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  • C4-3.3 C4-3.3 Client Assets

    • C4-3.3.1

      Category 4 investment firms must ensure they have made adequate arrangements for safeguarding client assets comprising money or financial instruments belonging to clients which are held or controlled by the licensee in connection with its business activities.

      Added: January 2022

    • C4-3.3.2

      For the purpose of C4-3.3.1 client assets are held or controlled by the category 4 investment firm on behalf of a client if they are:

      (a) Directly held by the licensee;
      (b) Held in an account in the name of the licensee;
      (c) Held by a person, or in an account in the name of a person, controlled by the licensee; or
      (d) Held in an account with another person, controlled by the licensee; or
      (e) The account is operated in accordance with the instructions of the licensee.
      Added: January 2022

    • C4-3.3.3

      Category 4 investment firms must ensure that client assets are held separately from assets belonging to the licensees and that they disclose the arrangements for custody of the client assets in their prospectus and agreements with the clients.

      Added: January 2022

    • C4-3.3.4

      Category 4 investment firms must ensure the following in respect of custody of assets of the CIUs:

      (a) Undertake an appropriate risk assessment of that custodian and document the same;
      (b) That the client will assume the unsecured credit risk of the custodian or third party with whom the licensee places the client assets that it holds;
      (c) If applicable, that client assets may be held in a jurisdiction outside the Kingdom of Bahrain;
      (d) Agree with the client the details of any claims or set offs which the licensee may have in client assets held on behalf of the client in satisfaction of a default by the client or otherwise, and any rights which the licensee may have to closeout or liquidate contracts or positions in respect of any of the client assets, without the client’s prior instruction or consent; and
      (e) Obtain clients’ consent in writing for the arrangements for custody in a document which gives clear information on:
      i. The terms governing the way in which the client assets will be held and the obligations and responsibilities of the licensee and/or of the third-party custodian (where applicable), the clients (including the terms for the restitution of the financial instruments);
      ii. The risks involved; and
      iii. Whether interest on client money held is payable to the client and, if so, the terms and frequency of such payments.
      Added: January 2022

    • C4-3.3.5

      Category 4 investment firms must require that if a safe custody financial instrument is recorded in an account with a custodian, the custodian makes it clear in the title of the account that the financial instrument belongs to one or more clients of the licensee.

      Added: January 2022

    • C4-3.3.6

      Category 4 investment firms that hold custody of financial instruments with a custodian are expected to establish and maintain a system for assessing the appropriateness of the selection of the custodian and to assess the continued appointment of that custodian periodically as often as is reasonable in the relevant market. The licensee is also expected to make and retain a record of the grounds on which it satisfies itself as to the appropriateness of its selection or, following a periodic assessment, continued appropriateness of the custodian.

      Added: January 2022

    • Client Money

      • C4-3.3.7

        Category 4 investment firms must hold all client money in a client bank account.

        Added: January 2022

      • C4-3.3.8

        For the purposes of C4-3.3.7, a client bank account is an account holding client money of one or more clients in a bank account designated as such in accordance with the terms of agreement with the client/clients.

        Added: January 2022

      • C4-3.3.9

        Client bank accounts in respect of Bahrain domiciled CIUs may only be opened with banks licensed to do business in the Kingdom of Bahrain unless approved by CBB for any given justifiable circumstances.

        Added: January 2022

      • C4-3.3.10

        If the bank holding client money is located outside the Kingdom of Bahrain, category 4 investment firms should take reasonable steps to establish that the bank is appropriate considering, among other factors, the following:

        (a) Whether it is a duly licensed bank in good regulatory standing in the jurisdiction it operates;
        (b) The capital adequacy of the bank is reasonable;
        (c) The amount of client money to be placed, as a proportion of the bank’s capital and deposits is not disproportionate; and
        (d) The credit rating of the bank, if available is good.
        Added: January 2022

    • Transfer of Money to Eligible Third Parties

      • C4-3.3.11

        Category 4 investment firms may only pay, or permit to be paid, client money into an account other than the client bank account if that account is an eligible third party.

        Added: January 2022

      • C4-3.3.12

        Eligible third parties are recognised exchanges, clearing houses and third-party intermediaries (such as brokers), that are duly authorised or licensed by the appropriate regulatory oversight body.

        Added: January 2022

      • C4-3.3.13

        For the purposes of C4-3.3.11, the category 4 investment firm must assess the suitability of an eligible third party before allowing it to hold or control client money. This assessment must include, at a minimum, the information included below:

        (a) The eligible third party’s credit rating, capital and financial resources;
        (b) The regulatory and insolvency regimes of the jurisdiction in which the eligible third party is located;
        (c) The eligible third party’s reputation;
        (d) Its regulatory status and history; and
        (e) The other members of the eligible third party’s group and their activities.
        Added: January 2022

      • C4-3.3.14

        Category 4 investment firms may allow an eligible third party, such as an exchange, a clearing house or an intermediate broker, to hold or control client money, only if the licensee transfers the client money:

        (a) For the purpose of a transaction for a client through or with that eligible third party; or
        (b) To meet a client’s obligations to provide collateral for a transaction.
        Added: January 2022

      • C4-3.3.15

        Category 4 investment firms must not hold money other than client money in a client bank account unless it is:

        (a) A minimum sum required to open the account or to keep it open;
        (b) Money temporarily held in the account in accordance with the mixed remittance requirements in Paragraph C4-3.3.17; or
        (c) Interest credited to the account which exceeds the amount due to clients as interest and which has not yet been withdrawn by the licensee.
        Added: January 2022

      • C4-3.3.16

        Category 4 investment firm may pay into a client bank account money of its own to protect client money if it is prudent to do so, and that money will then become client money for the purposes of the client asset protection rules in this Module until the licensee retrieves it.

        Added: January 2022

      • C4-3.3.17

        If a category 4 investment firm receives a mixed remittance (that is part client money and part other money), it must:

        (a) Pay the full sum into a client bank account; and
        (b) Pay the money that is not client money out of the client bank account within one business day.
        Added: January 2022

      • C4-3.3.18

        Category 4 investment firms should not hold excess client money in its client transaction accounts with intermediate brokers, settlement agencies or over the counter (OTC) counterparties; it should be held in a client bank account.

        Added: January 2022

    • Reconciliation

      • C4-3.3.19

        Category 4 investment firms must ensure that a system is implemented to perform reconciliations of both client bank accounts and eligible third-party accounts in which client money is held. These reconciliations must be carried out on a regular basis, sufficient to ensure the accuracy of its records (but at a minimum, on a monthly basis as at the last business day of each calendar month).

        Added: January 2022