C4-3.3 C4-3.3 Client Assets
C4-3.3.1
Category 4 investment firms must ensure they have made adequate arrangements for safeguardingclient assets comprisingmoney orfinancial instruments belonging toclients which are held or controlled by thelicensee in connection with its business activities.Added: January 2022C4-3.3.2
For the purpose of C4-3.3.1
client assets are held or controlled by thecategory 4 investment firm on behalf of aclient if they are:(a) Directly held by thelicensee ;(b) Held in an account in the name of thelicensee ;(c) Held by a person, or in an account in the name of a person, controlled by thelicensee ; or(d) Held in an account with another person, controlled by thelicensee ; or(e) The account is operated in accordance with the instructions of thelicensee .Added: January 2022C4-3.3.3
Category 4 investment firms must ensure thatclient assets are held separately from assets belonging to thelicensees and that they disclose the arrangements for custody of theclient assets in their prospectus and agreements with theclients .Added: January 2022C4-3.3.4
Category 4 investment firms must ensure the following in respect of custody of assets of theCIUs :(a) Undertake an appropriate risk assessment of thatcustodian and document the same;(b) That theclient will assume the unsecured credit risk of thecustodian or third party with whom thelicensee places theclient assets that it holds;(c) If applicable, thatclient 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 thelicensee may have inclient assets held on behalf of theclient in satisfaction of a default by theclient or otherwise, and any rights which thelicensee may have to closeout or liquidate contracts or positions in respect of any of theclient assets , without theclient’s prior instruction or consent; and(e) Obtainclients’ consent in writing for the arrangements for custody in a document which gives clear information on:i. The terms governing the way in which theclient assets will be held and the obligations and responsibilities of thelicensee and/or of the third-party custodian (where applicable), theclients (including the terms for the restitution of thefinancial instruments );ii. The risks involved; andiii. Whether interest onclient money held is payable to theclient and, if so, the terms and frequency of such payments.Added: January 2022C4-3.3.5
Category 4 investment firms must require that if a safe custodyfinancial instrument is recorded in an account with acustodian , thecustodian makes it clear in the title of the account that thefinancial instrument belongs to one or moreclients of thelicensee .Added: January 2022C4-3.3.6
Category 4 investment firms that hold custody offinancial instruments with acustodian 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 thatcustodian periodically as often as is reasonable in the relevant market. Thelicensee 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 thecustodian .Added: January 2022Client Money
C4-3.3.7
Category 4 investment firms must hold allclient money in aclient bank account .Added: January 2022C4-3.3.8
For the purposes of C4-3.3.7, a
client bank account is an account holdingclient money of one or moreclients in a bank account designated as such in accordance with the terms of agreement with theclient /clients.Added: January 2022C4-3.3.9
Client bank accounts in respect of Bahrain domiciledCIUs 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 2022C4-3.3.10
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 ofclient 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 2022Transfer 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 theclient bank account if that account is aneligible third party .Added: January 2022C4-3.3.12
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 2022C4-3.3.13
For the purposes of C4-3.3.11, the
category 4 investment firm must assess the suitability of aneligible third party before allowing it to hold or controlclient money . This assessment must include, at a minimum, the information included below:(a) Theeligible third party’s credit rating, capital and financial resources;(b) The regulatory and insolvency regimes of the jurisdiction in which theeligible third party is located;(c) The eligible third party’s reputation;(d) Its regulatory status and history; and(e) The other members of theeligible third party’s group and their activities.Added: January 2022C4-3.3.14
Category 4 investment firms may allow aneligible third party , such as an exchange, a clearing house or an intermediate broker, to hold or controlclient money , only if thelicensee transfers theclient money :(a) For the purpose of a transaction for aclient through or with thateligible third party ; or(b) To meet aclient’s obligations to provide collateral for a transaction.Added: January 2022C4-3.3.15
Category 4 investment firms must not hold money other thanclient money in aclient 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 toclients as interest and which has not yet been withdrawn by thelicensee .Added: January 2022C4-3.3.16
Category 4 investment firm may pay into aclient bank account money of its own to protectclient money if it is prudent to do so, and that money will then becomeclient money for the purposes of theclient asset protection rules in this Module until thelicensee retrieves it.Added: January 2022C4-3.3.17
If a
category 4 investment firm receives a mixed remittance (that is partclient money and part other money), it must:(a) Pay the full sum into aclient bank account ; and(b) Pay the money that is notclient money out of theclient bank account within one business day.Added: January 2022C4-3.3.18
Category 4 investment firms should not hold excessclient money in itsclient transaction accounts with intermediate brokers, settlement agencies or over the counter (OTC) counterparties; it should be held in aclient bank account .Added: January 2022Reconciliation
C4-3.3.19
Category 4 investment firms must ensure that a system is implemented to perform reconciliations of bothclient bank accounts andeligible third-party accounts in whichclient 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