COBS 14.3 COBS 14.3 Client Investments
COBS 14.3.1 Application(a) An Authorised Person must treat all Investments held or controlled on behalf of a Client in the course of, or in connection with, the carrying on of Investment Business as Client Investments.(b) An Authorised Person which holds or controls Client Investments must have systems and controls in place to ensure the proper safeguarding of Client Investments.(c) Instead of safeguarding Client Investments, an Authorised Person may choose to safeguard Client Money equal to the value of the Client Investments.(d) An Authorised Person:(i) holding or controlling Client Investments;(ii) Providing Custody; or(iii) Arranging Custodyin or from the Abu Dhabi Global Market must do so in accordance with the Safe Custody Provisions in Chapter 15, except in relation to Client Investments held as Collateral (unless stated otherwise).
COBS 14.3.2 Holding Collateral
Before an Authorised Person holds Collateral from a Client it must disclose to that Client:(a) the basis and any terms governing the way in which the Collateral will be held, including any rights which the Authorised Person may have to realise the Collateral;(b) if applicable, that the Collateral will not be registered in that Client's own name;(c) if applicable, that the Authorised Person proposes to return to the Client Collateral other than the original Collateral or original type of Collateral; and(d) that in the event of the Authorised Person's Failure:(i) of an Abu Dhabi Global Market Firm, any excess Collateral will be sold and the resulting Client Money shall be distributed in accordance with the Client Money Distribution Rules; or(ii) of a Non-Abu Dhabi Global Market Firm, that Collateral will be subject to a regime which may differ from the regime applicable in the Abu Dhabi Global Market.(e) Before an Authorised Person deposits Client's Collateral with a third party it must notify and obtain the agreement of the third party that:(i) the Collateral does not belong to the Authorised Person and must therefore be held by the third party in a segregated Client Account in a name that clearly identifies it as belonging to the Authorised Person's Clients; and(ii) the third party is not entitled to claim any lien or right of retention or sale over the Collateral except to cover the obligations owed to the third party arising on the segregated Client Account and no other account.(f) An Authorised Person may permit Client's Collateral to be held by a third party only where it has reasonable grounds to believe that the third party is, and remains, suitable to hold that Collateral.(g) An Authorised Person must be able to demonstrate to the Regulator's satisfaction the grounds upon which it considers the third party to be suitable to hold Client's Collateral.(h) An Authorised Person must take reasonable steps to ensure that the Collateral is properly safeguarded.(i) An Authorised Person must withdraw the Collateral from the third party where the Collateral is not being properly safeguarded unless the Client has indicated otherwise in writing.(j) An Authorised Person holding Client's Collateral must send a statement every six months to the Client.(k) An Authorised Person must reconcile the Client's Collateral in accordance with Rule 15.9.
COBS 14.3.3 Information to prime brokerage Clients(a) An Authorised Person must make available to each of its Clients to whom it provides prime brokerage services a statement in a durable medium:(i) showing the value at the close of each Business Day of the items in Rule 14.3.4 below; and(ii) detailing any other matters which that Authorised Person considers are necessary to ensure that a Client has up-to-date and accurate information about the amount of Client Money and the value of Safe Custody Assets held by that Authorised Person for it.(b) The statement must be made available to those Clients not later than the close of the next Business Day to which it relates.
Amended on (3 February, 2020).
The statement must include:(a) the total value of Safe Custody Assets and the total amount of Client Money held by that prime brokerage firm for a Client;(b) the cash value of each of the following:(i) cash loans made to that Client and accrued interest;(ii) securities to be redelivered by that Client under open short positions entered into on behalf of that Client;(iii) current settlement amount to be paid by that Client under any futures contracts;(iv) short sale cash proceeds held by the Authorised Person in respect of short positions entered into on behalf of that Client;(v) cash margin held by the Authorised Person in respect of open futures contracts entered into on behalf of that Client;(vi) mark-to-market close-out exposure of any OTC transaction entered into on behalf of that Client secured by Safe Custody Assets or Client Money;(vii) total secured obligations of that Client against the prime brokerage firm; and(viii) all other Safe Custody Assets held for that Client.(c) total collateral held by the Authorised Person in respect of secured transactions entered into under a prime brokerage agreement, including where the Authorised Person has exercised a right of use in respect of that Client's Safe Custody Assets;(d) the location of all of a Client's Safe Custody Assets, including assets held with a sub-custodian; and(e) a list of all the institutions at which the Authorised Person holds or may hold Client Money, including money held in Client Accounts.
The reports under Rule 15.8 below must also be provided to each Client, to the extent that this is required under this section.
COBS 14.3.6 Record Keeping(a) An Authorised Person must maintain records which enable the Authorised Person to demonstrate compliance with this section; and which enable the Authorised Person to demonstrate and explain all entries of Client Investments and Collateral held or controlled in accordance with this chapter.(b) Records must be kept for a minimum of six years.
COBS 14.3.7 Notification of Failure to Comply
An Authorised Person must inform the Regulator in writing without delay if it has not complied with, or is unable, in any material respect, to comply with the requirements in this Rule 14.3.