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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
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Conduct of Business Module (COB) [VER33/07-19]
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  • COB App 5 Client Money Provisions

    • COB A5.1 Application

      • COB A5.1.1

        This appendix applies to an Authorised FirmG , in accordance with COB Rule 6.12.2

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.2 General Requirements

      • COB A5.2.1

        (1) The provisions of this appendix are referred to as the Client Money ProvisionsG .
        (2) The types of ClientG described in COB Rule 6.12.2 are referred to in this appendix as Segregated ClientsG .
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.2.2

        An Authorised FirmG which holds or controls Client MoneyG for a Segregated ClientG must:

        (a) comply with the Client Money ProvisionsG in relation to that Client MoneyG ; and
        (b) have systems and controls in place to be able to evidence compliance with the Client Money ProvisionsG .
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.3 Payment of Client Money into Client Accounts

      • COB A5.3.1

        Where an Authorised FirmG holds or controls Client MoneyG it must ensure, except where otherwise provided in COB section A5.5 that the Client MoneyG is paid into one or more Client AccountsG within one day of receipt.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.3.2

        Subject to COB Rule A5.3.3, an Authorised FirmG must not deposit its own MoneyG into a Client AccountG .

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.3.3

        (1) An Authorised FirmG may deposit its own MoneyG in a Client AccountG where:
        (a) it is a minimum sum required to open the account, or to keep it open;
        (b) the MoneyG is received by way of mixed remittance provided the Authorised FirmG transfers out that part of the payment which is not Client MoneyG within one day of the day on which the Authorised FirmG would normally expect the remittance to be cleared;
        (c) interest credited to the account exceeds the amount payable to Segregated ClientsG , provided that the MoneyG is removed within twenty five days; or
        (d) it is to meet a shortfall in Client MoneyG .
        (2) Where an Authorised FirmG deposits any MoneyG into a Client AccountG such MoneyG is Client MoneyG until such time as the MoneyG is withdrawn from the Client AccountG in accordance with the Client Money ProvisionsG .
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
        [Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]

      • COB A5.3.4

        An Authorised FirmG must maintain systems and controls for identifying MoneyG which must not be in a Client AccountG and for transferring it without delay.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.3.5

        Where an Authorised FirmG is aware that a PersonG may make a payment of Client MoneyG to the Authorised FirmG , it must take reasonable steps:

        (a) to ensure that such payment of Client MoneyG is directed to a Client AccountG ; and
        (b) to ensure that the Authorised FirmG is notified by that PersonG of such payment as soon as reasonably practicable.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

        • COB A5.3.5 Guidance

          An Authorised FirmG should have procedures for identifying Client MoneyG received by the Authorised FirmG , and for promptly recording the receipt of the MoneyG either in the books of account or a register for later posting to the ClientG cash book and ledger accounts. The procedures should cover Client MoneyG received by the Authorised FirmG through the mail, electronically or via agents of the Authorised FirmG or through any other means.

          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.4 Client Accounts

      • COB A5.4.1

        A Client AccountG in relation to Client MoneyG is an account which:

        (a) is held with a Third Party AgentG ;
        (b) is established to hold Client AssetsG ;
        (c) is maintained in the name of;
        (i) if a Domestic FirmG , the Authorised FirmG ; or
        (ii) if a non-Domestic FirmG , a Nominee CompanyG controlled by the Authorised FirmG ; and
        (d) includes the words 'Client Account' in its title.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
        [Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]

      • COB A5.4.2

        (1) An Authorised FirmG must maintain a master list of all Client AccountsG .
        (2) The master list must detail:
        (a) the name of the account;
        (b) the account number;
        (c) the location of the account;
        (d) whether the account is currently open or closed; and
        (e) the date of opening or closure.
        (3) The details of the master list must be documented and maintained for at least six years following the closure of an account.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

        • COB 5.4.2 Guidance

          1. An Authorised FirmG may hold or control Client MoneyG belonging to a Segregated ClientG in a Client AccountG solely for that ClientG . Alternatively, an Authorised FirmG may choose to pool that Client MoneyG in a Client AccountG containing Client MoneyG of more than one Segregated ClientG .
          2. The purpose of controlling or holding Client MoneyG in a Client AccountG is to ensure that MoneyG belonging to Segregated ClientsG is readily identifiable from MoneyG belonging to the Authorised FirmG such that, following a Distribution EventG , Segregated ClientsG will rank highest in line in terms of any subsequent distribution of Client MoneyG in proportion to each Client'sG valid claim over that MoneyG .
          3. Following a Distribution EventG , a Segregated ClientG may not have a valid claim over Client MoneyG held or controlled in a Client AccountG if that Client AccountG was not established to hold or control Client MoneyG for that ClientG or a pool of ClientsG of which that ClientG was a part.
          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
          [Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]

    • COB A5.5 Exceptions to Holding Client Money in Client Accounts

      • COB A5.5.1

        The requirement for an Authorised FirmG to pay Client MoneyG into a Client AccountG does not, subject to COB Rule A5.5.2, apply with respect to such Client MoneyG :

        (a) received in the form of cheque, or other payable order, until the Authorised FirmG , or a PersonG or account controlled by the Authorised FirmG , is in receipt of the proceeds of that cheque;
        (b) temporarily held by an Authorised FirmG before forwarding to a PersonG nominated by the ClientG ;
        (c) in connection with a Delivery Versus Payment TransactionG where:
        (i) in respect of a ClientG purchase, Client MoneyG from the ClientG will be due to the Authorised FirmG within one day upon the fulfilment of a delivery obligation; or
        (ii) in respect of a ClientG sale, Client MoneyG will be due to the ClientG within one day following the Client'sG fulfilment of a delivery obligation; or
        (d) held in the Client'sG own name where the Authorised FirmG has a mandate to manage the MoneyG on a discretionary basis.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
        [Amended] DFSA RM226/2018 (Made 6th June 2018). [VER30/08-18]

      • COB A5.5.2

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

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.5.3

        (1) An Authorised FirmG must maintain adequate records of all cheques and payment orders received in accordance with COB Rule A5.5.1(a) including, in respect of each payment, the:
        (a) date of receipt;
        (b) name of the ClientG for whom payment is to be credited; and
        (c) date when the cheque or payment order was presented to the Authorised Firm'sG Third Party AgentG .
        (2) The records must be kept for a minimum of six years.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.6 Appointment of a Third Party Agent

      • COB A5.6.1

        (1) An Authorised FirmG may only pay, or permit to be paid, Client MoneyG to a Third Party AgentG in accordance with COB Rule A5.7.1 where it has undertaken a prior assessment of the suitability of that agent and concluded on reasonable grounds that the Third Party AgentG is suitable to hold that Client MoneyG in a Client AccountG .
        (2) When assessing the suitability of the Third Party AgentG , the Authorised FirmG must ensure that the Third Party AgentG will provide protections equivalent to the protections conferred by this appendix.
        (3) An Authorised FirmG must have systems and controls in place to ensure that the Third Party AgentG remains suitable.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.6.2

        An Authorised FirmG must be able to demonstrate to the DFSA's satisfaction the grounds upon which the Authorised FirmG considers the Third Party AgentG to be suitable to hold that Client MoneyG .

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

        • COB A5.6.2 Guidance

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

          a. its credit rating;
          b. its capital and financial resources in relation to the amount of Client MoneyG held;
          c. the insolvency regime of the jurisdiction in which it is located;
          d. its regulatory status and history;
          e. its GroupG structure; and
          f. its use of agents and service providers.
          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.7 Payment of Client Money to a Third Party Agent

      • COB A5.7.1

        (1) Subject to COB Rule A5.7.3, an Authorised FirmG may only pass, or permit to be passed, a Segregated Client'sG MoneyG to a Third Party AgentG if:
        (a) the Client MoneyG is to be used in respect of a TransactionG or series or TransactionsG for that ClientG ;
        (b) the Client MoneyG is to be used to meet an obligation of that ClientG ; or
        (c) the Third Party AgentG is a BankG or a Regulated Financial InstitutionG which is authorised to accept or take DepositsG .
        (2) In respect of (1)(a) and (b), an Authorised FirmG must not hold any excess Client MoneyG with the Third Party AgentG longer than necessary to effect a TransactionG or satisfy the Client'sG obligation.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
        [Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]

      • COB A5.7.2

        When an Authorised FirmG opens a Client AccountG with a Third Party AgentG it must obtain, within a reasonable period, a written acknowledgement from the Third Party AgentG stating that:

        (a) all MoneyG standing to the credit of the account is held by the Authorised FirmG as agent and that the Third Party AgentG 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 MoneyG in that account in respect of any sum owed to it on any other account of the Authorised FirmG ; and
        (b) the title of the account sufficiently distinguishes that account from any account containing MoneyG that belongs to the Authorised FirmG , and is in the form requested by the Authorised FirmG .
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

        • COB A5.7.2 Guidance

          The DFSA would consider twenty days as being a reasonable period for an Authorised FirmG to receive a written acknowledgement from the Third Party AgentG .

          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.7.3

        If the Third Party AgentG does not provide the acknowledgement referred to in COB Rule A5.7.2 within a reasonable period, the Authorised FirmG must refrain from making further deposits of Client MoneyG with that Third Party AgentG and withdraw any Client MoneyG standing to the credit of that Client AccountG .

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.8 Payment of Client Money from Client Accounts

      • COB A5.8.1

        An Authorised FirmG must have procedures for ensuring all withdrawals from a Client AccountG are authorised.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.8.2

        Subject to COB Rule A5.8.3, a Segregated Client'sG Client MoneyG must remain in a Client AccountG until it is:

        (a) due and payable to the Authorised FirmG ;
        (b) paid to the ClientG on whose behalf the Client MoneyG is held;
        (c) paid in accordance with a ClientG instruction on whose behalf the Client MoneyG is held;
        (d) required to meet the payment obligations of the ClientG on whose behalf the Client MoneyG is held; or
        (e) paid out in circumstances that are otherwise authorised by the DFSA.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.8.3

        Money paid out by way of cheque or other payable order under COB Rule A5.8.2 must remain in a Client AccountG until the cheque or payable order is presented to the Client'sG bank and cleared by the paying agent.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.8.4

        An Authorised FirmG must not use Client MoneyG belonging of one ClientG to satisfy an obligation of another ClientG .

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

        • COB A5.8.4 Guidance

          The effect of COB Rule A5.8.4 is that an Authorised FirmG would be required to deposit its own MoneyG into a Client AccountG to remedy a shortfall arising from a client debit balance.

          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.8.5

        An Authorised FirmG must have a system for ensuring no off-setting or debit balances occur on Client AccountsG .

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.9 Client Disclosure

      • COB A5.9.1

        Before, or as soon as reasonably practicable after, an Authorised FirmG receives Client MoneyG belonging to a Segregated ClientG , it must disclose to the ClientG on whose behalf the Client MoneyG is held:

        (a) the basis and any terms governing the way in which the Client MoneyG will be held;
        (b) that the ClientG is subject to the protection conferred by the DFSA's Client Money ProvisionsG and as a consequence:
        (i) this MoneyG will be held separate from MoneyG belonging to the Authorised FirmG ; and
        (ii) in the event of the Authorised Firm'sG insolvency, winding up or other Distribution EventG stipulated by the DFSA, the Client'sG MoneyG will be subject to the DFSA's Client Money Distribution RulesG ;
        (c) whether interest is payable to the ClientG and, if so, on what terms;
        (d) if applicable, that the Client MoneyG may be held in a jurisdiction outside the DIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the DIFC;
        (e) if applicable, details about how any Client MoneyG arising out of Islamic Financial BusinessG are to be held;
        (f) if applicable, that the Authorised FirmG holds or intends to hold the Client MoneyG in a Client AccountG with a Third Party AgentG which is in the same GroupG as the Authorised FirmG ; and
        (g) details of any rights which the Authorised FirmG may have to realise Client MoneyG held on behalf of the ClientG in satisfaction of a default by the ClientG or otherwise, and of any rights which the Authorised FirmG may have to close out or liquidate contracts or positions in respect of any of the Client'sG InvestmentsG .
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.10 Client Reporting

      • COB A5.10.1

        (1) In relation to a ClientG to whom the Client Money ProvisionsG are applicable, an Authorised FirmG must send a statement to a Retail ClientG at least monthly or in the case of a Professional Client, at other intervals as agreed in writing with the Professional ClientG .
        (2) The statement must include:
        (a) the Client'sG total Client MoneyG balances held by the Authorised FirmG reported in the currency in which the Client MoneyG is held, or the relevant exchange rate if not reported in the currency in which the MoneyG is held;
        (b) the amount, date and value of each credit and debit paid into and out of the account since the previous statement; and
        (c) any interest earned or charged on the Client AccountG since the previous statement.
        (3) The statement sent to the ClientG must be prepared within 25 days of the statement date.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
        [Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]

    • COB A5.11 Reconciliation

      • COB A5.11.1

        (1) An Authorised FirmG must maintain a system to ensure that accurate reconciliations of the Client AccountsG are carried out at least every 25 days.
        (2) The reconciliation must include:
        (a) a full list of individual Segregated ClientG credit ledger balances, as recorded by the Authorised FirmG ;
        (b) a full list of individual Segregated ClientG debit ledger balances, as recorded by the Authorised FirmG ;
        (c) a full list of unpresented cheques and outstanding lodgements;
        (d) a full list of Client AccountG cash book balances; and
        (e) formal statements from Third Party AgentsG showing account balances as at the date of reconciliation.
        (3) An Authorised FirmG must:
        (a) reconcile the individual credit ledger balances, Client AccountG cash book balances, and the Third Party Agent Client AccountG balances;
        (b) check that the balance in the Client AccountsG 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 AgentG and the Authorised FirmG , are investigated and, where applicable, corrective action taken as soon as possible.
        (4) An Authorised FirmG must perform the reconciliations in (3) within 10 days of the date to which the reconciliation relates.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

        • COB A5.11.1 Guidance

          When performing the reconciliations, an Authorised FirmG should:

          a. include in the credit ledger balances:
          i. unallocated Client MoneyG ;
          ii. dividends received and interest earned and allocated;
          iii. sale proceeds which have been received by the Authorised FirmG and the ClientG has delivered the InvestmentsG or the Authorised FirmG holds or controls the InvestmentG ; and
          iv. Money paid by the ClientG in respect of a purchase where the Authorised FirmG has not remitted the MoneyG to the counterparty or delivered the InvestmentG to the ClientG ; and
          b. deduct from the credit ledger balances:
          i. Money owed by the client in respect of unpaid purchases by or for the ClientG if delivery of those InvestmentsG has been made to the ClientG ; and
          ii. Money remitted to the ClientG in respect of sales transactions by or for the ClientG if the ClientG has not delivered the InvestmentsG .
          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.11.2

        An Authorised FirmG must ensure that the process of reconciliation does not give rise to a conflict of interest.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

        • COB A5.11.2 Guidance

          When performing reconciliations, an Authorised FirmG should maintain a clear separation of duties to ensure that an employee with responsibility for operating Client AccountsG , or an employee that has the authority to make payments, does not perform the reconciliations under COB Rule A5.11.1

          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.11.3

        (1) Reconciliation performed in accordance with COB Rule A5.11.1 must be reviewed by a member of the Authorised FirmG who has adequate seniority.
        (2) The individual referred to in (1) must provide a written statement confirming the reconciliation has been undertaken in accordance with the requirements of this section.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.11.4

        The Authorised FirmG must notify the DFSA where there has been a material discrepancy with the reconciliation which has not been rectified.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

        • COB A5.11.4 Guidance

          A material discrepancy includes discrepancies which have the cumulative effect of being material, such as longstanding discrepancies.

          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.12 Auditor's Reporting Requirements

      • COB A5.12 Guidance

        In accordance with GEN chapter 8, an Authorised FirmG which holds or controls Client MoneyG for Segregated ClientsG must arrange for a Client Money Auditor's ReportG to be submitted to the DFSA on an annual basis.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
        [Amended] DFSA RM226/2018 (Made 6th June 2018). [VER30/08-18]

    • COB A5.13 Client Money Distribution Rules

      • COB A5.13.1

        This section is referred to as the Client Money Distribution RulesG and to the extent that these Rules are inconsistent with part 5.52 of the DIFC Insolvency Regulations, and the DIFC Preferential Creditor Regulations, these Rules will prevail.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
        [Amended] DFSA RM144/2014 (Made 24th August 2014). [VER23/08-14]

      • COB A5.13.2

        Following a Distribution EventG , the Authorised FirmG must distribute MoneyG in the following order of priorities:

        (a) firstly, in relation to Client MoneyG held in a Client AccountG on behalf of Segregated ClientsG , claims relating to that MoneyG must be paid to each Segregated ClientG in full or, where insufficient funds are held in a Client AccountG , proportionately, in accordance with each Segregated Client'sG valid claim over that MoneyG ;
        (b) secondly, where the amount of Client MoneyG in a Client AccountG is insufficient to satisfy the claims of Segregated ClientsG in respect of that MoneyG , or not being immediately available to satisfy such claims, all other MoneyG held by the Authorised FirmG must be used to satisfy any outstanding amounts remaining payable to Segregated ClientsG but not satisfied from the application of (a) above;
        (c) thirdly, upon resolution of claims in relation to Segregated ClientsG , any MoneyG remaining with the Authorised FirmG must be paid to each ClientG in full or, where insufficient funds are held by the Authorised FirmG , proportionately, in accordance with each Client'sG valid claim over that MoneyG ; and
        (d) fourthly, upon satisfaction of all claims in (a), (b) and (c) above, in the event of:
        (i) the appointment of a liquidator, receiver or administrator, or trustee in bankruptcy over the Authorised FirmG , payment must be made accordance with the Insolvency Law 2009; or
        (ii) all other Distribution EventsG , payment must be made in accordance with the direction of the DFSA.
        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
        [Amended] DSFA RM185/2016 (Made 7th December 2016). [VER28/02-17]

        • COB A5.13.2 Guidance

          A Segregated ClientG would not have a valid claim over Client MoneyG held in a Client AccountG if that Client AccountG was not established to hold Client MoneyG for that ClientG .

          Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

      • COB A5.13.3

        Following a Distribution EventG , an Authorised FirmG must sell all CollateralG and use the proceeds of the sale to satisfy claims made in accordance with COB Rule A5.13.2

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]

    • COB A5.14 Failure to Comply with this Appendix

      • COB A5.14.1

        An Authorised FirmG which becomes aware that it does not comply with any Rule in this appendix must, within one day, give notice of that fact to the DFSA.

        Derived from DFSA RM56/2008 (Made 1st July 2008). [VER14/07-08]
        [Amended] DFSA RM66/2009 (Made 1st August 2009). [VER16/08-09]