This document summarizes the key aspects of client classification according to the DFSA Conduct of Business (COB) module: 1. It outlines the application of client classification rules to authorized firms and the types of clients that can be classified (retail or professional). 2. Firms must determine whether each client is retail or professional, and can opt to treat all clients as retail. 3. Professional clients must meet certain criteria and have the expertise to be classified as such. Some professional clients can be treated as market counterparties with their consent or notification. 4. Classification impacts how firms provide services to different client types, with fewer protections for professional and market counterparty clients.

1. The DFSA Rulebook
Conduct of Business Module
COB/VER22/07-13
(COB)

2. CONDUCT OF BUSINESS (COB)
COB/VER22/07-13
Contents
The contents of this module are divided into the following chapters, sections and
appendices:
1 INTRODUCTION .................................................................................... 1
1.1 Application ................................................................................................................. 1
2 CLIENT CLASSIFICATION ................................................................... 2
2.1 Application ................................................................................................................. 2
2.2 Overview ................................................................................................................... 2
2.3 Types of Client .......................................................................................................... 3
2.4 Net assets ................................................................................................................. 5
2.5 Analysis ..................................................................................................................... 6
2.6 Record keeping ......................................................................................................... 7
3 CORE RULES – INVESTMENT BUSINESS, ACCEPTING DEPOSITS,
PROVIDING CREDIT AND PROVIDING TRUST SERVICES ............... 8
3.1 Application ................................................................................................................. 8
3.2 Communication of information and marketing material ............................................. 8
3.3 Key information and Client Agreement ................................................................... 10
3.4 Suitability ................................................................................................................. 11
3.5 Conflicts of interest .................................................................................................. 12
3.6 Record Keeping ...................................................................................................... 16
4 ADDITIONAL RULES - ACCEPTING DEPOSITS AND PROVIDING
CREDIT ................................................................................................ 17
4.1 Application ............................................................................................................... 17
4.2 Accepting Deposits ................................................................................................. 17
4.3 Providing Credit ....................................................................................................... 17
5 ADDITIONAL RULES – PROVIDING TRUST SERVICES .................. 18
5.1 Application ............................................................................................................... 18
5.2 General ................................................................................................................... 18
5.3 Reviews ................................................................................................................... 19
5.4 Professional indemnity insurance cover .................................................................. 19
5.5 Dual control ............................................................................................................. 19
5.6 Internal reporting ..................................................................................................... 19
5.7 Recording of Selection Criteria ............................................................................... 20
5.8 Qualification and experience of Trust Service Provider staff .................................. 20
5.9 Books and records .................................................................................................. 21
5.10 Due diligence .......................................................................................................... 21
5.11 Fitness and Propriety of Persons acting as trustees ............................................... 21
6 ADDITIONAL RULES - INVESTMENT BUSINESS ............................ 23
6.1 Application ............................................................................................................... 23

3. CONDUCT OF BUSINESS (COB)
6.2 Personal account transactions ................................................................................ 23
6.3 Investment research and offers of securities .......................................................... 24
6.4 Best execution ......................................................................................................... 28
6.5 Non-market price transactions ................................................................................ 29
6.6 Aggregation and allocation ...................................................................................... 30
6.7 Record keeping – voice and electronic communications ........................................ 31
6.8 Other dealing rules .................................................................................................. 32
6.9 Confirmation notes .................................................................................................. 34
6.10 Periodic statements ................................................................................................. 34
6.11 Client Assets ........................................................................................................... 35
6.12 Client money ........................................................................................................... 37
6.13 Client investments ................................................................................................... 39
6.14 Record keeping ....................................................................................................... 41
7 CORE RULES - INSURANCE ............................................................. 42
7.1 Application ............................................................................................................... 42
7.2 Insurance business and intermediation restrictions ................................................ 42
7.3 Communication of information and marketing material ........................................... 43
7.4 Client’s duty of disclosure ....................................................................................... 43
7.5 Authorised Firm’s duty of disclosure ....................................................................... 44
7.6 Disclosure of costs and remuneration ..................................................................... 45
7.7 Information about the proposed insurance .............................................................. 45
7.8 Suitability ................................................................................................................. 46
7.9 Managing conflicts of interest .................................................................................. 47
7.10 Placement of Insurance .......................................................................................... 47
7.11 Providing an ongoing service .................................................................................. 48
7.12 Insurance monies .................................................................................................... 49
8 SPECIFIC RULES – OPERATING A CREDIT RATING AGENCY ..... 53
8.1 Application ............................................................................................................... 53
8.2 Additional Principles for Credit Rating Agencies ..................................................... 53
8.3 Quality of the rating process ................................................................................... 54
8.4 Integrity of the credit rating process ........................................................................ 58
8.5 Conflicts of interest and independence ................................................................... 59
8.6 Independence of Rating Analysts and other Employees ........................................ 62
8.7 Transparency and disclosure .................................................................................. 63
8.8 Disclosure and presentation of Credit Ratings ........................................................ 65
8.9 Confidential information .......................................................................................... 66
8.10 Record keeping ....................................................................................................... 67
9 ADDITIONAL RULES: OPERATING AN ALTERNATIVE TRADING
SYSTEM ............................................................................................. 69
9.1 Application and interpretation .................................................................................. 69
9.2 Main requirements relating to trading on the facility ................................................ 69
9.3 Member access criteria ........................................................................................... 72
9.4 Investment criteria ................................................................................................... 73
9.5 Technology resources ............................................................................................. 75
9.6 Proper Markets ........................................................................................................ 77
9.7 Specific requirements applicable to Persons operating an OTF ............................. 85
COB/VER22/07-13

4. CONDUCT OF BUSINESS (COB)
10 CUSTODY PROVIDERS ACTING AS A CENTRAL SECURITIES
DEPOSITORY (“CSD”) ....................................................................... 86
10.1 Application and interpretation .................................................................................. 86
10.2 Additional requirements for CSDs ........................................................................... 86
APP1 RECORDS OF ORDERS AND TRANSACTIONS ............................... 88
A1.1 Minimum contents of transaction records ............................................................... 88
APP2 KEY INFORMATION AND CLIENT AGREEMENT ............................. 89
A2.1 Key Information and content of the Client Agreement ............................................ 89
APP3 CONFIRMATION OF TRANSACTIONS .............................................. 92
A3.1 Content of confirmation notes ................................................................................. 92
APP4 PERIODIC STATEMENTS ................................................................... 94
A4.1 Content of periodic statements: investment management ...................................... 94
APP5 CLIENT MONEY PROVISIONS ........................................................... 96
A5.1 Application ............................................................................................................... 96
A5.2 General requirements ............................................................................................. 96
A5.3 Payment of client money into client accounts ......................................................... 96
A5.4 Client accounts ........................................................................................................ 97
A5.5 Exceptions to holding client money in client accounts ............................................ 98
A5.6 Appointment of a third party agent .......................................................................... 99
A5.7 Payment of client money to a third party agent ....................................................... 99
A5.8 Payment of client money from client accounts ...................................................... 100
A5.9 Client disclosure .................................................................................................... 101
A5.10 Client reporting ...................................................................................................... 102
A5.11 Reconciliation ........................................................................................................ 102
A5.12 Auditor’s reporting requirements ........................................................................... 104
A5.13 Client money distribution rules .............................................................................. 104
A5.14 Failure to comply with this appendix ..................................................................... 105
APP6 SAFE CUSTODY PROVISIONS ........................................ 106
A6.1 Application ............................................................................................................. 106
A6.2 General requirements ........................................................................................... 106
A6.3 Recording, registration and holding requirements ................................................ 106
A6.4 Client accounts in relation to Client Investments................................................... 106
A6.5 Holding or arranging custody with third party agents ............................................ 108
A6.6 Safe custody agreements with third party agents ................................................. 108
A6.7 Client disclosure .................................................................................................... 109
A6.8 Client reporting ...................................................................................................... 110
A6.9 Reconciliation ........................................................................................................ 110
A6.10 Auditor’s reporting requirements ........................................................................... 111
COB/VER22/07-13

5. CONDUCT OF BUSINESS (COB)
1 COB/VER22/07-13
1 INTRODUCTION
1.1 Application
1.1.1 This module (COB) applies to every Authorised Firm with respect to the carrying on,
in or from the DIFC, of any:
(a) Financial Service; or
(b) activity which is carried on, or held out as being carried on, in connection
with or for the purposes of such a Financial Service;
except to the extent that a provision of COB provides for a narrower application.
1.1.2 COB does not apply to a Representative Office.
Guidance
An Authorised Firm may be able to rely on the Transitional Rules in chapter 10 of GEN for the
purposes of complying with some of the provisions in this module. The Rules enable Authorised
Firms to make a smooth transition to the new regime that came into force 1 July 2008 under rule-making
instrument No. 56, following the DFSA’s “Key Policy Review” outlined in Consultation
Paper 52. Examples of the provisions to which the Transitional Rules apply are the Client
classification (Rule 2.3.3(1)), consent and notifications to be treated as a Market Counterparty (Rule
2.3.4), statements required to be included in marketing material (Rule 3.2.4(1)(c)) and requirements
for Client Agreement and key information (Rule 3.2.2(1)(b)).

6. CONDUCT OF BUSINESS (COB)
2 COB/VER22/07-13
2 CLIENT CLASSIFICATION
2.1 Application
2.1.1 (1) This chapter applies, subject to (3) and (4), to an Authorised Firm, carrying
on or intending to carry on any Financial Service with or for a Person.
(2) For the purposes of this chapter, a Person includes a Fund or trust, even if
it does not have a separate legal personality.
(3) This chapter applies to a Credit Rating Agency only if and to the extent that
it intends to carry on, or carries on, a Financial Service other than
Operating a Credit Rating Agency.
(4) This chapter does not apply to an Authorised ISPV.
2.2 Overview
Guidance
1. This chapter describes the manner in which an Authorised Firm classifies and treats its Clients.
The modules of the Rulebook may apply to an Authorised Firm differently depending on
whether the Person with or for whom it is carrying on Financial Services is, or is to be treated
as, a Retail Client, Professional Client, or Market Counterparty.
2. An Authorised Firm may choose to provide Financial Services and products to both Retail
Clients and Professional Clients. In these circumstances, the Authorised Firm must determine
the appropriate classification of its Clients. As a consequence of the analysis under Rule 2.3.2,
it may be that a Client is:
a. a Retail Client;
b. a Professional Client; or
c. a Professional Client in relation to certain services and products and a Retail Client in
relation to other services and products.
3. An Authorised Firm may choose to treat all Persons with whom it deals as Retail Clients. In
these circumstances, Rule 2.3.1(2)(a) provides that the Authorised Firm is not required to
undertake the determination in Rule 2.3.1(1).
4. An Authorised Firm may choose to deal only with Professional Clients provided the
Authorised Firm is able to classify those Persons as such. See Rule 2.3.2. In such case a
Person who is classified as a Professional Client in relation to any Financial Service or product
offered by the Authorised Firm cannot be a Client of the Authorised Firm in relation to other
Financial Services or products, in relation to which he does not have the necessary expertise.
5. A firm may treat as a Market Counterparty a Professional Client referred to in Rule 2.3.2(2),
provided that in respect of some of those Persons, the firm must obtain their prior written
consent before treating them as a Market counterparty. The others only require notification by
the firm of the classification as a Market Counterparty. See Rule 2.3.4. Treatment as a
Market Counterparty means that, for example, Rules relating to Client Agreements, suitability,
inducements, best execution, aggregation and allocation do not apply to such Clients.