Asset Management and Investment Advisory Rules 2014

Investment Management and

Advisory Rules 2014

(INMA)

Version No.6

Effective: 1 July 2021

Includes amendments made by

CTRL Repeal, ISFI Partial Repeal and Consequential

Amendments Rules 2021 (QFCRA Rules 2021-1)

V6 Investment Management and Advisory Rules 2014

contents 1

Effective: 1/July/21

Investment Management and Advisory Rules 2014

made under the

Financial Services Regulations

Contents

Page

Chapter 1 General 1

1.1.1 Introduction 1 1.1.2 Commencement 1 1.1.3 Effect of definitions, notes and examples 1 1.1.3A Declaration of activities as regulated activities 1 1.1.4 Application of these rules—general 2 1.1.5 Interaction between these rules and IMEB 4 1.1.6 Application of these rules—branches 4 1.1.7 Requirement for policy also requires procedures and systems 4 1.1.8 Legal form that firms must take 4

Chapter 2 Prudential reporting requirements 6

2.1.1 Introduction 6 2.1.2 Preparing returns 6

Contents

page

contents 2 Investment Management and Advisory Rules 2014

V6

Effective: 1/Jul/21

2.1.3 Giving information 7 2.1.4 Accounts and statements to use international standards 7 2.1.5 Signing returns 7 2.1.6 Firm to notify authority 8 2.1.7 Branches—obligations to inform Regulatory Authority 9

Chapter 3 General prudential requirements 10

Part 3.1 General 10

3.1.1 Governing body’s responsibilities 10 3.1.2 Systems and controls 10

Part 3.2 Financial resources—general principles 12

3.2.1 Financial resources—LLCs and limited partnerships 12 3.2.2 Financial resources—branches 12

Part 3.3 Minimum capital and liquid assets requirements 13

3.3.1 Application of Part 3.3 13 3.3.2 References to particular currencies 13 3.3.3 Minimum paid-up share capital 13 3.3.4 Net liquid assets requirement 14 3.3.5 Calculating total liquid assets 15 3.3.6 Calculating annual operating expenditure 15 3.3.7 Revision of annual operating expenditure 16 3.3.8 Application of rule 3.3.4 to financial groups 16 3.3.9 Reductions in paid-up share capital 17

Chapter 4 Management of risk 18

Part 4.1 Introduction—Chapter 4 18 4.1.1 Introduction 18

Part 4.2 Risk management 19 4.2.1 Risks to be addressed 19 4.2.2 Risk management policy 19 4.2.3 Staff understanding of risks 20

Contents

page


contents 3

Effective: 1/Jul/21

4.2.4 Governing body’s obligation 20

Part 4.3 Professional indemnity insurance 21 4.3.1 Firms must take out and maintain professional indemnity insurance 21 4.3.2 Minimum requirements for professional indemnity insurance policies 21 4.3.3 Suitability of professional indemnity insurers 22 4.3.4 What firms may provide guarantees 24 4.3.5 Notices to the Regulatory Authority 24

Chapter 5 Client money 25

Part 5.1 Client money—introductory 25 5.1.1 Introduction 25 5.1.2 Investment business firms and advisory firms 25 5.1.3 Advisory firms not to hold client money 26 5.1.4 Chapter 5 application to QFC schemes 26

Part 5.2 Client money concepts 27 5.2.1 When a firm holds money 27 5.2.2 Client money 27 5.2.3 Eligible banks 27 5.2.4 Eligible third parties 28 5.2.5 Approved representative—definition 28 5.2.6 Non-QFC intermediary—definition 29

Part 5.3 Money that is not client money 30

5.3.1 Money that is not client money—money payable to firm 30 5.3.2 Money that is not client money—cheques sent to regulated financial

institutions 30 5.3.3 Money that is not client money—money to which client money

protection rules do not apply 31 5.3.4 Money that is not client money—money held by QFC bank 31 5.3.5 Money that is not client money—money held in guaranteed account 32 5.3.6 Money that is not client money—money from associate 32 5.3.7 Money that is not client money—money for issue or redemption of

units in QFC schemes 33

Part 5.4 Receipt of client money by advisory firms 34 5.4.1 Advisory firms receiving client money 34

Contents

page


V6

Effective: 1/Jul/21

Part 5.5 Client money protection rules 35

Division 5.5.A Client bank accounts 35 5.5.1 Client bank account 35 5.5.2 Firms must open client bank account 35 5.5.3 Client bank account requirements 35 5.5.4 Requirements before firm can pay client money into client bank

accounts 35

Division 5.5.B Terms of holding client money 37 5.5.5 Client money—creation of trust and terms of holding 37 5.5.6 Fiduciary duties of firm 37 5.5.7 Accounting for client money 37 5.5.8 Duty to keep money segregated 38 5.5.9 Client money received in different currency 39 5.5.10 Payment of client money into client bank accounts 39 5.5.11 Approved representatives and non-QFC intermediaries—payment into

client bank accounts 40 5.5.12 Segregating client money in other currencies 40 5.5.13 When client money need not be paid into client bank account 40 5.5.14 Procedures to identify client money 41 5.5.15 Suitability of eligible third parties 41 5.5.16 When client money payable to eligible third party 41 5.5.17 Excess client money to be held no longer than necessary 43 5.5.18 Firms to have systems and controls 43 5.5.19 Record-keeping 43

Part 5.6 Disapplication of client money protection rules 45

5.6.1 When client money protection rules do not apply—business customers and market counterparties 45

5.6.2 How business customers opt-out of protections 46 5.6.3 When client money protection rules do not apply—delivery-versus-

payment transactions through commercial settlement systems 46

Part 5.7 Payments out of client bank accounts 48 5.7.1 Payments to be in accordance with Part 5.7 48 5.7.2 Certain payments out of client bank account to discharge fiduciary

duties 49 5.7.3 Firms not to use money for other purposes 50

Contents

page


contents 5

Effective: 1/Jul/21

Part 5.8 Customer notifications about client money 51 5.8.1 Manner of giving notice 51 5.8.2 Firms must notify customers of certain matters 51 5.8.3 Firms must comply with customers’ instructions 52

Part 5.9 Reconciliation of client money 53

Division 5.9.A Calculation and reconciliations 53 5.9.1 Duty to perform client money calculation 53 5.9.2 What to do if CM resource is less than or more than CM requirement 54 5.9.3 Duty to reconcile accounts 55 5.9.4 Duty to review calculation and reconciliation 55 5.9.5 Duty to rectify discrepancies 56

Division 5.9.B Notice of certain events 56 5.9.6 Duty to notify significant discrepancies 56 5.9.7 Duty to notify failure to carry out calculation or reconciliation 56 5.9.8 Duty to notify inability to pay-in shortfall 56

Part 5.10 Client money distribution rules 57

Division 5.10.A Client money distribution rules―general 57 5.10.1 Firm-related distribution event 57 5.10.2 Third-party-related distribution event 57 5.10.3 Duty to notify distribution events 57

Division 5.10.B Distribution after firm-related distribution events 58 5.10.4 Firm-related distribution events—order of distribution 58 5.10.5 Client money received after firm-related distribution event 59

Division 5.10.C Third-party-related distribution events 59 5.10.6 Firms’ continuing fiduciary duties 59 5.10.7 Firms may make good deficit 60 5.10.8 Client money received after third-party-related distribution event 60

Chapter 6 Providing custody services 61 6.1.1 Application of Chapter 6 61 6.1.2 Chapter 6 application to QFC schemes 61 6.1.3 Eligible custodian 62 6.1.4 Custody investment 63 6.1.5 Holding custody investments 64 6.1.6 Nominee 64

Contents

page


V6

Effective: 1/Jul/21

6.1.7 Investments not treated as custody investments—delivery-versus-payment transactions 64

6.1.8 Investments not treated as custody investments—investments held temporarily for customers 65

6.1.9 Responsibility for nominees 65 6.1.10 Systems and controls in relation to custody investments 66 6.1.11 Control of documents of title 67 6.1.12 Use of eligible custodians 67 6.1.13 Assessing whether an eligible custodian is suitable 68 6.1.14 Acknowledgement by eligible custodian 68 6.1.15 Use of customers’ investments for firms’ own purposes 69 6.1.16 Collateral for customers’ investments used for stock lending 70 6.1.17 Notifying customers if investments to be held outside QFC 71 6.1.18 Notifying customers of terms of custody 71 6.1.19 No exclusion of liability for nominee’s negligence or fraud 73 6.1.20 Periodic custody investment statements to customers 74 6.1.21 When periodic custody statements need not be sent to customer 74 6.1.22 Reconciliations to be carried out 74 6.1.23 Duties to be separated 75 6.1.24 Review of reconciliations 75 6.1.25 Correcting discrepancies in reconciliations 75 6.1.26 Notice to be given of certain significant discrepancies 75 6.1.27 Record-keeping 76

Chapter 7 Use of customers’ investments as collateral 77

7.1.1 Application of Chapter 7 77 7.1.2 Adequate records to be kept 78 7.1.3 Periodic statements to customer 78

Chapter 8 Client mandates 79

8.1.1 Client mandates—systems and controls 79 8.1.2 Chapter 8 application to QFC schemes 80

Chapter 9 Islamic INMA firms 81 9.1.1 Introduction 81 9.1.2 Profit-sharing investment accounts 81

Contents

page


contents 7

Effective: 1/Jul/21

9.1.3 Policies—PSIAs 82 9.1.4 PSIA managers’ responsibilities 82 9.1.5 Terms of business 83 9.1.6 Financial statements—specific disclosures 84 9.1.7 Periodic statements 85 9.1.8 Displaced commercial risk 85

Chapter 9A Post-contractual obligations of INMA firms 86

Part 9A.1 Reporting to customers 86

9A.1.1 Confirmation notes—provision requirement 86 9A.1.2 Confirmation notes—omission of information 86 9A.1.3 Confirmation notes—when transaction taken to be executed 86 9A.1.4 Confirmation notes—content 87 9A.1.5 Confirmation notes—provision requirement exemption 87 9A.1.6 Confirmation notes—recordkeeping 88 9A.1.7 Periodic statements—provision requirement 88 9A.1.8 Periodic statements—intervals 89 9A.1.9 Periodic statements—provision requirement exemption 89 9A.1.10 Periodic statements—recordkeeping 89

Part 9A.2 Cancelling relevant investment contracts—retail customers 90

9A.1.11 Relevant investment contracts—right to cancel 90 9A.1.12 Relevant investment contracts—when cancellation rights can be

exercised 90 9A.1.13 Relevant investment contracts—exercising cancellation right 91 9A.1.14 Relevant investment contracts—consequences of cancellation 91 9A.1.15 Relevant investment contracts cancellation—recordkeeping 92

Chapter 9B Other investment-related activities 93

Part 9B.1 Investment research and investment recommendations 93

9B.1.1 Investment research—conflicts of interest and impartiality 93 9B.1.2 Research recommendations—basic requirements 95 9B.1.3 Research recommendations—additional requirements 96

Contents

page


V6

Effective: 1/Jul/21

9B.1.4 Research recommendations—recordkeeping 96

Part 9B.2 Dealing and managing 97 9B.1.5 Dealing and managing—best execution 97 9B.1.6 Dealing and managing—timely execution 98 9B.1.7 Dealing and managing—recordkeeping 98 9B.1.8 Dealing and managing—aggregation of customer orders 99 9B.1.9 Aggregation of customer orders—allocation 99 9B.1.10 Aggregation of customer orders—fair allocation etc 100 9B.1.11 Dealing and managing—customer order priority 101 9B.1.12 Dealing and managing—excessive dealing and switching 101 9B.1.13 Dealing and managing—non-market-price transactions 102 9B.1.14 Dealing and managing—realising retail customer’s assets 103

Chapter 10 Transitional 104 10.1.1 Definitions for Chapter 10 104 10.1.2 Authorised firms to remain authorised 104 10.1.3 Modifications and waivers 104 10.1.4 Power of Regulatory Authority not diminished 105

Schedule 1 Guidance about risk management 106

Part S1.1 Introduction 106

Part S1.2 Risks to be addressed in risk management policy 106

S1.2.1 Operational risk 106 S1.2.2 Reputational risk 106 S1.2.3 Liquidity risk 106

Part S1.3 Risks to be addressed in managing operational risk 107

S1.3.1 Legal risk 107 S1.3.2 Fraud risk 107 S1.3.3 Economic and political risk 108 S1.3.4 Business continuity risk 108 S1.3.5 Technology risk 109

Contents

page


contents 9

Effective: 1/Jul/21

S1.3.6 Human resources risk 109 S1.3.7 Outsourcing risk 109 S1.3.8 Project management risk 111 S1.3.9 Strategic risk 111

Part S1.4 Other risks that may be addressed in risk management policy 111

S1.4.1 Market risk 111 S1.4.2 Concentration risk 111 S1.4.3 Credit risk 112 S1.4.4 Group risk 112 S1.4.5 Settlement risk 112 S1.4.6 Valuation risk 112

Schedule 2 Content of confirmation notes 114

Schedule 3 Content of periodic statements 117

Part S3.1 Periodic statements—general content requirements 117

Part S3.2 Periodic statements—investment management 118

Part S3.3 Periodic statements—contingent liability transactions 119

Part S3.4 Periodic statements—structured capital at risk investments 120

Schedule 4 Additional obligations for investment research recommendations 122

Schedule 5 Recordkeeping—dealing and managing 129

Glossary 132

Endnotes 144

General Chapter 1

Rule 1.1.1


page 1

Effective: 1/Jul/21

Chapter 1 General

1.1.1 Introduction

(1) These rules are the Investment Management and Advisory Rules 2014

(or INMA).

(2) These rules establish the prudential framework, and the framework

for client money and asset protection, for authorised firms to which,

under rule 1.1.4, these rules apply. Such an authorised firm is called

an INMA firm in these rules.

1.1.2 Commencement

These rules commence on 1 January 2015.

1.1.3 Effect of definitions, notes and examples

(1) A definition in the glossary to these rules also applies to any

instructions or document made under these rules.

(2) A note in or to these rules is explanatory and is not part of these rules.

However, examples and guidance are part of these rules.

(3) An example is not exhaustive, and may extend, but does not limit, the

meaning of these rules or the particular provision of these rules to

which it relates.

Note Under FSR, article 17 (4), guidance is indicative of the view of the

Regulatory Authority at the time and in the circumstances in which it was

given.

1.1.3A Declaration of activities as regulated activities

(1) For FSR, article 23 (2), each of the following activities is a regulated

activity:

(a) dealing (as agent) in Islamic investments;

Note Buying, selling, subscribing for or underwriting any Islamic

investment as principal is covered by IBANK.

(b) arranging deals in Islamic investments;

Chapter 1 General Rule 1.1.4

page 2 Investment Management and Advisory Rules 2014

V6

Effective: 1/Jul/21

(c) arranging Shari’a-compliant financing facilities;

(d) providing custody services in relation to Islamic investments;

(e) arranging the provision of custody services in relation to Islamic

investments;

(f) managing Islamic investments;

(g) advising on Islamic investments.

(2) Islamic investments means investments through any 1 or more of the

following kinds of Islamic financial contracts mentioned in IBANK,

rule 1.1.6 (b):

(a) musharakah and its variations;

(b) mudarabah and its variations;

(c) any other Islamic financial contract that is recognised by the

firm’s Shari’a supervisory board.

1.1.4 Application of these rules—general

Subject to rule 1.1.5, these rules apply to an entity that has, or is

applying for, an authorisation to conduct any of the following

activities:

(a) dealing in investments (if limited to dealing as agent);

Note Dealing in investments as principal is covered by BANK or

IBANK, as applicable. Dealing in investments includes buying,

selling, subscribing for or underwriting investment.

(b) managing investments;

(c) providing custody services;

(d) operating a collective investment scheme;

(e) providing custody services in relation to a collective investment

scheme;

(f) providing scheme administration (that is, providing scheme

administration in relation to a collective investment scheme);

(g) arranging deals in investments;

General Chapter 1

Rule 1.1.4


page 3

Effective: 1/Jul/21

(h) arranging the provision of custody services;

(i) arranging financing facilities;

(j) advising on investments.

Note Each reference to investments in rule 1.1.4 includes Islamic

investments—see the Glossary.

Guidance

1 The following Rules also apply to a firm to which these Rules apply:

• if it is a banking business firm, within the meaning given by BANK—

those Rules

• if it is an Islamic banking business firm, within the meaning given by

IBANK—those Rules

• if it is an Islamic financial institution (but not an Islamic banking

business firm)—CTRL, Chapter 9

• in relation to its dealings with customers—CIPR

• if it operates a collective investment scheme—COLL

• if it operates a private placement scheme—PRIV.

Rules that are of general application (CTRL, INDI, GENE, AML/CFTR and

INAP) also apply.

2 It is possible for a firm both to be authorised as a banking business firm under

BANK (that is, as a deposit-taker or investment dealer) and to hold an

authorisation referred to in rule 1.1.4. Both these rules and BANK would apply

to such a firm to some degree. Similarly, it is possible for a firm to be

authorised as an Islamic banking business firm under IBANK and to hold an

authorisation referred to in rule 1.1.4. (The firm’s authorisation would include

a condition that the whole of its business must be conducted in accordance

with Shari’a.) Both these rules and IBANK would apply to such a firm to some

degree. (It is not possible for a firm to be authorised under both BANK and

IBANK because Islamic windows are not permitted.)

3 For example, a banking business firm that also holds an authorisation referred

to in rule 1.1.4 will need to comply with these rules, except as follows:

• Part 3.3 (Minimum capital and liquid assets requirements) does not

apply because compliance with the capital adequacy and liquidity

requirements in BANK or IBANK (as applicable) is taken to be

compliance with Part 3.3.

• Part 4.3 (Professional indemnity insurance) would not apply because the

Regulatory Authority considers it unnecessary for a firm that is also

Chapter 1 General Rule 1.1.5


V6

Effective: 1/Jul/21

authorised as a banking business firm or an Islamic banking business

firm.

• Part 4.1 (Introduction—Chapter 4), Part 4.2 (Risk management) and

Schedule 1 (Guidance about risk management) would not apply if the

firm can demonstrate to the Regulatory Authority’s satisfaction that,

having complied with BANK or IBANK (as applicable), the firm has in

effect addressed all of the risks and other matters that Part 4.2 would

otherwise require it to address.

1.1.5 Interaction between these rules and IMEB

If an authorised firm holds both an authorisation referred to in

rule 1.1.4 and an authorisation for insurance mediation (within the

meaning given by IMEB, rule 1.2.2), these rules and IMEB each apply

to the firm to the extent that the Regulatory Authority directs.

1.1.6 Application of these rules—branches

These rules apply to a branch that has an authorisation to conduct an

activity mentioned in rule 1.1.4, except to the extent stated otherwise.

Guidance

The requirements of these rules about financial resources do not apply to branches

(see rule 3.3.1), but branches are subject to particular obligations to supply

information to the Regulatory Authority (see rule 2.1.7).

1.1.7 Requirement for policy also requires procedures and systems

In these rules, a requirement for an INMA firm to have a policy also

requires such a firm to have the procedures, systems, processes,

controls and limits needed to give effect to the policy.

1.1.8 Legal form that firms must take

An INMA firm may be:

(a) a limited liability company incorporated under the Companies

Regulations 2005;

(b) a limited liability partnership incorporated under the Limited

Liability Partnerships Regulations 2005; or

General Chapter 1

Rule 1.1.8


page 5

Effective: 1/Jul/21

(c) a branch registered with the QFC Companies Registration

Office.

Note Branch is defined in the glossary.

Chapter 2 Prudential reporting requirements Rule 2.1.1


V6

Effective: 1/Jul/21

Chapter 2 Prudential reporting requirements

2.1.1 Introduction

(1) This Chapter sets out the prudential reporting requirements for an

INMA firm.

(2) Prudential returns of an INMA firm must reflect the firm’s

management accounts, financial statements and ancillary reports. An

INMA firm’s returns, accounts, statements and reports must all be

prepared using the same standards and practices, and must be easily

reconcilable with one another.

2.1.2 Preparing returns

(1) An INMA firm must prepare the prudential returns that it is required

to prepare by notice published by the Regulatory Authority on an

approved website. Such a notice may also require INMA firms to give

other information to the authority.

(2) The firm must give the return to the Regulatory Authority within the

period stated in the relevant notice.

(3) The Regulatory Authority may, by written notice:

(a) require a firm to prepare additional prudential returns;

(b) exempt a firm from a requirement to prepare annual, biannual,

quarterly or monthly returns (or a particular return); or

(c) extend the period within which to give a return.

(4) An exemption may be subject to 1 or more conditions. The firm must

comply with any condition attached to an exemption.

(5) The firm must prepare and give prudential returns in accordance with

the Regulatory Authority’s instructions. The instructions may require

that the return be prepared or given through the authority’s electronic

submission system.

Prudential reporting requirements Chapter 2

Rule 2.1.3


page 7

Effective: 1/Jul/21

(6) The instructions may be set out in these rules, in the return itself, in a

separate document published by the authority on an approved website

or by written notice. These instructions, wherever or however they

are given, are collectively referred to as instructions for preparing

returns.

Note Instructions might be in the form of formulae or blank spaces that the

firm must use or fill in and that automatically compute the amounts to be

reported.

2.1.3 Giving information

(1) The Regulatory Authority may, by written notice, require an INMA

firm to give it information additional to that required by these rules.

(2) An INMA firm must give information to the authority in accordance

with the authority’s instructions and within the period stated in the

notice. The authority may extend the period within which to give the

information.

(3) The authority may exempt an INMA firm from giving information.

The firm must comply with any condition attached to an exemption.

2.1.4 Accounts and statements to use international standards

(1) An INMA firm must prepare and keep its financial accounts and

statements in accordance with AAOIFI, IFRS, US GAAP or other

accounting standards approved in writing by the Regulatory

Authority.

(2) If the firm decides to prepare and keep its financial accounts and

statements in accordance with a standard other than the one it has

previously used, it must notify the authority in writing before

beginning to do so.

2.1.5 Signing returns

(1) A prudential return must be signed by 2 individuals.

(2) If the individuals approved to exercise the finance function and the

senior executive function for the firm are available, they must sign

Chapter 2 Prudential reporting requirements Rule 2.1.6


V6

Effective: 1/Jul/21

the return. If either or both of those individuals is or are unable to

sign, the return must be signed by 1 or 2 of the individuals approved

to exercise the following functions:

(a) the risk management function;

(b) the compliance oversight function;

(c) the executive governance function.

(3) In subrule (2), finance function, senior executive function, risk

management function, compliance oversight function and executive

governance function mean the functions described in CTRL,

Division 1.2.B.

2.1.6 Firm to notify authority

(1) If an INMA firm becomes aware, or has reasonable grounds to

believe, that the firm has breached, or is about to breach, a

requirement of these rules:

(a) it must notify the Regulatory Authority orally about the matter

immediately, but within 1 business day;

(b) it must confirm the oral notification by notice to the authority by

no later than the next business day; and

(c) it must not make any distribution to its shareholders or members,

whether by way of dividends or otherwise, without the

authority’s written permission.

Note Business day and writing are defined in the glossary.

(2) In particular, an INMA firm must notify the authority as soon as

practicable of:

(a) any breach (or foreseen breach) of the firm’s obligation to

maintain a particular level of net liquid assets; or

Note For the requirement to maintain a particular level of net liquid

assets—see rule 3.3.4.

(b) any concern (including because of prospective losses) about

whether its financial resources are adequate.

Prudential reporting requirements Chapter 2

Rule 2.1.7


page 9

Effective: 1/Jul/21

(3) The firm must also notify the authority of any measures taken or

planned to deal with any breach, prospective breach or concern.

2.1.7 Branches—obligations to inform Regulatory Authority

(1) This rule applies to an INMA firm that is a branch.

(2) The Regulatory Authority may require the firm to give it a copy of

any report that the entity of which the firm is a branch is required by

law to make to its home financial services regulator.

(3) If the entity breaches (or expects to breach) a prudential requirement

set by law or by its home financial services regulator, the firm must

immediately notify the Regulatory Authority and must give the

authority copies of any relevant documents (including documents

submitted to that financial services regulator).

Note Home financial services regulator is defined in the glossary.

Chapter 3 General prudential requirements Part 3.1 General Rule 3.1.1


V6

Effective: 1/Jul/21

Chapter 3 General prudential requirements

Part 3.1 General

3.1.1 Governing body’s responsibilities

(1) An INMA firm’s governing body must consider whether the

minimum financial resources required by these rules are adequate to

ensure that there is no significant risk that the firm’s liabilities cannot

be met as they fall due. The firm must obtain additional financial

resources if its governing body considers that the minimum required

does not adequately reflect the risks of its business.

(2) The governing body is also responsible for:

(a) ensuring that the management of the firm’s financial resources

is part of the firm’s overall risk management, and is aligned with

the nature, scale and complexity of its business and its risk

profile and risk appetite;

(b) ensuring that the firm has, at all times, financial resources of the

kinds and amounts required by these rules; and

(c) monitoring the adequacy and appropriateness of the firm’s

systems and controls and the firm’s compliance with them.

3.1.2 Systems and controls

(1) An INMA firm must have adequate systems and controls to enable it

to calculate and monitor its financial resources, and its compliance

with the requirements of this Chapter.

(2) The systems and controls must be in writing and must be appropriate

for the nature, scale and complexity of the firm’s business and its risk

profile.

(3) The systems and controls must enable the firm to show at all times

whether it complies with this Chapter.

General prudential requirements Chapter 3 General Part 3.1

Rule 3.1.2


page 11

Effective: 1/Jul/21

(4) The systems and controls must enable the firm to manage its financial

resources in anticipation of events or changes in market conditions.

(5) The firm must have contingency arrangements to maintain or increase

its financial resources in times of stress.

Chapter 3 General prudential requirements Part 3.2 Financial resources—general principles Rule 3.2.1


V6

Effective: 1/Jul/21

Part 3.2 Financial resources—general principles

3.2.1 Financial resources—LLCs and limited partnerships

(1) An INMA firm incorporated under the Companies Regulations 2005

or the Limited Liability Partnership Regulations 2005 must at all

times have financial resources of the kinds and amounts required by,

and calculated in accordance with, these rules.

(2) An INMA firm to which subrule (1) applies must also have, at all

times, additional financial resources that are adequate for the nature,

scale and complexity of its business to ensure that there is no

significant risk that its liabilities cannot be met as they fall due.

Guidance

1 An INMA firm’s governing body should assess whether the minimum

financial resources required by these rules are adequate for the firm’s business.

The firm should maintain additional financial resources if its governing body

considers that the required minimum financial resources are not adequate for

the risks of the firm’s business.

2 This rule does not apply to an INMA firm that is a branch.

3.2.2 Financial resources—branches

An INMA firm that is a branch must ensure that:

(a) it has, and maintains, at all times, access to financial resources

that are adequate to ensure that there is no significant risk that

its liabilities in Qatar cannot be met as they fall due; and

(b) it complies with the prudential requirements set by its home

financial services regulator.

Note Home financial services regulator is defined in the glossary.

General prudential requirements Chapter 3 Minimum capital and liquid assets requirements Part 3.3

Rule 3.3.1


page 13

Effective: 1/Jul/21

Part 3.3 Minimum capital and liquid assets requirements

3.3.1 Application of Part 3.3

(1) This Part does not apply to an INMA firm that is a branch.

Guidance

The entity of which such a firm is a branch would be subject to regulatory

requirements about capital and other financial resources in its home jurisdiction.

(2) If an INMA firm is also authorised under BANK or IBANK, and the

firm complies with the capital requirements under whichever of those

Rules applies, the firm is taken to comply with this Part.

3.3.2 References to particular currencies

In these rules, the specification of a sum of money in a particular

currency is also taken to specify the equivalent sum in any other

currency at the relevant time.

3.3.3 Minimum paid-up share capital

(1) An INMA firm must have paid-up share capital of at least the amount

specified, by reference to the activity that the firm is (or is to be)

authorised to conduct, in table 3.3.3. If the firm is (or is to be)

authorised to conduct more than 1 such activity, it must have the

higher or highest of the relevant amounts of paid-up share capital.

Table 3.3.3 Minimum paid-up share capital

Activity Minimum paid-up share capital (QR)

Dealing in investments (if limited to

dealing as agent)

1.8 million

Managing investments 1.8 million

Providing custody services 1.8 million

Chapter 3 General prudential requirements Part 3.3 Minimum capital and liquid assets requirements Rule 3.3.4


V6

Effective: 1/Jul/21

Activity Minimum paid-up share capital (QR)

Operating a collective investment

scheme

1.8 million

Providing custody services in relation

to a collective investment scheme

35 million

Providing scheme administration 900,000

Arranging deals in investments 900,000

Arranging the provision of custody

services

900,000

Arranging financing facilities 900,000

Advising on investments 900,000

(2) If the Regulatory Authority considers that, because of the nature,

scale and complexity of a particular INMA firm’s business, the firm

should hold higher paid-up share capital than is required by

subrule (1), the authority may at any time require the firm to hold a

specified higher amount of paid-up share capital.

Note Paid-up share capital (for firms that are not companies) is defined in the

glossary.

3.3.4 Net liquid assets requirement

(1) An INMA firm must have, at all times, net liquid assets at least equal

in value to 25% of the firm’s annual operating expenditure. Net liquid

assets is the amount by which the total value of the firm’s liquid assets

exceeds the total value of its current liabilities.

Note Annual operating expenditure is defined in rule 3.3.6.

(2) If the Regulatory Authority considers that because of the nature, scale

and complexity of a particular INMA firm’s business, the firm should

hold a greater amount of net liquid assets than is required by

subrule (1), the authority may at any time require the firm to hold net


Rule 3.3.5


page 15

Effective: 1/Jul/21

liquid assets to a specified higher percentage of its annual operating

expenditure.

3.3.5 Calculating total liquid assets

(1) Liquid assets means:

(a) cash on hand, and demand deposits, term deposits accessible on

demand, and money otherwise deposited with a bank; and

(b) highly liquefiable investments that the Regulatory Authority

determines to be appropriate to count as liquid assets (but

subject to any direction of the authority about a haircut to be

applied).

(2) In calculating the total value of the firm’s liquid assets, no amount

may be allowed for any of the following:

(a) fixed assets;

(b) any investment, asset or deposit that has been pledged as

security or collateral for an obligation or liability;

(c) receivables;

(d) cash held in a client bank account;

(e) deferred tax assets;

(f) unlisted equity investments;

(g) any investment by a subsidiary of the firm in the firm’s own

shares;

Note Subsidiary is defined in the glossary.

(h) holdings of investments that are categorised as level 3 under the

IFRS fair value hierarchy;

(i) investments in, and loans to, affiliates and related persons.

Note Affiliate and related person are defined in the Glossary.

3.3.6 Calculating annual operating expenditure

(1) An INMA firm’s annual operating expenditure is the annualised

total of the expenses for the year to date that arose in the normal

Chapter 3 General prudential requirements Part 3.3 Minimum capital and liquid assets requirements Rule 3.3.7


V6

Effective: 1/Jul/21

course of the firm’s business, as reported to the Regulatory Authority

in the firm’s most recent form BR200.

(2) If the firm:

(a) has not yet reported in form BR200; or

(b) at any time during the current reporting period, was not an

INMA firm;

the firm must base its annual operating expenditure on the budgeted

or forecast accounts that it submitted to the Regulatory Authority as

part of its application for authorisation (or any application to vary the

scope of its authorisation).

3.3.7 Revision of annual operating expenditure

(1) If an INMA firm:

(a) expects a significant change in its expenditure (either up or

down); or

(b) changes its authorised activities;

it must recalculate its annual operating expenditure accordingly.

(2) If an INMA firm has recalculated its annual operating expenditure in

accordance with subrule (1), it must submit the recalculation to the

Regulatory Authority within 7 days of doing so, and must seek

approval for it from the authority. The authority may object to the

recalculation within 30 days of receiving it and may direct the firm to

revise its net liquid assets requirement accordingly.

3.3.8 Application of rule 3.3.4 to financial groups

(1) If an INMA firm is part of a financial group, the financial group must

comply with rule 3.3.4 on a consolidated basis.

(2) The financial group of an INMA firm is made up of:

(a) the firm;

(b) any subsidiary (direct or indirect) of the firm, if the subsidiary

belongs to a sector of the financial industry; and


Rule 3.3.9


page 17

Effective: 1/Jul/21

(c) any entity that the Regulatory Authority directs the firm to

include.

Note The instructions for preparing returns divide the financial industry into

the following sectors: banking, non-life insurance, life insurance,

financial services, equity investments and non-equity investments.

(3) An INMA firm may apply to the Regulatory Authority for approval

to exclude an entity from its financial group. The authority will grant

such an approval only after the firm satisfies the authority that

inclusion of the entity would be misleading or inappropriate for the

purposes of supervision.

Guidance

The Regulatory Authority would consider a range of factors when requiring an

INMA firm to treat another entity as part of its financial group. These factors would

include regulatory risk factors, including direct and indirect participation, influence

or contractual obligations, interconnectedness, intra-group exposures, intra-group

services, regulatory status and legal framework.

3.3.9 Reductions in paid-up share capital

An INMA firm must not reduce its paid-up share capital without the

Regulatory Authority’s written approval.

Chapter 4 Management of risk Part 4.1 Introduction—Chapter 4 Rule 4.1.1


V6

Effective: 1/Jul/21

Chapter 4 Management of risk Guidance for Chapter 4

Risk management should be directly overseen by an INMA firm’s governing

body. For those obligations (see CTRL, rules 1.2.3, 1.2.4, 3.1.12 and 3.1.14).

Part 4.1 Introduction—Chapter 4

4.1.1 Introduction

(1) This Chapter sets out requirements in relation to an INMA firm’s risk

management strategy and risk management policy.

Note 1 The requirements in this Chapter are additional to the general risk

management requirements set out in CTRL.

Note 2 CTRL, rule 7.1.7 (4), requires an INMA firm to establish and regularly

review its risk management strategy, which must be appropriate to the

nature, scale and complexity of the firm’s business.

Note 3 An INMA firm’s risk management policy is part of, and supports, the

firm’s risk management strategy.

(2) This Chapter also sets out the requirement for certain INMA firms to

take out and maintain professional indemnity insurance.

Management of risk Chapter 4 Risk management Part 4.2

Rule 4.2.1


page 19

Effective: 1/Jul/21

Part 4.2 Risk management

4.2.1 Risks to be addressed

(1) In its risk management strategy an INMA firm must identify all the

risks to which the firm is exposed.

(2) An INMA firm’s risk management policy must address at least

operational risk, reputational risk and liquidity risk. Each of those

kinds of risk is described in Schedule 1.

(3) If an INMA firm is exposed (because of the nature, scale and

complexity of its business, or for any other reason) to any of the other

kinds of risk described in Schedule 1, or a risk of any other kind, that

risk must also be addressed in the firm’s risk management policy.

Guidance

1 Schedule 1 gives guidance about what, in the Regulatory Authority’s view,

should be included in an INMA firm’s risk management policy.

2 The list in Schedule 1 is not exhaustive. With the exception of operational,

reputational and liquidity risk, the Regulatory Authority accepts that not all

firms will be exposed to all of the risks there described.

4.2.2 Risk management policy

An INMA firm’s risk management policy must reflect the nature,

scale and complexity of the firm’s operations and must include:

(a) the kinds of risk mentioned in rule 4.2.1(2) and other kinds of

risk that it has identified itself as exposed to;

(b) the firm’s strategies, policies, procedures and processes to deal

with those risks;

(c) the firm’s assessment of whether its financial resources are

adequate to address those risks;

(d) procedures for reporting on compliance with the policy to the

firm’s governing body and senior management, and for ensuring

that the policy is embedded within the firm’s decision-making;

Chapter 4 Management of risk Part 4.2 Risk management Rule 4.2.3


V6

Effective: 1/Jul/21

(e) triggers and scope for reviewing the policy in the light of

changed conditions and factors affecting the firm’s risk appetite,

risk profile, business activities and financial resources; and

(f) procedures for reporting the results of the reviews to the firm’s

governing body and senior management.

4.2.3 Staff understanding of risks

An IMNA firm must ensure that its staff clearly understand:

(a) the firm’s risk management strategy and policy; and

(b) the kinds of risk mentioned in rule 4.2.1(2) and the other kinds

of risk that the firm is exposed to;

so that the staff can identify, assess, manage and mitigate those risks

effectively.

4.2.4 Governing body’s obligation

An INMA firm’s governing body must evaluate the suitability and

effectiveness of the information and reports that it and the firm’s

senior management receive under the firm’s risk management policy.

The test of suitability and effectiveness is whether the information

and reports are suitable for effectively overseeing and implementing

the firm’s risk management strategy and policy.

Management of risk Chapter 4 Professional indemnity insurance Part 4.3

Rule 4.3.1


page 21

Effective: 1/Jul/21

Part 4.3 Professional indemnity insurance

4.3.1 Firms must take out and maintain professional indemnity insurance

(1) An INMA firm must take out and maintain professional indemnity

insurance in accordance with this Part.

(2) An INMA firm is taken to comply with subrule (1) if its activities are

covered by a group-wide professional indemnity insurance policy that

covers the firm and its activities and otherwise complies with this

Part.

Guidance

If the group-wide policy does not comply with this Part, the firm must obtain

professional indemnity insurance that does so.

(3) However, an INMA firm need not take out or maintain such insurance

if another firm provides a guarantee for it in accordance with

rule 4.3.4.

4.3.2 Minimum requirements for professional indemnity insurance policies

(1) The amount of an INMA firm’s professional indemnity cover must

be determined by the firm’s governing body, and must be adequate,

having regard to the nature, scale and complexity of the firm’s

business.

(2) An INMA firm’s professional indemnity insurance policy must

provide:

(a) cover for claims for which the firm may be liable as a result of

its conduct or the conduct of its employees, the members of its

governing body and its agents;

(b) appropriate cover for legal defence costs;

Chapter 4 Management of risk Part 4.3 Professional indemnity insurance Rule 4.3.3


V6

Effective: 1/Jul/21

(c) continuous cover for claims arising from work carried out from

when the firm was authorised to conduct a regulated activity in

or from the QFC; and

(d) cover for awards made against the firm under the customer

dispute resolution scheme.

Note Customer dispute resolution scheme is defined in the glossary.

(3) An INMA firm must not take out professional indemnity insurance

that provides for the payment of fines imposed by the Regulatory

Authority or the QFC Authority.

(4) If the Regulatory Authority considers that, because of the nature,

scale and complexity of a particular INMA firm’s business, the firm

should increase the level of its professional indemnity insurance

cover, the authority may direct the firm to take out professional

indemnity insurance that provides a specified minimum level of

cover.

4.3.3 Suitability of professional indemnity insurers

(1) Before an INMA firm takes out or renews a professional indemnity

insurance policy with an insurer, the firm must be satisfied, on

reasonable grounds after making an appropriate assessment, that the

insurer is suitable to provide the policy to the firm.

(2) The firm must have systems and controls to ensure that the

assessment remains correct.

(3) In assessing whether an insurer is suitable, the firm must have regard

to all the relevant circumstances, including the following:

(a) the insurer’s credit rating, capital and financial resources;

(b) its regulatory status and history;

(c) its expertise and market reputation;

(d) the regulatory and legal regimes of the jurisdiction in which it is

located.

Note Jurisdiction is defined in the glossary.

Management of risk Chapter 4 Professional indemnity insurance Part 4.3

Rule 4.3.3


page 23

Effective: 1/Jul/21

(4) Without limiting subrule (1), an insurer that is not authorised in the

QFC to conduct insurance business, and does not have an equivalent

authorisation in Qatar or a zone 1 country, is suitable to provide a

professional indemnity insurance policy to the firm only if all of the

requirements in subrule (6) are met.

(5) The zone 1 countries are Australia, Austria, Belgium, Canada,

Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland,

Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Portugal,

Singapore, Spain, Sweden, Switzerland, the United Kingdom and the

United States of America.

(6) The requirements are:

(a) that the insurer is rated at least BBB by Standard & Poor’s or

the equivalent by another rating agency;

(b) that the firm has given notice to the Regulatory Authority about

its intention to take out or renew the insurance policy with the

insurer; and

(c) that either:

(i) the firm has received written notice from the authority

stating that it does not object to the firm’s taking out or

renewing a policy with the insurer; or

(ii) 28 business days has elapsed since the firm gave the

notification to the authority and the authority has not

notified the firm in writing that the authority objects to the

firm’s taking out or renewing a policy with the insurer.

(7) If, at any time after the firm has taken out or renewed a professional

indemnity insurance policy with an insurer, the authority considers

that the insurer is, or is likely to become, unsuitable to provide the

policy, the authority may, by written notice to the firm, require the

firm to cancel the policy and take out equivalent professional

indemnity insurance with another insurer in accordance with this rule.

Chapter 4 Management of risk Part 4.3 Professional indemnity insurance Rule 4.3.4


V6

Effective: 1/Jul/21

4.3.4 What firms may provide guarantees

(1) A firm (the guarantor firm) may provide a guarantee to an INMA

firm for this Part only if the guarantor firm has net tangible assets of

more than QR35 million.

(2) If the INMA firm is a member of a corporate group in which there is

a firm with net tangible assets of more than QR35 million, a firm that

is not a member of the group must not provide a guarantee to the

INMA firm.

Note Corporate group is defined in the glossary.

(3) A guarantee provided for this Part:

(a) must be in writing; and

(b) must make provision at least equal to the provision required by

rule 4.3.2 (Minimum requirements for professional indemnity

insurance policies).

(4) The INMA firm must give a copy of the guarantee to the Regulatory

Authority.

4.3.5 Notices to the Regulatory Authority

An INMA firm:

(a) every year, must give the Regulatory Authority a copy of the

firm’s professional indemnity insurance cover for the following

12-month period;

(b) must notify the authority of any significant changes to the cover,

including the level of cover and the renewal or termination of

the cover; and

(c) must notify the authority of any significant claim against the

firm of professional misconduct or negligence, or by the firm

under its professional indemnity insurance cover.

Guidance

Whether a claim is significant depends on the nature, scale and complexity of the

firm. The Regulatory Authority expects firms to treat a series of single claims that

are significant in the aggregate as significant.

Client money Chapter 5 Client money—introductory Part 5.1

Rule 5.1.1


page 25

Effective: 1/Jul/21

Chapter 5 Client money

Part 5.1 Client money—introductory

5.1.1 Introduction

(1) This Chapter sets out the rules about which INMA firms can deal with

customers’ money in the course of carrying on business in relation to

relevant investments. Only an investment business firm (defined in

rule 5.1.2) is permitted to hold customers’ money.

Note Relevant investment is defined in the glossary.

(2) The Chapter covers how such money must be safeguarded and

accounted for, including what kinds of bank accounts the firm may

establish or use, and what happens if the firm itself or another firm

that holds customers’ money becomes insolvent.

5.1.2 Investment business firms and advisory firms

(1) An investment business firm is an INMA firm whose authorisation

permits it to conduct any 1 or more of the following regulated

activities in or from the QFC:

(a) dealing in investments as agent;

(b) managing investments;

(c) operating collective investment schemes;

(d) providing custody services.

(2) Any other INMA firm is an advisory firm.

Note An advisory firm’s authorisation would permit it to carry on 1 or more of

the following regulated activities, and no other regulated activity:

• providing scheme administration

• arranging deals in investments

• arranging the provision of custody services

• arranging financing facilities

• advising on investments.

Chapter 5 Client money Part 5.1 Client money—introductory Rule 5.1.3


V6

Effective: 1/Jul/21

5.1.3 Advisory firms not to hold client money

An advisory firm must not hold client money.

Note For what an advisory firm must do if it receives client money—see

rule 5.4.1.

5.1.4 Chapter 5 application to QFC schemes

This Chapter does not apply to the independent entity of a QFC

scheme that is not a private placement scheme, or to the operator of a

QFC scheme that is a private placement scheme, in relation to

safeguarding the scheme property.

Note Independent entity, QFC scheme, private placement scheme, operator

and scheme property are defined in the glossary.

Client money Chapter 5 Client money concepts Part 5.2

Rule 5.2.1


page 27

Effective: 1/Jul/21

Part 5.2 Client money concepts

5.2.1 When a firm holds money

An investment business firm holds money if the money is held:

(a) directly by the firm;

(b) in an account in the firm’s name; or

(c) by a person, or in an account in the name of a person, controlled

by the firm.

Note Money is defined in the glossary.

5.2.2 Client money

(1) Client money of an investment business firm is money:

(a) that the firm receives from or holds for a customer in the course

of, or in connection with, conducting investment and advisory

business in or from the QFC; or

(b) that the firm treats as client money in accordance with this

Chapter.

(2) However, money that the firm receives or holds that would otherwise

be client money is not client money if an exception in Part 5.3 (Money

that is not client money) applies to it.

5.2.3 Eligible banks

In these rules:

eligible bank means:

(a) a QFC bank; or

Note QFC bank is defined in the glossary.

(b) an entity for which all of the following requirements are

satisfied:

(i) it is incorporated in a jurisdiction outside the QFC;

Chapter 5 Client money Part 5.2 Client money concepts Rule 5.2.4


V6

Effective: 1/Jul/21

(ii) it is regulated as a bank, and principally regulated for

prudential purposes, by an overseas regulator in the

jurisdiction;

(iii) the Regulatory Authority has not, by notice, declared that

this definition does not apply to the jurisdiction;

(iv) the entity is required to prepare audited accounts;

(v) it has assets of QR35 million or more;

(vi) it had surplus revenue over expenditure for its last

2 financial years;

(vii) its latest annual audit report is not materially qualified.

5.2.4 Eligible third parties

In these rules:

eligible third party means:

(a) an authorised firm (other than an eligible bank); or

(b) an entity for which all of the following requirements are

satisfied:

(i) it is authorised (however described) under the law of a

jurisdiction outside the QFC to carry on any business of a

similar nature to investment and advisory business;

(ii) it is principally regulated for prudential purposes by an

overseas regulator in the jurisdiction;

(iii) the Regulatory Authority has not, by notice, declared that

this definition does not apply to the jurisdiction.

5.2.5 Approved representative—definition

(1) An individual who is not an employee of an INMA firm is an

approved representative of the firm if:

(a) he or she is authorised under a contract (approved

representative contract) with the firm to perform that function

for the firm in or from the QFC;

Client money Chapter 5 Client money concepts Part 5.2

Rule 5.2.6


page 29

Effective: 1/Jul/21

(b) he or she has been assessed by the firm as meeting the

requirements in INDI, rule 4.1.1 to perform the customer-facing

function; and

(c) the firm has agreed in the approved representative contract to

accept responsibility for his or her every act or omission in

performing (or purporting to perform) that function for the firm.

(2) An INMA firm must not enter into an approved representative

contract with an individual if the individual is a party to an approved

representative contract in force with another authorised firm.

5.2.6 Non-QFC intermediary—definition

(1) A body corporate is a non-QFC intermediary of an INMA firm if:

(a) the body corporate is authorised under a contract (non-QFC

intermediary contract) with the firm to act as an intermediary

for the firm in the State outside the QFC; and

(b) the firm has agreed in the non-QFC intermediary contract to

accept liability to the client for every act or omission of the body

corporate directly applicable to the activity that the body

corporate undertakes (or purports to undertake) as an

intermediary for the firm in the State outside the QFC.

(2) An INMA firm must not enter into a non-QFC intermediary contract

with a body corporate unless:

(a) it is lawful for the body corporate to act as its intermediary in

the State outside the QFC; and

(b) every law, rule or regulation of the State applying in relation to

the entering into of the contract is complied with.

Chapter 5 Client money Part 5.3 Money that is not client money Rule 5.3.1


V6

Effective: 1/Jul/21

Part 5.3 Money that is not client money

5.3.1 Money that is not client money—money payable to firm

(1) Money is not client money of an INMA firm in relation to a customer

if it is (or becomes) payable immediately by the customer to the firm

for the firm’s own account.

(2) Without limiting subrule (1), money is payable to the firm for the

firm’s own account if it is paid by the customer to the firm, or

deducted by the firm from money held by it for the customer, in

settlement of:

(a) a fee or charge that is payable by the customer to the firm;

(b) an amount payable by the customer to the firm in relation to an

amount paid by the firm:

(i) for the purchase of an investment by or for the customer;

or

(ii) in settlement of a margin payment made for the customer;

or

(c) an amount payable by the customer to the firm for an unpaid

purchase of an investment by or for the customer, if the

investment has been delivered to the customer or credited to the

customer’s account.

5.3.2 Money that is not client money—cheques sent to regulated financial institutions

(1) Client money of an INMA firm does not include a cheque received

from a customer that is payable to a regulated financial institution, if:

(a) the cheque is not collected or paid in the QFC; but

(b) the firm sends it to the financial institution, in accordance with

the customer’s instructions, as soon as practicable (but no later

than 2 business days after the day when the firm receives it).

Client money Chapter 5 Money that is not client money Part 5.3

Rule 5.3.3


page 31

Effective: 1/Jul/21

(2) An investment business firm must make and retain:

(a) a record of every cheque to which subrule (1) applies; and

(b) a copy of each such cheque.

(3) The record of such a cheque must include the following details:

(a) the customer’s name;

(b) the name of the financial institution;

(c) the date on which the firm received the cheque;

(d) the date on which the firm sent it to the financial institution.

(4) In this rule:

regulated financial institution means an entity that is not an

authorised firm but is authorised or licensed in a jurisdiction other

than the QFC to carry on a financial service.

5.3.3 Money that is not client money—money to which client money protection rules do not apply

Money held by an INMA firm is not client money of the firm if, under

Part 5.6 (Disapplication of client money protection rules), the client

money protection rules do not apply to the money.

5.3.4 Money that is not client money—money held by QFC bank

(1) Money held in an account with a QFC bank is not client money of the

firm if the firm has notified the customer concerned, in writing, that:

(a) money belonging to the customer will be held by the QFC bank

as a bank and not as trustee; and

(b) such money will not be subject to the client money protection

rules.

Note QFC bank is defined in the glossary.

Chapter 5 Client money Part 5.3 Money that is not client money Rule 5.3.5


V6

Effective: 1/Jul/21

(2) The notification may be in the firm’s terms of business.

Note Under CIPR, Parts 4.4, 5.2 and 5.3, an INMA firm must give a customer

a statement, in writing, of the terms and conditions on which the firm will

conduct investment and advisory business for the customer.

5.3.5 Money that is not client money—money held in guaranteed account

(1) Money held in an account with an INMA firm itself is not client

money of the firm if:

(a) all of the firm’s obligations to repay the money to the customer

concerned (or to the customer’s order) have been fully,

unconditionally and irrevocably guaranteed by an eligible bank;

and

(b) the firm has complied with subrule (2).

(2) For subrule (1) (b), the firm:

(a) must notify the customer in writing that:

(i) the firm’s obligations to repay money belonging to the

customer have been fully, unconditionally and irrevocably

guaranteed by an eligible bank; and

(ii) such money is not subject to the client money protection

rules; and

(b) must give the customer a copy of the guarantee from the bank.

(3) The notification required by paragraph (2) (a) may be in the firm’s

terms of business.

5.3.6 Money that is not client money—money from associate

(1) Money received from an associate of an INMA firm is not client

money of the firm.

Note Associate means another firm in the same corporate group—see the

glossary.

(2) However, money received from an associate of an INMA firm is

client money if the associate notifies the firm in writing that the

Client money Chapter 5 Money that is not client money Part 5.3

Rule 5.3.7


page 33

Effective: 1/Jul/21

money is to be held by the firm on behalf of a person who is not in

the same corporate group as the firm.

5.3.7 Money that is not client money—money for issue or redemption of units in QFC schemes

(1) Money received by an INMA firm or banking business firm (within

the meaning given by BANK) that is the operator of a QFC scheme

in a delivery-versus-payment transaction in relation to units in the

scheme is not client money of the firm if:

(a) subject to subrule (2), the firm receives it from a customer in

relation to the firm’s obligation to issue the units; or

(b) the money is held in the course of redeeming the units and the

proceeds of that redemption are paid to a customer within the

time allowed by COLL to do so.

(2) If the price of the units has not been determined by the close of

business on the next business day after the day on which the firm

received the money from the customer (or, if the customer paid the

money to an approved representative of the firm, the day on which

the firm received the money from the representative), subrule (1) does

not apply (and the firm must treat the money as client money).

(3) If the firm draws a cheque to pay the customer under subrule (1) (b)

and the cheque is drawn within the time allowed by COLL for paying

the customer, rule 5.7.1(3) (Payments to be in accordance with

Part 5.7) does not apply.

Chapter 5 Client money Part 5.4 Receipt of client money by advisory firms Rule 5.4.1


V6

Effective: 1/Jul/21

Part 5.4 Receipt of client money by advisory firms

5.4.1 Advisory firms receiving client money

(1) An advisory firm must immediately return to the customer any money

that it receives from a customer if none of the exceptions in Part 5.3

(Money that is not client money) applies to the money.

(2) The firm must make and retain:

(a) a record of all money to which subrule (1) applies; and

(b) for a payment made by cheque—a copy of the cheque.

(3) The record must include the following details:

(a) the customer’s name;

(b) the date on which the money was received by the firm;

(c) the date on which the money was returned to the customer.

Client money Chapter 5 Client money protection rules Part 5.5

Rule 5.5.1


page 35

Effective: 1/Jul/21

Part 5.5 Client money protection rules

Division 5.5.A Client bank accounts

5.5.1 Client bank account

A client bank account of an investment business firm is a bank

account maintained by the firm with an eligible bank as a bank

account for client money received from 1 or more of the firm’s

customers.

Note Advisory firms are not allowed to hold client money (see rule 5.1.3).

5.5.2 Firms must open client bank account

An investment business firm must open 1 or more client bank

accounts before it receives client money.

5.5.3 Client bank account requirements

(1) A client bank account:

(a) must be a current or deposit account in an eligible bank in the

name of the investment business firm that maintains the account;

and

(b) must have the words ‘client bank account’ in its name.

(2) The account’s name must otherwise sufficiently distinguish it from

an account that holds money belonging to the firm.

5.5.4 Requirements before firm can pay client money into client bank accounts

(1) An investment business firm must not pay client money, or permit

client money to be paid, into its client bank account unless:

(a) under the law applying to the money and the bank account, the

money will be taken to be segregated from, and will not form

part of, the firm’s assets in its insolvency;

Chapter 5 Client money Part 5.5 Client money protection rules Rule 5.5.4


V6

Effective: 1/Jul/21

(b) after making an appropriate assessment, the firm is satisfied, on

reasonable grounds, that the bank is suitable to hold the money

in the account; and

(c) the bank has given the confirmation required by subrule (3).

(2) In assessing whether an eligible bank is suitable to hold the money in

the account, the firm must take into account all the relevant

circumstances, including:

(a) the bank’s credit rating, capital and financial resources;

(b) the regulatory and insolvency regimes of the jurisdiction in

which the bank is located;

(c) the bank’s reputation; and

(d) the bank’s regulatory status and history.

Note Eligible bank is defined in rule 5.2.3; jurisdiction is defined in the

glossary.

(3) The bank must give the firm the confirmation in writing. The

confirmation must state:

(a) that all money standing to the credit of the account is held by the

firm as trustee;

(b) that the bank is not entitled:

(i) to combine the account with any other account; or

(ii) to exercise any right of set-off or counterclaim or any

security interest against money in the account for any debt

or other obligation owed to it on any other account of the

firm; and

(c) that the name of the account includes the words ‘client bank

account’ and sufficiently distinguishes it from an account that

holds money belonging to the firm.


Rule 5.5.5


page 37

Effective: 1/Jul/21

Division 5.5.B Terms of holding client money

5.5.5 Client money—creation of trust and terms of holding

(1) Client money held by an investment business firm is subject to a trust.

(2) The firm is the trustee of the trust. The firm holds the client money

on the following terms:

(a) that the money is held for the purposes, and on the terms, of the

client money protection rules and client money distribution

rules;

(b) that the money is held for customers, according to their

respective interests in it;

(c) that, on the failure of the firm, the money will also be held for

the payment of costs attributable to the distribution of the

money;

(d) that, after all valid claims and costs under paragraphs (b) and (c)

have been met, the money is held for the firm itself.

5.5.6 Fiduciary duties of firm

(1) The fiduciary duties of an investment business firm over client money

continue until the money ceases to be client money under rule 5.7.2

(Certain payments out of client bank account to discharge fiduciary

duties).

(2) However, the fiduciary duties of a firm over client money do not

cease if the money is transferred to an eligible third party.

5.5.7 Accounting for client money

(1) An investment business firm must ensure that it can promptly and

accurately account for client money that it receives or holds.

(2) Without limiting subrule (1), the firm must have procedures:

(a) to enable it to identify and trace client money that it receives

(electronically, by post, through an agent or by any other means)

or holds;



V6

Effective: 1/Jul/21

(b) to promptly record the receipt of all client money;

(c) to ensure that, except as permitted by these rules, client money

is not mixed with other money; and

(d) to enable it to produce accurate accounting records showing how

much client money has been transferred to customers and other

persons.

5.5.8 Duty to keep money segregated

(1) Except as provided in this Part, an investment business firm must not

pay its own money into a client bank account.

(2) If an investment business firm considers it prudent to do so, the firm

may pay its own money into a client bank account to protect client

money in the account.

(3) An investment business firm may hold money (other than client

money, or the firm’s own money) in a client bank account if (and only

if) the money:

(a) is a minimum sum required to open the account or to keep it

open;

(b) is temporarily in the account in accordance with rule 5.5.10(3)

(which relates to mixed remittances);

(c) is excess interest that has not been paid out of the account; or

(d) is to meet any shortfall.

Example

An investment business firm may pay money into a client bank account for bank

fees and charges payable on the account.

(4) Any money paid into a client bank account under subrule (3) becomes

client money for the purposes of the client money protection rules and

the client money distribution rules.

Note Client money protection rules and client money distribution rules are

defined in the glossary.


Rule 5.5.9


page 39

Effective: 1/Jul/21

5.5.9 Client money received in different currency

If an investment business firm receives client money in a currency

other than the currency in which the firm’s client money account is

denominated, the firm must convert the money into the currency of

the account within 1 business day after receiving it.

Guidance

Firms should not speculate with client money on the currency markets.

5.5.10 Payment of client money into client bank accounts

(1) If an investment business firm holds client money it must ensure,

unless this Part provides otherwise, that the money is paid into a client

bank account as soon as possible and in any event within 1 business

day after receipt.

(2) If the money is received by the firm in the form of an automated

transfer, the firm must take reasonable steps to ensure that:

(a) the money is received directly into a client bank account; or

(b) if the money is received directly into the firm’s own account, the

money is transferred into a client bank account within 1 business

day after receipt.

(3) If an investment business firm receives a mixed remittance (that is,

one that is partly client money and partly other money), the firm:

(a) must pay the full sum into a client bank account in accordance

with subrule (1); and

(b) must transfer that part of the payment that is not client money

within 1 business day (in the jurisdiction in which the account is

held) after the day on which it would normally expect the

remittance to be cleared.

(4) An investment business firm must take reasonable steps to ensure that

it is notified promptly if it receives client money in the form of client

entitlements.

Examples of client entitlements

• dividends



V6

Effective: 1/Jul/21

• coupon payments

• other distributions with similar characteristics.

5.5.11 Approved representatives and non-QFC intermediaries—payment into client bank accounts

An investment business firm must take reasonable steps to ensure that

client money received by an approved representative or non-QFC

intermediary of the firm is paid into a client bank account of the firm

as soon as possible after it is received but within 1 business day after

the day on which it is received.

5.5.12 Segregating client money in other currencies

An investment business firm may segregate client money in an

account denominated in a different currency from that of receipt,

provided that the firm ensures that the amount held is adjusted each

day so that the amount held remains at least equal to the amount

received, in the original currency (or the currency in which the firm

has its liability to its customer, if different), converted at the previous

day’s closing spot exchange rate.

Guidance

Rule 5.5.12 is intended to cater for investment business firms that receive money

in a currency that they do not usually receive and for which they do not have a client

bank account. Firms should not view this rule as an opportunity to speculate with

client money on the currency markets.

5.5.13 When client money need not be paid into client bank account

(1) The requirement to pay client money into a client bank account does

not apply to client money received in the form of a cheque until the

investment business firm concerned receives the proceeds of the

cheque.

(2) That requirement does not apply to client money temporarily held by

the firm before forwarding it to a person nominated by the customer

concerned.


Rule 5.5.14


page 41

Effective: 1/Jul/21

5.5.14 Procedures to identify client money

An investment business firm must have procedures to identify client

money received and to promptly record receiving it. The procedures

must cover client money received by any means, including through

the mail, electronically and by way of an agent of the firm.

5.5.15 Suitability of eligible third parties

When assessing the suitability of an eligible third party, an investment

business firm must have regard to all the relevant circumstances

including:

(a) the third party’s credit rating, capital and financial resources;

(b) the regulatory and insolvency regimes of the jurisdiction in

which the third party is located;

(c) the third party’s reputation;

(d) its regulatory status and history; and

(e) the other members of its corporate group and their activities.

Note Eligible third party is defined in rule 5.2.4.

5.5.16 When client money payable to eligible third party

(1) Except as otherwise provided in these rules, an investment business

firm may pay client money into an account with an entity that is not

an eligible bank, or permit the payment of client money into such an

account, only if the entity is an eligible third party.

(2) An investment business firm may pay client money to a third party

account, or permit the payment of client money into such an account,

only if the money is to be used:

(a) for a transaction or series of transactions for the customer

concerned; or

(b) to meet an obligation of the customer.



V6

Effective: 1/Jul/21

(3) An investment business firm may pay client money into a third party

account, or permit the payment of client money into such an account,

only if:

(a) under the laws applying to the money and the account, the

money will be recognised as segregated from, and will not form

part of, the firm’s assets in its insolvency; and

(b) after making an appropriate assessment, the firm is satisfied, on

reasonable grounds, that the third party is a suitable person to

hold the money in a third party account.

Note Rule 5.5.15 applies to the making of an assessment for subrule (3) (b).

(4) The firm must have systems and controls to ensure that:

(a) the requirement in subrule (3) (a) continues to be met; and

(b) the assessment made for subrule (3) (b) remains correct.

(5) An investment business firm may pay, or permit the payment of,

client money to a third party account, only if:

(a) the title of the account includes the words “client account”; and

(b) the firm:

(i) has notified the relevant eligible third party in writing that:

(A) all money standing to the credit of the account is held

by the firm as trustee; and

(B) the third party is not entitled to combine the account

with any other account, or to exercise any right of

set-off or counterclaim against money in the account

in relation to any sum owed to it on any other account

of the firm; and

(ii) has requested the third party to give it a written

acknowledgement of the matters set out in

subparagraph (i).

(6) If an eligible third party does not provide the acknowledgement

referred to in subrule (5) (b) (ii) within 1 month after the firm requests


Rule 5.5.17


page 43

Effective: 1/Jul/21

it, the firm may continue to hold client money with the third party if

the firm:

(a) promptly gives notice in writing to any customer to whom the

firm owes client money that the third party has not accepted that

it has no right of set-off or counterclaim against client money in

relation to sums owed to it by the firm; and

(b) ensures that any notification that it subsequently sends under

this rule includes a statement that the third party has not

accepted that it has no such right of set-off or counterclaim.

5.5.17 Excess client money to be held no longer than necessary

An investment business firm must not hold excess client money in a

third party account for longer than necessary to effect the relevant

transaction or satisfy the relevant obligation.

5.5.18 Firms to have systems and controls

An investment business firm must maintain systems and controls to

identify money that is in a client bank account or third party account

but is not permitted to be in the account, and for transferring such

money out of the account without delay.

5.5.19 Record-keeping

(1) An investment business firm must maintain records that enable it:

(a) to demonstrate to its auditors and the Regulatory Authority that

it complies with this Chapter; and

(b) to demonstrate and explain all entries of money held or

controlled in accordance with this Chapter.

(2) An investment business firm must maintain a master list of every

client bank account and third party account. The master list must set

out:

(a) the name of the account;

(b) the account number;



V6

Effective: 1/Jul/21

(c) the location of the account;

(d) whether the account is currently open or closed; and

(e) the date on which it was opened and if applicable, the date on

which it was closed.

(3) The details of an account must be documented and maintained in the

master list for at least 6 years after the account is closed.

Client money Chapter 5 Disapplication of client money protection rules Part 5.6

Rule 5.6.1


page 45

Effective: 1/Jul/21

Part 5.6 Disapplication of client money protection rules

5.6.1 When client money protection rules do not apply—business customers and market counterparties

(1) The client money protection rules do not apply to money held by an

investment business firm on behalf of a business customer if:

(a) the customer has opted-out of the protection conferred by those

rules; and

Note For how to opt-out—see rule 5.6.2.

(b) the firm has notified the customer in writing:

(i) that the customer’s money will not be subject to the

protections conferred by those rules;

(ii) that the customer’s money will not be segregated from the

firm’s money;

(iii) that the customer will rank only as a general unsecured

creditor of the firm for that money; and

(iv) if the firm proposes to provide discretionary investment

management services to the customer:

(A) that the firm will have significant control over the

amount of unsecured credit risk that the customer is

taking on the firm; and

(B) that the customer should consider that risk carefully

before commencing business on that basis with the

firm.

(2) The notification required by paragraph (1) (b) may be in the firm’s

terms of business.

Note Under CIPR, Parts 4.4 and 5.2, an investment business firm must give a

customer a statement, in writing, of the terms and conditions on which

the firm will conduct investment business for the customer.

Chapter 5 Client money Part 5.6 Disapplication of client money protection rules Rule 5.6.2


V6

Effective: 1/Jul/21

(3) The client money protection rules do not apply to money held by an

investment business firm on behalf of a customer that is an eligible

counterparty, unless the firm has agreed to treat money held by or on

behalf of the customer in accordance with those rules.

5.6.2 How business customers opt-out of protections

A business customer of an investment business firm opts-out of the

protections conferred by the client money protection rules by giving

the firm a written acknowledgement of the firm’s notification under

rule 5.6.1(1)(b).

5.6.3 When client money protection rules do not apply—delivery-versus-payment transactions through commercial settlement systems

(1) Subject to subrule (3), the client money protection rules do not apply

to money received from a customer of an investment business firm in

relation to a delivery-versus-payment transaction through a

commercial settlement system if:

(a) the firm has elected not to treat money from that customer as

client money;

(b) the firm has given the customer a notification under

rule 5.6.1(1)(b);

(c) in the case of a customer purchase, the money will be due to the

firm within 1 business day after the firm delivers the

investments; and

(d) in the case of a customer sale, the money will be due to the

customer within 1 business day after the customer delivers the

investments.

(2) The notification required by subrule (1) (b) may be in the firm’s terms

of business.

(3) Money about which an election has been made in accordance with

subrule (1) (a) must be treated as client money if the delivery or

Client money Chapter 5 Disapplication of client money protection rules Part 5.6

Rule 5.6.3


page 47

Effective: 1/Jul/21

payment by the firm does not occur within 3 business days after the

date of the payment or delivery of the investments by the customer.

Chapter 5 Client money Part 5.7 Payments out of client bank accounts Rule 5.7.1


V6

Effective: 1/Jul/21

Part 5.7 Payments out of client bank accounts

5.7.1 Payments to be in accordance with Part 5.7

(1) An investment business firm must have procedures to ensure that

every payment out of a client bank account is authorised and made in

accordance with this Part.

(2) An investment business firm may pay money out of a client bank

account if (and only if):

(a) the money is not client money;

(b) the money has been paid into the account in error;

(c) the money is to be paid into another client money account of the

firm;

(d) the money is to be paid immediately to a customer or the duly

authorised representative of a customer;

(e) the money is to be paid into:

(i) the customer’s own account (not an account that is also in

the name of the firm); or

(ii) a client bank account of an eligible third party as part of a

transfer or series of transfers to eligible third parties;

(f) the money is to be paid on the instructions, or with the consent,

of a customer;

Example

Payment to meet an obligation of the customer for professional fees

(g) the money is to be paid to the firm for the firm’s own account,

under rule 5.3.1 (Money that is not client money—money

payable to firm); or

Guidance for paragraph (g)

An investment business firm may deduct money to pay an investment

business firm’s commission or fees in relation to a customer from client

money received from the customer after the payment has cleared and the

Client money Chapter 5 Payments out of client bank accounts Part 5.7

Rule 5.7.2


page 49

Effective: 1/Jul/21

client money calculation has been completed. For the calculation see

rule 5.9.1.

Note Under rule 5.3.1, money that is (or becomes) payable immediately

by the customer to the firm for the firm’s own account is not client

money.

(h) the money is surplus that is to be paid to the firm under

rule 5.9.2(b).

(3) Money paid out of a client bank account by cheque must remain in

the account (and must continue to be treated as client money) until

the cheque is presented to the customer’s bank and cleared by the

paying agent.

(4) An investment business firm must not overdraw its client bank

account.

(5) An investment business firm must ensure that no payment is made

from its client bank account for a customer before sufficient funds

have been paid into the account for the customer and have been

cleared.

5.7.2 Certain payments out of client bank account to discharge fiduciary duties

(1) Client money that is paid out of a client bank account ceases to be

client money if it is paid:

(a) to a customer or the duly authorised representative of a

customer;

(b) on the instructions, or with the consent, of a customer;

(c) into the customer’s own account (not an account that is also in

the name of the firm);

(d) to the firm for the firm’s own account under rule 5.3.1 (Money

that is not client money—money payable to firm); or

(e) to the firm as surplus under rule 5.9.2(b) (What to do if CM

resource is less than or more than CM requirement).

Chapter 5 Client money Part 5.7 Payments out of client bank accounts Rule 5.7.3


V6

Effective: 1/Jul/21

(2) However, if client money is paid out of a client bank account by

cheque, the money ceases to be client money after the cheque is

presented to the customer’s bank and cleared by the paying agent.

Note An investment business firm’s fiduciary duties over client money cease

if the money is paid in accordance with this rule (see rule 5.5.6 (1)).

5.7.3 Firms not to use money for other purposes

Nothing in these rules allows an investment business firm to use client

money otherwise than in accordance with this Chapter.

Client money Chapter 5 Customer notifications about client money Part 5.8

Rule 5.8.1


page 51

Effective: 1/Jul/21

Part 5.8 Customer notifications about client money

5.8.1 Manner of giving notice

A notice to be given under this Part may be given in the firm’s terms

of business or any other document.

5.8.2 Firms must notify customers of certain matters

(1) Before, or as soon as reasonably practicable after, an investment

business firm receives client money from a customer, the firm must

notify the customer about the following matters:

(a) that the money:

(i) will be held by the firm, as trustee, on the terms of the

client money protection rules; and

(ii) will be segregated from money belonging to the firm;

(b) that, in case of failure of the firm, the money will be subject to

the client money distribution rules;

(c) whether interest on the money is payable to the customer and, if

so, the terms and frequency of the payments;

(d) that, despite the client money protection rules, the customer may

be taking an unsecured credit risk on:

(i) the eligible bank into which the money is paid; or

(ii) any eligible third party to whom the money is paid; and

Note In relation to the priority ranking after a firm-related distribution

event—see rule 5.10.4.

(e) if the firm intends to pay the money into a client bank account

with an eligible bank that is in the same corporate group as the

firm or maintained by an eligible third party that is in the same

group as the firm:

(i) a statement of that fact; and

(ii) the name of the bank or third party.

Chapter 5 Client money Part 5.8 Customer notifications about client money Rule 5.8.3


V6

Effective: 1/Jul/21

Note Corporate group is defined in the glossary.

(2) If the firm intends to pay the money into a client bank account outside

the QFC, the firm:

(a) must obtain the customer’s consent; or

(b) must notify the customer in writing:

(i) that client money might be paid into a client bank account

outside the QFC;

(ii) that the legal, insolvency and regulatory regimes that apply

to the account may be different from those that would

apply to it in the QFC; and

(iii) that if the bank were to fail the money might be treated

differently from how it would have been treated in the

QFC;

and must include in the notification an adequate explanation of

the implications of holding money outside the QFC.

5.8.3 Firms must comply with customers’ instructions

(1) Despite anything else in this Chapter, a customer of an investment

business firm may at any time instruct the firm in writing not to pay

client money of the customer into a client bank account:

(a) outside the QFC;

(b) with an eligible bank that is in the same corporate group as the

firm; or

(c) with an eligible third party that is in the same corporate group

as the firm.

(2) The firm must comply with the customer’s instructions from the date

on which the instructions are given or any later date specified in them.

Client money Chapter 5 Reconciliation of client money Part 5.9

Rule 5.9.1


page 53

Effective: 1/Jul/21

Part 5.9 Reconciliation of client money

Division 5.9.A Calculation and reconciliations

5.9.1 Duty to perform client money calculation

(1) An investment business firm must carry out a calculation (client

money calculation) at least once a month to ensure that, as at the close

of business on the day before the calculation is carried out (the cut-

off date), the firm’s client money resource (CM resource) is at least

equal to its client money requirement (CM requirement).

(2) The client money calculation is carried out as follows:

Step 1

Calculate the firm’s CM resource by adding the following

amounts (as at the cut-off date):

• the amount in the firm’s client bank accounts;

• the amount transferred to eligible third parties;

• any amount immediately payable to the firm by customers and

other persons.

Step 2

To calculate the firm’s CM requirement, add the following

amounts of client money (as at the cut-off date):

• unearned fees or unearned commissions payable to the firm;

• the amount transferred to eligible third parties;

• any money held by approved representatives or non-QFC

intermediaries of the firm;

• any amounts immediately payable to customers and other

persons by the firm.

Note Under rule 5.7.1(3), an amount paid by cheque must remain in the

client bank account until the cheque is presented to the customer’s

bank and cleared by the paying agent.

Chapter 5 Client money Part 5.9 Reconciliation of client money Rule 5.9.2


V6

Effective: 1/Jul/21

Step 3

Compare the CM resource and the CM requirement to see

whether they are equal.

(3) If the firm’s CM resource is less than its CM requirement, the firm

has a shortfall and must pay money into the client bank account to

which the shortfall relates in accordance with rule 5.9.2(a).

(4) If the firm’s CM resource is greater than its CM requirement, the firm

has a surplus and must pay the surplus out of the client bank account

to which the surplus relates in accordance with rule 5.9.2(b).

(5) Within a reasonable period after carrying out the client money

calculation, the firm must also:

(a) match its CM resource to its CM requirement for each customer;

and

(b) achieve a match for a majority of its customers and transactions.

5.9.2 What to do if CM resource is less than or more than CM requirement

If an investment business firm’s client money calculation shows that

its CM resource is less than, or more than, its CM requirement, the

firm must ensure that:

(a) if the CM resource is less than the CM requirement—the amount

of that shortfall is paid into the client bank account to which it

relates by the close of business on the day on which the shortfall

is discovered; or

Note For an investment business firm’s obligation to notify the

Regulatory Authority if it might not be able to pay-in the shortfall

on time—see rule 5.9.8.

(b) if the CM resource is more than the CM requirement—the

amount of that surplus is paid out of the client bank account to

which it relates by the close of business on the day on which the

surplus is discovered, unless the firm considers that it is prudent

Client money Chapter 5 Reconciliation of client money Part 5.9

Rule 5.9.3


page 55

Effective: 1/Jul/21

to keep the money in the account to protect other money in the

account.

Example of when it might be prudent to keep surplus

An investment business firm might want to keep money in the account if

there are unreconciled items in its business ledgers as at the date of the

calculation, and the firm wants to ensure that the client money in the account

is protected.

Guidance

1 An investment business firm should not pay money from the client bank

account for the firm’s own account before the client money calculation

has been carried out. See rule 5.7.1(2)(g) and the guidance to that rule.

2 Rule 5.5.8(3) allows money (other than client money) to be kept in a

client bank account if the amount is the minimum amount necessary to

open the account or keep it open. Rule 5.5.8(2) allows a firm to pay its

own money into a client bank account if the firm considers it prudent to

do so to protect client money in the account.

5.9.3 Duty to reconcile accounts

Within 10 business days after the day on which an investment

business firm carries out a client money calculation, the firm must

reconcile the balance, as recorded by the firm, on each of its client

bank accounts with the balance on that account in the statement or

confirmation given by the bank with which the account is maintained.

Guidance

When reconciling bank statements, firms should be aware that cheques that have

been drawn but not presented and cleared might create an apparent surplus in the

client bank account, and that if the amount of such a cheque is paid out of the

account after the calculation, a shortfall might result.

5.9.4 Duty to review calculation and reconciliation

(1) An investment business firm must ensure that a calculation or

reconciliation under this Division is reviewed by an employee of the

firm who has sufficient seniority.

(2) The employee must state in writing whether the calculation or

reconciliation was carried out in accordance with this Division.

Chapter 5 Client money Part 5.9 Reconciliation of client money Rule 5.9.5


V6

Effective: 1/Jul/21

5.9.5 Duty to rectify discrepancies

(1) An investment business firm must investigate and rectify any

discrepancy discovered by a calculation, reconciliation or review

under this Division unless the discrepancy is solely because of timing

differences between the accounting systems of the firm and the bank

concerned.

(2) If appropriate, the firm must rectify such a discrepancy by paying

money into or out of the relevant client bank account. The firm must

do so as soon as possible, but within 1 business day after the

discrepancy is discovered.

Division 5.9.B Notice of certain events

5.9.6 Duty to notify significant discrepancies

An investment business firm must notify the Regulatory Authority

immediately if the firm discovers a significant discrepancy by a

calculation, reconciliation or review under Division 5.9.A

(Calculation and reconciliations) and the discrepancy is not rectified

within 1 business day after the day on which it is discovered.

5.9.7 Duty to notify failure to carry out calculation or reconciliation


immediately if it cannot or does not carry out a calculation,

reconciliation or review required by Division 5.9.A.

5.9.8 Duty to notify inability to pay-in shortfall


immediately if it becomes aware that it may not be able to pay-in a

shortfall by the close of business on the day the shortfall is discovered.

Note For the obligation to pay-in a shortfall—see rule 5.9.2(a).

Client money Chapter 5 Client money distribution rules Part 5.10

Rule 5.10.1


page 57

Effective: 1/Jul/21

Part 5.10 Client money distribution rules

Division 5.10.A Client money distribution rules―general

5.10.1 Firm-related distribution event

Each of the following is a firm-related distribution event for an

investment business firm:

(a) the appointment of a liquidator, receiver or administrator or of a

trustee in bankruptcy;

(b) an event in any jurisdiction equivalent to an appointment

mentioned in paragraph (a);

(c) the withdrawal of the firm’s authorisation;

(d) the imposition or variation of a condition, restriction or

requirement on the firm’s authorisation so that it is no longer

permitted to hold client money.

5.10.2 Third-party-related distribution event

Each of the following is a third-party-related distribution event for

an eligible bank or eligible third party:

(a) the appointment of a liquidator, receiver or administrator or of a

trustee in bankruptcy;

(b) an event in any jurisdiction equivalent to an appointment

mentioned in paragraph (a).

5.10.3 Duty to notify distribution events

An investment business firm must have procedures to ensure that the

Regulatory Authority and the firm’s customers are promptly informed

of:

(a) any firm-related distribution event; or

Chapter 5 Client money Part 5.10 Client money distribution rules Rule 5.10.4


V6

Effective: 1/Jul/21

(b) any third-party-related distribution event in relation to:

(i) an eligible bank with which the firm maintains a client

bank account for money received from those customers; or

(ii) an eligible third party to which the firm pays client money

of those customers.

Division 5.10.B Distribution after firm-related distribution events

5.10.4 Firm-related distribution events—order of distribution

(1) After a firm-related distribution event in relation to an investment

business firm (whether the firm is incorporated in the QFC or

otherwise), the firm must distribute client money as set out in this

rule.

(2) All client money held in a client bank account or third party account

must be pooled and distributed:

(a) first, to pay the costs of distributing it in accordance with

paragraph (b); and

(b) secondly, to customers for whom it is held, proportionately in

accordance with the amount of their respective valid claims

against the firm for client money.

(3) Any client money remaining in the firm’s client bank accounts and

third party accounts after the satisfaction of all the claims referred to

in subrule (2) must be distributed:

(a) if a liquidator, receiver, administrator, or trustee in bankruptcy

has been appointed over the firm—in accordance with the

applicable insolvency or bankruptcy laws; or

(b) in any other case—as the Regulatory Authority directs.

(4) If the amount of client money held in the firm’s client bank accounts

and third party accounts is not enough to satisfy all its customers’

valid claims for client money, all the firm’s other beneficially-owned

assets may be used to satisfy those claims in priority to all of the

Client money Chapter 5 Client money distribution rules Part 5.10

Rule 5.10.5


page 59

Effective: 1/Jul/21

firm’s other creditors (other than creditors that have a prior ranking

security interest in such assets).

5.10.5 Client money received after firm-related distribution event

(1) If an investment business firm receives client money after a firm-

related distribution event:

(a) the money must not be pooled with client money held in a client

bank account that was opened before the event; and

(b) either:

(i) the money must be returned to the relevant customer

without delay; or

(ii) if the money cannot be returned without delay—the money

must be paid into a client bank account opened after the

event, and must be held in the account until it can be

returned to the customer.

(2) However, client money received by an investment business firm after

a firm-related distribution event need not be returned to the customer

to the extent that:

(a) the money relates to a transaction that had not been completed

at the time of the event and the firm has decided to use it to

complete the transaction; or

(b) it is due from the customer to the firm at the time of the event.

Division 5.10.C Third-party-related distribution events

5.10.6 Firms’ continuing fiduciary duties

An investment business firm is not responsible for any deficit in client

money arising as a result of, or in connection with, a third-party-

related distribution event if the firm:

(a) used appropriate skill, care and judgement in selecting the

eligible bank or eligible third party concerned, and in

subsequently monitoring the bank or third party; and

Chapter 5 Client money Part 5.10 Client money distribution rules Rule 5.10.7


V6

Effective: 1/Jul/21

(b) complied with its other fiduciary duties.

Note Third-party-related distribution event, client money, eligible bank and

eligible third party are defined in the glossary.

5.10.7 Firms may make good deficit

(1) If an investment business firm is not responsible for a deficit in client

money that arose as a result of, or in connection with, a third-party-

related distribution event, rule 5.10.6 does not prevent the firm from

choosing to make good the deficit.

(2) If the firm chooses not to make good the deficit:

(a) the deficit must be borne by customers who have valid claims

against the firm for client money owed to them by the firm, in

proportion to the respective value of their claims; and

(b) the firm must promptly notify each affected customer in writing

of the amount of the deficit and the customer’s share in it.

(3) As soon as is practicable after the deficit is known, the firm must

make and retain a record of each customer’s share in the deficit.

5.10.8 Client money received after third-party-related distribution event

(1) If an investment business firm receives client money after a third-

party-related distribution event, the firm must not pay the money to

the eligible bank or eligible third party that suffered the event unless

the customer concerned gives written instructions after the event to

pay the money to the bank or third party to meet an obligation to the

bank or third party.

(2) If the firm does not receive any such instructions, it must pay the

money into a client bank account, opened after the event, with another

eligible bank or eligible third party.

Providing custody services Chapter 6

Rule 6.1.1


page 61

Effective: 1/Jul/21

Chapter 6 Providing custody services

6.1.1 Application of Chapter 6

(1) Subject to subrules (2) and (3), this Chapter applies to an INMA firm

that has an authorisation for providing custody services or arranging

the provision of custody services.

(2) This Chapter does not apply to the holding, by an INMA firm, of

relevant investments under an arrangement described in Chapter 7

(Use of customers’ investments as collateral).

(3) This Chapter does not apply to an INMA firm when it safeguards and

administers a relevant investment for another firm in the same

corporate group, unless the other firm has notified the INMA firm, in

writing, that the other firm holds the investment for an entity that is

not part of the group.

Note For audit and reporting requirements in relation to custody services—see

GENE, rules 9.5.1 and 9.5.3.


(1) This Chapter applies to:

(a) the independent entity of a QFC scheme that is not a private

placement scheme, and

(b) the operator of a QFC scheme that is a private placement

scheme;

in relation to the safeguarding of the scheme property as if:

(c) a reference to the customer were a reference to the scheme; and

(d) all other necessary changes were made.

(2) This Chapter does not apply in any other way to the operator of a QFC

scheme in relation to the scheme.

Chapter 6 Providing custody services Rule 6.1.3


V6

Effective: 1/Jul/21

6.1.3 Eligible custodian

(1) A person is an eligible custodian in relation to a customer of an

INMA firm if the person is:

(a) an INMA firm that has an authorisation for providing custody

services;

(b) an eligible bank;

(c) an entity to which subrule (2) applies;

(d) a central securities depository to which subrule (3) applies;

(e) an eligible clearing house;

Note Eligible clearing house is defined in the Glossary.

(f) an entity to which subrule (4) applies.

(2) This subrule applies to an entity if:

(a) it is regulated by an overseas regulator;

(b) the Regulatory Authority has not, by notice published on an

approved website, declared that this subrule does not apply to

the regulator’s jurisdiction;

(c) the entity’s regulatory authorisation (however described) in the

jurisdiction covers carrying on activities that are broadly

equivalent to providing custody services;

(d) the entity is required to prepare audited accounts;

(e) it has assets of QR1.8 million or more;

Note The specification of a sum of money in a particular currency is also

taken to specify the equivalent sum in any other currency at the

relevant time—see rule 3.3.2.

(f) it has a surplus of revenue over expenditure for its last

2 financial years; and

(g) its latest annual audit report is not materially qualified.

Note Approved website, jurisdiction and overseas regulator are defined in the

glossary.


Rule 6.1.4


page 63

Effective: 1/Jul/21

(3) This subrule applies to a central securities depository if:

(a) its custody services are regulated by an overseas regulator;

(b) the Regulatory Authority has not, by notice published on an

approved website, declared that this subrule does not apply to

the regulator’s jurisdiction;

(c) the depository is required to prepare audited accounts;

(d) it has assets of QR35 million or more;

(e) it has a surplus of revenue over expenditure for its last

2 financial years; and

(f) its latest annual audit report is not materially qualified.

(4) This subrule applies to an entity in relation to a customer of an INMA

firm if:

(a) the entity is not a person mentioned in subrule (1) (a) to (e);

(b) the entity’s business includes the provision of custodial services;

(c) the firm believes, on reasonable grounds, that:

(i) it is not feasible for the firm to use an entity mentioned in

any of subrules (1) (a) to (e) to provide custodial services

for the customer;

(ii) the entity can provide appropriate custodial services for

the customer; and

(iii) it is in the customer’s best interests for the firm to use the

entity to provide custodial services for the customer; and

(d) the firm’s use of the entity to provide custodial services for the

customer otherwise complies with these rules.

6.1.4 Custody investment

A custody investment of an INMA firm is a relevant investment,

belonging to a customer, for which the firm provides custody

services, or arranges the provision of custody services, in or from the

QFC.



V6

Effective: 1/Jul/21

6.1.5 Holding custody investments

(1) An INMA firm holds or controls custody investments if:

(a) the investments are directly held by the firm;

(b) they are held in an account in the firm’s name; or

(c) they are held by a person, or in an account in the name of a

person, controlled by the firm.

(2) For subrule (1):

(a) a person holds a custody investment if the document of title for

the investment is in the person’s physical possession, or legal

title to the investment is registered in the person’s name;

(b) a person controls an account if the account is operated in

accordance with the person’s instructions; and

(c) an INMA firm controls a person if the person is inclined to act

in accordance with the firm’s instructions.

6.1.6 Nominee

A nominee is a body corporate whose business consists solely of

acting as a nominee holder of relevant investments or other property.

6.1.7 Investments not treated as custody investments—delivery-versus-payment transactions

(1) An INMA firm need not treat a customer’s relevant investment as a

custody investment in relation to a delivery-versus-payment

transaction if:

(a) in the case of a customer’s purchase—the investment is to be

due to the customer within 1 business day after the customer

fulfils a payment obligation; or

(b) in the case of a customer’s sale—the investment is to be due to

the firm within 1 business day after a payment obligation is

fulfilled;


Rule 6.1.8


page 65

Effective: 1/Jul/21

unless the delivery or payment by the firm does not occur by the close

of business within 3 business days after the date of payment or

delivery of the investment by the customer.

(2) Until a transaction described in subrule (1) is settled, an INMA firm

may segregate money (in accordance with the client money protection

rules) instead of the investment.

6.1.8 Investments not treated as custody investments—investments held temporarily for customers

An INMA firm need not treat a relevant investment as a custody

investment when it holds the investment temporarily on behalf of a

customer, if the firm:

(a) keeps the investment secure, records it as belonging to that

customer, and forwards it to the customer or in accordance with

the customer’s instructions, as soon as practicable after

receiving it;

(b) retains it for no longer than the period that the firm has

determined (after taking reasonable steps) to be necessary to

check for errors and to receive the final documents in connection

with any series of transactions to which the documents relate;

and

(c) makes a record of all the investments handled in accordance

with paragraphs (a) and (b), the details of the customer and any

action that the firm has taken.

6.1.9 Responsibility for nominees

An INMA firm is responsible to its customers for the actions of any

nominee controlled by the firm in relation to any requirement of this

Chapter.



V6

Effective: 1/Jul/21

6.1.10 Systems and controls in relation to custody investments

(1) An INMA firm that holds or controls custody investments must have

systems and controls:

(a) to ensure that those investments are properly safeguarded;

(b) to ensure that those investments are identifiable and secure at all

times; and

(c) to demonstrate to its auditors and the Regulatory Authority that

it complies with this Chapter.

(2) An INMA firm that provides custody services must ensure that

custody investments are recorded, registered and held appropriately

to safeguard and control them.

(3) Except as permitted in these rules or as required by law, an INMA

firm that provides custody services must record, register and hold

custody investments separately from its own assets.

(4) To the extent practicable, an INMA firm must appropriately register

or record legal title to a custody investment in the name of:

(a) the customer concerned;

(b) a nominee controlled by the firm, if the customer’s beneficial

entitlement to the investment is properly recorded in the

nominee’s records;

(c) a nominee controlled by an eligible custodian;

(d) an eligible custodian, if:

(i) the investment is subject to the law or market practice of a

jurisdiction outside the QFC, and the firm has taken

reasonable steps to determine either that it is in the

customer’s best interests to register or record it in that way,

or that (because of that law or market practice) it is not

feasible to do otherwise; and

(ii) the firm has notified the customer in writing;


Rule 6.1.11


page 67

Effective: 1/Jul/21

(e) the firm, if:

(i) the firm has determined on reasonable grounds, having

regard to the law and market practice to which the

investment is subject, either that it is in the customer’s best

interests for the investment to be registered or recorded in

the name of the firm or that it is not feasible to do

otherwise; and

(ii) the firm has notified the customer in accordance with

rule 6.1.18(1)(i); or

(f) any other person, in accordance with the customer’s specific

written instruction, if the firm has notified the customer in

accordance with rule 6.1.18(1)(j).

6.1.11 Control of documents of title

An INMA firm may hold a document of title to a custody investment

either in the firm’s physical possession or with an eligible custodian,

or in a nominee controlled by an eligible custodian, in an account

designated for customers’ custody investments.

6.1.12 Use of eligible custodians

(1) An INMA firm may hold a custody investment with an eligible

custodian if (and only if):

(a) under the laws applying to the investment, it will be recognised

as segregated from, and will not form part of, the firm’s assets

in its insolvency; and

(b) after making the assessment described in rule 6.1.13, the firm is

satisfied that the custodian is a suitable person to hold the

investment.

(2) The INMA firm must have systems and controls to ensure that:

(a) the requirements of subrule (1) (a) continue to be met; and

(b) the assessment made for subrule (1) (b) remains correct.



V6

Effective: 1/Jul/21

6.1.13 Assessing whether an eligible custodian is suitable

(1) When assessing the suitability of an eligible custodian, an INMA firm

must ensure that the custodian will provide protection equivalent to

the protection conferred by this Chapter.

(2) When assessing the suitability of an eligible custodian, an INMA firm

must have regard to all the relevant circumstances including the

following:

(a) the custodian’s expertise and market reputation;

(b) on a continuing basis, the quality of services that the custodian

provides to the firm;

(c) the custodian’s arrangements for holding and safeguarding

custody investments and its use of agents and service providers;

(d) the custodian’s credit rating, capital and financial resources;

(e) the regulatory and insolvency regimes of the jurisdiction in

which the custodian is located;

(f) the custodian’s regulatory status and history.

6.1.14 Acknowledgement by eligible custodian

Before an INMA firm permits custody investments to be held by an

eligible custodian or a nominee controlled by an eligible custodian,

the firm must obtain a written acknowledgement from the custodian

stating:

(a) that the title of the account in which the investments will be held

sufficiently distinguishes it from any other account containing

assets that beneficially belong to the firm or its nominee, and is

in the form requested by the firm;

(b) that investments will be credited to, and withdrawn from, the

account only in accordance with the firm’s instructions;

(c) that the custodian will hold or record the investments separately

from assets belonging to the custodian and will ensure that any

sub-custodian that it uses does the same;


Rule 6.1.15


page 69

Effective: 1/Jul/21

(d) that the custodian will use due skill, care and diligence in the

selection of any sub-custodian that it uses;

(e) the arrangements for recording and registering the investments,

claiming and receiving dividends and other entitlements and

interest, and giving and receiving instructions;

(f) that the custodian will give a statement to the firm at stated

intervals setting out the description and amounts of investments

in the account;

(g) that the custodian 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 the account for

any sum owed to it on any other account of the firm (except for

any charges relating to the administration or safekeeping of the

investments in the account); and

(h) the extent of the custodian’s liability in the event of the loss of

an investment caused by the fraud, wilful default or negligence

of the custodian or its agent.

6.1.15 Use of customers’ investments for firms’ own purposes

(1) Subject to subrule (2), an INMA firm that provides custody services

must not use a customer’s custody investment for its own purpose or

that of another person.

(2) An INMA firm may use a customer’s custody investment for its own

purposes or those of another person, if it has systems and controls to

ensure that:

(a) it obtains the customer’s prior written permission;

(b) adequate records are maintained to protect custody investments

that are applied as collateral or used for stock lending;

(c) equivalent assets can be returned to the customer; and



V6

Effective: 1/Jul/21

(d) the customer is not disadvantaged by the use of the investment.

Guidance

The permission need not be specific but may be a general permission given as part

of the customer’s acceptance of an appropriate statement (about the use of the

customer’s custody investments) in the firm’s terms of business.




6.1.16 Collateral for customers’ investments used for stock lending

(1) If a custody investment belonging to a customer is used for stock

lending, the INMA firm concerned must ensure that:

(a) the borrower provides collateral, in the form of readily realisable

investments, in favour of the customer;

(b) the firm monitors the current realisable values of the investment

and the collateral daily; and

(c) if the current realisable value of the collateral falls below that of

the investment, the firm provides collateral (in the form of

readily realisable investments) to make up the difference, unless

the customer agrees otherwise in writing.

(2) In this rule:

debt instrument, securities receipt, share, and warrant have the

respective meanings given by FSR, article 110 and Schedule 3, Part 3.

Note Unit (in a collective investment scheme) is defined in the glossary.

readily realisable investment means:

(a) cash;

(b) a demand deposit;

(c) money deposited in a bank and available for immediate

withdrawal;


Rule 6.1.17


page 71

Effective: 1/Jul/21

(d) a short-term, highly liquid investment that is readily convertible

to a known amount of cash and is subject to an insignificant risk

of change in value;

(e) a debt instrument that is issued by or on behalf of a jurisdiction,

or a public, regional or local authority of a jurisdiction, and is

denominated in the jurisdiction’s currency;

(f) any other security admitted to official listing on, or regularly

traded on or under the rules of, a regulated exchange; or

(g) a newly issued security that can reasonably be expected to fall

within paragraph (f) when trading in it starts.

Note Regulated exchange is defined in the glossary.

security means a debt instrument, a securities receipt, a share, a unit

in a collective investment scheme or a warrant.

6.1.17 Notifying customers if investments to be held outside QFC

(1) This rule applies if:

(a) an INMA firm is to arrange the provision of custody services for

a customer; and

(b) the customer’s investments will or may be held outside the QFC.

(2) The firm must notify the customer in writing that:

(a) the investments may be held outside the QFC; and

(b) the market practices and the insolvency and legal regime may

differ from the practices and regime in the QFC.

(3) The notification may be in the firm’s terms of business.

6.1.18 Notifying customers of terms of custody

(1) Before an INMA firm provides custody services to a customer, it

must notify the customer in writing:

(a) of the arrangements for recording and registering custody

investments, claiming and receiving dividends and other



V6

Effective: 1/Jul/21

entitlements and interest, and giving and receiving instructions

relating to the investments concerned;

(b) of the firm’s obligations to the customer in relation to exercising

the customer’s rights in relation to the investments;

(c) of the basis on which, and any terms governing the way in

which, the investments will be held, including any rights that the

firm may have to realise those investments if the customer

defaults;

(d) how, and how often, the firm will report to the customer in

relation to the investments;

(e) if the firm intends to mix the customer’s investments with those

of other customers:

(i) a statement of that fact; and

(ii) if the customer is a retail customer:

(A) that customers’ individual entitlements may not be

identifiable by separate certificates or other physical

documents, or an equivalent electronic record; and

(B) that if a liquidator, receiver or administrator, or a

trustee in bankruptcy, is appointed to the firm, and a

deficiency is found in customers’ custody

investments, each customer may have to bear a share

of the deficiency in proportion to that customer’s

original share of the investments in the account;

(f) if the customer’s investments may be held outside the QFC, a

statement of that fact and a statement that the market practices,

and the insolvency and legal regime, in that jurisdiction may

differ from the practices and regime in the QFC;

(g) if the firm holds or intends to hold custody investments in an

account with an eligible custodian in the same corporate group

as the firm, a statement of that fact;


Rule 6.1.19


page 73

Effective: 1/Jul/21

(h) the extent of the firm’s liability in the event of default by a

nominee controlled by the firm or an eligible custodian;

(i) if legal title to the investments will be registered or recorded in

the name of the firm, a statement of that fact; and

(j) if the customer has instructed the firm about holding, registering

or recording a custody investment under rule 6.1.10(4)(f)

(Systems and controls in relation to custody investments)—that

the consequences of doing so are at the customer’s own risk,

unless the firm has agreed otherwise.

(2) In the case of a customer that is a retail customer, the firm must not

register or record legal title to the customer’s investments in the

firm’s name unless the firm has obtained the customer’s written

consent and has notified the customer that:

(a) the investments will be or may be registered or recorded in the

firm’s name;

(b) as a result, the investments may not be segregated from the

firm’s investments; and

(c) in the event of the appointment of a liquidator, receiver or

administrator, or trustee in bankruptcy, to the firm, the

customer’s assets may not be as well protected from claims

made on behalf of the general creditors of the firm.

(3) A notification for subrule (1) or (2) may be in the firm’s terms of

business.

6.1.19 No exclusion of liability for nominee’s negligence or fraud

An INMA firm must not exclude liability for the negligence, wilful

default or fraud of a nominee controlled by the firm.



V6

Effective: 1/Jul/21

6.1.20 Periodic custody investment statements to customers

(1) An INMA firm that provides custody services for a customer must

prepare, and must send to the customer, periodic statements listing

the customer’s custody investments.

(2) Each statement must be prepared as at a date (the reporting date) that

is not more than:

(a) 6 months after the previous statement; or

(b) if another interval between statements is agreed with the

customer―the agreed interval after the previous statement.

(3) Each statement must be sent to the customer within 1 month after the

reporting date.

(4) The firm must send each statement directly to the customer and not

to another person, unless the customer has given written instructions

requiring or allowing the firm to send the statement to the other

person.

6.1.21 When periodic custody statements need not be sent to customer

(1) If a customer of an INMA firm is ordinarily resident outside the State

of Qatar, the firm may, with the customer’s prior written agreement,

retain the statements required to be sent to the customer under

rule 6.1.20.

(2) Statements retained in accordance with subrule (1) must be held by

an individual approved by the Regulatory Authority to carry out the

compliance oversight function (within the meaning given by CTRL,

rule 6.3.3) for the firm.

6.1.22 Reconciliations to be carried out

(1) An INMA firm that provides custody services:

(a) at least once every month—must reconcile its records of

customers’ custody investments held with eligible custodians

with monthly statements received from those custodians;


Rule 6.1.23


page 75

Effective: 1/Jul/21

(b) at least every 6 months—must count every custody investment

physically held by the firm or a nominee controlled by the firm,

and reconcile the result of that count with the firm’s records; and

(c) at least every 6 months—must reconcile the firm’s records of

each customer’s holdings with the firm’s record of the location

of custody investments.

(2) An INMA firm must carry out a reconciliation required by subrule (1)

within 10 business days after the date to which the reconciliation

relates.

6.1.23 Duties to be separated

An INMA firm must maintain a clear separation of duties to ensure

that employees responsible for the production or maintenance of the

records to be reconciled do not carry out the reconciliations required

by rule 6.1.22.

6.1.24 Review of reconciliations

(1) A reconciliation carried out by an INMA firm in accordance with

rule 6.1.22 must be reviewed by an adequately senior employee of the

firm.

(2) The employee must state in writing whether the reconciliation has

been carried out in accordance with these rules.

6.1.25 Correcting discrepancies in reconciliations

An INMA firm must promptly correct any discrepancies that are

discovered, and must make good, or provide the equivalent of, any

discrepancy for which there are reasonable grounds to conclude that

the firm is responsible.

6.1.26 Notice to be given of certain significant discrepancies


(a) in carrying out a reconciliation under rule 6.1.22, an INMA firm

discovers a significant discrepancy; and



V6

Effective: 1/Jul/21

(b) the discrepancy is not rectified by the end of the next business

day after the day on which it is discovered.

(2) The firm must notify the Regulatory Authority of the discrepancy

immediately, but by no later than the second business day after the

day on which it is discovered.

(3) In this rule:

significant discrepancy includes discrepancies that have the

cumulative effect of being significant.

6.1.27 Record-keeping

(1) An INMA firm must maintain records that enable it:

(a) to demonstrate to its auditors and the Regulatory Authority that

it complies with this Chapter; and

(b) to demonstrate and explain all entries of custody investments

held or controlled in accordance with this Chapter.

(2) An INMA firm must maintain a master list of every account that it

holds with an eligible custodian. The master list must set out:

(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 on which it was opened and if applicable, the date on

which it was closed.

(3) The details of an account must be documented and maintained in the

master list for at least 6 years after the account is closed.

(4) An INMA firm must maintain records of every agreement with an

eligible custodian and any instruction given by the firm to a custodian

under such an agreement.

Use of customers’ investments as collateral Chapter 7

Rule 7.1.1


page 77

Effective: 1/Jul/21

Chapter 7 Use of customers’ investments as collateral

7.1.1 Application of Chapter 7

(1) This Chapter applies to an INMA firm that receives or holds relevant

investments of a customer to secure the customer’s obligations to the

firm in the course of, or in connection with, the firm’s conducting

investment and advisory business, if:

(a) either:

(i) the customer’s entire legal and beneficial interest in those

investments has been transferred to the firm; or

(ii) the firm has a right to use those investments as if the

customer’s entire legal and beneficial interest in them had

been transferred to the firm; and

(b) the firm is obliged to return equivalent investments to the

customer when the customer’s obligations to the firm are

satisfied.

(2) If an INMA firm receives or holds a relevant investment under an

arrangement described in subrule (1)(a)(ii) but has not yet exercised

its right to use the investment, this Chapter does not apply in relation

to the investment until after the firm has exercised its right to use it.

(3) This Chapter does not apply in relation to an investment in which an

INMA firm’s interest is a bare security interest. An interest is a bare

security interest if it gives the firm the right to realise the investment

only on the customer’s default but no right to use it in other

circumstances.

(4) If under subrule (2) or (3) this Chapter does not apply in relation to

an investment, the INMA firm concerned:

(a) must treat the investment as a custody investment; and

(b) must comply with Chapter 6 in relation to it.

Note For the meaning of custody investment—see rule 6.1.4.

Chapter 7 Use of customers’ investments as collateral Rule 7.1.2


V6

Effective: 1/Jul/21

7.1.2 Adequate records to be kept

(1) If an INMA firm receives or holds relevant investments of a customer

under an arrangement described in rule 7.1.1, the firm must keep

adequate records to enable it to meet any future obligations to the

customer in relation to the investments, including the obligation to

return equivalent relevant investments to the customer.

(2) However, if the investments are received under an arrangement

described in rule 7.1.1(1)(a)(ii), subrule (1) applies only if the firm

has exercised its right to use them as if the customer’s entire legal and

beneficial interest in them had been transferred to the firm.

7.1.3 Periodic statements to customer

(1) An INMA firm that holds relevant investments of a customer under

an arrangement described in rule 7.1.1 must prepare, and send to the

customer, periodic statements listing the investments and their market

values.

(2) Each statement must be prepared as at a date (the reporting date) that

is not more than:

(a) 6 months after the last statement; or

(b) if another interval between statements is agreed with the

customer—the agreed interval after the last statement.

(3) Each statement must be sent to the customer within 1 month after the

reporting date.

(4) The firm must send each statement directly to the customer and not

to another person, unless it has written instructions from the customer

requiring or allowing it to send the statement to the other person.

Client mandates Chapter 8

Rule 8.1.1


page 79

Effective: 1/Jul/21

Chapter 8 Client mandates

8.1.1 Client mandates—systems and controls

(1) In this Chapter:

mandate means a written authority from an investment business

firm’s customer under which the firm may control assets or liabilities

of the customer in the course of, or in connection with, the firm’s

investment business.

Examples of authority

1 authority for direct debit of a bank account

2 authority to charge a credit card.

(2) If an investment business firm holds 1 or more mandates, it must

establish appropriate systems and controls in relation to its use of the

mandates to prevent the misuse of the authority given by the

mandates.

(3) The systems and controls must include the following:

(a) an up-to-date list of the firm’s mandates and all the conditions

and restrictions on the use of each mandate;

(b) a record of every transaction entered into using a mandate;

(c) appropriate controls to ensure that each transaction is within the

scope of the authority given by the relevant mandate;

(d) a record of details of the procedures and authorities for giving

and receiving instructions under the mandates;

(e) taking all reasonable steps to ensure that anyone who is, or is

likely to be, required to give or receive instructions under a

mandate is fully aware of its terms, including:

(i) the procedures and authorities referred to in paragraph (d);

and

(ii) all the conditions and restrictions (if any) on its use.

Chapter 8 Client mandates Rule 8.1.2


V6

Effective: 1/Jul/21


In relation to mandates, this Chapter applies to the independent entity

of a QFC scheme that is not a private placement scheme, and to the

operator of a QFC scheme that is a private placement scheme, as if:

(a) a reference to the customer were a reference to the QFC scheme;

and

(b) all other necessary changes were made.

Islamic INMA firms Chapter 9

Rule 9.1.1


page 81

Effective: 1/Jul/21

Chapter 9 Islamic INMA firms

9.1.1 Introduction

(1) This Chapter describes the nature of restricted PSIAs and sets out the

responsibilities of Islamic INMA firms in relation to policies,

warnings, provisions, reserves, terms of business and financial and

other periodic statements. An Islamic INMA firm is an INMA firm

whose authorisation includes a condition that the whole of the firm’s

business must be conducted in accordance with Shari’a.

(2) Because an Islamic INMA firm is an Islamic financial institution, it

must comply with the CTRL, Chapter 9.

Note Interest-bearing deposits are not permitted by Shari’a, so Islamic

financial institutions typically raise funds through PSIAs and other

Shari’a-compliant sources of funding.

9.1.2 Profit-sharing investment accounts

(1) A profit-sharing investment account (or PSIA) is an account,

portfolio or fund that satisfies the following conditions:

(a) it is managed by an authorised firm in accordance with Shari’a

and is held out as such;

(b) under a management agreement with the firm, the investment

account holder (or IAH) concerned and the firm agree to share

any profit in a specified ratio, and the IAH agrees to bear any

loss not caused by the firm’s negligence, misconduct or breach

of contract.

(2) A PSIA may be restricted or unrestricted. A restricted PSIA is a PSIA

that is subject to a restriction as to where, how or for what purpose

the investment funds may be invested.

Note 1 For the Rules relating to unrestricted PSIAs—see IBANK.

Note 2 For guidance on the treatment of PSIAs as restricted or unrestricted—see

paragraphs 12 and 13 of AAOIFI’s Statement of Concepts of Financial

Accounting for Islamic Banks and Financial Institutions. See also

Appendix D of Financial Accounting Standard FAS 5.

Chapter 9 Islamic INMA firms Rule 9.1.3


V6

Effective: 1/Jul/21

(3) In this Chapter:

owner of a PSIA includes a PSIA manager that owns the PSIA that it

manages.

Note The PSIA manager is generally the owner of the PSIA, but an owner can

outsource the management of the PSIA to another person.

9.1.3 Policies—PSIAs

An Islamic INMA firm’s policies must include the following:

(a) how to ensure that PSIAs are managed in accordance with their

IAHs’ instructions;

(b) how to ensure that the funds of PSIAs are invested in accordance

with the firm’s terms of business;

(c) the priority of the investment of the PSIA owners’ funds and

those of the IAHs;

(d) how the interests of the IAHs are safeguarded;

(e) the basis for allocating expenses and profits or losses to IAHs;

(f) how provisions and reserves against equity and assets will be

applied;

(g) to whom those provisions and reserves would revert in the event

of a write-off or recovery;

(h) how liquidity mismatch will be monitored;

(i) how the value of the PSIAs’ assets will be monitored;

(j) how any losses incurred as a result of negligence, misconduct or

breach of contract on the part of the firm will be dealt with.

9.1.4 PSIA managers’ responsibilities

(1) An Islamic INMA firm that manages restricted PSIAs must warn a

prospective IAH in writing that:

(a) the IAH bears the risk of loss to the extent of the IAH’s

investment; and


Rule 9.1.5


page 83

Effective: 1/Jul/21

(b) the IAH would not be able recover that loss from the firm, except

in case of negligence, misconduct or breach of contract on the

part of the firm.

(2) In accordance with AAOIFI FAS 11, such a firm must maintain

adequate provisions and reserves against equity and assets.

9.1.5 Terms of business

An Islamic INMA firm that manages a restricted PSIA must ensure

that the following information is included in the terms of business

given to an IAH:

(a) how and by whom the funds of the IAH will be managed and

invested;

(b) the PSIA’s investment objectives and details of its policy on

diversification;

(c) the basis for allocating profits and losses between the owner and

the IAH;

(d) a summary of the policies for valuing the PSIA’s assets;

(e) a summary of the policies for transferring funds to and from any

profit equalisation reserve or investment risk reserve;

(f) particulars of the management of the PSIA;

(g) particulars of the management of any other person to whom the

owner has outsourced, or will outsource, the management of the

PSIA, including:

(i) the person’s name;

(ii) the person’s regulatory status; and

(iii) details of the arrangement;

(h) details of any arrangement for early withdrawal, redemption or

other exit and any costs to an IAH as a result;

(i) confirmation of the IAH’s investment objectives;

Chapter 9 Islamic INMA firms Rule 9.1.6


V6

Effective: 1/Jul/21

(j) how the IAH’s investment will be segregated from the

manager’s funds and from any claims by the firm’s creditors;

(k) whether funds from the PSIA will be mixed with the funds of

another PSIA;

(l) any applicable charges and the basis on which such charges will

be calculated;

(m) any fees that the firm can deduct from the profits of the PSIA.

9.1.6 Financial statements—specific disclosures

(1) An Islamic INMA firm that manages restricted PSIAs must ensure

that its financial statements contain the following disclosures:

(a) the role and authority of the Shari’a supervisory board in

overseeing the manager’s business;

(b) the method used in the calculation of the zakat base;

(c) if zakat has been paid, the amount that has been paid;

(d) if zakat has not been paid, information to allow an IAH or

prospective IAH to compute its liability to zakat.

(2) The financial statements must also contain the following disclosures

in relation to each PSIA managed by the firm:

(a) an analysis of its income according to types of investments and

their financing;

(b) the basis for allocating profits between the owner and IAHs;

(c) the equity of the IAHs at the end of the reporting period;

(d) the basis for determining any profit equalisation reserve or

investment risk reserve;

(e) the changes that have occurred in any of those reserves during

the reporting period;

(f) to whom any remaining balances of any of those reserves is

attributable in the event of liquidation.


Rule 9.1.7


page 85

Effective: 1/Jul/21

(3) Any deductions by the firm from its share of income, and any

expenses borne by the firm on behalf of the IAHs, as a contribution

to the income of IAHs, must also be disclosed in the firm’s financial

statements if the contribution is significant.

9.1.7 Periodic statements

(1) An Islamic INMA firm that manages a restricted PSIA must give an

IAH a periodic statement about the PSIA at intervals agreed with the

IAH. The agreed interval must not be longer than 6 months.

(2) The firm must ensure that the periodic statement contains the

following information as at the end of the period covered by the

statement:

(a) the number, description and value of investments held by the

PSIA;

(b) the amount of cash held by the PSIA;

(c) details of applicable charges (including any deductions of fees

that the firm is allowed to deduct from the profits of the PSIA)

and the basis on which the charges are calculated;

(d) the total of any dividends and other benefits received by the firm

for the PSIA;

(e) the total amount, and particulars of all investments transferred

into or out of the PSIA;

(f) details of the performance of the IAH’s investment;

(g) the allocation of profit between the owner and the IAH;

(h) any changes to the investment strategies that could affect the

IAH’s investment.

9.1.8 Displaced commercial risk

Note These rules, the instructions for preparing returns and the returns

themselves do not (yet) have provisions on how to deal with this risk.

Those provisions are to be inserted in the second and third phases of these

rules or included in a separate set of Rules on Islamic finance.

Chapter 9A Post-contractual obligations of INMA firms Part 9A.1 Reporting to customers Rule 9A.1.1


V6

Effective: 1/Jul/21

Chapter 9A Post-contractual obligations of INMA firms

Part 9A.1 Reporting to customers

9A.1.1 Confirmation notes—provision requirement

(1) If an INMA firm executes a transaction in relation to a relevant

investment for a customer, it must promptly give the customer a

written confirmation note recording the essential details of the

transaction.

(2) This rule is subject to rule 9A.1.5.

9A.1.2 Confirmation notes—omission of information

(1) If:

(a) a person fails to give an INMA firm information that the firm

needs for inclusion in a confirmation note for a transaction in

relation to a relevant investment for a customer; or

(b) the transaction executed by an INMA firm in relation to a

relevant investment for a customer involves a conversion of a

currency into another currency and the firm has not made the

conversion;

the firm may omit the information from the confirmation note if its

omission is indicated by a statement to the effect that it will be

supplied later or that it cannot be supplied.

(2) If the INMA firm gets the information later, the firm must promptly

give the information to the customer.

9A.1.3 Confirmation notes—when transaction taken to be executed

(1) If an INMA firm executes a transaction that requires a confirmation

note and the execution is outside normal market hours, the transaction

is taken to be executed on the next business day.

Post-contractual obligations of INMA firms Chapter 9A Reporting to customers Part 9A.1

Rule 9A.1.4


page 87

Effective: 1/Jul/21

(2) If an INMA firm executes a series of transactions, all the transactions

may be taken to be executed at the time the last transaction is executed

if a record of the time that each individual transaction is executed is

made (for example, by means of a time stamp).

(3) If:

(a) an INMA firm aggregates a transaction for a customer order (the

aggregation) with an own account transaction or a transaction

for another customer order; and

(b) the firm then allocates the relevant investment under rule 9B.1.9

(Aggregation of customer orders—allocation);

the aggregation is taken to have been executed at the time of

allocation.

9A.1.4 Confirmation notes—content

A confirmation note for a transaction must include the information

about the transaction required by Schedule 2.

9A.1.5 Confirmation notes—provision requirement exemption

(1) An INMA firm is not required to give a confirmation note to a

customer for a transaction in any of the following cases:

(a) the customer has told the firm (in writing, if the customer is a

retail customer) that the customer does not wish to receive

confirmation notes at all or confirmation notes for the

transaction or transactions of that kind;

(b) an arrangement is in place for the customer to make a series of

payments for the purchase of units in a collective investment

scheme and the transaction is part of that series;

(c) each of the following applies to the transaction:

(i) the firm is acting as an investment manager for the

customer in relation to the transaction;

(ii) the transaction is not a contingent liability transaction;

Chapter 9A Post-contractual obligations of INMA firms Part 9A.1 Reporting to customers Rule 9A.1.6


V6

Effective: 1/Jul/21

(iii) the firm has taken reasonable steps to ensure that the

customer does not wish to receive confirmation notes at all

or confirmation notes for the transaction or transactions of

that kind;

(d) it would duplicate information already given, or to be given

promptly, by another person that confirms all the essential

details of the transaction (other than details relating only to the

firm).

(2) If an INMA firm relies on subrule (1) (a) or (c) in relation to the

transaction, the firm must give the customer a periodic statement

under rule 9A.1.7 that contains information that:

(a) would otherwise have been required to be included in a

confirmation note given by the firm to the customer for the

transaction; and

(b) is still relevant when the periodic statement is given to the

customer.

9A.1.6 Confirmation notes—recordkeeping

An INMA firm must keep a copy of each confirmation note given to

a customer for at least 6 years after the day it is given to the customer.

9A.1.7 Periodic statements—provision requirement

(1) If an INMA firm:

(a) acts as an investment manager for a customer; or

(b) operates a customer’s account containing relevant investments;

it must promptly, and at the intervals required by rule 9A.1.8, give

the customer a written statement (a periodic statement).

(2) The periodic statement must include the information required by:

(a) Schedule 3, Part S3.1;

(b) if during the period covered by the statement the firm acted as

an investment manager for the customer—Schedule 3, Part S3.2;

Post-contractual obligations of INMA firms Chapter 9A Reporting to customers Part 9A.1

Rule 9A.1.8


page 89

Effective: 1/Jul/21

(c) if the statement covers a contingent liability transaction—

Schedule 3, Part S3.3; and

(d) if the statement covers a transaction relating to a structured

capital at risk investment—Schedule 3, Part S3.4.

(3) This rule is subject to rule 9A.1.9.

9A.1.8 Periodic statements—intervals

An INMA firm must give a customer a periodic statement at intervals

no longer than:

(a) 6-monthly;

(b) if the customer is a retail customer and the customer’s portfolio

includes an uncovered open position resulting from a contingent

liability transaction—monthly; or

(c) if the customer has, on the customer’s own initiative, agreed on

another interval with the firm—the agreed interval or annually,

whichever is shorter.

9A.1.9 Periodic statements—provision requirement exemption

An INMA firm need not give a customer a periodic statement if it

would duplicate information already given, or to be given promptly,

by another person.

9A.1.10 Periodic statements—recordkeeping

An INMA firm must keep a copy of each periodic statement given to

a customer for at least 6 years after the day it is given to the customer.

Chapter 9A Post-contractual obligations of INMA firms Part 9A.2 Cancelling relevant investment contracts—retail customers Rule 9A.1.11


V6

Effective: 1/Jul/21

Part 9A.2 Cancelling relevant investment contracts—retail customers

9A.1.11 Relevant investment contracts—right to cancel

If a retail customer buys a relevant investment as a result of advice

by an INMA firm to the customer, the customer has a right, in

accordance with this Part, to cancel the relevant investment.

Guidance

An INMA firm may voluntarily provide additional cancellation rights, or rights

exercisable during a longer period than allowed under this Part, but, if it does so,

these should be on terms similar to those in this Part.

9A.1.12 Relevant investment contracts—when cancellation rights can be exercised

(1) A retail customer may exercise a cancellation right under this Part in

relation to a relevant investment made by an INMA firm with or for

the customer only during the cancellation period for the investment.

(2) For a relevant investment, the cancellation period:

(a) starts on the later of the following:

(i) the day the INMA firm gives the retail customer the

statement required by CIPR, rule 5.3.2 (1) (d) (Investment

advice for retail customers—general requirements);

(ii) the day the INMA firm gives the retail customer a key

information document required by CIPR, rule 5.4.2 (Key

information documents to be given to retail customers);

(iii) if the INMA firm is required to give the retail customer a

confirmation note by rule 9A.1.1 in relation to the relevant

investment—the day the firm gives the confirmation note

to the customer; and

(b) ends at the end of 14 days after that day.

Post-contractual obligations of INMA firms Chapter 9A Cancelling relevant investment contracts—retail customers Part 9A.2

Rule 9A.1.13


page 91

Effective: 1/Jul/21

9A.1.13 Relevant investment contracts—exercising cancellation right

(1) This rule applies if a retail customer has a right under this Part to

cancel a relevant investment made by an INMA firm with or for the

customer.

(2) The retail customer may exercise the cancellation right by giving

written notice of the exercise of the right to the INMA firm.

(3) Without limiting subrule (2), if the retail customer exercises the right

in accordance with information given to the customer by the INMA

firm, the customer 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 from the notice and the surrounding circumstances.

(5) The notice need not give reasons for the exercise of the right.

(6) If the retail customer exercises the cancellation right by sending

written notice to the INMA firm at the address given to the customer

by the firm for the exercise of the right, the notice is taken to have

been given to the firm when it is sent to the firm at that address.

9A.1.14 Relevant investment contracts—consequences of cancellation

(1) This rule applies if a retail customer exercises a right under this Part

to cancel a relevant investment made by an INMA firm with or for

the customer.

(2) Any contract (a relevant contract) to which the retail customer is a

party in relation to the relevant investment is terminated.

(3) The INMA firm must pay the retail customer an amount equal to the

total of the amounts paid by the customer under relevant contracts.

(4) The amount must be paid to the retail customer without delay and no

later than 30 days after the day the cancellation right is exercised.

Chapter 9A Post-contractual obligations of INMA firms Part 9A.2 Cancelling relevant investment contracts—retail customers Rule 9A.1.15


V6

Effective: 1/Jul/21

(5) The INMA firm may require the retail customer to pay the firm an

amount of no more than the total of:

(a) amounts received, and the value of property or services

received, by the customer under relevant contracts; and

(b) subject to subrules (6) and (7), 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) (b) applies only if the INMA firm complied with the

disclosure obligations under these rules in relation to the cancellation

right.

(7) Subrule (5) (b) does not apply in relation to a contract established on

a regular or recurring payment basis.

(8) An amount payable under subrule (5) is due no later than 21 days after

the day the customer receives written notice from the firm requiring

payment.

(9) Any amounts payable under this rule are simple contract debts and

may be set off against each other.

9A.1.15 Relevant investment contracts cancellation—recordkeeping

(1) An INMA firm must make appropriate records about the exercise of

rights to cancel under this Part.

(2) The records must be kept for at least 6 years after the day the right is

exercised.

Other investment-related activities Chapter 9B Investment research and investment recommendations Part 9B.1

Rule 9B.1.1


page 93

Effective: 1/Jul/21

Chapter 9B Other investment-related activities

Part 9B.1 Investment research and investment recommendations

9B.1.1 Investment research—conflicts of interest and impartiality


(a) an INMA firm publishes or disseminates investment research;

and

(b) either:

(i) the firm holds the research out (in whatever terms) as

being an impartial assessment of the value or prospects of

the subject matter of the research; or

(ii) it is reasonable for those to whom the firm has published

or distributed the research to rely on it as an impartial

assessment of the value or prospects of the subject matter

of the research.

(2) The INMA firm must do all of the following:

(a) establish and implement a policy, appropriate to the firm, for

managing effectively the conflicts of interest and material

interests that might affect the impartiality of the investment

research;

(b) make a record of the policy and keep it for at least 6 years after

the policy ceases to have effect;

(c) take reasonable steps to ensure that the firm and its employees

comply with the policy;

(d) make a written copy of the policy available to any person on

request;

Chapter 9B Other investment-related activities Part 9B.1 Investment research and investment recommendations Rule 9B.1.1


V6

Effective: 1/Jul/21

(e) take reasonable steps to ensure that the policy remains

appropriate and effective.

(3) The policy must identify the types of investment research to which

the policy applies and must make provision for systems, controls and

procedures that:

(a) identify conflicts of interest and material interests that might

affect the impartiality of the investment research to which the

policy applies;

(b) manage effectively conflicts of interest and material interests, to

the extent that they arise or might arise within the INMA firm,

in relation to each of the following:

(i) the supervision and management of investment analysts;

(ii) the remuneration structure for investment analysts;

(iii) the extent to which investment analysts may become

involved in activities other than the preparation of

investment research;

(iv) the extent to which inducements offered by issuers of

securities, or other persons with material interests in the

subject matter of investment research, may be accepted by

investment analysts or senior employees of the INMA

firm;

(v) the persons who may comment on draft investment

research before publication, and the procedure for taking

account of their comments;

(vi) the timing and manner of publication and distribution of

investment research and of the communication of its

substance;

Other investment-related activities Chapter 9B Investment research and investment recommendations Part 9B.1

Rule 9B.1.2


page 95

Effective: 1/Jul/21

(vii) what information or disclosures are appropriate to include

in investment research (taking appropriate account of

matters required by law); and

Guidance

The matters enumerated in paragraph (b) are not exhaustive and the policy

should allow the firm to manage conflicts of interest that arise or might arise

in relation to other matters.

(c) clearly indicate the extent to which the firm’s policy relies on

Chinese walls or other information barriers.

9B.1.2 Research recommendations—basic requirements

(1) An INMA firm:

(a) must take reasonable care to ensure that a research

recommendation produced or disseminated by it in relation to

relevant investments is presented fairly and is not misleading;

and

(b) must disclose any conflicts of interest or material interests that

the firm has in relation to the relevant investments.

(2) An INMA firm, in any research recommendation produced by it:

(a) must disclose clearly and prominently the identity of the person

responsible for its production, and in particular:

(i) the name and job title of the individual who prepared the

research recommendation; and

(ii) the firm’s name; and

(b) must include the firm’s regulatory status in a form required by

GENE, Part 3.1.

(3) The firm may comply with subrule (2) in relation to a non-written

research recommendation by referring to the place where the

disclosures can be easily accessed (for example, the INMA firm’s

website).

Chapter 9B Other investment-related activities Part 9B.1 Investment research and investment recommendations Rule 9B.1.3


V6

Effective: 1/Jul/21

(4) If an INMA firm produces or disseminates a research

recommendation, the firm must take reasonable care to ensure that:

(a) facts in the research recommendation are clearly distinguished

from interpretations, estimates, opinions and other types of non-

factual information;

(b) its sources for the research recommendation are reliable or, if

there is any doubt about whether a source is reliable, this is

clearly indicated;

(c) all projections, forecast and price targets in the research

recommendation are clearly labelled as such and the material

assumptions made in producing or using them are indicated; and

(d) the substance of the research recommendation can be

substantiated as reasonable if the Regulatory Authority so

requests.

(5) Subrule (4) does not apply to a non-written research recommendation

if its requirements would be disproportionate to the length of the

research recommendation.

9B.1.3 Research recommendations—additional requirements

An INMA firm must comply with the additional requirements

mentioned in Schedule 4 that apply to it.

9B.1.4 Research recommendations—recordkeeping

(1) An INMA firm must make a record of:

(a) each research recommendation it produces, including details of

how the substance of the research recommendation can be

substantiated as reasonable; and

(b) each research recommendation it disseminates.

(2) The record of a research recommendation must be kept for at least

6 years after the day the research recommendation is last

disseminated.

Other investment-related activities Chapter 9B Dealing and managing Part 9B.2

Rule 9B.1.5


page 97

Effective: 1/Jul/21

Part 9B.2 Dealing and managing

9B.1.5 Dealing and managing—best execution

(1) If an INMA firm agrees, or decides in the exercise of its discretion, to

execute a transaction with or for a customer in relation to a relevant

investment, it must provide best execution.

(2) However, the INMA firm need not provide best execution if:

(a) it only arranges the transaction for the customer;

(b) the market in the relevant investment is insufficient to allow for

a meaningful price comparison;

(c) the customer is a business customer and the firm has agreed with

the customer that it will not provide best execution; or

(d) another person is responsible for the execution of the transaction

and has undertaken to provide best execution.

(3) To provide best execution for the transaction, the INMA firm:

(a) must take reasonable care to find out the best available price in

the relevant market at the time for transactions of the same kind

and size; and

(b) must execute the customer order for the transaction at a price

that is no less advantageous to the customer, unless the firm has

taken reasonable steps to ensure that it would be in the

customer’s best interests not to do so.

(4) To take reasonable care under subrule (3) (a), the INMA firm:

(a) must calculate the best execution price before any previously

disclosed charges that might be payable;

(b) must not take a mark-up or mark-down;

(c) must pass on to the customer the price at which it executes the

transaction to meet the customer order; and

(d) if it can access prices displayed by different exchanges and

trading platforms and make a direct and immediate

Chapter 9B Other investment-related activities Part 9B.2 Dealing and managing Rule 9B.1.6


V6

Effective: 1/Jul/21

comparison— must execute the customer order at the best price

available if it is in the best interest of the customer to do so.

9B.1.6 Dealing and managing—timely execution

(1) If an INMA firm agrees, or decides in the exercise of its discretion,

to execute a transaction for an existing customer order in relation to a

relevant investment, it must execute the order as soon as practical.

(2) However, subrule (1) does not apply if the INMA firm has taken

reasonable steps to ensure that postponing the execution of the

transaction for the order is in the best interests of the customer.

Guidance for rule 9B.1.6 (2)

Factors relevant to whether the postponement of an existing customer order may be

in the best interests of the customer include the following:

(a) whether the customer order is received outside of normal trading hours;

(b) whether a foreseeable improvement in the level of liquidity in the relevant

investment is likely to enhance the terms on which the INMA firm executes

the transaction for the customer order;

(c) whether executing the transaction for the customer order as a series of partial

transactions over a period of time is likely to improve the terms on which the

transaction as a whole is executed.

9B.1.7 Dealing and managing—recordkeeping

(1) An INMA firm must ensure, by establishing and maintaining

appropriate procedures, that it promptly records adequate information

in relation to each of the following:

(a) the receipt of customer orders;

(b) the exercise of its discretion to decide to execute transactions for

customer orders;

(c) the execution of transactions for customer orders;

(d) the passing of customer orders to other persons for execution of

transactions;

(e) the execution of own account transactions.


Rule 9B.1.8


page 99

Effective: 1/Jul/21

(2) Subrule (1) (c) and (d) do not apply to the INMA firm if it is only

arranging a transaction for a customer.

(3) The records must record the information required by Schedule 5.

(4) The INMA firm must keep records made under this rule for a

customer order or own account transaction for at least 6 years after

the day the transaction (or the last of the transactions) for the order is

executed.

9B.1.8 Dealing and managing—aggregation of customer orders

An INMA firm may aggregate a transaction for a customer order with

transactions for other customer orders or for own account

transactions if:

(a) the firm believes on reasonable grounds that it is unlikely that

the aggregation will disadvantage any of the customers whose

transactions are to be aggregated;

(b) the firm has disclosed orally or in writing to the customer that

the transactions for the customer order may be aggregated and

that the effect of aggregation may sometimes operate to the

customer’s disadvantage;

(c) before the transactions are aggregated, the firm has made a

record of the intended basis of allocation and the identity of each

customer; and

(d) the firm has in place a written policy on aggregation and

allocation that it applies consistently and includes procedures for

rule 9B.1.10.

9B.1.9 Aggregation of customer orders—allocation


(a) an INMA firm aggregates a transaction for a customer order for

a customer with transactions for customer orders for other

customers or with own account transactions; and

(b) part or all of the aggregated order is filled.



V6

Effective: 1/Jul/21

(2) The INMA firm must promptly allocate the relevant investment

involved in the aggregated order in accordance with rule 9B.1.10 (1).

(3) To allocate a relevant investment promptly, an INMA firm:

(a) must allocate the relevant investment within 1 business day; or

(b) if only business customers or market counterparties are affected

by the allocation and each of them agrees—must allocate the

relevant investment within 5 business days.

9B.1.10 Aggregation of customer orders—fair allocation etc

(1) For rule 9B.1.9, an INMA firm:

(a) must allocate relevant investments in accordance with the

intended basis of allocation recorded under rule 9B.1.8 (c);

(b) must ensure the allocation is done fairly and uniformly by not

giving excessive preference to itself or to any person for whom

it deals; and

(c) if the aggregated order includes both customer orders and own

account transactions— must give priority to satisfying customer

orders if all the orders cannot be satisfied, unless the firm can

demonstrate on reasonable grounds that without its own

participation it could not have executed the customer orders on

such favourable terms, or at all.

(2) The INMA firm must make a record of each of the following:

(a) the date and time of the allocation;

(b) the relevant investment;

(c) the identity of each customer affected by the aggregation;

(d) the amount allocated to each customer affected by the

aggregation and to the firm;

(e) if applicable, the agreement, under rule 9B.1.9 (3) (b), of each

business customer or eligible counterparty to allocate the

relevant investment within 5 business days.


Rule 9B.1.11


page 101

Effective: 1/Jul/21

(3) The INMA firm must keep the records for at least 6 years after the

day the relevant investments are allocated.

9B.1.11 Dealing and managing—customer order priority

(1) An INMA firm must execute transactions for existing customer

orders and own account transactions in relation to relevant

investments fairly and in proper turn.

(2) The INMA firm does not breach subrule (1) by executing an own

account transaction in relation to the relevant investments while it has

an existing customer order in relation to the relevant investments if:

(a) it receives the existing customer order after it had decided to

deal for itself;

(b) the employee or agent taking the decision to deal for the firm

was unaware of the existing customer order when making the

decision; or

(c) the firm believes on reasonable grounds that by postponing the

transaction for the existing customer order it is likely to improve

the terms on which the transaction for the order will be executed.

(3) If subrule (2) (c) applies, the INMA firm must take care to ensure that

customer orders that are advanced because of the postponement are

also treated fairly.

9B.1.12 Dealing and managing—excessive dealing and switching

(1) This rule applies to the following investment products:

(a) a life policy (that is, a long term insurance contract other than a

reinsurance contract or a pure protection contract);

(b) a long term care insurance contract;

(c) a unit in a collective investment scheme.



V6

Effective: 1/Jul/21

(2) An INMA firm must not do any of the following with such a

frequency, or in such amounts, that the transactions may be regarded

as excessive:

(a) in the exercise of its discretion, execute a transaction in relation

to a relevant investment for a customer;

(b) advise a customer to enter into a transaction in relation to a

relevant investment;

(c) advise a retail customer to switch within between products to

which this rule applies or make or arrange a switch that gives

effect to such advice; or

(d) in the exercise of its discretion, make or arrange a switch within

those products for a retail customer.

(3) In complying with subrule (2), the INMA firm must be able to

demonstrate that the transactions were fair, reasonable and in the

customer’s best interests when they were entered into, viewed both in

isolation and in the context of earlier transactions.

9B.1.13 Dealing and managing—non-market-price transactions

(1) An INMA firm must not enter into a non-market-price transaction

with or for a customer, unless it has taken reasonable steps to ensure

that the customer is not entering into the transaction for an improper

purpose.

(2) An INMA firm must:

(a) make a record of the information it has obtained in satisfying

subrule (1) in relation to a non-market-price transaction; and

(b) must keep the record for at least 6 years after the day the

information is obtained.

(3) This rule does not apply to a non-market-price transaction if it is

subject to the rules of an eligible exchange.


Rule 9B.1.14


page 103

Effective: 1/Jul/21

(4) A transaction is a non-market-price transaction if the dealing rate or

price paid by the firm or a customer differs from the prevailing market

rate or price to a material extent.

9B.1.14 Dealing and managing—realising retail customer’s assets

An INMA firm must not realise a retail customer’s assets unless it is

legally entitled to realise the assets and has done either of the

following:

(a) set out in the firm’s terms of business for the customer:

(i) the action it may take to realise assets of the customer;

(ii) the circumstances in which it may take the action; and

(iii) each asset (if relevant) or type of asset over which it may

exercise its rights to realise assets; or

(b) given the customer written or oral notice of its intention to

exercise its rights at least 3 business days before it exercises

them.

Chapter 10 Transitional Rule 10.1.1


V6

Effective: 1/Jul/21

Chapter 10 Transitional

10.1.1 Definitions for Chapter 10

modification means a declaration by the Regulatory Authority under

FSR, article 16 (1) (a).

PIIB means the Investment and Banking Business Rules 2005 (as in

force immediately before 1 January 2015).

PIIB category 3 and PIIB category 4 have the same respective

meanings as in PIIB.

waiver means a declaration by the authority under FSR,

article 16 (1) (b).

10.1.2 Authorised firms to remain authorised

An entity that was an authorised firm in PIIB category 3 or PIIB

category 4 immediately before 1 January 2015 continues to be an

authorised firm. The firm’s authorisation (including any condition)

continues in effect according to its terms.

10.1.3 Modifications and waivers

(1) A modification of a provision of PIIB that was in effect immediately

before 1 January 2015 continues to have effect, according to its terms,

as a modification of the provision of these rules corresponding as

nearly as possible to the provision of PIIB.

(2) A waiver of a provision of PIIB (other than a waiver in relation to an

authorised firm that is a branch, the effect of which was that the firm

was not required to hold capital) that was in effect immediately before

1 January 2015 continues to have effect, according to its terms, as a

waiver of the provision of these rules corresponding as nearly as

possible to the provision of PIIB.

Guidance

A waiver the effect of which was that an authorised firm was not required to hold

capital lapsed on 1 January 2015 if the firm is a branch, because there is no

requirement under these rules for a branch to hold capital.

Transitional Chapter 10

Rule 10.1.4


page 105

Effective: 1/Jul/21

10.1.4 Power of Regulatory Authority not diminished

Nothing in this Chapter prevents the Regulatory Authority from

withdrawing a firm’s authorisation or revoking a condition, waiver or

modification.

Schedule 1 Guidance about risk management Part S1.1 Introduction


V6

Effective: 1/Jul/21

Schedule 1 Guidance about risk management

(see rule 4.2.1)

Part S1.1 Introduction

This guidance provides detail on what the Regulatory Authority expects to see in an INMA firm’s risk management policy. It has been prepared to assist the directors and senior managers of INMA firms and others concerned in applying these rules. The authority recognises that the exact content of each firm’s risk management policy will be determined by what is appropriate in the light of the nature, scale and complexity of the firm’s business.

Part S1.2 Risks to be addressed in risk management policy

S1.2.1 Operational risk

(1) Operational risk is the risk of loss resulting from:

(a) inadequate or failed internal processes, people and systems; or

(b) external events.

(2) The management of operational risk typically addresses legal risk, fraud risk, economic and political risk, business continuity risk, technology risk, human resources risk, outsourcing risk, project management risk and strategic risk.

S1.2.2 Reputational risk

(1) Reputational risk is the risk of loss resulting from damage to a firm’s good reputation.

(2) An INMA firm’s risk management policy should include processes and procedures for identifying, assessing, managing and mitigating reputational risk. The policy should include:

(a) processes for identifying events that might lead to reputational damage, the likelihood of those events occurring, and their consequences; and

(b) procedures for handling such events, and for mitigating reputational damage.

S1.2.3 Liquidity risk

(1) Liquidity risk is the risk of not having sufficient cash or liquid assets to meet cash outflows as they fall due.

Guidance about risk management Schedule 1 Risks to be addressed in managing operational risk Part S1.3


page 107

Effective: 1/Jul/21

(2) An INMA firm’s risk management policy should include processes and controls to monitor the liquidity and realisability of the firm’s assets and the level of liquid assets it holds, to ensure that it complies at all times with the net liquid assets requirement in these rules.

Note For that requirement—see rule 3.3.4.

Part S1.3 Risks to be addressed in managing operational risk

S1.3.1 Legal risk

(1) Legal risk is the risk of loss resulting from:

(a) regulatory or legal action;

(b) disputes; or

(c) failure to comply with, or the inadequate management of, legal or regulatory obligations.

(2) An INMA firm’s risk management policy should include processes and procedures for identifying, assessing, managing and mitigating legal risk. The policy should include:

(a) processes for identifying events that might generate legal risk (for example, new products or processes, new documentation), the likelihood of those events occurring and their consequences; and

(b) procedures to ensure that:

(i) all contractual, legal, regulatory and other documentation is accurate and complete;

(ii) the firm complies with all its legal, regulatory, contractual and prudential requirements and obligations; and

(iii) the firm’s insurances (for example, professional indemnity insurance) are renewed in good time and remain effective.

S1.3.2 Fraud risk

(1) Fraud risk is the risk of loss from:

(a) unauthorised activities such as those that breach the controls, procedures, limits and other restrictions in an INMA firm’s policies and procedures or legal or regulatory requirements;

(b) deceptive acts or omissions intended to gain advantage for the parties committing the acts or other parties; or

(c) intentional acts undertaken for personal gain or to tamper with or manipulate the financial or operational aspects of the firm’s business.

Schedule 1 Guidance about risk management Part S1.3 Risks to be addressed in managing operational risk


V6

Effective: 1/Jul/21

(2) An INMA firm’s risk management policy should include processes and procedures for identifying, assessing, managing and mitigating fraud risk. The policy should include:

(a) internal controls and mitigation strategies;

(b) segregation of duties at an operational level and in relation to functional reporting lines;

(c) financial accounting controls;

(d) staff training and awareness; and

(e) appropriate processes for monitoring compliance with the firm’s procedures, controls, limits and other restrictions.

S1.3.3 Economic and political risk

(1) Economic and political risk is the risk of loss resulting from factors such as the following:

(a) macroeconomic policy, government regulation and social policy;

(b) events related to political instability.

(2) An INMA firm’s risk management policy should include a process for identifying and assessing how political and economic factors might affect its business and its ability to meet its liabilities as they fall due, and procedures for managing and mitigating that risk.

S1.3.4 Business continuity risk

(1) Business continuity risk is the risk of loss (both financial and non-financial) resulting from disruptions to critical business operations. Critical business operations are the business functions, resources and infrastructure that would, if disrupted, have a significant effect on a firm’s business functions, reputation, profitability and customers.

Note CTRL, rule 3.1.17 (3), requires an INMA firm’s governing body to review its business continuity procedures at least once every 18 months.

(2) An INMA firm’s risk management policy should include processes and procedures for identifying, assessing, managing and mitigating business continuity risk. The policy should include::

(a) processes for identifying and analysing:

(i) events that might lead to a disruption in business continuity;

(ii) the likelihood of those events occurring;

(iii) the processes most at risk; and

(iv) the consequences of those events;

(b) a plan (business continuity plan or BCP) describing:

(i) objectives and procedures for crisis management and recovery to minimise the consequences from the disruption of its business;

Guidance about risk management Schedule 1 Risks to be addressed in managing operational risk Part S1.3


page 109

Effective: 1/Jul/21

(ii) detailed procedures for carrying out the BCP, including manual processes, the activation of an off-site recovery site (if needed), the persons responsible for activating the BCP, and pre-assigned responsibilities of staff;

(iii) a communications strategy and contact information for relevant staff, suppliers, regulators, market authorities, major customers, the media and other key people;

(iv) a schedule of critical systems covered by the BCP and the timeframe for restoring those systems;

(v) procedures for staff awareness and training on all aspects of the BCP; and

(vi) procedures for regular (at least annual) testing, review and reporting on the BCP to the governing body and senior management; and

(c) procedures for backing up important data regularly and storing the data off-site.

S1.3.5 Technology risk

(1) Technology risk is the risk of loss resulting from inadequate or failed technology used in business operations, or the unauthorised use of such technology.

(2) An INMA firm’s risk management policy should include processes and procedures to maintain the secure and effective use of technology in its business operations and for identifying, managing and mitigating technology risk.

S1.3.6 Human resources risk

(1) Human resources risk is the risk of loss resulting from inadequate human resources.

(2) An INMA firm’s risk management policy should include processes and procedures for identifying, managing and mitigating human resources risk. The policy should include processes and procedures for:

(a) risk identification and assessment of the firm’s human resources requirements;

(b) ensuring that it has an appropriate number of suitably qualified and trained staff in accordance with the nature, scale, and complexity of its business;

(c) managing and mitigating the loss of key personnel; and

(d) monitoring and supervising its staff.

S1.3.7 Outsourcing risk

(1) Outsourcing risk is the risk of loss resulting from the non-performance, or poor performance, by a service provider of a function outsourced to the service provider under a material outsourcing arrangement (within the meaning of CTRL).

Note 1 For the meaning of material outsourcing—see CTRL, glossary.

Schedule 1 Guidance about risk management Part S1.3 Risks to be addressed in managing operational risk


V6

Effective: 1/Jul/21

Note 2 An INMA firm must assess the risks that a material outsourcing arrangement poses to its business (see CTRL, rule 8.2.2 (2) (a)) and the governing body of the firm must review, at least once every year, the firm’s outsourcing arrangements for assessing the feasibility of a proposed outsourcing arrangement and the risks that the outsourcing poses to the firm’s business (see CTRL, rule 8.1.3 (4) (a) (i)).

(2) Outsourcing can bring significant benefits in terms of efficiency, cost reduction and risk management. However, the process of implementing outsourcing arrangements and the outsourcing relationship itself may expose an INMA firm to additional risk. Therefore, it is important that INMA firms supervise outsourced activities.

Note CTRL, rule 8.2.4 (1) requires an INMA firm to inform the Regulatory Authority before entering into a material outsourcing arrangement.

(3) Intra-group outsourcing might be thought to be subject to lower risks than using service providers from outside a corporate group. However, it is not risk-free, and an INMA firm should still assess the associated risks and make appropriate arrangements to manage them.

(4) An INMA firm’s risk management policy should include processes and procedures for identifying, assessing, managing and mitigating outsourcing risk. The risk management policy should include processes and procedures for:

(a) negotiating contracts for outsourcing;

(b) identifying, assessing and managing risks that may arise from the outsourcing;

(c) procedures for managing the outsourcing service providers; and

(d) mitigating any associated risks.

(5) In negotiating a contract with a service provider or in assessing an existing contract, an INMA firm should consider matters that are relevant to risk management, including the following:

(a) setting and monitoring authority limits and referral requirements;

(b) the identification and assessment of performance targets;

(c) procedures for evaluation of performance against targets;

(d) provisions for remedial action;

(e) the reporting requirements imposed on the service provider (including the content and frequency of reports);

(f) the ability of the firm and its external auditors to obtain access to the service provider and their records;

(g) the protection of intellectual property rights;

(h) the protection of customers’ and the firm’s confidentiality;

(i) the adequacy of any guarantees, indemnities or insurance cover that the service provider agrees to provide;

(j) the ability of the service provider to provide continuity of business;

(k) the arrangements to change, or terminate, the agreement.

Guidance about risk management Schedule 1 Other risks that may be addressed in risk management policy Part S1.4


page 111

Effective: 1/Jul/21

S1.3.8 Project management risk

(1) Project management risk is the risk of loss resulting from projects not achieving the desired objectives or having a negative effect on the adequacy of a firm’s resources.

(2) If an INMA firm is likely to be exposed to project management risk, its risk management policy should include processes and procedures for identifying, assessing, managing and mitigating that risk. The policy may also set out processes and procedures for:

(a) establishing and managing a project, including setting a business case, cost-benefit analysis, stakeholder sign-offs, monitoring the project objectives, deliverables, timeframes and post-implementation review;

(b) clearly defined and appropriate authorities for project approvals and sign-offs; and

(c) clearly defined and appropriate levels of delegation of authority.

S1.3.9 Strategic risk

(1) Strategic risk is the risk of loss resulting from the pursuit of an unsuccessful business plan. Strategic risk might arise from making poor business decisions, from the substandard execution of decisions, from inadequate resource allocation, or from a failure to respond well to changes in the business environment.

(2) An INMA firm’s risk management policy should include processes and procedures for identifying, assessing, managing and mitigating strategic risk.

Part S1.4 Other risks that may be addressed in risk management policy

S1.4.1 Market risk

(1) Market risk is the risk of loss resulting from adverse movement in the relative values of assets and liabilities because of changes in general market factors, such as interest rates, inflation and foreign exchange rates. Market risk includes asset-liability management risk.

(2) If an INMA firm is likely to be exposed to market risk, its risk management policy should include processes and procedures for identifying, assessing, managing and mitigating that risk.

S1.4.2 Concentration risk

(1) Concentration risk is the risk of loss resulting from:

(a) large exposures to a single counterparty, market or geographical area; or

(b) exposures to large or one-off transactions.

Schedule 1 Guidance about risk management Part S1.4 Other risks that may be addressed in risk management policy


V6

Effective: 1/Jul/21

(2) If an INMA firm is likely to be exposed to concentration risk, its risk management policy should include processes and procedures for identifying, assessing, managing and mitigating that risk. The policy may set out limits for credit exposures, at individual and consolidated levels, to:

(a) single counterparties and groups of related counterparties;

(b) subsidiaries and related entities;

(c) single industries or markets; and

(d) single regions.

S1.4.3 Credit risk

(1) Credit risk is the risk of loss resulting from:

(a) default by debtors and other counterparties; and

(b) assets losing value because their credit quality has deteriorated.

(2) If an INMA firm is likely to be exposed to credit risk, its risk management policy should include processes and procedures for identifying, assessing, managing and mitigating that risk.

S1.4.4 Group risk

(1) Group risk is the risk of loss resulting from membership of a corporate group or linkages with related parties. Related parties includes not only other members of a firm’s corporate group but individuals who are in a position to exercise significant influence over it.

(2) Corporate group membership and linkages with related parties can be a source of both strength and weakness.

(3) If an INMA firm is likely to be exposed to group risk it should include, in its risk management policy, processes and procedures for identifying, assessing, managing and mitigating that risk.

S1.4.5 Settlement risk

(1) Settlement risk is the risk of loss resulting from a counterparty not delivering a security (or its value in cash) in accordance with an agreement to do so.

(2) If an INMA firm is likely to be exposed to settlement risk, its risk management policy should include processes and procedures for identifying, assessing, managing and mitigating that risk.

S1.4.6 Valuation risk

(1) Valuation risk is the risk of loss resulting from an asset being overvalued and, when it matures or is sold, being worth less than was expected. Factors contributing to valuation risk include incomplete data, market instability, uncertainties in financial modelling and poor data analysis by the people responsible for determining the value of the asset.

Guidance about risk management Schedule 1 Other risks that may be addressed in risk management policy Part S1.4


page 113

Effective: 1/Jul/21

(2) If an INMA firm is likely to be exposed to valuation risk, its risk management policy should include processes and procedures for identifying, assessing, managing and mitigating that risk.

Schedule 2 Content of confirmation notes


V6

Effective: 1/Jul/21

Schedule 2 Content of confirmation notes (see r 9A.1.4)

S2.1 Confirmation notes—general content requirements

A confirmation note for a transaction by an INMA firm for a

customer must include the following information:

(a) the firm’s name and address;

(b) the firm’s regulatory status in a form required by GENE,

Part 3.1;

(c) if the firm executed the transaction as principal or agent—that

fact;

(d) the customer’s name (or other means of identification) and

account number if any;

(e) a description of the relevant investment, including the amount

invested;

(f) whether the transaction is a sale or purchase;

(g) the price or unit price at which the transaction was executed;

(h) if the transaction involves a conversion of currency—the rate of

exchange obtained;

(i) the date of the transaction;

(j) either:

(i) the time of the transaction; or

(ii) a statement that information about the time of the

transaction will be provided on request;

(k) the total amount payable and the date it is payable;

(l) the remuneration of the firm and any associate (unless the

associate is not obliged to disclose it to the firm because, for

example, the firm is its customer) in relation to the transaction;

(m) the amount of any commission, any mark-up or mark-down, any

fees, charges, taxes or duties, or any other costs (however

Content of confirmation notes Schedule 2


page 115

Effective: 1/Jul/21

described or applied) unless included in remuneration

mentioned in paragraph (k);

(n) if the transaction involved, or will involve, the purchase of a

currency with another currency—the rate of exchange involved

or a statement that the rate will be supplied when the currency

has been purchased, including if applicable the maturity or

expiry date of any currency hedge;

(o) whether there is a right to cancel the transaction and, if there is

a right to cancel, the consequences of exercising the right, and

enough details to enable that right to be exercised by a retail

customer.

S2.2 Confirmation notes—additional information for derivatives

A confirmation note relating to a transaction in derivatives for a

customer must also include the following information:

(a) the maturity, delivery or expiry date of the derivative;

(b) for an option—the last exercise date, whether it can be exercised

before maturity and the strike price;

(c) whether the exercise creates a sale or purchase in the underlying

asset;

(d) if the transaction closes out an open futures position—all

essential details required in relation to each contract included in

the open position and each contract by which it was closed out,

and the profit or loss to the customer from closing out that

position;

(e) on the exercise of an option:

(i) the date of exercise, and either the time of exercise or that

the customer will be notified of the time on request; and

Schedule 2 Content of confirmation notes


V6

Effective: 1/Jul/21

(ii) the strike price of the option and, if applicable, the total

consideration from or to the customer.

Note For a currency option, the rate of exchange will be the same

as the strike price.

S2.3 Confirmation notes—additional information for collective investment schemes

A confirmation note relating to a transaction in units in a collective

investment scheme for a customer must also include the following

information:

(a) if the INMA firm is not the operator and the transaction was

executed with the customer by the firm as principal—that fact;

(b) the name of the scheme and the type and number of units

involved;

(c) the amount of:

(i) the operator’s initial charges (if any) in cash or percentage

terms; and

(ii) any subsequent charges made by the firm to the customer

in relation to the transaction and, unless the subsequent

charges to the customer are made on the same terms as the

operator’s initial charges, the basis on which the amount

of the subsequent charges was decided;

(d) whether the transaction was executed on a historic-price or

forward-price basis.

Content of periodic statements Schedule 3 Periodic statements—general content requirements Part S3.1


page 117

Effective: 1/Jul/21

Schedule 3 Content of periodic statements (see r 9A1.7)

Part S3.1 Periodic statements—general content requirements

S3.1 Contents and value

The following information as at the end of the period covered by the

periodic statement:

(a) the number, description and value of each relevant investment

held;

(b) the amount of cash held;

(c) the total value of the customer’s portfolio.

S3.2 Basis of valuation

(1) A statement of the basis on which the value of each relevant

investment has been calculated and, if applicable, a statement that the

basis for valuing a particular relevant investment has changed since

the last periodic statement.

(2) If a relevant investment is shown in a currency other than the usual

currency used for valuation of the customer’s portfolio, the relevant

exchange rates.

S3.3 Confirmations

If the INMA firm relies on rule 9A.1.5 (1) (a) or (c) (Confirmation

notes—provision requirement exemption) during the period covered

by the periodic statement, the information required to be included in

the periodic statement by rule 9A.1.5 (2).

Schedule 3 Content of periodic statements Part S3.2 Periodic statements—investment management


V6

Effective: 1/Jul/21

Part S3.2 Periodic statements—investment management

S3.4 Loans

A statement of:

(a) the relevant investments (if any) that were, at the closing date of

the periodic statement, loaned to a third party; and

(b) the relevant investments (if any) that were, at that date, charged

to secure borrowings made for the portfolio.

S3.5 Loans and borrowing

The total of any interest payments made, and income received, during

the period covered by the periodic statement in relation to loans or

borrowings made during the period.

S3.6 Transaction particulars

Particulars of each transaction entered into for the portfolio during

the period covered by the periodic statement.

S3.7 Transfers

The total amount, and particulars of all relevant investments,

transferred into and out of the portfolio during the period covered by

the periodic statement.

S3.8 Interest

The total of any interest payments (together with the dates of their

application), dividends and other benefits received by the INMA firm

for the portfolio during the period covered by the periodic statement.

S3.9 Charges

A statement of the total charges of the INMA firm and its associates

during the period covered by the periodic statement, expressed as an

amount rather than as a percentage.

Content of periodic statements Schedule 3 Periodic statements—contingent liability transactions Part S3.3


page 119

Effective: 1/Jul/21

S3.10 Remuneration

A statement of the amount of (or, if it is not practicable to provide a

statement of the amount, the basis of) any remuneration received

during the period covered by the periodic statement by the INMA

firm and its associates from third parties in relation to the transactions

entered into, or any other services provided, for the portfolio.

Part S3.3 Periodic statements—contingent liability transactions

S3.11 Changes in value

The total amount of money transferred into and out of the portfolio

during the period covered by the periodic statement.

S3.12 Open positions

In relation to each open position in the customer’s account at the end

of the period covered by the periodic statement, either of the

following:

(a) the unrealised profit or loss to the customer before deducting or

adding any commission that would be payable on closing out;

(b) the net profit or loss in relation to the customer’s overall position

in each contract.

S3.13 Closed positions

In relation to each transaction executed during the period covered by

the periodic statement to close out a customer’s position, either of the

following:

(a) the resulting profit or loss to the customer after deducting or

adding any commission;

(b) the net profit or loss in relation to the customer’s overall position

in each contract.

Schedule 3 Content of periodic statements Part S3.4 Periodic statements—structured capital at risk investments


V6

Effective: 1/Jul/21

S3.14 Total holdings

The total of each of the following in, or relating to, the customer’s

portfolio at the close of business on the valuation date included in the

period covered by the periodic statement:

(a) cash;

(b) collateral value;

(c) management fees;

(d) commission attributable to transactions during that period or a

statement that the commission has previously been separately

disclosed in writing if applicable.

S3.15 Option account valuations

In relation to each option contained in the account on the valuation

date included in the period covered by the periodic statement, the

following information:

(a) the share, future, index or other relevant investment involved;

(b) the trade price and date for the opening transaction, unless the

valuation statement follows the statement for the period in

which the option was opened;

(c) the market price for the contract;

(d) the strike price of the option.

Part S3.4 Periodic statements—structured capital at risk investments

S3.16 Snapshot maturity value

A statement of the maturity value of each structured capital at risk

investment, on the assumption that the relevant index, indices, basket

of selected investments or other factor remains at the level it was on

the close date of the period covered by the periodic statement.

Content of periodic statements Schedule 3 Periodic statements—structured capital at risk investments Part S3.4


page 121

Effective: 1/Jul/21

S3.17 Changes in maturity value

A statement of the levels of the relevant index, indices, basket of

selected investments or other factor at which the maturity value of

each structured capital at risk investment would be less than the

amount of the initial capital invested, and an indication of how much

less the maturity value would be.

S3.18 Risk warning

A risk warning that the value of the relevant index, indices, basket of

selected investments, or other factor, can go up or down.

Schedule 4 Additional obligations for investment research recommendations


V6

Effective: 1/Jul/21


(see r 9B.1.3)

S4.1 Investment research recommendations—additional requirements

(1) An INMA firm must take reasonable care to ensure that a research

recommendation produced by it:

(a) indicates all substantially material sources (including, if

appropriate, the issuer and whether the research

recommendation has been disclosed to the issuer and amended

after this disclosure;

(b) adequately summarises any basis of valuation or methodology

used:

(i) to evaluate a security, a derivative or an issuer; or

(ii) to set a price target for a security or derivative;

(c) adequately explains the meaning of:

(i) any recommendation made (for example, ‘buy’ ‘sell’ or

‘hold’) and the time horizon applying to the

recommendation; and

(ii) any risk warnings, including any sensitivity analysis of the

relevant assumptions; and

(d) refers to:

(i) the planned frequency (if any) of updates of the research

recommendation; and

(ii) any major changes in the scope of the research as

previously announced; and

Additional obligations for investment research recommendations Schedule 4


page 123

Effective: 1/Jul/21

(e) states clearly and prominently:

(i) the date the research recommendation was first released

for distribution; and

(ii) the date and time of any security or derivative price

mentioned.

(2) If the substance of the research recommendation (the later

recommendation) differs from the substance of an earlier research

recommendation that was about the same security, derivative or

issuer and was issued during the 12-month period before the day of

dissemination of the later recommendation, the later recommendation

must clearly and prominently indicate the difference and state the date

of the earlier research recommendation.

(3) If complying with the requirements of subrule (1) (a), (b) or (c) would

be disproportionate to the length of the research recommendation and

there has been no change in the methodology or basis of valuation

used, the INMA firm may, instead of complying with the

requirements, clearly and prominently refer in the research

recommendation to where the required information can be directly

and easily accessed (for example, by a hyperlink to the information

on an appropriate web page of the firm).

(4) Subrule (1) (a) does not apply in relation to a non-written research

recommendation to the extent that complying with it would be

disproportionate to the length of the research recommendation.

S4.2 Investment research recommendation—general standards for disclosure of interests etc

(1) An INMA firm must disclose, in a research recommendation

produced by it:

(a) all of its relationships and circumstances that may reasonably be

expected to impair the objectivity of the research

recommendation, and in particular:

(i) any significant financial interest in a relevant investment

that is the subject of the research recommendation;



V6

Effective: 1/Jul/21

(ii) a significant conflict of interest in relation to an issuer; and

(b) relationships and circumstances, of the kind mentioned in

paragraph (a), of each person working for the firm who was

involved in preparing the substance of the research

recommendation, including whether the person’s [individual’s?]

remuneration is tied to investment banking transactions

performed by the firm or any affiliate of the firm.

(2) If the INMA firm is a legal person, the information disclosed must

include the following:

(a) any interests or conflicts of interest of the firm or any related

person that are accessible, or reasonably expected to be

accessible, to the persons involved in the preparation of the

substance of the research recommendation;

(b) any interests or conflicts of interest of the firm or any related

person known to persons who, although not involved in the

preparation of the substance of the research recommendation,

had or could reasonably be expected to have had access to the

substance of the research recommendation before its

dissemination (other than persons whose only access to the

research recommendation was to ensure compliance with

relevant regulatory or statutory obligations, including the

disclosures required under this Schedule).

(3) If the disclosures required by subrules (1) and (2) would be

disproportionate to the length of the research recommendation, the

INMA firm may, instead of complying with the requirements of the

subrules, clearly and prominently refer in the research

recommendation to where the required disclosures can be directly and

easily accessed (for example, by a hyperlink to the disclosures on an

appropriate web page of the firm).

(4) Subrules (1) and (2) do not apply in relation to a non-written research

recommendation to the extent that complying with them would be




page 125

Effective: 1/Jul/21

S4.3 Investment research for recommendations—additional requirements for disclosure of interests

(1) This rule applies to a research recommendation produced by an

INMA firm in relation to a relevant investment.

(2) The INMA firm must clearly and prominently disclose in the research

recommendation the following information on its interests and

conflicts of interest:

(a) major shareholdings that exist between it or any related person

and the issuer (the relevant issuer) including:

(i) shareholdings exceeding 5% of the total issued share

capital in the relevant issuer that are held by the firm or

any related person; or

(ii) shareholdings exceeding 5% of the total issued share

capital of the firm or any related person that are held by

the relevant issuer;

(b) any other financial interests held by the firm or any related

person in relation to the relevant issuer that are significant in

relation to the research recommendation;

(c) if applicable, a statement that the firm or any related person is a

market maker or liquidity provider in the securities of the

relevant issuer or in any related derivatives;

(d) if applicable, a statement that the firm or any related person has

been lead manager or co-lead manager, over the previous

12 months, of any publicly disclosed offer of securities of the

relevant issuer or in any related derivatives;

(e) if applicable, a statement that the firm or any related person is

party to any other agreement with the relevant issuer for the

provision of investment banking services;

(f) if applicable, a statement that the firm or any related person is

party to an agreement with the relevant issuer relating to the

production of the research recommendation.



V6

Effective: 1/Jul/21

(3) Subrule (2) (e) does not apply in relation to an agreement if:

(a) disclosure of the statement would involve the disclosure of

confidential information; and

(b) the agreement has been in force for at least 12 months or has

given rise during that period to a payment or to the promise of

payment.

(4) The INMA firm must disclose, in general terms, in the research

recommendation the organisational and administrative arrangements

set up within the firm to effectively prevent or deal with conflicts of

interest in relation to research recommendations, including

information barriers.

(5) If a person working for the INMA firm who is involved in the

preparation of the research recommendation receives or buys shares

of the relevant issuer before a public offering of the shares, the price

at which the shares were acquired and the date of acquisition must be

disclosed in the research recommendation.

(6) The INMA firm must publish the following information on a

quarterly basis, and must disclose in its research recommendations:

(a) the proportion of all research recommendations published

during the quarter that are ‘buy’, ‘hold’, ‘sell’ or equivalent

terms;

(b) the proportion of relevant investments in each of those

categories issued by issuers to which the firm provided material

investment banking services during the last 12 months.

(7) If the disclosures required by subrules (2) to (6) would be

disproportionate to the length of the research recommendation, the

INMA firm may, instead of complying with the subrules, clearly and

prominently refer in the research recommendation to where the

required disclosures can be directly and easily accessed (for example,

by a hyperlink to the disclosures on an appropriate web page of the

firm).



page 127

Effective: 1/Jul/21

(8) Subrules (2) to (6) do not apply in relation to a non-written research

recommendation to the extent that complying with them would be


S4.4 Investment research recommendations—identity of disseminators of recommendations

If an INMA firm disseminates a research recommendation produced

by a third party, the INMA firm must ensure that the research

recommendation clearly and prominently identifies the firm.

S4.5 Investment research recommendations—requirements for dissemination of third party recommendations

(1) If a research recommendation produced by a third party is

substantially changed before dissemination by an INMA firm, the

firm must ensure that:

(a) the disseminated material clearly describes the change in detail;

(b) if the change consists of a change of the direction of the

recommendation (for example, changing a ‘buy’

recommendation into a ‘hold’ or ‘sell’ recommendation), the

firm complies with section S4.3 to the extent of the change, as

if the firm were the producer of the research recommendation;

and

(c) it has a formal written policy under which the persons receiving

the research recommendation are directed to where they can

have access to the identity of the producer of the research

recommendation, the research recommendation itself, and the

disclosure of the producer’s interests or conflicts of interest, to

the extent that they are publicly available.

(2) Subrule (1) does not apply in relation to news reporting on research

recommendations produced by a third party if the substance of the

research recommendation is not changed.



V6

Effective: 1/Jul/21

(3) If an INMA firm disseminates a summary of a research

recommendation produced by a third party, it must ensure that the

summary:

(a) is fair, clear and not misleading;

(b) identifies the source research recommendation; and

(c) identifies where the third party’s disclosures (to the extent that

they are publicly available) relating to the source research

recommendation can be directly and easily accessed (for

example, by a hyperlink to the disclosures on an appropriate web

page of the firm).

Recordkeeping—dealing and managing Schedule 5


page 129

Effective: 1/Jul/21

Schedule 5 Recordkeeping—dealing and managing

(see r 9B.1.7)

S5.1 Minimum records of customer orders

(1) An INMA firm must record the information required by table S5.1 if

an event mentioned in the table happens.

Table S5.1 Minimum details for dealing and managing

event minimum details required

1 firm receives a

customer order

or decides to

execute a

transaction for a

customer order

in the exercise of

its discretion

1 the customer’s name (or other

means of identification) and

account number if any

2 if relevant, the date and time the

customer order is received by the

firm

3 if relevant, the date and time that

the firm decides to execute a

transaction for the customer order

in the exercise of its discretion

4 the name of the employee who

received the customer order or

made the decision to execute the

transaction

5 the relevant investment, and the

number, or total value of, the

relevant investment (including any

price limit or trading instructions)

6 whether the customer order is for a

purchase or sale

7 any other instruction received by

the firm from the customer about

Schedule 5 Recordkeeping—dealing and managing


V6

Effective: 1/Jul/21

event minimum details required

the carrying out of the customer

order (including any amendments

of the customer order or

cancellation of the customer order)

2 firm executes a

transaction for a

customer order

1 the customer’s name (or other

means of identification) and

account number if any

2 the name of the counterparty, if

known to the firm

3 the date and time of the

transaction, if available

4 the name of the employee

executing the transaction

5 the relevant investment, and the

number, or total value of, the

relevant investment

6 the price and other significant

terms (including exchange rate

details, if relevant)

7 whether the transaction was a

purchase or sale

3 firm passes a

customer order

to another person

for execution of

transaction

1 the name of the person instructed

2 the terms of the instructions

3 the date and time the instruction

was given.

(2) However, if the INMA firm acts as an investment manager and its

decision to effect a transaction of a customer is contemporaneous with

the execution of the relevant customer order or its passing of the

relevant customer order to another person for execution, the firm does

not need to create separate records of the time of the decision to deal,

Recordkeeping—dealing and managing Schedule 5


page 131

Effective: 1/Jul/21

and the time of execution of the customer order or passing the

customer order to the other person, if the transaction record contains

a note or other indication that these happened contemporaneously.

Glossary


V6

Effective: 1/Jul/21

Glossary (see rule 1.1.3)

AAOIFI means the Accounting and Auditing Organisation for

Islamic Financial Institutions.

accounting standards include accounting rules, principles, practices

and conventions.

advising on investments includes:

(a) the regulated activity described in FSR, Schedule 3, Part 2,

paragraph 11; and

(b) advising on Islamic investments.

advisory firm has the meaning given by rule.5.1.2(1).

affiliate, of an INMA firm, means any entity of which the firm holds

10% or more, but less than a majority, of the voting power.

approved representative, of an INMA firm, has the meaning given by

rule 5.2.5.

approved website means a website that is approved under the

Interpretation and Application Rules 2005, rule 3.1.2.

arranging deals in investments includes:


paragraph 5; and

(b) arranging deals in Islamic investments.

arranging financing facilities includes:

(a) arranging credit facilities—that is, the regulated activity

described in FSR, Schedule 3, Part 2, paragraph 7; and

(b) arranging Shari’a-compliant financing facilities.

arranging the provision of custody services includes:


paragraph 9; and

Glossary


page 133

Effective: 1/Jul/21

(b) arranging the provision of custody services in relation to Islamic

investments.

associate of an INMA firm means any other entity in the same

corporate group as the firm.

authorisation means an authorisation granted under FSR, Part 5.

authorised firm (or firm) means a person that has an authorisation.

BANK means the Banking Business Prudential Rules 2014.

branch means the local office in the QFC of a legal person

incorporated outside the QFC.

business customer, of an INMA firm, has the same meaning as in

CIPR.

business day means a day that is not a Friday, a Saturday, or a public

or bank holiday in Qatar.

cheque includes a payable order of any other kind.

CIPR means Customer and Investor Protection Rules 2019.

client bank account has the meaning given by rule 5.5.1.

client money has the meaning given by rule 5.2.2.

client money distribution rules means the provisions of Part 5.10.

client money protection rules means the provisions of Part 5.5.

CM requirement has the meaning given by rule 5.9.1.

CM resource has the meaning given by rule 5.9.1.

COLL means the Collective Investment Schemes Rules 2010.

collective investment scheme has the same meaning as in COLL.

contingent liability transaction, in relation to an INMA firm and a

customer, means a transaction in a relevant investment under the

terms of which the customer will be, or may be, liable to make further

payments (other than charges, and whether or not secured by margin)

either when the transaction is to be completed or on the earlier closing

out of the customer’s position.

Glossary


V6

Effective: 1/Jul/21

corporate group: an INMA firm’s corporate group is made up of:

(a) the firm;

(b) any parent entity of the firm;

(c) any subsidiary (direct or indirect) of the firm; and

(d) any subsidiary (direct or indirect) of a parent entity of the firm.

CTRL means the Governance and Controlled Functions Rules 2020.

custody investment has the meaning given by rule 6.1.4.

customer, of an INMA firm, means a person to whom the firm

provides, has provided or offers to provide a service or product, and

is one of the following:

(a) a retail customer;

(b) a business customer;

(c) an eligible counterparty.

Note The categories retail customer, business customer and eligible

counterparty (which are defined in this Glossary) are mutually exclusive.

To avoid any doubt, a customer of an INMA firm that is an eligible

counterparty is not a business customer of the firm even if the customer

would otherwise qualify as a business customer.

customer dispute resolution scheme means the scheme established

under the Customer Dispute Resolution Scheme Rules 2019.

dealing in investments includes:


paragraph 4; and

(b) dealing (as agent) in Islamic investments.

eligible bank has the meaning given by rule 5.2.3.

eligible clearing house means a clearing house that meets the

following requirements:

(a) transactions on a regulated exchange may be cleared through it;

(b) it is incorporated or otherwise established in a jurisdiction

outside the QFC;

Glossary


page 135

Effective: 1/Jul/21

(c) the Regulatory Authority has not, by notice published on an

approved website, declared that this definition does not apply to

the jurisdiction.

eligible counterparty, in relation to an INMA firm, means a customer

of the firm that is any of the following:

(a) an approved representative of the firm;

(b) a non-QFC intermediary of the firm;

(c) an authorised firm or an entity in the same group as an

authorised firm;

(d) a regulated financial institution or an entity in the same group as

a regulated financial institution;

(e) an eligible clearing house or eligible exchange;

(f) a government, government agency, or central bank or other

national monetary authority, of any jurisdiction;

(g) a state investment body, or a body charged with, or intervening

in, the management of the public debt;

(h) a supranational organisation, the members of which are

jurisdictions, central banks or national monetary authorities.

eligible custodian has the meaning given by rule 6.1.3.

eligible exchange means a regulated exchange for which the

Regulatory Authority has not, by notice published on an approved

website, declared that this definition does not apply to the jurisdiction

in which the exchange is incorporated or established.

Note Regulated exchange is defined in this Glossary.

eligible third party has the meaning given by rule 5.2.4.

entity means any kind of entity, and includes, for example, any

person.

financial group of an INMA firm has the meaning given by

rule 3.3.8(2).

firm-related distribution event has the meaning given by rule 5.10.1.

Glossary


V6

Effective: 1/Jul/21

FSR means the Financial Services Regulations.

GENE means the General Rules 2005.

governing body of an entity means its board of directors, committee

of management or other governing body (whatever it is called).

hold money has the meaning given by rule 5.2.1.

home financial services regulator for an entity means the regulator

responsible for the prudential regulation of the entity in the

jurisdiction where the entity’s authorisation or licence was granted.

IAH means investment account holder of a restricted PSIA.

IBANK means the Islamic Banking Business Prudential Rules 2015.

IFRS means the International Financial Reporting Standards, as

amended and in force from time to time.

independent entity has the same meaning as in COLL.

INMA firm means an authorised firm to which, under rule 1.1.4, these

rules apply.

investments includes Islamic investments.

investment and advisory business means the business of conducting,

in or from the QFC, any of the activities mentioned in rule 1.1.4.

investment business firm has the meaning given by rule 5.1.2(1).

investment manager means an authorised firm that is engaged in:

(a) the activity of managing, or agreeing to manage, relevant

investments belonging to a customer (if the investments may

consist of or include particular investments at the firm’s

discretion); or

(b) the activity of offering or agreeing to manage relevant

investments.

investment research means a publication (other than a personal

recommendation) that contains:

(a) the results of research into a relevant investment or its issuer;

Glossary


page 137

Effective: 1/Jul/21

(b) analysis of factors likely to influence the future performance of

a relevant investment or its issuer; or

(c) advice or recommendations based on such results or analysis.

Islamic financial institution means an authorised firm whose

authorisation includes a condition that the whole of the firm’s

business must be conducted in accordance with Shari’a.

Islamic INMA firm has the meaning given by rule 9.1.1 (1).

Islamic investments has the meaning given by rule 1.1.3A (2).

jurisdiction means any kind of legal jurisdiction, and includes, for

example:

(a) the State of Qatar;

(b) a foreign country (whether or not an independent sovereign

jurisdiction), or a state, province or other territory of such a

foreign country; and

(c) the QFC or a similar jurisdiction.

legal person means an entity (other than an individual) on which the

legal system of a jurisdiction confers rights and imposes duties, and

includes, for example, any entity that can own, deal with or dispose

of property.

managing investments includes:


paragraph 10; and

(b) managing Islamic investments.

money is any form of money of any currency, and includes a cheque.

Note Cheque includes a payable order of any other kind—see this glossary.

month means calendar month—that is, the period beginning at the

start of any day of one of the 12 named months of the year and ending:

(a) at the end of the day before the corresponding day of the next

named month; or

Glossary


V6

Effective: 1/Jul/21

(b) if there is no corresponding day—at the end of the last day of

the next named month.

non-QFC intermediary, of an INMA firm, has the meaning given by

rule 5.2.6.

operating a collective investment scheme has the same meaning as

in COLL.

operator (of a QFC scheme) has the same meaning as in COLL.

overseas regulator means a regulatory or governmental authority,

body or agency outside the QFC (whether in the State of Qatar or

elsewhere).

paid-up share capital, for an INMA firm that is not a company,

means the equity (however described) of the members or owners of

the firm.

parent entity, for a legal person (A), means any of the following:

(a) a legal person that holds a majority of the voting power in A;

(b) a legal person that is a member of A (whether direct or indirect,

or though legal or beneficial entitlement) and alone, or together

with 1 or more legal persons in the same corporate group, holds

a majority of the voting power in A;

(c) a parent entity of any legal person that is a parent entity of A.

Note Legal person and corporate group are defined in this glossary.

person means:

(a) an individual (including an individual occupying an office or

position from time to time); or

(b) a legal person.

private placement scheme has the same meaning as in the Private

Placement Schemes Rules 2010.

providing custody services includes:


paragraph 8; and

Glossary


page 139

Effective: 1/Jul/21

(b) providing custody services in relation to Islamic investments.

providing scheme administration has the same meaning as in COLL.

PSIA means profit-sharing investment account.

QFC means Qatar Financial Centre.

QFC Authority means the Qatar Financial Centre Authority

established under article 3, Law No. 7 of 2005 of the State of Qatar.

QFC bank means an authorised firm that is:

(a) a deposit-taker, within the meaning of BANK; or

(b) an Islamic bank or Islamic investment dealer, within the

respective meanings of IBANK.

QFC scheme has the same meaning as in COLL.

regulated activity means an activity that is a regulated activity under

FSR.

regulated exchange means an exchange:

(a) that is incorporated or otherwise established in a jurisdiction

outside the QFC; and

(b) that is regulated as an exchange by an overseas regulator in that

jurisdiction.

Regulatory Authority means the Qatar Financial Centre Regulatory

Authority.

related person: a person (the second person) is related to another

person (the first person) if:

(a) the first person and the second person are members of the same

corporate group;

(b) the second person is an individual who is a director or officer of

the first person or of another member of the same corporate

group;

(c) the second person is the spouse or minor child of an individual

mentioned in paragraph (b); or

Glossary


V6

Effective: 1/Jul/21

(d) the second person is a company that is subject to significant

influence by or from an individual mentioned in paragraph (b)

or (c).

relevant investments means:

(a) investments of the following kinds (in each case, within the

meaning given in FSR, Schedule 3, Part 3), and rights in such

investments:

(i) shares;

(ii) debt instruments;

(iii) warrants;

(iv) securities receipts;

(v) units in collective investment schemes;

(vi) options;

(vii) futures;

(viii) contracts for differences; and

(b) Islamic investments and rights in such investments.

research recommendation means research or other information:

(a) that concerns:

(i) one or more relevant investments admitted to trading on

regulated exchanges, or in relation to which an application

for admission to trading has been made; or

(ii) issuers of such investments;

(b) that is intended for distribution so that it is accessible, or is likely

to become accessible, by a large number of persons, or for the

public; and

(c) that:

(i) explicitly or implicitly, recommends or suggests an

investment strategy;

(ii) directly or indirectly, expresses a particular investment

recommendation; or

Glossary


page 141

Effective: 1/Jul/21

(iii) expresses an opinion as to the present or future value or

price of such investments;

but does not include:

(d) an informal short-term investment personal recommendation

expressed to customers of an authorised firm that originates

from inside the firm’s sales or trading department, and is not

likely to become publicly available or available to a large

number of persons; or

(e) advice given by an authorised firm to a body corporate in the

context of a takeover bid and disclosed only as a result of

compliance with a legal or regulatory obligation.

restricted PSIA has the meaning given by rule 9.1.2(2).

retail customer, of an INMA firm, means a customer of the firm who

is neither a business customer nor an eligible counterparty.

Rules means rules made by the Regulatory Authority under FSR,

article 15 (1), and includes:

(a) any standard, principle or code of practice made by the

authority; and

(b) any other instrument made or in force under any Rules.

scheme property has the same meaning as in COLL.

shortfall, in relation to a calculation under rule 5.9.1, is the amount

by which an INMA firm’s CM resource is less than its CM

requirement.

Note CM resource and CM requirement are defined in rule 5.9.1 and this

glossary.

stock lending means an arrangement between a person (the borrower)

and another person (the lender) under which:

(a) the lender transfers securities to the borrower otherwise than by

way of sale; and

(b) a requirement is imposed on the borrower to transfer back to the

lender, otherwise than by way of sale, securities in the same

Glossary


V6

Effective: 1/Jul/21

quantity, with the same rights, and of the same type and nominal

value, as the transferred securities (or, if agreed between the

borrower and lender, assets into which the transferred securities

have been transformed following a stock split, consolidation,

conversion, merger, takeover, redemption or similar event).

structured capital at risk investment means an investment, other than

a derivative, that provides an agreed level of income or growth over

a specified investment period and has the following characteristics:

(a) the customer is exposed to a range of outcomes in relation to the

return of the initial capital invested;

(b) the return of the initial capital invested at the end of the

investment period is linked by a pre-set formula to the

performance of:

(i) an index;

(ii) a combination of indices;

(iii) a basket of selected investments (typically from an index

or indices); or

(iv) another factor or combination of factors;

(c) if the performance mentioned in paragraph (b) is within

specified limits, the initial capital invested is returned, but, if

not, the customer may lose some or all of the initial capital

invested.

subsidiary: a legal person (A) is a subsidiary of another legal person

(B) if B is a parent entity of A.

surplus, in relation to a calculation under rule 5.9.1, is the amount by

which an INMA firm’s CM resource exceeds its CM requirement.

Note CM resource and CM requirement are defined in rule 5.9.1 and this

glossary.

Glossary


page 143

Effective: 1/Jul/21

terms of business (of an INMA firm for a customer) means a

statement in writing of the terms on which the firm will conduct

investment and advisory business with or for the customer.




third party account (of an INMA firm) means an account with an

eligible third party in which client money is (or is to be) held by the

firm.

third-party-related distribution event has the meaning given by

rule 5.10.2.

unit (in a collective investment scheme) has the same meaning as in

COLL.

US GAAP means the United States Generally Accepted Accounting

Principles, as amended and in force from time to time.

writing means any form of writing, and includes, for example, any

way of representing or reproducing words, numbers, symbols or

anything else in legible form (for example, by printing or

photocopying).

Endnotes


V6

Effective: 1/Jul/21

Endnotes 1 Abbreviation key

a = after ins = inserted/added

am = amended n = note

amdt = amendment om = omitted/repealed

app = appendix orig = original

art = article par = paragraph/subparagraph

att = attachment prev = previously

b = before pt = part

ch = chapter r = rule/subrule

def = definition renum = renumbered

div = division reloc = relocated

e = example s = section

g = guidance sch = schedule

glos = glossary

sdiv = subdivision

hdg = heading sub = substituted

2 Rules history

Investment Management and Advisory Rules 2014

made by

Investment Management and Advisory Rules 2014 (QFCRA Rules 2014-4) Made 7 December 2014 Commenced 1 January 2015 Version No. 1

amended by

Miscellaneous Amendments Rules 2015 (QFCRA Rules 2015–1, sch 5, pt 5.2 and sch 6, pt 6.5) Made 13 June 2015 Commenced 1 July 2015 Version No. 2

Endnotes


page 145

Effective: 1/Jul/21

Islamic Banking Business Prudential (Consequential) and Miscellaneous

Amendments Rules 2015 (QFCRA Rules 2015–3, sch 1, pt 1.5)

and

Conduct of Business Amendments Rules 2015 (QFCRA Rules 2015–4,

sch 3, pt 3.2) Made 13 December 2015 Commenced 1 January 2016 Version No. 3

COND Repeal and Miscellaneous Amendments Rules 2019 (QFCRA Rules

20194, sch 1) Made 26 March 2019 Commenced 1 January 2020 Version No. 4

Minor and Technical Amendments Rules 2020 (QFCRA Rules 2020-1,

sch 1, pt 1.5)

Made 8 July 2020

Commenced 15 August 2020

Version No.5

CTRL Repeal, ISFI Partial Repeal and Consequential Amendments Rules

2021 (QFCRA Rules 2021–1, sch 1, pt 1.9, sch 2, pt 2.5)

Made 23 June 2021

Commenced 1 July 2021

Version No. 6

3 Amendment history

Declaration of activities as regulated activities r 1.1.3A ins Rules 2015-3

Application of these rules—general r 1.1.4 g am Rules 2015-1; Rules 2019-4; Rules 2021-1 r 1.1.4 sub Rules 2015-3

Legal form that firms must take r 1.1.8 am Rules 2015-1

Endnotes


V6

Effective: 1/Jul/21

Signing returns r 2.1.5 sub Rules 2021-1

Application of Part 3.3 r 3.3.1 am Rules 2015-3

Minimum paid-up share capital r 3.3.3 am Rules 2015-3 r 3.3.5 am Rules 2019-4 Management of risk ch 4 g am Rules 2021-1 Introduction r 4.1.1 n am Rules 2021-1

Investment business firms and advisory firms r 5.1.2 am Rules 2015-3

Approved representative—definition r 5.2.5 ins Rules 2019-4

Non-QFC intermediary—definition r 5.2.6 ins Rules 2019-4 Money that is not client money r.5.3.4 n sub Rules 2019-4 Client money protection rules r.5.5.9 n om Rules 2019-4 Segregating client money in other currencies r.5.5.12 n om Rules 2019-4 Record-keeping r 5.5.19 ins Rules 2015-1 Disapplication of client money protection rules r 5.6.1 n sub Rules 2019-4 r.5.6.1 am Rules 2020-1 Manner of giving notice r 5.8.1 sub Rules 2019-4 Providing custody services r 6.1.3 am Rules 2019-4 Use of customers’ investments for firms’ own purposes r 6.1.15 n sub Rules 2019-4

Endnotes


page 147

Effective: 1/Jul/21

When periodic custody statements need not be sent to customer r 6.1.21 am Rules 2021-1 Introduction r 9.1.1 am Rules 2021-1 Islamic INMA firms r 9.1.2 n sub Rules 2019-4 Post-contractual obligations of INMA firms ch 9A ins Rules 2019-4 Other investment-related activities ch 9B ins Rules 2019-4 Aggregation of customer orders—fair allocation etc r.9B.1.10 am Rules 2020-1 Business continuity risk S1.3.4 n am Rules 2021-1 Outsourcing Risk S1.3.7 n2, n sub Rules 2021-1; am Rules 2021-1 Content of confirmation notes sch 2 ins Rules 2019-4 Content of periodic statements sch 3 ins Rules 2019-4 Additional obligations for investment research recommendations sch 4 ins Rules 2019-4 Recordkeeping—dealing and managing sch 5 ins Rules 2019-4

Glossary

def advising on investments sub Rules 2015-3

def approved representative sub Rules 2019-4

def affiliate ins Rules 2019-4

Endnotes


V6

Effective: 1/Jul/21

def arranging deals in investments sub Rules 2015-3

def arranging financing facilities sub Rules 2015-3

def arranging the provision of custody services sub Rules 2015-3

def business customer sub Rules 2019-4

def CIPR Ins Rules 2019-4

def COND om Rules 2019-4

def contingent liability transaction Ins Rules 2019-4

def CTRL sub Rules 2021-1

def customer sub Rules 2019-4

am Rules 2020-1

def customer dispute resolution scheme sub Rules 2015-4; Rules 2019-4

def dealing in investments sub Rules 2015-3

def eligible clearing house Ins Rules 2019-4

def eligible counterparty

ins Rules 2020-1

def eligible exchange Ins Rules 2019-4

def IBANK ins Rule 2015-3

def investments ins Rule 2015-3

def investment manager ins Rules 2019-4

Endnotes


page 149

Effective: 1/Jul/21

def investment research ins Rules 2019-4

def Islamic investments ins Rule 2015-3

def managing investments sub Rules 2015-3

def market counterparty Ins Rules 2019-4

om Rules 2020-1

def non-QFC intermediary sub Rules 2019-4

def providing custody services sub Rules 2015-3

def QFC bank sub Rules 2015-3

def related person ins Rules 2019-4

def relevant investments sub Rules 2015-3

def research recommendation ins Rules 2019-4

def retail customer sub Rules 2019-4

am Rules 2020-1

def structured capital at risk investment ins Rules 2019-4

def terms of business am Rules 2019-4

Asset Management and Investment Advisory Rules 2014

Documents

Transcript of Asset Management and Investment Advisory Rules 2014