fund under the AIFC Collective Investment Scheme Rules; and

(ii) there are Offering Materials in relation to the relevant Units and the Authorised Investment Exchange has satisfied itself that such Offering Materials satisfies the requirements in AIFC Collective Investment Scheme Rules.

Guidance: Units in a Listed Fund

For the avoidance of doubt, a Prospectus is not required in relation to Units in a Listed Fund. The requirements in relation to Offering Materials, which apply to Units in a Listed Fund (other than Overseas Listed Funds), are set out in the CIS. The requirements in relation to Offering Materials for Overseas Listed Funds will be regulated according to the Business Rules.

63. Exemptions

The AFSA may, at its discretion and on its own initiative, identify by Rules:

CHAPTER 4 – Listing

64. Maintaining an Official List

(1) Subject to (3), an Official List for an Authorised Investment Exchange may be maintained by either the relevant Authorised Investment Exchange or the AFSA.

(2) An Authorised Investment Exchange must, when maintaining an Official List, comply with the relevant requirements in these Regulations and the Rules made thereunder.

(3) The AFSA may, at any time, transfer the responsibility for maintaining an Official List hitherto maintained by an Authorised Investment Exchange to the AFSA where it considers it necessary or desirable to do so.

(4) An Authorised Investment Exchange must not permit trading of Securities or Units in a Listed Fund on its facilities unless such Investments are admitted to, and not suspended from, an Official List maintained by the Authorised Investment Exchange or the AFSA except where otherwise prescribed in the Rules.

65. Listing Rules Requirements

(1) An Authorised Investment Exchange must, when maintaining an Official List, establish and maintain Listing Rules as part of its Business Rules.

(2) The Listing Rules of an Authorised Investment Exchange must contain such provisions as are prescribed in the Rules.

(3) Where the AFSA maintains an Official List, it will, by Rules, prescribe the relevant Listing Rules.

66. Admission of Securities or Units in a Listed Fund to an Official List

(1) An Authorised Investment Exchange or the AFSA may grant admission of Securities or Units in a Listed Fund to an Official List maintained by it only where it is satisfied that such admission is in accordance with the relevant Listing Rules.

(2) Where a Person applies to have Securities or Units in a Listed Fund admitted to an Official List maintained by an Authorised Investment Exchange or the AFSA, the Authorised Investment Exchange or the AFSA, as is relevant, must notify the applicant in writing of its decision in relation to the application for admission of such Investments to the Official List.

(3) Where a Person has any Securities or Units in Listed Funds included on an Official List, such Investments must be admitted to trading on an Authorised Investment Exchange as soon as possible.

(4) Where any Securities or Units in Listed Funds included in an Official List are not admitted to trading in accordance with the requirement in section 66(3), such Investments must be removed from the Official List.

(5) The AFSA may, by Rules, prescribe any circumstances in which Securities or Units in a Listed Fund admitted to an Official List need not comply with the requirement in section 66(3).

67. AFSA objection to admission of Securities or Units in a Listed Fund to an Official List

(1) Where an Authorised Investment Exchange maintains an Official List, the AFSA may:

  1. (a) object to the admission of Securities or Units in a Listed Fund to such an Official List; or
  2. (b) impose conditions or restrictions in respect of the admission of Securities or Units in a Listed Fund to such an Official List, or vary or withdraw such conditions or restrictions, in the circumstances specified in section 67(3).

(2) Where the AFSA maintains an Official List, the AFSA may:

  1. (a) refuse an application for admission of Securities or Units in a Listed Fund to such an Official List; or
  2. (b) impose conditions or restrictions, in respect of the admission of Securities or Units in a Listed Fund to such an Official List, or vary or withdraw such conditions or restrictions, in the circumstances specified in section 67(3).

(3) The AFSA may exercise its powers under section 67(1) or 67(2) where:

  1. (a) the AFSA reasonably considers that:
  2. (i) granting the Securities or Units in a Listed Fund admission to an Official List would be detrimental to the interests of Persons dealing in the relevant Securities or Units in a Listed Fund using the facilities of an Authorised Investment Exchange or otherwise; or

(ii) any requirements in the Listing Rules as are applicable have not been or will not be complied with; or

(iii) any requirement imposed by the AFSA has not been or will not be complied with; or

(iv) the Issuer of the Securities or Units in a Listed Fund has failed or will fail to comply with any obligations applying to it including those relating to having its Securities or Units in a Listed Fund admitted to an Official List or listed or traded in another jurisdiction; or

  1. (b) the AFSA otherwise considers it necessary or desirable to do so.

(4) Where the AFSA objects to the admission of Securities or Units in a Listed Fund to an Official List pursuant to section 67(3)(a), such Investments must not be admitted by an Authorised Investment Exchange to its Official List.

(5) Where the AFSA imposes conditions or restrictions on the admission of Securities or Units in a Listed Fund to an Official List pursuant to section 67(3)(b), such Investments must not be admitted by an Authorised Investment Exchange to its Official List unless there is compliance with those conditions and restrictions.

68. Suspending and delisting Securities or Units in a Listed Fund from an Official List

(1) The AFSA or an Authorised Investment Exchange may, in accordance with its Listing Rules, suspend or delist Securities or Units in a Listed Fund from its Official List with immediate effect or from such date and time as may be specified where it is satisfied that there are circumstances that warrant such action or it is in the interests of the AIFC.

(2) The AFSA may direct an Authorised Investment Exchange to suspend or delist Securities or Units in a Listed Fund from an Official List with immediate effect or from such date and time as may be specified if it is satisfied there are circumstances that warrant such action or it is in the interests of the AIFC.

(3) The AFSA may withdraw a direction made under section 68(2) at any time.

(4) Securities or Units in a Listed Fund that are suspended from an Official List remain admitted to an Official List for the purposes of this Part.

(5) The AFSA may, by Rules, prescribe any additional requirements or procedures relating to the delisting or suspension of Securities or Units in a Listed Fund from, or restoration of Securities or Units in a Listed Fund to, an Official List.

CHAPTER 5 – Prospectus Requirement

69. Prospectus content

A Prospectus must contain:

  • (a) information which is material to an investor for making an informed assessment of:
  • (i) the assets and liabilities, profits and losses, financial position, and prospects of the Issuer and of any guarantor;

(ii) the rights attaching to the Securities; and

(iii) the reasons for the issuance and its impact on the Issuer; and

  • (b) such further information and documents as may be specified by the AFSA pursuant to section 70.

70. AFSA power to prescribe Prospectus content

(1) The AFSA may, by Rules, prescribe the information that must be included in a Prospectus.

(2) The AFSA may, in prescribing the information to be included in a Prospectus, require specific content for a Prospectus of a particular type of Security.

(3) The Issuer or other Person responsible for the issue of a Prospectus must include in the Prospectus all the information required under subsections (1) and (2) that would be reasonable for him to have knowledge of, or acquire through reasonable enquiries.

(4) The AFSA may by Rules prescribe:

  • (a) the circumstances in which a Prospectus may incorporate any material by reference; and
  • (b) the Persons liable for the content of a Prospectus.

71. AFSA power to authorise omission of information

The AFSA may authorise the omission from the Prospectus, or constituent parts thereof, of certain information to be included therein, where it considers that any of the following conditions is met:

  • (a) disclosure of such information would be contrary to the public interest;
  • (b) disclosure of such information would be seriously detrimental to the Issuer or to the guarantor, if any, provided that the omission of such information would not be likely to mislead the public with regard to facts and circumstances essential for an informed assessment of the Issuer or guarantor, if any, and of the rights attached to the securities to which the prospectus relates;
  • (c) such information is of minor importance in relation to admission to trading on an Authorised Investment Exchange and would not influence the assessment of the financial position and prospects of the Issuer or guarantor, if any.

72. AFSA power to publish or require publication of information

Where a Person issuing a Prospectus fails to publish any information which that Person is required to publish by or under these Regulations, the AFSA may direct the Issuer to publish such information or in a time frame prescribed by the AFSA or publish such information itself.

73. Obligation to issue a Supplementary Prospectus

If at any time after the issue of a Prospectus there is a significant change in, or a material mistake or inaccuracy affecting any matter contained in the Prospectus or a significant new matter arises, the Issuer or the Person responsible for the issue of the Prospectus must issue a Supplementary Prospectus which provides details of the change, mistake, inaccuracy or new matter.

74. Right to withdraw

(1) Where the obligation to issue a Supplementary Prospectus arises, investors who have already agreed to purchase or subscribe for the Securities before the Supplementary Prospectus is published have the right to withdraw their acceptances. Subject to (2), such right is exercisable within five working days after the issue of the Supplementary Prospectus or such longer period as either the Issuer may decide or the Authorised Investment Exchange or the AFSA may direct.

(2) Investors may exercise the right to withdraw their acceptances if the significant new factor, material mistake or material inaccuracy in (1) arose or was noted before the closing of the offer period or the delivery of the securities, whichever occurs first.

CHAPTER 6 – Misleading and deceptive statements or omissions

75. Prohibition against misleading and deceptive statements or omissions

(1) A Person must not issue a Prospectus if there is:

  • (a) a misleading or deceptive statement in the Prospectus; or
  • (b) any material omission from the Prospectus; or
  • (c) a significant new matter or a significant change in circumstances is known to the Issuer before the Prospectus is issued.

(2) A Person does not contravene the prohibition in section 75(1) if that Person can prove the circumstances or matters specified in sections 76 or 77.

76. Defence of reasonable inquiries and reasonable belief

A Person does not commit a contravention of section 75(1), if that Person proves that he:

  • (a) made all inquiries that were reasonable in the circumstances; and
  • (b) after making such inquiries, believed on reasonable grounds that the Prospectus was not misleading or deceptive.

77. Defence of reasonable reliance on information given by another Person

(1) A Person does not commit a contravention of section 75(1) if the Person proves that he placed reasonable reliance on information given to him by:

  • (a) if the Person is not a natural Person, someone other than a member of the governing body, employee or agent of the Person; or
  • (b) if the Person is a natural Person, someone other than an employee or agent of the natural Person.

(2) For the purposes of this Part, a Person is not the agent of a Person merely because he performs a particular professional or advisory function for the Person.

78. Statements about future matters

(1) A Person is taken to make a misleading or deceptive statement about a future matter whether by himself or through his agent, if he, at the time of making the statement or causing the statement to be made, did not have reasonable grounds for making the statement or causing the statement to be made.

(2) The onus for proving that reasonable grounds existed for the purposes of section 78(1) is on the Person who made the statement or caused the statement to be made.

(3) A Person referred to in section 78(2) may rely on the circumstances referred to in section 76 or 77 in order to prove that he had reasonable grounds for making the statement relating to the future matter.

79. Civil compensation

(1) Any Person prescribed in Rules made by the AFSA as being liable for a Prospectus is liable to pay compensation to another Person who has acquired Securities to which the Prospectus relates and who has suffered loss or damage arising from any untrue or misleading statement in the Prospectus or the omission from it of any material matter required to have been included in the Prospectus under these Regulations or Rules made thereunder.

(2) The AFSA may make Rules prescribing circumstances in which a Person who would otherwise be liable under section 79(1) will not be so liable.

(3) Nothing in this section affects the powers, rights or liabilities that any Person may have apart from this section including the power to institute proceedings under section 129 (Action for Damages).

80. Stop orders

If the AFSA is satisfied that an Offer of Securities to the Public would contravene or has contravened these Regulations or the Rules made for the purposes of these Regulations or it is necessary or desirable in the interest of the AIFC, the AFSA may issue a stop order directing that no offer, issue, sale or transfer of the Securities be made for such a period of time as it thinks appropriate.

CHAPTER 7 – Obligations of Reporting Entities

81. Definition of Reporting Entity

A Person is a Reporting Entity if the Person:

(1) has Securities or Units admitted to an Official List;

(2) is the Fund Manager of a Listed Fund; or

(3) is declared by the AFSA to be a Reporting Entity.

82. Governance

(1) A Reporting Entity must have a corporate governance framework which is adequate to promote prudent and sound management of the Reporting Entity in the long-term interest of the Reporting Entity and its shareholders.

(2) For the purposes of the requirement in section 82(1), the AFSA may, by Rules, prescribe:

  1. (a) corporate governance principles and standards that apply to a Reporting Entity, including any requirements applicable to its board of directors and individual members, controllers, employees or any other Person as appropriate;
  2. (b) requirements relating to fair treatment of shareholders; and
  3. (c) provisions to address conflicts of interests.

(3) The requirements in section 82 do not apply to Listed Funds or Fund Managers of Listed Funds. The AFSA may, by Rules, prescribe any circumstances in which such requirements do not apply to certain other Reporting Entities.

83. Market disclosure

(1) A Reporting Entity must, subject to section 83(5), make disclosures to the market of information specified by the AFSA in the circumstances prescribed by the Rules.

(2) Without limiting the generality of section 83(1), the AFSA may, by Rules, prescribe the type of information and the circumstances in which such information must be disclosed including:

(3) Where information is required to be disclosed pursuant to section 83(1), the Reporting Entity must:

  • (a) issue a release of information to the market disclosing the information; and
  • (b) file a report with the AFSA, in the manner prescribed by the Rules.

(4) Where a Reporting Entity has failed to publish information required to be published pursuant to section 83(1) and the Rules made for the purposes of this section, the AFSA may publish such information in a manner considered appropriate by the AFSA.

(5) The AFSA may, by Rules, prescribe the circumstances in which a Reporting Entity need not comply with the disclosure requirement in section 83(1).

84. Financial reports

The AFSA may prescribe by Rules:

85. Sponsors and compliance advisers

(1) The AFSA may, where it considers it appropriate to do so, require that a Reporting Entity or a Person that intends to have Securities or Units in a Listed Fund admitted to an Official List or admitted to trading on an Authorised Investment Exchange appoints an Authorised Firm or Accredited Firm to act as a sponsor or compliance adviser.

(2) The AFSA may, by Rules, prescribe:

  1. (a) the circumstances in which a Reporting Entity is required to appoint a sponsor or compliance adviser;
  2. (b) the requirements applicable to the Reporting Entity and to an Authorised Firm or Accredited Firm appointed as a sponsor or compliance adviser; and
  3. (c) any other matter necessary to give effect to such appointments.

CHAPTER 8 – Prevention of Market Abuse

86. Market Abuse

A Person must not:

  • (a) acquire or dispose of, or attempt to acquire or dispose of, for his own account or for the account of a third party, either directly or indirectly, an Investment, on the basis of Inside Information relating to the Investment; or
  • (b) disclose Inside Information to another Person otherwise than in the proper course of the exercise of his employment, profession or duties; or
  • (c) recommend or induce any Person, on the basis of Inside Information, to acquire or dispose of an Investment to which that information relates; or
  • (d) effect, or participate in effecting, transactions or orders to trade (otherwise than for legitimate reasons in conformity with accepted market practice on the relevant market) which:
  • (i) give, or are likely to give a false or misleading impression as to the supply of, or demand for, or as to the price or value of, one or more Investments; or

(ii) secure the price of one or more Investments at an abnormal or artificial level;

  • (e) effect, or participate in effecting, transactions or orders to trade which employ fictitious devices or any other form of deception or contrivance; or
  • (f) disseminate, or cause the dissemination of, information by any means which gives, or is likely to give, a false or misleading impression as to an Investment by a Person who knew or could reasonably be expected to have known that the information was false or misleading.

87. Rules relating to Market Abuse

The AFSA may issue Rules in respect of the scope and effect of section 86, including:

  • (a) the meaning of Inside Information;
  • (b) particular types of conduct that are to be regarded as contravening or not contravening section 86;
  • (c) particular types of conduct that are not to be regarded as contravening section 86; and
  • (d) reasons which may or may not be regarded as legitimate, and practices that may or may not be regarded as accepted market practice for the purposes of section 86(d), and such Rules will be binding on all Persons to whom section 86 relates.

CHAPTER 9 – Takeovers

88. Takeover Rules

(1) The AFSA may prescribe by Rules (“the Takeover Rules”):

  1. (a) the procedures for and obligations of Persons in respect of a Takeover of an Issuer whose Securities are admitted to an Official List with a view to ensuring:
  2. (i) that where a Takeover takes place, it does so in an efficient, competitive, fair and informed market;

(ii) that shareholders are treated fairly and shareholders of the same class are treated the same; and

(iii) that a Takeover is conducted in an orderly framework;

  1. (b) principles to be observed by a Person involved in a Takeover (“the Takeover Principles”), relating to, but not limited to:
  2. (i) treatment of shareholders and of classes of shareholders in a Takeover;

(ii) adequacy of time and of information provided to shareholders to enable proper consideration of a Takeover bid;

(iii) avoidance of the creation of false markets; and

(iv) avoidance of oppression of minorities.

(2) A Person who is involved in a Takeover of an Issuer whose Securities are admitted to an Official List must comply with and observe the spirit and the wording of the Takeover Principles.

(3) The requirements of section 88 do not apply to Listed Funds.

CHAPTER 10 – Recognition

89. Recognition of Non-AIFC Market Institutions

(1) A Person which operates an investment exchange, clearing house from a place of business in a jurisdiction other than the AIFC may apply to the AFSA for an order declaring it to be a Recognised Non-AIFC Investment Exchange or Recognised Non-AIFC Clearing House as appropriate (together “Recognised Non-AIFC Market Institutions”).

(2) An application under subsection (1) must be made in such manner as the AFSA may by Rules require.

(3) The AFSA may make an order referred to in subsection (1) if, having regard to the law and practice of the country or territory in which the applicant's head office is situated and to the rules and practice of the applicant, it appears to the AFSA that the following requirements are met:

  • (a) investors are afforded protection equivalent to that which they would be afforded if the body concerned were required to comply with the relevant requirements for the licensing of an Authorised Market Institution in 0 of Part 3;
  • (b) there are adequate procedures for dealing with a Person who is unable, or likely to become unable, to meet his obligations in respect of one or more Market Contracts connected with the investment exchange or clearing house;
  • (c) the applicant is able to co‐operate with the AFSA by the sharing of information and in other ways;
  • (d) adequate arrangements exist for co‐operation between the AFSA and those responsible for the supervision of the applicant in the country or territory in which the applicant or the applicant's head office is situated.

90. Exemption for Recognised Non-AIFC Market Institutions from General Prohibition

(1) An Recognised Non-AIFC Investment Exchange will not be deemed to be carrying on any Market Activity or Regulated Activity in the AIFC where such activity:

  • (a) is carried on as a part of the Recognised Non-AIFC Investment Exchange's business as an investment exchange; or
  • (b) is carried on for the purposes of, or in connection with, the provision by the exchange of services designed to facilitate the provision of clearing services by another Person.

(2) An Recognised Non-AIFC Clearing House will not be deemed to be carrying on any Market Activity or Regulated Activity in the AIFC where such activity:

  • (a) is carried on for the purposes of, or in connection with, the provision of clearing services by the Recognised Non-AIFC Clearing House; or
  • (b) is carried on for the purposes of, or in connection with, the provision by the Recognised Non-AIFC Clearing House of services designed to facilitate the provision of clearing services by another Person.

91. Recognised Non-AIFC Member

(1) A Person located in a jurisdiction other than the AIFC may apply to the AFSA for an order declaring it to be a Recognised Non-AIFC Member.

(2) An application under subsection (1) must be made in such manner as the AFSA may by Rules require.

(3) The AFSA may make an order referred to in subsection (1) if, the applicant satisfies the AFSA that the following requirements are met:

  • (a) the applicant is licensed or otherwise authorised to trade on or use the facilities of an exchange or clearing house in a jurisdiction acceptable to the AFSA;
  • (b) the applicant is regulated in respect of trading in such jurisdiction by a regulator to a standard satisfactory to the AFSA;
  • (c) the law and practice under which the applicant is licensed or otherwise authorised is broadly equivalent to the AFSA’s regulatory regime as it applies to a Member;
  • (d) when using the facilities of an Authorised Investment Exchange or Authorised Clearing House, the applicant does not exceed the scope of the activities it is authorised to carry on by those responsible for the supervision of the applicant in the country or territory in which the applicant's head office is situated;
  • (e) the applicant has agreed to cooperate with the AFSA and subject itself to such parts of the legal and regulatory framework administered by the AFSA as the AFSA may require.

(4) The AFSA will only make an order referred to in subsection (1) if adequate arrangements exist, or will exist, for co-operation between the AFSA and those responsible for the supervision of the applicant in the country or territory in which the applicant or the applicant's head office is situated.

(5) The AFSA may prescribe by Rules ongoing criteria which a Person must satisfy in order to continue to be a Recognised Non-AIFC Member.

(6) If it is necessary or desirable in pursuit of its Regulatory Objectives, the AFSA may revoke or vary an order declaring a Person to be a Recognised Non-AIFC Member in the circumstances and manner prescribed in the Rules made for the purposes of this section.

PART 7: COLLECTIVE INVESTMENT SCHEMES

92. Definition of Collective Investment Scheme

(1) "Collective Investment Scheme" means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable Persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.

(2) The arrangements must be such that the Persons who are to participate do not have day‐to‐day control over the management of the property, whether or not they have the right to be consulted or to give directions.

(3) The arrangements must also have either or both of the following characteristics:

  • (a) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled;
  • (b) the property is managed as a whole by or on behalf of the operator of the scheme.

(4) If arrangements provide for such pooling as is mentioned in subsection (3)(a) in relation to separate parts of the property, the arrangements are not to be regarded as constituting a single Collective Investment Scheme unless the participants are entitled to exchange rights in one part for rights in another.

(5) The AFSA may by Rules provide that arrangements do not amount to a Collective Investment Scheme:

  • (a) in specified circumstances; or
  • (b) if the arrangements fall within a specified category of arrangement.

93. Registration of Collective Investment Schemes

(1) The AFSA may make Rules relating to the registration by it of Collective Investment Schemes.

(2) Rules made by the AFSA under section 93(1) may provide that all or certain categories of Collective Investment Schemes may not be established or promoted by Authorised Persons unless they have been registered.

(3) Rules made by the AFSA under section 93(1) may also include provisions as to:

  • (a) the constitution, management and operation of such Collective Investment Schemes;
  • (b) the investment and borrowing powers of such Collective Investment Schemes;
  • (c) the procedure for application to the AFSA for registration of Collective Investment Schemes;
  • (d) operating duties and responsibilities in respect of Collective Investment Schemes;
  • (e) the registration of offering material or particulars and reporting requirements for Collective Investment Schemes; and
  • (f) suspension of dealings in and termination of Collective Investment Schemes.

94. Power to make directions in respect of Collective Investment Schemes

(1) The AFSA may give a direction under this section if it appears to the AFSA that:

(2) A direction under this section may:

(ii) to wind up the Collective Investment Scheme;

PART 8: SUPERVISION OF AUTHORISED PERSONS

CHAPTER 1 – Supervisory powers of the AFSA

95. Exercise of supervisory powers by the AFSA

(1) The AFSA may exercise any of the powers set out in this Chapter at any time where it considers it necessary or desirable to do so in accordance with its Regulatory Objectives.

(2) The AFSA may set out in Rules or guidance circumstances in which it is likely to exercise such powers.

(3) Where the AIFC has exercised one or more of the powers set out in this Chapter it may, where it considers it necessary or desirable to do so in accordance with its Regulatory Objectives:

  • (a) withdraw a prohibition, restriction or requirement; or
  • (b) substitute or vary an existing prohibition, restriction or requirement.

(4) A requirement imposed on a Person as a result of the exercise by the AFSA of powers under this Part may be enforceable by injunction on the application of the AFSA to the AIFC Court.

(5) Any prohibition or requirement including any variation or substitution of such prohibition or requirement, does not operate so as to render an agreement unenforceable by a party to the agreement if he proves that in entering into the agreement he acted in good faith and was unaware of any notice given, served or published in relation to such imposition, withdrawal, substitution or variation.

96. Power to gather information

(1) The AFSA may, by notice in writing, require an Authorised Person, Approved Individual, Designated Individual or other Employee of an Authorised Person to:

  • (a) give, or procure the giving of, such specified information; or
  • (b) produce, or procure the production of, such specified documents; to the AFSA as the AFSA considers necessary or desirable to meet the objectives of the AFSA.

(2) The AFSA may require an Authorised Person to allow the AFSA to enter its premises during normal business hours or at any other time as may be agreed for the purpose of inspecting and copying information or documents stored in any form on such premises, as it considers necessary or desirable to meet the Regulatory Objectives of the AFSA.

(3) The AFSA may exercise its powers under this section 96 in respect of any information, documents or premises wherever they may be located in the Republic of Kazakhstan.

(4) Information given or a document produced as a result of the exercise by the AFSA of powers under this section is admissible in evidence in any proceedings, provided that any such information or document also complies with any requirements relating to the admissibility of evidence in such proceedings.

97. Power to require the production of a report

(1) The AFSA may, by notice in writing, require an Authorised Person to provide the AFSA with a report on any matter as the AFSA considers necessary or desirable to meet the objectives of the AFSA.

(2) The Person appointed to make a report required by section 97(1) must be a Person nominated or approved by the AFSA.

(3) Where a requirement has been made of an Authorised Person under this section, the Authorised Person must take all reasonable steps to ensure that:

  • (a) any Person who is providing or has provided services to the Authorised Person must provide all such assistance as the appointed Person may reasonably require; and
  • (b) the appointed Person co-operates with the AFSA.

(4) The obligation in section 97(1) is enforceable on application by the AFSA to the AIFC Court.

(5) The costs of providing a report under section 97(1) will be borne by the Authorised Person to whom a notice has been given under section 97(1).

(6) Subject to section 97(7), information given or a document produced as a result of the exercise by the AFSA of powers under this section is admissible in evidence in any proceedings, provided that any such information or document also complies with any requirements relating to the admissibility of evidence in such proceedings.

(7) The AFSA may not disclose a statement made by a Person in a report made pursuant to a requirement made of the Person under section 97(1) to any law enforcement agency for the purpose of criminal proceedings against the Person unless:

  • (a) the Person consents to the disclosure; or
  • (b) the AFSA is required by law or court order to disclose the statement.

98. Power to restrict, withdraw or suspend a Licence

The AFSA may:

  • (a) impose or vary such conditions, restrictions and requirements on a Licence as the AFSA considers appropriate; or
  • (b) withdraw an Authorised Person’s Licence or vary its Licence to remove one or more Regulated Activities or Market Activities; or
  • (c) suspend an Authorised Person’s Licence in relation to one or more Regulated Activities or Market Activities.

99. Power to impose a prohibition

The AFSA may prohibit an Authorised Person from:

  • (a) entering into certain specified transactions or types of transactions; or
  • (b) soliciting business from certain specified Persons or types of Persons; or
  • (c) carrying on business in a specified manner or other than in a specified manner; or
  • (d) using a particular name or description in respect of the Authorised Person; or
  • (e) dealing with any relevant property in a specified manner or other than in a specified manner; or
  • (f) assisting, counselling or procuring another Person to deal with any relevant property in a specified manner or other than in a specified manner.

100. Power to impose a requirement

(1) The AFSA may require an Authorised Person to:

  • (a) take or refrain from taking such action as the AFSA considers appropriate;
  • (b) carry on business in, and only in, a specified manner;
  • (c) deal with any relevant property in a specified manner;
  • (d) deal with any relevant property such that:
  • (i) the property remains of a value and in a condition that appears to the AFSA to be desirable with a view to ensuring that the Person will be able to meet its liabilities in relation to the business which constitutes a Regulated Activity for which it holds a Licence; and

(ii) the Person is able at any time to transfer or dispose or otherwise deal with the property when instructed to do so by the AFSA.

(2) For the purposes of this section:

  • (a) “dealing” in relation to property includes the maintaining, holding, disposing and transferring of property; and
  • (b) “relevant property”, in relation to an Authorised Person, means:
  • (i) any property held by the Person on behalf of any of the clients of the Person, or held by any other Person on behalf of or to the order of the Person; or

(ii) any other property which the AFSA reasonably believes to be owned or controlled by the Person.

101. Power to enter into enforceable agreement

(1) The AFSA may enter into a written agreement with any Person.

(2) An agreement under (1) may include an agreement to:

  • (a) pay any sum to any Person (including the AFSA); or
  • (b) take remedial action; or
  • (c) do any other thing.

(3) The terms of such an agreement may be varied with the consent of the AFSA.

(4) If the AFSA considers that the Person who entered into the agreement has been or is in breach of any of its terms, it may apply to the AIFC Court for:

  • (a) an order directing the Person to comply with the terms of the agreement; or
  • (b) an order directing the Person to pay to any Person or to the AFSA an amount up to the amount of any financial benefit that the Person has obtained directly or indirectly and that is reasonably attributable to the breach; or
  • (c) any order that the AIFC Court considers appropriate directing the Person to compensate any other Person who has suffered loss or damage as a result of the breach; or
  • (d) any other order that the AIFC Court considers appropriate.

CHAPTER 2 – Obligations of Authorised Persons

102. Obligation of disclosure to the AFSA

(1) Subject to (2), an Authorised Person must disclose to the AFSA anything which reasonably tends to show:

  • (a) a breach, or likely breach of a provision of legislation administered by the AFSA; or
  • (b) a failure, or likely failure, to comply with any obligation to which a Person is subject under such legislation; or
  • (c) any other matter as the AFSA may prescribe in Rules; which may be attributable to the conduct of the Authorised Person or its Employees.

(2) Section 102(1) does not apply to the extent that compliance with such requirement would disclose a Privileged Communication.

(3) An Authorised Person must establish and implement appropriate systems and internal procedures to enable its compliance with section 102(1).

(4) Any provision in an agreement between an Authorised Person and a director, officer, employee, agent or auditor thereof is void in so far as it purports to hinder compliance with an obligation under section 102(1).

(5) No Person may be subjected to detriment or loss or damage merely by reason of undertaking any act to cause or assist an Authorised Person to comply with an obligation under section 102(1).

(6) The AIFC Court may, on application of an aggrieved Person, make any order for relief where a Person has been subjected to any such detriment or loss or damage as referred to in section 102(5).

103. Obligation to comply with an order or requirement of the AFSA

Where the AFSA makes an order, issues a direction or prohibition, or makes any requirement in relation to an Authorised Person pursuant to a provision of this Law or Rules or legislation administered by the AFSA, such Authorised Person must, unless he has a reasonable excuse, comply with such order, direction, prohibition or requirement.

104. Provision of information to the AFSA

An Authorised Person must not:

  • (a) provide information which is false, misleading or deceptive to the AFSA; or
  • (b) conceal information where the concealment of such information is likely to mislead or deceive the AFSA.

105. Obstruction of the AFSA

An Authorised Person must not engage in conduct that is intended to obstruct the AFSA in the exercise of any powers under this Part or Part 9 (Enforcement), including without limitation the:

  • (a) destruction of documents;
  • (b) failure to give or produce information or documents specified by the AFSA;
  • (c) failure to attend before the AFSA at a specified time and place to answer questions;
  • (d) giving of information that is false or misleading; and
  • (e) failure to give any assistance in relation to an investigation which the Person is able to give.

106. No liability for provision of information or documents to the AFSA

An Authorised Person, an Approved Individual, a Designated Individual or any other Employee of an Authorised Person is neither liable to a proceeding, nor subject to a liability, nor in breach of any duty, merely by reason of:

  • (a) complying, or proposing to comply, with a requirement made, or purporting to have been made, under any provision of this Part for inspection of, copying of, giving of or production of, information or documents;
  • (b) the giving of information or production of a document by the Person to the AFSA in good faith and in reasonable belief that the information or document is relevant to any functions of the AFSA whether such information or document is given or produced pursuant to a requirement at law or otherwise.

107. Self-incrimination

Subject to section 108(1), it is not a reasonable excuse for a Person to refuse or fail to:

  • (a) permit inspection and copying of any information or document; or
  • (b) give or produce, or procure the giving or production of, any information or document; or
  • (c) answer questions; pursuant to any requirement under either this Part 8 (Supervision of Authorised Persons) or 0 (Enforcement) on the grounds that any such information or document or answer, as the case may be:
  • (d) might tend to incriminate the Person or make the Person liable to a penalty; or
  • (e) is, or contains, or might reveal a Privileged Communication; or
  • (f) is, or contains, or might reveal a communication made in confidence.

108. Privilege

(1) Where the AFSA requires a lawyer to give information or to produce a document or to answer a question, and the giving of the information or the production of the document or the answer to the question would involve disclosing a Privileged Communication made by, on behalf of, or to, the lawyer in his capacity as a lawyer, the lawyer is entitled to refuse to comply with the requirement unless:

  • (a) where the Person to whom, or by, or on behalf of whom, the communication was made is a body corporate that is under official management or is being wound up, the official manager or liquidator of the body as the case may be consents to the lawyer complying with the requirement; or
  • (b) otherwise, the Person to whom, or by, or on behalf of whom, the communication was made consents to the lawyer complying with the requirement.

(2) Where a lawyer so refuses to comply with a requirement, he must, as soon as practicable, give to the AFSA a written notice setting out:

  • (a) where the lawyer knows the name and address of the Person to whom, or by whom, or on behalf of whom, the communication was made, then that name and address; and
  • (b) where the requirement to give information or produce a document relates to a communication which was made in writing, then sufficient particulars to identify the document containing the communication.

(3) “Privileged Communication” means a communication attracting a privilege arising from the provision of professional legal advice and any other privilege applicable at law, but does not include a general duty of confidentiality.

CHAPTER 3 – Accounting / Auditing

109. Requirement to appoint an Auditor

An Authorised Person must appoint an Auditor.

110. Auditor rules

The AFSA may make such Rules regarding:

  • (a) the appointment, term of office, registration or removal of auditors;
  • (b) the qualification or approval of auditors;
  • (c) the duties, functions and powers of auditors;
  • (d) the scope, content and timing of any reports, reviews or audits to be undertaken by auditors;
  • (e) the remuneration of auditors;
  • (f) the notification or reporting obligations of auditors (whether to the relevant Authorised Person, the AFSA or otherwise); and
  • (g) such other related or ancillary matters the AFSA thinks fit.

CHAPTER 4 – Financial Service Transfers

111. Relevant Transfer

The AFSA may provide by Rules that the transfer of the business of carrying on specified Regulated Activities by an Authorised Firm (a “Relevant Transfer”) either:

  • (a) may only be made by an order of the AIFC Court under section 112; or
  • (b) may be made by such an order if the transferor elects.

112. Application to the AIFC Court

(1) An application to the AIFC Court for an order sanctioning a Relevant Transfer may be made by either the transferor or the transferee under the Relevant Transfer or both.

(2) Where an application is made to the AIFC Court for an order sanctioning a Relevant Transfer, the AFSA may give directions in respect of:

  • (a) the preparation of a report in relation to the transfer;
  • (b) the notification of specified Persons of the transfer; and
  • (c) the publication of notices in relation to the transfer.

(3) On an application under (1), the following are entitled to be heard:

  • (a) any Person who alleges that he would be adversely affected by the carrying out of the transfer; and
  • (b) the AFSA.

113. Powers of the Court in relation to a transfer scheme

(1) The AIFC Court may make an order under this section sanctioning a Relevant Transfer if:

  • (a) any directions made by the ASFA pursuant to section 112(2) have been complied with;
  • (b) on or before the Relevant Transfer becoming effective, the transferee:
  • (i) will have the authorisation required (if any) to enable it to carry on the business which is to be transferred to it in the place to which it is to be transferred; and

(ii) will possess adequate financial resources to carry on the business concerned in accordance with the legislation applicable in the place to which it is to be transferred; and

  • (c) the AIFC Court considers, in all the circumstances of the case, it is appropriate to sanction the Relevant Transfer.

(2) If the AIFC Court makes an order sanctioning a Relevant Transfer, it may by that or any subsequent order make such provision (if any) as it thinks fit:

  • (a) for the transfer to the transferee of the whole or any part of the undertaking concerned and of any property or liabilities of the Authorised Firm concerned; or
  • (b) for the continuation by (or against) the transferee of any pending legal proceedings by (or against) the firm concerned; or
  • (c) with respect to such incidental, consequential and supplementary matters as are, in its opinion, necessary to secure that the Relevant Transfer is fully and effectively carried out; or
  • (d) for dealing with the interests of any Person who, within such time and in such manner as the AIFC Court may direct, objects to the Relevant Transfer; or
  • (e) for the dissolution, without winding up, of any firm concerned.

(3) An order may:

  • (a) transfer property or liabilities whether or not the Authorised Firm concerned otherwise has the capacity to effect the transfer in question; or
  • (b) make provision in relation to property which was held by the Authorised Firm concerned as trustee; or
  • (c) make provision as to future or contingent rights or liabilities of the Authorised Firm concerned, including provision as to the construction of instruments under which such rights or liabilities may arise.

(4) If an order makes provision for the transfer of property or liabilities:

  • (a) the property is transferred to and vests in; and
  • (b) the liabilities are transferred to and become liabilities of; the transferee as a result of the order.

(5) If any property or liability included in the order is governed by the law of any jurisdiction other than the AIFC, the order may require the Authorised Firm concerned, if the transferee so requires, to take all necessary steps for securing that the transfer to the transferee of the property or liability is fully effective under the law of that country or territory.

(6) Property transferred as the result of an order under this section may, if the AIFC Court so directs, vest in the transferee free from any charge which is (as a result of the scheme) to cease to have effect.

(7) An order under this section which provides for the transfer of property is to be treated as an instrument of transfer for the purposes of any Regulation or Rule requiring the delivery of an instrument of transfer to register property.

PART 9: ENFORCEMENT

CHAPTER 1 – Power to conduct investigations

114. Power of the AFSA to conduct an investigation

(1) The AFSA may conduct such investigation as it considers appropriate and expedient:

  • (a) where it has reason to suspect that a contravention of any legislation administered by the AFSA is being or may have been committed; or
  • (b) further to a request made by a Financial Services Regulator.

(2) A Person is entitled to legal representation during the course of an investigation.

115. Costs of an Investigation

(1) The AFSA will pay the costs and expenses of an investigation save that, where, as a result of an investigation under section 114, the Person under investigation is found to have contravened any legislation administered by the AFSA, the AFSA or, where appropriate, the AIFC Court, may order that the Person must pay the AFSA in respect of the whole or any part of the costs and expenses of the investigation.

(2) The AFSA may apply to the AIFC Court for an order under section 115(1) only where there is a proceeding before the AIFC Court relating to the alleged contravention by the Person.

116. Powers to Obtain Information and Documents for Investigation

(1) Where the AFSA considers that a Person is or may be able to give information or produce a document which is or may be relevant to an investigation, it may:

  • (a) enter the business premises of such Person during normal business hours for the purpose of inspecting and copying information or documents stored in any form on such premises;
  • (b) require such Person, by written notice, to
  • (i) give, or procure the giving of, specified information in such form as it may reasonably require; or

(ii) produce, or procure the production of, specified documents; or

(iii) to attend before an officer, employee or agent of the AFSA at a specified time and place to answer questions in private (compulsory interview); or

(iv) give it any assistance in relation to the investigation which the Person is able to give.

(2) Where the AFSA exercises its power under section 116(1)(a) to enter business premises, it may:

  • (a) require any appropriate Person to make available any relevant information stored at those premises for inspection or copying;
  • (b) require any appropriate Person to convert any relevant information into a form capable of being copied; and
  • (c) use the facilities of the occupier of the premises, free of charge, to make copies.

(3) Where the AFSA exercises its power under section 116(1)(b)(iii) to conduct a compulsory interview, it may give a direction:

  • (a) concerning who may be present;
  • (b) preventing any Person present during any part of the compulsory interview from disclosing to any other Person any information provided to the interviewee or questions asked by the interviewer during the compulsory interview;
  • (c) concerning the conduct of any Person present, including as to the manner in which they will participate in the interview;
  • (d) requiring the interviewee to swear an oath or give an affirmation that the answers of the interviewee will be true; and
  • (e) requiring the interviewee to answer any questions relevant to the investigation.

(4) The AFSA may require the relevant Person to give such information or produce such documents by the end of a reasonable period, at a place and in a form specified in the notice.

(5) The AFSA may exercise its powers under section 116(1) in respect of any Person within, or outside of, the AIFC provided that, if the Person is outside the AIFC and is not an Authorised Person or Approved Individual, the AFSA will either:

  • (a) use any arrangements it has with a regulatory authority in the jurisdiction in which the Person is resident or domiciled, or the premises are located, to assist it to exercise the power; or
  • (b) apply to the AIFC Court for an order compelling the Person to provide the information, produce or procure the production of the documents, or answer questions, or permitting the AFSA to enter the premises of that Person.

117. Use and effect of information and documents obtained for an Investigation

(1) Subject to section 117(2), any information given or document produced as a result of the exercise by the AFSA of powers under section 116 is admissible in evidence in any proceedings, provided that any such information or document also complies with any requirements relating to the admissibility of evidence in such proceedings.

(2) The AFSA may not disclose a statement made by a Person in answer to any question asked pursuant to a requirement made of the Person under section 116(1)(b)(iii) to any law enforcement agency for the purpose of criminal proceedings against the Person unless:

  • (a) the Person consents to the disclosure; or
  • (b) the AFSA is required by law or court order to disclose the statement.

(3) The AFSA may retain possession of any information and documents given to it pursuant to a requirement made under section 116(1) for so long as is necessary:

  • (a) for the purposes of the investigation to which the notice relates; or
  • (b) for a decision to be made about whether or not a proceeding to which the information or documents would be relevant should be commenced; or
  • (c) for such a proceeding to be completed.

(4) A Person is not entitled to claim a lien on any documents as a basis for failing to comply with a requirement made under section 116(1), but any lien is not otherwise prejudiced.

(5) Where a Person is unable to produce information or documents in compliance with a requirement made under section 116(1), the AFSA may require the Person to state, to the best of that Person’s knowledge or belief, where the information or documents may be found and who last had possession, custody or control of the information or documents.

(6) Where the AFSA considers that, if disclosed, the fact of the issuing of a notice requiring a Person to:

  • (a) produce documents; or
  • (b) give information; or
  • (c) attend a compulsory interview; or
  • (d) give assistance; may hinder the investigation to which it relates, the AFSA may direct a Person who receives a notice under section 116(1) and/or that person’s legal representative not to disclose the receipt of the notice or any information relating to compliance therewith to any other Person, other than his legal representative under a duty of confidentiality.

CHAPTER 2 – Disciplinary sanctions

118. Sanctions for contraventions

(1) If the AFSA considers that a Person has committed a Contravention, it may:

  • (a) fine the Person such amount as it considers appropriate in respect of the contravention; and/or
  • (b) censure the Person in respect of the contravention; and/or
  • (c) make a direction requiring the Person to effect restitution or compensate any other Person in respect of the contravention within such period and on such terms as the AFSA may direct; and/or
  • (d) make a direction requiring the Person to account for, in such form and on such terms as the AFSA may direct, such amounts as the AFSA determines to be profits or unjust enrichment arising from the contravention; and/or
  • (e) make a direction requiring the Person to cease and desist from such activity constituting or connected to the contravention as the AFSA may stipulate; and/or
  • (f) make a direction requiring the Person to do an act or thing to remedy the contravention or matters arising from the contravention; and/or
  • (g) make a direction prohibiting the Person from holding office in or being an employee of any Authorised Person.

(2) Nothing in this section prevents the AFSA from exercising any other power that it may exercise under any legislation administered by it.

119. General contravention provision

A Person commits a Contravention if he:

  • (a) fails to comply with any prohibition or requirement imposed on him by the AFSA , any undertaking given by him to the AFSA, or any agreement made by him with the AFSA; or
  • (b) does anything that is prohibited under, or that contravenes any legislation administered by the AFSA; or
  • (c) does not do something that the Person is required to do under any legislation administered by the AFSA; or
  • (d) commits an act of fraud or abuses any fiduciary duty which he owes to his clients or customers or to an Authorised Person; or
  • (e) acts in a deceptive, misleading or dishonest manner in any context; or
  • (f) otherwise commits any contravention described as such in these Regulations or Rules made by the AFSA.

120. Involvement in contraventions

(1) If a Person is knowingly concerned in a Contravention by another Person of legislation administered by the AFSA, that Person also commits a Contravention of the relevant legislation.

(2) A Person is knowingly concerned in a Contravention if, and only if, that Person:

  • (a) has aided, abetted, counselled, or procured the Contravention; or
  • (b) has induced, whether by threats or promises or otherwise, the Contravention; or
  • (c) has in any way, by act or omission, directly or indirectly, been knowingly involved in or been party to, the contravention; or
  • (d) has conspired with another or others to commit the Contravention.

121. Contraventions by Bodies Corporate

(1) If a Contravention committed by a Body Corporate is shown:

  • (a) to have been committed with the consent or connivance of an officer; or
  • (b) to be attributable to any neglect on his part; the officer as well as the Body Corporate commits the Contravention and is liable to sanctions accordingly.

(2) If the affairs of a Body Corporate are managed by its members, subsection (1) applies in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the Body Corporate.

(3) The AFSA may by Rules provide for the application of any provision of this section, with such modifications as the AFSA considers appropriate, to a Body Corporate formed or recognised under the law of a territory outside the AIFC.

CHAPTER 3 – Other enforcement powers

122. Appointment of Managers

(1) Where it considers it necessary or desirable in the pursuit of its objectives, the AFSA may issue a written notice requiring an Authorised Person to appoint one or more individuals to act as managers of the business of such Person on such terms as the AFSA may specify in any such notice.

(2) The terms specified in the written notice may be varied by the AFSA from time to time by further written notice.

(3) An individual so appointed by an Authorised Person must be either nominated or approved by the AFSA.

123. Compulsory Winding up

(1) The AFSA may present a petition to the AIFC Court for the winding up of an Authorised Person.

(2) On such a petition, the AIFC Court may wind up the Authorised Person if it is of the opinion that it is just and equitable that it should be wound up.

CHAPTER 4 – Injunctions, Restitution and Actions for Damages

124. Injunction – contraventions

(1) Where a Person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute a contravention within the meaning of section 119 the AIFC Court may, on application of the AFSA or any aggrieved Person, make one or more of the following orders:

  • (a) an order restraining the Person from engaging in the conduct including but not limited to, engaging in conduct that may constitute a contravention;
  • (b) an order requiring that Person to do any act or thing including, but not limited to, acts or things to remedy the contravention or to minimise loss or damage;
  • (c) any other order as the AIFC Court sees fit.

125. Injunction – investigations and proceedings

(1) Where:

  • (a) the AFSA is conducting or has conducted an investigation into the acts or omissions of a Person (the ‘relevant Person’) which may constitute a contravention within the meaning of section 119; or
  • (b) a civil or regulatory proceeding has been instituted, by the AFSA or otherwise, against a relevant Person in relation to an alleged contravention, the AIFC Court may, on application of the AFSA or any aggrieved Person, make one or more of the following orders:
  • (c) an order restraining the relevant Person from paying, transferring, disposing of, or otherwise dealing with, any assets of his which he is reasonably likely to dispose of or otherwise deal with;
  • (d) an order restraining any other Person holding assets on behalf of the relevant Person from paying, transferring, disposing of, or otherwise dealing with, any assets of the relevant Person which are reasonably likely to be disposed of or otherwise dealt with;
  • (e) an order prohibiting the relevant Person or any other Person from taking or sending out of the jurisdiction of the AIFC Court any assets of the relevant Person or held on his behalf;
  • (f) in the event that the relevant Person is a natural Person
  • (i) an order appointing a receiver or trustee, having such powers as the AIFC Court may see fit, of the property or any of the property of the relevant Person;

(ii) an order requiring him to deliver up to the AIFC Court his passport and such other documents as the AIFC Court sees fit; or

(iii) an order prohibiting him from leaving the Republic of Kazakhstan without the consent of the AIFC Court;

  • (g) in the event that the relevant Person is a Body Corporate, an order appointing a receiver or receiver and manager, having such powers as the AIFC Court may see fit, of the property or any of the property of the relevant Person.

(2) Nothing in section 125 affects the powers that any Person or the AIFC Court may have apart from this section.

126. Injunction – market abuse

(1) If, on the application of the AFSA, the AIFC Court is satisfied:

(2) If on the application of the AFSA the AIFC Court is satisfied:

(3) If, on the application of the AFSA, the AIFC Court is satisfied that any Person:

  • (a) may be engaged in Market Abuse; or
  • (b) may have been engaged in Market Abuse. the AIFC Court may make an order restraining the Person concerned from disposing of, or otherwise dealing with, any assets of his which it is satisfied that he is reasonably likely to dispose of, or otherwise deal with.

(4) In subsection (2), references to remedying any Market Abuse include references to mitigating its effect.

127. Restitution Order – contraventions

(1) The AIFC Court may, on the application of the AFSA, make an order under subsection (2) if it is satisfied that a Person has committed a contravention within the meaning of section 119, and:

  • (a) that profits have accrued to him as a result of the contravention; or
  • (b) that one or more Persons have suffered loss or been otherwise adversely affected as a result of the contravention.

(2) The AIFC Court may order the Person concerned to pay to the AFSA such sum as appears to the Court to be just and equitable having regard:

  • (a) in a case within paragraph (a) of subsection (1), to the profits appearing to the AIFC Court to have accrued; and
  • (b) in a case within paragraph (b) of subsection (1), to the extent of the loss or other adverse effect; and
  • (c) in a case within both of those paragraphs, to the profits appearing to the AIFC Court to have accrued and to the extent of the loss or other adverse effect.

(3) Any amount paid to the AFSA in pursuance of an order under subsection (2) must be paid by it to such Person or distributed by it among such Persons as the AIFC Court may direct.

(4) On an application under subsection (1) the AIFC Court may require the Person concerned to supply it with such accounts or other information as it may require for any one or more of the following purposes:

  • (a) establishing whether any and, if so, what profits have accrued to him as mentioned in paragraph (a) of subsection (1);
  • (b) establishing whether any Person or Persons have suffered any loss or adverse effect as mentioned in paragraph (b) of subsection (1) and, if so, the extent of that loss or adverse effect; and
  • (c) determining how any amounts are to be paid or distributed under subsection (3).

(5) The AIFC Court may require any accounts or other information supplied under subsection (4) to be verified in such manner as it may direct.

(6) Nothing in this section affects the right of any Person other than the AFSA to bring proceedings in respect of the matters to which this section applies.

128. Restitution Order – market abuse

(1) The AIFC Court may, on the application of the AFSA, make an order under subsection (4) if it is satisfied that a Person:

  • (a) has engaged in Market Abuse; or
  • (b) by taking or refraining from taking any action, has required or encouraged another Person or Persons to engage in behaviour which, if engaged in by the Person concerned, would amount to Market Abuse; and the condition mentioned in subsection (2) is fulfilled.

(2) The condition is that:

  • (a) profits have accrued to the Person concerned as a result; or
  • (b) one or more Persons have suffered loss or been otherwise adversely affected as a result.

(3) But the AIFC Court may not make an order under subsection (4) if it is satisfied that:

  • (a) the Person concerned believed, on reasonable grounds, that his behaviour did not fall within paragraph (a) or (b) of subsection (1); or
  • (b) he took all reasonable precautions and exercised all due diligence to avoid behaving in a way which fell within paragraph (a) or (b) of subsection (1).

(4) The AIFC Court may order the Person concerned to pay to the AFSA such sum as appears to the AIFC Court to be just having regard:

  • (a) in a case within paragraph (a) of subsection (2), to the profits appearing to the AIFC Court to have accrued;
  • (b) in a case within paragraph (b) of subsection (2), to the extent of the loss or other adverse effect;
  • (c) in a case within both of those paragraphs, to the profits appearing to the AIFC Court to have accrued and to the extent of the loss or other adverse effect.

(5) Any amount paid to the AFSA in pursuance of an order under subsection (4) must be paid by it to such Person or distributed by it among such Persons as the AIFC Court may direct.

(6) On an application under subsection (1) the AIFC Court may require the Person concerned to supply it with such accounts or other information as it may require for any one or more of the following purposes:

  • (a) establishing whether any and, if so, what profits have accrued to him as mentioned in paragraph (a) of subsection (2);
  • (b) establishing whether any Person or Persons have suffered any loss or adverse effect as mentioned in paragraph (b) of subsection (2) and, if so, the extent of that loss or adverse effect; and
  • (c) determining how any amounts are to be paid or distributed under subsection (5).

(7) The AIFC Court may require any accounts or other information supplied under subsection (6) to be verified in such manner as it may direct.

(8) Nothing in this section affects the right of any Person other than the AFSA to bring proceedings in respect of the matters to which this section applies.

129. Action for damages

(1) Unless otherwise provided under Rules made by the AFSA, where a Person:

  • (a) intentionally, recklessly or negligently commits a breach of duty, requirement, prohibition, obligation or responsibility imposed by or under these Regulations; or
  • (b) commits fraud or other dishonest conduct in connection with a matter arising under such Regulations; that Person is liable to compensate any other Person for any loss or damage caused to that other Person as a result of such conduct, and otherwise is liable to restore such other Person to the position they were in prior to such conduct.

(2) The AIFC Court may, on application of the AFSA or a Person who has suffered loss or damage caused as a result of conduct described in subsection (1), make orders for the recovery of damages or for compensation or for the recovery of property or for any other order as the AIFC Court sees fit, except where such liability is excluded under these Regulations or any Rules made by the AFSA.

(3) Nothing in this section affects the powers that any Person or the Court may have apart from this section.

130. Power of the AFSA to intervene in proceedings

(1) The AFSA may intervene as a party in any proceedings in the AIFC Court where it considers such intervention appropriate to meet one or more of its Regulatory Objectives.

(2) Where the AFSA so intervenes, it will, subject to any other law, have all the rights, duties and liabilities of such a party.

PART 10: CONFIDENTIALITY

131. Confidential information

For the purposes of these Regulations, information is confidential if:

  1. (1)      it is received by the AFSA or an officer, employee, delegate or agent of the AFSA in the exercise of a function under these Rules or any other AIFC Regulations or Rules; and
  2. (2)      it has not been made available to the public in circumstances in which disclosure is not prohibited under these Rules or any other AIFC Regulations or Rules.

132. General prohibition on disclosure

(1) Subject to subsection (2), confidential information must not be disclosed to a third party by the AFSA or by an officer, employee, delegate or agent of the AFSA, or by any Person coming into possession of the information, without the consent of the Person to whom the duty of confidentiality is owed.

(2) The AFSA may disclose confidential information where such disclosure:

  1. (a) is permitted or required under these Regulations or under any other AIFC Regulations or Rules;
  2. (b) is made to any of the authorities listed in CO-OP for the purpose of assisting the exercise by any such authority of its regulatory functions; or
  3. (c) is made in good faith for the purposes of the exercise of the functions and powers of the AFSA.

(3) A Contravention of subsection (1) by an officer, employee, delegate or agent of the AFSA, or by any other Person coming into possession of the information shall be punishable by a fine of such amount as it considers appropriate in respect of the Contravention up to a maximum fine of $10,000 and/or disciplinary proceedings. The AFSA may also seek injunctive relief where appropriate.

(4) The AFSA may make Rules for the purpose of ensuring the confidentiality of information received in the exercise of a regulatory function.

PART 11: CO-OPERATION AND EXCHANGE OF INFORMATION

133. Regulatory co-operation

(1) The AFSA may, where it considers appropriate, exercise its powers under these Regulations or under any other AIFC Regulations or Rules for the purpose of assisting the exercise by specified Persons of their regulatory functions.

(2) The AFSA shall implement policies and procedures to ensure that it:

  • (a) is able to exercise its powers on behalf of specified Persons, including powers to obtain information that has been appropriately requested;
  • (b) protects the confidentiality of such information; and
  • (c) restricts the disclosure of such confidential information by limiting the purposes for which, and the Persons to whom, such disclosure may be made.

(3) The AFSA may make Rules for the purpose of assisting the exercise by specified Persons of their regulatory functions.

SCHEDULE 1: Decision-making procedures of the AFSA

1. Interpretation

For the purposes of this Schedule “Relevant Person” means a Person in relation to whom the AFSA exercises or proposes to exercise a power.

2. Application of Schedule

This Schedule applies to the AFSA, subject to paragraph 3, where a provision in these Regulations or Rules made thereunder requires or enables the AFSA to make a decision.

3. Decisions to which procedures do not apply

(1)      The procedures in this Schedule (other than sub-paragraph (2) of this paragraph) do not apply to a decision by the AFSA:

  1. (a)to withdraw a direction, requirement, restriction or prohibition; or
  2. (b)to withdraw a condition or restriction imposed in relation to a Licence, registration, authorisation or approval; or
  3. (c)in relation to a Person, if the Person has requested, or consented in writing to, the making of the decision.
  4. (d)to make, revoke and/or vary a direction under section 9.

(2)      In the cases referred to in sub-paragraph (1), the AFSA must notify the Person in writing of the decision and the date on which it is to take effect. (3) If the AFSA makes a decision in relation to a Person after a determination of the AIFC Court relating to the conduct of the Person, the requirement to give the Person an opportunity to make representations under paragraph 4 or 6 (as applicable) does not apply in relation to findings of fact of the AIFC Court.

4. Opportunity to make representations before a decision

(1) If the AFSA proposes to make a decision to which this Schedule applies, it must first give the Relevant Person:

  • (a) a written notice (a “Preliminary Notice”) containing the information in sub-paragraph (2); and
  • (b) an opportunity to make representations to the AFSA in Person and in writing concerning the decision the AFSA proposes to take.

(2) The Preliminary Notice must:

  • (a) specify the proposed decision;
  • (b) specify the reasons for that proposed decision, including any proposed findings of fact;
  • (c) include a copy of the relevant materials which were considered in making the proposed decision;
  • (d) inform the Person that they may make representations to the AFSA concerning the proposed decision; and
  • (e) specify how and by when any representations may be made.

(3) For the purposes of sub-paragraph (2)(c), the AFSA:

  • (a) may refer to materials (instead of providing a copy) if they are already held by the Relevant Person or are publicly available; and
  • (b) is not required to provide material that is the subject of legal professional privilege.

(4) If the AFSA does not receive any representations within the period specified in the Preliminary Notice, it may proceed to make the proposed decision and give the Person a Decision Notice in accordance with paragraph 5.

(5) If the AFSA receives representations within the period specified in the Preliminary Notice, it must consider the representations in making the decision.

(6) If, after considering the representations, the AFSA decides:

  • (a) to make the proposed decision (either as proposed or with variations), then it must give the Person a Decision Notice under paragraph 5; or
  • (b) not to make the proposed decision, then it must as soon as practicable notify the Person in writing that it has decided not to make the decision.

(7) If the AFSA concludes that any delay likely to arise as a result of complying with the procedures in this paragraph would be prejudicial to the interests of direct or indirect users of financial services or otherwise prejudicial to the interests of the AIFC:

  • (a) the requirements in sub-paragraphs (1) to (6) do not apply; and
  • (b) the AFSA must provide the Person with an opportunity to make representations in accordance with the procedures in paragraph 6 after it has made the decision.

5. Decision Notice

(1) If the AFSA decides to make a decision to which this Schedule applies, it must, as soon as practicable, give the Relevant Person a written notice (a “Decision Notice”) specifying:

  • (a) the decision;
  • (b) the reasons for the decision, including its findings of fact;
  • (c) the date on which the decision is to take effect;
  • (d) if applicable, the date by which any relevant action must be taken by the Person; and
  • (e) the Person’s right to seek review of the decision by the AIFC Court.

(2) The Decision Notice must include a copy of the relevant materials which were considered in making the decision.

(3) For the purposes of sub-paragraph (2), the AFSA:

  • (a) may refer to materials (instead of providing a copy) if they are already held by the Relevant Person or are publicly available; and
  • (b) is not required to provide material that is the subject of legal professional privilege.

6. Opportunity to make representations after a decision

(1) If this paragraph applies under paragraph 4(7), the AFSA must:

  • (a) provide the Relevant Person with an opportunity to make representations to the AFSA in Person and in writing within a period of 14 days, or such further period as may be agreed, from the date on which the Decision Notice is given to the Person under paragraph 5; and
  • (b) inform the Relevant Person in the Decision Notice that they may make representations concerning the decision and specify how and by when any representations may be made.

(2) If the AFSA does not receive any representations within the period specified in the Decision Notice, it must inform the Person in writing that the decision is to stand (subject to any right of the Person to refer the matter to the AIFC Court for review).

(3) If the AFSA receives representations within the period specified in the Decision Notice, it must consider the representations in deciding whether to confirm, withdraw or vary the decision.

(4) If after considering representations received the AFSA decides:

  • (a) to confirm the decision, it must as soon as practicable notify the Person in writing that the decision is to stand (subject to any right of the Person to refer the matter to the AIFC Court for review); or
  • (b) to withdraw the decision, it must as soon as practicable notify the Person in writing that the decision has been withdrawn; or
  • (c) to vary the decision, it must as soon as practicable give the Person an amended Decision Notice under paragraph 5.

(5) For the avoidance of doubt, the opportunity to make representations under this paragraph does not arise:

  • (a) if the Person was given a Preliminary Notice and the opportunity to make representations under paragraph 4 before the decision was made; or
  • (b) in respect of an amended Decision Notice given under sub-paragraph (4)(c).

SCHEDULE 2: Appeal to the AIFC Court

1. Time frame for instituting an appeal

(1) An appeal under section 11 may be instituted:

  • (a) within a period of 28 days immediately following the date of the Decision Notice issued by the AFSA, and
  • (b) by serving a Claim Form on the AFSA, in accordance with the service provisions of the AIFC Court Rules, stating the grounds and material facts on which the appellant relies.

(2) An appeal does not operate as a stay of the decision being appealed.

2. Power of AIFC Court to dismiss appeal for want of prosecution

(1) The AFSA may, where an appeal under section 11 has been instituted, apply to the AIFC Court, for an order that the appeal be dismissed for want of prosecution; and on hearing the application the AIFC Court may:

  • (a) dismiss the appeal or dismiss the application (in either case on such terms and conditions as the AIFC Court may direct), or
  • (b) make such other order as the AIFC Court considers just.

(2) The provisions of this paragraph are without prejudice to the AIFC Court Regulations, the AIFC Court Rules and the inherent powers of the AIFC Court.

3. Power of AIFC Court to set aside or confirm decision

On an appeal under section 11 the AIFC Court may:

  • (a) set the decision of the AFSA aside and, if the AIFC Court considers it appropriate to do so, remit the matter to the AFSA with such directions as the AIFC Court thinks fit;
  • (b) confirm the decision, in whole or in part;
  • (c) suspend or modify the operation of the decision on such terms as the AIFC Court thinks just, pending the determination of the appeal.

4. Appeal of decision to publish a statement to be held in private

(1) An appeal against a decision to publish a statement in respect of a Person will be held in private unless:

  • (a) the parties agree that all or part of the hearing should be held in public, or
  • (b) the AIFC Court so orders.

(2) Where an appeal against a decision to publish a statement is upheld the AFSA will, if the appellant so requests, publish a statement of that fact.

RULES

Rules Administered By AFSA

GENERAL RULES

General Rules

Guidance: Purpose of this rulebook

The purpose of this rulebook, “GEN”, is to complement the regulatory framework established by the Financial Services Framework Regulations (“the Framework Regulations”).

GEN 1.1 complements Part 3, Chapter 1 of the Framework Regulations by describing the process of application for a Licence to carry on Regulated Activities (i.e. to become an Authorised Firm) and the criteria that the AFSA will apply in considering an application.

GEN 1.2 complements Part 3, Chapter 2 of the Framework Regulations by describing the process of application for a Licence to carry on Market Activities (i.e. to become an Authorised Market Institution) and the criteria that the AFSA will apply in considering an application.

GEN 1.3 contains an application process for a Licence to carry on Ancillary Services (i.e. to become an Ancillary Service Provider) and the criteria that the AFSA will apply in considering an application.

GEN 2 creates two categories of employees who attract regulatory attention. Approved Individuals occupy the most critical roles in an Authorised Person, which are referred to as “Controlled Functions”.

GEN 2.1 identifies a number of roles that an Authorised Person must fill.

Their appointment requires the approval of the AFSA. Designated Individuals occupy less critical roles, referred to as “Designated Functions”, and do not require AFSA approval, but may only be appointed by an Authorised Person after it has applied a fit and proper test.

GEN 3 contains rules restricting the circumstances in which significant shareholders in an Authorised Person may change.

GEN 4 contains two sets of core principles. The first are applicable to Authorised Persons, the second to Approved Individuals and Designated Individuals.

GEN 5 contains the key System and Controls requirements that apply to all Authorised Persons.

GEN 6 complements Part 8 of the Framework Regulations (Supervision of Authorised Persons). The chapter begins with guidance setting out a non-exhaustive list of the circumstances in which the AFSA is likely to exercise the supervisory powers granted to it by sections 96 to 101 of the Framework Regulations.

GEN 6.1 adds details to section 97 of the Framework Regulations which gives the AFSA the power to require an Authorised Person to provide it with a report on a specified matter.

GEN 6.2 identifies a large number of instances in which an Authorised Person is obliged to make a notification to the AFSA. Finally

GEN 6.3 contains requirements relating to accounting and auditors, including requirements to prepare financial reports, keep accounting records, make certain notifications to the AFSA and cooperate with an auditor.

1. LICENSING OF CENTRE PARTICIPANTS

1.1. Authorised Firms

1.1.1. Definition of Regulated Activities

An activity shall be a Regulated Activity that may be carried on by an Authorised Firm, subject to the terms of its Licence, if that activity:

  1. (a) is specified in the list of activities in Schedule 1; and
  2. (b) is carried on by way of business as described in GEN 1.1.9; and
  3. (c) is not otherwise excluded in accordance with any other provision in GEN 1.1.

The Regulated Activities that may be carried on by an Authorised Firm, subject to the terms of its Licence, are specified in Schedule 1 and 1.4.1(b).

1.1.2. Form and content of application for a Licence

A Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on one or more Regulated Activities by:

  1. (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
  2. (b) providing such further information as the AFSA may require; and
  3. (c) paying the fee prescribed in the Fees Rules.

Guidance: AFSA discretion to waive requirements A Person may apply to the AFSA to waive the requirements as to the contents of the Form prescribed in Schedule 3 pursuant to section 32(4) of the Framework Regulations.

1.1.3. Adequate and appropriate financial resources

This section was added on 2 December 2018.

1.1.4. Adequate and appropriate non-financial resources

In assessing whether an applicant has adequate and appropriate non‐financial resources for the purposes of section 34(1)(a) of the Framework Regulations, the AFSA will consider:

  1. (a) the skills and experience of those who will manage the applicant's affairs;
  2. (b) the applicant's resources to identify, monitor, measure and take action to remove or reduce risks as to its safety and soundness;
  3. (c) the effectiveness of the applicant's business management; and
  4. (d) whether the applicant's non‐financial resources are sufficient to enable the applicant to comply with the Regulations and Rules that are likely to be relevant to the applicant.

1.1.5. Fitness and propriety

In assessing whether an applicant is fit and proper for the purposes of section 34(1)(b) of the Framework Regulations, the AFSA will consider:

  1. (a) the fitness and propriety of the members of its Governing Body;
  2. (b) the applicant's connection with any Person or membership of any Group;
  3. (c) the fitness and propriety of the applicant's Controllers or any other Person associated with the applicant;
  4. (d) the impact a Controller might have on the applicant's ability to comply with the applicable requirements;
  5. (e) the Regulated Activities undertaken or to be undertaken by the applicant and the risks to their continuity;
  6. (f) the nature (including the scale and complexity) of the activities of the applicant and any associated risks that those activities pose to the AFSA’s Regulatory Objectives;
  7. (g) the complexity of any products or services that the applicant may offer or provide in carrying on those activities;
  8. (h) whether the applicant's business model will allow for its affairs and business to be conducted and managed in a sound and prudent manner, having regard to, amongst other things, the interests of its Clients and the integrity of the AIFC;
  9. (i) any matter which may harm or may have harmed the integrity or the reputation of the AFSA or AIFC, including through the carrying on of a business by the applicant for a purpose connected with a Financial Crime; and
  10. (j) any other relevant matters.

1.1.6. Effective supervision

In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 34(1)(c) of the Framework Regulations, the AFSA will consider:

  1. (a) the nature, including the complexity, of the Regulated Activities that the applicant will carry on; and
  2. (b) the way in which the applicant's business is organised; and
  3. (c) (if the applicant is a member of a Group) whether membership of the Group is likely to prevent the AFSA’s effective supervision of the applicant; and
  4. (d) whether the applicant is subject to consolidated supervision.

1.1.7. Compliance arrangements

In assessing whether an applicant has adequate compliance arrangements for the purposes of section 34(1)(d) of the Framework Regulations, the AFSA will consider whether it has:

  1. (a) clear and comprehensive policies and procedures relating to compliance with all applicable legal requirements; and
  2. (b) adequate means to implement those policies and procedures and monitor that they are operating effectively and as intended.

1.1.8. Modification or withdrawal of an Authorised Firm’s Licence

An Authorised Firm may apply to the AFSA to change the scope of its Licence, to have a condition or restriction varied or withdrawn, or to have its Licence withdrawn by:

  1. (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
  2. (b) providing such further information as the AFSA may require; and
  3. (c) paying the fee prescribed in the Fees Rules.

1.1.9. Activities carried on by way of business

A Person carries on an activity by way of business for the purposes of GEN 1.1.1 if that Person:

  1. (a) engages in the activity in a manner which in itself constitutes the carrying on of a business;
  2. (b) holds himself out as willing and able to engage in that activity; or
  3. (c) regularly solicits other Persons to engage with him in transactions constituting that activity.

1.1.10. Exclusion in respect of Dealing in Investments as Principal

A Person does not carry on the Regulated Activity specified in paragraph 1 of Schedule 1 by entering into a transaction, unless that Person:

  1. (a) holds himself out as willing, as principal, to buy, sell or subscribe for Investments at prices determined by him generally and continuously rather than in respect of each particular transaction;
  2. (b) holds himself out as engaging in the business of buying Investments with a view to selling them;
  3. (c) holds himself out as engaging in the business of underwriting Investments; or
  4. (d) regularly solicits members of the public with the purpose of inducing them to enter into transactions.

1.1.11. Exclusion in respect of acting as nominee

A Person does not carry on any of the Regulated Activities specified in paragraphs 1, 2, 3, 5, 6, 10, 11, 12 or 15 of Schedule 1 where that Person enters into a transaction solely as a nominee for another Person and is bound to and does act on that other Person’s instructions.

1.1.12. Exclusion in respect of acting with or for Group companies

A Person does not carry on any of the Regulated Activities specified in paragraphs 1, 2, 3, 5, 6, 10, 11, 12, 15 or 18 of Schedule 1 where that Person is a Body Corporate and carries on that activity solely as principal with or for other Bodies Corporates:

  1. (a) which are within the same Group as that Person; or
  2. (b) which are or propose to become participators in a joint enterprise and the transaction is entered into for the purposes of or in connection with that enterprise;

and for the purposes of the activities specified in paragraphs 3, 5, 6 and 12 of Schedule 1 the assets in question belong to a Body Corporate falling within (a) or (b).

1.1.13. . Exclusion in respect of non-financial business

Person does not carry on any of the Regulated Activities specified in paragraphs 1, 2, 3, 5, 6, 10, 11, 12 or 15 of Schedule 1 where that the Person carries on the activity solely for the purposes of or in connection with the sale of goods or the supply of services to a customer of the Person or a member of the same Group, provided that:

  1. (a) the supplier’s main business is to sell goods or supply services and not to carry on any Financial Service; and
  2. (b) the customer is not an individual; and for the purposes of the activities specified in paragraphs 3, 5, 6 and 2 of Schedule 1 the assets in question belong to that customer or member.

1.1.14. Exclusion in respect of dealing in commodity derivatives

A Person who is a Body Corporate does not carry on the Regulated Activity specified in paragraphs 1 or 2 of Schedule 1, where:

1.1.15. Exclusion in respect of acquisition or disposal of a Body Corporate

A Person does not carry on a Regulated Activity specified in paragraphs 1, 2, 10 or 11 of Schedule 1 if the activity is carried on solely for the purposes of or in connection with the acquisition or disposal of Shares in a Body Corporate, other than an Investment Company, provided that:

  1. (a) such Shares carry at least 50 per cent of the voting rights or the acquisition will take an existing holding to at least 50 per cent; or
  2. (b) the object of the transaction may reasonably be regarded as being the acquisition of day to day control of the Body Corporate.

1.1.16. Exclusion in respect of acting as a trustee

  1. (a) A Person who is a trustee does not carry on a Regulated Activity specified in paragraphs 1, 3, or 5 of Schedule 1 in circumstances where he is acting as a trustee.
  2. (b) A Person does not carry on a Regulated Activity specified in paragraph 7 of Schedule 1 by way of business where he is:
  3. (i) acting as trustee, enforcer or protector; or
  4. (ii) where he is arranging for a Person to act as trustee, in respect of less than three (3) trusts.
  5. (c) A Person falling within paragraph (d) or (e) of the definition of a DNFBP does not provide Trust Services where it only:
  6. (i) arranges for a Person to act as trustee in respect of an express trust; or
  7. (ii) provides services with respect to the creation of an express trust; provided that:
  8. (1) the provision of such services is solely incidental to the practice of law or accounting as the case may be; and
  9. (2) the DNFBP is not holding itself out as Providing Trust Services.
  10. (d) A Person is not Providing Trust Services if that Person is the Trustee of a Fund and the activities are in connection with, or arise from, acting as the Trustee of the Fund. Guidance Acting as trustee, protector or enforcer are not activities incidental to the practice of law or accounting and require a License.

1.1.17. Exclusion in respect of Single Family Offices

A Person does not carry on a Regulated Activity specified in paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, or 15 of Schedule 1 if:

1.2. Authorised Market Institutions

Guidance: Definition of Market Activity
  1. Market Activity is defined in the section 18 of the Framework Regulations as:
  2. (a)    Operating an Exchange;
  3. (b)    Operating a Clearing House;
  4. (c)    Operating a Digital Asset Trading Facility;
  5. (d)Operating a Loan Crowdfunding Platform;
  6. (e)Operating an Investment Crowdfunding Platform.

1.2.1. Form and content of application for a Licence

A Person may apply to the AFSA for a Licence for a Centre Participant to carry on one or more Market Activities in the AIFC by:

  • (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
  • (b) providing such information and documents as the AFSA may require; and
  • (c) paying the fee prescribed in the Fees Rules.

1.2.2. Adequate and appropriate financial resources

In assessing whether an applicant has adequate and appropriate financial resources for the purposes of section 37(1)(a) of the Framework Regulations, the AFSA will consider:

  • (a) how the applicant will comply with the applicable provisions of AMI 2.2;
  • (b) the provision the applicant makes in respect of any liabilities, including contingent and future liabilities;
  • (c) the means by which the applicant manages the risks to its business;
  • (d) the rationale for, and basis of, the applicant's business plan;
  • (e) whether the applicant's assets are appropriate given the applicant's liabilities;
  • (f) the liquidity of the applicant's resources;
  • (g) the nature and scale of the business which will be carried on by the applicant;
  • (h) the risks to the continuity of the services which will be provided by the applicant;
  • (i) the applicant's membership of a Group and any relevant effect which that membership may have; and
  • (j) whether the applicant is capable of meeting its debts as they fall due.

1.2.3. Adequate and appropriate non-financial resources

In assessing whether an applicant has adequate and appropriate non‐financial resources for the purposes of section 37(1)(a) of the Framework Regulations, the AFSA will consider:

  • (a) the skills and experience of those who will manage the applicant's affairs;
  • (b) the applicant's resources to identify, monitor, measure and take action to remove or reduce risks as to its safety and soundness;
  • (c) the applicant’s resources to control and monitor access to, and the use of, its facilities in a manner designed to protect the orderly functioning of the market and the interests of investors;
  • (d) the applicant’s resources to reduce the extent to which its facilities can be used for a purpose connected with Market Abuse, Financial Crime or money laundering, and to facilitate their detection and monitor their incidence;
  • (e) the applicant’s resources to monitor and take action in the event of a member of an applicant being unable to meet his obligations in respect of one or more Market Contracts;
  • (f) the effectiveness of the applicant's business management; and
  • (g) whether the applicant's non‐financial resources are sufficient to enable the applicant to comply with the Regulations and Rules that are likely to be relevant to the applicant.

1.2.4. Adequate and appropriate technology resources

In assessing whether an applicant has adequate and appropriate technology resources for the purposes of section 37(1)(a) of the Framework Regulations, the AFSA will consider:

  • (a) the applicant’s resources for the evaluation, selection and on-going monitoring of the information technology systems used by the applicant;
  • (b) the applicant’s willingness and ability to use development and testing methodologies in line with internationally accepted testing standards in order to test the viability and effectiveness of such systems; and
  • (c) the means by which the applicant will secure and maintain the confidentiality of the data and ensure that the systems used by the applicant are reliable and adequately protected from external attack or incident.

1.2.5. Fitness and propriety

In assessing whether an applicant is fit and proper for the purposes of section 37(1)(b) of the Framework Regulations, the AFSA will consider:

  • (a) the fitness and propriety of the members of its Governing Body;
  • (b) the applicant's connection with any Person or membership of any Group;
  • (c) the fitness and propriety of the applicant's Controllers or any other Person associated with the applicant;
  • (d) the impact a Controller might have on the applicant's ability to comply with the applicable requirements;
  • (e) the Market Activities concerned and the risks to their continuity;
  • (f) the nature (including the scale and complexity) of the activities of the applicant and any associated risks that those activities pose to the AFSA’s objectives;
  • (g) whether the applicant's business model will allow for its facilities to function in a fair and orderly manner, having regard to, amongst other things, the orderly functioning of the market and the interests of investors;
  • (h) any matter which may harm or may have harmed the integrity or the reputation of the AIFC or AFSA , including through the carrying on of a business by the applicant for a purpose connected with Market Abuse or a Financial Crime; and
  • (i) any other relevant matters.

1.2.6. Effective supervision

In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 37(1)(c) of the Framework Regulations, the AFSA will consider:

  1. (a)      the nature, including the complexity, of the Market Activities that the applicant will carry on;
  2. (b)      if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, a Digital Asset Trading Facility, a Loan Crowdfunding Platform or an Investment Crowdfunding Platform, the size, nature and complexity of any markets in respect of which the applicant will offer its facilities in carrying on that Market Activity;
  3. (c)      if the applicant seeks a licence to carry on the Market Activity of Operating a Clearing House, the complexity of the Investments and transactions, and the size of the likely transaction values and volumes in respect of which the applicant will offer clearing and settlement services in carrying on that Market Activity;
  4. (c)      the way in which the applicant's business is organised;
  5. (d)      (if the applicant is a member of a Group) whether membership of the Group is likely to prevent the AFSA’s effective supervision of the applicant; and
  6. (e)      whether the applicant is subject to consolidated supervision.

1.2.7. Compliance arrangements

In assessing whether an applicant has adequate compliance arrangements for the purposes of section 37(1)(d) of the Framework Regulations, the AFSA will consider whether it has:

  1. (a)      clear and comprehensive policies and procedures relating to compliance with all applicable legal requirements;
  2. (b)      adequate means to implement those policies and procedures and monitor that they are operating effectively and as intended;
  3. (c)      effective arrangements for monitoring and enforcing compliance of its Members with its own rules and, if relevant, its clearing and settlement arrangements;
  4. (d)     if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, effective arrangements to verify that issuers admitted to trading on its facilities comply with the Market Rules; and
  5. (e)     if the applicant seeks a licence to carry on the Market Activity of Operating a Digital Asset Trading Facility, effective arrangements to verify that members admitted to trading on its facilities comply with the Conduct of Business Rules and the Authorised Market Institution Rules.

1.2.8. Modification or withdrawal of an Authorised Market Institution’s Licence

An Authorised Market Institution may apply to the AFSA to change the scope of its Licence, to have a condition or restriction varied or withdrawn, or to have its Licence withdrawn by:

  • (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
  • (b) providing such further information as the AFSA may require; and
  • (c) paying the fee prescribed in the Fees Rules to the AFSA.

1.3. Ancillary Service Provider

1.3.1. Definition of Ancillary Service

The Ancillary Services that may be carried on by an Ancillary Service Provider, subject to the terms of its Licence, are specified in Schedule 2.

1.3.2. Form and content of application for a Licence

A Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on one or more Ancillary Services in the AIFC by:

  • (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
  • (b) providing such further information as the AFSA may require; and
  • (c) paying the fee prescribed in Schedule 4 to the AFSA.

1.3.3. Fitness and propriety

In assessing whether an applicant is fit and proper for the purposes of section 41 of the Framework Regulations, the AFSA will consider:

  • (a) the applicant’s standing with any relevant regulatory body;
  • (b) the applicant’s disciplinary record;
  • (c) the applicant’s procedures for monitoring and preventing Financial Crime;
  • (d) the risk posed to the AIFC by the applicant’s activities; and
  • (e) such other matters as the AFSA considers relevant.

1.3.4. Notifications

An Ancillary Service Provider must promptly notify the AFSA of any change in its:

  • (a) name; or
  • (b) legal status; or
  • (c) address; or
  • (e) beneficial ownership.

1.3.5. Application to modify or withdraw an Ancillary Service Provider’s Licence

An Ancillary Service Provider may apply to the AFSA to change the scope of its Licence, to have a condition or restriction varied or withdrawn, or to have its Licence withdrawn by:

  • (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
  • (b) providing such further information as the AFSA may require; and
  • (c) paying the fee prescribed in the Fees Rules.

1.3.6. Withdrawal of an Ancillary Service Provider’s Licence by the AFSA

The AFSA may withdraw the Licence of an Ancillary Service Provider:

  1. (a) on the application of the Ancillary Service Provider; or
  2. (b) [intentionally omitted]
  3. (c) following a request by the Registrar of Companies; or
  4. (d) in the event of the insolvency or the entering into administration of the Ancillary Service Provider; or
  5. (e) if the AFSA considers it necessary or desirable in the interests of the AIFC.

1.4. FinTech Lab Activities

1.4.1. Activities performed in FinTech Lab

  1. (a)      the Regulated and/or Market Activities that are specified in Schedule 1 and 4 of GEN can be carried on by a Person subject to the terms and Licence issued under FINTECH.
  2. (b)      a Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on activities not specified in (a).
  3. (c)For the purposes of (b), the AFSA may grant a Licence for a Person to carry on activities as specified in the Licence.

2. CONTROLLED AND DESIGNATED FUNCTIONS

2.1. Mandatory appointments

2.1.1. Appointments to be filled by Approved Individuals

(1) Subject to (2) an Authorised Person, must make the following appointments and ensure that they are held by one or more Approved Individuals at all times:

  1. (a) Senior Executive Officer;
  2. (b) Finance Officer; and
  3. (c) Compliance Officer

(2) For an Authorised Person Operating a Representative Office the mandatory appointments in (1) may be carried on by its Principal Representative.

2.1.2. Appointments to be filled by Approved Individuals or Designated Individuals

(1) An Authorised Person, except for an Authorised Person Operating a Representative Office, must make the following appointments and ensure that they are held by either an Approved Individual or a Designated Individual at all times:

  1. (a) Money Laundering Reporting Officer; and
  2. (b) such other role or function as the AFSA may direct from time to time.

(2) A Banking Business Firm, as defined in the BBR Rules, must also make the following appointments and ensure that they are held by either an Approved Individual or a Designated Individual at all times:

  1. (a) Risk Manager; and
  2. (b) Internal Audit Manager.

2.2. Controlled Functions

2.2.1. Designation of roles as Controlled Functions

The functions specified in GEN 2.2.2 to 2.2.5 are Controlled Functions.

2.2.2. Senior Executive Officer

The Senior Executive Officer function is carried out by an individual who:

  • (a) has, either alone or jointly with other Approved Individuals, ultimate responsibility for the day‐to‐day management, supervision and control of one or more (or all) parts of an Authorised Person's Regulated Activities; and
  • (b) is a Director, Partner or Senior Manager of the Authorised Person

2.2.3. Director

The Director function is carried out by an individual who is a director of an Authorised Person which is a Body Corporate.

2.2.4. Finance Officer

The Finance Officer function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person who has responsibility for monitoring the Authorised Person's compliance with the applicable Rules in the Prudential Rulebook.

2.2.5. Compliance Officer

The Compliance Officer function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person who has responsibility for compliance matters in relation to the Authorised Person's Regulated Activities.

2.2.6. Application for Approved Individual status

An Authorised Person may apply for its officer or Employee or future officer or Employee to be granted Approved Individual status by:

  1. (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
  2. (b) providing such further information as the AFSA may require; and
  3. (c) paying the Fee prescribed in the Fees Rules to the AFSA.

Guidance: criteria for approval of Approved Individual Section 43 of the Framework Regulations provides

(1) The AFSA may only authorise an individual to carry on a Controlled Function if it is satisfied that the individual is fit and proper to be an Approved Individual.

(2) In making this assessment, the AFSA must have regard to:

  1. (a) the individual's integrity; and
  2. (b) the individual's competence and capability; and
  3. (c) the individual's financial soundness; and
  4. (d) the individual's proposed role within the Authorised Person; and
  5. (e) any other matters that the AFSA considers to be relevant to the application.

(3) The AFSA will not regard an individual as fit and proper if the individual:

  1. (a) is bankrupt; or
  2. (b) has been convicted of a serious criminal offence; or
  3. (c) is the subject of an administrative or civil finding; or
  4. (d) is incapable, through mental or physical incapacity, of managing his affairs.

2.2.7. AFSA discretion to waive requirements

An Authorised Person may apply to the AFSA to waive the requirements made pursuant to Section 43(1) of the Framework Regulations in the light of any registration, authorisation or approval the relevant officer or Employee may have in a jurisdiction outside the AIFC.

2.2.8. Modification or withdrawal of an Approved Individual’s registration

An Authorised Firm or an Approved Individual may apply to the AFSA to modify or withdraw the Approved Individual’s status by:

  • (a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
  • (b) providing such further information as the AFSA may require; and
  • (c) paying the fee prescribed in the Fees Rules to the AFSA.

2.2.9. Dismissal or resignation of an Approved Individual

In the event of an Approved Individual ceasing to be employed by an Authorised Firm to perform a Controlled Function, the Authorised Firm must:

  • (a) request the withdrawal of the Approved Individual status within seven days of the Approved Individual ceasing to be employed;
  • (b) inform the AFSA of any circumstances which lead the Authorised Firm to consider that the individual is no longer fit and proper; and
  • (c) if the Approved Individual was dismissed or requested to resign, provide the AFSA with a statement of the reason, or reasons, for the dismissal or resignation.

2.3. Designated Functions

2.3.1. Designation of roles as Designated Functions

The functions specified in GEN 2.3.2 to 2.3.6 are Designated Functions.

2.3.2. Senior Manager

The Senior Manager function is carried out by an individual who is responsible either alone or jointly with other individuals for the management, supervision or control of one or more parts of an Authorised Person's Regulated Activities who is:

2.3.3. Responsible Officer

The Responsible Officer function is carried out by an individual who:

  • (a) has significant responsibility for the management of one or more aspects of an Authorised Person’s affairs; and
  • (b) exercises a significant influence on the Authorised Person as a result of (a); but
  • (c) is not an Employee of the Authorised Person

2.3.4. Money Laundering Reporting Officer

The Money Laundering Reporting Officer function must be carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for the implementation of an Authorised Person's anti‐money laundering policies, procedures, systems and controls and day to day oversight of its compliance with the Rules in AML and any relevant anti‐money laundering Rules.

2.3.5. Risk Manager

The Risk Manager function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for all aspects of the risk management function in relation to the Authorised Person's Regulated Activities.

2.3.6. Internal Audit Manager

The Internal Audit Manager function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for all aspects of the internal audit function in relation to the Authorised Person's Regulated Activities.

Guidance: criteria for appointment of Designated Individual

Section 46 of Framework Regulations provides:

(1) Before appointing an individual to carry on a Designated Function, an Authorised Person must take reasonable steps to satisfy itself that the individual is fit and proper to be a Designated Individual.

(2) In making this assessment the Authorised Person must have regard to:

  1. (a) the individual's integrity; and
  2. (b) the individual's competence and capability; and
  3. (c) the individual's financial soundness; and
  4. (d) the individual's proposed role within the Authorised Person; and
  5. (e) any other matters that the AFSA may prescribe by Rules.

(3) An Authorised Person may not regard an individual as fit and proper if the individual:

  1. (a) is bankrupt; or
  2. (b) has been convicted of a serious criminal offence; or
  3. (c) is the subject of an administrative or civil finding; or
  4. (d) is incapable, through mental or physical incapacity, of managing his affairs

2.3.7. Appointment of Designated Individual

In respect of each Designated Individual that it appoints, an Authorised Person must keep records of the assessment process that it has undertaken in accordance with section 46 of the Framework Regulations to satisfy itself that the relevant individual is a fit and proper Person. Such records must be kept for a minimum of six years from the date of the assessment

3. CONTROL OF AUTHORISED PERSONS

3.1. Definitions

3.1.1. Definition of a Controller

A Controller is a Person who, either alone or with any Associate:

3.1.2. Definition of “share” and “holding”

A reference in this chapter to the term:

(ii) in the case of an Authorised Person, or a Holding Company of an Authorised Person, with capital but no share capital, rights to a share in its capital; and

(iii) in the case of an Authorised Person, or a Holding Company of an Authorised Person, without capital, any interest conferring a right to share in its profits or losses or any obligation to contribute to a share of its debt or expenses in the event of its winding up; and

3.1.3. Disregarded holdings

For the purposes of determining whether a Person is a Controller, any shares, voting rights or rights to acquire shares or voting rights that a Person holds, either alone or with any Associate, in an Authorised Person or a Holding Company of that Authorised Person are disregarded if:

  • (a) they are shares held for the sole purpose of clearing and settling within a short settlement cycle; or
  • (b) they are shares held in a custodial or nominee capacity and the voting rights attached to the shares are exercised only in accordance with written instructions given to that Person by another Person; or
  • (c) the Person is an Authorised Person or a Regulated Financial Institution and it:
  • (i) acquires the shares as a result of an underwriting of a share issue or a placement of shares on a firm commitment basis;

(ii) does not exercise the voting rights attaching to the shares or otherwise intervene in the management of the issuer; and

(iii) retains the shares for a period less than one year.

3.2. Approval process

3.2.1. Threshold for approval requirement

For the purposes of section 48(b) of the Framework Regulations, the thresholds at which the prior written approval of the AFSA is required are when the relevant holding is increased:

  • (a) from below 30% to 30% or more; or
  • (b) from below 50% to 50% or more.

3.2.2. Approval process

(1) A Person who is required to obtain the prior written approval of the AFSA pursuant to section 48 of the Framework Regulations must make an application to the AFSA using the form prescribed in Schedule 3.

(2) Where the AFSA proposes to approve a proposed change of control, it will:

  • (a) do so as soon as practicable and in any event within 30 days of the receipt of a duly completed application, unless a different period is considered appropriate by the AFSA and notified to the applicant in writing; and
  • (b) issue to the applicant, and where appropriate to the Authorised Person, an approval notice as soon as practicable after making that decision.

(3) Where the AFSA proposes to object to or grant a conditional approval to a proposed change of control, it will follow the procedures in Schedule 1 to the Framework Regulations

3.2.3. Effect of AFSA approval or conditional approval

(1) An approval, including a conditional approval granted by the AFSA pursuant to GEN 3.2.1, is valid for a period of one year from the date of the approval, unless an extension is granted by the AFSA in writing.

(2) A Person who has been approved by the AFSA as a Controller of an Authorised Person subject to any conditions must comply with the relevant conditions of approval.

3.3. Notification requirements

3.3.1. Notification for decrease in the level of control of Authorised Person incorporated in the AIFC

A Controller of an Authorised Person which is incorporated in the AIFC must submit, using the form prescribed in Schedule 3, a written notification to the AFSA where that Person:

  • (a) proposes to cease being a Controller; or
  • (b) proposes to decrease that Person’s holding from more than 50% to 50% or less.

3.3.2. Notification of changes relating to control of Branches

(1) In the case of an Authorised Person which is a Branch, a written notification to the AFSA must be submitted by a Controller or a Person proposing to become a Controller of that Authorised Person in accordance with (3) in respect of any one of the events specified in (2).

(2) For the purposes of (1), a notification to the AFSA is required when:

(ii) increased from below 50% to 50% or more; or

(iii) decreased from more than 50% to 50% or less.

(3) The notification required under (1) must be made by a Controller or Person proposing to become a Controller of a Branch using the Form prescribed in Schedule 3 as soon as possible, and in any event, before making the relevant acquisition or disposal.

3.4. Obligations of Authorised Persons

3.4.1. Obligations of Authorised Person relating to its Controllers

(1) An Authorised Person must have adequate systems and controls to monitor:

  • (a) any change or proposed change of its Controllers; and
  • (b) any significant changes in the conduct or circumstances of existing Controllers which might reasonably be considered to impact on the fitness and propriety of the Authorised Person or its ability to conduct business soundly and prudently.

(2) An Authorised Person must, subject to (3), notify the AFSA in writing of any event specified in (1) as soon as possible after becoming aware of that event.

(3) An Authorised Person need not comply with the requirement in (2) if it is satisfied on reasonable grounds that a proposed or existing Controller has either already obtained the prior approval of the AFSA or notified the event to the AFSA as applicable.

3.4.2. Annual report

(1) An Authorised Person must submit to the AFSA an annual report on its Controllers within four months of its financial year end.

(2) The Authorised Person’s annual report on its Controllers must include:

  • (a) the name of each Controller; and
  • (b) the current holding of each Controller, expressed as a percentage.

4. CORE PRINCIPLES

4.1. Application

4.1.1. Application of the Principles for Authorised Persons

The Principles for Authorised Persons set out in Section 4.2 apply to Authorised Persons in respect of Regulated Activities and Market Activities.

4.1.2. Application of the Principles for Approved Individuals and Designated Individuals

The Principles for Approved Individuals and Designated Individuals set out in Section 4.3 apply to Approved Individuals and Designated Individuals in respect of Controlled Functions and Designated Functions.

4.2. Principles for Authorised Persons

4.2.1. Principle 1 ‐ Integrity

An Authorised Person must observe high standards of integrity and fair dealing.

4.2.2. Principle 2 ‐ Due skill, care and diligence

In conducting its business activities, an Authorised Person must act with due skill, care and diligence.

4.2.3. Principle 3 ‐ Management

An Authorised Person must ensure that its affairs are managed effectively and responsibly by its senior management.

4.2.4. Principle 4 ‐ Systems and controls

An Authorised Person must have adequate systems and controls to ensure, as far as is reasonably practical, that it complies with all relevant Regulations and Rules.

4.2.5. Principle 5 ‐ Resources

An Authorised Person must maintain and be able to demonstrate the existence of adequate resources to conduct and manage its affairs. These include adequate financial and system resources as well as adequate and competent human resources.

4.2.6. Principle 6 ‐ Market conduct

An Authorised Person must observe proper standards of conduct in financial markets.

4.2.7. Principle 7 ‐ Information and interests

An Authorised Person must pay due regard to the interests of its Clients and communicate information to them in a way which is clear, fair and not misleading.

4.2.8. Principle 8 ‐ Conflicts of interest

An Authorised Person must take all reasonable steps to ensure that conflicts of interest between itself and its Clients, between its Employees and Clients and between one Client and another are identified and then prevented or managed, or disclosed, in such a way that the interests of a Client are not adversely affected.

4.2.9. Principle 9 ‐ Suitability

An Authorised Person must take reasonable care to ensure the suitability of its Advice and discretionary decisions for Clients who are entitled to rely upon its judgment.

4.2.10. Principle 10 ‐ Client assets and money

Where an Authorised Person has control of or is otherwise responsible for assets or money belonging to a Client which it is required to safeguard, it must arrange proper protection for them in accordance with the responsibility it has accepted.

4.2.11. Principle 11 ‐ Relations with the AFSA

An Authorised Person must deal with the AFSA in an open and co‐operative manner and keep the AFSA promptly informed of significant events or anything else relating to the Authorised Person of which the AFSA would reasonably expect to be notified.

4.2.12. Principle 12 ‐ Compliance with high standards of corporate governance

An Authorised Person must have a corporate governance framework as appropriate to the nature, scale and complexity of its business and structure, which is adequate to promote the sound and prudent management and oversight of the Authorised Person's business and to protect the interests of its Clients and stakeholders.

4.2.13. Principle 13 ‐ Remuneration practices

An Authorised Person must have a Remuneration structure and strategies which are well aligned with the long-term interests of the Authorised Person, and are appropriate to the nature, scale and complexity of its business.

4.3. Principles for Approved Individuals and Designated Individuals

4.3.1. Principle 1 ‐ Integrity

Each Approved Individual and Designated Individual must observe high standards of integrity and fair dealing in carrying out every Controlled Function or Designated Function.

4.3.2. Principle 2 ‐ Due skill, care and diligence

Each Approved Individual and Designated Individual must act with due skill, care and diligence in carrying out every Controlled Function or Designated Function.

4.3.3. Principle 3 ‐ Market conduct

Each Approved Individual and Designated Individual must observe proper standards of conduct in financial markets in carrying out every Controlled Function or Designated Function.

4.3.4. Principle 4 ‐ Relations with the AFSA

Each Approved Individual and Designated Individual must deal with the AFSA in an open and co‐operative manner and must disclose appropriately any information of which the AFSA would reasonably be expected to be notified.

4.3.5. Principle 5 ‐ Management, systems and control

Each Approved Individual and Designated Individual who has significant responsibility must take reasonable care to ensure that the business of the Authorised Person for which he is responsible is organised so that it can be managed and controlled effectively.

4.3.6. Principle 6 ‐ Compliance

Each Approved Individual and Designated Individual who has significant responsibility must take reasonable care to ensure that the business of the Authorised Person for which he is responsible complies with any Regulations or Rules.

5. SYSTEMS AND CONTROLS

5.1. General requirements

5.1.1. Requirement to maintain systems and controls

An Authorised Person must establish and maintain systems and controls, including but not limited to financial and risk systems and controls that ensure that its affairs are managed effectively and responsibly by its senior management.

5.1.2. Review of systems and controls

An Authorised Person must undertake regular reviews of its systems and controls.

5.1.3. Business plan and strategy

(1) An Authorised Person must produce a business plan which enables it, amongst other things, to manage the risks to which it and its Clients are exposed.

(2) The business plan must take into account the Authorised Person's current business activities and the business activities forecast for the next twelve months.

(3) The business plan must be documented and updated as appropriate to take account of changes in the business environment and to reflect changes in and the complexities of the business of the Authorised Person.

5.1.4. Prevention of market abuse, financial crime and other illegal conduct

An Authorised Person must establish and maintain systems and controls that ensure, as far as reasonably practical, that the Authorised Person and its Employees do not engage in conduct, or facilitate others to engage in conduct, which may constitute:

  • (a) Market Abuse, wherever committed;
  • (b) a Financial Crime under any applicable laws; or
  • (c) a contravention of applicable Regulations or Rules.

5.2. Outsourcing

5.2.1. Responsibility for compliance

An Authorised Person which outsources any of its functions or activities directly related to Regulated Activities or Market Activities to a service provider (including a service provider within its Group) is not relieved of its regulatory obligations and remains responsible for compliance with the Framework Regulations and Rules.

5.2.2. Outsourced function deemed to be carried on by Authorised Person

The outsourced function under GEN 5.2.1 shall be deemed to be carried out by the Authorised Person itself.

5.2.3. Due diligence and supervision

An Authorised Person which uses a service provider as referred to in GEN 5.2.1 must ensure that it:

  • (a) has undertaken due diligence in choosing a suitable service provider;
  • (b) effectively supervises the outsourced functions or activities; and
  • (c) deals effectively with any act or failure to act by the service provider that leads, or might lead, to a breach of any Regulations or Rules.

5.2.4. Notification of AFSA of material outsourcing arrangements

An Authorised Person must inform the AFSA about any material outsourcing arrangements.

Guidance: material outsourcing arrangement An outsourcing arrangement will be considered to be material if it is a service of such importance that weakness or failure of that service would cast serious doubt on the Authorised Person's continuing ability to remain fit and proper or to comply with the Framework Regulations and Rules administered by the AFSA.

5.2.5. Material outsourcing arrangements

An Authorised Person which has a material outsourcing arrangement must:

  • (a) establish and maintain comprehensive outsourcing policies, contingency plans and outsourcing risk management programmes;
  • (b) enter into an appropriate and written outsourcing contract; and
  • (c) ensure that the outsourcing arrangements neither reduce its ability to fulfil its obligations to Clients and the AFSA, nor hinder supervision of the Authorised Person by the AFSA.

5.2.6. Terms of outsourcing contracts

An Authorised Person must ensure that the terms of its outsourcing contract with each service provider under a material outsourcing arrangement require the service provider to:

  1. (a) provide information and documents where required by the AFSA under section 96 of the Framework Regulations; and
  2. (b) deal in an open and co‐operative way with the AFSA.

5.3. Corporate governance

5.3.1. Governing Body

An Authorised Person must have a Governing Body that meets the requirements of GEN 5.3.2 (membership), 5.3.3 (responsibilities) and 5.3.4 (competence, training and access to information).

5.3.2. Governing Body – membership

An Authorised Person’s Governing Body must comply with the requirements set out below:

(ii) act with honesty, integrity and independence of mind; and

(iii) effectively assess and challenge, where necessary, the decisions of the senior management, and oversee and monitor decision making.

5.3.3. Governing Body – responsibilities

The Governing Body of an Authorised Person must:

  • (a) define and oversee the implementation of governance arrangements that ensure the effective and prudent management of the Authorised Person in a manner which promotes the integrity of the market, which at least must include: the segregation of duties in the organisation; and the prevention of conflicts of interest in its operation;
  • (b) monitor and periodically assess the effectiveness of the Authorised Person’s governance arrangements; and
  • (c) take appropriate steps to address any deficiencies found as a result of the monitoring under sub-paragraph (b).

5.3.4. Governing Body – competence, training and access to information

An Authorised Person must:

  • (a) devote adequate human and financial resources to the induction and training of members of the Governing Body;
  • (b) ensure that the Governing Body has access to the information and documents it requires to oversee and monitor management decision-making; and
  • (c) engage a broad set of qualities and competences when recruiting Persons to the Governing Body, and for that purpose have a policy promoting diversity on the management body; and
  • (d) notify the AFSA of the identity of all the members of its Governing Body.

5.3.5. Senior management

An Authorised Person must ensure that the senior management of the Authorised Person have clear responsibility for the day‐to‐day management of the Authorised Person's business in accordance with the business objectives and strategies approved or set by the Governing Body.

5.3.6. Management information

An Authorised Person must establish and maintain arrangements to provide its Governing Body and senior management with the information necessary to organise, monitor and control its activities, to comply with all relevant Regulations and Rules and to manage risks. The information must be relevant, accurate, comprehensive, timely and reliable.

5.3.7. Remuneration structure and strategy

The Governing Body of an Authorised Person must ensure that the Remuneration structure and strategy of that Authorised Person:

  • (a) are consistent with the business objectives and strategies and the identified risk parameters within which the Authorised Person's business is to be conducted;
  • (b) provide for effective alignment of risk outcomes and the roles and functions of the Employees, taking account of:
  • (i) the nature of the roles and functions of the relevant Employees; and

(ii) whether the actions of the Employees may expose the Authorised Person to unacceptable financial, reputational and other risks;

  • (c) at a minimum, include the members of its Governing Body, the senior management, Approved Individuals and any Designated Individuals; and
  • (d) are implemented and monitored to ensure that they operate, on an on‐going basis, effectively and as intended.

5.4. Compliance

5.4.1. Requirement to maintain compliance arrangements

An Authorised Person must establish and maintain compliance arrangements, including processes and procedures that ensure and evidence, as far as reasonably practicable, that the Authorised Person complies with all relevant Regulations and Rules.

5.4.2. Documentation of compliance arrangements

An Authorised Person must document the organisation, responsibilities and procedures of the compliance function.

5.4.3. Compliance Officer – sufficient resources

An Authorised Person must ensure that the Compliance Officer has access to sufficient resources, including an adequate number of competent staff, to perform his duties objectively and independently of operational and business functions.

5.4.4. Compliance Officer – access to records and management

An Authorised Person must ensure that the Compliance Officer has unrestricted access to relevant records and to the Authorised Person’s Governing Body and senior management.

5.4.5. Monitoring and reporting arrangements

An Authorised Person must establish and maintain monitoring and reporting processes and procedures to ensure that any compliance breaches are readily identified, reported and promptly acted upon.

5.4.6. Documentation of monitoring and reporting arrangements and breaches

An Authorised Person must document the monitoring and reporting processes and procedures as well as keep records of breaches of any relevant Regulations or Rules.

5.5. Internal audit

5.5.1. Requirement to maintain internal audit function

An Authorised Person must establish and maintain an internal audit function with responsibility for monitoring the appropriateness and effectiveness of its systems and controls.

5.5.2. Independence of internal audit function

An Authorised Person must ensure that its internal audit function is independent from operational and business functions.

5.5.3. Access to records and resources

An Authorised Person must ensure that its internal audit function has unrestricted access to all relevant records and recourse when needed to the Authorised Person's Governing Body or the relevant committee, established by its Governing Body for this purpose.

5.5.4. Documentation of organisation, responsibilities and procedures

An Authorised Person must document the organisation, responsibilities and procedures of the internal audit function.

5.6. Conflicts of interest

5.6.1. Identification of conflicts of interest

An Authorised Person must take all reasonable steps to identify conflicts of interest that may arise between:

5.6.2. Factors relevant to the existence of a conflict of interest in the provision of a service

For the purposes of identifying the types of conflict of interest that arise, or may arise, in the course of providing a service and whose existence may entail a material risk of damage to the interests of a Client, an Authorised Person must take into account, as a minimum, whether the Authorised Person or a Person directly or indirectly linked by control to the Authorised Person:

  • (a) is likely to make a financial gain, or avoid a financial loss, at the expense of the Client; or
  • (b) has an interest in the outcome of a service provided to the Client or of a transaction carried out on behalf of the Client, which is distinct from the Client's interest in that outcome; or
  • (c) has a financial or other incentive to favour the interest of another Client or group of Clients over the interests of the Client; or
  • (d) carries on the same business as the Client; or
  • (e) receives or will receive from a Person other than the Client an inducement in relation to a service provided to the Client, in the form of monies, goods or services, other than the standard commission or fee for that service.

5.6.3. Management of conflicts of interest

If arrangements made by an Authorised Person to manage conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a Client will be prevented, the Authorised Person must clearly disclose the general nature and/or sources of conflicts of interest to the Client before undertaking business for the Client.

5.6.4. Disclosure of conflicts of interest

The disclosure in GEN 5.6.3 must:

  • (a) be made in a durable medium; and
  • (b) include sufficient detail, taking into account the nature of the Client, to enable that Client to take an informed decision with respect to the service in the context of which the conflict of interest arises.

5.7. Information barriers

5.7.1. Establishment of information barriers

When an Authorised Person establishes and maintains an information barrier (that is, an arrangement that requires information held by an Authorised Person in the course of carrying on one part of the business to be withheld from, or not to be used for, Persons with or for whom it acts in the course of carrying on another part of its business) it may:

  • (a) withhold or not use the information held; and
  • (b) for that purpose, permit Employees in the first part of its business to withhold the information held from Employees in the other part of the business, but only to the extent that the business of one of those parts involves the carrying on of Regulated Activities or Market Activities.

5.7.2. Information barriers with a group

Information may also be withheld or not used by an Authorised Person when this is required by an established arrangement maintained between different parts of the business (of any kind) in the same group.

5.7.3. Relevance of information barrier to Market Abuse

Acting in conformity with GEN 5.7.1 and 5.7.2 does not amount to Market Abuse.

5.7.4. Effect of information barrier

When an Authorised Person manages a conflict of interest using the arrangements in GEN 5.7.1 and 5.7.2 which take the form of an information barrier, individuals on the other side of the information barrier will not be regarded as being in possession of knowledge denied to them as a result of the information barrier.

5.8. Management of risks

5.8.1. Operational risk

An Authorised Person must establish a robust operational risk management framework with appropriate systems and controls to identify, monitor and manage operational risks that key participants, other Authorised Persons, service providers (including outsources) and utility providers might pose to itself.

5.8.2. Legal risk

An Authorised Person must have a well‐founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions.

5.8.3. Fraud risk

An Authorised Person must establish and maintain effective systems and controls to:

  • (a) deter and prevent suspected fraud against the Authorised Person; and
  • (b) report suspected fraud and other financial crimes to the AFSA and other relevant authorities.

5.8.4. Business continuity plan

An Authorised Person must have a business continuity plan, which is subjected to periodic review and scenario testing, that addresses events posing a significant risk of disrupting operations, including events that could cause a widespread or major disruption.

5.9. Recordkeeping

5.9.1. Record keeping obligation

An Authorised Person must make and retain records of matters and dealings, including Accounting Records and corporate governance practices which are the subject of requirements and standards under the Framework Regulations and Rules.

5.9.2. Retrieval of records

An Authorised Person must ensure that records stored pursuant to GEN 5.9.1 are capable of reproduction on paper within a reasonable period not exceeding five Business Days.

6. SUPERVISION

Guidance: supervisory powers of the AFSA The supervisory powers of the AFSA are set out in sections 96 to 101 of the Framework

Regulations and include:

Section 96: Power to gather information

Section 97: Power to require the production of a report

Section 98: Power to restrict, withdraw or suspend a Licence

Section 99: Power to impose a prohibition

Section 100: Power to impose a requirement

Section 101: Power to enter into an enforceable arrangement

Section 95(1) of the Framework Regulations provides that the AFSA may exercise any of the above powers “at any time where it considers it necessary or desirable to do so in accordance with its Regulatory Objectives.”

Guidance: Exercise of supervisory powers by the AFSA

The AFSA is likely to exercise the supervisory powers in sections 96 to 101 of the Framework Regulations in the following circumstances:

  1. (a) an Authorised Person is failing, or is likely to fail, to satisfy the criteria referred to in sections 34 or 37 of the Framework Regulations as appropriate (Criteria for the grant of a Licence); or
  2. (b) an Authorised Person has failed, during a period of at least 12 months, to carry on a Regulated Activity or Market Activity for which it has a Licence; or
  3. (c) it is desirable to take such steps to exercise such power in order to protect the interests of clients or customers of an Authorised Person or the financial system; or
  4. (d) an Authorised Person is in breach of, or has been, in breach of one or more conditions, restrictions or requirements applicable to its Licence; or
  5. (e) an Authorised Person is (or has been) otherwise in breach of the AIFC Constitutional Law, the Framework Regulations or any Rules or other relevant legislation; or
  6. (f) an Authorised Person is in breach of a requirement under section 48 of the FrameworkRegulations (Requirement for AFSA approval to change in control); or
  7. (g) a request has been received from a Financial Services Regulator; or
  8. (h) there is a reasonable likelihood that an Authorised Person will contravene a requirement of any Regulations or Rules; or(i) an Authorised Person has contravened a relevant requirement and there is a reasonable likelihood that the contravention will continue or be repeated; or
  9. (j) there is loss, risk of loss, or other adverse effect on an Authorised Person’s Clients; or
  10. (k) an investigation is being carried out in relation to an act or omission by an Authorised Person that constitutes or may constitute a Contravention of any applicable Regulation or Rule; or
  11. (l) an enforcement action has commenced against an Authorised Person for a Contravention of any applicable Regulation or Rule; or
  12. (m) civil proceedings have commenced against an Authorised Person; or
  13. (n) an Authorised Person or any of its Employees may be or has been engaged in Market Abuse; or
  14. (o) an Authorised Person is subject to a merger; or
  15. (p) a meeting has been called to consider a resolution for an Authorised Person’s Winding‐ Up; or
  16. (q) an application has been made for the commencement of any insolvency proceedings or the appointment of any receiver, administrator or provisional liquidator under the law of any country, territory or jurisdiction outside the AIFC for an Authorised Person; or
  17. (r) there is a notification to dissolve an Authorised Person or strike it from the register maintained by the Registrar of Companies, or a comparable register in another jurisdiction; or
  18. (s) there is information to suggest that an Authorised Person is involved in Financial Crime; or
  19. (t) the AFSA considers that the exercise of the power is necessary or desirable to ensure Clients, Authorised Persons, or the financial system, are not adversely affected.

6.1. Power to require the production of a report

6.1.1. Notification of requirement to produce a report

Where the AFSA requires an Authorised Person to provide it with a report under section 97 of the Framework Regulations (Power to require the production of a report) it will give written notification to the Authorised Person of:

  1. (a) the purpose of its report, and
  2. (b) its scope, and
  3. (c) the timetable for completion and
  4. (d) any other relevant matters.

6.1.2. Nomination or approval of Skilled Person

6.1.3. Obligations of Skilled Person

When an Authorised Person appoints a Skilled Person, it must enter into a written contract with the Skilled Person whose terms:

(A) there is or has been, or may be or may have been, a contravention of any requirement that applies to the Authorised Person concerned; and

(B) that the contravention may be of material significance to the AFSA in determining whether to exercise, in relation to the Authorised Person concerned, any powers conferred on the AFSA under any provision of the Framework Regulations;

(ii) the Skilled Person reasonably believes that the information on, or his opinion on, those matters may be of material significance to the AFSA in determining whether the Authorised Person concerned satisfies and will continue to satisfy the fit and proper requirements; or

(iii) the Skilled Person reasonably believes that the Authorised Person is not, may not be, or may cease to be, a going concern;

6.1.4. Contract with Skilled Person

An Authorised Person must ensure that the contract required under GEN 6.1.2:

  • (a) is governed by the law of the AIFC; and
  • (b) expressly provides that the AFSA has a right to enforce the provisions included in the contract under GEN 6.1.2; and
  • (c) expressly provides that, in proceedings brought by the AFSA for the enforcement of those provisions, the skilled Person is not to have available by way of defence, set‐off or counter claim any matter that is not relevant to those provisions; and
  • (d) if the contract includes an arbitration agreement, expressly provides that the AFSA is not, in exercising the right in (b) to be treated as a party to, or bound by, the arbitration agreement; and
  • (e) provides that the provisions included in the contract under GEN 6.1.2 are irrevocable and may not be varied or rescinded without the AFSA's consent.

6.2. Obligation of disclosure to the AFSA

6.2.1. Core information

An Authorised Person must provide the AFSA with reasonable advance notice of a change in:

6.2.2. Branches

An Authorised Person which is incorporated in the AIFC must provide the AFSA with reasonable advance notice of the establishment or closure of a branch office anywhere in the world from which it carries on financial services.

6.2.3. Regulatory impact

An Authorised Person must advise the AFSA immediately if it becomes aware, or has reasonable grounds to believe, that any of the following matters may have occurred or may be about to occur:

  1. (a) the Authorised Person’s failure to satisfy the fit and proper requirements; or
  2. (b) any matter which could have a significant adverse effect on the Authorised Person’s reputation; or
  3. (c) any matter in relation to the Authorised Person which could result in serious adverse financial consequences to the financial system or to other Authorised Persons; or
  4. (d) a significant breach of a Rule by the Authorised Person or any of its Employees; or
  5. (e) a breach by the Authorised Person or any of its Employees of any requirement imposed by any applicable law by the Authorised Person or any of its Employees; or
  6. (f) any proposed restructuring, merger, acquisition, reorganisation or business expansion which could have a significant impact on the Authorised Person’s risk profile or resources; or
  7. (g) any significant failure in the Authorised Person’s systems or controls, including a failure reported to the Authorised Person by the Authorised Person’s Auditor; or
  8. (h) any action that would result in a material change in the capital adequacy or solvency of the Authorised Person; or
  9. (i) non-compliance with Rules due to an emergency outside the Authorised Person’s control and the steps being taken by the Authorised Person.

6.2.4. Major Acquisitions

(1) A Bank as defined in BBR Rules, which makes or proposes to make a Major Acquisition as defined in (2) must:

  1. (a) if it is incorporated in the AIFC, comply with the requirements in Rule 6.2.4 (4) of GEN rules; and
  2. (b) if it is a Branch, comply with the requirements in Rule 6.2.4 (7) of GEN rules.

(2) Subject to (3), a Major Acquisition is an acquisition in which the relevant Bank acquires or proposes to acquire, directly or indirectly, a shareholding in a Body Corporate where that acquisition:

  1. (a) is of a value (whether by one acquisition or a series of acquisitions) of 10% or more of:
  2. (i) the Bank’s Capital, as defined in BBR Rules; or

(ii) the capital resources of the Bank calculated in accordance with the requirements of the Financial Services Regulator in its home jurisdiction, if it is operating as a Branch in the AIFC; or

  1. (b) even if it does not exceed the 10% threshold referred to in (a), it is reasonably likely to have a significant regulatory impact on the Bank’s activities.

(3) An acquisition is not a Major Acquisition for the purposes of (2) if it is an investment made by a Bank:

  1. (a) in accordance with the terms of a contract entered into by the Bank as an incidental part of its ordinary business; or
  2. (b) as a routine transaction for managing the Bank’s own investment portfolio and therefore can reasonably be regarded as made for a purpose other than acquiring management or control of a Body Corporate either directly or indirectly.

Guidance

(1) Examples of the kind of investments referred to in Rule 6.2.4(2)(b) include an acquisition of a stake in a small specialised trading firm that engages in high risk trades or other activities that could pose a reputational risk to the Bank.

(2) The onus is on a Bank proposing to make an acquisition to consider whether it qualifies as a Major Acquisition under Rule 6.2.4(2)(b). Generally, in the case of a Bank that is operating as a Branch in the AIFC), the significant regulatory impact referred to in Rule 6.2.4 (2) (b) should be prudential risk to the Bank as a whole. If a Bank is uncertain about whether or not a proposed acquisition qualifies as a Major Acquisition under Rule 6.2.4 (2)(b), the Bank may seek guidance from the AFSA.

(3) Examples of contractual arrangements of the kind referred to in Rule 6.2.4 (3)(a) include enforcement of a security interest in the securities of the investee Body Corporate or a loan workout pursuant to a loan agreement entered into between a bank and its client.

(4) Examples of the kind of investments referred to in Rule 6.2.4(3)(b) include temporary investments, such as investments included in the Bank’s trading book or which are intended to be disposed of within a short term (e.g. within 12 months).

(4) A Bank which is an Authorised Firm incorporated in the AIFC must:

  1. (a) before making a Major Acquisition:
  2. (i) notify the AFSA in writing of the proposed Major Acquisition at least 45 days prior to the proposed date for effecting the Major Acquisition; and

(ii) provide the AFSA with all the relevant information relating to that Major Acquisition to enable the AFSA to assess the regulatory impact of the proposed Major Acquisition on the Bank; and

  1. (b) not effect the proposed Major Acquisition unless:
  2. (i) it has either received written advice from the AFSA that it has no objection to that Major Acquisition or has not received any written objection or request for additional information from the AFSA within 45 days after the date of the notification; and

(ii) if the AFSA has imposed any conditions relating to the proposed Major Acquisition, it has complied with, and has the on-going ability to comply with, the relevant conditions.

(5) The AFSA may only object to a proposed Major Acquisition if it is of the view that the proposed Major Acquisition is reasonably likely to have a material adverse impact on the Bank’s ability to comply with its applicable regulatory requirements or on the financial services industry in the AIFC as a whole. The AFSA may also impose any conditions it considers appropriate to address any concerns it may have in relation to the proposed Major Acquisition.

(6) Without limiting the generality of its powers, the factors that the AFSA may take into account for the purposes of (2) include:

  1. (a) the financial and other resources available to the Bank to carry out the proposed Major Acquisition;
  2. (b) the possible impact of the proposed Major Acquisition upon the Bank’s resources, including its capital, both at the time of the acquisition and on an on-going basis;
  3. (c) the managerial capacity of the Bank to ensure that the activities of the investee Body Corporate are conducted in a prudent and reputable manner;
  4. (d) the place of incorporation or domicile of the investee Body Corporate and whether or not the laws applicable to that entity are consistent with the laws applicable to the Bank. In particular, whether there are any restrictions in relation to exchange of confidential regulatory information that are likely to pose challenges to the AFSA in carrying out its supervisory duties including those relating to consolidated supervision where applicable; and
  5. (e) any other undue risks to the Bank or the financial services industry in the AIFC as a whole arising from the proposed Major Acquisition. Guidance Factors which the AFSA may take into account in assessing whether there are any undue risks arising from the proposed Major Acquisition include the size and nature of the business of the investee Body Corporate, its reputation and standing, its present and proposed management structure and the quality of management, the reporting lines and other monitoring and control mechanisms available to the Bank and the past records of the Bank relating to acquisitions of a similar nature.

(7) A Bank which operates as a branch in the AIFC:

  1. (a) notify the AFSA in writing of any Major Acquisition in accordance with the notification requirement applying to the Bank under the requirements of the Financial Services Regulator in its home jurisdiction (the home regulator); and
  2. (b) if there is no notification requirement applying to the Bank under (a), comply with the requirements in Rule 6.2.4 (4) as if it were a Bank incorporated in the AIFC. The AFSA must follow the same procedures, and shall have the same powers, as set out in Rule

6.2.4 (6) in relation to such a notification.

(8) A Bank which gives to the AFSA a notification under (7)(a) must:

  1. (a) notify the AFSA of the Major Acquisition at the same time as it notifies the home regulator;
  2. (b) provide to the AFSA the same information as it is required to provide to the home regulator; and
  3. (c) provide to the AFSA copies of any communications it receives from the home regulator relating to the notification it has provided to the home regulator as soon as practicable upon receipt.

(9) The AFSA may, for the purposes of the requirements in this section, require from the Bank any additional information relating to the Major Acquisition as it may consider appropriate. A Bank must provide any such additional information to the AFSA promptly.

(10) The AFSA may, where it considers appropriate, withdraw its no objection position or modify or vary any condition it has imposed or any remedial action it has required under the Rules in this section. Guidance The AFSA will generally not withdraw a no objection position it has conveyed to a Bank, except in very limited circumstances. An example of such a situation is where the Bank is found to have provided to the AFSA inaccurate or incomplete information and that commission or omission has a material impact on the AFSA’s no objection decision.

(11) The procedures in Section 11 of the AIFC Financial Services Framework Regulations apply to a decision of the AFSA under this Rule 6.2.4, to object to an acquisition or to impose or vary conditions.

(12) If the AFSA decides to exercise its power under this Rule to object to an acquisition or to impose or vary conditions, the Authorised Firm may appeal to the AIFC Court for a review of the decision.

6.2.5. Suspected Market Abuse

(1) An Authorised Person must notify the AFSA immediately if it:

  • (a) receives an order from a Client, or arranges or executes a transaction with or for a Client; and
  • (b) has reasonable grounds to suspect that the order or transaction may constitute Market Abuse.

(2) The notification under (1) must specify:

  • (a) sufficient details of the order or transaction; and
  • (b) the reasons for the Authorised Person suspecting that the order or transaction may constitute Market Abuse.

(3) An Authorised Person must not inform the Client, or any other Person involved in the order or transaction, of a notification under this Rule.

6.2.6. Fraud and errors

An Authorised Person must notify the AFSA immediately if one of the following events arises in relation to its activities:

  • (a) it becomes aware that an Employee may have committed a fraud against one of its or another Person’s Clients; or
  • (b) a fraud has been committed against it; or
  • (c) it has reason to believe that a Person is acting with intent to commit a serious fraud against it; or
  • (d) it identifies significant irregularities in its accounting or other records, whether or not there is evidence of fraud; or
  • (e) it suspects that one of its Employees who is connected with the Authorised Person’s Regulated Activities or Market Activities may be guilty of serious misconduct.

6.2.7. Other regulators

An Authorised Person must advise the AFSA immediately of:

  • (a) the granting or refusal of any application for or revocation of authorisation to carry on financial services in any jurisdiction; or
  • (b) the granting, withdrawal or refusal of an application for, or revocation of, membership of the Authorised Person of any regulated exchange or clearing house; or
  • (c) the Authorised Person becoming aware that a Financial Services Regulator or another enforcement or regulatory agency has started an investigation into the affairs of the Authorised Person; or
  • (d) the appointment of inspectors, howsoever named, by a Financial Services Regulator or another enforcement or regulatory agency to investigate the affairs of the Authorised Person; or
  • (e) the imposition of disciplinary measures or disciplinary sanctions on the Authorised Person in relation to its financial services or governance by any Financial Services Regulator or any regulated exchange or clearing house.

6.2.8. Action against an Authorised Person

An Authorised Person must notify the AFSA immediately if:

  • (a) civil proceedings are brought against the Authorised Person and the amount of the claim is significant in relation to the Authorised Person’s financial resources or its reputation; or
  • (b) the Authorised Person is prosecuted for, or convicted of, any offence involving fraud or dishonesty, or any penalties are imposed on it for tax evasion.

6.2.9. Winding up, bankruptcy and insolvency

An Authorised Person must notify the AFSA immediately on:

  • (a) the calling of a meeting to consider a resolution for winding up the Authorised Person; or
  • (b) an application to dissolve the Authorised Person or to strike it from the register maintained by the AIFC Registrar of Companies, or a comparable register in another jurisdiction; or
  • (c) the presentation of a petition for the winding up of the Authorised Person; or
  • (d) the making of, or any proposals for the making of, a composition or arrangement with creditors of the Authorised Person; or
  • (e) the application of any Person against the Authorised Person for the commencement of any insolvency proceedings, appointment of any receiver, administrator or provisional liquidator under the law of any country.

6.2.10. Information relating to corporate governance and remuneration

An Authorised Person must provide to the AFSA notice as soon as practicable of any significant changes to its corporate governance framework or the remuneration structure or strategy that affect its Regulated Activities or Market Activities.

6.2.11. Accuracy of information

An Authorised Person must take reasonable steps to ensure that all information that it provides to the AFSA in accordance with any applicable legislation is:

  • (a) factually accurate or, in the case of estimates and judgements, fairly and properly based; and
  • (b) complete, in that it should include anything of which the AFSA would reasonably expect to be notified.

6.2.12. Correction of inaccurate information

An Authorised Person must notify the AFSA immediately it becomes aware, or has information that reasonably suggests, that it:

  • (a) has or may have provided the AFSA with information which was or may have been false, misleading, incomplete or inaccurate; or
  • (b) has or may have changed in a material particular.

6.3. Accounting / Auditing

6.3.1. Financial statements

An Authorised Person must prepare financial statements in accordance with the International Financial Reporting Standards ("IFRS") for each financial year of the Authorised Person.

6.3.2. Approval of financial statements

The financial statements of an Authorised Person must be approved by the Directors and signed on its behalf by at least one of the Directors.

6.3.3. Accounting records and regulatory returns

An Authorised Person must keep Accounting Records which are sufficient to show and explain transactions are such as to:

6.3.4. Retention of and access to records

An Authorised Person must ensure that its Accounting Records are:

  • (a) retained by the Authorised Person for at least six years from the date to which they relate;
  • (b) at all reasonable times, open to inspection by the AFSA or the Auditor of the Authorised Person; and
  • (c) if requested by the AFSA capable of reproduction, within a reasonable period not exceeding five Business Days, in hard copy and in English.

6.3.5. Financial year end

An Authorised Person must not change its financial year end without the prior consent of the AFSA.

6.3.6. Appointment and termination of Auditors

An Authorised Person must:

  • (a) notify the AFSA of the appointment of an Auditor using the form prescribed in Schedule 3;
  • (b) prior to the appointment of the Auditor, take reasonable steps to ensure that the Auditor has the required skills, resources and experience to audit the business of the Authorised Person for which the Auditor has been appointed;
  • (c) notify the AFSA immediately if the appointment of the Auditor is or is about to be terminated, or on the resignation of its Auditor, using the form prescribed in Schedule 3;
  • (d) appoint an Auditor to fill any vacancy in the office of Auditor and ensure that the replacement Auditor can take up office at the time the vacancy arises or as soon as reasonably practicable; and
  • (e) comply with any request by the AFSA to replace an Auditor previously appointed by that Authorised Person.

6.3.7. Independence of the Auditor

An Authorised Person must:

  • (a) take reasonable steps to ensure that the Auditor and the relevant audit staff of the Auditor are independent of and not subject to any conflict of interest with respect to the Authorised Person; and
  • (b) notify the AFSA if it becomes aware, or has reason to believe, that the Auditor or the relevant audit staff of the Auditor are no longer independent of the Authorised Person, or have a conflict of interest which may affect their judgement in respect of the Authorised Person.

6.3.8. Co‐operation with Auditors

An Authorised Person must take reasonable steps to ensure that it and its Employees:

  • (a) provide any information to its Auditor that its Auditor reasonably requires, or is entitled to receive as Auditor;
  • (b) give the Auditor right of access at all reasonable times to relevant records and information within its possession;
  • (c) allow the Auditor to make copies of any records or information referred to in (b);
  • (d) do not interfere with the Auditor's ability to discharge its duties;
  • (e) report to the Auditor any matter which may significantly affect the financial position of the Authorised Person; and
  • (f) provide such other assistance as the Auditor may reasonably request it to provide.

6.3.9. Audit reports

An Authorised Person must:

SCHEDULE 1: REGULATED ACTIVITIES

1. Dealing in Investments as Principal

Dealing in Investments as Principal means buying, selling, subscribing for or underwriting any Investment as principal.

2. Dealing in Investments as Agent

Dealing in Investments as Agent means buying, selling, subscribing for or underwriting any Investment as agent.

3. Managing Investments

Managing Investments means managing on a discretionary basis assets belonging to another Person where the assets include any Investment.

4. Managing a Collective Investment Scheme

(1) Managing a Collective Investment Scheme means establishing, managing or otherwise operating or winding up a Collective Investment Scheme.

(2) To the extent that any activity under (1) constitutes Managing Assets, Providing Fund Administration, Dealing as Agent, Dealing as Principal, Arranging Deals in Investments, or Providing Custody, such a Regulated Activity is taken to be incorporated within Managing a Collective Investment Scheme.

5. Providing Custody

Providing Custody means one or more of the following activities:

  1. (a)      safeguarding and administering Investments belonging to another Person;
  2. (b)      in the case of a Fund, safeguarding and administering Fund Property; or
  3. (c)      safeguarding and administering Digital Assets belonging to another Person.

6. Arranging Custody

Arranging Custody means arranging for one or more Persons to carry on the Regulated Activity of Providing Custody.

7. Providing Trust Services

Providing Trust Services means:

  1. (a) the provision of services with respect to the creation of an express trust;
  2. (b) arranging for any Person to act as a trustee in respect of any express trust;
  3. (c) acting as trustee in respect of an express trust; or
  4. (d) acting as protector or enforcer in respect of an express trust.

8. Providing Fund Administration

Providing Fund Administration means providing one or more of the following services in relation to a Fund:

  • (a) processing dealing instructions including subscriptions, redemptions, stock transfers and arranging settlements;
  • (b) valuing of assets and performing net asset value calculations;
  • (c) maintaining the share register and Unitholder registration details;
  • (d) performing anti money laundering requirements;
  • (e) undertaking transaction monitoring and reconciliation functions;
  • (f) performing administrative activities in relation to banking, cash management, treasury and foreign exchange;
  • (g) producing financial statements, other than as the Fund’s registered auditor; or
  • (h) communicating with participants, the Fund, the Fund Manager, and investment managers, the prime brokers, the Regulators and any other parties in relation to the administration of the Fund.

9. Acting as the Trustee of a Fund

(1) Acting as the Trustee of a Fund means holding the assets of a Fund on trust for the Unitholders where the Fund is in the form of an Investment Trust.

(2) To the extent that any activity under (1) constitutes Providing Fund Administration or Providing Custody, such a Financial Service is taken to be incorporated within Acting as the Trustee of a Fund.

10. Advising on Investments

(1) Advising on Investments means giving advice to a Person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor, on the merits of his buying, selling, holding, subscribing for or underwriting a particular Investment (whether as principal or agent).

(2) In sub‐paragraph (1), "advice" includes a statement, opinion or report:

  • (a) where the intention is to influence a Person, in making a decision, to select a particular Investment or an interest in a particular Investment; or
  • (b) which could reasonably be regarded as being intended to have such an influence.

11. Arranging Deals in Investments

Arranging Deals in Investments means making arrangements with a view to another Person buying, selling, subscribing for or underwriting an Investment (whether that other Person is acting as principal or agent).

12. Managing a Restricted Profit Sharing Investment Account

Managing a Restricted Profit Sharing Investment Account means managing an account or portfolio which is a Restricted Profit Sharing Investment Account (RPSIA).

13. Islamic Banking Business

Islamic Banking Business means providing financing or making Investments by entering as principal or agent into any Islamic Financial Contract while raising funds for those activities through either or both of the following:

  • (a) raising, accepting and managing funds or money placements;
  • (b) managing Unrestricted Profit Sharing Investment Accounts (UPSIA); provided that all such activities are carried out in a Shari’ah-compliant manner.

14. Providing Islamic Financing

Providing Islamic Financing means providing financing in a Shari’ah-compliant manner by entering into any Islamic Financial Contract.

15. Insurance Intermediation

(1) Insurance Intermediation means:

(2) In (1)(a), ‘advising’ means giving advice to a Person in his capacity as a Policyholder, or in his capacity as agent for a Policyholder on the merits of his entering into a Contract of Insurance whether as principal or agent.

(3) In (2), ‘advice’ includes a statement, opinion or report:

  • (a) where the intention is to influence a Person, in making a decision, to select a Contract of Insurance or insurance cover; or
  • (b) which could reasonably be regarded as being intended to have such influence.

(4) The arrangements in (1)(c) include arrangements which do not bring about the transaction.

(5) The arrangements in (1)(c) do not include the mere provision of information about:

16. Operating a Representative Office

(1) Operating a Representative Office means the marketing, from an establishment in the AIFC, of one or more financial services or investments which are offered in a jurisdiction other than the AIFC.

(2) For the purposes of this paragraph, "marketing" means:

  • (a) providing information on one or more investments or financial services;
  • (b) engaging in promotions in relation to such information provision; or
  • (c) making introductions or referrals in connection with the offer of financial services or investments; provided that such activities do not constitute:
  • (d) advising on Investments; or
  • (e) receiving and transmitting orders in relation to an Investment.

(3) An Authorised Person which is authorised to Operate a Representative Office may not have a Licence to carry on any other Regulated Activity.

(4) An Authorised Person which does not have a Licence to Operate a Representative Office does not Operate a Representative Office if it undertakes any activities of the kind described in sub‐paragraph (2) that constitute marketing.

(5) Any communication which amounts to marketing in respect of a Financial Service or Investment, which is issued by or on behalf of a Government or non‐commercial governmental entity, does not constitute marketing for the purposes of sub‐paragraph (2).

17. Accepting Deposits

(1) Accepting Deposits means accepting money or funds received as a Deposit if that money or funds are:

  1. (a) lent to other Persons; or
  2. (b) used to finance wholly, or partly, any other activity of the Person accepting the Deposit.

(2) To the extent that any activity constitutes Opening and Operating Bank Accounts, such a Regulated Activity is taken to be incorporated within Accepting Deposits.

18. Providing Credit

(1) Providing Credit means providing a Credit Facility to another Person.

(2) A Person does not carry on the Regulated Activity of Providing Credit if the Credit Facility is to be provided by the Authorised Person in the course of carrying on one or more of the following activities:

19. Advising on a Credit Facility

(1) Advising on a Credit Facility means giving advice to a Person in his capacity as a borrower or a potential borrower, or as an agent for a borrower or a potential borrower, on the merits of his entering into a particular Credit Facility.

(2) In sub‐paragraph (1), "advice" includes a statement, opinion or report:

  • (a) where the intention is to influence a Person, in making a decision, to enter into a particular Credit Facility; or
  • (b) which could reasonably be regarded as being intended to have such an influence.

20. Arranging a Credit Facility

(1) Arranging a Credit Facility means making arrangements for the provision of a Credit Facility by one or more Persons.

(2) A Person does not carry on the Regulated Activity of Arranging a Credit Facility if

  • (a) he is to be a party to the Provision of Credit Facilities in question; or
  • (b) he merely provides the means by which a Person providing a Credit Facility communicates with the Person to whom the Credit Facility is or is to be provided.

(3) A Person does not carry on the Regulated Activity of Arranging a Credit Facility if it:

21. Providing Money Services

(1) Providing Money Services includes, without limitation:

  1. (a) providing currency exchange;
  2. (b) selling or issuing payment instruments;
  3. (c) selling or issuing stored value;
  4. (d) Execution of payment transactions, including transfers of funds on a settlement account, including a bank account, with the user's payment service provider or with another payment service provider:
  5. (i) execution of direct debits, including one-off direct debits;

(ii) execution of payment transactions through a payment card or a similar device; and

  1. (e) Execution of payment transactions where the funds are covered by a credit line for a payment service user:
  2. (i) execution of direct debits, including one-off direct debits;

(ii) execution of payment transactions through a payment card or a similar device; and

  1. (f) Money remittance; and
  2. (g) Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.

(2) An Authorised Person does not provide Money Services, if it does so in relation to the carrying on of another Regulated Activity where providing Money Services is in connection with and a necessary part of that other Regulated Activity.

22. Effecting Contracts of Insurance

Effecting Contracts of Insurance means effecting Contracts of Insurance as Principal.

23. Carrying on Contracts of Insurance

Carrying on Contracts of Insurance means carrying on Contracts of Insurance as Principal.

24. Insurance Management

(1) Insurance Management means:

  1. (a) performing underwriting or administration functions for or on behalf of an insurer or Captive, for the purposes of that insurer effecting or carrying out a Contract of Insurance as principal; or
  2. (b) arranging reinsurance for and on behalf of an insurer or Captive for whom it is underwriting;
  3. (c) performing underwriting or administration functions for or on behalf of a Takaful Operator or a Captive Takaful Operator, for the purposes of that Takaful Operator effecting or carrying out a Takaful Contract as principal; or
  4. (d) arranging Retakaful for and on behalf of a Takaful Operator or Captive for whom it is underwriting.

(2) In (1):

  1. (a) “administration” includes, without limitation, one or more of the following activities:
  2. (i) processing applications for, and endorsements on, Contracts of Insurance;

(ii) collecting and processing premiums or Takaful contributions;

(iii) negotiating terms of settlement of claims; or

(iv) settling claims; and

  1. (b) “underwriting” includes, without limitation, one or more of the following activities:
  2. (i) assessing underwriting risks;

(ii) negotiating and settling terms of Contracts of Insurance or terms of Takaful Contracts, including exclusions;

(iii) negotiating and settling premiums or Takaful contributions;

(iv) negotiating commissions; or

  1. (v) countersigning, stamping and issuing Contracts of Insurance or Takaful Contracts.

(3) In this Rule, a reference to an “insurer” is a reference to:

  1. (a) an Insurer; or
  2. (b) a Non-AIFC insurer.

(4) In this Rule, a reference to a “Takaful Operator” is a reference to:

  1. (a) a Takaful Operator; or
  2. (b) a Non-AIFC Takaful Operator.

25. Takaful Business

Takaful Business means the business of conducting either or both of the following activities:

  • (a) effecting Takaful Contracts as Principal;
  • (b) carrying on Takaful Contracts as Principal.

26. Opening and Operating Bank Accounts

Opening and Operating Bank Accounts means one or more of the following activities:

  1. (a) Opening and operating Bank Accounts;
  2. (b) Services enabling funds to be placed on a Bank Account as well as all the operations required for operating a bank account; and
  3. (c) Services enabling funds withdrawals from a Bank Account as well as all the operations required for operating a Bank Account.

27. Operation of a Payment System

Operation of a Payment System means operation of funds transfer system with formal and standardised arrangements and common rules for the processing, clearing and/or settlement of payment transactions.

28. Operating a Multilateral Trading Facility

Operating a Multilateral Trading Facility or ‘MTF’, where MTF means a system which brings together multiple third parties buying and selling Investments, rights or interests in Investments, in accordance with its non-discretionary rules, in a way that results in a contract in respect of such Investments.


29. Operating an Organised Trading Facility

Operating an Organised Trading Facility or ‘OTF’, where OTF means a system which brings together multiple third parties buying and selling Investments, rights or interests in Investments, in accordance with its discretionary rules, in a way that results in a contract in respect of such Investments.


SCHEDULE 2: ANCILLARY SERVICES

1. Providing Legal Services

Providing Legal Services means the application of legal principles or judgement, including but not limited to:

  • (a) giving legal advice or counsel; or
  • (b) drafting or completion of legal documents or agreements; or
  • (c) representation in court proceedings or in an administrative adjudicative procedure in which legal pleadings are filed or a record is established as the basis for judicial review; or
  • (d) negotiation of legal rights or responsibilities; but excluding acting as a lay representative authorised by an administrative agency or tribunal, serving as a judge, mediator, arbitrator, conciliator or facilitator; and participation in employment negotiations, arbitrations or conciliations.

2. Providing Audit Services

Providing Audit Services means:

  • (a) performing audit, examination, verification, investigation, certification, presentation or review of financial transactions and accounting records; and
  • (b) preparing or certifying reports on audits or examinations of books or records of account, balance sheets, and other financial, accounting and related documents.

3. Providing Accountancy Services

Providing Accountancy Services means the application of accounting principles or judgement, including but not limited to advising on matters relating to accounting procedure and the recording, presentation or certification of financial information or data, including financial information or data required by any law for the time being in force in the AIFC.

4. Providing Consulting Services

Performing Consultancy Services means providing expert knowledge or advice on a particular topic. Consultancy Services may include the activity of Company service providers.

5. Providing Credit Rating Services

Providing Credit Rating Services means:

  • (a) analysis or evaluation of information carried on with a view to issuing or reviewing a Credit Rating; or
  • (b) issuing or reviewing a Credit Rating.

SCHEDULE 3: FORMS

Purpose

Relevant Section or Rule

Form

Application for a Licence to carry on Regulated Activities

GEN 1.1.2


Application to modify or withdraw a Licence to carry on Regulated Activities

GEN 1.1.8


Application for a Licence to carry on Market Activities

GEN 1.2.1


Application to modify or withdraw a Licence to carry on Market Activities

GEN 1.2.8


Application for a Licence to carry on Ancillary Services

GEN 1.3.2


Application to modify or withdraw a Licence to carry on Ancillary Services

GEN 1.3.5


Application for Approved Individual status

GEN 2.2.6


Application to modify or withdraw an Approved Individual’s registration

GEN 2.2.8


Application for approval to a change of control

FSFR section 48; GEN 3.2.2


Notification of proposed decrease in level of control

GEN 3.3.1


Notification of appointment, termination or resignation of Auditor

GEN 6.3.6


_

SCHEDULE 4: MARKET ACTIVITIES

1. Operating an Exchange

(1) Operating an Exchange means operating a facility which functions regularly and brings together multiple third party buying and selling interests in Investments, in accordance with its non discretionary rules, in a way that can result in a contract in respect of Investments admitted to trading or traded on the facility.

(2) The facility referred to in (1) may be organised on a temporary or permanent basis and can be an order driven system, a quote driven system or a hybrid of such systems that enables the market to operate electronic trading or trading by other means.

2. Operating a Clearing House

This section was added on 17 January 2020.

3. Operating a Digital Asset Trading Facility

Operating a Digital Asset Trading Facility means operating a facility which functions regularly and brings together multiple parties (whether as principal or agent) with a view to the entering into of contracts:

  1. (a)  to buy, sell or exchange Digital Assets for a Fiat currency; and/or
  2. (b) to exchange one Digital Asset for another Digital Asset, in its Facility, in accordance with its non-discretionary rules.

4. Operating a Loan Crowdfunding Platform

(1) Operating a Loan Crowdfunding Platform means:

  1. (a) operating an electronic platform that facilitates the bringing together of potential lenders and Borrowers; and
  2. (b) administering a loan agreement that results from operating the electronic platform.

(2) Operating a Loan Crowdfunding Platform also includes making arrangements for a lender to transfer his or her rights and obligations under a loan agreement referred to in (3).

(3) In (1)(b), “administering a loan agreement” means:

  1. (a) providing information or performing other duties under a loan agreement on behalf of the Borrower or the lender;
  2. (b) taking steps to obtain the repayment of a loan; or
  3. (c) exercising rights or performing obligations under a loan agreement on behalf of the Borrower or the lender. Administering a loan agreement includes where a Person (A) performs a function described in (3)(a), (3)(b) or (3)(c) itself and where another Person appointed by A performs such functions, pursuant to an arrangement with A or at A’s direction.

(4) In paragraph (1)(a), an "electronic platform" means a website or other form of electronic media.

(5) Where another Person appointed by A performs functions as described in paragraph (3), A shall:

  1. (a) notify AFSA that the other Person is being appointed by A and provide details of the functions for which they are being appointed;
  2. (b) provide AFSA with the other Person's details including their name and registered address;
  3. (c) require the other Person to notify Borrowers or lenders that they are appointed by and acting on behalf of A and provide details of the functions for which they have been appointed in a way that is clear and not misleading; and
  4. (d) assume responsibility at all times for the actions of the other Person in performing the function for which it has been appointed.

5. Operating an Investment Crowdfunding Platform

(1) Operating an Investment Crowdfunding Platform means:

  1. (a) operating an electronic platform that facilitates the bringing together of potential Investors and Issuers who wish to obtain funding for a business or project, resulting in an Investor obtaining an Investment from the Issuer seeking funding; and
  2. (b) administering an Investment that results from operating the electronic platform.

(2) Operating an Investment Crowdfunding Platform also includes making arrangements for an Investor to sell his or her Investment referred to in (1).

(3) In (1) and (2), “administering an Investment” means:

  1. (a) providing information or performing other duties relating to Investments on behalf of the Issuer or the investor;
  2. (b) taking steps to obtain the payment of any amount payable by the Issuer to an investor; and/or
  3. (c) exercising rights or performing obligations relating to an Investment on behalf of the Issuer or the Investor.

Administering an Investment includes where a Person (A) performs a function described in (3)(a), (3)(b) or (3)(c) itself and where another Person appointed by A performs such functions, pursuant to an arrangement with A or at A’s direction;

(4) In paragraph (1)(a), an "electronic platform" means a website or other form of electronic media.

(5) Where another Person appointed by A performs functions as described in paragraph (3), A shall:

  1. (a) notify AFSA that the other Person is being appointed by A and provide details of the functions for which they are being appointed;
  2. (b) provide AFSA with the other Person's details including their name and registered address;
  3. (c) require the other Person to notify Borrowers or lenders that they are appointed by and acting on behalf of A and provide details of the functions for which they have been appointed in a way that is clear and not misleading; and
  4. (d) assume responsibility at all times for the actions of the other Person in performing the function for which it has been appointed.”

Guidance: Right to operate several types of crowdfunding platforms

(1) A Person may hold Licences to operate a Loan Crowdfunding Platform and an Investment Crowdfunding Platform simultaneously.

(2) An Authorised Crowdfunding Platform must ensure that it does not provide both regulated and unregulated crowdfunding services.

(3) Unregulated crowdfunding services mean operating a Donation-Based, Pre-Sale-Based (or Reward Based) Crowdfunding Platform, which do not require the AFSA authorisation and, therefore, can be performed as non-regulated activities

(4) A Donation-Based Crowdfunding Platform is a platform whereupon the Person operates an electronic platform that facilitates the bringing together of donors and organisations which are registered or recognised as charities by public authorities, whether in the Republic of Kazakhstan or elsewhere.

A Pre-Sale (or Reward-Based) Crowdfunding Platforms is a platform whereupon the Person operates an electronic platform that facilitates the bringing together of persons providing funds to entities and/or persons in return for a reward, service or product (such as event tickets).

6. Operating a Private Financing Platform

(1)     Operating a Private Financing Platform means operating an electronic platform which brings together multiple third parties directly or indirectly buying an instrument acknowledging or creating indebtedness arising from the supply of goods or the delivery of services.

(2)        Operating an Operating a Private Financing Platform also includes:

  1. (a)entering into an arrangement with a party for the purpose facilitating the activity described in (1) whether through an intermediary investment vehicle or otherwise;
  2. (b)facilitating an arrangement described in (2)(a); and/or
  3. (c)holding or controlling Client Money or Arranging Custody in connection with an arrangement described in (1), (2)(a), or (2)(b) above.


7. Operating an Organised Trading Facility

Operating an Organised Trading Facility or ‘OTF’, where OTF means a system which brings together multiple third parties buying and selling Investments, rights and/or interests in Investments, in accordance with its discretionary rules, in a way that results in a contract in respect of such Investments.

8. Operating a Private Financing Platform

(1) Operating a Private Financing Platform means operating an electronic platform which brings together multiple third parties directly or indirectly buying an instrument acknowledging or creating indebtedness arising from the supply of goods or the delivery of services.

(2) Operating an Operating a Private Financing Platform also includes:

  1. (a) entering into an arrangement with a party for the purpose facilitating the activity described in

(1) whether through an intermediary investment vehicle or otherwise;

  1. (b) facilitating an arrangement described in (2)(a); and/or
  2. (c) holding or controlling Client Money or Arranging Custody in connection with an arrangement described in (1), (2)(a), or (2)(b) above.

CONDUCT OF BUSINESS RULES

Conduct of Business

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:

  1. (a) a Representative Office;
  2. (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);
  3. (c) an Authorised Crowdfunding Platform, except for COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement);
  4. (d) an Authorised Digital Asset Trading Facility, except for COB 2 (Client Classification) and COB 3 (Communications with Clients and Financial Promotions); or
  5. (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:

  1. (a) "Authorised Firms" shall be read as if it were a reference to "an Authorised Crowdfunding Platforms";
  2. (b) "Regulated Activities" shall be read as if it were a reference to "Market Activities";
  3. (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
  4. (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:

  1. (a)  "Authorised Firms" shall be read as if it were a reference to "an Authorised Digital Asset Trading Facility "; and
  2. (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</a> (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:

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:

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:

  1. (a) meets the requirements to be a Deemed Professional Client; or
  2. (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:

  1. (a) a national or regional government;
  2. (b) a public body that manages public debt;
  3. (c) a central bank;
  4. (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;

  1. (e) an Authorised Firm, or any other authorised or regulated financial institution, including a bank, securities firm or insurance company;
  2. (f) an Authorised Market Institution, or any other authorised or regulated exchange, trading facility, central securities depository, or clearing house;
  3. (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;
  4. (h) a pension fund or the management company of a pension fund;
  5. (i) a commodity dealer or a commodity derivatives dealer;
  6. (j) a Large Undertaking as specified in COB 2.4.2;
  7. (k) a Body Corporate whose shares are listed or admitted to trading on any exchange of an IOSCO member country;
  8. (l) a trustee of a trust which has, or had during the previous 12 months, assets of at least USD 10 million; or
  9. (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:
  • (i) 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

(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)(i) and 2.5.6(a), an Authorised Firm must, where applicable, consider the following matters:

  • (a) the Person’s knowledge and understanding of:
  • (i) 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
  • (i) 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:
  • (i) 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:

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:

  1. (a) a Deemed Professional Client; or
  2. (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:

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:

  • (a) any risk warnings required by COB;
  • (b) trade confirmations for the purposes of COB 9</a>; and
  • (c) periodic statements for the purposes of COB 9.

2.10. Record keeping

2.10.1. Requirement to keep records

An Authorised Firm must keep records of:

  • (a) the procedures which it has followed under COB 2, including any documents that evidence the Client’s classification; and
  • (b) any notification sent to the Client under COB 2, together with evidence of despatch.

2.10.2. Length of recordkeeping requirement

The records in COB 2.10.1 must be kept for at least six years from the date on which the business relationship with a Client ended.

2.10.3. Date on which the business relationship ended

For the purposes of COB 2.10.2, an Authorised Firm may, if the date on which the business relationship with the Client ended is unclear, treat the date of the completion of the last transaction with the Client as the date on which the business relationship ended.

2.10.4. Obligation to provide access to the AFSA

An Authorised Firm must ensure that the AFSA has access to all of the records required under COB 2.10.1, including any records maintained by or at its head office or any other branch of the same legal entity, or a member of its Group. An Authorised Firm must notify the AFSA immediately if, for any reason, it is no longer able to provide access to these records.

3. COMMUNICATIONS WITH CLIENTS AND FINANCIAL PROMOTIONS

3.1. Application

3.1.1. General requirement

COB 3 applies to:

3.1.2. Territorial scope

This chapter COB 3 applies to:

  1. (a) any communications of an Authorised Firm to a Client; and/or
  2. (b) any Financial Promotions communicated or approved by an Authorised Firm, in relation to a Regulated Activity carried on by an Authorised Firm operating within the jurisdiction of the AIFC as specified in Part 1 of the Framework Regulations.

3.2. Communications to be fair, clear and not misleading

3.2.1. General requirement

An Authorised Firm must ensure that:

3.2.2. No avoidance of regulatory liability

Any communication by an Authorised Firm with a Client, or any Financial Promotion that it communicates or approves, must not attempt to limit or avoid any duty or liability it may have to that Client or any other Person under any applicable AIFC Rules or Regulations.

3.2.3. Information to be communicated directly to Client

Where a Rule in COB requires information to be provided 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.

Guidance: Meaning of "communication"

For the purposes of COB 3, a communication includes, but is not limited to, a Financial Promotion, a client agreement, terms of business, Financial Product terms and conditions, a mandate, power of attorney entered into for the purposes of a Financial Product or Financial Service and any other communication which relates in whole or in part to the provision of a Financial Product or Financial Service.

3.3. Financial Promotions

3.3.1. Prohibition on Financial Promotions

A Person must not make a Financial Promotion in relation to a Regulated Activity carried on an Authorised Firm licensed by the AFSA unless:

  1. (a) the Person is an Authorised Firm;
  2. (b) the content of the Financial Promotion is approved by an Authorised Firm; or
  3. (c) the Financial Promotion is exempt under COB 3.3.3.

Persons who make a Financial Promotion falling within (a), (b) or (c) above shall be "Authorised Promoters" for the purposes of this COB 3.

3.3.2. Financial Promotion by a Representative Office

A Representative Office may make a Financial Promotion only in relation to a Financial Product or Financial Service offered both:

  • (a) in a jurisdiction other than the AIFC; and
  • (b) by a related party of the Representative Office.

3.3.3. Exempt Financial Promotions

For the purposes of COB 3.3.1(c), a communication is an exempt Financial Promotion if it is:

  • (a) directed at and capable of acceptance exclusively by a Person who is believed by the Person making the Financial Promotion, on reasonable grounds, to be a Professional Client or Market Counterparty;
  • (b) made to a Person as a result of an unsolicited request by that Person to receive the Financial Promotion;
  • (c) made or issued by or on behalf of a government or non-commercial government entity, including a central bank;
  • (d) made by a Person in the course of providing legal or accountancy services and may reasonably be regarded as incidental to and a necessary part of the provision of such services;
  • (e) included in a Prospectus approved by the AFSA in accordance with MAR; or
  • (f) included in any document required or permitted to be published under the Listing Rules.

3.3.4. Other exclusions from the Financial Promotions Prohibition

A Person does not breach the Financial Promotions Prohibition if:

(ii) a website carrying third-party banner advertisements;

(iii) a postman or courier;

(iv) a person paid to hand out promotional material to the public and an event venue, unless in each case that Person created the Financial Promotion; or

3.3.5. Content of a Financial Promotion

An Authorised Promoter must ensure that any Financial Promotion that it communicates or approves contains the information in Schedule 5.

3.3.6. Financial Promotions included in other communications

If an Authorised Promoter communicates information to a Client (whether in a document required by these Rules or otherwise), the Person must not include or embed a Financial Promotion in the communication in a way that obscures:

  • (a) the objectives or purpose of the communication; or
  • (b) the nature or purpose of the Financial Promotion.

3.3.7. Withdrawal of a financial promotion

If an Authorised Promoter becomes aware that a Financial Promotion that it has previously communicated or approved does not comply or no longer complies with this Rule, it must ensure that the Financial Promotion is withdrawn as soon as practicable by either:

  • (a) ceasing to make the Financial Promotion and telling any other Person known to be relying on it that the promotion is withdrawn; or
  • (b) withdrawing its approval and telling any Person known to be relying on it that the promotion is withdrawn.

3.3.8. Restriction on communicating Financial Promotions

An Authorised Promoter that communicates or approves a Financial Promotion must ensure that:

3.3.9. Financial promotions for Retail Clients

Before an Authorised Promoter makes or approves a Financial Promotion directed at Retail Clients, it must ensure that the Financial Promotion:

  • (a) is accurate and does not emphasise any potential benefits of a specified Financial Product without also giving a fair and prominent indication of any relevant risks;
  • (b) is sufficient for the needs of, and presented in a way that is likely to be understood by, the average member of the group to whom it is addressed or by whom it is likely to be received; and
  • (c) does not disguise, diminish or obscure important items, statements or warnings.

3.3.10. Comparisons and contrasts

If an Authorised Promoter makes or approves a Financial Promotion that contains a comparison or contrast, it must ensure that:

  • (a) the comparison is meaningful and presented in an objective and balanced way;
  • (b) the sources of the information used for the comparison are stated; and
  • (c) the key facts and assumptions used to make the comparison are included.

3.3.11. Past performance and forecasts

An Authorised Promoter must ensure that any information or representation in a Financial Promotion 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.

3.4. Unsolicited Real Time Financial Promotions

3.4.1. Application

COB 3.4 applies to an Authorised Promoter in relation to the communication to a Retail Client of an Unsolicited Real Time Financial Promotion.

Guidance: Non-application to Professional Clients and Market Counterparties The restrictions on Unsolicited Real Time Financial Promotion in COB 3.4 do not apply to Professional Clients or Market Counterparties because it is expected that these categories of Client are better able to assess the risks of a Financial Product or Financial Service, including when engaging in interactive dialogue with a representative of an Authorised Firm.

3.4.2. Meaning of an Unsolicited Real Time Financial Promotion

A Financial Promotion is considered to be an Unsolicited Real Time Financial Promotion if it is made by way of interactive dialogue:

(ii) does not take place in response to an express request from the recipient of the Financial Promotion; or

  • (b) in relation to which it was not clear from all the circumstances when the dialogue was initiated or requested, that during the course of the dialogue, communications would be made concerning the kind of controlled activities and controlled investments to which the communications in fact made relate.

Guidance: Examples of Unsolicited Real Time Financial Promotions An Unsolicited Real Time Financial Promotion would normally be expected to involve or require an immediate response from the recipient, such as a personal visit, interactive voice communication (including a telephone conversation), or other interactive dialogue. Unsolicited Real Time Financial Promotions are considered to present higher risks to Retail Clients and therefore require additional safeguards compared with solicited and/or non-real time Financial Promotions. Non-real time Financial Promotions include a letter, email, publication, website, television advertisement, or radio broadcast, which generally lack the interactive element and immediacy of a real time Financial Promotion.

3.4.3. No express request for a real time Financial Promotion

For these purposes, a Person is not to be treated as expressly requesting a real time Financial Promotion:

  • (a) because he omits to indicate that he does not wish to engage in any or any further dialogue; or
  • (b) because he agrees to standard terms that state that such dialogue will take place, unless he has signified clearly that, in addition to agreeing to the terms, he is willing for them to take place. If the dialogue is initiated or requested by a recipient (R), it is treated as also having been initiated or requested by any other person to whom it is made at the same time as it is made to R if that other recipient is a Family Member of R or expected to engage in any investment activity jointly with R.

3.4.4. Exemption for image advertising

COB 3.4 does not apply if the Financial Promotion consists only of:

3.4.5. Restriction on Unsolicited Real Time Financial Promotions

An Authorised Promoter must not make an Unsolicited Real Time Financial Promotion unless the recipient is an existing Client of the Authorised Promoter and the relationship is such that the Authorised Promoter reasonably believes that:

  • (a) the recipient understands the risks associated with the relevant Investment; and
  • (b) the recipient would expect to be contacted by the Authorised Promoter for the purpose of communicating Financial Promotions in real time; and

3.4.6. Restriction on nature of Investments

An Unsolicited Real Time Financial Promotion must only relate to an Investment that is:

3.4.7. Procedure for Unsolicited Real Time Financial Promotions

An Authorised Promoter must not communicate an Unsolicited Real Time Financial Promotion to a Client who is not at the Authorised Promoter's premises, unless the Person communicating it:

  • (a) only does so at an appropriate time of the day;
  • (b) identifies himself and the firm he represents at the outset and makes clear the purpose of the communication;
  • (c) clarifies if the Client would like to continue with or terminate the communication, and terminates the communication at any time that the Client requests it; and
  • (d) gives a contact point to any Client with whom he arranges an appointment.

3.5. Record keeping

3.5.1. Record keeping requirement

An Authorised Promoter must keep a record of each Financial Promotion that it makes or approves.

3.5.2. Content of records

The record must include at least the following detail:

4. KEY INFORMATION AND CLIENT AGREEMENT

4.1. Application

This chapter applies to an Authorised Firm intending to carry out Regulated Activities with or for a Client. The obligation in this section to enter into a written client agreement does not apply to an Authorised Firm when it is carrying on a Regulated Activity with or for a Professional Client or Market Counterparty, but the Authorised Firm must still provide specified key information to a Professional Client or Market Counterparty, in accordance with this chapter, before providing services. This chapter does not apply to an Authorised Firm when it is:

  • (a) carrying out the Regulated Activity of providing financing using Shari'ah- compliant Financial Contracts; or
  • (b) a Fund Manager offering the Units of a Fund it manages.

Guidance: Other information requirements Other information requirements will apply to the provision of Shari'ah-compliant Financial Contracts, which are in the AIFC IFR Rules. Similarly, specific disclosure requirements apply to the Offering Materials provided in relation to Units in a Fund, as set out in the AIFC CIS Rules.

4.2. Client agreement

4.2.1. Requirement to enter into a client agreement

Subject to COB 4.2.3, an Authorised Firm must not carry on a Regulated Activity with or for a Person unless:

  1. (a) the Authorised Firm has provided to that Person the key information specified in Schedule 2 in good time before the service is provided to enable the Person to make an informed decision relating to the relevant Regulated Activity; and
  2. (b) if the Person is classified as a Retail Client, there is a written client agreement entered into between the Authorised Firm and that Person.

Guidance: Meaning of "key information"

In this COB 4.2, "key information" means the information specified in Schedule 2.

4.2.2. Relationship between key information and client agreement

An Authorised Firm may either:

  • (a) provide a person with a copy of the proposed client agreement containing the key information; or
  • (b) provide the key information separately from the client agreement.

4.2.3. Where it is impracticable to provide key information or enter into a client agreement

An Authorised Firm may provide a Financial Product or Financial Service to a Retail Client or Professional Client without having to provide key information and/or enter into a client agreement in accordance with COB 4.2.1 where it is impracticable to do so, provided that the Authorised Firm:

  • (a) first explains to the Client why it is impracticable to enter into a client agreement; and
  • (b) enters into a client agreement as soon as practicable thereafter.

Guidance: Example of where it may be impracticable

It may be impracticable to provide the key information or enter into a client agreement if a Client requests the Authorised Firm to execute a transaction on a time-critical basis.

4.2.4. Records of explanation to the Client

Where an Authorised Firm has given the explanation referred to in COB 4.2.3(a) verbally, it should maintain sufficient records to enable the Authorised Firm to demonstrate to the AFSA that it has provided that explanation to the Client.

4.3. Content of client agreement

If the Authorised Firm is required to enter into a written client agreement with the Client, the agreement must set out the essential rights and obligations of both parties.

4.4. Content of key information

Schedule 2 sets out:

  • (a) the core key information that must be included in every client agreement, or otherwise provided to a Client in accordance with COB 4.2.2 (and specifies that, more information is to be disclosed to Retail Clients than to Professional Clients or Market Counterparties); and
  • (c) additional key information that must be included in any client agreement or otherwise provided to a Client in relation to certain activities.

4.5. Record keeping

The Authorised Firm should retain a copy of the client agreement for a period of six years from the date on which the relationship with the relevant Client has terminated.

5. CONDUCT OF INVESTMENT BUSINESS

5.1. Application

5.1.1. Application of requirement to assess suitability

COB 5.2 applies where an Authorised Firm:

  1. (a) Advises on Investments;
  2. (b) Manages Investments; or
  3. (c) Provides Trust Services (subject to COB 5.2.8)

5.1.2. Application of requirement to assess appropriateness

COB 5.3 applies where an Authorised Firm is:

Guidance: Receiving and transmitting orders An Authorised Firm carries on this activity of "receiving and transmitting orders" if it both receives an order from a Client for a transaction in an Investment and transmits it to another party, such as a broker, for execution or for onward transmission to the executing broker or venue.

5.1.3. Market Counterparties

COB 5 does not apply where the Authorised Firm provides a Financial Service to a Market Counterparty.

5.2. Suitability assessment

5.2.1. Requirement to assess suitability

When Advising on Investments or Managing Investments for a Client or Providing Trust Services, an Authorised Firm must take reasonable steps to ensure that any recommendation of a service or recommendation or decision to trade on behalf of a Client is suitable for the Client.

5.2.2. Nature of suitability assessment

When making its recommendation of a service or recommendation or decision to trade on behalf of a Client, the Authorised Firm must assess the Client's:

  1. (a) investment or other objectives;
  2. (b) financial situation; and
  3. (c) knowledge and experience in relation to the type of Investment or Investment Service concerned, so as to ensure that the recommendation or decision to trade is suitable for that particular Client.

5.2.3. Investment objectives

The Authorised Firm must assess the Client's investment objectives by, where appropriate, considering the length of time for which the Client intends to hold Investments, and taking into account the Client's risk profile and tolerance for risk, and the purpose of the relevant Investment.

5.2.4. Financial situation

The Authorised Firm must assess the Client's financial situation by, where appropriate, requesting information on the source and extent of the Client's income, assets, Investments, Real Property, and any regular financial commitments or liabilities.

5.2.5. Knowledge and experience

The Authorised Firm must consider the Client's knowledge and experience by taking into account, to the extent appropriate for the circumstances:

  • (a) the types of Investment, Investment Service and Transaction with which the Client is familiar;
  • (b) the nature, volume, and frequency of the Client’s Transactions in Investments and the period over which they have been carried out;
  • (c) the level of education, and profession or relevant former profession of the Client; and
  • (d) the Client's knowledge and understanding of any associated risks.

5.2.6. Insufficient information

If an Authorised Firm does not obtain sufficient information to assess suitability for the purposes of COB 5.2.2, the Authorised Firm must not recommend an Investment or Investment Service, or make a decision to trade.

5.2.7. Professional Clients

An Authorised Firm may assume, when making a recommendation, or decision to trade, for or on behalf of a Professional Client, that:

5.2.8. Firms providing trust services

An Authorised Firm Providing Trust Services does not have to assess the Client's knowledge and experience or risk tolerance when assessing the suitability of the service to a particular Client, because these considerations are not considered to be relevant to the Regulated Activity of Providing Trust Services.

5.2.9. Suitability reports

When Advising on Investments for a Retail Client, an Authorised Firm must provide the Client with a suitability report that must include:

  • (a) an outline of the advice given;
  • (b) an explanation of why the recommendation is suitable, including how it meets the client's objectives and personal circumstances; and
  • (c) a statement bringing to the client's attention the need for periodic review of suitability (where relevant).

5.3. Appropriateness assessment

5.3.1. Requirement to assess appropriateness

When Dealing in Investments as Principal, Dealing in Investments as Agent, or receiving and transmitting orders for a Client, an Authorised Firm must ask for information about the Client's knowledge and experience in relation to the type of Investment or Investment Service concerned to assess whether the Investment or Investment Service are appropriate for that Client.

Guidance: Client engaged in a course of dealings If a Client engages in a course of dealings involving a specific type of Investment or Investment Service through the services of an Authorised Firm, the Authorised Firm is not required to make a new assessment on the occasion of each separate Transaction. An Authorised Firm complies with COB 5.3 provided that it makes the necessary appropriateness assessment before providing the relevant service.

5.3.2. Exemption from requirement to assess appropriateness

An Authorised Firm is not required to assess appropriateness if:

  • (a) the service provided to the Client:
  • (i) only consists of the execution and/or the reception and transmission of orders;

(ii) relates to the Investments specified in COB 5.3.3 below; and

(iii) is provided at the initiative of the Client;

  • (b) the Client has been clearly informed that in the provision of this service the Authorised Firm is not required to assess the appropriateness of the Investment or Investment Service provided or offered and that therefore he does not benefit from the protection of the rules on assessing appropriateness; and
  • (c) the Authorised Firm complies with its obligations in relation to conflicts of interest.

5.3.3. Exempt Investments for the purposes of COB 5.3.2

The Investments that are exempted in accordance with COB 5.3.2(a)(ii) are:

  • (a) Shares admitted to trading on an Authorised Investment Exchange or other authorised and regulated exchange; or
  • (b) bonds or other forms of securitised debt (excluding those bonds or securitised debt that embed a Derivative); or
  • (c) other non-complex Investments.

Guidance: Non-complex Investments An Investment is non-complex if it satisfies the following criteria:

  • (a) it is not a Derivative or a Security giving the right to acquire or sell a transferable security or giving rise to a cash settlement determined by reference to transferable Securities, currencies, interest rates or yields, commodities or other indices or measures;
  • (b) there are frequent opportunities to dispose of, redeem, or otherwise realise the Investment at prices that are publicly available to the market participants and that are either market prices or prices made available, or validated, by valuation systems independent of the issuer;
  • (c) it does not involve any actual or potential liability for the client that exceeds the cost of acquiring the Investment; and
  • (d) adequately comprehensive information on its characteristics is publicly available and is likely to be readily understood so as to enable the average Retail Client to make an informed judgment as to whether to enter into a Transaction in that Investment.

5.3.4. Nature of appropriateness assessment

The Authorised Firm must assess whether the Client has the necessary knowledge and experience in order to understand the risks involved in relation to the relevant Investment or Investment Service.

5.3.5. Client's knowledge and experience

When assessing the appropriateness of the Investment or Investment Service for the Client, the Authorised Firm must consider the Client's knowledge and experience by taking into account, to the extent appropriate for the circumstances:

  • (a) the types of Investment Service, Investment and Transaction with which the Client is familiar;
  • (b) the nature, volume, and frequency of the Client’s Transactions in Investments and the period over which they have been carried out;
  • (c) the level of education, and profession or relevant former profession of the Client; and
  • (d) the Client's knowledge and understanding of any associated risks.

5.3.6. Professional Clients

An Authorised Firm may assume that a Professional Client has the necessary knowledge and experience for the purposes of COB 5.3.4.

5.3.7. Warning the Client

If an Authorised Firm considers that the Investment Service, Investment or Transaction is not appropriate for the Client, it must issue a warning to the Client that it is not considered to be appropriate.

5.4. Information about the Client

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

5.5. Record keeping

The Authorised Firm must keep a record of its suitability reports for a minimum of six years. It is not required to keep a record of the suitability report if the Client does not proceed with the recommendation.

5.6. Packaged products—additional disclosure

5.6.1. Product disclosure document—preparation

An Authorised Firm must prepare a Product Disclosure Document for each Packaged Product it produces.

5.6.2. Product disclosure document—provision requirement

(1) An Authorised Firm (the selling firm) must not sell, or arrange for the sale of, a Packaged Product to a Retail Client unless it has given the Client, not later than a reasonable time before the Client becomes contractually bound in relation to the sale of the Packaged Product:

  1. (a) a Product Disclosure Document for the Packaged Product; or
  2. (b) if the Packaged Product was produced by another Authorised Firm—a Product Disclosure Document that complies with subrule (2); or
  3. (c) if the Packaged Product was produced by a person in a jurisdiction other than the AIFC—disclosure documentation that complies with subrule (3).

(2) If the Packaged Product was produced by another Authorised Firm, the Product Disclosure Document given to the Retail Client under subrule (1) (b):

  1. (a) must be the Product Disclosure Document prepared by the other Authorised Firm; but
  2. (b) must prominently display each of the following:
  3. (i) the name of the selling firm;

(ii) either the address of the selling firm or a contact point from which the address is available;

(iii) the selling firm’s regulatory status

(3) If the Packaged Product was produced by a person in a jurisdiction other than the AIFC, the disclosure documentation given to the Retail Client under subrule (1) (c) complies with this subrule if:

  1. (a) the selling firm is satisfied on reasonable grounds that:
  2. (i) the disclosure documentation was prepared by the person in accordance with the requirements of the law of the other jurisdiction; and

(ii) those requirements are broadly equivalent to the requirements of this division; and

  1. (b) the disclosure documentation prominently displays:
  2. (i) the information mentioned in subrule (2) (b) (i) to (iii); and

(ii) if the Packaged Product is a Life Policy or a Family Takaful Contract:

(A) a statement to the effect that the person who produced the Packaged Product (the insurer or the Takaful Operator) is not authorised or regulated by the AFSA; and

(B) an explanation of any differences between the cancellation rights (if any) applying in relation to the Packaged Product (including the length of any period to exercise the rights) and those that would be provided under these rules if the insurer or the Takaful Operator as the case may be, were an Authorised Firm; and

(C) a warning to the effect that the claims handling procedures applying in relation to the Packaged Product may differ from those provided under these rules.

(4) If a Life Policy or a Family Takaful Contract sold by an Authorised Firm to a Retail Client is varied and, because of the variation, the Client has a right to cancel the relevant Life Policy or the Family Takaful Contract as the case may be, under COB 19.2.2 (Variations of Life Policies or Family Takaful Contract —right to cancel), the firm must:

  1. (a) update the document that it gave the Client under subrule (1) in relation to the Life Policy or the Family Takaful Contract to reflect the variation; and
  2. (b) give a copy of the updated document to the Client. Guidance for COB 5.6.2 (2) and (3)

1 An Authorised Firm may comply with COB 5.6.2 (2) (b) or (3) (b) by including the required information in a sticker or wrapper attached to the Product Disclosure Document or disclosure documentation.

2 The purpose of COB 5.6.2 (3) is to allow an Authorised Firm to give disclosure documentation that meets the disclosure objectives of a Product Disclosure Document, even if the form or content is different in matters of detail from that required by this division. For example, an Authorised Firm could provide a disclosure document that uses a projection or illustration prepared in accordance with rules prescribed by an overseas regulator, if these ensure a fair projection based on objective and reasonable assumptions.

5.6.3. Product disclosure document—form

An Authorised Firm must ensure that a Product Disclosure Document given by it to a Retail Client for a Packaged Product:

  1. (a) is produced and presented to at least the same quality and standard as the sales or marketing material used by it to promote the Packaged Product; and
  2. (b) is separate from any other material given to the Client; and
  3. (c) displays the product provider’s brand at least as prominently as any other brand displayed; and
  4. (d) does not disguise, diminish or obscure important items, statements or warnings.

5.6.4. Product disclosure document—content

(1) An Authorised Firm must ensure that a Product Disclosure Document prepared by it for a Packaged Product includes each of the following:

  1. (a) the firm’s name;
  2. (b) either the address of the firm or a contact point from which the address is available;
  3. (c) the firm’s regulatory status;
  4. (d) the following statement prominently displayed:

‘The Astana Financial Services Authority is the independent financial services regulator for the Astana International Financial Centre. It requires us, [insert Authorised Firm’s name], to give you this important information to help you to decide whether this [insert ‘product’ or product name] is right for you. You should read this document carefully so that you understand what you are buying, and then keep it safely for future reference.’;

  1. (e) a description, appropriate for the Packaged Product’s complexity, of its nature, its particular characteristics, how it works, and any limitations or minimum standards that apply;
  2. (f) enough information about the material benefits and risks of buying the product for a Retail Client to be able to make an informed decision about whether to buy;
  3. (g) the availability of the firm’s internal complaint-handling procedures and how a complaint may be made to the firm;
  4. (h) whether there is a right to cancel and, if there is a right to cancel, the consequences of exercising this right, and enough details to enable the right to be exercised by a Retail Client.

(2) An Authorised Firm must not, in a Product Disclosure Document prepared by it, do or say (or fail to do or say) anything that might reasonably lead a Retail Client to be mistaken about the product provider’s identity.

5.6.5. Life policies and Family Takaful Contracts —additional content

(1) An Authorised Firm must ensure that a Product Disclosure Document prepared by it for a Life Policy or for a Family Takaful Contract, intended to be sold to a Retail Client includes the following:

  1. (a) a definition of each benefit and option;
  2. (b) the term of the contract;
  3. (c) details of how the contract may be terminated;
  4. (d) how and when premiums are payable;
  5. (e) details of how bonuses are calculated and distributed, including the following information:
  6. (i) how profits that are allocated for the payment of bonuses are distributed;

(ii) whether increased benefits resulting from bonuses are payable (subject to any adjustments) even if the contract is terminated early by either party to the contract;

(iii) if bonuses increase benefits—whether increases are likely to be made each year or only when the policy amounts become payable to the policyholder;

(iv) the basis on which bonuses are distributed to policyholders;

  1. (v) whether policies share equitably in the allocation of all the profits of the long-term fund, or only certain elements of the profits;
  2. (f) an illustration prepared in accordance with COB 5.6.6 (Life policies or Family Takaful Contracts —illustrations), except if the benefits of the Life Policy or Family Takaful Contract do not depend on future investment returns;
  3. (g) information about charges and expenses that, subject to subrule (2), includes:
  4. (i) a description of the nature of the charges and expenses the Retail Client will, or may be expected to, pay; and

(ii) 2 tables (one for the lower projection, and the other for the higher projection, calculated on the basis of a rate of return mentioned in COB 5.6.6 (2)), each prepared in accordance with COB 5.6.7 (Life policies— effect of charges and expenses table) illustrating the effect of charges and expenses on the policy;

  1. (h) information on premiums or Takaful Contributions for each benefit, including, if appropriate, both main benefits and supplementary benefits;
  2. (i) if the Retail Client has been charged for rider benefits or increased underwriting benefits—the amount of premiums charged for those benefits;
  3. (j) if the policy is a unit-linked policy—a definition of the units to which benefits are linked and the nature of the underlying assets.

(2) If the Authorised Firm is exempt from including an illustration mentioned in rule (1) (f) because the benefits of the Life Policy or Family Takaful Contract do not depend on future investment returns, the Product Disclosure Document prepared by it for the Life Policy or Family Takaful Contract must include:

  1. (a) an indication of guaranteed benefits, surrender benefits, paid-up values and any other benefits (whichever are applicable) under the policy; and
  2. (b) the likely amount, and a general description, of the charges and expenses the Retail Client will, or may be expected to, pay under the policy.

5.6.6. Life policies or Family Takaful Contract —illustrations

(1) For COB 5.6.5 (1) (f), the illustration must indicate how the main terms of the Life Policy or Family Takaful Contract, as the case may be, apply to the Retail Client and contain projections of the final surrender value of the policy calculated in accordance with COB 5.6.8 (Life policies or Family Takaful Contract —projection calculation rules).

(2) The illustration must contain at least 2 projections, with:

  1. (a) a lower projection calculated on the basis of a rate of return to be set at no more than 5%; and
  2. (b) a higher projection calculated on the basis of a rate of return that the Authorised

Firm reasonably expects the Life Policy or Family Takaful Contract to achieve, but that, in any event, must be no more than 9%.

5.6.7. Life policies or Family Takaful Contracts —effect of charges and expenses tables

(1) For COB 5.6.5(1) (g), each table illustrating the effect of charges and expenses on the policy must include the contents of the following table (The Effects of Charges and Expenses Table).

The Effects of Charges and Expenses Table


WARNING—if you cash in early you could get back less than you have paid in

This table illustrates what you would get back from your investment if it grew at x% (insert rate of return) a year. These figures are not guaranteed and are only intended to demonstrate the effect of charges and expenses on your investment based on different assumptions on the growth of your investments.


At end of Year

Total paid in to date

Effect of charges and expenses to date

What you might get back


KZT

KZT

KZT

1




2




3




4




5




10




15





(2) An Authorised Firm may change the Effects of Charges and Expenses Table so far as necessary to reflect the nature and effect of the charges and expenses inherent in the particular product.

(3) In completing the Effects of Charges and Expenses Table, the Authorised Firm must:

  1. (a) include figures for the first 5 years of the Life Policy or the Family Takaful Contract; and
  2. (b) if the policy is a whole-Life Policy or Family Takaful Contract or the illustration covers more than 25 years—include figures for the 10th and every subsequent 10th year of the policy’s term; and
  3. (c) if the policy is neither a whole-Life Policy nor a Family Takaful Contract and the illustration covers 25 years or less—include figures for the 10th and every subsequent 5th year of the policy’s term; and
  4. (d) include:
  5. (i) the final year of the policy; or

(ii) for a whole-Life Policy or a single premium Life Policy without a fixed term—an appropriate end date for the policy; and

  1. (e) if there is discontinuity in the trend of surrender values—include the appropriate intervening years; and
  2. (f) in the ‘Total paid in to date’ column, show cumulative totals of contributions paid to the end of each relevant year; and
  3. (g) in the ‘Effect of charges and expenses to date’ column, show the figure calculated by taking the accumulated value of the fund without taking charges and expenses into account and then subtracting from that figure the figure in the ‘What you might get back’ column for the same year; and
  4. (h) in the ‘What you might get back’ column, show the projection of the surrender value for the policy calculated in accordance with COB 5.6.8 (Life policies— projection calculation rules) and accumulated at the rate of return selected by the firm for the lower or higher projection mentioned in COB 5.6.6 (2) (Life policies— illustrations), as the case requires; and
  5. (i) if the Retail Client is entitled to exercise, and has chosen or expressed the intention to exercise, the right to make partial surrenders include a column headed ‘Withdrawals’ showing the cumulative total of the withdrawals.

(4) The Authorised Firm must include a statement at the bottom of the table expressing the effect of charges and expenses on the Life Policy or Family Takaful Contract in terms of a reduction in the rate of return.

Guidance

The reduction in the rate of return (A) may be calculated as follows:

A = B – C

where:

B is the rate of return selected by the firm for the lower or higher projection mentioned in COB 5.6.6(2), as the case requires.

C is the annual rate of return worked out by:

  1. (a) carrying out a projection using B; and
  2. (b) then calculating the annual rate of return (rounded to the nearest tenth of 1%) required to achieve the same projection value if charges and expenses were not taken into account.

5.6.8. Life policies or Family Takaful Contract —projection calculation rules

(1) For COB 5.6.6 (Life policies—illustrations) and COB 5.6.7 (Life policies—effect of charges and expenses table), any projection of the surrender value of a Life Policy or Family Takaful Contract used in an illustration or an Effects of Charges and Expenses Table must be calculated in accordance with a methodology and set of assumptions prepared and approved by the Approved Actuary of the AIFC Insurer preparing the Product Disclosure Document.

(2) In preparing the methodology and assumptions mentioned in subrule (1), the Approved Actuary must have regard to relevant professional standards and any requirements of this division.

(3) A projection must be specific to the Retail Client and be calculated on the basis of the Client’s age and sex, the amount assured, the premium and other factors material to the Life Policy or the Family Takaful Contract.

(4) However, if a projection is calculated for the purposes of a financial promotion or in relation to a single premium Life Policy, it must be calculated on the basis of factors that represent the average member of the group to whom it is directed or by whom it is likely to be received.

(5) In calculating the projection, contributions must be net of any rider benefits and extra premiums charged for increased underwriting benefits.

5.6.9. Life policies or Family Takaful Contracts —provision of policy document

If an Authorised Firm finalises a Life Policy or a Family Takaful Contract with or for a Client, the firm must, immediately after finalising the policy, give the Client, in a durable medium, a policy document containing all the terms of the policy.

5.6.10. Life policies or Family Takaful Contracts —recordkeeping

(1) An Authorised Firm must ensure that a copy of a Product Disclosure Document given by it to a Retail Client in relation to a Life Policy or a Family Takaful Contract is made and kept for at least 6 years, unless the Client does not take out the policy.

(2) An Authorised Firm must ensure that a copy of any other disclosure documentation given by it to a Retail Client in relation to a Life Policy or a Family Takaful Contract is made and kept for at least 6 years, unless the Client does not take out the policy.

(3) An Authorised Firm must ensure that a record of the methodology and set of assumptions prepared and approved by the Approved Actuary for COB 5.6.8 (1) for the firm is made and kept for at least 6 years after the day the methodology or set of assumptions is replaced by a new methodology or set of assumptions.

(4) An Authorised Firm must ensure that a copy of each policy document given to a Client for a Life Policy or a Family Takaful Contract under COB 5.6.9 is kept for at least 6 years after the day the policy ends.

5.6.11. Takaful Contracts – Specific Disclosure requirements

(1) A Takaful Operator or an Insurance Intermediary or an Insurance Manager making a comparison between a Takaful Contract and conventional Contract of Insurance, in the course of offering a policy to their Client, must highlight the principal differences between these products as part of their marketing communications or promotional materials. These differences may relate to the following aspects, but are not limited to:

  1. (a) presence of contractual right to claims or benefits or whether these are discretionary on the part of the firm;
  2. (b) the basis on which benefits and surpluses are allocated to, and between policyholders or participants, as the case may be; and
  3. (c) whether there is any future liability for policyholders or participants, either individually or collectively, to meet deficits in the policyholders’ or participants' funds.

(2) Takaful Operators must ensure that, the participants in the Takaful funds operated by them are provided with clear information about the performance of the funds. The disclosures to meet this requirement must comply with relevant AAOIFI standards, in particular Standard 13 (Disclosure of Bases for Determining and Allocating Surplus or Deficit in Islamic Insurance Companies) and 12 (General Presentation and Disclosure in the Financial Statements of Islamic Insurance Companies).

(3) Takaful Operators must disclose to the participants in the Takaful Funds operated by them, the amount of Wakala fee and Mudaraba share of profits paid by the Takaful fund to the Takaful Operator, as well as the methodology for determining such amounts. In the case of Takaful Operators adopting Takaful models employing contracts other than Wakala or Mudaraba, the compensation paid by the Takaful Funds to the Takaful Operator and the relevant methodologies must be disclosed.

6. ORDER EXECUTION AND ORDER HANDLING

6.1. Best execution

6.1.1. Application

COB 6 applies to an Authorised Firm that executes orders for or on behalf of a Client. The Rules in COB 6 do not apply to an Authorised Firm with respect to any transaction which:

  1. (a) it undertakes with a Market Counterparty, except for COB 6.2.9;
  2. (b) it carries out for the purposes of managing a Fund of which it is the Fund Manager; or
  3. (c) is an Execution-Only Transaction. Where an Authorised Firm executes an Execution-Only Transaction with or for a Client, the Authorised Firm is not relieved from providing best execution in respect of any aspect of that transaction which lies outside the Client’s specific instructions.

6.1.2. Best execution obligation

Subject to COB 6.1.3, when an Authorised Firm executes any transaction with or for a Client in an Investment, it must take all sufficient steps to obtain the best possible result for the Client taking into account the information available, including the following factors:

  • (a) price;
  • (b) costs;
  • (c) speed;
  • (d) likelihood of execution and settlement;
  • (e) size;
  • (f) nature; and
  • (g) any other consideration relevant to execution

6.1.3. Best execution with or for Retail Clients

When an Authorised Firm executes a transaction in an Investment for a Retail Client, the best possible result will be determined by reference to the price and other costs, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order.

6.1.4. Specific instructions

When an Authorised Firm executes a transaction in accordance with specific instructions from the Client, it should be treated as having met its best execution obligation in relation to that part of the order covered by those instructions.

6.2. Client order handling

6.2.1. Application

The Rules in COB 6.2 do not apply to an Authorised Firm with respect to any transaction which:

6.2.2. General requirement

An Authorised Firm that executes orders on behalf of Clients must ensure that it has in place procedures that provide for the prompt, fair and expeditious execution of orders for a Client, relative to orders for itself or for other Clients.

6.2.3. General obligation in relation to orders for a Client

An Authorised Firm must satisfy the following conditions when executing orders for a Client:

  • (a) orders executed for Clients must be promptly and accurately recorded and allocated;
  • (b) comparable orders for Clients must be executed sequentially and promptly unless the characteristics of the order or prevailing market conditions make this impracticable, or the interests of the Client require otherwise;
  • (c) a Retail Client must be informed of any material difficulty relevant to the proper execution of orders promptly when the Authorised Firm becomes aware of the difficulty; and
  • (d) make and maintain a record of:
  • (i) the date and time of the allocation;

(ii) the relevant Investments;

(iii) the identity of each Client concerned; and

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

6.2.4. Aggregation of orders

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 Client whose orders 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 be 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.

6.2.5. Allocation of Investments

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; and
  • (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

6.2.6. Churning

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

6.2.7. Timely execution

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. An Authorised Firm may postpone the execution of a transaction if it has taken reasonable steps to ensure that it is in the best interests of the Client.

6.2.8. Averaging of prices

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. 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.

6.2.9. Records of orders and transactions

When an Authorised Firm:

  • (a) receives a Client order or in the exercise of its discretion decides upon a transaction;
  • (b) executes a transaction; or
  • (c) passes a Client order to another Person for execution, it must promptly make a record of the information set out in Schedule 1.

6.3. Voice and electronic communications

6.3.1. General requirement

An Authorised Firm must, subject to COB 6.3.4, take reasonable steps to ensure that it makes and retains:

  • (a) recordings of voice communications, including telephone conversations, other than communications where both parties are physically present; and
  • (b) copies of electronic communications, when such communications are with a Client or with another Person in relation to a Transaction, including the receiving or transmitting of related instructions.

6.3.2. Notification to Clients

The Authorised Firm must notify new and existing Clients that relevant voice communications between the Authorised Firm and its Clients in relation to a Transaction will be recorded. The Authorised Firm is only required to inform its Clients once, prior to the provision of any Investment Service to a new Client or when this obligation applies for the first time in relation to an existing Client.

6.3.3. Privately owned equipment

An Authorised Firm must take all reasonable steps to prevent an Employee or contractor from making, sending, or receiving relevant voice and electronic communications on privately owned equipment which the Authorised Firm is unable to record or copy.

6.3.4. Exemption for non-specific communications

The obligation in COB 6.3.1 does not apply in relation to relevant voice and electronic communications which are not intended to lead to the conclusion of a specific Transaction and are general conversations or communications about market conditions.

6.3.5. Record keeping

The records retained under COB 6.3.1 must be:

  • (a) kept accessible, such that the Authorised Firm is able to demonstrate that all relevant records are capable of being promptly accessed;
  • (b) maintained in comprehensible form or capable of being promptly reproduced; and
  • (c) protected from unauthorised alteration.

6.3.6. Length of retention period

Recordings of relevant voice communications and copies of electronic communication recordings must be retained for a minimum of six months.

6.4. Direct Electronic Access

Where an Authorised Firm provides a Client (including a Market Counterparty) with direct electronic access to an Authorised Market Institution, the Authorised Firm must:

  • (a) establish and maintain policies, procedures, systems and controls to limit or prevent a Client from placing an order that would result in the position limits or credit limits being exceeded; and
  • (b) ensure that such policies, procedures, systems and controls remain appropriate and effective on an on-going basis.

7. CONFLICTS OF INTEREST

7.1. The general obligation

In accordance with Principle 8 of the Principles for Authorised Persons in GEN, an Authorised Firm must take all reasonable steps to ensure that conflicts of interest between itself and its Clients, between its Employees and Clients and between one Client and another are identified and then prevented or managed, or disclosed, in such a way that the interests of a Client are not adversely affected.

7.2. Identifying a conflict of interest

In order to identify the conflicts of interest that may arise in the course of its business, an Authorised Firm must consider whether it or a Person linked to the firm:

  • (a) is likely to make a financial gain, or avoid a financial loss, at the expense of a Client;
  • (b) has an interest in the outcome of a service or a transaction carried out for the Client, which is different from the Client's interest;
  • (c) has arranged for one part of its business or a business line to provide a service or carry out a transaction for a Client that has a favourable or beneficial impact on another part or business line of the same Authorised Firm or Person linked to the firm;
  • (d) has any incentive to favour one Client over another Client;
  • (e) carries on the same business or activities as the Client; or
  • (f) receives an inducement from a third party in relation to a service provided to a Client.

7.3. Managing a conflict of interest

Where an Authorised Firm is aware of a conflict or potential conflict of interest, it must take all reasonable steps to prevent that conflict of interest from adversely affecting the Client by using the following arrangements as appropriate:

  • (a) establishing and maintaining effective organisational arrangements to prevent or manage conflicts, including information barriers to restrict the communication of the relevant information; and
  • (b) disclosing the conflict of interest to the Client in writing either generally or in relation to a specific transaction, the risks resulting from that conflict, and the steps taken to address the conflict.

If an Authorised Firm is unable to prevent or manage a conflict or potential conflict of interest, it must decline to act for that Client.

Guidance: Information barriers

An information barrier, also known as a "Chinese wall", is an arrangement that requires a Person involved in one part of an Authorised Firm's business to withhold information from Persons involved in another part of the business.

7.4. Inducements

7.4.1. General requirement

An Authorised Firm must have policies and procedures in place to ensure that it, or its Employee or Associate, does not offer, give, solicit or accept any inducement from a third party, such as a fee, commissions or other direct or indirect benefit, where the inducement is reasonably likely to conflict with any duty that the Authorised Firm owes to its Clients.

7.4.2. Introductions

In circumstances where an Authorised Firm introduces a Client to a third party and receives a fee, commission or other benefit in respect of that introduction, such fee, commission or other benefit received in respect of such a referral would not be a prohibited inducement under this Rule, provided that the Authorised Firm has acted in the best interests of the Client.

7.4.3. Requirement to disclose inducements

An Authorised Firm must, before providing a Financial Product or Financial Service to a Client, disclose to that Client any inducement which it, or any Associate or Employee of it, has received or may or will receive as a result of providing the Financial Product or Financial Service.

7.4.4. Disclosure in summary form

An Authorised Firm may provide the information required by COB 7.4.3 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.

7.4.5. Record keeping

An Authorised Firm shall maintain record of inducements disclosed under COB 7.4.3 for a period of six years after such inducement was disclosed.

7.5. Personal Transactions

7.5.1. Conditions for Personal Transactions

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

  • (a) an Employee does not undertake a Personal 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 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 Transactions; and
  • (c) if an Employee’s Personal Transactions are conducted with the Authorised Firm, each Employee’s account must be clearly identified and distinguishable from other Clients’ accounts.

7.5.2. Content of written notice

The written notice in COB 7.5.1(a)(i) must make it explicit that, if an Employee is prohibited from undertaking a Personal Transaction, he must not, except in the proper course of his employment:

8. CLIENT ASSETS

8.1. Application

8.1.1. Purpose of COB 8

The purpose of this section is providing protection for the Client, in the event that an Authorised Firm becomes insolvent or is otherwise unable to fulfil its obligations, in relation to any Money or Investments that are held by the Authorised Firm for that Client.

8.1.2. Application of COB 8

This section applies to an Authorised Firm which:

  • (a) receives Money from, or holds or controls Money for or on behalf of, a Client in the course of, or in connection with, the carrying on of Investment Business in or from the AIFC;
  • (b) holds or controls Instruments belonging to a Client in the course of, or in connection with, the carrying on of Investment Business in or from the AIFC; or
  • (c) Provides Custody in or from the AIFC.

8.1.3. Meaning of "hold" and "control"

Client Assets are held or controlled by an Authorised Firm if they are:

Guidance: Examples of Client Assets controlled by an Authorised Firm

For the purposes of COB 8.1.3, the AFSA would consider:

(ii) an account to be controlled by an Authorised Firm if that account is operated in accordance with the instructions of the Authorised Firm; and

(iii) if an Authorised Firm has a discretionary portfolio mandate from a Client, even though the assets are to be held in the name of the Client (for example, under a power of attorney arrangement), the Authorised Firm controls those assets as it can execute transactions relating to those assets, within the parameters set out in the mandate, in which situation the rules on mandates in COB 8.4 shall apply.

8.1.4. General requirements

An Authorised Firm which receives Money from, or holds Money for or on behalf of, a Client in the course of, or in connection with, the carrying on of Investment Business in or from the AIFC must comply with COB 8.2.

An Authorised Firm which holds Investments belonging to a Client in the course of, or in connection with, the carrying on of Investment Business in or from the AIFC or Provides Custody in or from the AIFC must comply with COB 8.3. A Client whose Investments or Money is required to be held in compliance with either COB 8.2 or COB 8.3 is a "Segregated Client". An Authorised Firm which controls Money or Investments belonging to a Client under a Mandate but does not receive or hold that Money or those Investments itself must comply with COB 8.4.

8.1.5. Arranging Custody

An Authorised Firm which Arranges Custody must comply with the requirements in COB 8.3.7 (on assessing the suitability of Third Party Account Providers), COB 8.3.13 (on disclosure), COB 8.3.14(2) (on client reporting) and COB 8.3.15 (on record keeping).

8.2. Client Money: Investment Business

The rules in this COB 8.2 are the Client Money Rules.

8.2.1. Meaning of "Client Money"

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

8.2.2. Exclusion of the Client Money Rules

Where the Client is a Market Counterparty or a Professional Client, the Authorised Firm and the Client may agree to exclude the application of the Client Money Rules. Any such agreement with the Client must be in writing and must be entered into before the Authorised Firm provides Investment Business in respect of that Money.

Where the Authorised Firm proposes to exclude the application of the Client Money Rules under this COB 8.2.2, it must prior to obtaining the Client's agreement disclose to the Client in writing that the Money held by the Authorised Firm will not be subject to the protections conferred by the Client Money Rules.

8.2.3. General requirements

An Authorised Firm which receives or holds Client Money for a Segregated Client must:

  • (a) comply with the Client Money Rules in relation to that Client Money; and
  • (b) have systems and controls in place to be able to evidence its compliance with the Client Money Rules.

8.2.4. Client Money Accounts

A Client Money Account in relation to Client Money is an account which:

8.2.5. Requirement to pay Client Money into Client Money Account

Where an Authorised Firm receives or holds Client Money it must ensure (except where otherwise provided in COB 8.2.8) that the Client Money is paid into one or more Client Money Accounts within one day of receipt.

Where an Authorised Firm deposits any Money into a Client Money Account, such Money is Client Money until the Money is withdrawn from the Client Money Account in accordance with the Client Money Rules.

8.2.6. Client Money held for Segregated Clients in a Client Money Account

An Authorised Firm may hold Client Money belonging to a Segregated Client:

8.2.7. Client Money Account to contain Client Money only

An Authorised Firm must:

  • (a) not deposit its own Money into a Client Money Account, other than where:
  • (i) a minimum sum is required to open the Client Money Account, or to keep it open;

(ii) 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);

(iii) interest credited to the account exceeds the amount payable to Segregated Clients (provided that the Money is removed within twenty-five days); or

(iv) it is to meet a shortfall in Client Money;

  • (b) maintain systems and controls for identifying Money which must not be in a Client Money Account and for transferring it without delay;
  • (c) not use Client Money belonging to one Client to satisfy an obligation of another Client; and
  • (d) ensure that no off-setting or debit balances occur on Client Money Accounts.

8.2.8. Exceptions to Holding Client Money in Client Money Accounts

The requirement for an Authorised Firm to pay Client Money into a Client Money Account does not apply with respect to Client Money:

(ii) in respect of a sale by the Client, the Client Money will be due to the Client within one day following the Client's fulfilment of its delivery obligation to the Authorised Firm. Where (b) or (c) apply, the Authorised Firm must pay the Client Money into a Client Money

Account where it has not fulfilled its delivery or payment obligation within three days of receipt of the Money or Investments, except where the circumstances in (c)(ii) apply and the Authorised Firm instead safeguards Client Investments of a value at least equal to the value of such Client Money.

An Authorised Firm must maintain adequate records of all cheques and payment orders received in accordance with (a) above including, in respect of each payment, the date of receipt, the name of the Client for whom payment is to be credited and the date on which the cheque or payment order was presented to the Authorised Firm's Third Party Account Provider. The records must be kept for a minimum of six years.

8.2.9. Conditions for use of Third Party Account Providers

Save as provided in this COB 8.2.9, an Authorised Firm may only pass, or permit to be passed, Client Money to a Third Party Account Provider if:

Provider and that has been approved by the AFSA as being suitable for the holding of Client Money.

In respect of (a) and (b) above, an Authorised Firm must not hold the Client Money with the Third Party Account Provider longer than necessary to effect a Transaction or satisfy the Client's obligation.

8.2.10. Holding Client Money with Third Party Account Providers

An Authorised Firm may only pay, or permit to be paid, Client Money to a Third Party Account Provider pursuant to COB 8.2.9 (c) or (d) above where it has:

(ii) the jurisdiction in which the relevant Bank or Regulated Financial Institution is legally established (if different), recognise that Client Money belongs beneficially to the Client and will not be available to satisfy any debts of the Bank or Regulated Financial Institution.

8.2.11. Due diligence on Third Party Account Providers

When undertaking due diligence on a Third Party Account Provider, an Authorised Firm should have regard to the following:

(ii) its credit rating;

(iii) its capital and financial resources;

(iv) the amount of Client Money placed, as a proportion of its overall capital and deposits;

    (v) the extent to which the Client Money would be protected under a deposit guarantee protection scheme;

(vi) where such information is available, the level of risk in the investment and loan activities undertaken by it or members of its Group;

(vii) its use of agents and service providers; and

(viii) the financial position of its Group; and

  • (b) (without prejudice to the obligation under (a) above) any legal requirements or market practices in the jurisdiction in which it is located (including the insolvency regime in that jurisdiction) which may adversely affect the protections available in respect of any Client Money placed with the Third Party Account Provider.

When assessing the suitability of the Third Party Account Provider, the Authorised Firm must ensure that the Third Party Account Provider will provide protections equivalent to the protections conferred by the Client Money Rules.

An Authorised Firm must have systems and controls in place to ensure that the Third Party Account Provider remains suitable to hold Client Money for its Segregated Clients. This includes undertaking appropriate due diligence, in the manner described above, on an ongoing basis.

An Authorised Firm must be able to demonstrate to the AIFC's satisfaction the grounds upon which the Authorised Firm considers the Third Party Account Provider to be suitable to hold that Client Money.

8.2.12. Obtaining written acknowledgments from Third Party Account Providers

When an Authorised Firm opens a Client Money Account with a Third Party Account Provider it must obtain a written acknowledgement from the Third Party Account Provider stating that:

8.2.13. Payments of Client Money from Client Money Accounts

Client Money must remain in a Client Money 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 or to a duly authorised representative of such Client;
  • (c) paid in accordance with an instruction from the Client 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 AIFC.

Money paid out by way of cheque or other payable order under this Rule must remain in a Client Money Account until the cheque or payable order is presented to the Client's bank and cleared by the paying agent

8.2.14. Client Money arising from Client Investments

Money arising from, or in connection with, the holding of Client Investments and which is due to a Client must be treated as Client Money in accordance with the Client Money Rules.

8.2.15. Distribution Event

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.

8.2.16. Client Money Distribution Rules (Investment Business)

(1) The requirements in this COB 8.2.16 are the Client Money Distribution Rules (Investment Business) and to the extent that these Rules are inconsistent with the AIFC Insolvency Regulations, these Rules will prevail.

(2) Following a Distribution Event, the Authorised Firm must distribute Money in the following order of priorities:

  1. (a) firstly, in relation to Client Money held in a Client Account on behalf of Segregated Clients, claims relating to that Money must be paid to each Segregated Client in full or, where insufficient funds are held in a Client Account, proportionately, in accordance with each Segregated Client’s valid claim over that Money;
  2. (b) secondly, where the amount of Client Money in a Client Account is insufficient to satisfy the claims of Segregated Clients in respect of that Money, or not being immediately available to satisfy such claims, all other Money held by the Authorised Firm must be used to satisfy any outstanding amounts remaining payable to Segregated Clients in respect of their Client Assets but not satisfied from the application of (a) above;
  3. (c) thirdly, upon resolution of claims in relation to Segregated Clients, any Money remaining with the 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
  4. (d) fourthly, upon satisfaction of all claims in (a), (b) and (c) above, in the event of:
  5. (i) the appointment of a liquidator, receiver or administrator, or trustee in bankruptcy over the Authorised Firm or the Nominee Company, payment must be made in accordance with the AIFC Insolvency Regulations; or

(ii) all other Distribution Events, payment must be made in accordance with the direction of the AFSA.

8.2.17. Procedures relating to Client Money Accounts

An Authorised Firm must have procedures for identifying Client Money received by the Authorised Firm (by whatever means they are received) 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.

An Authorised Firm must have procedures for ensuring all withdrawals from a Client Money Account are authorised and carried out in accordance with this COB 8.2.17.

8.2.18. Client disclosures

An Authorised Firm that holds Client Money belonging to a Client in must in good time before it provides the relevant Investment Business disclose the following information to the Client:

(ii) in the event of the Authorised Firm's insolvency, winding up or other Distribution Event stipulated by the AIFC, the Client's Money will be subject to the Client Money Distribution Rules;

  • (b) whether the Client Money of that Client may be held by a third party on behalf of the Authorised Firm, and if so, what degree of responsibility the Authorised Firm has for any acts or omissions of the third party; and what the likely consequences are for the Client of the insolvency of the third party;
  • (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 AIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the AIFC;
  • (e) if applicable, details about how any Client Money arising out of Islamic Financial Business are to be held; and
  • (f) 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.

8.2.19. Client reporting

In relation to each Client for whom it receives or holds Client Money, an Authorised Firm must provide at least once a year a statement of the Client Money unless such a statement has been provided in a periodic statement in accordance with COB 9.

8.2.20. Record keeping

An Authorised Firm must maintain records which enable it to determine promptly the total amount of Client Money that it holds for each of its Clients.An Authorised Firm must maintain records:

8.2.21. Reconciliations

An Authorised Firm must maintain a system to ensure that accurate reconciliations of the Client Accounts are carried out at least once in every calendar month.

8.2.22. Nature of reconciliation

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
  • (e) formal statements from Third Party Account Providers showing account balances as at the date of reconciliation.

8.2.23. Requirements for reconciliation

An Authorised Firm must:

  • (a) reconcile the individual credit ledger balances, Client Account cash book balances, and the Third Party Account Provider 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 Account Provider and the Authorised Firm, are investigated and, where applicable, corrective action taken as soon as possible. An Authorised Firm must perform the reconciliations in the preceding paragraph within 10 days of the date to which the reconciliation relates. An Authorised Firm must ensure that the process of reconciliation does not give rise to a conflict of interest.

8.2.24. Review of reconciliation

When performing reconciliations in accordance with COB 8.2.21, an Authorised Firm should:

  1. (a) 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; and
  2. (b) ensure that the reconciliations are reviewed by a member of the Authorised Firm who has adequate seniority. The member in question must provide a written statement confirming the reconciliation has been undertaken in accordance with the requirements of COB 8.3.21- 8.2.23.

Guidance: Material discrepancies The Authorised Firm should notify the AFSA where there has been a material discrepancy with the reconciliation which has not been rectified. A material discrepancy includes discrepancies which have the cumulative effect of being material, such as longstanding discrepancies.

8.3. Client Investments Rules

The rules in COB 8.3 are the Client Investments Rules.

8.3.1. Meaning of Client Investments

A Client Investment is an Investment held by an Authorised Firm on behalf of a Client in the course of, or in connection with, the carrying on of Investment Business by the Authorised Firm.

8.3.2. Exceptions to the Client Investments Rules

The Client Investments Rules do not apply to Client Investments held as Collateral in accordance with the provisions of this COB 8.3.2. Before an Authorised Firm holds Collateral from a Client it must disclose to that Client:

8.3.3. Safeguarding Client Investments

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

An Authorised Firm which Provides Custody or holds Client Investments must ensure that Client Investments are recorded, registered and held in an appropriate manner to safeguard and control such property.

8.3.4. Client Investment Accounts

A Client Investment Account is an account which:

8.3.5. Registration and recording of Client Investments

An Authorised Firm which Provides Custody or holds Client Investments must register or record all Client Investments in the name of:

Save as provided in (c) above, an Authorised Firm which Provides Custody or holds or controls Client Investments must record, register and hold Client Investments separately from its own Investments.

8.3.6. Registration and recording of Client Investments

An Authorised Firm may record, register or hold a Client Investment in:

8.3.7. Holding Client Investments with Third Party Account Providers

An Authorised Firm may only hold a Client Investment with a Third Party Account Provider where it has:

(ii) the jurisdiction in which the relevant Bank or Regulated Financial Institution is legally established (if different), recognise that Client Investments belong beneficially to the Client and will not be available to satisfy any debts of the Bank or Regulated Financial Institution.

8.3.8. Due diligence on Third Party Account Providers

When undertaking due diligence on a Third Party Account Provider, an Authorised Firm should have regard to the following:

(ii) its credit rating;

(iii) its capital and financial resources;

(iv) the value of the Client Investments held, as a proportion of its overall capital and deposits;

    (v) the extent to which the Client Investments would be protected under a deposit guarantee protection scheme;

(vi) where such information is available, the level of risk in the investment and loan activities undertaken by it or members of its Group;

(vii) its use of agents and service providers; and

(viii) the financial position of its Group; and

8.3.9. Entering into written agreements with Third Party Account Providers

Before an Authorised Firm passes, or permits to be passed, Client Investments to a Third Party Account Provider, it must enter into a written agreement with the Third Party Account Provider under which the Third Party Account Provider agrees that:

  • (a) it shall keep the Client Investments separately from assets belonging to the Third Party Account Provider;
  • (b) all Investments standing to the credit of the account are held by the Authorised Firm as agent and that the Third Party Account Provider 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;
  • (c) the title of the account is, or will be, sufficient to distinguish that account from any account containing Investments that belong to the Authorised Firm or the Third Party Account Provider; and
  • (d) it shall provide a written statement on at least a monthly basis identifying all of the Client Investments that it holds for the Authorised Firm.

8.3.10. Contents of agreements with Third Party Account Providers

The written agreement between the Authorised Firm and the Third Party Provider must also address the following:

8.3.11. Use of Client Investments for the purposes of the Authorised Firm or another Person

An Authorised Firm must not use a Client Investment for its own purpose or that of another Person without the prior written permission of the relevant Client. An Authorised Firm which intends to use a Client Investment for its own purpose or that of another Person, must have systems and controls in place to ensure that:

  • (a) it obtains the prior written permission of the relevant Client to the use of the Client Investment;
  • (b) adequate records are maintained to protect Client Investments which are applied as collateral or used for stock lending activities;
  • (c) the equivalent Investments are returned to the Client Investment Account of the Client; and
  • (d) the Client is not disadvantaged by the use of its Client Investments.

8.3.12. Procedures relating to Client Investment Accounts

An Authorised Firm must have procedures for ensuring that Client Investments are promptly identified and held in accordance with the provisions of this COB 8.3.

8.3.13. Client disclosure

An Authorised Firm that holds Client Investments belonging to a Segregated Client must disclose the following information to the Client:

  • (a) that the Client is subject to the protections conferred by the Client Investments Rules;
  • (b) the arrangements for recording and registering Client Investments, claiming and receiving dividends and other entitlements and interest and the giving and receiving instructions relating to those Client Investments (including, if applicable, a statement that the Authorised Firm intends to mix the Client Investments of the Client with those of other Clients);
  • (c) whether the Client Investments of that Client may be held by a third party on behalf of the Authorised Firm, and if so, what degree of responsibility the Authorised Firm has for any acts or omissions of the third party; and what the likely consequences are for the Client of the insolvency of the third party;
  • (d) if applicable, that the Client Investments may be held in a jurisdiction outside the AIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the AIFC;
  • (e) details of any rights which the Authorised Firm may have to realise Client Investments held on behalf of the Client in satisfaction of a default by the Client or otherwise; and
  • (f) the method and frequency upon which the Authorised Firm will report to the Client in relation to its Client Investments.

8.3.14. Client reporting

(1)In relation to each Client for whom it receives or holds Client Investments, an Authorised Firm must provide at least once a year a statement of the Client Investments unless such a statement has been provided in a periodic statement in accordance with (2) or COB 9.

(2)An Authorised Person which Provides Custody for safeguarding and administering Digital Assets belonging to a Retail Client must send a statement to its Retail Clients at least monthly. The statement must include the list, description and amount of each Digital Asset held by the Authorised Person as at the date of reporting.

8.3.15. Record keeping

An Authorised Firm must maintain records:

8.3.16. Reconciliations

An Authorised Firm must:

(a)     at least once every calendar month, reconcile its records of Client Accounts held with Third Party Account Providers with monthly statements received from those Third Party Account Providers;

(b)     at least every six months, count all Client 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 Client Investment balances held in Client Accounts.

An Authorised Firm must ensure that the process of reconciliation does not give rise to a conflict of interest.

Where Authorised Persons Provide Custody for safeguarding and administering Digital Assets belonging to another Person, all reconciliations required under COB 8.3.16 shall be conducted at least every week.


8.3.17. Review of reconciliation

When performing reconciliations in accordance with COB 8.3.16, an Authorised Firm should:

  1. (a) 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; and
  2. (b) ensure that the reconciliations are reviewed by a member of the Authorised Firm who has adequate seniority. The member in question must provide a written statement confirming the reconciliation has been undertaken in accordance with the requirements of COB 8.3.16.

Guidance: Material discrepancies The Authorised Firm should notify the AFSA where there has been a material discrepancy with the reconciliation which has not been rectified. A material discrepancy includes discrepancies which have the cumulative effect of being material, such as longstanding discrepancies.

8.4. Mandates

Where an Authorised Firm holds a Mandate, it must establish adequate records and systems and controls in respect of its use of the Mandates. Where an Authorised Firm holds Mandates, it must:

  • (a) maintain an up-to-date list of all such Mandates, including any conditions placed by the Client or by the Authorised Firm on the use of the Mandate and details of the procedures and authorities for the giving and receiving of instructions under the Mandate;
  • (b) maintain a record of each Transaction entered into under each Mandate; and
  • (c) ensure that all Transactions entered into using such a Mandate are are within the scope of the authority of the Employee and the Authorised Firm entering into such Transactions.

8.5. Client money: Insurance Intermediation and Insurance Management

8.5.1. Application

COB 8.5 applies to an Insurance Intermediary or Insurance Manager that receives or holds Money for, or on behalf of, a Client in the course of carrying on Insurance Intermediation or Insurance Management. This section also applies to an Insurance Intermediary or Insurance Manager that carries on Insurance Intermediation or Insurance Management for a Takaful Operator.

Guidance: Application to Takaful Business

All provisions in this section 8.5 of AIFC COB rules apply to Insurance Intermediation or Insurance Management activities carried out for a Takaful Operator or for a Takaful Business. All references to Insurance Contract include references to Takaful Contract.

8.5.2. Meaning of “Segregated Client”

A Client whose Money is required to be held in compliance with COB 8.5 is a "Segregated Client". Guidance: Nature of Client Money in context of Insurance Intermediation and Insurance Management Client Money in this context may include the following to the extent that they are received or held by the Insurance Intermediary or Insurance Manager:

  1. (a) premiums, additional premiums and return premiums of all kinds;
  2. (b) claims and other payments due under Contracts of Insurance;
  3. (c) refunds;
  4. (d) fees, charges, taxes and similar fiscal levies relating to Contracts of Insurance; or
  5. (e) discounts, commissions and brokerage
  6. (f) monies received from or on behalf of a Client of an Insurance Manager, in relation to his Insurance Management business.

8.5.3. Exception

COB 8.5 does not apply to an Authorised Firm that receives or holds Client Money in accordance with the Rules in COB 8.2 (Client Money: Investment Business).

8.5.4. Client Money

All Money received or held on behalf of a Client in the course of, or in connection with, carrying on Insurance Intermediation or Insurance Management in or from the AIFC is Client Money, except Money which is:

  1. (a) due and payable by the Client to the Insurance Intermediary or Insurance Manager:
  2. (i) for its own account; or

(ii) in its capacity as agent of an insurer where the Insurance Intermediary or Insurance Manager acts in accordance with COB 8.5.5 (Holding money as agent of an insurer);

  1. (b) otherwise received by the Insurance Intermediary or Insurance Manager under an arrangement made between an insurer and another Person that has authority to underwrite risks, settle claims, or handle refunds of premiums on behalf of that insurer outside the AIFC and where the Money relates to that business.

8.5.5. Holding money as agent of an insurer

Money received or held by an Insurance Intermediary or Insurance Manager is not Client Money for the purposes of this COB 8.5 where there is a written agreement in place between the Insurance Intermediary or Insurance Manager and the insurer to whom the relevant money is to be paid (or from whom they have been received) under which the insurer agrees that:

  1. (a) the Insurance Intermediary or Insurance Manager holds as agent for the insurer all money received by it in connection with Contracts of Insurance effected or to be effected by the insurer;
  2. (b) insurance cover is maintained for the Client once the money is received by the Insurance Intermediary; and
  3. (c) the insurer's obligation to make a payment to the Client is not discharged until actual receipt of the relevant money by the Client.

8.5.6. Duty to segregate Client Money

An Insurance Intermediary or Insurance Manager when dealing with Client Money must hold Client Money separate from its money. The Insurance Intermediary or Insurance Manager must segregate the Client Money by either:

  1. (a) paying it as soon as is practicable into a Client Money Account; or
  2. (b) paying it out in accordance with COB 8.5.7 (Money due to a Client from an Insurance Intermediary or Insurance Manager).

8.5.7. Money due to a Client from an Insurance Intermediary or Insurance Manager

If an Insurance Intermediary or Insurance Manager is liable to pay Money to a Client, it must as soon as possible:

  1. (a) pay the Money into a Client Money Account; or
  2. (b) pay it to, or to the order of, the Client.

8.5.8. Use of a Client Money Account

An Insurance Intermediary or Insurance Manager must not hold Money other than Client Money in a Client Money Account, other than:

  1. (a) a minimum sum required to open the Client Money Account, or to keep it open;
  2. (b) Money withdrawn as commission from the Client Money Account (where the Insurance Intermediary or Insurance Manager has received a premium from a Client or on behalf of the Client in accordance with its terms of business with that Client and the relevant insurer, and the commission is withdrawn before onward payment of that premium to the insurer);
  3. (c) Money received by way of mixed remittance (that is, part Client Money and part other Money) (provided the Insurance Intermediary or Insurance Manager pays the full amount into the Client Money Account, and transfers out that part of the payment which is not Client Money not later than 25 days after the day on which the remittance is cleared);
  4. (c) interest credited to the account which exceeds the amount payable to Clients as interest.

8.5.9. Client Money Account

An Insurance Intermediary or Insurance Manager must:

  1. (a) ensure that Client Money is held in one or more Client Money Accounts with one or more Third Party Account Providers;
  2. (b) take reasonable steps before opening a Client Money Account, and as often as is appropriate on a continuing basis (and no less than once in each financial year), to ensure that the Third Party Account Provider is appropriate for that purpose;
  3. (c) prior to operating a Client Money Account, give written notice to, and request written confirmation from, the Third Party Account Provider that the bank is not entitled to combine the Client Money Account with any other account unless that account is itself an Client Money Account held by the Authorised Firm, or to any charge, encumbrance, lien, right of set-off, compensation or retention against monies standing to the credit of the Client Money Account; and
  4. (d) ensure that each Client Money Account contains in its title the name of the Insurance Intermediary or Insurance Manager, together with the designation "Client Account". Guidance: Due diligence When assessing a Third Party Account Provider, an Insurance Intermediary or Insurance Manager should consider taking into account, among other matters:
  5. (a) the capital of the Third Party Account Provider;
  6. (b) the amount of Client Money placed, as a proportion of its overall capital and deposits;
  7. (c) the credit rating of the Third Party Account Provider (if available);
  8. (d) where such information is available, the level of risk in the investment and loan activities undertaken by it or members of its Group.

8.5.10. No confirmation from Third Party Account Provider

If a Third Party Account Provider has not provided the written confirmation referred to in COB 8.5.9(c) within 40 business days after the Authorised Firm made the request, the Authorised Firm must as soon as possible withdraw the Client Money held in the Client Money Account with that Third Party Account Provider and deposit them in a Client Money Account with another Third Party Account Provider.

8.5.11. Derivatives in management of Client Money

An Insurance Intermediary or Insurance Manager may not use derivatives in the management of Client Money except for the prudent management of foreign exchange risks

8.5.12. Untraceable clients

An Insurance Intermediary or Insurance Manager that has a credit balance for a Client who cannot be traced should not take credit for such an amount except where:

  1. (a) he has taken reasonable steps to trace the Client and to inform him that he is entitled to the money; and
  2. (b) at least six years has lapsed from the date the credit was initially notified to the Client.

8.5.13. Record keeping

(1) An Insurance Intermediary or Insurance Manager must keep a copy of any agreement entered into between an insurer and that Insurance Intermediary or Insurance Manager acting as agent pursuant to COB 8.5.5 (Holding money as agent of an insurer) for at least six years from the date on which that agreement is terminated.

(2) An Insurance Intermediary or Insurance Manager must keep records of all sums withdrawn from the Insurance Bank Account as a result of credit taken under COB 8.5.12 (Untraceable clients) for at least six years from the date of withdrawal or realisation.

8.5.14. Distribution Event

Following a Distribution Event, an Insurance Intermediary or Insurance Manager must comply with the Client Money Distribution Rules and all Client Money will be subject to such Rules.

8.5.15. Client Money Distribution Rules (Insurance Intermediation and Insurance Management)

(1) The requirements in this COB 8.5.15 are the Client Money Distribution Rules (Insurance Intermediation and Insurance Management) and to the extent that these Rules are inconsistent with the AIFC Insolvency Regulations, these Rules will prevail.

(2) Following a Distribution Event, the Insurance Intermediary or Insurance Manager must distribute Money in the following order of priorities:

  1. (a) firstly, in relation to Client Money held in a Client Account on behalf of Segregated Clients, claims relating to that Money must be paid to each Segregated Client in full or, where insufficient funds are held in a Client Account, proportionately, in accordance with each Segregated Client’s valid claim over that Money;
  2. (b) secondly, where the amount of Client Money in a Client Account is insufficient to satisfy the claims of Segregated Clients in respect of that Money, or not being immediately available to satisfy such claims, all other Money held by the Insurance Intermediary or Insurance Manager must be used to satisfy any outstanding amounts remaining payable to Segregated Clients but not satisfied from the application of (a) above;
  3. (c) thirdly, upon resolution of claims in relation to Segregated Clients, any Money remaining with the Insurance Intermediary or Insurance Manager must be paid to each Client in full or, where insufficient funds are held by the Insurance Intermediary, proportionately, in accordance with each Client’s valid claim over that Money; and
  4. (d) fourthly, upon satisfaction of all claims in (a), (b) and (c) above, in the event of:
  5. (i) the appointment of a liquidator, receiver or administrator, or trustee in bankruptcy over the Insurance Intermediary, payment must be made accordance with the AIFC Insolvency Regulations; or

(ii) all other Distribution Events, payment must be made in accordance with the direction of the AFSA.

8.5.16. Client reporting

In relation to each Client for whom it receives or holds Client Money, an Insurance Intermediary or Insurance Manager must provide at least once a year a statement of the Client Money.

9. REPORTING TO CLIENTS

9.1. Trade confirmations

9.1.1. Application

COB 9.1 does not apply to an Authorised Firm that executes a transaction in the course of Managing Investments for a Client.

9.1.2. Providing trade confirmations

When an Authorised Firm executes a transaction in an Investment for a Client, it must provide a confirmation note 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.

9.1.3. Content of trade confirmations

The confirmation note must include the details of the transaction in accordance with Schedule 3.

9.1.4. Market Counterparties

An Authorised Firm may agree with a Professional Client or Market Counterparty to provide reporting on transactions differently from the requirements in COB 9.1 in relation to content and timing.

9.1.5. Record keeping

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.

9.2. Periodic statements

9.2.1. Requirement to provide periodic statements

When an Authorised Firm:

  • (a) Manages Investments for a Client; or
  • (b) operates an account containing uncovered open positions in a Contingent Liability Investment, it must promptly and at suitable intervals provide the Client with a written statement (“a periodic statement”) containing the matters referred to in Schedule 4.

Guidance For these purposes, a “suitable interval” is:

  • (a) every three months;
  • (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.

9.2.2. Record keeping

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.

10. INVESTMENT RESEARCH

10.1. Application

This section applies to an Authorised Firm preparing or publishing Investment Research that is intended to be distributed to Clients of the Authorised Firm or to the public.

10.2. Conflicts of interest

An Authorised Firm that prepares and publishes Investment Research must have adequate procedures and controls in place to ensure that the Rules in COB 7 in respect of conflicts of interest are properly implemented in order to manage or prevent any conflicts arising in respect of Investment Research.

10.3. Restrictions on transactions

10.3.1. Restrictions on investment analysts

An Authorised Firm must have arrangements in place to ensure that an investment analyst does not undertake a Personal Transaction in an Investment if the investment analyst is preparing Investment Research:

until the Investment Research has been made available to its intended recipients, and those recipients have had a reasonable opportunity to act upon it.

10.3.2. Restrictions on own account transactions

An Authorised Firm or its Associate must not knowingly execute a transaction on its own account in an Investment or related Investments, which is the subject of Investment Research, prepared either by the Authorised Firm or its Associate, until the Investment Research has been made available to its intended recipients, and those recipients have had a reasonable opportunity to act upon it. This restriction does not apply if:

10.4. Physical separation

The Authorised Firm must put in place:

  • (a) a physical separation between the investment analysts preparing Investment Research and other Employees whose interests may conflict with those of the intended recipients of the Investment Research; or
  • (b) if physical separation is not appropriate to the nature and size of the Authorised Firm's business, such information barriers as are required to manage or prevent any conflicts of interest.

10.5. Key information

When an Authorised Firm publishes Investment Research, it must take reasonable steps to ensure that the Investment Research:

  • (a) states the identity, job title, and relevant financial regulator of the person providing the

Investment Research;

  • (b) identifies the types of Clients for whom it is principally intended;
  • (c) specifies the date when it was first published;
  • (d) distinguishes fact from opinion or estimates;
  • (e) includes references to sources of data and the extent of their reliability;
  • (f) labels all projections, forecasts, and price targets, together with any assumptions supporting them;
  • (g) summarises the basis for the valuation or methodology and any underlying assumptions;
  • (h) indicates where detailed information on the valuation or methodology can be accessed;
  • (i) contains a clear and unambiguous explanation of the rating or recommendation system used, such as "buy", "sell", or "hold";
  • (j) specifies the recommended period for the Investment;
  • (k) explains the related risk including a sensitivity analysis of the assumptions;
  • (l) states the planned frequency of updates to the recommendation;
  • (m) 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
  • (n) 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;
  • (o) where the recommendation differs from a previous recommendation concerning the same Investment or Issuer that has been disseminated in the preceding 12-month period, the change(s) and date of the previous recommendation;
  • (p) a list of all recommendations relating to the relevant instrument or issuer from the previous 12 months, along with the date of dissemination, price target, the price at the time of the recommendation, the direction of the recommendation, the recommended time period of the recommended investment, and the price target, along with the identity of the person(s) who made the recommendation; and
  • (s) disclosure of any interests or conflicts of interest in accordance with COB 10.6.

10.6. Disclosure of conflicts of interests

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 Family Member of the analyst has, which relates to the Investment;
  • (b) the reporting lines for Investment Analysts and their remuneration arrangements where such matters give rise to any conflicts of interest which may reasonably be likely to impair the impartiality of the Investment Research;
  • (c) any shareholding by the Authorised Firm or its Associate of 1 per cent or more of the total issued share capital of the Issuer;
  • (d) if the Authorised Firm or its Associate acts as corporate broker for the Issuer;
  • (e) any material shareholding by the Issuer in the Authorised Firm;
  • (f) 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
  • (g) that the Authorised Firm is a Market Maker in the Investment, if that is the case.

10.7. Restrictions on publication during public offer

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:

10.8. Offers of securities

10.8.1. General requirement

When an Authorised Firm carries out a mandate to manage an Offer of Securities or an Offer of Units, it must implement adequate internal arrangements 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.

10.8.2. Disclosure

For the purposes of COB 10.8.1, when an Authorised Firm accepts a mandate to manage an Offer, it must take reasonable steps to disclose to its corporate finance Client:

  1. (a) the process the Authorised Firm proposes to adopt in order to determine what recommendations it will make about allocations for the Offer;
  2. (b) details of how the target investor group, to whom it is planned to Offer the Securities or Units in a Listed Fund, will be identified;
  3. (c) the process through which recommendations are prepared and by whom; and
  4. (d) (if relevant) that it may recommend placing Securities or Units in a Listed Fund 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.

11. INSURANCE INTERMEDIARIES

11.1. Application

11.1.1. General application

Subject to COB 11.1.2, an Insurance Intermediary licensed by the AFSA to provide Insurance Intermediation must comply with the Rules in this COB 11, in respect of both Contracts of Insurance and Takaful Contracts.

11.1.2. Professional Clients and Market Counterparties

An Insurance Intermediary providing Insurance Intermediation for a Market Counterparty is only required to comply with COB 8.5 and 11.3.1, 11.7.1, 11.7.2.

An Insurance Intermediary providing Insurance Intermediation for a Professional Client is required to comply with COB 8.5 and 11.2.1, 11.3., 11.4, 11.5.1, 11.5.3, 11.6.1, 11.7.

An Insurance Intermediary may propose both Contracts of Insurance and Takaful Contracts to its Clients, as long as they provide clear information to enable their Clients to make informed choices.

11.2. Disclosure requirements

11.2.1. General disclosure obligation

Prior to providing Insurance Intermediation to a Client, an Insurance Intermediary must disclose to that Client:

  • (a) its name and address;
  • (b) its regulatory status;
  • (c) the name and address of the insurer or insurers effecting the Contract of Insurance;
  • (d) if it has a direct or indirect holding representing 10% or more of the voting rights or capital in an insurer; or
  • (e) if an insurer, or its parent undertaking, has a direct or indirect holding representing 10% or more of the voting rights or capital in the Insurance Intermediary;
  • (f) contact details for notifying a claim under the Contract of Insurance; and
  • (g) details of its complaints-handling procedure.

11.2.2. Disclosure of basis of advice

An Insurance Intermediary must, before providing Insurance Intermediation to a Retail Client, disclose whether:

  • (a) it gives advice on the basis of a fair analysis of the market;
  • (b) it has a contractual agreement with a particular insurer or insurers to offer only their

Contracts of Insurance to Clients; or

  • (c) even if there are no contractual agreements of the type referred to in (b), it does not give advice on the basis of a fair analysis of the market.

If (b) or (c) applies, the Insurance Intermediary must be prepared to provide a Retail Client on request with a list of insurers with whom it deals and may deal in relation to the relevant Contracts of Insurance.

11.3. Disclosure of costs and remuneration


11.3.1. Disclosure of costs

An Insurance Intermediary must provide details of the costs of each Contract of Insurance or Insurance Intermediation service offered to a Client.

11.3.2. Disclosure of new costs

An Insurance Intermediary must ensure that it does not impose any new costs, fees or charges without first disclosing the amount and the purpose of such costs, fees, or charges to the Client.

11.3.3. Disclosure of commissions and other benefits

An Insurance Intermediary must, at the request of any Client, disclose to that Client any commissions or other benefits that it receives in connection with its Insurance Intermediation for that Client.

11.4. Obligation on Client to disclose material facts

An Insurance Intermediary must explain to a Client:

  • (a) the Client's duty to disclose all material facts in relation to the risk covered by the insurance before the insurance cover commences and throughout the lifetime of the policy; and
  • (b) the consequences of any failure by the Client to disclose such material facts.

11.5. Statement of demands and needs

11.5.1. Providing a statement of demands and needs

Prior to the conclusion of a Contract of Insurance, an Insurance Intermediary must provide the Client with a statement of the demands and the needs of that Client, which may be in summary form, as well as the underlying reasons for any advice given to the Client in relation to that Contract of Insurance.

Guidance: Nature of statement of demands and needs The statement should be provided in writing, but may be provided verbally where the Client requests it, or where immediate cover is necessary.

11.5.2. Ensuring suitability based on demands and needs

An 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.

11.5.3. Written confirmation of instructions

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.

11.6. Information about Contract of Insurance or Takaful Contract

11.6.1. Adequate information

An Insurance Intermediary must provide adequate information in good time and in a comprehensible form to enable a Client to make an informed decision about whether or not to enter a Contract of Insurance or a Takaful Contract proposed by the Insurance Intermediary.

11.6.2. Policy summary

An Insurance Intermediary must provide a Retail Client with a policy summary explaining the terms of the Contract of Insurance or the Takaful Contract:

  1. (a) the name of the insurer;
  2. (b) type of insurance and cover;
  3. (c) significant features and benefits;
  4. (d) significant or unusual exclusions or limitations;
  5. (e) applicable period of cover;
  6. (f) a statement, where relevant, that the consumer may need to review and update the cover periodically to ensure it remains adequate;
  7. (g) the procedure for handling complaints; and
  8. (h) contact details for notifying a claim

11.7. Other requirements

11.7.1. Quotations

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.

11.7.2. Confirmation of cover

Where a Client concludes a Contract of Insurance or a Takaful Contract, an Insurance Intermediary must, as soon as reasonably practicable, provide that Client with:

  1. (a) written confirmation and details of the insurance, including any changes to an existing Contract of Insurance; and
  2. (b) the full policy documentation.

11.7.3. Amendments

An Insurance Intermediary must:

  • (a) respond promptly if a Client requests an amendment to its insurance policy;
  • (b) provide the Client with details of any additional premium or charges that may need to be paid or which may be returned; and
  • (c) provide the Client with written confirmation of any amendment and return any premium or charges due to the Client promptly.

11.7.4. Advance notification

If the insurance cover of a Client is due to expire or needs to be renewed, the Insurance Intermediary must give sufficient advance notification to the Client to allow that Client to consider whether it wishes to enter into a new policy or renew its existing policy.

11.7.5. Documentation on expiry or cancellation

When the insurance expires or is cancelled, an Insurance Intermediary must on request provide the Client with the documentation and information to which that Client is entitled.

11.7.6. Claims—general requirements

Where an Insurance Intermediary handles claims it must:

  • (a) handle claims promptly and fairly;
  • (b) provide its Client with reasonable guidance on making a claim, and update it on the progress of its claim;
  • (c) not unreasonably reject a claim (including by terminating or avoiding a policy); and
  • (d) settle claims promptly once settlement terms are agreed.

11.7.7. Claims handling—recordkeeping

(1) An Insurance Intermediary must make a record of the following information in relation to each claim made against a policy handled by it:

  • (a) details of the claim;
  • (b) the date the claim was settled or rejected;
  • (c) details of settlement or rejection, including information relevant to the basis for the settlement or rejection.

(2) The Insurance Intermediary must keep the record for at least 3 years after the day the claim is settled or rejected.

12. TRUST SERVICE PROVIDERS

12.1. Application

COB 12 applies to a Trust Service Provider that is licensed to Provide Trust Services by the AFSA. Guidance: Examples of Clients of a Trust Service Provider The Client of a Trust Service Provider may be a settlor, trustee or named beneficiary of a trust.

12.2. Obligations of the Trust Service Provider

A Trust Service Provider must maintain proper standards of governance and professionalism and must comply with all applicable AIFC laws, Rules and Regulations relevant to Providing Trust Services.

12.3. Exercise of discretion

Where a Trust Service Provider is responsible for exercising discretion for, or in relation to, its Clients, it must exercise its discretion or other powers in a proper manner and for a proper purpose.

12.4. Delegation of duties or powers

Any delegation of duties or powers by a Trust Service Provider must be for a proper purpose, subject to appropriate oversight, and comply with all applicable AIFC laws, Rules and Regulations.

12.5. Professional indemnity insurance

A Trust Service Provider must at all times hold adequate professional indemnity insurance appropriate to the nature and size of its business. It must:

  • (a) provide the AFSA with a copy of its professional indemnity insurance cover; and
  • (b) notify the AFSA of:
  • (i) any changes to the cover including termination and renewal;

(ii) any claims in excess of USD 10,000.

12.6. Internal reporting

A Trust Service Provider must have arrangements for internal reporting to ensure that the directors or the partners receive sufficient information on the running of the business and the treatment of Clients.

12.7. Use of third parties

Where the Trust Service Provider appoints a third party in connection with a Client’s affairs, for example to advise on or manage investments, the Trust Service Provider must carry out due diligence on that third party and continue to monitor its performance on an ongoing basis.

12.8. Qualification and experience

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

12.9. Books and records

The books and records of a Trust Service Provider must be sufficient to demonstrate adequate and orderly management of Clients’ affairs.

12.10. Due diligence

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.

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.

12.11. Fitness and Propriety of Persons acting as trustees

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. A Trust Service Provider must notify the AFSA:

  • (a) of the appointment of a Person, including the name and business address ifapplicable and the date of commencement of the appointment; and
  • (b) of the termination of the appointment of such a Person or the resignation of such Person.

13. ANCILLARY SERVICE PROVIDERS

13.1. Application

The Principles for Ancillary Service Providers set out in COB 13.2 apply to Ancillary Service Providers in respect of their provision of Ancillary Services.

13.2. Principles for Ancillary Service Providers

13.2.1. Principle 1 ‐ Integrity

An Ancillary Service Provider must observe high standards of integrity and fair dealing.

13.2.2. Principle 2 ‐ Independence

An Ancillary Service Provider must not allow its independence to be compromised.

13.2.3. Principle 3 ‐ Good faith

An Ancillary Service Provider must act in good faith in its dealings with its Clients and the AFSA and other Financial Services Regulators.

13.2.4. Principle 4 ‐ Best Interests

An Ancillary Service Provider must act in the best interests of its Clients.

13.2.5. Principle 5 ‐ Service

An Ancillary Service Provider must provide a proper standard of service to its clients.

13.2.6. Principle 6 ‐ Legal and regulatory obligations

An Ancillary Service Provider must comply with its legal and regulatory obligations and deal with the AFSA and other Financial Services Regulators in an open, timely and co-operative manner.

13.2.7. Principle 7 ‐ Governance

An Ancillary Service Provider must maintain sound governance arrangements and observe appropriate financial and risk management principles.

13.2.8. Principle 8 ‐ Client Money and Client Assets

An Ancillary Service Provider must protect Client Money and Client Assets that it holds on behalf of Clients.

14. CREDIT RATING AGENCIES

14.1. Application

The Principles set out in COB 14.2 apply to Credit Rating Agencies.

14.2. Principles for Credit Rating Agencies

14.2.1. Principle 1 ‐ Quality and integrity of the rating process

Credit Rating Agencies should endeavour to issue opinions that help to reduce the asymmetry of information among borrowers and lenders and Centre Participants more generally.

Guidance: Processes to ensure quality and integrity When issuing opinions, a Credit Rating Agency should consider adopting the following processes:

  • (a) Credit Rating Agencies should adopt and implement written procedures and methodologies to ensure that the opinions they issue are based on a fair and thorough analysis of all relevant information available to the Credit Rating Agency, and that their analysts perform their duties with integrity. Credit Rating Agency rating methodologies should be rigorous, systematic, and Credit Rating Agency ratings should be subject to some form of validation based on historical experience.
  • (b) Credit Rating Agencies should monitor on an ongoing basis and regularly update an analysis and rating once a rating is issued whenever new information becomes available that causes the Credit Rating Agency to revise or terminate its opinion.
  • (c) Credit Rating Agencies should maintain internal records to support their ratings.
  • (d) Credit Rating Agencies should have sufficient resources to carry out high-quality credit assessments.
  • (e) They should have sufficient personnel to properly assess the entities they rate, seek out information they need in order to make an assessment, and analyse all the information relevant to their decision-making processes.
  • (f) Analysts employed by Credit Rating Agencies should use the methodologies established by the Credit Rating Agency and be professional, competent, and of high integrity.

14.2.2. Principle 2 – Independence and conflicts of interests

Credit Rating Agency ratings decisions should be independent and free from political or economic pressures and from conflicts of interests arising due to the Credit Rating Agency's ownership structure, business or financial activities, or the financial interests of the Credit Rating Agency's employees. Credit Rating Agencies should, as far as possible, avoid activities, procedures or relationships that may compromise or appear to compromise the independence and objectivity of the credit rating operations.

Guidance: Processes to ensure independence and reduce conflicts of interest A Credit Rating Agency should consider adopting the following processes:

  • (a) Credit Rating Agencies should adopt written internal procedures and mechanisms to

(1) identify, and (2) eliminate, or manage and disclose, as appropriate, any actual or potential conflicts of interest that may influence the opinions and analyses Credit Rating Agencies make or the judgment and analyses of the individuals the Credit Rating Agencies employ who have an influence on ratings decisions. Credit Rating Agencies are encouraged to disclose such conflict avoidance and management measures.

  • (b) The credit rating a Credit Rating Agency assigns to an issuer should not be affected by the existence of or potential for a business relationship between the Credit Rating Agency (or its affiliates) and the issuer or any other party.
  • (c) Credit Rating Agencies and Credit Rating Agency staff should not engage in any securities or derivatives trading presenting inherent conflicts of interest with the Credit Rating Agencies' ratings activities.
  • (d) Reporting lines for Credit Rating Agency staff and their compensation arrangements should be structured to eliminate or effectively manage actual and potential conflicts of interest. A Credit Rating Agency analyst should not be compensated or evaluated on the basis of the amount of revenue that a Credit Rating Agency derives from issuers that the analyst rates or with which the analyst regularly interacts.
  • (e) The determination of a credit rating should be influenced only by factors relevant to the credit assessment.
  • (f) Credit Rating Agencies should disclose the nature of the compensation arrangement that exists with an issuer that the Credit Rating Agency rates.

14.2.3. Principle 3 – Transparency and timeliness of ratings disclosure

Credit Rating Agencies should make disclosure and transparency an objective in their ratings activities. Guidance: Processes to ensure transparency and timeliness

A Credit Rating Agency should consider adopting the following processes:

  • (a) Credit Rating Agencies should distribute in a timely manner their ratings decisions regarding publicly issued fixed-income securities or issuers of publicly traded fixedincome securities.
  • (b) Credit Rating Agencies should disclose to the public, on a non-selective basis, any rating regarding publicly issued fixed income securities as well as any subsequent decisions to discontinue such a rating if the rating is based in whole or in part on material non public information.
  • (c) Credit Rating Agencies should publish sufficient information about their procedures and methodologies so that outside parties can understand how a rating was arrived at by the Credit Rating Agency. This information should include (but not be limited to) the meaning of each rating category and the definition of default and the time horizon the Credit Rating Agency used when making a rating decision.
  • (d) Credit Rating Agencies should publish sufficient information about the historical default rates of Credit Rating Agency rating categories and whether the default rates of these categories have changed over time, so that interested parties can understand the historical performance of each category and if and how ratings categories have changed.
  • (e) Credit Rating Agencies should disclose if a rating is unsolicited.

14.2.4. Principle 4 – Confidential information

Credit Rating Agencies should maintain in confidence all non-public information communicated to them by any issuer, or its agents, under the terms of a confidentiality agreement or otherwise under a mutual understanding that the information is shared confidentially. Guidance: Processes to ensure confidentiality A Credit Rating Agency should consider adopting the following processes:

  • (a) Credit Rating Agencies should adopt procedures and mechanisms to protect the nonpublic nature of information shared with them by issuers under the terms of a confidentiality agreement or otherwise under a mutual understanding that the information is shared confidentially.
  • (b) Credit Rating Agencies should use non-public information only for purposes related to their rating activities or otherwise in accordance with their confidentiality agreements with the issuer.

15. COMPLAINTS HANDLING AND DISPUTE RESOLUTION

15.1. Application

This chapter applies to an Authorised Firm, other than a Representative Office, that is licensed by the AFSA to carry on a Regulated Activity, in relation to Retail Clients and Professional Clients only.

15.2. Complaints handling

15.2.1. General requirement

An Authorised Firm must have arrangements in place for the handling of Complaints made against it by Clients. The policies and procedures for handling Complaints must be in writing and ensure that Complaints are handled fairly, consistently and promptly.

15.2.2. Procedures available on request

An Authorised Firm must ensure that a copy of its Complaints handling procedures is available free of charge to any Client on request.

15.2.3. Proportionality

In establishing adequate Complaints handling policies and procedures, an Authorised Firm should have regard to:

  • (a) the nature, scale and complexity of its business; and
  • (b) its size and organisational structure.

Guidance: Period for resolving complaints

The AFSA considers 60 days from the receipt of a Complaint to be an appropriate period in which an Authorised Firm should be able to resolve most Complaints.

15.2.4. Receiving a Complaint

On receipt of a Complaint, an Authorised Firm must:

  • (a) acknowledge the Complaint promptly in writing;
  • (b) provide the complainant with:
  • (i) the contact details of any individual responsible for handling the Complaint;

(ii) details of the Authorised Firm’s Complaints handling procedures; and

(iii) a statement that a copy of the procedures is available free of charge upon request; and

  • (c) investigate the Complaint.

Where appropriate, an Authorised Firm must update the complainant on the progress of the handling of the Complaint.

Guidance: Period for acknowledging complaints

The AFSA considers 7 days to be an adequate period in which an Authorised Firm should be able to acknowledge most Complaints.

The AFSA expects an update to be provided to the complainant in circumstances where the resolution of the Complaint is taking longer than 30 days.

15.2.5. Resolving a Complaint

When the Authorised Firm has completed its investigation of a Complaint, it must promptly:

  • (a) advise the complainant in writing of the outcome;
  • (b) provide the complainant with the proposed redress, if applicable; and
  • (c) provide redress if accepted by the complainant.

If the complainant is not satisfied with the redress offered by the Authorised Firm, it must inform the complainant of other means of resolving the Complaint and provide him with the appropriate contact details upon request.

Guidance: Other means

Other means for resolving a Complaint may include arbitration or the AIFC Courts.

15.2.6. Employees handling complaints

As far as possible, an Authorised Firm must ensure that any individual handling the Complaint was not involved in the conduct of the Financial Service about which the Complaint has been made, and is able to handle the Complaint in a fair and impartial manner.

An Authorised Firm must ensure that any individual responsible for handling the Complaint has sufficient authority to resolve the Complaint or has access to individuals with the necessary authority.

15.3. Referrals

15.3.1. Complaints involving other entities

If an Authorised Firm considers that another Centre Participant or any other Regulated Financial Institution is entirely or partly responsible for the subject matter of a Complaint, it may refer the Complaint, or the relevant part of it, to the other Centre Participant or any other authorised or regulated financial institution in accordance with COB 15.3.2.

15.3.2. Referral to other entities

To refer a Complaint, an Authorised Firm must:

  • (a) inform the complainant promptly and in writing that it would like to refer the Complaint, and obtain the written consent of the complainant to do so;
  • (b) if the complainant consents, refer the Complaint to the other Authorised Firm or Regulated Financial Institution promptly and in writing;
  • (c) inform the complainant promptly and in writing that the Complaint has been referred and provide contact details; and
  • (d) continue to handle any part of the Complaint not referred to the other Authorised Firm or Regulated Financial Institution.

15.4. Record keeping

15.4.1. General requirement

An Authorised Firm must maintain a record of all Complaints made against it for a minimum period of six years from the date of receipt of a Complaint.

15.4.2. Content of records

The record in COB 15.4.1 must contain the name of the complainant, the substance of the Complaint, a record of the Authorised Firm’s response, and any other relevant correspondence or records, and the action taken by the Authorised Firm to resolve each Complaint.

16. RECORD KEEPING AND INTERNAL AUDIT

16.1. Record keeping requirements

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 records kept in accordance with the rules in COB as summarised in the table in COB 16.2.

16.2. Table summarising record keeping requirements

COB reference

Nature of record

Length of record keeping requirement

Date from which record must be kept

COB 2.10

Record of Client classification

Six years

Date on which the business relationship with a Client ended

COB 3.5

Financial Promotion issued by, or on behalf of, the Authorised Firm

Six years

Date on which the Financial Promotion ceases to be made

COB 4.5

A record of each Client Agreement including any subsequent amendments to it as agreed with the Client

Six years

From the date the Client ceases to be a Client of the Authorised Firm

COB 5.5

Suitability report

Six years

From the date the Client ceases to be a Client of the Authorised Firm

COB 6.2.9

Records of orders and transactions

Six years

From date of order or transaction

COB 7.4.5

Record of inducements disclosed

Six years

From the date on which the inducement was disclosed

COB 8.2.8

Record of Client Money received in the form of cheque, or other payable order

Six years

From date of receipt

COB 8.2.20

Records which enable an Authorised Firm to determine promptly the total amount of Client Money that it holds for each of its Clients

Six years

From the date the Client ceases to be a Client of the Authorised Firm

COB 8.3.15

Records in respect of Client Investments

Six years

From the date the Client ceases to be a Client of the Authorised Firm

COB 9.1.5

A copy of each confirmation note sent to a Client

Six years

From the date of despatch

COB 9.2.2

A copy of any periodic statement provided to a Client

Six years

From the date on which it was provided

COB 8.5.13

A copy of any agreement entered into between an insurer and that Insurance Intermediary acting as agent

Six years

From the date on which that agreement is terminated

COB 8.5.13

Records of all sums withdrawn from the Insurance Bank Account

Six years

From the date of withdrawal or realisation

COB 15.4.1

Record of all Complaints made against the Authorised Firm for a minimum period of six years

Six years

From the date of receipt of a Complaint


16.3. Internal Audit of Client Statements

At least annually, a sample of Client statements provided by an Authorised Firm under any of COB 8.2.19, 8.3.14, 9.2 or 8.5.16 must be reviewed by the internal audit function of the Authorised Firm established under GEN 5.5. The sample must be significant and stratified.

Guidance: Significant and Stratified Sample

A sample will be considered “significant” if it includes ≥5% of the total number of Client statements provided during the review period. A sample will be considered “stratified” if it is drawn proportionately from a range of different Client types based on appropriate factors in light of the business of the Authorised Firm, which may include, for example: status (Retail Clients versus Professional Clients), business type, assets, income, geography and types of products held with the Authorised Firm. The results of the internal audit review must be made available to the AFSA upon request.

17. OPERATORS OF A DIGITAL ASSET BUSINESS

17.1. Application

This chapter applies to an Authorised Person engaged in the activity of Operating a Digital Asset Business.

Guidance

The following activities do not constitute Operating a Digital AssetBusiness:

trading of Digital Assets for the Person’s own investment purpose;

the issuance of Digital Assets by a Person and their administration (including sale, redemption);

any other activity or arrangement that is deemed by the AFSA to not constitute Operating a Digital Asset Business, where necessary and appropriate in order for the AFSA to pursue its objectives.

17.2. Rules Applicable to an Authorised Digital Asset Trading Facility

In addition to all requirements applicable to Authorised Persons in these rules, GEN, and AML, an Authorised Person carrying on the Market Activity of Operating a Digital Asset Trading Facility must comply with the applicable requirements set out in the AMI, unless the requirements in this chapter expressly provide otherwise.

17.3. Admission of Digital Assets to trading

An Authorised Person Operating a Digital Asset Trading Facility may grant admission of Digital Assets to trading only where it is satisfied that such admission is in accordance with the AMI and an Authorised Digital Asset Trading Facility’s Admission to Trading Rules.

An Authorised Person Operating a Digital Asset Trading Facility must not permit trading of Digital Assets on its facilities unless those Digital Assets are admitted to, and not suspended from, trading by the Authorised Person Operating a Digital Asset Trading Facility pursuant to Chapter 6 of AMI.

17.4. Additional disclosure requirements

Prior to entering into an initial transaction for, on behalf of, or with a Client, an Authorised Person Operating a Digital Asset Business shall disclose in a clear, fair and not misleading manner:

  1. (a)all terms, conditions and risks relating to the Digital Assets that have been admitted to trading and/or is the subject of the transaction;
  2. (b)all material risks associated with its products, services and activities; and
  3. (c)all details on the amount and the purpose of any premiums, fees, charges or taxes payable by the Client, whether or not these are payable to the Operating a Digital Asset Business.

17.5. The risks to be disclosed pursuant to COB 17.4

The risks to be disclosed pursuant to COB 17.4. include, but are not limited to, the following:

  1. (a)Digital Assets not being legal tender or backed by a government;
  2. (b)the value, or process for valuation, of Digital Assets, including the risk of a Digital Assets having no value;
  3. (c)the volatility and unpredictability of the price of Digital Assets relative to Fiat Currencies;
  4. (d)that trading in Digital Assets is susceptible to irrational market forces;
  5. (e)that the nature of Digital Assets may lead to an increased risk of Financial Crime;
  6. (f)that the nature of Digital Assets may lead to an increased risk of cyber-attack;
  7. (g)there being limited or, in some cases, no mechanism for the recovery of lost or stolen Digital Assets;
  8. (h)the risks of Digital Assets with regard to anonymity, irreversibility of transactions, accidental transactions, transaction recording, and settlement;
  9. (i)that there is no assurance that a Person who accepts a Digital Asset as payment today will continue to do so in the future;
  10. (j)that the nature of Digital Assets means that technological difficulties experienced by the Authorised Person may prevent the access or use of a Client’s Digital Assets;
  11. (k)any links to Digital Assets related activity outside the AIFC, which may be unregulated or subject to limited regulation; and
  12. (l)any regulatory changes or actions by the AFSA or Non-AIFC Regulator that may adversely affect the use, transfer, exchange, and value of a Digital Asset.

17.6. Complaints

An Authorised Person Operating a Digital Asset Business shall establish and maintain written policies and procedures to fairly and timely resolve complaints made against it or other parties (including members).

An Authorised Person Operating a Digital Asset Business must provide, in a clear and conspicuous manner: on its website or websites; in all physical locations; and in any other location as the AFSA may prescribe, the following disclosures:

  1. (a)the mailing address, email address, and telephone number for the receipt of complaints;
  2. (b)a statement that the complainant may also bring his or her complaint to the attention of the AFSA;
  3. (c)the AFSA’s mailing address, website, and telephone number; and
  4. (d)such other information as the AFSA may require.

An Authorised Person Operating a Digital Asset Business shall report to the AFSA any change in its complaint policies or procedures within ten days.

An Authorised Person Operating a Digital Asset Business must maintain a record of any complaint made against it or other parties (including members) for a minimum period of six years from the date of receipt of the complaint.

17.7. Obligation to report transactions

An Authorised Person Operating a Digital Asset Business shall report to the AFSA details of transactions in Digital Assets traded on its facility which are executed, or reported, through its systems.

The AFSA may, by written notice or Guidance, specify:

  1. (a)the information to be included in reports made under the preceding paragraph; and
  2. (b)the manner in which such reports are to be made.

17.8. AFSA power to impose a prohibition or requirement

The AFSA may prohibit an Authorised Person Operating a Digital Asset Business from:

  1. (a)entering into certain specified transactions or types of transactions; or
  2. (b)outsourcing any of its functions or activities to a third party.

The AFSA may, by written notice or guidance, set fees payable by an Authorised Person Operating a Digital Asset Business to the AFSA on certain specified transactions or types of transactions.


18. BANKS

18.1. Application

This chapter applies to an Authorised Firm that is licensed by the AFSA to conduct the Regulated Activity of Accepting Deposits and/or Opening and Operating Bank Accounts. An Authorised Firm that is licensed to conduct the Regulated Activity of Accepting Deposits and/or Opening and Operating Bank Accounts is defined as a Bank in BBR 1.5.

18.2. Accepting Deposits

A Bank, in the course of Accepting Deposits, must not accept Deposits from Retail Clients.

18.3. Terms of business for Accepting Deposits — general requirements

(1) A Bank accepting a Deposit from a Client must give the Client its terms of business, before the acceptance of the first Deposit from that Client.

(2) This rule does not apply if the activity of Accepting Deposits is carried on after the termination of the terms of business and the Bank is acting only for the purposes of fulfilling any obligations that remain outstanding under the terms of business.

18.4. Terms of business for Accepting Deposits — contract

(1) A Bank must ensure that its terms of business for accepting a Deposit from a Client contain, in adequate detail, the basis on which it will accept the Deposit from that Client.

(2) Without limiting (1), the Bank must ensure that the terms of business contain the information as specified by the rules in this chapter (Minimum content of terms of business— Accepting Deposits).

(3) A Bank is not required to include information in the terms of business if the information is, by its nature, unavailable when the terms of business are given to the Client. If such information becomes available after the terms of business are given to the Client, the Bank must give the information to the Client as soon as practicable after it becomes available to the Bank.

18.5. Terms of business for Accepting Deposits — multiple documents

A Bank’s terms of business for a Client for the activity of Accepting Deposits may consist of one or more documents if it is made clear to the Client that collectively they make up the terms of business.

18.6. Terms of business for Accepting Deposits — amendment

If the terms of business of a Bank for a Client for the activity of Accepting Deposits allow the Bank to amend the terms of business without the Client’s agreement, the Bank must not conduct business with or for the Client on the basis of an amendment of the terms of business unless the Bank has given the Client written notice of the amendment:

  1. (a) at least 10 business days before the amendment is to take effect; or
  2. (b) if it is impractical to give that notice, as early as is practicable.

18.7. Terms of business for Accepting Deposits — recordkeeping

A Bank must keep a copy of a terms of business that it gives a Client under this chapter, and of each amendment of the terms of business, for at least 6 years after the day the Bank ceases to conduct business with or for the Client under the terms of business

18.8. Terms of business for Accepting Deposits — minimum content

(1) Commencement of the terms of business – when and how the terms come into force.

(2) Regulatory status of the Bank as required by the GEN Rules.

(3) The services to be provided by the Bank, including, if applicable, the provision of credit, cheque clearing and provision of statements.

(4) The Bank’s fee payment terms, including, if appropriate

  1. (a) how fees are calculated; and
  2. (b) how fees are to be paid and collected; and
  3. (c) how frequently fees are to be paid; and
  4. (d) whether any other payment is receivable by the Bank (or to its knowledge by any members of its Group) instead of fees in relation to a transaction executed by the Bank with or for the Client.

(5) The Bank’s terms relating to interest, including, if appropriate

  1. (a) how interest is calculated for both debit and credit balances; and
  2. (b) how interest is paid or collected depending on whether the account is having debit or credit balances; and
  3. (c) how frequently interest is charged and paid.

(6) The Bank’s approach to dealing with any applicable conflicts of interest and material interests.

(7) Information about the Bank’s internal complaint handling procedures, including information about how a complaint may be made to the Bank.

(8) The details of the arrangement for the Client to provide instructions to the Bank and for the Bank to acknowledge such instructions.

(9) Method of terminating account relationships, either by the bank or by the Client and the consequences of termination in either case.

19. CONDUCT OF INSURANCE AND TAKAFUL BUSINESS

19.1. Insurance and Takaful business—general

19.1.1. Application

(1) This chapter applies to Insurers and Takaful Operators.

(2) All references to Insurers in this chapter should be read as referring also to Takaful Operators. All the provisions of this chapter are applicable to Takaful Business conducted by Takaful Operators, except in the case of provisions which are specifically exempt for Takaful Operators.

(3) All references to Life Policies in this chapter must be read as referring also to Family Takaful Contracts. The regulatory obligations specified by the provisions in this chapter to Life Policies are also applicable to Family Takaful Contracts and all related aspects of Family Takaful Business.

(4) All references to Insurance Contracts in this chapter must be read as referring also to Takaful Contracts. The regulatory obligations specified by the provisions in this chapter to Insurance Contracts are also applicable to Takaful Contracts and all related aspects of Takaful Business.

19.1.2. General Requirements

(5) The use of the terms Takaful, Retakaful, General Takaful and Family Takaful may only be used to describe the products of Authorised Firms that are licensed by the AFSA to carry out the Regulated Activity of Takaful Business.

(6) For the purposes of this AIFC COB Rules, all references to Takaful shall be taken as including Takaful, Retakaful, General Takaful and Family Takaful.

(7) The term 'Islamic insurance' may only be used by Authorised Firms licensed by the AFSA to carry out the Regulated Activity of Takaful Business.

19.2. Cancelling Life Policies—Retail Clients

19.2.1. New Life Policies—right to cancel

Subject to COB 19.2.3 and 19.2.4, a Retail Client has a right to cancel a new Life Policy effected by an Insurer. Guidance An Insurer may voluntarily provide additional cancellation rights, or rights exercisable during a longer period than allowed under COB 19.2, but, if it does so, these should be on terms similar to those in COB 19.2.

19.2.2. Variations of Life Policies—right to cancel

(1) Subject to COB 19.2.3 and 19.2.4, a Retail Client has a right to cancel an existing Life

Policy effected by an Insurer if the policy is varied and the variation has the effect of:

  1. (a) increasing regular premiums or payments, or a single premium or payment, by more than 25% on the original premium or payment (or the previous highest agreed premium or payment); or
  2. (b) introducing fresh policy terms; or
  3. (c) imposing on the Client additional or increased obligations under the policy; or
  4. (d) reducing, or otherwise materially altering, the Client’s benefits under the policy.

(2) This rule does not apply to the variation of a Life Policy if:

  1. (a) the variation is the result of a pre-selected option; or
  2. (b) the variation arises out of the settlement of a claim for damages or compensation connected with a previous contract.

19.2.3. Life policies—when cancellation right can be exercised

(1) A Retail Client may exercise a cancellation right in relation to a Life Policy effected by an Insurer with the Client only during the cancellation period for the investment.

(2) For a new Life Policy, the cancellation period:

  1. (a) starts on the day the Insurer, or relevant Insurance Intermediary, gives the Retail Client a policy document containing all the terms of the policy under COB 5.6.9

(Life policies—provision of policy document); and

  1. (b) ends at the end of 30 days after that day.

(3) For an existing Life Policy that is varied, the cancellation period:

  1. (a) starts on the later of the following:
  2. (i) the day the Insurer, or relevant Insurance Intermediary, tells the Retail Client that the variation has taken effect;

(ii) the day the Insurer, or relevant Insurance Intermediary, gives the Retail Client a written copy of the variation;

(iii) the day the Insurer, or relevant Insurance Intermediary, gives the Retail Client the Product Disclosure Document or disclosure documentation required by COB 5.6.2 (Product disclosure document—provision requirement) for the variation; and

  1. (b) ends at the end of the 30 days after that day.

19.2.4. Life policies—exercising cancellation right

(1) This rule applies if a Retail Client has a right under COB 19.2.1 (New Life Policies—right to cancel) or COB 19.2.2 (Variations of Life Policies—right to cancel) to cancel a Life Policy effected by an Insurer with the Client.

(2) The Retail Client may exercise the cancellation right by giving notice of the exercise of the right to the Insurer in a durable medium.

(3) Without limiting subrule (2), if the Retail Client exercises the right in accordance with information given to the Client by the Insurer, the Client is taken to have complied with the subrule.

(4) The notice need not use any particular form of words and it is sufficient if the intention to exercise the right is reasonably clear from the notice or the notice and the surrounding circumstances.

(5) The notice need not give reasons for the exercise of the right.

(6) If the Retail Client exercises the cancellation right by sending notice to the Insurer at the address given to the Client by the firm for the exercise of the right and the notice is in a durable form accessible to the firm, the notice is taken to have been given to the firm when it is sent to the firm at that address.

19.2.5. Life policies—consequences of cancellation

(1) This rule applies if a Retail Client exercises a right under COB 19.2.1 or COB 19.2.2 to cancel a Life Policy effected by an Insurer with the Client.

(2) The Life Policy is terminated.

(3) For a new Life Policy, the Insurer must pay the Retail Client an amount equal to the total of the amounts paid by the Client in relation to the Life Policy.

(4) The amount must be paid to the Retail Client without delay and no later than 30 days after the day the cancellation right is exercised.

(5) For a new Life Policy, the Retail Client must, if required by the Insurer, pay the firm an amount of no more than the total of:

  1. (a) amounts received, and the value of property or services received, by the Client in relation to the Life Policy; and
  2. (b) losses incurred by the firm because of market movements in relation to relevant contracts if the losses are incurred on or before the day the cancellation right is exercised.

(6) Subrule (5) only applies if the Insurer can demonstrate that the Retail Client was given, under COB 5.6.2 (Product disclosure document—provision requirement), details of the amount that the Client may be required to pay if the Client cancelled the contract.

(7) However, subrule (5) (b) does not apply in relation to a contract established on a regular or recurring premium or payment basis.

(8) An amount payable by the Retail Client under subrule (5) must be paid to the Insurer without delay and no later than 21 days after the day the Client receives written notice from the firm requiring payment of the amount.

(9) For an existing Life Policy, the Insurer must pay the Retail Client an amount equal to the cash surrender value (if any) of the policy.

(10) The amount must be paid to the Retail Client without delay and no later than 30 days after the day the cancellation right is exercised.

(11) Any amounts payable under this rule are simple contract debts and, for a new Life Policy, the amounts payable may be set off against each other.

19.3. Cancelling Non-Investment Insurance Contracts

19.3.1. Non-Investment Insurance Contracts —right to cancel

(1) Subject to COB 19.3</a>.2 and 19.3.3, a Retail Client has a right to cancel a Non-Investment Insurance Contract effected by an Insurer.

(2) This rule does not apply to the following contracts:

  1. (a) a Non-Investment Insurance Contract that provides cover for less than 1 month;
  2. (b) a Non-Investment Insurance Contract that has been fully performed by both parties at the Retail Client’s express request before the Client purports to exercise the right to cancel;
  3. (c) a Non-Investment Insurance Contract that is a Pure Protection Contract with a term of 6 months or less.

(3) To remove any doubt, a Retail Client has a right to cancel a Non-Investment Insurance Contract when the contract is initially entered into and on each renewal of the contract. Guidance

1 An Insurer may voluntarily provide additional cancellation rights, or rights exercisable during a longer period than allowed under COB 19.3</a>, but, if it does so, these should be on terms similar to those in COB 19.3.

2 For COB 19.3.1 (2) (b):

  1. (a) a contract is not fully performed only because an event has happened that allows a claim to be made under the contract; and
  2. (b) a contract is fully performed if a claim has been made that leads to the contract being terminated.

3 Cancellation under this part applies only during the initial period of cover. It does not refer to mid-term cancellation that an Insurer may choose to offer its Clients.

4 The cancellation rights described in this part apply to all renewals and not just those where there have been significant changes.

19.3.2. Non-Investment Insurance Contracts—when cancellation right can be exercised

(1) A Retail Client may exercise a cancellation right under COB 19.3.1 in relation to a NonInvestment Insurance Contract only during the cancellation period for the contract.

(2) For a Non-Investment Insurance Contract that is a Pure Protection Contract, the cancellation period:

  1. (a) starts on the day the Insurer, or relevant Insurance Intermediary, gives the Retail Client the policy document and information required by COB 11.7.2 (Confirmation of cover); and
  2. (b) ends at the end of 30 days after that day.

(3) For a Non-Investment Insurance Contract that is a General Insurance Contract, the cancellation period:

  1. (a) starts on the day the Insurer, or relevant Insurance Intermediary, gives the Retail Client the policy document and information required by COB 11.7.2 (Confirmation of cover); and
  2. (b) ends at the end of 14 days after that day.

(4) If a Non-Investment Insurance Contract is a mixed contract, that is, it has elements of both a Pure Protection Contract and a General Insurance Contract, subrule (2) applies to the contract and subrule (3) does not apply to the contract.

19.3.3. Non-Investment Insurance Contracts—exercising cancellation right

(1) This rule applies if a Retail Client has a right under COB 19.3.1 to cancel a NonInvestment Insurance Contract effected by an Insurer.

(2) The Retail Client may exercise the cancellation right by giving notice of the exercise of the right to:

  1. (a) the Insurer; or
  2. (b) any agent of the Insurer with authority to accept notice for the firm.

(3) Without limiting subrule (2), if the Retail Client exercises the right in accordance with information given to the Client in accordance with COB 11.7.2 (Confirmation of cover),the Client is taken to have complied with the subrule.

(4) The notice may be given orally.

(5) The notice need not use any particular form of words and it is sufficient if the intention to exercise the right is reasonably clear from the notice or the notice and the surrounding circumstances.

(6) The notice need not give reasons for the exercise of the right.

(7) If the Retail Client exercises the cancellation right by sending notice to the Authorised Firm at the address given to the Client by the firm for the exercise of the right and the notice is in a durable form accessible to the firm, the notice is taken to have been given to the firm when it is sent to the firm at that address.

19.3.4. Non-Investment Insurance Contracts—consequences of cancellation

(1) This rule applies if a Retail Client exercises a right under COB 19.3.1 to cancel a NonInvestment Insurance Contract effected by an Insurer.

(2) The Contract of Insurance is terminated.

(3) The Insurer must pay to the Retail Client an amount equal to the total of the amounts paid by the Client for the Contract of Insurance.

(4) The amount must be paid to the Retail Client without delay and not later than 21 days

after the day the cancellation right is exercised.

(5) If the Contract of Insurance is a General Insurance Contract, the Retail Client must, if required by the Insurer, pay the firm an amount of no more than the total of:

  1. (a) the value of the services the firm actually provided to the Client in relation to the Contract of Insurance; and
  2. (b) amounts received, and the value of property or services received, by the Client in relation to the Contract of Insurance.

(6) However, the Insurer may only require the Retail Client to pay an amount under subrule

(5) if:

  1. (a) the performance of the Contract of Insurance started before the end of the cancellation period at the Client’s request; and
  2. (b) the Insurer can demonstrate that the Client was, under COB 11.7.2 (Confirmation of cover), given details of the amount that the Client may be required to pay if the Client cancelled the contract.

(7) The Insurer must not require the Retail Client to pay an amount under subrule (5) that could be taken to be a penalty or that exceeds the sum of:

  1. (a) the costs (other than costs for the cover provided under the insurance policy) actually incurred by the Insurer in relation to the insurance policy; and
  2. (b) the cost to the Insurer of the cover actually provided to the Client under the insurance policy. Guidance for COB 19.3.4 (7) and (8)

1 The amount calculated under COB 19.3.4 (7) may include:

  1. (a) an amount for the cover provided; and
  2. (b) a proportion of the commission paid to another Authorised Firm sufficient to cover that firm’s costs; and
  3. (c) a proportion of any fees charged by the Authorised Firm that, when totalled with any commission to be repaid, would be sufficient to cover the firm’s costs.

2 The AFSA would expect the proportion of the Contract of Insurance’s exposure that relates to the time on risk to be a proportional apportionment. But, if there is material unevenness in the incidence of risk, the Insurer could employ a more accurate method, which may result in a lower or higher charge to the Retail Client.

(8) An amount that the Insurer requires the Retail Client to pay under subrule (5) must not take into account or include an amount received, or the value of any property or services received, by the Client in relation to a claim under the insurance policy.

(9) An amount payable by the Retail Client under subrule (5) must be paid to the Insurer without delay and no later than 30 days after the day the Client receives written notice from the firm requiring payment of the amount.

(10) Any amounts payable under this rule are simple contract debts and may be set off against each other.

19.4. Cancelling Contracts of Insurance—recordkeeping

19.4.1. Contracts of Insurance cancellation—recordkeeping

(1) An Insurer must make appropriate records about the exercise of a right to cancel under COB 19.2 (Cancelling Life Policies—Retail Clients) or COB 19.3 (Cancelling NonInvestment Insurance Contracts).

(2) The records must be kept for at least 6 years after the day the right is exercised.

19.5. Claims handling

19.5.1. Claims handling—general requirements

An Insurer must:

  1. (a) handle claims promptly and fairly;
  2. (b) provide its Client with reasonable guidance on making a claim, and update it on the progress of its claim;
  3. (c) (including by terminating or avoiding a policy); and
  4. (d) settle claims promptly once settlement terms are agreed.

19.5.2. Claims handling—recordkeeping

(1) An Insurer must make a record of the following information in relation to each claim made against a policy issued by it or handled by it:

  1. (a) details of the claim;
  2. (b) the date the claim was settled or rejected;
  3. (c) details of settlement or rejection, including information relevant to the basis for the settlement or rejection.

(2) The Insurer must keep the record for at least 3 years after the day the claim is settled or rejected.

20. INSURANCE MANAGEMENT

Guidance: Outsourcing to Insurance Managers An Insurer or a Takaful Operator may outsource functions or activities directly related to the Regulated Activities of Effecting or Carrying on Contracts of Insurance to a service provider or those related to the Regulated Activity of Takaful Business, including an Insurance Manager, subject to the provisions of GEN 5.2 (Outsourcing).

In addition to the obligations placed directly upon Insurance Managers in this Chapter, where an Insurer or a Takaful Operator outsources functions to an Insurance Manager, the Insurer or Takaful Operator remains responsible for the compliance of the Insurance Manager with the Framework Regulations and Rules (pursuant to GEN 5.2.1) and the outsourced function is deemed to be carried out by the Insurer or Takaful Operator itself (pursuant to GEN 5.2.2).

20.1. Application

20.1.1. General application

This chapter applies to an Insurance Manager – i.e. Authorised Firm that is licensed by the AFSA to conduct the Regulated Activity of Insurance Management.

20.2. General

20.2.1. Provision of Insurance Management services

(1) Subject to (2), an Insurance Manager may provide Insurance Management services to AIFC-Incorporated Insurers, AIFC-incorporated Takaful Operators and their Branches. An Insurance Manager may also provide Insurance Management services to Non-AIFC insurers and Non-AIFC Takaful Operators (i.e. insurers or Takaful Operators operating entirely outside the AIFC).

(2) An Insurance Manager must not underwrite on behalf of a Non-AIFC Insurer or Non-AIFC Takaful Operator in relation to a Contract of Insurance or a Takaful Contract with or for a Retail Client, unless the Insurance Manager has obtained the prior written approval of the AFSA in respect of that insurer or Takaful Operator. Guidance: AFSA approval of underwriting on behalf of Non-AIFaC Insurer For the purposes of COB 20.2.1(2), an Insurance Manager should submit to the AFSA sufficient information to establish that the Non AIFC Insurer or the Non-AIFC Takaful Operator for which it proposes to act is fit and proper and is subject to adequate regulation in its home jurisdiction.

20.2.2. Meaning of Client

For the purposes of this Chapter, the Client of an Insurance Manager is any Policyholder or potential Policyholder with whom the Insurance Manager interacts when carrying on its Insurance Management activities.

20.3. Disclosure requirements

20.3.1. General disclosure obligation

Prior to providing Insurance Management services to a Client, an Insurance Manager must disclose to that Client:

  1. (a) its name and address;
  2. (b) its regulatory status; and
  3. (c) details of its complaints-handling procedure.

20.3.2. Disclosure of costs

An Insurance Manager must provide details of the costs of Insurance Management service offered to a Client.

20.3.3. Disclosure of new costs

An Insurance Manager must ensure that it does not impose any new costs, fees or charges without first disclosing the amount and the purpose of such costs, fees, or charges to the Client.

20.3.4. Disclosure of commissions and other benefits

An Insurance Manager must, at the request of any Client, disclose to that Client any commissions or other benefits that it receives in connection with its Insurance Management for that Client.

20.4. Claims handling

20.4.1. Claims handling—general requirements

Where an Insurance Manager handles claims it must:

  1. (a) handle claims promptly and fairly;
  2. (b) provide its Client with reasonable guidance on making a claim, and update it on the progress of its claim;
  3. (c) not unreasonably reject a claim (including by terminating or avoiding a policy); and
  4. (d) settle claims promptly once settlement terms are agreed.

20.4.2. Claims handling—recordkeeping

(1) An Insurance Manager must make a record of the following information in relation to each claim made against a policy handled by it:

  1. (a) details of the claim;
  2. (b) the date the claim was settled or rejected;
  3. (c) details of settlement or rejection, including information relevant to the basis for the settlement or rejection.

(2) The Insurance Manager must keep the record for at least 3 years after the day the claim is settled or rejected.

SCHEDULE 1: TRANSACTION RECORDS

MINIMUM CONTENTS OF TRANSACTION RECORDS

1.

RECEIPT OF CLIENT ORDER OR DISCRETIONARY DECISION TO TRANSACT

An Authorised Firm must, pursuant to COB 6.2.9(a), 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

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

2.