• COBS 15. COBS 15. SAFE CUSTODY PROVISIONS

    • COBS 15.1 COBS 15.1 Application

      • COBS 15.1.1

        Subject to Rule 15.1.2, this chapter applies to an Authorised Person in accordance with Rule 14.3.1(d).

      • COBS 15.1.2

        This chapter does not apply to Fund Managers, who are subject to the provisions of Chapter 15.3 of the Fund Rules.

      • COBS 15.1.3

        This chapter does not apply to Authorised Persons who provide Payment Services, who are subject to Chapter 19.

    • COBS 15.2 COBS 15.2 General Requirements

      • COBS 15.2.1

        The provisions of this appendix are referred to as the Safe Custody Provisions.

      • COBS 15.2.2

        An Authorised Person must:

        (a) comply with the Safe Custody Provisions; and
        (b) have adequate systems and controls in place to be able to evidence compliance with the Safe Custody Provisions.

    • COBS 15.3 COBS 15.3 Recording, Registration and Holding Requirements

      • COBS 15.3.1

        An Authorised Person which Provides Custody or holds or controls Client Investments must ensure that Safe Custody Investments are recorded, registered and held in an appropriate manner to safeguard and control such property.

      • COBS 15.3.2

        Subject to Rule 15.4.1, an Authorised Person which Provides Custody or holds or controls Client Investments must record, register and hold Safe Custody Investments separately from its own Investments.

    • COBS 15.4 COBS 15.4 Client Accounts in relation to Client Investments

      • COBS 15.4.1

        An Authorised Person which Provides Custody or holds or controls Client Investments must register or record all Safe Custody Investments in an account that is:

        (a) a Client Account in relation to Client Investments; or
        (b) an account in the name of the Authorised Person where, due to the nature of the law or market practice, it is not feasible to do otherwise, also labelled as a Client Account where legally possible.

      • COBS 15.4.2

        A Client Account in relation to Client Investments is an account which:

        (a) is held with a Third-Party Agent or by an Authorised Person which is authorised under its Financial Services Permission to Provide Custody;
        (b) is established to hold Client Assets;
        (c) when held by a Third-Party Agent, is maintained in the name of:
        (i) if an Authorised Person in the form of a Domestic Firm, the Authorised Person; or
        (ii) if an Authorised Person in the form of a Branch, a Nominee Company controlled by the Authorised Person; and
        (d) includes the words "Client Account" in its title.
        Amended on (3 February, 2020).

      • COBS 15.4.3

        (a) An Authorised Person must maintain a master list of all Client Accounts and accounts referred to in Rules 15.4.115.4.2.
        (b) The master list must detail:
        (i) the name of the account;
        (ii) the account number;
        (iii) the custodian, sub-custodian or depository (if not the Authorised Person itself);
        (iv) the banker of the account;
        (v) whether the account is currently open or closed; and
        (vi) the date of opening or closure.
        (c) The details of the master list must be documented and maintained for a minimum period of six years following the closure of an account.

      • COBS 15.4.4

        An Authorised Person must not use a Client's Safe Custody Investment for its own purpose or that of another Person without that Client's prior written permission.

      • COBS 15.4.5

        An Authorised Person which intends to use a Client's Safe Custody Investments for its own purpose or that of another Person, must have systems and controls in place to ensure that:

        (a) it obtains that Client's prior written permission;
        (b) adequate records are maintained to protect Safe Custody Investments which are applied as collateral or used for stock lending activities;
        (c) the equivalent assets are returned to the Client Account of the Client; and
        (d) the Client is not disadvantaged by the use of his Safe Custody Investments.

      • Guidance

        1. An Authorised Person may record, register or hold a Client's Investment in a Client Account solely for that Client. Alternatively, an Authorised Person may choose to pool that Client's Investment in a Client Account containing Investments of more than one Client.
        2. The purpose of recording, registering or holding Investments in a Client Account is to ensure that Investments belonging to Clients are readily identifiable from Investments belonging to the Authorised Person such that, following a Pooling Event, any subsequent distribution of Investments may be made in proportion to each Client's valid claim over those Investments.
        3. Following a Pooling Event, a Client may not have a valid claim over Investments registered, recorded or held in a Client Account if that Client Account was not established to register, record or hold Investments for that Client or a pool of Clients of which that Client was a part.

    • COBS 15.5 COBS 15.5 Holding or Arranging Custody with Third-Party Agents

      • COBS 15.5.1

        (a) Before an Authorised Person holds a Safe Custody Investment with a Third-Party Agent or Arranges Custody through a Third-Party Agent, it must undertake an assessment of that Third-Party Agent and have concluded on reasonable grounds that the Third-Party Agent is suitable to hold those Safe Custody Investments.
        (b) An Authorised Person must have systems and controls in place to ensure that the Third-Party Agent remains suitable.
        (c) When assessing the suitability of the Third-Party Agent, the Authorised Person must ensure that the Third-Party Agent will provide protections equivalent to the protections conferred in this section.

      • COBS 15.5.2

        An Authorised Person must be able to demonstrate to the Regulator's satisfaction the grounds upon which the Authorised Person considers the Third-Party Agent to be suitable to hold Safe Custody Investments.

      • COBS 15.5.3

        When assessing the suitability of a Third-Party Agent, an Authorised Person must have regard to:

        (a) its credit rating;
        (b) its capital and financial resources in relation to the amount of Safe Custody Investments held;
        (c) the insolvency regime of the jurisdiction in which it is located;
        (d) its arrangements for holding the Investments;
        (e) its regulatory status, expertise, reputation and history;
        (f) its Group structure;
        (g) its use of agents and service providers; and
        (h) any other activities of the agent.

    • COBS 15.6 COBS 15.6 Safe Custody Agreements with Third-Party Agents

      • COBS 15.6.1

        Before an Authorised Person passes, or permits to be passed, Safe Custody Investments to a Third-Party Agent it must have procured a written acknowledgement from the Third-Party Agent stating:

        (a) that the title of the account sufficiently distinguishes that account from any account containing Investments belonging to the Authorised Person, and is in the form requested by the Authorised Person;
        (b) that the Client Investment will only be credited and withdrawn in accordance with the instructions of the Authorised Person;
        (c) that the Third-Party Agent will hold Client Investments separately from assets belonging to the Third-Party Agent;
        (d) the arrangements for recording and registering Client Investments, claiming and receiving dividends and other entitlements and interest and the giving and receiving of instructions;
        (e) that the Third-Party Agent will deliver a statement to the Authorised Person (including the frequency of such statement), which details the Client Investments deposited to the account;
        (f) that all Investments standing to the credit of the account are held by the Authorised Person as agent and that the Third-Party Agent is not entitled to combine the account with any other account or to exercise any charge, mortgage, lien, right of set-off or counterclaim against Investments in that account in respect of any sum owed to it on any other account of the Authorised Person; and
        (g) the extent of liability of the Third-Party Agent in the event of default.

      • COBS 15.6.2

        An Authorised Person must maintain for at least six years, records of all Safe Custody Agreements and any instructions given by the Authorised Person to the Third-Party Agent under the terms of the agreement.

    • COBS 15.7 COBS 15.7 Client Disclosure

      • COBS 15.7.1

        Before an Authorised Person Arranges Custody for a Client, it must disclose to that Client, if applicable, that the Client's Safe Custody Investments may be held in a jurisdiction outside the Abu Dhabi Global Market and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the Abu Dhabi Global Market.

      • COBS 15.7.2

        Before an Authorised Person provides Custody for a Client it must disclose to the Client on whose behalf the Safe Custody Investments will be held:

        (a) a statement that the Client is subject to the protections conferred by the Safe Custody Provisions;
        (b) the arrangements for recording and registering Safe Custody Investments, claiming and receiving dividends and other entitlements and interest and the giving and receiving instructions relating to those Safe Custody Investments;
        (c) the obligations the Authorised Person will have to the Client in relation to exercising rights on behalf of the Client;
        (d) the basis and any terms governing the way in which Safe Custody Investments will be held, including any rights which the Authorised Person may have to realise Safe Custody Investments held on behalf of the Client in satisfaction of a default by the Client;
        (e) the method and frequency upon which the Authorised Person will report to the Client in relation to his Safe Custody Investments;
        (f) if applicable, a statement that the Authorised Person intends to mix Safe Custody Investments with those of other Clients;
        (g) if applicable, a statement that the Client's Safe Custody Investments may be held in a jurisdiction outside the Abu Dhabi Global Market and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the Abu Dhabi Global Market;
        (h) if applicable, a statement that the Authorised Person holds or intends to hold Safe Custody Investments in a Client Account with a Third-Party Agent which is in the same Group as the Authorised Person; and
        (i) the extent of the Authorised Person's liability in the event of default by a Third-Party Agent.

    • COBS 15.8 COBS 15.8 Client Reporting

      • COBS 15.8.1

        An Authorised Person which provides Custody or which otherwise holds or controls any Safe Custody Investments for a Client must send a regular statement to its Client:

        (a) if it is a Retail Client at least every six months; or
        (b) if it is a Professional Client or Market Counterparty at other intervals as agreed in writing with the Professional Client or Market Counterparty.

      • COBS 15.8.2

        The statement must include:

        (a) a list of that Client's Safe Custody Investments as at the date of reporting;
        (b) a list of that Client's Collateral and the market value of that Collateral as at the date of reporting; and
        (c) details of any Client Money held by the Authorised Person as at the date of reporting.

      • COBS 15.8.3

        The statement sent to the Client must be prepared within one calendar month of the statement date.

    • COBS 15.9 COBS 15.9 Reconciliation

      • COBS 15.9.1

        An Authorised Person must:

        (a) at least every calendar month, reconcile its records of Client Accounts held with Third-Party Agents with monthly statements received from those Third-Party Agents;
        (b) at least every six months, count all Safe Custody Investments physically held by the Authorised Person, or its Nominee Company, and reconcile the result of that count to the records of the Authorised Person; and
        (c) at least every six months, reconcile individual Client ledger balances with the Authorised Person's records of Safe Custody Investment balances held in Client Accounts.

      • COBS 15.9.2

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

      • COBS 15.9.3

        An Authorised Person must maintain a clear separation of duties to ensure that an employee with responsibility for operating Client Accounts, or an employee that has authority over Safe Custody Investments, must not perform the reconciliations under Rule 15.9.1.

      • COBS 15.9.4

        (a) Reconciliation performed in accordance with Rule 15.9.1 must be reviewed by a member of the Authorised Person who has adequate seniority.
        (b) The individual referred to in Rule 15.9.4(a) must provide a written statement confirming that the reconciliation has been undertaken in accordance with the requirements of this section.

      • COBS 15.9.5

        The Authorised Person must notify the Regulator where there have been material discrepancies with the reconciliation which have not been rectified.

      • COBS 15.9.6

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

    • COBS 15.10 Auditor's Reporting Requirements

      In accordance with GEN 6.6.7, an Authorised Person to which this chapter applies must arrange for a Safe Custody Auditor's Report to be submitted to the Regulator on an annual basis.