• QFCRA Consultation Papers

    • Current Papers

    • Past Papers

      • 2019

        • QFCRA CP No. 2019/01 Proposed Governance and Controlled Functions Rules 2019

          Click here to view PDF Version of Consultation Paper 2019/1.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2019/1.
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        • QFCRA CP No. 2019/02 Proposed Anti-Money Laundering and Combating the Financing of Terrorism Rules 2019 and Anti-Money Laundering and Combating the Financing of Terrorism (General Insurance) Rules 2019

          Click here to view PDF Version of Consultation Paper 2019/2.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2019/2.
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          Click here to view PDF Version of Attachment 2 to Consultation Paper 2019/2.
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        • QFCRA CP No. 2019/03 Proposed Amendments to the Operational Risk Prudential Framework — Conventional and Islamic Banking Business

          Click here to view PDF Version of Consultation Paper 2019/3.
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      • 2018 2018

        • QFCRA CP No. 2018/01 Proposed General (Controllers and Miscellaneous) Amendments Rules 2018

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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2018/1.
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        • QFCRA CP No. 2018/02 Proposed Customer and Investor Protection Rules 2018 and Proposed Customer Dispute Resolution Scheme Rules 2018

          Click here to view PDF Version of Consultation Paper 2018/2.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2018/2.
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        • QFCRA CP No. 2018/03 Proposed Amendments to Prudential Rules — Leverage Ratio and Miscellaneous Rules

          Click here to view PDF Version of Consultation Paper 2018/3.
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          Click here to view PDF Version of Attachment 3 to Consultation Paper 2018/3.
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      • 2017

        • QFCRA CP No. 2017/01 Proposed Amendments to the Liquidity Risk Prudential Framework — Conventional and Islamic Banking Business

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        • QFCRA CP No. 2017/02 Proposed Amendments to the Liquidity Risk Prudential Framework — Conventional and Islamic Banking Business

          Click here to view PDF Version of Consultation Paper 2017/2.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2017/2.
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          Click here to view PDF Version of Attachment 2 to Consultation Paper 2017/2.
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        • QFCRA CP No. 2017/03 Proposed Protected Reporting ("Whistleblowing") Amendments Rules

          Click here to view PDF Version of Consultation Paper 2017/3.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2017/3.
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      • 2016

        • QFCRA CP No. 2016/01 – Proposed Amendments To Collective Investment Scheme Rules ("COLL") — Retail Real Estate Funds.

          Click here to view PDF Version of Consultation Paper 2016/1.
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        • QFCRA CP No. 2016/02 Proposed Amendments to Prudential Rules — Securitisation and Miscellaneous Rules

          Click here to view PDF Version of Consultation Paper 2016/2.
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          Click here to view PDF Version of Attachment 3 to Consultation Paper 2016/2.
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      • 2015 2015

        • QFCRA CP No. 2015/01 – Proposed Miscellaneous Amendment Rules 2015

          Click here to view PDF Version of Consultation Paper 2015/1.
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          Click here to view PDF Version of Attachment A to Consultation Paper 2015/1.
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        • QFCRA CP No. 2015/02 – Proposed Islamic Banking Business Prudential Rules 2015

          Click here to view PDF Version of Consultation Paper 2015/2.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2015/2.
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          Click here to view PDF Version of Attachment 2 to Consultation Paper 2015/2.
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        • QFCRA CP No. 2015/03 – Conduct of Business Amendments Rules 2015

          Click here to view PDF Version of Consultation Paper 2015/3.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2015/3.
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      • 2014

        • QFCRA CP No. 2014/01 – Proposed Banking Business Prudential Rules 2014

          Click here to view PDF Version of Consultation Paper 2014/1.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2014/1.
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          Click here to view PDF Version of Attachment 2 to Consultation Paper 2014/1.
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        • QFCRA CP No. 2014/02 – Proposed Investment Management and Advisory Rules 2014

          Click here to view PDF Version of Consultation Paper 2014/02.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2014/2.
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        • QFCRA CP No. 2014/03 – Approved Individuals Regime and Miscellaneous Amendments

          Click here to view PDF Version of Consultation Paper 2014/3.
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          Click here to view PDF Version of Attachment 1 to Consultation Paper 2014/3.
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      • 2013

        • QFCRA CP No. 2013/01 – Proposed Amendments to the Insurance Business Rules 2013

          Click here to view PDF Version of Consultation Paper 2013/01.
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          Click here to view PDF Version of the Attachment to Consultation Paper 2013/1.
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          Click here to view the QFCRA spreadsheet with the proposed RBCR model.

        • QFCRA CP No. 2013/02 – Proposed changes to the Controller Framework for QFC Authorised Firms

          Click here to view PDF Version of Consultation Paper 2013/02.
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          Click here to view PDF Version of the Attachment to Consultation Paper 2013/2.
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      • 2012

        • QFCRA CP No. 2012/01 – Proposed Governance and Controlled Functions Rules 2012

          Click here to view PDF Version of Consultation 2012/01.
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          Click here to view PDF Version of Appendix 1 to Consultation 2012/01.
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          Click here to view PDF Version of Appendix 2 to Consultation 2012/01.
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        • QFCRA CP No. 2012/02 – Proposed Anti-Money Laundering and Combating The Financing of Terrorism Regime Amendments

          Click here to view PDF Version of Consultation 2012/02.
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          Click here to view PDF Version of Appendix 1 to Consultation 2012/02.
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          Click here to view PDF Version of Appendix 2 to Consultation 2012/02.
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        • QFCRA CP No. 2012/03 — Proposed Amendments – Islamic Finance Windows in the QFC

          Click here to view PDF Version of Consultation 2012/03.
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          Click here to view PDF Version of Appendix 1 to Consultation 2012/03.
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      • 2011

        • QFCRA CP No. 2011/01 – Proposed Rules for the Captive Insurance Regime in the Qatar Financial Centre

          Click here to view PDF Version of Consultation 2011/01.
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          Click here to view PDF Version of Appendix 1 to Consultation 2011/01.
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          Click here to view PDF Version of Appendix 2 to Consultation 2011/01.
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        • QFCRA CP No. 2011/02 – Proposed Draft Rules for the Regulation of Captive Insurance Management and Insurance Mediation in the Qatar Financial Centre

          Click here to view PDF Version of Consultation 2011/02.
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          Click here to view PDF Version of Appendix 1 to Consultation 2011/02.
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          Click here to view PDF Version of Appendix 2 to Consultation 2011/02.
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        • QFCRA CP No. 2011/03 – Proposed Training, Competency and Miscellaneous Amendments Rules 2011

          Click here to view PDF Version of Consultation 2011/3.
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          Click here to view PDF Version of the Appendix to Consultation 2011/3.
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      • 2010

        • QFCRA CP No. 2010/01 – Short-Term Life Insurance

          Click here to view PDF Version of Consultation 2010/01.
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        • QFCRA CP No. 2010/02 – Proposals To Further Develop The Asset Management Regime In The Qatar Financial Centre

          Click here to view PDF Version of Consultation 2010/02.
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        • The Anti-Money Laundering (Repeal and Amendment) Rules 2010

          Click here to view PDF Version of the Consultation document.
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          Click here to view Anti-Money Laundering (Repeal and Amendment) Rules 2010.

        • QFCRA CP No. 2010/03 – Proposals to Further Develop the Captive Insurance, Protected Cell Companies and Insurance Intermediaries Regimes in the Qatar Financial Centre

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        • QFCRA CP No. 2010/04 – Miscellaneous Amendments to the Rules of the QFC Regulatory Authority

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          Click here to view PDF Version of Annex A to Consultation 2010/04.
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        • QFCRA CP No. 2010/05 – Proposals for Amendments to the Asset Management Regime for the QFC Regulatory Authority

          Click here to view Word Version of Consultation 2010/05.

          Click here to view PDF Version of Appendix 2 to Consultation 2010/05.
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          Click here to view PDF Version of Appendix 3 to Consultation 2010/05.
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        • QFCRA CP No. 2010/06 – General Rulebook — Amendment of Rule 2.4.2

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        • QFCRA CP No. 2010/07 – Conduct of Business Rulebook — Product Disclosure Document Rules

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      • 2009

        • QFCRA CP No. 2009/01 – Proposed Amendments to the Use of Parent Company Guarantees in Relation to Concentration Risk Limits

          Click here to view PDF Version of CP No. 2009/01 pending publication of HTML Version.
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        • QFCRA CP No. 2009/02 – Financial Services (Financial Penalties and Public Censures) Policy 2009

          Click here to view PDF Version of CP No. 2009/02 pending publication of HTML Version.
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        • QFCRA CP No. 2009/03 – Miscellaneous Amendments to the Rules of the Qatar Financial Centre Regulatory Authority

          Invitation to comment

          This Consultation Paper invites comments on proposed miscellaneous amendments to the rules of the QFC Regulatory Authority (Regulatory Authority).

          The proposed amendments will be made under Article 15 of the QFC Financial Services Regulations, which provides the Regulatory Authority, among other things, with the power to make rules as it deems necessary or appropriate to facilitate the pursuit, achievement and furtherance of its regulatory objectives and Article 17 of the QFC Financial Services Regulations, which provides the Regulatory Authority with power to give guidance.

          Before making rules, the Regulatory Authority must publish the draft text of the proposed rules on its website inviting comment. Comments are, therefore, invited in relation to any aspect of the proposals in this paper, on both the concepts and the proposed rules themselves. These are attached at Annex A and contain 2 schedules, the first dealing with minor amendments and the second with technical amendments. You are welcome to comment on all of the matters, or only those that are of specific interest or concern to you. These proposals and the final rules are also subject to further review by the Regulatory Authority and approval by its Board.

          Anyone wishing to submit comments should provide details of the organisation he or she represents. The names of the commentators and the content of their submissions may be published on the Regulatory Authority's website and in other documents published by the Regulatory Authority. If you wish your name or any part of your submission to be withheld from publication please indicate this, together with your reasons, when you make your submission. The Regulatory Authority will then decide whether to publish the name or material. In doing so, the Regulatory Authority will have regard, in particular, to any obligations under the Data Protection Regulations 2005, to issues of commercial sensitivity and whether the justification for publication is outweighed (taking into account the Regulatory Authority's regulatory objectives) by confidentiality concerns. If anyone has concerns about confidentiality, they are welcome to discuss them with us before making a submission.

          Any comments should be submitted to:

          Matthew Hampton
          Associate Director, Financial Sector Development and Policy
          QFC Regulatory Authority
          PO Box 22989
          Doha, Qatar

          Or emailed to: m.hampton@qfcra.com

          All comments must be received by 10 November 2009.

          1 Introduction

          1.1 This Consultation Paper (CP) sets out a number of miscellaneous amendments to the rulebooks. Each of the items listed in Chapters 2 and 3 is a discrete amendment. Such amendments are grouped under the relevant rulebook in Annex A. The proposed amendments result from the Regulatory Authority's wish that its rulebooks continue to be of high international standard reflecting international developments and experience derived through the application of the rules.
          1.2 None of these amendments constitute a major change in the Regulatory Authority's regulatory regime approach and as such in Annex A are referred to as 'Minor amendments'. Nonetheless, the changes proposed may be of a substantive effect and should be carefully considered.
          1.3 This CP sets out proposed changes to the following various rulebooks of the Regulatory Authority:
          •   Anti Money Laundering Rulebook (AMLR);
          •   Assets Rulebook (ASET);
          •   Collective Investment Funds Rulebook (COLL);
          •   Conduct of Business Rulebook (COND);
          •   Controls Rulebook (CTRL);
          •   General Rulebook (GENE);
          •   Individuals Rulebook (INDI);
          •   Interim Prudential — Investment, Insurance Mediation and Banking Business Rulebook (PIIB);
          •   Interpretation and Application Rulebook (INAP);
          •   Islamic Finance Rulebook (ISFI); and
          •   Prudential — Insurance Rulebook (PINS).
          1.4 The changes relate to the following matters:
          •   time periods;
          •   foreign funds;
          •   classification of clients, market counterparties and customers;
          •   payment of insurance monies by non-QFC intermediaries and authorised representatives;
          •   appointment of auditors;
          •   revising the interpretation and application provisions in INAP;
          •   removing the 'emergency' provisions in INAP;
          •   new provisions in INAP about publication and proof of rules;
          •   definition of 'mandate';
          •   definition of 'profit sharing investment account';
          •   definition of 'pure protection contract';
          •   definitions of 'designated exchanges' and 'designated clearing houses'; and
          •   QFC Law, Court and Tribunal consequential amendments to the rulebooks.
          1.5 The CP also outlines a number of technical amendments to a number of rulebooks.
          1.6 These amendments are relevant to authorised firms and consumers.

          2 Miscellaneous rule amendments: main proposals

          Introduction

          2.1 This chapter provides an overview of the main amendments being proposed to the Regulatory Authority rules.
          2.2 The amendments are directly relevant to firms.
          2.3 The text of the proposed amendments, together with explanatory notes, are set out in Annex A, Schedule 1, (starting at page 2). The main proposals below note the key matters addressed (in the order the items generally appear in Annex A, Schedule 1).

          Main proposals

          Time periods

          2.4 The Regulatory Authority has taken the opportunity to review references to time periods in the rulebooks and where appropriate designate specific outer time limits where there are no set time periods or the periods are uncertain. For example, proposals are to provide an outer limit in days in addition to 'promptly' or 'immediately' and clarify generally uncertain time periods. There are around 50 amendments of this type throughout the draft rule amendments. These are tagged throughout Annex A in bold as 'outer time limit'.
          2.5 The draft amendments also propose to amend various rulebooks so the term 'month' is used and calculated consistently particularly for the purposes of reporting requirements (there are around 50 amendments of this type throughout the draft rule amendments that are tagged in bold as 'months').

          Foreign funds
          (see items 1.54 and 1.55 pages 24 – 26, Annex A)

          2.6 The Regulatory Authority is proposing amendments to Schedule 1 of COLL (Arrangements not constituting collective investment funds) to clarify the application of COLL to foreign funds).

          Classification of clients, market counterparties and customers
          (see item 1.67, pages 31 – 35, and item 1.76, page 38, Annex A)

          2.7 The Regulatory Authority is proposing to amend the definitions of 'client', 'market counterparty', 'commercial customer', 'business customer' and 'retail customer' to simplify the wording and drafting approach to these terms. It is also proposed to move the definitions from INAP that relate to clients, customers and market counterparties so that they are together and more readily accessible by users of COND.
          2.8 The current COND rule 2.3.2 allows a retail customer to be classified as a business customer. However, given the change in drafting approach noted in paragraph 2.7, the draft amendments propose to clarify that a retail customer can be classified as a commercial customer or business customer (or both).
          2.9 The proposals do not entail any material change in the Regulatory Authority's policies or approach regarding client classification.

          Payment of insurance monies by non-QFC intermediaries and authorised representatives
          (see item 1.74, page 37, Annex A)

          2.10 The Regulatory Authority is proposing to extend COND rule 2.2.7 (which covers payments of client monies into client accounts) to cover insurance money, and to clarify the time within which money must be paid into the relevant kind of account.

          Appointment of auditors
          (see item 1.120, pages 56 – 59, Annex A)

          2.11 The Regulatory Authority proposes to amend provisions of GENE about the appointment and removal of auditors of authorised firms. Under the remade provisions an authorised firm must apply to the Regulatory Authority for approval of a proposed appointment and must not make the appointment unless the Regulatory Authority approved the appointment. This requirement would apply to the appointment of new auditors and the replacement of existing auditors.
          2.12 These provisions vary from the current provisions which require an 'after the fact' notification of the appointment. The proposal to move to a prior approval requirement means that the onus of assessing the auditor against the criteria in the QFC Regulations, the Financial Services Regulations and GENE would still remain with the authorised firm, but with the Regulatory Authority able to intervene at an earlier stage of the process than at present.
          2.13 International financial regulators have dealt with the appointment of auditors to firms by adopting one of three differing regimes; i.e. a pre-approval appointment regime, a no objection to the appointment of the auditor or an after the fact notification of the auditor's appointment. The different regimes depend on the degree of control desired by the regulator on the selection and appointment of the auditor.
          2.14 In the developing QFC market and in light of the financial crisis, it is considered prudent to have the power to exercise tighter control about who will audit firms. In practice, the Regulatory Authority already seeks the co-operation of the authorised firm to pre-notify it of an authorised firm's preferred auditor before the auditor is formally appointed.
          2.15 The draft rules also propose that the notice to the Regulatory Authority must include a statement that the firm is satisfied that the proposed auditor is eligible to be appointed. The proposed provisions clarify that an authorised firm must have an auditor at all times and empower the Regulatory Authority to direct an authorised firm to appoint an auditor if it does not have one. The proposed provisions also clarify various matters relating to the appointment and removal of auditors, including time limits within which certain notices must be given to the Regulatory Authority.

          Revising the interpretation and application provisions in INAP
          (see item 1.150, pages 81 – 97 onwards, Annex A)

          2.16 The Regulatory Authority is proposing to revise the interpretation and application provisions to set out in a more comprehensive form, rules for the interpretation and application of the Regulatory Authority rules, for example the effect of examples and notes in rules, rules for gender, number, meanings of 'may' and 'must', rules for working out periods of time or where no time is fixed.

          Removing the 'emergency' provisions in INAP

          2.17 The draft amendments propose to remove the emergency provisions of chapter 2 of INAP which on their face provide an automatic exemption for authorised firms from complying with rules in the event of an emergency if certain conditions are satisfied.
          2.18 The recent global financial crisis has demonstrated that the emergency provisions are inappropriate and that a more managed approach is needed to deal with emergencies on a case by case basis. This approach is already provided through the significant events notification in GENE (see rule 4.4). It is expected that authorised firms would notify the Regulatory Authority of a significant event including an 'emergency' and the Regulatory Authority would decide on a case by case basis the course of action for an authorised firm, including whether appropriate waivers or modifications to the rules would be appropriate in the circumstances.

          New provisions in INAP about publication and proof of rules
          (see pages 88 – 97, Annex A)

          2.19 The Regulatory Authority is proposing new provisions about publication and proof of rules. These include, for example, rules authorising the CEO to approve websites to be used for the authorised publication of rules and regulatory material, rules permitting the Regulatory Authority to publish written or electronic versions of Rules and regulatory material, how to deal with electronic and written versions of rules, permitting the making of certain editorial amendments and other changes by way of format, layout, presentation and printing style. Provisions of this type are common in developed jurisdictions and significantly assist the compilation and publication of legislation to a high standard.

          Definition of 'mandate'
          (see items 1.25, pages 12 – 13 and 1.167, page 103, Annex A)

          2.20 The proposed amendments will mean that the rules in ASET relating to written authorities granted by clients (referred to in ASET as 'mandates') apply to both insurance mediation business and investment business. At present there are inconsistencies in the ASET and INAP rulebooks as to their application.
          2.21 The proposed revised definition of 'mandates' also excludes authorities in relation to reinsurance contracts. This exclusion is consistent with the existing ASET chapter 7 insurance money rules and the UK Financial Services Authority's (FSA) approach to client mandates.

          Definition of 'profit sharing investment account'
          (see item 1.171, pages 104 – 105, Annex A)

          2.22 The Regulatory Authority is proposing to amend the definition of profit sharing investment account (PSIA) to bring it in line with the Financial Services Regulations.

          Definition of 'pure protection contract'
          (see item 1.173, pages 106 – 107, Annex A)

          2.23 The Regulatory Authority is proposing to revise the current definition of 'pure protection contract' to make it consistent with the definition of the term in the UK FSA Handbook Glossary. The amendments remove the requirement that the contract provide that benefits are payable on death (other than death due to accident) only if the death happens within 10 years or before the insured attains 70 years of age.
          2.24 The current provision is considered unnecessarily restrictive particularly as an insured in the local market may be older than 70 years of age for these types of contracts. The current provision was originally modelled on a similar FSA provision that was subsequently amended by the FSA during 2007.

          Definitions of 'designated exchanges' and 'designated clearing houses'
          (see items 1.161 – 1.162, pages 101 – 102, 1.175, page 108, Annex A)

          2.25 The Regulatory Authority is proposing to replace the definitions of 'designated exchange' and 'designated clearing house' with more appropriate terms such as 'eligible clearing house', 'eligible exchange' and 'regulated exchange' and use the definitions correctly in their relevant context.
          2.26 The definitions also include criteria that must be satisfied for a clearing house to be an eligible clearing house or an exchange to be an eligible exchange rather than the current approach of 'designating' exchanges or publishing lists of requirements. It is also proposed that the Regulatory Authority has the power to exclude clearing houses and exchanges incorporated or established in particular jurisdictions.

          QFC Law, Court and Tribunal consequential amendments to the rulebooks

          2.27 The Regulatory Authority is proposing consequential amendment to various rulebooks to take account of QFC Law No. (7) of 2005 made by Law No. (2) of 2009 enacted by HH The Emir on 18 February 2009 which established the QFC Civil and Commercial Court ("the Court") and the QFC Regulatory Tribunal ("the Tribunal"). References changing the terminology to the Court and the Tribunal have been inserted, as appropriate, into the relevant rulebooks.

          3 Proposed schedule of technical amendments

          Introduction

          3.1 This chapter proposes technical amendments to a number of rulebooks.
          3.2 The amendments are relevant to firms and have a minimal impact on consumers.
          3.3 The amendments are concentrated on technical aspects of the rules which require correction and clarification.
          3.4 The text of the proposed amendments is set out in Annex A, Schedule 2 (starting at page 124).

          Click here to view PDF Version of Annex A.
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        • QFCRA CP No. 2009/04 – Miscellaneous Amendments to the Rules of the Qatar Financial Centre Regulatory Authority

          Click here to view PDF Version of Consultation 2009/04.
          Click here to view Word Version of Consultation 2009/04.

          Click here to view PDF Version of Annex A to Consultation 2009/04.
          Click here to view Word Version of Annex A to Consultation 2009/04.

        • QFCRA CP No. 2009/05 – Draft Anti-Money Laundering And Combating Terrorist Financing Rulebook 2010

          Click here to view PDF Version of Consultation 2009/05.
          Click here to view Word Version of Consultation 2009/05.

          Click here to view PDF Version of Annex A to Consultation 2009/05.
          Click here to view Word Version of Annex A to Consultation 2009/05.

      • 2008

        • QFCRA CP No. 2008/01 QFCRA CP No. 2008/01 – Miscellaneous Amendments to the Rules of the Qatar Financial Centre Regulatory Authority

          30 January 2008

          Preamble

          This Consultation Paper invites comments on miscellaneous amendments to the rules of the QFCRA.

          The proposed amendments and rules will be made under Article 15 of the QFC Financial Services Regulations, which provides the QFC Regulatory Authority with the power to make rules as it deems necessary or appropriate to facilitate the pursuit, achievement and furtherance of its regulatory objectives.

          Prior to making rules, the QFC Regulatory Authority must publish the draft rules on its website inviting public comment. Comments are invited in relation to any aspect of the proposals in this paper, on both the concepts and the proposed rules themselves. These are attached at Annex A and contain 2 schedules, the first dealing with miscellaneous and minor amendments and the second with technical amendments. You are welcome to comment on all of the matters, or only those that are of specific interest or concern to you. These proposals and the final rules are also subject to further review by the QFC Regulatory Authority and approval by its Board.

          Anyone wishing to submit comments should provide details of the organisation he or she represents. The names of the commentators and the content of their submissions may be published on the QFC Regulatory Authority's website and in other documents to be published by the QFC Regulatory Authority. If you wish your name or any part of your submission to be withheld from publication please indicate this, together with your reasons, when you make your submission. The QFC Regulatory Authority will then decide whether to publish the name or material. In doing so, the QFC Regulatory Authority will have regard, in particular, to any obligations under the Data Protection Regulations, to issues of commercial sensitivity and whether the justification for publication is outweighed (taking into account the QFC Regulatory Authority's regulatory objectives) by confidentiality concerns. If anyone has concerns about confidentiality, they are welcome to discuss them with us before making a submission.

          Any comments should be submitted to:

          Shaun Swan
          Associate Director, Financial Sector Development and Policy
          QFC Regulatory Authority
          PO Box 22989
          Doha, Qatar

          Or emailed to: s.swan@qfcra.com

          All comments must be received by 14 March 2008.

          1 — Introduction
          1.0 This Consultation Paper (CP) proposes miscellaneous amendments to the AML rulebook and minor and technical amendments across a range of rulebooks.
          1.1 Each chapter includes an explanation of the proposed amendment and a statement of purpose. Annex A to this CP contain the actual text of the proposed amendments.
          2 — Proposed amendments to AMLR

          Introduction
          2.0 This chapter proposes miscellaneous amendments to the Anti Money Laundering Rulebook (AMLR).
          2.1 The miscellaneous amendments relate to:
          •  exceptions to customer identification requirements;
          •  requirements for relying on others to verify identity;
          •  requirements for correspondent bank identification;
          •  suspicious transactions and transaction monitoring;
          •  requirements surrounding the transfer of funds; and
          •  requirements surrounding the treatment of politically exposed persons (PEP).
          2.2 The amendments are relevant to firms and have a minimal impact on consumers.
          2.3 The text of the proposed amendments is set out in Annex A, Schedule 1 (page 6).
          Background
          2.4 The QFC Regulatory Authority places the highest importance on its regime for anti-money laundering and combating the financing of terrorism (AML/CFT). The amendments proposed to the AMLR take into account ongoing work at domestic, regional and international levels on these matters, including as part of the IMF/FATF/GCC mutual evaluation processes. The amendments are particularly directed at compliance with the "40 Recommendations" and the "Special Recommendations" of the Financial Action Task Force. The amendments are technical or clarificatory in nature, and do not represent any change in the policy or approach of the QFC Regulatory Authority's AML/CFT regime.
          Proposed Amendments

          AMLR 3.9 — Exceptions to Customer Identification Requirements
          2.5 Currently, under AMLR 3.9.1 (1) (B), regulated firms are exempt from customer identification requirements if they are a regulated financial sector firm from a FATF Country.
          2.6 Taking into account recommendation 5 of the FATF Forty Recommendations and the existing provisions contained within Article 9 of the AML Regulations, we propose to amend this requirement so that in order to be exempt from AMLR 3.9.1 (1) (B), regulated financial institutions must be authorised in a jurisdiction that has effectively implemented the FATF recommendations on money laundering.
          2.7 We also propose to clarify the requirements that apply before a Relevant Person can rely on exceptions in relation to a financial institution and its subsidiaries. A note is proposed to be inserted under rule AMLR 3.9.1 (3) to clarify that a Relevant Person must carry out customer due diligence if there is any suspicion (or grounds for suspicion) of money laundering.
          AMLR 3.11 — Reliance on others to Verify Identity
          2.8 This issue relates to the requirements and provisions for Relevant Persons to be able to rely on others to verify the identity of its customers.
          2.9 In terms of Recommendation 9 of the FATF Forty Recommendations and the existing provisions contained within Article 11 of the AML Regulations, we are proposing a new rule in AMLR 3.11 requiring Relevant Persons to immediately obtain from the third party the necessary information concerning the elements of the customer due diligence (CDD) process performed; ensure that the third party is regulated and supervised; determine in which countries the third party that meets the conditions can be based; and take into account information available on whether those countries adequately apply the FATF Recommendations.
          2.10 The new rule to be inserted into AMLR rule 3.11 will make it clear that a Relevant Person is required, when relying upon a third party to verify identity, to:
          a) immediately obtain from the third party the necessary information concerning elements of the CDD process performed; and
          b) ensure that the third party is regulated and supervised in a jurisdiction that applies CDD standards equivalent to those in the QFC.
          This new rule will equally apply to a situation where a customer is introduced to the Relevant Person by another member of the Relevant Person's group and the Relevant Person is relying on the Article 11 (2) of the AML Regulations to exempt it from having to re-identify the customer.
          2.11 We also propose to require that a Relevant Person may only rely on a third party to verify identity if the third party meets certain qualifications (that is, the third person must be a qualified professional). Only certain authorised firms (or other Relevant Persons) and regulated financial institutions (or subsidiaries of regulated financial institutions) that are regulated and supervised in a jurisdiction that applies CDD standards equivalent to those applying in the QFC can act as qualified professionals.
          AMLR 3.12 — Correspondent Banks Identification
          2.12 This issue concerns the requirement for Relevant Persons, before establishing on behalf of a client, a business relationship with a bank outside the QFC (correspondent bank), to establish and verify the bank's identity by obtaining sufficient and satisfactory evidence of that identity.
          2.13 In terms of Recommendations 5 through to 8 of the FATF Forty Recommendations and the existing provisions contained within Article 12 of the AML Regulations, we propose a new rule requiring Relevant Persons to gather sufficient information about a correspondent bank to fully understand its reputation, financial position and the quality of supervision it receives (including whether the bank has been subject to a money laundering or terrorist financing investigation or other regulatory action) and to document the respective AML/CFT responsibilities of that institution.
          2.14 The new rule will be inserted into AMLR rule 3.12 requiring Relevant Persons to:
          a) obtain sufficient information about a correspondent bank to understand its reputation, financial position and quality of supervision; and
          b) document the AML/CFT responsibilities of the bank.
          AMLR 3.13 — Internal and External Reporting Requirements
          2.15 This issue concerns the effect of a customer's failure or refusal, without reasonable explanation, to undergo or complete customer due diligence procedures. A new rule is proposed to provide that, in the absence of a reasonable explanation, the money laundering reporting officer of a Relevant Person must consider making a suspicious transaction report about the failure or refusal of a customer to undergo due diligence procedures.
          AMLR 3.17 — Transfer of Funds
          2.16 This issue concerns the measures Relevant Persons should adopt:
          a) in relation to transactions that are unusually large, that have no apparent purpose or that make no obvious economic sense; and
          b) in making electronic payments through financial institutions on behalf of customers.
          2.17 In terms of Recommendation 10 of the FATF Forty Recommendations, Recommendation V of the FATF Special Recommendations, as well as Article 15 of the AML Regulations, we propose new rules in the AMLR 3.17 requiring Relevant Persons to examine certain transactions and enhance existing measures to ensure that non-routine batched transactions are not batched if this would increase the risk of money laundering or terrorist financing. There is also scope to establish explicit measures to ensure that beneficiary financial institutions adopt effective risk-based procedures for identifying and handling wire transfers that are not accompanied by complete originator information.

          AMLR section 3.17 will contain additional provisions:
          a) to require a Relevant Person to examine and report on transactions that are unexplained, abnormal or unusually large; and
          b) to prohibit the batching of certain transactions; and
          c) to ensure that a Relevant Person only uses financial institutions that have adequate risk-based procedures for identifying and handling transfers of funds that do not contain complete originator information.
          AMLR Appendix 1 A2.1.1 — Politically Exposed Persons
          2.18 This issue concerns the requirement for Relevant Persons, in maintaining a customer relationship with Politically Exposed Persons (PEP), to implement and maintain detailed monitoring and due diligence procedures.
          2.19 In terms of Recommendation 6 of the FATF Forty Recommendations and the existing provisions contained within Article 15 (4) & (5) of the AML Regulations, we propose to expand AMLR rule A2.1.1 to make it clear that the reference to PEP includes those that become PEP after the initial customer relationship is formed by requiring Relevant Persons:
          a) to obtain senior management approval to continue the business relationship where a customer has been accepted and the customer or beneficial owner is subsequently found to be, or subsequently becomes a PEP; and
          b) to take reasonable measures to establish the origin of funds of any customer and beneficial owner identified as a PEP.
          2.20 We also plan to expand on the requirements for Relevant Persons to establish measures to identify the "origin of funds" in addition to "source of wealth or income".
          AMLR Appendix 2 — Money Laundering Risks
          2.21 We propose to add a note under the heading of Appendix 2 to make it clear that the rules and guidance contained in the appendix apply, by reason of the definition of money laundering, to any act that constitutes:
          a) participation in, association with or conspiracy to commit, or attempt or incitement to commit, certain money laundering offences or other acts comprising money laundering; or
          b) aiding, abetting, facilitating, counseling or procuring the commission of offences or acts mentioned in paragraph (a).
          3 — Proposed amendments to COLL

          Introduction
          3.0 This chapter proposes three minor amendments to the Collective Investment Funds Rulebook (COLL).
          3.1 The amendments are relevant to the operators and independent entities of registered collective investment funds and have a minimal impact on consumers.
          3.2 The amendments relate to the appointment of auditors to a registered fund, the valuation of funds and the outsourcing to the independent entity of functions of the operator.
          3.3 The text of the proposed amendments is set out in Annex A, Schedule 1 (page 14).
          Proposed amendments

          COLL 5.6.8 (1) and (2) — Appointment and Removal of Auditor etc
          3.4 The QFC Companies Regulations 2005, Article 85 and our proposed Partnership Regulations 2007, Article 66 require auditors of QFC incorporated companies and limited partnerships to be approved by the Qatar Financial Centre Authority (QFCA) and entered onto a register of auditors maintained by the Companies Registration Office (CRO). However, similar requirements do not presently exist for other forms of registered funds, e.g. trust funds.
          3.5 COLL 5.6.8 currently only requires a registered fund to have an auditor at all times.
          3.6 We propose to amend COLL 5.6.8 to require all legal forms of registered funds to use an auditor that has been approved by the QFCA. As a consequence of amending COLL 5.6.8 (1) and (2), we also propose to insert a definition of QFC approved auditor in a new rule in COLL 5.6.8 (7).
          COLL 7.1.1 (1) — Valuation
          3.7 We have received comment on COLL 7.1.1 (1) and its relationship to COLL 6.1.12. In order to provide clarity, we have amended COLL 7.1.1 (1) to make the valuation provisions of COLL 7.1.1 expressly subject to COLL 6.1.12 by the standing independent valuer of the fund.
          COLL 7.4.1 (2) — Outsourcing
          3.8 At present, under COLL the operator is responsible for maintaining the unit register of the fund and rule 7.4.1 (2) prohibits the outsourcing of this requirement to the independent entity of the fund. We note that in certain circumstances, it is practical for operators to have the flexibility to outsource the responsibility of maintaining the unit register of the fund to the independent entity.
          3.9 We propose to amend COLL 7.4.1 (2) to allow limited fund administration functions to be outsourced to the independent entity, e.g. keeping and maintaining the unit holder register and registration details. The functions that can be outsourced do not include functions of the operator that are oversighted by the independent entity.
          4 — Proposed amendments to COND

          Introduction
          4.0 This chapter proposes two minor amendments to the Conduct of Business Rulebook (COND).
          4.1 The amendments are relevant to firms conducting retail insurance activities in or from the QFC and have a minimal impact on consumers.
          4.2 The amendments relate to the content of the product disclosure form given to a retail customer for a life policy and the non-investment insurance contract notice requirements that firms provide to customers in regard to renewals.
          4.3 The text of the proposed amendments is set out in Annex A, Schedule 1 (page 16).
          Proposed amendments

          COND 4.3.14 (1) (d) — Product Disclosure Document (PDD) — form content
          4.4 In QFC Regulatory Authority CP No. 2007/1 — The Regulation of Retail Activities and Retail Insurance Business Permitted to be conducted in or from the Qatar Financial Centre, we introduced rules relating to the PDD that set out the generic content requirements (such as name, description of product, and sufficient information about the risks and benefits of the product) to allow the retail customer to make an informed decision.
          4.5 We have received some feedback from industry requesting that the disclosure requirements for the content of the PDD contained in COND 4.3.14 (1) (d) be made more flexible. Specifically, the requirement to disclose the product name within the disclosure statement is adjusted to allow firms to either disclose the generic 'product name' or disclose the words 'this product'. So for example, firms will either disclose a 'single premium life policy' or 'this product'.
          4.6 We have looked at the disclosure statement again and concluded that we can build more flexibility into the requirement to disclose the 'product name' while not materially affecting the nature of the warning and potentially achieving some compliance cost savings for firms.
          4.7 Consequently, we propose to amend COND 4.3.10 (1) (d) to allow firms to be able to disclose either the generic 'product name' or the specific term of 'this product'.
          COND 5.5.1 (3) (b) — Non-investment insurance — renewals
          4.8 Following consultation in QFC Regulatory Authority CP No. 2007/1 — The Regulation of Retail Activities and Retail Insurance Business Permitted to be conducted in or from the Qatar Financial Centre, we introduced rules in COND relating to renewals on non-investment insurance contracts. In broad terms, the rules provide that the authorised firm must give the customer adequate advance notice of the end of the term of the contract to allow the customer sufficient time to consider whether continuing cover is required. However, we also made provision for a number of exclusions to this requirement which included where the terms of an insurance contract provide for automatic renewal there would be no requirement to give a customer notice of the end of the term of the contract and any changes in terms upon renewal.
          4.9 We have revisited this particular exclusion and concluded that the rule does not reflect our original policy intention in that the exclusion in COND 5.5.1 (3) (b) was intended to apply only to automatic renewals on the same terms.
          4.10 Accordingly, we propose to amend the exclusion in COND 5.5.1 (3) (b) to apply only to automatic renewals on the same terms.
          5 — Proposed amendment to GENE

          Introduction
          5.0 This chapter proposes one minor amendment to the General Rulebook (GENE).
          5.1 The amendment is relevant to firms and has a minimal impact on consumers.
          5.2 The amendment relates to accounting and auditing standards requirements.
          5.3 The text of the proposed amendment is set out in Annex A, Schedule 1 (page 16).
          Proposed amendment

          GENE 9.5 — Auditing standards
          5.4 GENE 9.3 sets out the accounting standards requirements for authorised firms and includes IFRS, US GAAP & UK GAAP accounting standards and other principles and standards approved at the QFC Regulatory Authority's discretion. GENE 9.5 sets out the auditing standards requirements and specifies that only IAASB and AAOFI auditing requirements must be met. It has been brought to our attention that in other jurisdictions, for example the US, general accounting and auditing practice is that US accounts are audited under US practices and standards. The limitation in GENE rule 9.5 permitting only IAASB and AAOIFI audit standards has meant that some firms have been unable to comply with our rules.
          5.5 To address this point, we propose to amend the auditing standards requirements contained in GENE rule 9.5 so that they can now correlate effectively with the accounting standards prescribed under the rules in GENE 9.3.
          6 — Proposed amendment to INAP

          Introduction
          6.0 This chapter proposes three minor amendments to the Interpretation and Application Rulebook (INAP).
          6.1 The amendments are relevant to firms and have a minimal impact on consumers.
          6.2 The amendments relate to a new definition of Islamic Subfund and amendments to the definitions of Market Counterparty and Relevant Person.
          6.3 The text of the proposed amendments is set out in Annex A, Schedule 1 (page 18).
          Proposed amendments

          INAP — Glossary — new definition of Islamic Subfund
          6.4 The amendment inserts a new definition for a term that is used in COLL 5.6.7 (3).
          INAP — Glossary — definition of Market Counterparty
          6.5 This amendment clarifies the application of the definition in relation to authorised firms and eligible third parties. The effect of the amendment is to limit the definition, in relevant respects, to authorised firms and eligible third parties, entities in the same group, and approved representatives and non QFC intermediaries of authorised firms. We have made this amendment to clarify any misunderstanding on the range of people who might be treated as market counterparties.
          INAP — Glossary — definition of Relevant Person
          6.6 This amendment brings the definition into line with the equivalent definition of Relevant Person in the AML Regulations 2005, Article 19.
          7 — Proposed schedule of technical amendments

          Introduction
          7.0 This chapter proposes technical amendments across a range of the rulebooks.
          7.1 The amendments are relevant to firms and have a minimal impact on consumers.
          7.2 The amendments are concentrated on technical aspects of the rules which require correction and clarification.
          7.3 The text of the proposed amendments is set out in Annex A, Schedule 2 (page 21).

          Please click here to view the PDF version of Annex A.

          Please click here to view the Word version of Annex A.

          • Annex A Proposed rules published for comment under Article 15 (4) of the Financial Services Regulations

            Rulebooks (Miscellaneous Amendments) Rules 2008

            The Board of the Qatar Financial Centre Regulatory Authority makes the following rules, and gives the following guidance, under the Financial Services Regulations.

            Dated [ ] 2008.

            PHILLIP THORPE
            Chairman

            1 Name of rules

            These rules are the Rulebooks (Miscellaneous Amendments) Rules 2008.
            2 Commencement

            These rules commence on 7 April 2008.
            3 Anti Money Laundering Rulebook
            (1) The Anti Money Laundering Rulebook (AMLR) is amended in accordance with schedule 1, part 1.1 and schedule 2, part 2.1.
            (2) The version of AMLR as so amended may be referred to as AMLR-VER2-Feb08.
            4 Assets Rulebook
            (1) The Assets Rulebook (ASET) is amended in accordance with schedule 2, part 2.2.
            (2) The version of ASET as so amended may be referred to as ASET-VER4-Feb08.
            5 Collective Investment Funds Rulebook
            (1) The Collective Investment Funds Rulebook (COLL) is amended in accordance with schedule 1, part 1.2 and schedule 2, part 2.3.
            (2) The version of COLL as so amended may be referred to as COLL-VER2-Feb08.
            6 Conduct of Business Rulebook
            (1) The Conduct of Business Rulebook (COND) is amended in accordance with schedule 1, part 1.3 and schedule 2, part 2.4.
            (2) The version of COND as so amended may be referred to as COND-VER2-Feb08.
            7 Controls Rulebook
            (1) The Controls Rulebook (CTRL) is amended in accordance with schedule 2, part 2.5.
            (2) The version of CTRL as so amended may be referred to as CTRL-VER4-Feb08.
            8 General Rulebook
            (1) The General Rulebook (GENE) is amended in accordance with schedule 1, part 1.4 and schedule 2, part 2.6.
            (2) The version of GENE as so amended may be referred to as GENE-VER5-Feb08.
            9 Individuals Rulebook
            (1) The Individuals Rulebook (INDI) is amended in accordance with schedule 2, part 2.7.
            (2) The version of INDI as so amended may be referred to as INDI-VER4-Feb08.
            10 Interpretation and Application Rulebook
            (1) The Interpretation and Application Rulebook (INAP) is amended in accordance with schedule 1, part 1.5 and schedule 2, part 2.8.
            (2) The version of INAP as so amended may be referred to as INAP-VER5-Feb08.
            11 Interim Prudential—Investment, Insurance Mediation and Banking Business Rulebook
            (1) The Interim Prudential—Investment, Insurance Mediation and Banking Business Rulebook (PIIB) is amended in accordance with schedule 2, part 2.9.
            (2) The version of PIIB as so amended may be referred to as PIIB-VER3-Feb08.
            12 Prudential—Insurance Rulebook
            (1) The Prudential—Insurance Rulebook (PINS) is amended in accordance with schedule 2, part 2.10.
            (2) The version of PINS as so amended may be referred to as PINS-VER3-Feb08.
            13 Explanatory notes

            An explanatory note included in these rules is not part of these rules.

            Schedule 1: Minor amendments

            Part 1.1 Anti Money Laundering Rulebook (AMLR)

            [1.1] Section 3.9

            substitute
            3.9 Exception to customer identification requirements

            AML Regulations

            AML Regulations, article 9 (12) provides:

            Customer Identification Requirements
            (12) Consistent with its powers, duties and requirements as set forth in Part 3 of the Financial Services Regulations the Regulatory Authority shall adopt rules implementing the provisions of this Article and shall identify in such rules any exceptions that will apply in respect of these requirements.

            Guidance for s 3.9
            1  Rule 3.9.1 contains the exceptions mentioned in the AML Regulations, article 9 (12).
            2  The Regulatory Authority expects a relevant person to rely on an exception in rule 3.9.1 in relation to a customer only if it has taken reasonable steps to decide whether the customer falls within the exception, and to keep records of the basis on which the customer was considered exempt.
            3.9.1
            (1) A relevant person is not required to establish the identity of a customer for the AML Regulations, article 9 (1) if the customer is—
            (a) an authorised firm or another relevant person; or
            (b) a regulated financial institution authorised in a jurisdiction that has effectively implemented the FATF recommendations on money laundering; or
            (c) a subsidiary of a regulated financial institution mentioned in paragraph (b) if the anti money laundering laws that apply to that institution also apply to the subsidiary.
            (2) A relevant person is not required to establish the beneficial ownership of a person or any relevant funds for the AML Regulations, article 9 (5) if the relevant person's customer is a person mentioned in rule 3.9.1 (1) (a), (b) or (c).
            (3) The exceptions in subrules (1) and (2) do not apply if the relevant person knows or suspects, or has reasonable grounds to know or suspect, that a customer or a person on whose behalf the customer is acting (including any beneficial owner or other provider of relevant funds) is engaged in money laundering.

            Note If the exceptions in r (1) and (2) do not apply, the relevant person must comply with AML Regulations, art 9 (1) and (5).
            (4) For subrule (3), the relevant person is taken to know or suspect, or to have reasonable grounds to know or suspect, if—
            (a) an employee of the relevant person handling the transaction or potential transaction; or
            (b) any person managerially responsible to the relevant person for the transaction or potential transaction;
            knows or suspects, or has reasonable grounds to know or suspect, that the customer or the person on whose behalf the customer is acting is engaged in money laundering.
            3.9.2 A relevant person must not rely on the exception in rule 3.9.1 (1) (b) in relation to a regulated financial institution unless the relevant person has obtained proof that the exception applies to the institution.

            Guidance for r 3.9.2

            If there is any doubt about the application of the exception, the Regulatory Authority expects a relevant person to establish and verify the customer's true identity as required by the AML Regulations, article 9 (2) and, in particular, after having considered the provisions of appendix 1 (Customer Identification Requirements).
            3.9.3 A relevant person must not rely on the exception in rule 3.9.1 (1) (c) in relation to a subsidiary of a regulated financial institution unless the relevant person has obtained a written statement from the institution and its subsidiary, stamped with the company seal (if relevant) and signed by the authorised signatories, confirming that the same anti money laundering laws apply to both of them.
            Explanatory note

            This amendment changes the requirement for exemption under rule 3.9.1 (1) (b). The regulated financial institution must now be authorised in a jurisdiction that has effectively implemented the FATF recommendations. It also clarifies—
            •  the requirements that apply before a relevant person can rely on exceptions in relation to a regulated financial institution and its subsidiaries; and
            •  the obligation of a relevant person to carry out customer due diligence if there is any suspicion (or grounds for suspicion) of money laundering.
            [1.2] Rule 3.11.1

            substitute
            3.11.1 For the AML Regulations, article 11 (1), a person mentioned in rule 3.9.1 (1) (a), (b) or (c) is a qualified professional if the person is regulated and supervised in a jurisdiction that applies customer due diligence standards equivalent to those that apply in the QFC.
            Explanatory note

            This amendment sets out the kind of qualified professional to whom the customer identification or identity verification process may be outsourced.
            [1.3] Rule 3.11.3

            substitute
            3.11.3
            (1) Before a relevant person outsources an aspect of the customer identification or identity verification process to a qualified professional, the relevant person must enter into a cooperation agreement with the qualified professional.
            (2) The cooperation agreement must—
            (a) define the tasks to be outsourced; and
            (b) require that the tasks be carried out in accordance with the AML Regulations and AMLR.
            (3) The relevant person must immediately obtain information about the elements of the customer due diligence carried out in relation to a customer if—
            (a) the relevant person has outsourced an aspect of the customer identification or identity verification process to a qualified professional; or
            (b) the customer was introduced to the relevant person by another member of the relevant person's group and the relevant person is relying on the exception in AMLR, article 11 (2).
            (4) In this rule:

            outsourcing, in relation to a relevant person that is an authorised firm, has the meaning given by INAP, chapter 3, glossary.

            Note CTRL, chapter 5 applies to outsourcing by an authorised firm.
            Explanatory note

            This amendment sets out the requirements for—
            •  outsourcing the customer identification or identity verification process; and
            •  relying on the exception in AMLR, article 11 (2) in relation to a customer that was introduced by another member of a relevant person's group.
            [1.4] Rule 3.12.3

            substitute
            3.12.3
            (1) Before a relevant person opens an account on behalf of a client, or otherwise establishes a business relationship on behalf of a client, with a bank in a jurisdiction other than the QFC, the relevant person must—
            (a) obtain information about the bank to enable it to satisfy itself about—
            (i) the bank's reputation (including whether the bank has been the subject of any investigation, or civil or criminal proceeding, relating to money laundering); and
            (ii) the bank's financial position; and
            (iii) the adequacy of the bank's anti money laundering policies, procedures, systems and controls and its compliance with them; and
            (iv) the quality of supervision to which the bank is subject (including the existence and quality of supervision over the bank's compliance with anti money laundering laws); and
            (b) document the bank's responsibilities for anti money laundering; and
            (c) obtain the approval of its senior management.
            (2) If the bank with which the account is to be opened or the business relationship is to be established is a subsidiary, the relevant person must obtain the following information:
            (a) the domicile and location (if different) of the bank's parent entity;
            (b) the reputation and history of the parent entity;
            (c) the ownership, control and management structure of the parent entity (including whether the entity is owned, controlled or managed by a politically exposed person);
            (d) if the parent entity has control over the bank's anti money laundering policies, procedures, systems and controls— the anti money laundering laws that apply to the parent entity and the existence and quality of supervision over the entity's compliance with them.
            3.12.4 A relevant person must conduct regular reviews of its relationships with banks mentioned in rule 3.12.3.
            Explanatory note

            This amendment inserts new requirements before a relevant person can establish a business relationship on behalf of its client with banks outside the QFC. It also requires a relevant person to review its relationships with such banks.
            [1.5] Rule 3.12.3, guidance 3

            omit

            Explanatory note

            This amendment is consequential on new rule 3.12.3 which requires approval of a relevant person's senior management to establishing, on behalf of its clients, business relationships with certain banks.
            [1.6] Rule 3.12.3, guidance 4

            renumber as guidance 3

            Explanatory note

            This amendment is consequential on the omission of guidance 3.
            [1.7] Section 3.13

            before guidance, insert
            3.13.4 If a customer fails or refuses, without reasonable explanation, to undergo or complete customer due diligence, the MLRO of the relevant person must consider making a suspicious transaction report to the FIU in relation to the customer.
            Explanatory note

            This amendment requires the MLRO of a relevant person to consider making a suspicious transaction report if a customer fails or refuses, without reasonable explanation, to undergo or complete customer due diligence.
            [1.8] Section 3.17

            after guidance, insert
            3.17.1
            (1) A relevant person must examine transactions that—
            (a) are unusually large; or
            (b) show a pattern of transactions that have no apparent purpose or that make no obvious economic sense.
            (2) As far as practicable, the examination must include an examination of the background and purpose of the transactions.
            (3) The relevant person must prepare a written report of the examination and must make the report available to regulatory authorities and auditors for a period of 6 years after the day the report is completed
            3.17.2 A relevant person must not batch non-routine transactions if the risk of money laundering would be increased.
            3.17.3 A relevant person must ensure that a financial institution that it uses to transfer funds using an electronic payment and message system has adequate risk-based procedures for identifying and handling transfers that do not contain complete originator information.
            Explanatory note

            This amendment will:
            •  require a relevant person to examine and report on transactions that are unexplained, abnormal or unusually large; and
            •  prohibit the batching of certain transactions; and
            •  ensure that a relevant person only uses financial institutions that have adequate risk-based procedures for identifying and handling transfers of funds that do not contain complete originator information.
            [1.9] Appendix 1, rule A1.2.1, guidance 3

            substitute
            3. Under rule 3.9.1, a relevant person is not required to establish the identity of a customer if the customer is a relevant person or a regulated financial institution authorised in a jurisdiction that has effectively implemented the FATF recommendations.
            Explanatory note

            This amendment is consequential on the amendment of rule 3.9.1 (1) (b). The rule as amended requires a regulated financial institution be authorised in a jurisdiction that has effectively implemented the FATF recommendations.
            [1.10] Appendix 1, rule A2.1.1

            substitute
            A2.1.1
            (1) A relevant person must implement and maintain detailed monitoring and due diligence procedures for each customer who is, or becomes, a politically exposed person.
            (2) The monitoring and due diligence procedures must include—
            (a) analysis of any complex structures used by the customer (for example, structures involving trusts or multiple jurisdictions); and
            (b) measures to establish the origin of funds and the source of wealth or income; and
            (c) the requirement that approval of senior management be obtained—
            (i) before the customer opens an account with the relevant person; or
            (ii) if an account has been opened—to engage in any transaction with the customer; and
            (d) development of a profile of expected activities for the customer relationship to provide a basis for transaction and account monitoring; and
            (e) regular oversight of the relationship by senior management.
            Guidance for r A2.1.1

            If a relevant person subsequently becomes aware that a customer is a politically exposed person, the relevant person must immediately comply with this rule.
            Explanatory note

            This amendment clarifies the obligation of a relevant person to implement and maintain detailed monitoring and due diligence procedures for a customer who subsequently becomes a politically exposed person. It also requires the relevant person to establish the origin of funds and source of income or wealth of a politically exposed person.
            [1.11] Appendix 2, heading

            substitute
            Appendix 2 Money laundering risks

            Note for app 2

            Because of the definition of money laundering in INAP, the rules and guidance in this appendix apply to any act that constitutes—
            •  participation in, association with or conspiracy to commit, or attempt or incitement to commit, certain money laundering offences or other acts comprising money laundering; or
            •  aiding, abetting, facilitating, counseling or procuring the commission of certain money laundering offences or other acts comprising money laundering.
            Explanatory note

            This amendment inserts a note to clarify what other acts the term money laundering includes.

            Part 1.2 Collective Investment Funds Rulebook (COLL)

            [1.12] Rule 5.6.8 (1) and (2)

            substitute
            (1) The operator of a registered fund must ensure that there is an auditor of the fund at all times, and that the auditor is a QFC approved auditor.
            (2) The operator of a registered fund may, from time to time with the independent entity's approval, appoint a QFC approved auditor as auditor of the fund.
            Explanatory note

            This amendment will require all legal forms of registered funds to use an auditor that has been approved by the Qatar Financial Centre Authority. The Companies Regulations 2005, article 85 and the proposed Partnership Regulations 2007, article 66 require auditors of companies and limited partnerships to be approved by the Qatar Financial Centre Authority and entered on a register of auditors maintained by the Companies Registrations Office (CRO). However, similar requirements do not presently exist for other forms of registered funds (eg trusts). A definition of QFC approved auditor is inserted by the next amendment.
            [1.13] New rule 5.6.8 (7)

            before note, insert
            (7) In this rule:

            QFC approved auditor means a person
            (a) who is approved by the QFC Authority to act as an auditor; and
            (b) whose name is entered in the register of auditors maintained by the CRO.
            Explanatory note

            This amendment inserts a definition of QFC approved auditor consequential on the amendment of rule 5.6.8 (2).
            [1.14] Rule 7.1.1 (1)

            after
            this part
            insert
            and rule 6.1.12 (Standing independent valuer and valuation)
            Explanatory note

            This amendment clarifies the relationship between rules 7.1.1 (1) and 6.1.12 of COLL. Rule 7.1.1 is not intended to apply to the valuation of immovable property of a fund that is valued under rule 6.1.12 by the standing independent valuer for the fund.
            [1.15] Rule 7.4.1 (2)

            substitute
            (2) However, the operator must not outsource to the independent entity, or to a related person for the independent entity, any of the functions of the operator under a provision of COLL, the constitutional document, or the latest filed prospectus, if rule 4.2.3 (1) (Oversight functions of independent entity) applies to the provision.
            Explanatory note

            This amendment relaxes the present prohibition on outsourcing by the operator of a collective investment fund to the independent entity of the fund (or to a related person for the independent entity). Under revised rule 7.4.1 (2) various fund administration functions will be permitted to be outsourced to the independent entity (eg keeping the register of unitholders and unitholder registration details). However, the outsourcing of any function that the independent entity oversights under rule 4.2.3 will continue to be prohibited (eg unit pricing).

            Part 1.3 Conduct of Business Rulebook (COND)

            [1.16] Rule 5.5.1 (3) (b)

            substitute
            (b) the contract terms provide for automatic renewal on the same terms; or
            Explanatory note

            COND, rule 5.5.1 (2) requires an authorised firm that has finalised a non-investment insurance contract with or for a customer to give the customer adequate advance notice of the end of the term of the contract. COND, rule 5.5.1 (3) provides that this requirement does not apply to an insurance contract in certain circumstances, including if the contract terms provide for automatic renewal. The amendment makes it clear that this exception only applies if the automatic renewal is on the same terms.
            [1.17] Rule 4.3.14 (1) (d)

            substitute
            (d) the following statement prominently displayed:
            'The Qatar Financial Centre Regulatory Authority is the independent financial service regulator for the Qatar Financial Centre. It requires us, [insert authorised firm's name], to give you this important information to help you to decide whether this [insert 'product' or product name] is right for you. You should read this document carefully so that you understand what you are buying, and then keep it safely for future reference.';
            Explanatory note

            This amendment provides more flexibility in the language that authorised firms can use in the product disclosure document required by COND, rule 4.3.14. The amendment will allow an authorised firm to use the generic 'this product' instead of specifying the particular product name in the product disclosure document.

            Part 1.4 General Rulebook (GENE)

            [1.18] Rule 9.5.1

            omit
            An
            substitute
            (1) An
            Explanatory note

            This amendment is consequential on other amendments of rule 9.5.1
            [1.19] Rule 9.5.1 (A)

            substitute
            (a) conducts an audit of the authorised firm's accounts and financial statements in accordance with the requirements of the relevant standards published by—
            (i) for financial business other than Islamic financial business—the International Auditing and Assurance Standards Board (IAASB) or any other body approved in writing by the Regulatory Authority; and
            (ii) for Islamic financial businessAAOIFI;
            Explanatory note

            This amendment allows the Regulatory Authority to approve bodies other than IAASB that set auditing standards. The amendment also removes unnecessary italicisation of term that is not defined in INAP.
            [1.20] Rule 9.5.1 (C) (i) and (ii)

            substitute
            (i) the auditor has audited the authorised firm's accounts and financial statements in accordance with the requirements of the applicable relevant standards;

            Note Applicable relevant standards is defined in r (2).
            (ii) the auditor has carried out any other procedures considered necessary having regard to the applicable relevant standards;
            Explanatory note

            This amendment is consequential on the amendment of rule 9.5.1 (A).
            [1.21] New rule 9.5.1 (2)

            insert
            (2) In this rule:

            applicable relevant standards means the relevant standards published by—
            (a) for financial business other than Islamic financial business—IAASB or another body approved under subrule (1) (A) (i); or
            (b) for Islamic financial business—AAOIFI.

            Part 1.5 Interpretation and Application Rulebook (INAP)

            [1.22] Chapter 3, glossary, new definition of Islamic subfund

            insert
            Islamic subfund A subfund of a registered fund that is an umbrella fund if the constitutional document states that the subfund is an Islamic subfund.
            Explanatory note

            This amendment inserts a definition for a term that is used in COLL, rule 5.6.7 (3). The definition is modelled on the existing INAP definition of Islamic fund.
            [1.23] Chapter 3, glossary, definition of Market Counterparty

            substitute
            market counterparty Any of the following:
            (a) an authorised firm or eligible third party;
            (b) an entity in the same group as an authorised firm or eligible third party;
            (c) an approved representative, or non-QFC intermediary, of an authorised firm;
            (d) a designated exchange or designated clearing house;
            (e) a government, government agency, or central bank or other national monetary authority, of any jurisdiction;
            (f) a state investment body, or a body charged with, or intervening in, management of the public debt;
            (g) a supranational organisation if the members of the organisation are countries, central banks or national monetary authorities.
            Explanatory note

            This amendment clarifies the application of the definition in relation to authorised firms and eligible third parties. Under the existing definition, authorised firms and eligible third parties, and associates of authorised firms and eligible third parties (if the firm or the third party consents), are market counterparties. Although the application of the definition of associate in INAP is not clear, it would appear that a wide range of people might be treated as market counterparties (eg all employees of authorised firms). The effect of the amendment is to limit the definition, in relevant respects, to authorised firms and eligible third parties, entities in the same group, and approved representatives and non QFC intermediaries of authorised firms. This amendment also omits unnecessary italicisation of a word and unnecessary words, italicises a term defined in INAP and brings the definition more closely into line with recent INAP definitions.
            [1.24] Chapter 3, glossary, definition of Relevant Person, paragraph (A)

            substitute
            (A) the business of providing the professional services of audit, accounting, tax consulting, legal and notarisation;
            Explanatory note

            This amendment brings the definition into line with the equivalent definition of Relevant Person in the AML Regulations 2005, article 19.


            Schedule 2: Technical amendments


            Part 2.1 Anti Money Laundering Rulebook (AMLR)

            [2.1] Appendix1, rule A1.2.1 (14), guidance 14

            omit
            Where
            substitute
            Where
            Explanatory note

            This amendment omits unnecessary italicisation.

            Part 2.2 Assets Rulebook (ASET)

            [2.2] Rule 1.1.1 (3)

            omit
            Rule 7.1.2
            substitute
            rule 7.1.1 (2)
            Explanatory note

            This amendment corrects a possible inconsistency between ASET, rule 1.1.1 (3) and ASET, rule 7.1.1 (2). Rule 1.1.1 (3) does not presently mention the exceptions from the application of chapter 7 in rule 7.1.1(2) (B) and (C).
            [2.3] Rule 2.2.1 (E)

            omit
            Client
            substitute
            client
            Explanatory note

            This amendment italicises a term that is defined in INAP.
            [2.4] Rule 2.2.1 (E)

            omit
            Regulated Financial Institution
            substitute
            regulated financial institution
            Explanatory note

            This amendment italicises a term that is defined in INAP.
            [2.5] Rule 2.5.4, guidance 1

            omit
            Client Bank Account
            substitute
            client bank account.
            Explanatory note

            This amendment inserts missing punctuation.
            [2.6] Rule 2.5.6

            omit
            Authorised Firm
            substitute
            authorised firm
            Explanatory note

            This amendment italicises a term that is defined in INAP.
            [2.7] Rule 2.7.2 (D)

            omit
            Rule 2.11.4
            substitute
            rule 2.11.4.
            Explanatory note

            This amendment inserts missing punctuation.
            [2.8] Rule 4.5.3 (C)

            omit
            service providers
            substitute
            service providers;
            Explanatory note

            This amendment inserts missing punctuation.
            [2.9] Rule 7.1.1 (1)

            omit
            in relation to a Non-Investment Insurance Contract
            Explanatory note

            This amendment omits unnecessary words that conflict with the application provision in ASET, rule 1.1.1 (3).
            [2.10] Rule 7.3.1, guidance

            omit

            Explanatory note

            This amendment is consequential with the amendment to the definition of insurance money in INAP.
            [2.11] Rule 7.3.10 to 7.3.12

            omit
            Insurance Broker
            substitute
            authorised firm
            Explanatory note

            This amendment broadens the application of the rules in line with the application of other rules in section 7.3 (see esp r 7.3.1).
            [2.12] Rule 7.3.12 (C)

            omit
            Insurer's
            substitute
            insurer's
            Explanatory note

            This amendment omit unnecessary italiesation and capitalisation of a term that is not defined in INAP.

            Part 2.3 Collective Investment Funds Rulebook (COLL)

            [2.13] Rule 1.1.3 (1) (d)

            omit
            another permitted fund entity
            substitute
            another permitted fund entity
            Explanatory note

            This amendment omits unnecessary italicisation of a term that is not defined in INAP.
            [2.14] Rule 5.2.3 (3)

            omit
            (a) for a private placement fund
            substitute
            (b) for a private placement fund
            Explanatory note

            This amendment corrects a typographical error.
            [2.15] Rule 7.1.8

            omit
            fund
            substitute
            fund
            Explanatory note

            This amendment corrects a typographical error.
            [2.16] Rule 11.2.1 (6), definition of relevant amount

            omit
            collective investment fund
            substitute
            collective investment fund
            Explanatory note

            This amendment corrects a typographical error.
            [2.17] Schedule 1, rule 1.4 (1) (b) (i)

            omit
            applies
            substitute
            ) applies
            Explanatory note

            This amendment inserts a missing bracket.
            [2.18] Schedule 3, rule S3.19

            omit
            fund of funds fund
            substitute
            fund of funds
            Explanatory note

            This amendment corrects a reference to a term that is defined in INAP.
            [2.19] Schedule 4, rule S4.33

            omit
            private placement fund
            substitute
            private placement fund
            Explanatory note

            This amendment corrects a typographical error.

            Part 2.4 Conduct of Business Rulebook (COND)

            [2.20] Rule 1.1.1, note 1

            omit
            8 different regulated activities
            substitute
            7 different regulated activities
            Explanatory note

            This amendment corrects a minor error.
            [2.21] Rule 2.3.3 (5)

            omit
            Subsection
            substitute
            Subrule
            Explanatory note

            This amendment corrects a typographical error.
            [2.22] Rule 2.5.1 (2)

            omit
            material interest
            substitute
            material interest
            Explanatory note

            This amendment italicises a term that is defined in INAP.
            [2.23] Rule 4.2.2 (1)

            omit
            for the purpose of conducting of investment business
            substitute
            for the purpose of conducting investment business
            Explanatory note

            This amendment omits a redundant word.
            [2.24] Rule 5.6.3 (1)

            omit
            This rules
            substitute
            This rule
            Explanatory note

            This amendment corrects a typographical error.
            [2.25] Rule 2.6.6

            omit
            consumer dispute resolution scheme
            substitute
            customer dispute resolution scheme
            Explanatory note

            This amendment corrects a typographical error.
            [2.26] Chapter 8 heading

            substitute
            Chapter 8 Customer dispute resolution scheme
            Explanatory note

            This amendment corrects a typographical error.

            Part 2.5 Controls Rulebook (CTRL)

            [2.27] Rule 4.10.1 (B)

            omit
            4.10.2.
            substitute
            4.10.2
            Explanatory note

            This amendment omits unnecessary punctuation.

            Part 2.6 General Rulebook (GENE)

            [2.28] Rules 2.4.1 and 2.4.2

            omit
            Application
            substitute
            application
            Explanatory note

            This amendment omits unnecessary italicisation and capitalisation of a term that is not defined in INAP.
            [2.29] Rules 5.2.1 (1) (A) and 7.2.2 (A)

            omit
            QFC Number
            substitute
            QFC number
            Explanatory note

            This amendment omits unnecessary italicisation and capitalisation of a term that is not defined in INAP.
            [2.30] Rules 8.4.1 and 8.4.2

            omit
            Form
            substitute
            form
            Explanatory note

            This amendment omits unnecessary italicisation and capitalisation of a term that is not defined in INAP.
            [2.31] Rule 9.1.1, guidance 1

            omit
            QFC Firms
            substitute
            QFC entities
            Explanatory note

            This amendment corrects a reference to a term that is defined in INAP.
            [2.32] Rule 9.2.2

            omit
            auditors
            substitute
            auditors'
            Explanatory note

            This amendment inserts missing punctuation.
            [2.33] Rule 9.4.1

            omit
            the financial year
            substitute
            its financial year
            Explanatory note

            This amendment makes it clear that the financial year mentioned in the rule is the financial year of the relevant authorised firm.
            [2.34] Rule 9.4.1 (B)

            substitute
            (b) file with the Regulatory Authority a copy of the financial statements and auditor's reports required under this chapter.
            Explanatory note

            This amendment makes explicit the requirement to file the auditor's reports required by rule 9.5.1 (D), (E) and (F) (the client money, insurance money and custody reports). At present this requirement is implicit in GENE but not stated explicitly.
            [2.35] Section 9.5 heading

            substitute
            9.5 Auditor's report
            Explanatory note This amendment inserts missing punctuation.
            [2.36] Rule 9.5.1 (B), (C) and (D)

            omit
            produce
            substitute
            produces
            Explanatory note

            This amendment corrects minor grammatical errors.
            [2.37] Rule 9.5.1 (D)

            omit
            Auditor
            substitute
            auditor
            Explanatory note

            This amendment omits unnecessary italicisation and capitalisation of a term that is not defined in INAP.
            [2.38] Rule 9.5.1 (E)

            omit
            produce
            substitute
            produces
            Explanatory note

            This amendment corrects a minor grammatical error.
            [2.39] Rule 9.5.1, heading before paragraph (F)

            substitute
            Custody report
            Explanatory note

            This amendment brings the heading more closely into line with other headings in the rule.
            [2.40] Rule 9.5.1 (F)

            omit
            produce
            substitute
            produces
            Explanatory note

            This amendment corrects a minor grammatical error.
            [2.41] Rule 9.5.1 (F)

            omit
            Providing Custody
            substitute
            providing custody services
            Explanatory note

            This amendment corrects a reference to a term that is defined in INAP.
            [2.42] Rule 9.6, guidance

            substitute
            Note 1 Under the Companies Regulations 2005, article 81 (3), a limited liability company incorporated under the regulations may set a new financial year end date by giving notice in the prescribed form to the CRO.
            Note 2 Under the Limited Liability Partnership Regulations 2005, article 33 (3), a limited liability partnership may set a new financial year end date by giving notice in the prescribed form to the CRO.
            Explanatory note

            This amendment converts guidance into notes and corrects details of the information given.
            [2.43] Rule 9.7.3, guidance

            omit
            QFC Firm's
            insert
            QFC entity's
            Explanatory note

            This amendment corrects a reference to a term that is defined in INAP.
            [2.44] Appendix 2, section A2.1

            substitute
            A2.1 Reporting table

            Guidance
            1 The aim of the table is to provide an authorised firm with an overview of the relevant periodic reporting requirement throughout the rulebooks.
            2 The table is not complete statement of all requirements and should not be relied on as a complete statement.
            Table A2.1 Reporting table

            item rulebook and provision report frequency when required application
            1 AMLR, s 3.7 MLRO report at least annually promptly all authorised firms
            2 GENE, r 8.6.1 controller's report annually within 4 months of the end of its financial year all authorised firms
            3 GENE , s 9.4.1 financial statements and auditor's annual report annually within 4 months of the end of its financial year all authorised firms
            4 GENE, r 9.5.1 (D) and r 9.4.1 client money report by auditor annually within 4 months of the end of its financial year authorised firms that control or hold client money
            5 GENE, r 9.5.1 (E) and r 9.4.1 insurance money report by auditor annually within 4 months of the end of its financial year authorised firms that control or hold insurance money
            6 GENE, r 9.5.1 (F) and r 9.4.1 custody report by auditor annually within 4 months of the end of its financial year authorised firms that are or have been providing custody services in or from the QFC
            7 ISFI, r 6.2.2 Shari'a Supervisory Board report annually within 4 months of the end of its financial year authorised firms that have endorsements to conduct Islamic financial business
            8 PIIB, app 7 and r 1.5.3 (3) and (4) PIIB quarterly returns quarterly within 1 month of the end of the standard quarter authorised firms conducting investment business, insurance mediation business or banking business
            9 PIIB, app 7 and r 1.5.3 (1) PIIB annual returns annually within 4 months of the end of the financial year authorised firms conducting investment business, insurance mediation business or banking business
            10 PIIB, app 7 and r 1.5.3 (2) and (3) PIIB consolidated return 6-monthly within 1 month of the end of the standard biannual period authorised firms conducting investment business, insurance mediation business or banking business reporting on a consolidated basis
            Explanatory note

            This amendment makes consequential amendments of the table, corrects references and makes various stylistic changes to the table.
            [2.45] Appendix 3, section A3.1, Record Keeping Table, entry for General Rulebook

            substitute
            Reference Subject of record When Retention Period
            r 9.2.2 accounting records, financial accounts and statements, and auditor's reports on making the record 6 years from the date to which they relate
            r 9.8.1 auditor's qualification and approval on appointment of the auditor 6 years following the cessation of appointment of the auditor
            Explanatory note

            This amendment corrects a typographical error and an incorrect provision reference, and inserts missing punctuation. GENE, rule 9.2.2 requires accounting records, financial accounts and statements, and auditor's reports to be maintained for at least 6 years (and not 6 months) from the date to which they relate.
            [2.46] Appendix 4 , section A4.2, rule A4.1.2

            renumber as rule A4.2.1

            Explanatory note

            This amendment corrects the numbering of a rule.

            Part 2.7 Individuals Rulebook (INDI)

            [2.47] Rule 3.1.1, new note

            insert
            Note An application fee is payable as provided in GENE, ch 10 and app 4.
            Explanatory note

            This amendment substitutes a note for existing guidance and corrects a reference to GENE.
            [2.48] Rule 3.1.2, guidance

            omit

            Explanatory note

            This amendment is consequential on the previous amendment.

            Part 2.8 Interpretation and Application Rulebook (INAP)

            [2.49] Chapter 3, glossary, definition of AMLR

            substitute
            AMLR Anti Money Laundering Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.50] Chapter 3, glossary, definition of Approved Individual

            substitute
            approved individual An individual approved under the FSR, article 41 to perform 1 or more controlled functions.
            Explanatory note

            This amendment corrects a provision reference and brings the definition more closely into line with recent INAP definitions.
            [2.51] Chapter 3, glossary, definition of ASET

            substitute
            ASET Assets Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.52] Chapter 3, glossary, definition of Authorisation

            substitute
            authorisation An authorisation granted by the Regulatory Authority under the FSR, part 5 to carry on regulated activities.
            Explanatory note

            This amendment removes an ambiguity in the existing definition and brings the definition more closely into line with recent INAP definitions.
            [2.53] Chapter 3, glossary, definition of Base Capital Requirement

            substitute
            base capital requirement Has the meaning given by—
            (a) for an insurer incorporated in the QFCPINS, rule 3.4.1; and
            (b) for an authorised firm other than an insurerPIIB, rule 2.4.1.
            Explanatory note

            This amendment clarifies the application of the definition (see PINS, r 3.1.1 and PIIB, r 1.1.1 (1)), and brings the definition more closely into line with recent INAP definitions.
            [2.54] Chapter 3, glossary, definition of Branch

            substitute
            branch A legal entity incorporated in a jurisdiction outside the QFC
            Explanatory note

            This amendment italicises a term that is now defined in INAP and brings the definition more closely into line with recent INAP definitions.
            [2.55] Chapter 3, glossary, definition of business customer, (1)

            omit
            counter party
            substitute
            counterparty
            Explanatory note

            This amendment corrects a typographical error.
            [2.56] Chapter 3, glossary, definition of business customer, (1) (f)

            omit
            business customer
            substitute
            business customer
            Explanatory note

            This amendment omits unnecessary italicisation of a term that is not defined in INAP.
            [2.57] Chapter 3, glossary, definition of Closely Related Counterparties

            substitute
            closely related counterparties Counterparties that are closely related under PIIB, rule A4.8.8
            Explanatory note

            This amendment makes a technical correction to the definition and brings the definition more closely into line with recent INAP definitions
            [2.58] Chapter 3, glossary, definition of Collective Investment Fund (1st definition)

            omit

            Explanatory note

            This amendment omits unnecessary definition that duplicates a definition inserted when COLL was made.
            [2.59] Chapter 3, glossary, definition of COND

            substitute
            COND Conduct of Business Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.60] Chapter 3, glossary, definition of Controlled Function

            substitute
            controlled function Has the meaning given by the FSR, article 41 (2).
            Explanatory note

            This amendment removes an element of circuity in the existing definition, corrects a typographical error and brings the definition more closely into line with recent INAP definitions.
            [2.61] Chapter 3, glossary, definition of Controller

            relocate before definition of Control Notice

            Explanatory note

            This amendment relocates definitions so the definitions are in alphabetical order decided on a letter-by-letter basis.
            [2.62] Chapter 3, glossary, definition of CTRL

            substitute
            CTRL Controls Rulebook.
            Explanatory note

            This amendment inserts missing punctuation and brings the definition more closely into line with recent rulebook definitions.
            [2.63] Chapter 3, glossary, definitions of Designated Bank and Designated Clearing House

            relocate before definition of Designated Exchange

            Explanatory note

            This amendment relocates definitions so the definitions are in alphabetical order decided on a letter-by-letter basis.
            [2.64] Chapter 3, glossary, definition of dilution, paragraph (a)

            omit
            acquisition of a
            substitute
            acquisition or
            Explanatory note

            This amendment corrects a typographical error.
            [2.65] Chapter 3, glossary, definition of GENE

            substitute
            GENE General Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.66] Chapter 3, glossary, definition of hedge fund, paragraph (c)

            renumber the subparagraphs as subparagraphs (i) to (vi)

            Explanatory note

            This amendment corrects the numbering of subparagraphs.
            [2.67] Chapter 3, glossary, definition of INAP

            substitute
            INAP Interpretation and Application Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.68] Chapter 3, glossary, definition of INDI

            substitute
            INDI Individuals Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.69] Chapter 3, glossary, definition of initial disclosure document

            omit
            (initial
            substitute
            (Initial
            Explanatory note

            This amendment corrects a typographical error.
            [2.70] Chapter 3, glossary, definition of Insurance Broker

            substitute
            insurance broker An authorised firm that carries on insurance broking business.
            Explanatory note

            This amendment corrects a reference to a term that is defined in INAP and brings the definition more closely into line with recent INAP definitions.
            [2.71] Chapter 3, glossary, definition of Insurance Management

            substitute
            insurance management The provision of management services or exercise of managerial responsibilities by an insurance manager to an insurer, and—
            (a) includes administration and underwriting; but
            (b) does not include—
            (i) the provision of information on an incidental basis in the context of another professional activity if the purpose of the activity is not to assist a customer in concluding or performing an insurance contract; or
            (ii) the management of claims on a professional basis; or
            (iii) loss adjusting; or
            (iv) expert appraisal of claims.
            Explanatory note

            This amendment italicises terms that are defined in INAP and clarifies the meaning of the definition by setting out its structure more clearly.
            [2.72] Chapter 3, glossary, definition of Insurance Money

            substitute
            insurance money Money received by an authorised firm from, or on behalf of, a client (including a customer of an insurance manager) in relation to the firm's insurance mediation business.

            Examples

            The following items arising from insurance mediation business:
            (a) premium, additional premiums and return premium of all kinds;
            (b) claims and other money owing under contracts of insurance;
            (c) refund and salvages;
            (d) fees, charges, taxes and similar fiscal levies relating to contract of insurance;
            (e) discounts, commissions and brokerage;
            (f) money received from, or on behalf of, a customer of an insurance manager in relation to the insurance manager's insurance management business.
            Explanatory note

            This amendment removes an element of circuity in the existing definition and includes as examples material that is presently guidance in ASET, rule 7.3.1.
            [2.73] Chapter 3, glossary, definition of ISFI

            substitute
            ISFI Islamic Finance Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.74] Chapter 3, glossary, definition of Netting

            relocate before definition of Net Written Premium

            Explanatory note

            This amendment relocates definitions so the definitions are in alphabetical order decided on a letter-by-letter basis.
            [2.75] Chapter 3, glossary, definition of PIIB

            substitute
            PIIB Interim Prudential—Investment, Insurance Mediation and Banking Business Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.76] Chapter 3, glossary, definition of PINS

            substitute
            PINS Prudential—Insurance Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.77] Chapter 3, glossary, definition of PRIN

            substitute
            PRIN Principles Rulebook.
            Explanatory note

            This amendment brings the definition more closely into line with recent rulebook definitions.
            [2.78] Chapter 3, glossary, definition of product disclosure document

            omit
            division 4.3.2
            substitute
            division 4.3.B
            Explanatory note

            This amendment corrects a provision reference.
            [2.79] Chapter 3, glossary, definition of Profit Sharing Investment Account (1st definition)

            omit

            Explanatory note

            This amendment omits a duplicated definition.
            [2.80] Chapter 3, glossary, definition of Project Finance Business

            substitute
            project finance business Any of the following regulated activities carried on in the context of or in connection with project finance:
            (a) dealing in investments;
            (b) arranging deals in investments;
            (c) providing credit facilities;
            (d) arranging credit facilities;
            (e) advising on investments.
            Explanatory note

            This amendment corrects a reference to a term that is defined in INAP and brings the definition more closely into line with recent INAP definitions.
            [2.81] Chapter 3, glossary, definition of Protected Cell Company

            substitute
            protected cell company A company incorporated as, or converted into, a protected cell company under the Companies Regulations.
            Explanatory note

            This amendment brings the definition more closely into line with the Companies Regulations (see art 157, def PCC).
            [2.82] Chapter 3, glossary, definition of Qualifying Holding

            substitute
            qualifying holding Of an authorised firm — any holding in the capital of a non-financial undertaking if the undertaking is controlled by the authorised firm.
            Explanatory note

            This amendment omits unnecessary italicisation and capitalisation of a term that is not defined in INAP, clarifies the relationship required between a non-financial undertaking and an authorised firm, and brings the definition more closely into line with recent INAP definitions.
            [2.83] Chapter 3, glossary, definition of repo agreement, paragraph (a)

            after
            equivalent securities,
            insert
            from the buyer
            Explanatory note

            This amendment inserts missing words that are implicit in the definition.
            [2.84] Chapter 3, glossary, definition of repo agreement, paragraph (b)

            after
            equivalent securities,
            insert
            to the seller
            Explanatory note

            This amendment inserts missing words that are implicit in the definition.
            [2.85] Chapter 3, glossary, definition of Rights in Investments

            relocate before definition of Right to Use

            Explanatory note

            This amendment relocates a definition so the definitions are in alphabetical order decided on a letter-by-letter basis.
            [2.86] Chapter 3, glossary, definition of Security

            substitute
            security Any of the following specified products:
            (a) a share;
            (b) a debt instrument;
            (c) a warrant;
            (d) a security receipt;
            (e) a unit in a collective investment fund.
            Explanatory note

            This amendment corrects a reference to a term that is defined in INAP and brings the definition more closely into line with recent INAP definitions.
            [2.87] Chapter 3, glossary, definition of Special Purpose Vehicle

            substitute
            special purpose vehicle A body corporate if—
            (a) its sole purpose, either generally or when acting in a particular capacity, is to carry out 1 or more of the following functions:
            (i) issuing investments;
            (ii) redeeming, terminating or repurchasing an issue of investments, in whole or part, with a view to reissue or cancellation;
            (iii) entering into transactions, or terminating transactions, involving investments in connection with the issue, redemption, termination or repurchase of investments; and
            (b) it has been explicitly established for securitising assets; and
            (c) it has assessed by a rating agency.
            Explanatory note

            This amendment revises the definition to remove unnecessary italicisation and capitalisation of a term that is only defined in INAP for COLL, and brings the definition more closely into line with more recent INAP definitions.
            [2.88] Chapter 3, glossary, definition of SPV

            substitute
            SPV Special purpose vehicle.
            Explanatory note

            This amendment italicises a term that is defined in INAP and brings the definition more closely into line with recent INAP definitions.
            [2.89] Chapter 3, glossary, definition of Stock Lending (2nd definition)

            omit

            Explanatory note

            This amendment omits unnecessary definition that duplicates a definition inserted by when COLL was made.
            [2.90] Chapter 3, glossary, definition of Structured Capital at Risk Investment

            substitute
            structured capital at risk investment An investment, other than a derivative, that provides an agreed level of income or growth over a specified investment period and displays the following characteristics:
            (a) the customer is exposed to a range of outcomes in relation to the return of initial capital invested;
            (b) the return of initial capital invested at the end of the investment period is linked by a preset formula to the performance of —
            (i) an index; or
            (ii) a combination of indices; or
            (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, initial capital invested is returned, but, if not, the customer may lose some or all of the initial capital invested.
            Explanatory note

            This amendment revises the definition to italicise terms that are defined in INAP and brings the definition more closely into line with recent INAP definitions.
            [2.91] Chapter 3, glossary, definition of Suspicious Transaction Report

            substitute
            suspicious transaction report An internal suspicious transaction report under the AML Regulations, article 13 (1) or an external suspicious transaction report under the AML Regulations, article 13 (7) (C).
            Explanatory note

            This amendment corrects provision references and brings the definition more closely into line with recent INAP definitions.
            [2.92] Chapter 3, glossary, definition of Tier One Capital

            substitute
            tier one capital Capital that is Tier One Capital under—
            (a) for an insurer incorporated in the QFC—the table in PINS, rule 4.2.2; or
            (b) for an authorised firm other than an insurer—the table in PIIB, rule 2.6.2.
            Explanatory note

            This amendment clarifies the application of the definition (see PINS, r 4.1.1 and PIIB, r 1.1.1 (1)), italicises terms that are defined in INAP and brings the definition more closely into line with recent INAP definitions.
            [2.93] Chapter 3, glossary, definition of Tier Two Capital

            substitute
            tier two capital Capital that is Upper Tier Two Capital or Lower Tier Two Capital under—
            (a) for an insurer incorporated in the QFC—the table in PINS, rule 4.2.2; or
            (b) for an authorised firm other than an insurer—the table in PIIB, rule 2.6.2.
            Explanatory note

            This amendment clarifies the application of the definition (see PINS, r 4.1.1 and PIIB, r 1.1.1 (1)), italicises terms that are defined in INAP and brings the definition more closely into line with recent INAP definitions.

            Part 2.9 Interim Prudential—Investment, Insurance Mediation and Banking Business Rulebook (PIIB)

            [2.94] Background, 2

            omit
            authorised
            substitute
            authorised
            Explanatory note

            This amendment italicises a term that is defined in INAP (see def authorisation and r 1.4.1).
            [2.95] Rule 1.1.1, guidance, section 1.3, guidance 3 and rule 1.3.1, guidance

            omit
            authorised
            substitute
            authorised
            Explanatory note

            This amendment italicises a term that is defined in INAP (see def authorisation and r 1.4.1).
            [2.96] Rule 1.3.1, guidance

            omit
            authorisation
            substitute
            authorisation
            Explanatory note

            This amendment italicises a term that is defined in INAP.
            [2.97] Rule 1.3.2, guidance

            omit
            authorised
            substitute
            authorised
            Explanatory note

            This amendment italicises a term that is defined in INAP (see def authorisation and r 1.4.1).
            [2.98] Rule 1.3.2, guidance

            omit
            authorisation
            substitute
            authorisation
            Explanatory note

            This amendment italicises a term that is defined in INAP.
            [2.99] Rule 1.3.3 (A)

            omit
            Regulated Activities;
            substitute
            regulated activities:
            Explanatory note

            This amendment brings punctuation into line with current drafting practice.
            [2.100] Rule 1.3.3 (B)

            substitute
            (B) does not meet the criteria of PIIB category 1, 2 or 5;
            Explanatory note

            This amendment omits an unnecessary word and inserts missing punctuation.
            [2.101] Rule 1.3.3, guidance

            omit
            authorised
            substitute
            authorised
            Explanatory note

            This amendment italicises a term that is defined in INAP (see def authorisation and r 1.4.1).
            [2.102] Rule 1.3.4 (A)

            omit
            Regulated Activities;
            substitute
            regulated activities:
            Explanatory note

            This amendment brings punctuation into line with current drafting practice.
            [2.103] Rule 1.3.4 (A) (v)

            substitute
            (v) operating a collective investment fund, but only if the authorisation is restricted to providing fund administration; and
            Explanatory note

            This amendment corrects a typographical error.
            [2.104] Rule 1.3.4, guidance

            omit
            authorised
            substitute
            authorised
            Explanatory note

            This amendment italicises a term that is defined in INAP (see def authorisation and r 1.4.1).
            [2.105] Section 1.6, Application Table, 7 Group Risk

            omit
            7.1 Application √** √** √** √** √**
            substitute
            7.1 Application √** √** √**     √**
            Explanatory note

            This amendment omits an incorrect application of a group risk to PIIB category 4 firms.
            [2.106] Rule 1.3.8

            omit
            1.3.8
            substitute
            1.3.7
            Explanatory note

            This amendment corrects a typographical error.
            [2.107] Rule 2.5.4 (1)

            omit
            Authorised
            substitute
            authorised
            Explanatory note

            This amendment italicises a term that is defined in INAP (see def authorisation and r 1.4.1).
            [2.108] Rule 2.5.4 (2) (B)

            substitute
            (B) the authorised firm was not in PIIB category 2, 3 or 4 at any time during the relevant period;
            Explanatory note

            This amendment corrects typographical errors and inserts missing punctuation.
            [2.109] Rule 2.5.4 (2)

            omit
            Application
            substitute
            application
            Explanatory note

            This amendment omits unnecessary italicisation and capitalisation of a term that is not defined in INAP.
            [2.110] Rule 2.6.2, table

            omit
            Liquid assets
            substitute
            Illiquid assets
            Explanatory note

            This amendment omits a typographical error.
            [2.111] Appendix 4, rule A4.3.6

            omit
            The following
            substitute
            (1) The following
            Explanatory note

            This amendment is consequential on the replacement of rule A4.3.6 (C) to (G) by a later amendment.
            [2.112] Appendix 4, rule A4.3.6 (B) (vi)

            omit
            (G)
            substitute
            subrule (2) (c)
            Explanatory note

            This amendment is consequential on the replacement of rule A4.3.6 (C) to (G) by a later amendment.
            [2.113] Appendix 4, rule A4.3.6 (C) to (G)

            substitute
            (2) For this rule:
            (a) if a mortgage loan becomes less than fully secured, the CPW of the loan increases to 100% unless the shortfall in the security is fully covered by a specific provision; and
            (b) to remove any doubt, an authorised firm need not revalue property on a regular basis, but—
            (i) if a revaluation is done and reveals that the loan to value ratio has risen above 100% (that is, the loan is not fully secured) — the CPW on the loan increases to 100%; or
            (ii) if a valuation is done and reveals that the loan to value ratio has fallen to or below 100% — the loan may be weighted at 50% because it is fully secured; and
            (c) a special purpose vehicle still qualifies as a special purpose vehicle if it holds assets (for example, government bonds or securities) with a CPW of 50% or less.
            (3) In this rule:

            fully secured, in relation to property and an authorised firm, means—
            (a) a first priority charge on the property if the value of the property is more than or equal to the amount of the loan; or
            (b) a second priority charge on the property if the authorised firm already has a first priority charge on the property and paragraph (a) applies to the first priority charge.
            in default, in relation to a mortgage loan and an authorised firm, means—
            (a) that the borrower has missed more than 2 monthly payments; or
            (b) that the authorised firm has taken enforcement proceedings or legal steps to recover any amount of the loan overdue.
            Explanatory note

            This amendment clarifies the structure and meaning of the rule.
            [2.114] Appendix 4, rule A4.3.7 (I)

            omit
            by the authorised firm
            Explanatory note

            This amendment omits unnecessary words (compare r A4.3.5, guidance 1 (c)).
            [2.115] Appendix 4, rules A4.3.8 (C) and A4.3.9 (D)

            omit
            by the Authorised Firm
            substitute
            by liabilities
            Explanatory note

            This amendment omits unnecessary words and inserts a missing word in each amended provision (compare r A4.3.5, guidance 1 (c)).
            [2.116] Appendix 7, section A7.1, guidance

            omit

            Explanatory note

            This amendment omits guidance that contains outdated details. Corrected details are set out in rule A7.1.1 (1) and (2), as amended by the next amendment.
            [2.117] Appendix 7, rule A7.1.1 (1) and (2)

            substitute
            (1) Subject to subrules (3) and (4), an authorised firm must prepare and submit prudential returns to the Regulatory Authority, using the appropriate forms published by the Regulatory Authority on the QFC legislation website (see www.qfcra.com), in accordance with the table in rule A7.1.2.
            (2) The prudential returns must be prepared in accordance with any instructions published by the Regulatory Authority on the QFC legislation website and, in particular, any declaration required by the instructions must be completed in accordance with the instructions and submitted to the Regulatory Authority with the returns.
            Explanatory note

            This amendment updates and corrects details about prudential returns.
            [2.118] Appendix 7, rule A7.1.1 (6)

            omit
            (6) For the purposes of the matrix
            substitute
            (5) For the table in rule A7.1.2
            Explanatory note

            This amendment is consequential on the previous amendment and corrects a reference to a table.
            [2.119] Rule A7.1.2, table

            omit
            Q110 Declaration by Authorised Firm ALL ALL ALL ALL ALL ALL
            Explanatory note

            This amendment omits redundant material from the table.

            Part 2.10 Prudential—Insurance Rulebook (PINS)

            [2.120] Rule 1.5.4, guidance 2

            omit
            insurer
            substitute
            an insurer
            Explanatory note

            This amendment inserts a missing word.

        • QFCRA CP No. 2008/02 QFCRA CP No. 2008/02 – Miscellaneous Amendments to the Rules of the Qatar Financial Centre Regulatory Authority

          Invitation to comment

          This Consultation Paper invites comments on proposed miscellaneous amendments to the rules of the QFC Regulatory Authority.

          The proposed amendments will be made under Article 15 of the QFC Financial Services Regulations, which provides the QFC Regulatory Authority, among other things, with the power to make rules as it deems necessary or appropriate to facilitate the pursuit, achievement and furtherance of its regulatory objectives and Article 17 of the Financial Services Regulations, which provides the QFC Regulatory Authority with power to give guidance.

          Before making rules, the QFC Regulatory Authority must publish the draft text of the proposed rules on its website inviting comment. Comments are, therefore, invited in relation to any aspect of the proposals in this paper, on both the concepts and the proposed rules themselves. These are attached at Annex A and contain 2 schedules, the first dealing with minor amendments and the second with technical amendments. You are welcome to comment on all of the matters, or only those that are of specific interest or concern to you. These proposals and the final rules are also subject to further review by the QFC Regulatory Authority and approval by its Board.

          Anyone wishing to submit comments should provide details of the organisation he or she represents. The names of the commentators and the content of their submissions may be published on the QFC Regulatory Authority's website and in other documents published by the QFC Regulatory Authority. If you wish your name or any part of your submission to be withheld from publication please indicate this, together with your reasons, when you make your submission. The QFC Regulatory Authority will then decide whether to publish the name or material. In doing so, the QFC Regulatory Authority will have regard, in particular, to any obligations under the Data Protection Regulations 2005, to issues of commercial sensitivity and whether the justification for publication is outweighed (taking into account the QFC Regulatory Authority's regulatory objectives) by confidentiality concerns. If anyone has concerns about confidentiality, they are welcome to discuss them with us before making a submission.

          Any comments should be submitted to:

          Prue Morris
          Associate Director, Financial Sector Development and Policy
          QFC Regulatory Authority
          PO Box 22989
          Doha, Qatar

          Or emailed to: p.morris@qfcra.com

          All comments must be received by 10 September 2008.

          1 Introduction

          1.0 This Consultation Paper (CP) proposes minor amendments to the Assets Rulebook (ASET), the Conduct of Business Rulebook (COND), the General Rulebook (GENE), the Interim Prudential-Investment, Insurance Mediation and Banking Business Rulebook (PIIB), the Interpretation and Application Rulebook (INAP) and the Prudential-Insurance Rulebook (PINS) of the QFC Regulatory Authority and technical amendments to a number of rulebooks.
          1.1 Each chapter of the CP includes an explanation of the proposed amendments and a statement of purpose. Annex A contains the actual text of the proposed amendments.
          1.2 These amendments are relevant to authorised firms and consumers.

          2 Proposed amendments to ASET

          Introduction

          2.0 This chapter proposes amendments to the client money, custody investments and insurance money rules in the Assets Rulebook (ASET).
          2.1 The amendments relate to:
          •   payment of client money into client bank accounts;
          •   transfer of client money to eligible third parties (ETPs);
          •   assessment of eligible custodians (ECs);
          •   insurance money segregation;
          •   consequential amendments relating to the removal of the concept of 'designated jurisdiction'; and
          •   consequential amendments relating to replacement of the term 'designated bank' with 'eligible bank'.
          2.2 The amendments are directly relevant to firms.
          2.3 The text of the proposed amendments is set out in Annex A, Schedule 1, Part 1.1 (starting at page 3).

          Background

          2.4 The QFC Regulatory Authority, in its ASET Rulebook has provided extensively for the segregation and protection of client money, custody investments and insurance money held by authorised firms. The segregation and protections are intended to extend to client money, custody investments and insurance money held by an authorised firm in an institution (e.g. designated bank (DB)) outside the QFC. Currently, if authorised firms in the QFC wish to place client money with, for example, a DB, the DB must be in a 'designated jurisdiction'.
          2.5 Designated jurisdiction is currently defined in the INAP Rulebook as, 'Any jurisdiction that meets the requirements for such from time to time stipulated by the Regulatory Authority or designated as such in a list published by the Regulatory Authority from time to time'. To date the QFC Regulatory Authority has not stipulated requirements and has published a list of jurisdictions which only lists the State of Qatar.
          2.6 The proposed amendments will remove the concept of 'designated jurisdiction' and place requirements on authorised firms holding client money or insurance money, providing custody services, or arranging the provision of custody services, with an institution outside the QFC (such as a DB, EC or ETP), to meet specific criteria applying to their selection. The authorised firm will be responsible for ensuring that:
          •   the institution meets the new definitions of DB, EC and ETP;
          •   it considers the laws that apply to the client money, custody investments, insurance money and bank accounts and gets a legal opinion;
          •   it assesses the suitability of the institution in line with the proposed ASET rules; and
          •   it notifies clients, in accordance with ASET section 2.9 or 4.7, that the client money or custody investment may be held in a jurisdiction outside the QFC.
          2.7 This approach is consistent with other international financial regulatory regimes in requiring an authorised firm to take a balanced approach to assessing the suitability of the financial institution, including making an assessment of the institution against a set of pre-determined criteria.

          Proposed amendments

          ASET 2.5.5 — Payment of Client Money into Client Bank Accounts
          ASET 2.6.6 — Transfer of Client Money to Eligible Third Parties

          2.8 Currently, under ASET rules 2.5.5 and 2.6.6, an authorised firm can only pay money into a client bank account or third party account where it has undertaken a prior assessment of the suitability of the DB or ETP and concluded that it is suitable.
          2.9 The proposed approach emphasises the need to ensure segregation and protection of client money from the authorised firm's own money where client money is placed in jurisdictions outside the QFC which may have insolvency and legal regimes not equivalent to those of the QFC regime.
          2.10 The QFC Regulatory Authority also proposes to remove the requirement for DBs to be in a designated jurisdiction but require that the laws applying to the client money and the bank account must recognise the money as segregated from the authorised firm's assets in the authorised firm's insolvency. The firm must also obtain an appropriate legal opinion regarding this matter and be satisfied that the DB is suitable to hold the client money.
          2.11 The proposed amendments for each rule are consistent and provide a clear set of criteria for firms to consider before paying client money into a client bank account or a third party account. They can be broken down into 5 steps:

          Step 1: the authorised firm must apply an objective test (see proposed rule 2.5.5 (1) (a) and proposed rule 2.6.6 (1) (a)); i.e. will the laws applying to the money and bank account recognise the client money as segregated from and not part of the authorised firm's assets in its insolvency?
          Step 2: the authorised firm must obtain a legal opinion on the matters in step 1, which would be expected to include a legal opinion on all the laws and other contractual arrangements relevant to whether the client money will be recognised as segregated from an authorised firm's own assets (e.g. all the necessary documentation such as the proposed written agreement between the institution and the authorised firm, etc.) (see proposed rule 2.5.5 (1) (b) and proposed rule 2.6.6 (1) (b));
          Step 3: the authorised firm must be satisfied on the basis of the legal opinion that step 1 has been complied with (see proposed rule 2.5.5 (1) (b) and proposed rule 2.6.6 (1) (b));
          Step 4: the authorised firm must make an assessment of the suitability of the eligible bank to hold client money (see proposed rule 2.5.5 (1) (c) and proposed rule 2.6.6 (1) (c)). In conducting the assessment the authorised firm would need to apply current rule 2.5.6; and
          Step 5: the authorised firm must be satisfied on the suitability (see proposed rule 2.5.5 (1) (c) and proposed rule 2.6.6 (1) (c)).
          2.12 Throughout the ASET Rulebook the QFC Regulatory Authority proposes to replace the term 'designated bank' with the term 'eligible bank' to bring it into line with the terminology used to describe other holders of client monies such as 'EC' and 'ETP' and remove the connotations attached to a 'designation' rather than meeting the eligible criteria to be an eligible bank.

          ASET 4.5.1 — Assessment of Eligible Custodians

          2.13 The rule relates to custody investments held with an EC. The proposed amendments to this rule are consistent with those proposed to be made for rules 2.5.5 and 2.6.6.

          ASET 4.5.5 — Assessment of Eligible Custodians

          2.14 Currently, INAP sets out the definition of 'eligible custodian'. With the proposed change in policy to remove the definition of 'designated jurisdiction', the QFC Regulatory Authority examined the approach in other international jurisdictions and found that most commonly a list of criteria is specified within the definition of 'EC', such as the requirement that the EC is regulated by an overseas regulator and it is required to prepare audited accounts.
          2.15 The QFC Regulatory Authority proposes to add to the current list of criteria applying to an EC in the substantive provisions of the ASET rulebook rather than a detailed and extensive definition in INAP. The QFC Regulatory Authority has also proposed criteria permitting the Regulatory Authority declaring that the definition of EC will not apply to particular jurisdictions. This will allow the Regulatory Authority to address jurisdictional concerns if they arise.

          ASET 7.3.1, 7.3.2 and 7.3.10 — Insurance Money Segregation

          2.16 These rules related to insurance money held with a DB. The proposed amendments to this rule are consistent with those proposed to be made for rules 2.5.5, 2.6.6 and 4.5.1.
          2.17 The QFC Regulatory Authority also proposes to make consequential amendments related to the change in term from 'DB' to 'eligible bank' and other associated reference amendments. (see 2.12.)

          ASET rulebook — all references to 'designated bank'

          2.18 The QFC Regulatory Authority proposes to make consequential amendments related to the change in term from 'designated bank' to 'eligible bank' and other associated reference amendments. (see 2.12.)

          3 Proposed amendments to COND

          Introduction

          3.0 This chapter proposes eleven amendments to the Conduct of Business Rulebook (COND).
          3.1 The proposed amendments are relevant to authorised firms and consumers.
          3.2 The text of the proposed amendments is set out in Annex A, Schedule 1, Part 1.2 (starting at page 11).

          Proposed amendments

          COND 2.3.3 (2) (a) — Client classification — customers' agents

          3.3 This amendment is a consequential amendment related to the change in term from 'designated bank' to 'eligible bank'. (see 2.12.)

          COND 4.2.3(2)(g) and 4.2.3 (4) — Initial disclosure document — content

          3.4 The QFC Regulatory Authority is proposing to amend the requirements relating to the content in an initial disclosure document (IDD) to allow the information relating to fees or likely commissions (or both) to be provided to a retail customer not later than a reasonable time before the customer is bound by any contract in relation to the investment business, if this information is not known at the time the IDD is given to a customer. This proposal is made in recognition that an authorised firm may not be able to provide this information until it has undertaken a suitability assessment for the customer.

          COND Division 4.3.B — Packaged products — additional disclosure

          3.5 The amendments to this division (COND 4.3.15 to 4.3.18) involve changes to the product disclosure document (PDD) prepared for life policies, in particular the illustration and the table showing the effect of charges and expenses. The proposals generally seek to improve the presentation and relevance of the information disclosed to retail customers in the PDD, as well as providing some flexibility in meeting certain disclosure requirements to allow the document to reflect the characteristics of different types of life policy.

          COND 4.3.15 — Life policies — additional content

          3.6 The QFC Regulatory Authority is proposing to change the requirements relating to the content in a PDD as set out below.
          3.7 For rule 4.3.15 (Life policies — additional content), it is proposed:
          (i) to exempt authorised firms from including in a PDD an illustration and table where the benefits of the life policy do not depend on future investment returns. Instead the PDD must include an indication of guaranteed benefits, surrender benefits, paid-up benefits and other types of benefits (whichever are applicable), and likely amount and general description of charges and expenses;
          (ii) to reduce the complexity of table 4.3.17 by requiring a separate table showing the effects of charges and expenses to be prepared for both the lower projection and higher projection calculated on the basis of the rates of return mentioned in rule 4.3.16 (2);
          (iii) to expand the information relating to charges and expenses to include a description of the nature of the charges and expenses a customer will or may be expected to pay; and
          (iv) to show the premiums charged if the customer has been charged for rider benefits or increased underwriting benefits.

          COND 4.3.17 — Life policies — effect of charges and expenses table

          3.8 For 4.3.17 (Life policies — effect of charges and expenses table), it is proposed to make the following amendments:
          (i) to allow limited amendments to table 4.3.17 if and to the extent necessary to allow the table to reflect the nature and effect of charges and expenses inherent in a particular product;
          (ii) to provide for longer gaps in the table between reporting years for life policies which have long illustration periods;
          (iii) to require increased reporting years around any discontinuities in the trend of surrender values in the table;
          (iv) some redrafting to improve the clarity of the table and how to calculate the various columns; and
          (v) to give guidance to the authorised firm on how to calculate the reduction in yield (rate of return).

          COND 4.3.18 — Life policies — projection calculation rules

          3.9 For 4.3.18 (Life policies — projection calculation rules), it is proposed to clarify that, when calculating a projection for an illustration, the contributions from the customer should have had any rider benefits or extra premium that has been charged for an increased underwriting risk deducted from the total premium paid.

          Other minor consequential amendments

          3.10 Annex A, Schedule 1, Part 1.2 also includes minor consequential amendments to these rules and rule 4.3.16 to give effect to the policy proposals.

          4 Proposed amendment to GENE

          Introduction

          4.0 This chapter proposes one minor amendment to the General Rulebook (GENE).
          4.1 The proposed amendment is directly relevant to authorised firms.
          4.2 The text of the proposed amendment is set out in Annex A, Schedule 1, Part 1.3 (starting at page 18).

          Proposed amendment

          GENE Appendix 2, table A2.1, items 8, 9 and 10

          4.3 This amendment is consequential on the revision of PIIB, section 1.4 by another amendment. (see 5.4–5.6.)

          5 Proposed amendments to PIIB

          Introduction

          5.0 This chapter proposes nine minor amendments to the Interim Prudential-Investment, Insurance Mediation and Banking Business Rulebook (PIIB).
          5.1 The amendments are relevant to those authorised firms subject to the requirements of PIIB. It has no direct impact on consumers.
          5.2 The amendments relate to:
          (i) revision of requirements for the preparation of prudential returns; and
          (ii) fully-exempt exposures (PIIB A4.8.1) from the concentration risk limits in PIIB.
          5.3 The text of the proposed amendments is set out in Annex A, Schedule 1, Part 1.4, (starting at page 18).

          Proposed amendments

          PIIB 1.4 — Reporting

          5.4 Section 1.4 does not provide enough flexibility to change prudential reporting and preparation requirements, particularly where there are industry innovations, developments or a new sector of industry that needs particular reporting requirements relevant to the activities of the business.
          5.5 It is therefore proposed to amend this section and review the requirements for the preparation of prudential returns to allow for increased flexibility. The proposed amendments:
          (i) retains the obligation for the firm to prepare annual, biannual and quarterly prudential returns;
          (ii) retains the power for the QFC Regulatory Authority to require additional prudential returns;
          (iii) retains the concept of approved forms;
          (iv) includes a power to exempt firms from the requirement to prepare prudential returns and allows any exemption to be subject to conditions, restrictions or requirements; and
          (v) allows the QFC Regulatory Authority to publish the prudential return requirements by notice. The signatory, declaration and certification requirements will be located in the instructions for the approved forms or published separately by the QFC Regulatory Authority.
          5.6 Most firms will see no change to their current reporting requirements or prudential returns. However, those firms conducting insurance mediation business will have a new series of forms, Q300, to complete. The main change from a firm's perspective is that all the prudential return requirements and the frequency of prudential return submission will be centrally located for ease of reference and compliance.

          PIIB 1.5.1 — Submission of Prudential Returns

          5.7 This amendment is consequential on the revision of section 1.4 by another amendment. (see 5.4–5.5.)

          PIIB 1.5.3 (1), (2) and (4) — Submission of Prudential Returns

          5.8 These amendments are consequential on the revision of section 1.4 by another amendment. (see 5.4–5.5.)

          PIIB Section 1.6, table entry relating to section 1.4

          5.9 This amendment is consequential on the revision of section 1.4 by another amendment. (see 5.4–5.5.)

          PIIB Section 1.6, table entry relating to Appendix 7

          5.10 This amendment is consequential on the omission of Appendix 7 by another amendment. (see 5.4–5.5.)

          PIIB A4.8.1 (E) — Concentration Risk, Fully-Exempt Exposures

          5.11 Rule 4.5.2 of PIIB prohibits an authorised firm from having exposures to certain defined counterparties in its non-trading book in excess of 25% of its capital resources. Rule 4.5.7 and rule A4.8.1 of PIIB operate to exempt from this concentration risk limit certain exposures.
          5.12 One of these exemptions (PIIB A4.8.1(E)(i)) applies to exposures with a maturity of 1 year or less provided they are to deposit takers or principal dealers in Zone 1.1 The current definition of Zone 1 excludes Qatar, the QFC and all other regional jurisdictions.
          5.13 The QFC Regulatory Authority acknowledges that there are likely to be circumstances in which it is appropriate to consider exposures to deposit takers or principal dealers in jurisdictions other than those specified for Zone 1, particularly for authorised firms proposing to deal with deposit takers or principal dealers in Qatar. Reasons for doing so include avoiding using banks that have less financial strength, reducing administrative complexity, increasing the rates of interest received and facilitate the establishment of a commercial relationship with local banks.
          5.14 It is therefore proposed to amend this rule by removing the restriction based on jurisdictions (Zone 1) and replacing this with a process where short-term exposures to deposit takers or principal dealers will be exempt from the concentration risk limits subject to:
          (i) the authorised firm being satisfied that any risks the exposures may give rise to are prudently and soundly managed; and
          (ii) the QFC Regulatory Authority has been pre-notified in writing of all proposed over 25% exposures of 1 year or less; and
          (iii) the QFC Regulatory Authority has issued a no objection letter to the firm in relation to the proposed exposures.

          PIIB Appendix 7

          5.15 This amendment is consequential on the revision of section 1.4 by another amendment. (see 5.4–5.5.)

          6 Proposed amendments to INAP

          Introduction

          6.0 This chapter proposes nine amendments to the Interpretation and Application Rulebook (INAP).
          6.1 The amendments are directly relevant to firms.
          6.2 The amendments relate to the:
          (i) removal of the concept of 'designated jurisdiction';
          (ii) replacement of the term 'designated bank' with 'eligible bank'; and
          (iii) definitions of 'approved assets', 'eligible custodian', 'eligible third party', 'insurance bank account', 'readily realisable investment', 'third party-related distribution event'.
          6.3 The text of the proposed amendments is set out in Annex A, Schedule 1, Part 1.5, (starting at page 22).

          Proposed amendments

          INAP — Glossary — definition of Approved Assets

          6.4 This amendment is a consequential amendment related to the change in term from 'designated bank' to 'eligible bank'. (see 6.5.)

          INAP — Glossary — definition of Designated Bank

          6.5 The QFC Regulatory Authority proposes to replace the term 'designated bank' with the term 'eligible bank' to bring it into line with the terminology used to describe other holders of client monies such 'EC' and 'ETP' and remove the connotations attached to a 'designation' rather than meeting the eligible criteria to be an eligible bank.
          6.6 This amendment gives effect to the removal of the term 'designated bank'.

          INAP — Glossary — definition of Designated Jurisdiction

          6.7 The definition of 'designated jurisdiction' is currently defined in the INAP Rulebook as, 'Any jurisdiction that meets the requirements for such from time to time stipulated by the Regulatory Authority or designated as such in a list published by the Regulatory Authority from time to time'.
          6.8 To date the QFC Regulatory Authority has not stipulated any requirements and has published a list of jurisdictions which only lists the State of Qatar.
          6.9 The QFC Regulatory Authority proposes to remove the concept of 'designated jurisdiction' and place requirements on authorised firms holding client money, custody investments or insurance money with an institution outside the QFC (such as a DB, EC or ETP) to meet specific criteria applying to their selection. This approach is consistent with other international financial regulatory regimes in requiring an authorised firm to take a balanced approach to assessing the suitability of the financial institution including an assessment of the institution against a set of pre-determined criteria.
          6.10 This amendment gives effect to the removal of the term 'designated jurisdiction'.

          INAP — Glossary — definition of eligible bank

          6.11 As discussed in paragraph 6.5, the QFC Regulatory Authority proposes to replace the term 'designated bank' with the term 'eligible bank'.
          6.12 With the change in policy to remove the definition of 'designated jurisdiction' which is used within the current definition of 'designated bank', the QFC Regulatory Authority examined the approach in other international jurisdictions and found that most commonly a list of criteria is specified for similar definitions, such as the requirement that the eligible bank is regulated by an overseas regulator, is required to prepare audited accounts and has minimum assets of US $10,000,000.
          6.13 This amendment gives effect to the inclusion of the new term 'eligible bank' in INAP and the inclusion of additional criteria that the eligible bank must meet. The QFC Regulatory Authority has also proposed criteria permitting the QFC Regulatory Authority declaring that the definition of eligible bank will not apply to the particular jurisdiction. This will allow the QFC Regulatory Authority to address jurisdictional concerns if they arise.

          INAP — Glossary — definition of Eligible Custodian

          6.14 Currently, INAP sets out the definition of 'eligible custodian'. For the same reasons provided in paragraph 6.12, the definition is proposed to be amended.
          6.15 In addition, the QFC Regulatory Authority proposes to add to the current list of criteria applying to an EC in the substantive provisions of the ASET rulebook rather than a detailed and extensive definition in INAP. This amendment in INAP will cross reference to the substantive provision in the ASET rulebook.

          INAP — Glossary — definition of Eligible Third Party

          6.16 Currently, INAP sets out the definition of 'eligible third party'. For reasons similar to the reasons provided in paragraph 6.12, the definition is proposed to be broadly brought into line with the definition of 'eligible bank'.

          INAP — Glossary — definition of Insurance Bank Account

          6.17 This is a consequential amendment to give effect to the inclusion of the new term 'eligible bank'. (see 6.5.)

          INAP — Glossary — definition of Readily Realisable Investment

          6.18 This amendment is a consequential amendment related to the change in term from 'designated bank' to 'eligible bank' and the removal of the concept of 'designated jurisdiction'. (see 6.5, 6.7—6.9.)

          INAP — Glossary — definition of Third Party-Related Distribution Event

          6.19 This is a consequential amendment to give effect to the inclusion of the new term 'eligible bank'. (see 6.5.)

          7 Proposed amendments to PINS

          Introduction

          7.0 This chapter proposes seven minor amendments to the Prudential Insurance Rulebook (PINS).
          7.1 The amendments are relevant to insurers. It has no direct impact on consumers.
          7.2 The text of the proposed amendments is set out in Annex A, Schedule 1, Part 1.6, (starting at page 27).

          Proposed amendments

          PINS 1.4 — Submission of Prudential Returns

          7.3 This proposed amendment changes the heading and is a consequential on the amendment of PINS, section 1.4 by another amendment. (see 7.4–7.6)

          PINS 1.4.1 — 1.4.4 — Submission of Prudential Returns

          7.4 The rules do not provide enough flexibility to change prudential reporting and preparation requirements, particularly where there are industry innovations, developments or a new sector of industry that needs particular reporting requirements relevant to the activities of the business.
          7.5 In line with similar amendments proposed to PIIB (see 5.4–5.6), it is proposed to amend these rules and review the requirements for the preparation of prudential returns to allow for increased flexibility. The proposed amendments:
          (i) retains the obligation for the insurer to prepare annual, biannual and quarterly prudential returns;
          (ii) retains the power for the QFC Regulatory Authority to require additional prudential returns;
          (iii) retains the concept of approved forms;
          (iv) includes a power to exempt insurers from the requirement to prepare prudential returns and allows any exemption to be subject to conditions, restrictions or requirements; and
          (v) allows the QFC Regulatory Authority to publish the prudential return requirements by notice. The signatory, declaration and certification requirements will be located in the instructions for the approved forms or published separately by the QFC Regulatory Authority.
          7.6 Most insurers will see no change to their current reporting requirements or prudential returns. The main change from an insurer's perspective is that all the prudential return requirements and the frequency of prudential return submission will be centrally located for ease of reference and compliance.

          PINS 1.4.6 — Submission of Prudential Returns

          7.7 This amendment is consequential on the amendment of rules 1.4.1 to 1.4.4 by other amendments. (see 7.4–7.6)

          PINS 1.4.7 (1) — Submission of Prudential Returns

          7.8 This amendment is consequential on the amendment of rules 1.4.1 to 1.4.4 by other amendments. (see 7.4–7.6)

          PINS 1.4.8 (1) — Submission of Prudential Returns

          7.9 This amendment is consequential on the amendment of rules 1.4.1 to 1.4.4 by other amendments. (see 7.4–7.6)

          PINS 4.4.2 (1) (G) — Subordinated Debt

          7.10 This amendment is a consequential amendment to give effect to the removal of the concept of 'designated jurisdiction' while ensuring the integrity of the provision remains. (see 6.7–6.9.)

          PINS Appendix 4

          7.11 This amendment is consequential on the amendment of rules 1.4.1 to 1.4.4 by other amendments. (see 7.4–7.6)

          8 Proposed schedule of technical amendments

          Introduction

          8.0 This chapter proposes technical amendments to a number of rulebooks.
          8.1 The amendments are relevant to firms and have a minimal impact on consumers.
          8.2 The amendments are concentrated on technical aspects of the rules which require correction and clarification.
          8.3 The text of the proposed amendments is set out in Annex A, Schedule 2 (starting at page 31).

          1 Defined in the Interpretation and Application Rulebook (INAP) as:

          Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom and USA.

          Please click here to view PDF Version of CP 2008/02 Annex A.
          Please click here to view Word Version of CP 2008/02 Annex A.

          • Annex A Proposed Rules Published for Comment Under Article 15 (4) of the Financial Services Regulations

            Rulebooks (Miscellaneous Amendments) Rules 2008 (No 2)

            QFCRA RMI 2008-2

            The Board of the Qatar Financial Centre Regulatory Authority makes the following rules, and gives the following guidance, under the Financial Services Regulations.

            Dated [ ] 2008.

            Chairman

            1 Name of rules

            These rules are the Rulebooks (Miscellaneous Amendments) Rules 2008 (No 2).

            2 Commencement

            These rules commence on 1 October 2008.

            3 Anti Money Laundering Rulebook

            (1) The Anti Money Laundering Rulebook (AMLR) is amended in accordance with schedule 2, part 2.1.
            (2) The version of AMLR as so amended may be referred to as AMLR-VER3-Oct08.

            4 Assets Rulebook

            (1) The Assets Rulebook (ASET) is amended in accordance with schedule 1, part 1.1.
            (2) The version of ASET as so amended may be referred to as ASET-VER5-Oct08.

            5 Conduct of Business Rulebook

            (1) The Conduct of Business Rulebook (COND) is amended in accordance with schedule 1, part 1.2 and schedule 2, part 2.2.
            (2) The version of COND as so amended may be referred to as COND-VER3-Oct08.

            6 General Rulebook

            (1) The General Rulebook (GENE) is amended in accordance with schedule 1, part 1.3 and schedule 2, part 2.3.
            (2) The version of GENE as so amended may be referred to as GENE-VER6-Oct08.

            7 Interim Prudential — Investment, Insurance Mediation and Banking Business Rulebook

            (1) The Interim Prudential — Investment, Insurance Mediation and Banking Business Rulebook (PIIB) is amended in accordance with schedule 1, part 1.4 and schedule 2, part 2.4.
            (2) The version of PIIB as so amended may be referred to as PIIB-VER4-Oct08.

            8 Interpretation and Application Rulebook

            (1) The Interpretation and Application Rulebook (INAP) is amended in accordance with schedule 1, part 1.5 and schedule 2, part 2.5.
            (2) The version of INAP as so amended may be referred to as INAP-VER6-Oct08.

            9 Prudential — Insurance Rulebook

            (1) The Prudential — Insurance Rulebook (PINS) is amended in accordance with schedule 1, part 1.6.
            (2) The version of PINS as so amended may be referred to as PINS-VER4-Oct08.

            Schedule 1 Minor amendments

            Part 1.1 Assets Rulebook (ASET)

            [1.1] Rule 2.5.5

            substitute
            2.5.5
            (1) An authorised firm may only pay client money, or permit client money to be paid, into a client bank account held with an eligible bank if—
            (a) under the laws applying to the money and the bank account, the money will be recognised as segregated from, and will not form part of, the authorised firm's assets in its insolvency; and
            (b) the firm has an appropriate legal opinion about the matters mentioned in paragraph (a) and is satisfied, on the basis of the opinion, that the paragraph will be met; and
            (c) after conducting an appropriate assessment, the firm is satisfied, on reasonable grounds, that the eligible bank is a suitable person to hold the money in a client bank account.
            Note Rule 2.5.6 applies to the making of an assessment for paragraph (c).
            (2) The authorised firm must have systems and controls in place to ensure that—
            (a) subrule (1) (a) continues to be met; and
            (b) the assessment made for subrule (1) (c) remains correct.
            Explanatory note

            This amendment removes the requirement for designated banks to be in a designated jurisdiction but requires that the laws applying to the client money and the bank account must recognise the money as segregated from the authorised firm's assets in the event of the authorised firm's insolvency. The firm must also obtain an appropriate legal opinion regarding this matter. This approach emphasises the need to ensure segregation and protection of client money from the authorised firm's own money if client money is placed in a jurisdiction outside the QFC that may have insolvency and legal regimes not equivalent to those of the QFC.

            The term designated bank is also replaced with the term eligible bank to bring it into line with the terminology used to describe other holders of client monies such as eligible custodian and eligible third party.

            [1.2] Rule 2.6.6

            substitute
            2.6.6
            (1) An authorised firm may only pay client money, or permit client money to be paid, into a third party bank account held with an eligible third party if—
            (a) under the laws applying to the money and the bank account, the money will be recognised as segregated from, and will not form part of, the authorised firm's assets in its insolvency; and
            (b) the firm has an appropriate legal opinion about the matters mentioned in paragraph (a) and is satisfied, on the basis of the opinion, that the paragraph will be met; and
            (c) after conducting an appropriate assessment, the firm is satisfied, on reasonable grounds, that the eligible third party is a suitable person to hold the money in a third party bank account.
            Note Rule 2.6.7 applies to the making of an assessment for paragraph (c).
            (2) The authorised firm must have systems and controls in place to ensure that—
            (a) subrule (1) (a) continues to be met; and
            (b) the assessment made for subrule (1) (c) remains correct.
            Explanatory note

            This amendment removes the requirement for eligible third parties to be in a designated jurisdiction but requires that the laws applying to the client money and the third party account must recognise the money as segregated from the authorised firm's assets in the event of the authorised firm's insolvency. The firm must also obtain an appropriate legal opinion regarding this matter. This approach emphasises the need to ensure segregation and protection of client money from the authorised firm's own money if client money is placed in a jurisdiction outside the QFC that may have insolvency and legal regimes not equivalent to those of the QFC.

            [1.3] Rule 4.5.1

            substitute
            4.5.1
            (1) An authorised firm may only hold a custody investment with an eligible custodian if—
            (a) under the laws applying to the custody investment, it will be recognised as segregated from, and will not form part of, the authorised firm's assets in its insolvency; and
            (b) the firm has an appropriate legal opinion about the matters mentioned in paragraph (a) and, on the basis of the opinion, is satisfied that the paragraph will be met; and
            (c) after conducting an appropriate assessment, the firm is satisfied that the eligible custodian is a suitable person to hold the custody investment.
            Note Rule 4.5.3 applies to the making of an assessment for paragraph (c).
            (2) The authorised firm must have systems and controls in place to ensure that—
            (a) subrule (1) (a) continues to be met; and
            (b) the assessment made for subrule (1) (c) remains correct.
            Explanatory note

            This amendment removes the requirement for an eligible custodian to be in a designated jurisdiction but requires that the laws applying to the custody investment must recognise it as segregated from the authorised firm's assets in the event of the authorised firm's insolvency. The firm must also obtain an appropriate legal opinion regarding this matter. This approach emphasises the need to ensure segregation and protection of custody investments from the authorised firm's own money if a custody investment is placed in a jurisdiction outside the QFC that may have insolvency and legal regimes not equivalent to those of the QFC.

            [1.4] New rule 4.5.5

            insert
            4.5.5
            (1) A person is an eligible custodian in relation to a client of an authorised firm if the person is—
            (a) an authorised firm that has an authorisation for providing custody services; or
            (b) an eligible bank; or
            (c) a person to whom subrule (2) applies; or
            (d) a central securities depositary to which subrule (3) applies; or
            (e) a designated clearing house; or
            (f) another person to whom subrule (4) applies.
            (2) This subrule applies to a person if—
            (a) the person is regulated by an overseas regulator in a jurisdiction outside the QFC; and
            (b) the Regulatory Authority has not, by notice, declared that this subrule does not apply to the jurisdiction; and
            (c) the person's regulatory authorisation (however described) in the jurisdiction covers carrying on activities that are broadly equivalent to providing custody services; and
            (d) the person is required to prepare audited accounts; and
            (e) the person has minimum assets of US $500,000 (or its equivalent in any other currency at the relevant time); and
            (f) the person has surplus revenue over expenditure for the person's last 2 financial years; and
            (g) the person's latest annual audit report is not materially qualified.
            (3) This subrule applies to a central securities depository if—
            (a) its custody services are regulated by an overseas regulator in a jurisdiction outside the QFC; and
            (b) the Regulatory Authority has not, by notice, declared that this subrule does not apply to the jurisdiction; and
            (c) it is required to prepare audited accounts; and
            (d) it has minimum assets of US $10 million (or its equivalent in any other currency at the relevant time); and
            (e) it has surplus 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 a person (A) in relation to a client of an authorised firm if—
            (a) A is not a person mentioned in subrule (1) (a) to (e); and
            (b) A's business includes the provision of custodial services; and
            (c) the firm believes, on reasonable grounds, that—
            (i) it is not feasible for the firm to use a person mentioned in subrule (1) (a) to (e) to provide custodial services for the client; and
            (ii) A can provide appropriate custodial services for the client; and
            (iii) it is in the client's best interests for the firm to use A to provide custodial services for the client; and
            (d) the firm's use of A to provide custodial services for the client otherwise complies with this rulebook.
            Explanatory note

            This amendment—
            •   moves the substantive definition of eligible custodian from INAP; and
            •   adds to the criteria that must be met to become an eligible custodian.

            [1.5] Rule 7.3.1

            omit

            Subject
            substitute

            (1) Subject

            Explanatory note

            This amendment is consequential on other amendments of rule 7.3.1.

            [1.6] Rule 7.3.1 (B)

            substitute
            (B) maintain 1 or more separate bank accounts with an eligible bank as insurance bank accounts;
            Explanatory note

            This amendment replaces, in relation to insurance money, the term designated bank with eligible bank to bring it into line with the terminology used to describe other holders of client monies such as eligible custodian and eligible third party.

            [1.7] New rule 7.3.1 (2) to (4)

            insert
            (2) However, an authorised firm may only pay insurance money, or permit insurance money to be paid, into an insurance bank account held with an eligible bank if—
            (a) under the laws applying to the money and the bank account, the money will be recognised as segregated from, and will not form part of, the authorised firm's assets in its insolvency; and
            (b) the firm has an appropriate legal opinion about the matters mentioned in paragraph (a) and is satisfied, on the basis of the opinion, that the paragraph will be met; and
            (c) after conducting an appropriate assessment, the firm is satisfied that the eligible bank is a suitable person to hold the money in an insurance bank account.
            (3) In assessing for subrule (2) (c) the suitability of an eligible bank, the authorised firm must have regard to all relevant circumstances, including, for example—
            (a) the bank's credit rating, capital and financial resources; and
            (b) the amount of insurance money placed with the bank, as a proportion of the bank's capital and deposits; and
            (c) the regulatory and insolvency regimes of the jurisdiction in which the bank is located; and
            (d) the bank's reputation; and
            (e) the bank's regulatory status and history; and
            (f) to the extent that the information is available, the level of risk in the investment and loan activities undertaken by the bank and other members of its group.
            (4) The authorised firm must have systems and controls in place to ensure that—
            (a) subrule (2) (a) continues to be met; and
            (b) the assessment made for subrule (2) (c) remains correct.
            Explanatory note

            This amendment inserts new rules for insurance money to ensure consistency with rules in ASET for client money and custody investments. The rule requires that the laws applying to the insurance money and the bank account must recognise the money as segregated from the authorised firm's assets in the event of the authorised firm's insolvency. The firm must also obtain an appropriate legal opinion regarding this matter. This approach emphasises the need to ensure segregation and protection of insurance money from the authorised firm's own money if insurance money is placed in a jurisdiction outside the QFC that may have insolvency and legal regimes not equivalent to those of the QFC.

            [1.8] Rule 7.3.2 (B)

            omit

            Rule 7.3.1 (F)
            substitute

            rule 7.3.1 (1) (F)

            Explanatory note

            This amendment updates a cross-reference.

            [1.9] Rule 7.3.10 (C)

            omit

            Rule 7.3.1 (G)
            substitute

            rule 7.3.1 (1) (G)

            Explanatory note

            This amendment updates a cross-reference.

            [1.10] Further amendments, mentions of Designated Bank

            column 1 item column 2 rule column 3 omit (each mention) column 4 substitute (each mention)
            1 2.2.1 (A) and (B) a Designated Bank an eligible bank
            2 2.2.1 (B) (ii) the Designated Bank the eligible bank
            3 2.2.1 (B) (iii) the relevant Designated Bank the eligible bank
            4 2.5.1 (A) a Designated Bank an eligible bank
            5 2.5.1 (C) (i) the relevant Designated Bank the eligible bank
            6 2.5.1 (C) (i) and (ii) the Designated Bank the eligible bank
            7 2.5.2 a Designated Bank an eligible bank
            8 2.5.2 that Designated Bank the eligible bank
            9 2.5.2 the Designated Bank the eligible bank
            10 2.5.6 a Designated Bank an eligible bank
            11 2.6.1 a Designated Bank an eligible bank
            12 2.9.1 (G) a Designated Bank an eligible bank
            13 2.9.1 (G) the Designated Bank the eligible bank
            14 2.11.2 Designated Banks eligible banks
            15 2.11.3 (A) and (C) Designated Bank eligible bank
            16 2.13.4 Designated Bank eligible bank
            17 3.3.1 (1) a Designated Bank an eligible bank
            18 3.3.1 (1) (A) Designated Bank eligible bank
            19 3.3.1 (1) (B) that Designated Bank the eligible bank
            20 3.3.2 a Designated Bank an eligible bank
            21 3.3.2 (A) the relevant Designated Bank the eligible bank
            22 3.3.2 (C) (i) the Designated Bank the eligible bank
            23 3.3.2 (C) (i) that Designated Bank the eligible bank
            24 3.3.3 (C) (ii) different Designated Bank different eligible bank
            25 7.3.1 (D) the Designated Bank
            that the Designated Bank
            the eligible bank
            that the bank
            26 7.3.4 (B) the Designated Bank the eligible bank
            27 7.3.6 the Designated Bank the eligible bank
            Explanatory note

            This amendment replaces the term designated bank with eligible bank to bring it into line with the terminology used to describe other holders of client monies such as eligible custodian and eligible third party.

            Part 1.2 Conduct of Business Rulebook (COND)

            [1.11] Rule 2.3.3 (2) (a)

            substitute
            (a) the agent is an eligible bank or eligible third party; or
            Explanatory note

            This amendment replaces the term designated bank with eligible bank to bring it into line with the terminology used to describe other holders of client monies such as eligible custodian and eligible third party.

            [1.12] Rule 4.2.3 (2) (g)

            omit

            the fees
            substitute

            subject to subrule (4), the fees
            Explanatory note

            This amendment is consequential on the insertion of new rule 4.2.3 (4).

            [1.13] New rule 4.2.3 (4)

            insert
            (4) If the information required under rule 4.2.3 (2) (g) is not available at the time the initial disclosure document is given to the retail customer, the information must be given to the customer not later than a reasonable time before the customer becomes contractually bound in relation to the investment business.
            Explanatory note

            This amendment provides flexibility in relation to the time when the firm must give information about the fees or likely commissions (or both) that the customer would be charged for the investment business.

            [1.14] Rule 4.3.15

            omit

            An authorised firm
            substitute

            (1) An authorised firm

            Explanatory note

            This amendment is consequential on other amendments of rule 4.3.15.

            [1.15] Rule 4.3.15

            after

            for a life policy
            insert

            for a retail customer

            Explanatory note

            This amendment clarifies the application of rule 4.3.15 to life policies for retail customers.

            [1.16] Rule 4.3.15 (f) and (g)

            substitute
            (f) an illustration prepared in accordance with rule 4.3.16 (Life policies — illustrations), except if the benefits of the life policy do not depend on future investment returns;
            (g) information about charges and expenses that, subject to subrule (2), includes—
            (i) a description of the nature of the charges and expenses the retail customer will, or may be expected to, pay; and
            (ii) 2 tables (one for the lower projection, and the other for the higher projection, calculated on the basis of a rate of return mentioned in rule 4.3.16 (2)), each prepared in accordance with rule 4.3.17 (Life policies — effect of charges and expenses table) illustrating the effect of charges and expenses on the policy;
            Explanatory note

            This amendment—
            •   improves the presentation and relevance of the information disclosed to retail customers in the product disclosure document; and
            •   provides flexibility in meeting certain disclosure requirements to allow the document to reflect the characteristics of different types of life policies.

            [1.17] Rule 4.3.15 (i)

            substitute
            (i) if the retail customer has been charged for rider benefits or increased underwriting benefits — the amount of premiums charged for those benefits;
            (j) if the policy is a unit-linked policy — a definition of the units to which benefits are linked and the nature of the underlying assets.
            (2) If the authorised firm is exempt from including an illustration mentioned in rule (1) (f) because the benefits of the life policy do not depend on future investment returns, the product disclosure document prepared by it for the life policy must include—
            (a) an indication of guaranteed benefits, surrender benefits, paid-up values and any other benefits (whichever are applicable) under the policy; and
            (b) the likely amount, and a general description, of the charges and expenses the retail customer will, or may be expected to, pay under the policy.
            Explanatory note

            This amendment—
            •   improves the presentation and relevance of the information disclosed to retail customers in the product disclosure document; and
            •   provides flexibility in meeting certain disclosure requirements to allow the document to reflect the characteristics of different types of life policies.

            [1.18] Rule 4.3.16

            omit

            For rule 4.3.15 (f),
            substitute

            For rule 4.3.15 (1) (f),

            Explanatory note

            This amendment is consequential on the amendments of rule 4.3.15.

            [1.19] Rule 4.3.17

            substitute

            4.3.17 Life policies — effect of charges and expenses tables
            (1) For rule 4.3.15 (1) (g), each table illustrating the effect of charges and expenses on the policy must include the contents of table 4.3.17.

            Table 4.3.17   Effects of charges and expenses

            WARNING — if you cash in early you could get back less than you have paid in
            This table illustrates what you would get back from your investment if it grew at x% (insert rate of return) a year. These figures are not guaranteed and are only intended to demonstrate the effect of charges and expenses on your investment based on different assumptions on the growth of your investments.


            At end of Year Total paid in to date Effect of charges and expenses to date What you might get back
              QR QR QR
            1      
            2      
            3      
            4      
            5      
            10      
            15      
            (2) An authorised firm may change table 4.3.17 so far as necessary to reflect the nature and effect of the charges and expenses inherent in the particular product.
            (3) In completing the table, the authorised firm must—
            (a) include figures for the first 5 years of the life policy; and
            (b) if the policy is a whole-life policy or the illustration covers more than 25 years — include figures for the 10th and every subsequent 10th year of the policy's term; and
            (c) if the policy is not a whole-life policy and the illustration covers 25 years or less — include figures for the 10th and every subsequent 5th year of the policy's term; and
            (d) include—
            (i) the final year of the policy; or
            (ii) for a whole-life policy or a single premium life policy without a fixed term — an appropriate end date for the policy; and
            (e) if there is discontinuity in the trend of surrender values — include the appropriate intervening years; and
            (f) in the 'Total paid in to date' column, show cumulative totals of contributions paid to the end of each relevant year; and
            (g) in the 'Effect of charges and expenses to date' column, show the figure calculated by taking the accumulated value of the fund without taking charges and expenses into account and then subtracting from that figure the figure in the 'What you might get back' column for the same year ; and
            (h) in the 'What you might get back' column, show the projection of the surrender value for the policy calculated in accordance with rule 4.3.18 (Life policies — projection calculation rules) and accumulated at the rate of return selected by the firm for the lower or higher projection mentioned in rule 4.3.16 (2) (Life policies — illustrations), as the case requires; and
            (i) if the retail customer is entitled to exercise, and has chosen or expressed the intention to exercise, the right to make partial surrenders—include a column headed 'Withdrawals' showing the cumulative total of the withdrawals.
            (4) The authorised firm must include a statement at the bottom of the table expressing the effect of charges and expenses on the life policy in terms of a reduction in the rate of return.

            Guidance for r 4.3.17 (4)

            The reduction in the rate of return (A) may be calculated as follows:
            A = B − C
            where:

            B is the rate of return selected by the firm for the lower or higher projection mentioned in rule 4.3.16 (2), as the case requires.

            C is the annual rate of return worked out by—
            (a) carrying out a projection using B; and
            (b) then calculating the annual rate of return (rounded to the nearest tenth of 1%) required to achieve the same projection value if charges and expenses were not taken into account.
            Explanatory note

            This amendment
            •   is consequential on the amendments of rule 4.3.15; and
            •   simplifies the content required for effects of charges and expenses tables; and
            •   clarifies when the tables may be changed; and
            •   clarifies how the tables are to be completed.

            [1.20] Rule 4.3.18 (1)

            omit rule 4.3.17 (2) (c)
            substitute rule 4.3.17

            Explanatory note

            This amendment updates a cross-reference.

            [1.21] New rule 4.3.18 (5)

            insert
            (5) In calculating the projection, contributions must be net of any rider benefits and extra premiums charged for increased underwriting benefits.
            Explanatory note

            This amendment clarifies that, when calculating a projection for an illustration, the contributions from the retail customer should have had any rider benefits or extra premiums that have been charged for increased underwriting risks deducted from the total premium paid.

            Part 1.3 General Rulebook (GENE)

            [1.22] Appendix 2, table A2.1, items 8, 9 and 10

            omit

            Explanatory note

            This amendment is consequential on the revision of PIIB, section 1.4 by another amendment.

            Part 1.4 Interim Prudential — Investment, Insurance Mediation and Banking Business Rulebook (PIIB)

            [1.23] Section 1.4

            substitute
            1.4 Prudential returns
            1.4.1
            (1) An authorised firm must, in accordance with rule 1.4.2, prepare the annual, biannual and quarterly prudential returns that it is required to prepare by notice published by the Regulatory Authority.
            (2) The Regulatory Authority may, by notice given to an authorised firm
            (a) require the firm to prepare additional prudential returns; or
            (b) exempt the firm from the requirement to prepare annual, biannual or quarterly returns or a particular annual, biannual or quarterly return.
            (3) An exemption under subrule (2) (b) may be subject to conditions, restrictions or requirements.
            (4) An authorised firm given an exemption under subrule (2) (b) must comply with all conditions, restrictions and requirements to which the exemption is subject.
            1.4.2
            (1) A prudential return must be prepared—
            (a) using the appropriate forms approved and published by the Regulatory Authority; and
            (b) in accordance with any instructions (relevant instructions) —
            (i) in the forms; or
            (ii) published by the Regulatory Authority.
            (2) Without limiting subrule (1) (b) —
            (a) a prudential return must be signed in accordance with any relevant instructions; and
            (b) a declaration or certification required by any relevant instructions must be completed, and provided to the Regulatory Authority, in accordance with the instructions.

            Note GENE, ch 5 applies to the provision of prudential returns to the Regulatory Authority.
            (3) To remove any doubt, subrule (2) has effect despite GENE, rule 5.2.2.
            Explanatory note

            This amendment revises the requirements for the preparation of prudential returns to allow for increased flexibility.

            [1.24] Rule 1.5.1

            omit

            Explanatory note

            This amendment is consequential on the revision of section 1.4 by another amendment.

            [1.25] Rule 1.5.3 (1)

            substitute
            1.5.3
            (1) An authorised firm must provide any annual prudential return to the Regulatory Authority within 4 months after the end of the firm's financial year.
            Explanatory note

            This amendment is consequential on the revision of section 1.4 by another amendment.

            [1.26] Rule 1.5.3 (2)

            substitute
            (2) An authorised firm must provide any biannual prudential return to the Regulatory Authority within 1 month after the end of the standard biannual period.
            Explanatory note

            This amendment is consequential on the revision of section 1.4 by another amendment.

            [1.27] Rule 1.5.3 (4)

            substitute
            (4) An authorised firm must provide any quarterly prudential return to the Regulatory Authority within 1 month after the end of the standard quarter.
            Explanatory note

            This amendment is consequential on the revision of section 1.4 by another amendment.

            [1.28] Section 1.6, table, entry relating to section 1.4

            omit

            Reporting
            substitute

            Prudential returns

            Explanatory note

            This amendment is consequential on the revision of section 1.4 by another amendment.

            [1.29] Section 1.6, table, entry relating to App 7

            omit

            Explanatory note

            This amendment is consequential on the omission of Appendix 7 by another amendment.

            [1.30] Appendix 4, rule A4.8.1 (E)

            substitute
            (E) exposures with a maturity of 1 year or less, not constituting their own capital resources, to—
            (i) a deposit-taker or principal dealer if—
            (a) the authorised firm is satisfied that any risks arising from the exposures are prudently and soundly managed; and
            (b) the authorised firm gave the Regulatory Authority written notice of the exposures before they arose; and
            (c) the Regulatory Authority confirmed in writing before the exposures arose that it had no objection to them; or
            (ii) a zone 1 clearing house or exchange; or
            (iii) a multilateral development bank;
            Explanatory note

            This amendment removes the restriction based on jurisdictions (the former zone 1) and replaces it with a process to exempt short-term exposures to deposit-takers or principal dealers in specified circumstances.

            [1.31] Appendix 7

            omit

            Explanatory note

            This amendment is consequential on the revision of section 1.4 by another amendment.

            Part 1.5 Interpretation and Application Rulebook (INAP)

            [1.32] Chapter 3, glossary, definition of Approved Assets

            substitute

            approved asset Any of the following in relation to an authorised firm:
            (a) a certificate of deposit issued by and held with an eligible bank if the certificate of deposit has a maximum term to maturity of 6 months;
            (b) a term deposit with an eligible bank if the term deposit has a remaining term to maturity of 1 year or less;
            (c) a negotiable debt instrument rated at least AA- by Standard & Poor's, or the equivalent by another rating agency, if the instrument has a remaining term to maturity of 5 years or less;
            (d) a repurchase agreement if—
            (i) the agreement is fully collateralised with negotiable debt instruments mentioned in paragraph (c); and
            (ii) the counterparty is rated at least AA- by Standard & Poor's, or the equivalent by another rating agency;
            (e) a bond fund if—
            (i) the fund is rated at least AA-by Standard & Poor's, or the equivalent by another rating agency; and
            (ii) the designated bank account for the redeemed investment is an insurance bank account held by the authorised firm in accordance with ASET, section 7.3.


            Explanatory note

            This amendment is consequential on the change of the term designated bank to eligible bank.

            [1.33] Chapter 3, glossary, definition of Designated Bank

            omit

            Explanatory note

            This amendment is consequential on the change of the term designated bank to eligible bank.

            [1.34] Chapter 3, glossary, definition of Designated Jurisdiction

            omit

            Explanatory note

            This amendment gives effect to the removal of the concept of designated jurisdiction.

            [1.35] Chapter 3, glossary, new definition of eligible bank

            insert

            eligible bank A person that is an authorised firm with an authorisation for deposit taking, or a person in relation to whom all of the following requirements are satisfied:
            (a) the person is incorporated in a jurisdiction outside the QFC;
            (b) the Regulatory Authority has not, by notice, declared that this definition does not apply to the jurisdiction;
            (c) the person is regulated as a bank, and principally regulated for prudential purposes, by an overseas regulator in the jurisdiction;
            (d) the person is required to prepare audited accounts;
            (e) the person has minimum assets of US $10 million (or its equivalent in any other currency at the relevant time);
            (f) the person had surplus revenue over expenditure for the person's last 2 financial years;
            (g) the person's latest annual audit report is not materially qualified.


            Explanatory note

            This amendment adds the new term eligible bank to INAP and adds criteria that must be met to become an eligible bank.

            [1.36] Chapter 3, glossary, definition of Eligible Custodian

            substitute

            eligible custodian Has the meaning given by the ASET, rule 4.5.5.


            Explanatory note

            This amendment replaces the substantive definition of eligible custodian in INAP with a signpost to the new substantive definition in ASET.

            [1.37] Chapter 3, glossary, definition of Eligible Third Party

            substitute

            eligible third party A person (other than an eligible bank) that is an authorised firm, or in relation to whom all of the following requirements are satisfied:
            (a) the person is authorised (however described) under the law of a jurisdiction outside the QFC to carry on any investment business;
            (b) the person is principally regulated for prudential purposes by an overseas regulator in the jurisdiction;
            (c) the Regulatory Authority has not, by notice, declared that this definition does not apply to the jurisdiction.


            Explanatory note

            This amendment adds criteria that must be met to become an eligible third party.

            [1.38] Chapter 3, glossary, definition of Insurance Bank Account

            substitute

            insurance bank account A bank account maintained by an authorised firm with an eligible bank as an insurance bank account.


            Explanatory note

            This amendment is consequential on the change of the term designated bank to eligible bank.

            [1.39] Chapter 3, glossary, definition of Readily Realisable Investment

            substitute

            readily realisable investment Any of the following:
            (a) a government or public security denominated in the currency of the country or territory of its issuer;
            (b) any other security that is admitted to official listing on, or regularly traded on or under the rules of —
            (i) a designated exchange; or
            (ii) an exchange regulated by an overseas regulator in a jurisdiction outside the QFC if the Regulatory Authority has not, by notice, declared that this definition does not apply to the jurisdiction;
            (c) a newly issued security that can reasonably be expected to fall within paragraph (b) when trading in it starts.


            Explanatory note

            This amendment is consequential on the change of the term designated bank to eligible bank.

            [1.40] Chapter 3, glossary, definition of Third Party-Related Distribution Event

            substitute

            third party-related distribution event In relation to an eligible bank or eligible third party
            (a) the appointment of a liquidator, receiver or administrator, or of a trustee in bankruptcy; or
            (b) any equivalent event.


            Explanatory note

            This amendment is consequential on the change of the term designated bank to eligible bank.

            Part 1.6 Prudential — Insurance Rulebook (PINS)

            [1.41] Section 1.4 heading

            substitute
            1.4 Prudential returns
            Explanatory note

            This amendment is consequential on the amendment of rules 1.4.1 to 1.4.4 by another amendment.

            [1.42] Rules 1.4.1 to 1.4.4

            substitute
            1.4.1
            (1) An insurer must, in accordance with rule 1.4.2, prepare the annual, biannual and quarterly prudential returns that it is required to prepare by notice published by the Regulatory Authority.
            (2) The Regulatory Authority may, by notice given to an insurer
            (a) require the insurer to prepare additional prudential returns; or
            (b) exempt the insurer from the requirement to prepare annual, biannual or quarterly returns or a particular annual, biannual or quarterly return.
            (3) An exemption under subrule (2) (b) may be subject to conditions, restrictions or requirements.
            (4) An insurer given an exemption under subrule (2) (b) must comply with all conditions, restrictions and requirements to which the exemption is subject.
            1.4.2
            (1) A prudential return must be prepared—
            (a) using the appropriate forms approved and published by the Regulatory Authority; and
            (b) in accordance with any instructions (relevant instructions)—
            (i) in the forms; or
            (ii) published by the Regulatory Authority.
            (2) Without limiting subrule (1) (b)—
            (a) a prudential return must be signed in accordance with any relevant instructions; and
            (b) a declaration or certification required by any relevant instructions must be completed, and provided to the Regulatory Authority, in accordance with the instructions.

            Note GENE, ch 5 applies to the provision of prudential returns to the Regulatory Authority.
            (3) To remove any doubt, subrule (2) has effect despite GENE, rule 5.2.2.
            Explanatory note

            This amendment revises the requirements for the preparation of prudential returns by insurers to allow for increased flexibility.

            [1.43] Rule 1.4.6

            substitute

            Annual
            1.4.6 An insurer must provide any annual prudential return to the Regulatory Authority within 4 months after the end of the insurer's financial year.
            Explanatory note

            This amendment is consequential on the amendment of rules 1.4.1 to 1.4.4 by another amendment.

            [1.44] Rule 1.4.7 (1)

            substitute
            1.4.7
            (1) An insurer must provide any biannual prudential return to the Regulatory Authority within 1 month after the end of the standard biannual period.
            Explanatory note

            This amendment is consequential on the amendment of rules 1.4.1 to 1.4.4 by another amendment.

            [1.45] Rule 1.4.8 (1)

            substitute
            1.4.8
            (1) An insurer must provide any quarterly prudential return to the Regulatory Authority within 1 month after the end of the standard quarter.
            Explanatory note

            This amendment is consequential on the amendment of rules 1.4.1 to 1.4.4 by another amendment.

            [1.46] Rule 4.4.2 (1) (G)

            substitute
            (G) the agreement and the debt are governed by the laws of a jurisdiction
            (i) under which the other conditions mentioned in this subrule can be met; or
            (ii) that is otherwise acceptable, generally or in a particular case, to the Regulatory Authority;
            Explanatory note

            This amendment is consequential on the removal of the concept of designated jurisdiction.

            [1.47] Appendix 4

            omit

            Explanatory note

            This amendment is consequential on the revisions of rules 1.4.1 to 1.4.4 by another amendment.

            Schedule 2 Technical amendments

            Part 2.1 Anti Money Laundering Rulebook (AMLR)

            [2.1] Rule 3.12.3 (1) (a) (iv)

            omit

            banks's
            substitute

            bank's

            Explanatory note

            This amendment corrects a typographical error.

            [2.2] Rule A1.1.2 (2)

            omit

            relation a
            substitute

            relation to a

            Explanatory note

            This amendment inserts a missing preposition.

            Part 2.2 Conduct of Business Rulebook (COND)

            [2.3] Rule 4.3.14 (1) (d)

            omit

            service
            substitute

            services

            Explanatory note

            This amendment corrects a typographical error.

            Part 2.3 General Rulebook (GENE)

            [2.4] Rule 9.7.3, guidance

            omit

            Limited Liability Partnerships,
            substitute

            Limited Liability Partnership Regulations,

            Explanatory note

            This amendment corrects a typographical error.

            Part 2.4 Interim Prudential — Investment, Insurance Mediation and Banking Business Rulebook (PIIB)

            [2.5] Background, 4, table

            omit

            Agent,
            substitute

            agent,

            Explanatory note

            This amendment omits unnecessary italicisation and capitalisation of a term that is not defined in INAP.

            [2.6] Appendix 4, rule A4.3.5, guidance, 1, c

            omit

            by the borrower

            Explanatory note

            This amendment omits a redundant phrase.

            Part 2.5 Interpretation and Application Rulebook (INAP)

            [2.7] Chapter 3, glossary, definition of Commission

            substitute

            commission Any form of commission, including a benefit of any kind offered or given.


            Explanatory note

            This amendment removes the restrictive application of the definition.

            [2.8] Chapter 3, glossary, definition of insurance money, examples, paragraphs (c) and (d)

            substitute
            (c) refunds and salvages;
            (d) fees, charges, taxes and similar fiscal levies relating to contracts of insurance;
            Explanatory note

            This amendment makes plural the references to refund and contract.

            [2.9] Chapter 3, glossary, definition of stock lending

            substitute

            stock lending 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 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).


            Explanatory note

            This amendment reinserts the correct definition of stock lending.

            [2.10] Chapter 3, glossary, definition of Third Party

            omit

            authorized
            substitute

            authorised

            Explanatory note

            This amendment corrects a typographical error.

        • QFCRA CP No.2008/03 QFCRA CP No.2008/03 – Statement of Policy — Financial Penalties for the Late Submission of Returns and Reports by Authorised Firms

          Preamble

          This Consultation Paper invites comments on the proposed Statement of Policy (“Statement”) on the imposition and amount of financial penalties for the late submission of returns and reports by authorised firms to the QFC Regulatory Authority (“Regulatory Authority”).

          Before issuing the Statement, the Regulatory Authority is publishing the draft policy on its website inviting public comment. Comments are invited in relation to any aspect of the proposals in this paper, on both the concepts and the proposed Statement itself, which is attached at Annex A. You are welcome to comment on all of the matters, or only those that are of specific interest or concern to you. These proposals and the final Statement are also subject to further review by the Regulatory Authority and approval by its Board.

          Anyone wishing to submit comments should provide details of the organisation he or she represents. The names of the commentators and the content of their submissions may be published on the Regulatory Authority’s website and in other documents to be published by the Regulatory Authority. If you wish your name or any part of your submission to be withheld from publication please indicate this, together with your reasons, when you make your submission. The Regulatory Authority will then decide whether to publish the name or material. In doing so, the Regulatory Authority will have regard, in particular, to any obligations under the Data Protection Regulations, to issues of commercial sensitivity and whether the justification for publication is outweighed (taking into account the Regulatory Authority’s regulatory objectives) by confidentiality concerns. If anyone has concerns about confidentiality, they are welcome to discuss them with us before making a submission.

          Any comments should be submitted to:

          Matthew Hampton
          Associate Director, Financial Sector Development and Policy
          QFC Regulatory Authority
          PO Box 22989
          Doha, Qatar

          Or emailed to: m.hampton@qfcra.com

          All comments must be received by 31 January 2009.

          1 — Introduction

          1.0 This Consultation Paper (“CP”) proposes a policy be issued in accordance with Article 79 (Policy in relation to financial penalties) of the Financial Services Regulations (“Financial Services Regulations”) with respect to the imposition of financial penalties for contraventions of the requirement to file returns and reports at the specified times. The Statement will be issued under Article 70 of the Financial Services Regulations, and any financial penalties will be imposed under Article 59 of the Financial Services Regulations.
          1.2 Annex A to this CP contains the actual text of the proposed Statement.
          1.3 The Statement will apply to all authorised firms.

          2 — Summary of Proposed Financial Penalties Policy

          2.0 The draft Statement of Policy is at Annex A to this Consultation Paper. The Statement proposes, as a general policy, the application of a financial penalty for the late submission of returns or reports, unless the authorised firm satisfies the Regulatory Authority that the relevant contravention was caused by circumstances beyond the firm’s control or should otherwise be excused.
          2.1 The maximum amount of the penalty will be:
          a US$500 for the initial failure to file the report or return within 5 days after the due date; and
          b a continuing daily penalty of US$100 where the contravention continues for more than 5 days.
          2.2 The proposed penalty regime will apply to contraventions of any relevant requirement (as defined in the Financial Services Regulations) because of the failure of an authorised firm to provide, at the required time, any report or return.
          2.3 The imposition of any financial penalties will be subject to the relevant procedures contained in Part 10 of the Financial Services Regulations. Important elements of those procedures include:
          a a written notice being provided to the firm, specifying the proposal to impose a fine and providing an opportunity for the firm to make written submissions;
          b if the Regulatory Authority then decides to impose the financial penalty, a Decision Notice setting out the amount being given by the Regulatory Authority to the firm; and
          c the firm has a right of appeal within twenty-eight days of receipt of the Decision Notice (or any longer period as advised by the Regulatory Authority).
          2.4 In determining the amount of any such penalty, the Regulatory Authority must have regard to the matters set out in paragraph 3 of the Draft Statement of Policy (see Annex A).
          2.5 The Regulatory Authority considers the measures proposed are appropriate and proportionate to the contraventions in issue, and will be an important tool to encourage firms to file on time, and to sanction those who do not. The Regulatory Authority will also continue to encourage firms to notify the Regulatory Authority in advance if a firm has difficulty in meeting a due date.

          • Annex A Draft Statement of Policy

            Financial penalties policy — Contravention of relevant requirements by failing to provide report or return

            (made under Financial Services Regulations, article 79 and schedule 1, paragraph 19.3)

            1. The Regulatory Authority's general policy is that a financial penalty of not more than the relevant amount is to be imposed on an authorised firm if —
            (a) the firm contravenes a relevant requirement by failing to provide a report or return to the authority within the time within which the report or return is required to be provided; and
            (b) the contravention continues for at least 5 days; and
            (c) the firm does not satisfy the authority that the contravention was caused by circumstances beyond the firm’s control or should otherwise be excused.
            2. For this policy statement, the relevant amount is the total of —
            (a) US$ 500; and
            (b) US$ 100 for each day (or part of a day) after the 5th day during which the contravention continues.
            3. In determining the amount of the financial penalty for the contravention, the Regulatory Authority must have regard to —
            i. the seriousness of the contravention in relation to the nature of the requirement contravened; and
            ii. the extent to which the contravention was deliberate or reckless; and
            iii. whether the person on whom the penalty is to be imposed is an individual; and
            iv. the effect on third parties, clients or customers and the best interests of the financial system (including those matters to which the Financial Services Regulations apply).
            4. The general policy in paragraph 1 does not apply to a contravention of a relevant requirement if the Regulatory Authority considers that the Regulatory Objectives in the Financial Services Regulations, article 12 (3) require that other enforcement action (including the imposition of a financial penalty of more than the relevant amount) be taken for the contravention.
            5. Contraventions to which the general policy in paragraph 1 applies are ‘routine matters or minor contraventions’ under the Financial Services Regulations, schedule 1, paragraph 19.3 and decision notices for them may be issued by the Chief Executive Officer or a committee of the Board of the Regulatory Authority.
            6. The Regulatory Authority will exercise the power to impose financial penalties in accordance with the Financial Services Regulations, part 10 (Enforcement procedure).
            Note The procedures in part 10 provide, among other things, for the following:
            i. that, if the authority proposes to exercise its disciplinary powers (including by imposing a financial penalty) in relation to a person, it must first give the person a written notice specifying the action that it proposes to take and an opportunity to make written representations to it in relation to the notice;
            ii. that, if the authority decides to exercise its disciplinary powers (including by imposing a financial penalty) in relation to a person, it must give the person a written decision notice that, among other things, gives the authority’s reasons for its decision and, for the imposition of a financial penalty, states the amount of the financial penalty and the period within which it is to be paid;
            iii. that the person has a right to access the material on which the authority relied in making its decision or to be given written notice of the authority’s refusal to provide access and its reasons for the refusal;
            iv. appeal rights by the person and affected third parties.
            7. The Regulatory Authority’s Interpretation and Application Rulebook (INAP) applies to this policy statement as if it were a rulebook.

      • 2007

        • QFCRA CP No.2007/1 – QFCRA CP No.2007/1 – The Regulation of Retail Activities and Retail Insurance Business Permitted to be Conducted in or from the Qatar Financial Centre

          Preamble

          This Consultation Paper invites comments on the proposed rules for the regulation of retail regulated activities permitted to be conducted in or from the Qatar Financial Centre. The immediate focus of this paper is on retail insurance business, but the regime is intended to be the framework for any retail regulated activities conducted by firms authorised to do so by the QFC Regulatory Authority.

          The proposed rules will be made under Article 15 of the QFC Financial Services Regulations, which provides the QFC Regulatory Authority with the power to make rules as it deems necessary or appropriate to facilitate the pursuit, achievement and furtherance of its regulatory objectives.

          Prior to making rules, the QFC Regulatory Authority must publish the draft rules on its website inviting public comment. Comments are invited in relation to any aspect of the proposals in this paper, on both the concepts and the proposed rules themselves. These are attached at Appendix 2 and 3. You are welcome to comment on all of the matters, or only those that are of specific interest or concern to you. These proposals and the final rules are also subject to further review by the QFC Regulatory Authority and approval by its Board.

          Anyone wishing to submit comments should provide details of the organisation he or she represents. The names of the commentators and the content of their submissions may be published on the QFC Regulatory Authority's website and in other documents to be published by the QFC Regulatory Authority. If you wish your name or any part of your submission to be withheld from publication please indicate this, together with your reasons, when you make your submission. The QFC Regulatory Authority will then decide whether to publish the name or material. In doing so, the QFC Regulatory Authority will have regard, in particular, to issues of commercial sensitivity and whether the justification for publication is outweighed by confidentially concerns. If anyone has concerns about confidentiality, they are welcome to discuss them with us before making a submission.

          Any comments should be submitted to:

          Matthew Hampton
          Associate Director, Financial Sector Development and Policy
          QFC Regulatory Authority
          PO Box 22989
          Doha, Qatar

          Or emailed to: m.hampton@qfcra.com

          All comments must be received by 25 April 2007.

          • Introduction

            1. There has been a high level of interest from firms in conducting retail insurance activities as well as retail asset management business in or from the QFC. In order to conduct such activities, firms must be authorised by the QFC Regulatory Authority to do so. Under the requirements of Article 24 of the QFC Financial Services Regulations (FSR), the QFC Regulatory Authority may only however, authorise firms to conduct regulated activities for retail customers in the State of Qatar (Qatar) after it has put in place measures to ensure appropriate protections commensurate with the needs of such customers. The QFC Regulatory Authority is also required under its regulatory objectives in Article 12 of the FSR to provide adequate protection to those licensed to carry on business in the QFC and their clients and customers.
            2. The QFC Regulatory Authority is therefore proposing to put in place rules that will specifically apply to the conduct of retail regulated activities in or from the QFC by an authorised firm. The QFC Regulatory Authority sees a robust conduct of business regime tailored specifically to protecting retail customers as an essential element in fulfilling its statutory obligations under the FSR.
            3. The proposed rules would complement the existing framework for the protection of all clients, including retail customers, of QFC authorised firms. Other elements include:
            •   the requirements of the FSR, and those contained in rules made under the FSR, that firms are already subject to, including requirements relating to safeguarding client assets, the adequacy of the firm's financial resources and the internal systems and controls of the firm;
            •   the supervisory and enforcement roles and powers of the QFC Regulatory Authority; and
            •   the independent judicial, regulatory tribunal and dispute resolution bodies to which customers can seek recourse, and by which disputes between firms and customers can be resolved.
            4. In considering what would constitute an appropriate level of protection for retail customers in Qatar, the QFC Regulatory Authority has reviewed the approach to the regulation of retail financial services in a number of major jurisdictions. Following this review, the QFC Regulatory Authority considers that in addition to existing QFC laws, the retail regime should, to meet international best practice, include:
            (1) an enhanced conduct of business regime that provides tailored protection for retail consumers, including:
            (a) more detailed requirements governing financial promotions pitched at retail customers;
            (b) product disclosure requirements;
            (c) initial contact and ongoing disclosure requirements, including requirements specifically for intermediaries;
            (d) post-contractual rights, including cancellation rights and claims handling; and
            (2) a dispute resolution scheme for retail consumers providing an efficient, impartial, flexible, fast and cheap form of mediation for resolving disputes between QFC firms and retail consumers.
            5. The remainder of this consultation paper will focus on the conduct of business regime for retail customers identified in paragraph 4 (1). The proposed regime specifically targets retail insurance business, but generally has wider application, for example, the proposals regarding financial promotions apply to all authorised firms. Proposals relating to the dispute resolution scheme in paragraph 4 (2), in particular the formation of an ombudsman scheme, will be the subject of a forthcoming consultation paper (with draft rules attached), and is not discussed in this paper.
            6. Article 87 (Compensation) of the FSR also allows the QFC Regulatory Authority to establish funds to provide compensation to clients and customers in the event an authorised firm defaults on the payment of monies. The QFC Regulatory Authority will address the issue of whether a compensation fund is appropriate at a later date.

          • Consultation process

            7. The purpose of this consultation paper is threefold:
            •   to identify, at a high level, the key issues that have guided the development of the proposed retail conduct of business regime or otherwise indirectly impacted on the regime;
            •   to outline the core proposals for the retail rules for the QFC, with particular reference to retail insurance business; and
            •   to invite comment from interested parties on the proposed regime and the draft rules in Appendix 2 and 3, as well as more targeted questions that the QFC Regulatory Authority is seeking to receive feedback on.
            8. All submissions will be carefully reviewed by the QFC Regulatory Authority, which may adopt in whole or in part the proposals, or amend them, including in light of comments received. These proposals and the final rules are subject to further review by the QFC Regulatory Authority and approval by its Board.

          • Objectives of the proposed retail framework

            9. The QFC Regulatory Authority is required to exercise its functions and powers in accordance with the Regulatory Objectives and Principles of Good Regulation as laid down in the FSR (see Appendix 1). These Objectives and Principles, as well as article 24 of the FSR, have guided the development of the substantive proposals contained in the proposed retail conduct of business regime. However, more specific objectives were also identified which have guided the development of the proposed regime, including:
            •   to provide a robust and comprehensive conduct of business regime protecting retail customers;
            •   to provide this protection in a manner that is flexible as to how requirements are met, particularly with regard to disclosure obligations;
            •   to build a principles-based regime underpinned by more detailed rules where these are deemed necessary;
            •   to look at outcomes rather than relying on formal processes or a mechanical application of requirements;
            •   to allow for the information to be provided in such a way as to minimise duplication but allow, conceptually, for an investment process from a financial promotion, to initial contact and through to post-contractual disclosure obligations;
            •   to apply 'common sense' in the application of the proposed rules in order to minimise compliance costs; and
            •   to avoid whenever possible specific QFC requirements, such as prescribed wording, that unnecessarily increases the compliance costs for authorised firms in meeting these requirements.

          • What do the proposals mean for the retail customer?

            10. It is important to highlight that the proposed regime is intended to balance the principle of "caveat emptor" with the needs of retail customers to have appropriate levels of protection. The regime is not intended to suggest that retail customers do not have responsibility for decisions they make, or are immune from disappointing or adverse outcomes, such as adverse price movements, inadequate returns or insolvency of authorised firms.
            11. The relationship between the obligations and expectations of firms and retail customers is reflected in the Regulatory Objectives of the QFC Regulatory Authority. These require the QFC Regulatory Authority to consider, when deciding upon an appropriate level of customer protection, the general principle that customers should take responsibility for their own decisions.
            12. On the other hand, providers of financial services have certain duties and responsibilities to buyers of their services in providing a fair amount of information for their investment decisions and also to consider the suitability of their financial products and services for such customers. The proposals essentially spell out how the QFC Regulatory Authority expects authorised firms to conduct themselves fairly and transparently in respect of retail customers.
            13. Under the proposed regime, authorised firms will be required to address whether a client is:
            •   a retail customer;
            •   a business customer or commercial customer; or
            •   a market counterparty.
            14. A retail customer is generally a natural person (unless that person has liquid assets of more than US$1million and sufficient expertise to opt up to business customer status), or a body corporate, partnership or unincorporated association or trustee with less than US$5million in net assets or, where relevant, share capital, unless they meet the definition of market counterparties.1
            15. Retail customers will have the following expectations under the proposed regime:
            •   to be treated fairly;
            •   to receive financial promotions that are appropriate for retail customers and are not mis-leading;
            •   to receive adequate information from firms on the firms themselves, the services they will provide and the products they offer to enable a retail customer to make an informed choice;
            •   to have an appropriate "cooling-off" period for investment decisions;
            •   (in the case of insurance products) to have all reasonable claims on policies honoured; and
            •   to have complaints addressed in a timely manner.
            16. However those expectations, and the obligations of authorised firms, do not mean, for example, that a retail customer:
            •   will not lose money on the investment;
            •   is guaranteed to make money on the investment;
            •   is protected from fraud in relation to the investment; or
            •   no longer needs to make investment decisions based on an assessment of his or her own position.

            1. Do you agree with the approach to retail customer protection?

          • Approved representatives and non-QFC intermediaries

            17. Intermediaries play a crucial role in retail financial services, with many retail customers using them to reduce the information asymmetries that often make the purchase of financial products difficult for these customers. Because of their importance to retail customers, and the aspects of the principal-agent relationship that can impact on the ability of intermediaries to provide objective and impartial advice, conduct of business rules for intermediaries form a fundamental component of retail protection regimes.
            18. The proposals reflect this with a comprehensive regime applying to firms who wish to act as investment advisers and insurance intermediaries in or from the QFC. These requirements are discussed in the main body of the paper. Issues arise however when authorised firms wish to use intermediaries who are themselves not firms authorised in the QFC. These intermediaries can be divided into two categories:
            (1) intermediaries who are individuals appointed by an authorised firm as a representative of the firm, in particular as part of an authorised firm's distribution and sales force, and who, in so acting, mean the authorised firm will still meet the requirement of conducting business "in or from the QFC"; and
            (2) intermediaries who are not authorised or otherwise approved in the QFC and who conduct activities on behalf of the authorised firm in a manner or from a place which means that the authorised firm is not conducting business in or from the QFC.
            19. It is proposed that authorised firms wishing to establish distribution networks through individuals appointed as representatives of the firm, as identified in paragraph 18 (1), can do so if they wish, subject to the following two criteria being met:
            (1) each individual so appointed is approved to perform the customer facing function under the Individuals (INDI) Rulebook in relation to the intermediary business the individual performs on behalf of the authorised firm; and
            (2) the intermediary business performed by the individual is conducted in or from the QFC.
            20. The conduct of business rules, and QFC law more generally, only applies to business conducted in or from the QFC. The QFC Regulatory Authority is aware that some firms may wish to use intermediaries in Qatar but from outside the QFC (as identified in paragraph 18 (2)). An authorised firm may do so if, and to the extent permitted, by non-QFC laws of the State of Qatar. In that event, the authorised firm and the intermediary must comply with those laws.
            21. Finally, in order to ensure the use of intermediaries does not undermine the protections the QFC provides to retail consumers of QFC products, it is proposed that in either case identified above, the authorised firm will be liable for all acts or omissions of the intermediary. This is so an authorised firm will not be able to avoid the requirements of the proposed rules simply by outsourcing the sale and distribution of its products to agents or other intermediaries.

            2. Do you agree with the proposed approach to intermediaries of authorised firms and in particular to intermediaries from outside the QFC?

          • QFC intermediaries who market non-QFC insurance contracts

            22. The proposed regime includes specific protections for retail customers of insurance products, relating in particular to cancellation rights and claims handling. These vary depending on the particular characteristic of the insurance, for example there is a longer "cooling-off" period for long term insurance contracts compared to general insurance contracts. These protections apply to all firms who are authorised to conduct insurance business in or from the QFC.
            23. It is important to highlight however that the proposals contain no restrictions on authorised firms acting as intermediaries for non-QFC insurers, and there is no guarantee that the protections provided in non-QFC jurisdictions in relation to effecting and carrying out insurance contracts, including those on cancellation rights and claims handling, would be equivalent to those provided under the proposed QFC regime.
            24. To deal with possible discrepancies between the protections that QFC insurers are required to provide and those that non-QFC insurers may provide, it is proposed that QFC firms acting as intermediaries for non-QFC insurers must ensure that the product disclosure information on such policies includes a warning that the requirements relating to claims handling may be different to those provided under QFC legislation, as well as highlighting any cancellation period shorter than that provided for by QFC requirements for an equivalent product. The QFC Regulatory Authority believes that disclosure of these discrepancies is preferable to dictating which non-QFC insurance products a QFC firm can act as an intermediary for.

            3. Do you agree with the proposed approach of requiring authorised firms wishing to act as an intermediary for non-QFC insurers to disclosure to retail customers the possibility that these policies may not be subject to the same level of protection as policies issued by QFC insurers?

          • Introduction to retail conduct of business regime

            25. The proposals discussed in this paper would largely sit in a revised version of the current Conduct of Business (COND) Rulebook (hereon referred to as 'newCOND'). A draft of newCOND is attached at Appendix 2. A proposed requirement for professional indemnity insurance for insurance intermediaries would be inserted into a revised version of the Controls (CTRL) Rulebook. These draft rules are attached at Appendix 3, as are several minor consequential amendments to the Prudential-Insurance (PINS) Rulebook, Individuals (INDI) Rulebook and the Interpretation and Application (INAP) Rulebook.
            26. NewCOND includes new proposals specifically relating to retail customers, as well as significant restructuring and redrafting of the existing COND rules to improve the clarity, legal enforceability and policy intention of these requirements. The regulatory protections in newCOND are built up in layers according to the vulnerability of the type of customer in question, with chapters generally arranged in the following manner:
            •   rules that authorised firms must follow when conducting business with all categories of customers;
            •   rules that authorised firms must follow when conducting business with either business or retail customers, but not market counterparties; then
            •   additional rules that authorised firms must follow when doing business with retail customers.
            27. NewCOND comprises 6 chapters:
            •   Chapter 1: Introduction to COND;
            •   Chapter 2: Obligations of all authorised firms;
            •   Chapter 3: Financial promotions;
            •   Chapter 4: Conduct of investment business;
            •    Chapter 5: Conduct of non-investment insurance mediation business; and
            •   Conduct 6: Conduct of insurance business.
            28. Chapters 2 and 3 apply to all types of business conducted by an authorised firm. By contrast, the application of chapters 4, 5 and 6 to an authorised firm depends on the types of business it conducts.
            29. Under the FSR, the business of an authorised firm consists of groups of regulated activities conducted in relation to certain specified products (see FSR, schedule 3, part 3). For example, investment business is defined as carrying on a range of regulated activities (including arranging deals, advising and dealing as principal or agent) in relation to a group of specified products collectively referred to as relevant investments. Relevant investments include the following products:

            shares, debt instruments, warrants, securities receipts, units in a collective investment fund, options, futures, contracts for differences, long term insurance contracts, and rights in investments relating to any of these products.
            30. For the purposes of newCOND, not all long term insurance contracts are treated as relevant investments. Only long term insurance contracts that contain an investment or savings component are treated as relevant investments for COND, and are referred to as 'life policies'. Pure protection contracts other than long term care insurance contracts do not meet this requirement and are, therefore, grouped with general insurance contracts in the defined term 'non-investment insurance contracts'.
            31. Two kinds of specified products, deposits and credit facilities, do not fall into any of the types of business dealt with in chapters 4, 5 and 6. In carrying on business relating to deposits and credit facilities, an authorised firm is, therefore, subject to chapter 2 (General obligations of all authorised firms) and chapter 3 (Financial promotions), but not chapters 4, 5 or 6.

          • Key features of newCOND

            32. The following sections examine each chapter in newCOND, with a focus on new requirements in each chapter rather than those already to be found in the current version of COND. A short section at the end explains the proposed professional indemnity cover and consequential amendments, which can all be found in the draft rules attached in Appendix 3.

            CHAPTER 1 — INTRODUCTION TO COND

            33. Chapter 1 of newCOND provides an introduction to the rulebook through a series of notes. It is designed as guidance material that will allow users of newCOND to navigate their way through the rulebook by outlining the conceptual framework and key concepts that underpin newCOND.

            CHAPTER 2 — GENERAL OBLIGATIONS OF ALL AUTHORISED FIRMS

            34. Chapter 2 applies to all authorised firms conducting business in or from the QFC. It is comprised of the following parts:
            •   Part 2.1: Application and language of disclosure;
            •   Part 2.2: Persons acting on behalf of authorised firms;
            •   Part 2.3: Client classification;
            •   Part 2.4: Reliance on others and exclusion or restriction of liability;
            •   Part 2.5: Conflicts, material interests and inducements;
            •   Part 2.6: Customer complaints;
            •   Part 2.7: Restitution orders; and
            •   Part 2.8: General recordkeeping obligation.
            35. Parts 2.1 (Application and language of disclosure) and 2.2 (Persons acting on behalf of authorised firms) are designed to ensure the integrity of the protection that customers, and in particular retail customers, receive under the conduct of business regime. The first relates to the language that information required under COND is provided to the customer in, while the second proposal covers the issue of intermediaries who are not authorised firms (see paragraph's 17 through to 21). In particular, the proposals are:

            •   that all information required to be provided to a retail customer must be given in a language that the customer can understand; and
            •   rules relating to when authorised firms can enter into agreements with intermediaries who are not authorised firms, as well as their ongoing responsibility for all acts or omissions of these intermediaries.

            4. Do you agree with the suggested approach to language issues?
            36. The rules contained in Part 2.3 (Client classification) contain no significant changes to those in the current COND. The position of this part at the very front of the rulebook reflects the fact that client classification is the first obligation of any authorised firm on meeting a client. The rules allow retail customers to opt up to business customer status if they fulfil certain criteria based on investment expertise and personal wealth. The rules also deal with the treatment of agents acting on behalf of customers, who are as the customer, subject to any agreement otherwise between the agent and the firm.
            37. Part 2.4 (Reliance on others and exclusion or restriction of liability) extends the existing material in the current COND, which already precludes a firm excluding or restricting its duties or liabilities under the regulatory system, by restricting a firm's ability to exclude or restrict its liability under the general law of obligations outside the regulatory system.
            38. Part 2.5 (Conflicts, material interests and inducements) reorganises and strengthens the current material in COND on these matters. It also shifts the current material on inducements and soft dollar agreements into chapter 2, giving it general application to all authorised firms rather than only those conducting investment business. This removes the need to duplicate this material in relation to non-investment insurance mediation business. The key proposals in this part are:

            •   increased steps that can be taken to manage conflicts of interest or material interests, as well as greater clarity over what needs to be disclosed to a client;
            •   restrictions in connection with packaged products (life policies and units in a collective investment fund) that protect retail customers from being charged commissions based on unnecessary transactions or other means to inflate commissions; and
            •   a requirement that holdings or the provision of credit between a product provider and another firm (unless in the same group) are carried out on a commercial basis and at arms length and do not impact on the advice provided to a retail customer regarding a packaged product.
            39. Part 2.6 (Customer complaints) builds on existing material in COND on customer complaints. In particular, it introduces a requirement on firms to establish procedures to ensure a timely and fair response to complaints received from retail customers, as well as appropriate escalation mechanisms for the customer. The main proposals are:

            •   the inclusion of time limits for dealing with a complaint;
            •   exemptions that restrict the application of time limits largely to retail customers with complaints that involve allegations that the customer suffered, or may suffer, financial loss or material distress or material inconvenience;
            •   a requirement for authorised firms to establish procedures for dealing with complaints from customers (both business and retail) and to give details of those procedures to the customer with whom they deal;
            •   a small section clarifying how referrals between authorised firms should be conducted; and
            •   the inclusion of references to the proposed ombudsman scheme, as well as a requirement for authorised firms to cooperate fully with the office of the Ombudsman in the handling of complaints against it.
            40. Part 2.7 (Restitution orders) provides a remedy for clients who are private persons by allowing them to apply to the court for a restitution order against a person if they have suffered loss or damage as a result of such non compliance (see Article 65 of the FSR).
            41. Part 2.8 (General recordkeeping obligation) does not significantly amend the current requirements in COND regarding record keeping. It is important to stress that the recordkeeping requirements found throughout newCOND are very important. They are designed to ensure that if an allegation arises of a breach of COND there is evidence available to prove or disprove that allegation.

            CHAPTER 3 — FINANCIAL PROMOTIONS

            42. Chapter 3, which applies to all authorised firms conducting business in or from the QFC, expands on the material on financial communications currently contained in chapter 3 of COND. It also proposes a new defined term, 'financial promotions', which better reflects the purpose of this material than the term 'financial communications' as found in the FSR. Information that an authorised firm is required to provide or disclose to a customer under QFC requirements, including product disclosure requirements, would be distinguished from financial promotions. Advertising and promotional material is quite distinct from statutory disclosure material, and it is useful to highlight this distinction, while facilitating the drafting of specific requirements tailored to each type of material.
            43. The chapter comprises the following 4 parts:
            •   Part 3.1: Financial promotions-general;
            •   Part 3.2: Financial promotions-all customers;
            •   Part 3.3: Financial promotions-retail customers; and
            •   Part 3.4: Financial promotions-miscellaneous.
            44. Part 3.2 (Financial promotions-all customers) essentially carries across the existing material in COND on 'financial communications' and augments it with some new material applicable to financial promotions made to both business customers and retail customers (but not to market counterparties). Proposed new rules in this part include:

            •   limits on how a financial promotion can be included when communicating information to a customer, including disclosure information;
            •   controls on how persons other than an authorised firm can make financial promotions on behalf of the firm;
            •   a requirement for senior management to review financial promotions and confirm they comply with COND; and
            •   some additional general requirements, such as making clear that a client's capital is at risk, if this is the case.
            45. Part 3.3 (Financial promotions-retail customers) introduces into COND an extra layer of protection specifically for retail customers. These proposals are designed to ensure financial promotions use comparisons, simulations, projections and so forth in a way that is objective, transparent and not misleading, as well as placing certain limits and disclosure obligations on financial promotions containing direct offers. Finally, this part introduces restrictions and controls on non-written financial promotions, including cold calls. The key proposals include:

            •   expanding on the general principle guiding the presentation of financial promotions tailored for retail customers;
            •   principles to be followed when including comparisons and past, simulated and future performance indicators in a financial promotion. These are fairly high level principles that aim to ensure such inclusions do not misrepresent or otherwise distort a financial promotion;
            •   requirements covering financial promotions targeted at retail customers containing a direct offer. In particular, these rules restrict such financial promotions to lower risk investment products and cross-references to those parts of the COND disclosure regime that need to be embedded in the financial promotion; and
            •   rules governing non-written financial promotions, when cold calls are permissible and when a cold call can include an offer or invitation.
            46. Part 3.4 (Financial promotions-miscellaneous) carries across the existing requirements relating to record keeping to be found in COND, as well as some new recordkeeping requirements reflecting the proposals contained in chapter 3.

            CHAPTER 4 — CONDUCT OF INVESTMENT BUSINESS

            47. Chapter 4, which applies to all authorised firms conducting investment business in or from the QFC, includes most of the requirements that currently comprise Part 2 of COND, as well as a number of new requirements in relation to conducting investment business for retail customers.
            48. The chapter comprises the following parts:
            •   Part 4.1: Investment business-general;
            •   Part 4.2: Investment business-initial client contact;
            •   Part 4.3: Investment services-retail customers;
            •   Part 4.4: Investment business-post-contractual obligations; and
            •   Part 4.5: Other investment related activities.
            49. Part 4.2 (Investment business-initial client contact) includes new material covering initial contact between an authorised firm and a retail customer. It aims to ensure that retail customers are provided with basic information regarding the authorised firm and the products and services that it offers. The QFC Regulatory Authority believes that the disclosure regime should be based on the idea that a retail customer can take away minimum basic information from shopping around different authorised firms and use it to compare firms, products and services. To reflect this, part 4.2 contains two separate disclosure requirements.
            50. The first requirement requires a firm to provide a retail customer with an Initial Disclosure Document ("IDD"), which covers such matters as the firm's contact details and regulatory status, the range of investments or services it offers plus appropriate warnings as to the risks involved in them, the extent to which it is tied to any particular product providers, the basis of the firm's remuneration, and the firm's complaint handling procedures. In appropriate circumstances however, the information may be provided orally in person or in an abbreviated form over the telephone, or may be incorporated into the firm's terms of business. The main provisions are:

            •   a requirement to provide an Initial Disclosure Document ("IDD") to retail customers, which covers such matters as the firm's:

            •   contact details and regulatory status;
            •   the range of investments or services it offers plus appropriate warnings as to the risks involved in them;
            •   the extent to which it is tied to any particular product providers;
            •   the basis of the firm's remuneration;
            •   the firm's complaint handling procedures; and
            •   further provisions as to when this information may be provided orally in person or in an abbreviated form over the telephone, or may be incorporated into another disclosure document such as the terms of business (see below).
            51. The second requirement is for a terms of business, which must be provided to both retail and business customers. This requirement already exists in the current COND. Unlike the IDD, it is a contractual document outlining the terms on which the firm will conduct investment business for the customer. It is possible for the IDD to be incorporated into the terms of business if initial contact moves into the contract phase. The proposed requirements do add one new section providing further protection to retail customers by:

            •   ensuring adequate notification to a retail customer of changes in the terms of business provided to the customer (if this is allowed for in the contract); and
            •   restricting increases in fees or commissions for the provision of services in relation to packaged products that exceed the figure indicated in the terms of business, unless agreed to by the customer.
            52. Part 4.3 (Investment services-retail customers) comprises revised material from chapter 10 of the current COND on retail investment services, in particular "know your customer and suitability and risk assessment requirements, as well as entirely new material on product disclosure requirements for packaged products. The material from the current COND is somewhat reorganised, for example, combining the suitability and risk understanding analysis, as well as augmented by several new proposals, notably when advising on packaged products. The aim of this approach is to maintain a "depolarised" regime, but refocus the rules on ensuring clarity on whether an authorised firm is independent or not, and if not, the nature of the arrangements that prevent it from acting independently.
            53. The revised material from the current COND adds the following new requirements:

            •   a new rule drilling down further the information an authorised firm must obtain about a retail customer;
            •   a requirement to provide a combined statement to a retail customer on the results of the suitability assessment (the retail customer's needs) and understanding of risk, including an explanation of why a recommended transaction suits the needs of the customer and any possible disadvantages of the transaction; and
            •   replacing the current requirements regarding the scope of products that an authorised firm is recommending on with a requirement restricting when an authorised firm can hold itself out as independent, as well as maintaining a statement to this effect which is to be disclosed to retail customers when appropriate (such as in the IDD).
            54. The second division in this part (Packaged products additional disclosure) contains entirely new requirements relating to the disclosure of product information in relation to packaged products (life policies and units in a collective investment fund). Currently COND has no specific rules governing product disclosure (other than the generic provisions applying to financial communications) relating to packaged products for retail customers.
            55. While it is proposed that retail customers be provided with a Product Disclosure Document (PDD) in relation to packaged products, it was decided to avoid as far as possible prescriptive requirements such as formats, wordings, equations and so forth that would make the material unique to the QFC. To avoid unnecessary compliance costs given the initially small retail population covered by the QFC regime, as well as the likelihood that product disclosure material will often come from a parent entity or be produced at the group level, the focus has been on the content to be provided and systems and controls around this material.
            56. One proposal worth highlighting seeks to avoid complex rules governing the projections used to for illustrations, as found in many jurisdictions, by requiring the approved actuary of an insurer (as required in the Individuals (INDI) Rulebook) to approve the underlying assumptions and methodology used to generate an illustration for life policy PDD.
            57. Enough flexibility has been added to the PDD requirements to ensure an authorised firm can provide high quality disclosure material produced outside the QFC, if it is reasonably certain the requirements of the jurisdiction it was produced in are substantially equivalent to those that apply in COND.
            58. The proposed rules relating to a PDD include:

            •   a requirement to prepare a PDD if the authorised firm is a product provider, and otherwise provide a PDD if they are arranging, advising or dealing in relation to a packaged product;
            •   a rule placing the onus for ensuring the content and form of a PDD complies with COND on the authorised firm providing the PDD to a retail customer. An authorised firm can satisfy this requirement by providing a document equivalent to a PDD produced in another jurisdiction, as long as it satisfies itself that the requirements in that jurisdiction are substantially equivalent to those in COND;
            •   a requirement that an authorised firm that provides, but does not produce a PDD, must ensure its name, address and a specified warning are displayed on the PDD. We envisage this could be achieved simply by adding a sticker or wrapper to the PDD;
            •   several high level principles guiding the form of the PDD, e.g. it must be produced to the same quality as the accompanying financial promotions;
            •   generic content requirements (such as name, description of product, and sufficient information about the risks and benefits of the product) to allow the retail customer to make an informed decision;
            •   a section with specific requirements for a life policy PDD, which are in conformity with the relevant sections of the EU directive on life insurance, with a few modifications added to personalise the PDD to a retail customer;
            •   an illustration of the final surrender value;
            •   a simple table showing the effects of charges and expenses;
            •   a requirement for an authorised firm to chose an appropriate rate of return, although this may not be more than 7 per cent. This figure represents the medium to medium high upper limit in other jurisdictions. It was decided to require only one projection, as there is evidence that a lower rate is often perceived to be a guaranteed return; and
            •   a requirement to have the assumptions and methodology underpinning a projection prepared and approved by the approved actuary of the firm producing the PDD.

            5.
            (1) Do you agree with the a single rate of return for the projection used to generate an illustration for the product disclosure document?
            (2) Do you think that a maximum rate of return 7% is appropriate?
            59. It is worth noting that specific requirements relating to a PDD for units in a collective investment fund could be added if and when a retail collective investment fund regime is in place. Any additional requirements would be subject to a separate consultation process.
            60. Part 4.4 (Investment business-post-contractual obligations) shifts to the post-contractual obligations of firms. It carries over without material changes existing obligations from the current COND, including:
            •   a requirement to dispatch a confirmation note confirming the details of each transaction that it executes for a business customer or retail customer; and
            •   a requirement on firms conducting investment management to provide periodic statements reporting on the performance of investments being managed for business customers and retail customers.
            61. This part also introduces new requirements providing retail customers with contract cancellation rights for relevant investment other than life policies (which are dealt with in chapter 6) as the current COND has no specific requirements relating to "cooling off" periods. The proposed rules provide:

            •   retail customers with a right to cancel a contract relating to a relevant investment for 14 days, if this was purchased as a result of advice by the firm;
            •   for when the start of the cancellation period is to begin;
            •   an obligation to disclose to a retail customer their cancellation rights; and
            •   the effects of a cancellation, including the termination of the contract and how to deal with any shortfalls that may need to be addressed upon cancellation.
            62. Part 4.5 (Other investment related activities) carries over, with minimal changes other than redrafting, a number of rules contained in the current COND covering other investment activities relating to either business separate from the normal retail process or to internal dealing processes which may impact on customers, in particular investment research, personal account transactions and dealing and managing.

            CHAPTER 5 — CONDUCT OF NON-INVESTMENT INSURANCE MEDIATION BUSINESS

            63. Chapter 5 applies to all authorised firms advising on and selling non-investment insurance contracts. It is important to stress that the definition of insurance mediation business includes both insurance intermediaries and insurers marketing and selling their own contracts directly.
            64. This chapter replaces Part 3 of the current COND, although much of this material is carried across. It is proposed however that chapter 5 only apply in respect of insurance mediation business relating to non-investment insurance contracts. This is somewhat different from existing COND where Part 3 covers all insurance business. The chapter as a whole applies a lighter touch than the requirements in chapter 4 of newCOND as non-investment insurance contracts carry a lower level of risk than investment products. The QFC Regulatory Authority believes it is also important that retail customers should be able to complete the entire process of taking advice on and then buying a non-investment insurance contract during the course of one telephone conversation, with disclosure being made orally in the first instance and then in writing after the end of the call.
            65. The chapter is comprised of the following parts:
            •   Part 5.1: Non-investment insurance-general;
            •   Part 5.2: Non-investment insurance-initial client contact;
            •   Part 5.3: Non-investment insurance-advice to retail customers;
            •   Part 5.4: Non-investment insurance-product disclosure;
            •   Part 5.5: Non-investment insurance-post-contractual obligations; and
            •   Part 5.6: Non-investment insurance-miscellaneous.
            66. Part 5.2 (Non-investment insurance-initial client contact) carries across some existing COND requirements, particularly those relating to status disclosure, but includes further proposals aimed at ensuring consistency within 'newCOND', although streamlining these for the purposes of non-investment insurance business. In particular, the proposed rules relate to:

            •   further clarification on what constitutes a fair analysis of the market;
            •   a requirement for authorised firms to make a brief disclosure concerning the scope of their advice and their fee structure;
            •   more limited disclosure requirements if authorised firms are dealing with customers over the telephone, provided that they follow this up by sending more detailed written disclosure;
            •   exemptions on these disclosure requirements where authorised firms are merely renewing or amending an existing contract if the disclosure they have already made is up to date;
            •   a requirement to provide, if requested by a client, further disclosure from the authorised firm in respect of the commissions, payments and other benefits that it receives from arranging contracts on behalf of that client; and
            •   where an authorised firm is merely referring a client to another firm it is required to disclose any fees it receives from that referral and whether or not the other firm is a member of the same group.
            67. Part 5.3 (Non-investment insurance-advice to retail customers) covers authorised firms providing advice on non-investment insurance contracts for retail customers. The process is similar to that for investments know your customer, assessment of suitability, and disclosure of that assessment but slightly different criteria are involved to reflect the different nature of the product. Only minor amendments have been made to the existing requirements in COND on this material.
            68. Part 5.4 (Non-investment insurance-product disclosure) introduces new rules on product disclosure for non-investment insurance contracts. It augments the high level principle currently in COND that requires an authorised firm to provide adequate information to allow a customer to make an informed decision about a proposed policy. Unlike the requirements for packaged products under chapter 4, there is no requirement for a Product Disclosure Document per se, although there is a rule ensuring the required information is either in a separate document or prominently placed if embedded in another document. The proposed disclosure requirements are not onerous, being either generic (the firm's name, regulatory status etc) or relating to key areas of the proposed policy (significant features of the cover, significant exclusions etc.). The key rules proposed are:

            •   a requirement for certain information to be provided before a contract is concluded;
            •   when this material can be provided orally; and
            •   a requirement to provide the policy document and further information on claims handling and cancellation rights on concluding a contract.
            69. Part 5.5 (Non-investment insurance-post-contractual obligations) groups together, for the sake of simplicity, two post-contractual obligations: renewals and mid-term changes, and claims handling. These rework current requirements in COND, while adding some additional material relating to retail customers. In particular, proposed new rules deal with:

            •   renewal notice requirements, which for retail customers must be at least 21 days before the expiry of the policy (certain very short policies are excluded);
            •   specifying limited information that should be provided to a retail customer, as well as exemptions to this requirement; and
            •   the duties of insurance intermediaries with regard to claims handling. It covers high level issues surrounding conflicts of interest and certain disclosure requirements on this, as well as a rule ensuring the timely forwarding of notification to an insurer if the intermediary does not have authority to deal with the claim.
            70. Part 5.6 (Non-investment insurance-miscellaneous) introduces a short new section with rules that provide for:

            •   a general, high-level restriction on excessive charges; and
            •   ensuring that all retail customers who are covered by a group policy receive the appropriate documentation.

            CHAPTER 6 — CONDUCT OF INSURANCE BUSINESS

            71. Chapter 6 only applies to authorised firms conducting insurance business and covers certain aspects of the way insurers carry out insurance contracts, namely dealing with cancellations by retail customers and handling claims. It is worth re-emphasising that insurers who advise and sell their own insurance contracts will be conducting insurance mediation business and will be required to meet requirements in either chapter 4 or 5, depending on the type of insurance being sold.
            72. The chapter comprises 4 parts applying specifically to the conduct of insurance business:
            •   Part 6.1: Insurance business-general;
            •   Part 6.2: Effecting insurance contracts-execution-only transactions;
            •   Part 6.3: Cancelling insurance contracts-retail customers; and
            •   Part 6.4: Claims handling.
            73. Part 6.1 and 6.2 are house-keeping provisions. Part 6.3 (Cancelling insurance contracts retail customers) introduces new rules on cancellation which give retail customers a "cooling off" period fall. The key requirements introduced by the proposed rules are:

            •   a cooling off period of 14 days for general insurance contracts and 30 days for all other insurance contracts;
            •   when a variation to a life policy provides for a right to cancel as well;
            •   an exemption for very short policies from these cancellation requirements;
            •   when the start date for the cancellation period is determined;
            •   a requirement on the authorised firm to disclose these rights to its retail customers; and
            •   the effects of cancellation are also specified, including the termination of the contract and dealing with any shortfalls in terms of premiums paid that may result.
            74. Part 6.4 (Claims handling) provides some high level requirements regarding performance standards for handling claims, particularly for retail customers. The proposed rules do not prescribe these standards, but instead require the insurer to:

            •   respond promptly to a claim, either by providing specified information (i.e. that the claim is rejected as outside the scope of the policy, or the action the insurer will take) or by notifying the retail customer that other parties will be looking at the claim (unless this involves an investigation and the disclosure of this information could jeopardise the investigation);
            •   keep the retail customer informed of the progress of the claim;
            •   notify as soon as practicable the outcome of the claim (fully rejects, partially rejects, accepts or some compromise offer) and explain why (unless it fully excepts); and
            •   settle the claim promptly.

            SCHEDULES

            75. The schedules in new COND carry across the current appendixes in COND and, apart from redrafting, are otherwise not materially different in content, except for schedule 6, which contains flowcharts illustrating the disclosure requirements in new COND. These flowcharts are included for guidance purposes only.

          • Amendments to other rulebooks

            CONTROLS RULEBOOK (CTRL) — PROFESSIONAL INDEMNITY COVER

            76. It is proposed to include a new section in the Controls (CTRL) Rulebook covering professional indemnity (PI) insurance for authorised firms conducting insurance mediation business. PI insurance plays an important role in mitigating operational risks arising from the day to day operations of a firm, including those stemming from a failure to meet the legally required standard of care when advising on investments. PI therefore contributes to meeting the regulatory objectives of maintaining market confidence and providing consumer protection by ensuring that authorised firms have adequate resources to protect themselves, and their customers, against losses arising from breaches in its duties under the regulatory system or civil law.
            77. The proposed requirements, which are contained in Appendix 3, include:

            •   a requirement for all authorised firms carrying on insurance mediation business to have PI insurance;
            •   an exemption to the above requirement if the authorised firm has a guarantee from another authorised firm if certain criteria are met, or the authorised firm is an insurer;
            •   a requirement limiting providers of PI cover to the QFC, Zone 1 or any other jurisdictions as specified by the QFC Regulatory Authority
            •   the terms which must be included in the PI insurance;
            •   the minimum levels of indemnity as well as the level of excess; and
            •   requirements governing PI insurance covering more than one authorised firm.

            6. Do you think there is a need to extend a requirement for professional indemnity insurance to authorised firms conducting intermediary business other than in relation to insurance business?

            INDIVIDUALS RULEBOOK (INDI)

            78. It is proposed to amend rule 2.3.1 to make it clear that an insurer must have a member of its Senior Management registered to perform the Risk Management Function. This is already a requirement in the Controls (CTRL) Rulebook (see 4.4.4 (2)), but this should be mentioned in INDI under the heading 'Required Functions'.

            GENERAL RULEBOOK (GENE)

            79. It is proposed to add a new rule clarifying the application of the provision of notification rules in section 4.2 of GENE.

            PRUDENTIAL-INSURANCE RULEBOOK (PINS)

            80. It is proposed to move the current requirements in COND 14.2 ("Restrictions on Insurance Business"), without material change, to section 1.3 of PINS, as this material relates to contagion risk and is thus a prudential issue rather than a conduct of business issue (see Attachment 3). This opportunity is taken to also correct several minor typographical errors in the current PINS.

            INTERPRETATION AND APPLICATION RULEBOOK (INAP)

            81. Consequential to the proposals in newCOND, the glossary in INAP will be amended to include new defined terms found in the revised COND (see Attachment 3).

          • Summary of Questions

            1. Do you agree with the approach to retail customer protection?

            2. Do you agree with the proposed approach to intermediaries of authorised firms and in particular to intermediaries from outside the QFC?

            3. Do you agree with the proposed approach of requiring authorised firms wishing to act as an intermediary for non-QFC insurers to disclosure to retail customers the possibility that these policies may not be subject to the same level of protection as policies issued by QFC insurers?

            4. Do you agree with the suggested approach to language issues?

            5.

            (1) Do you agree with the a single rate of return for the projection used to generate an illustration for the product disclosure document?
            (2) Do you think that a maximum rate of return 7% is appropriate?

            6. Do you think there is a need to extend a requirement for professional indemnity insurance to authorised firms conducting intermediary business other than in relation to insurance business?

          • Appendix 1 Regulatory Objectives (as determined under Article 12 of the QFC Financial Services Regulations)

            The objectives of the Regulatory Authority are:

            (A) the promotion and maintenance of efficiency, transparency and the integrity of the QFC;
            (B) the promotion and maintenance of confidence in the QFC of users and prospective users of the QFC;
            (C) the maintenance of the financial stability of the QFC, including the reduction of systemic risk relating to the QFC;
            (D) the prevention, detection and restraint of conduct which causes or may cause damage to the reputation of the QFC, through appropriate means including the imposition of fines and other sanctions;
            (E) the provision of appropriate protection to those licensed to carry on business at the QFC and their clients or customers;

            In considering what constitutes appropriate protection, the Regulatory Authority shall take into account:
            (i) the financial integrity of Authorised Firms through appropriate financial resources requirements complemented by a robust system of internal controls;
            (ii) the differing degrees of protection which may be appropriate for clients or customers of Authorised Firms as a result of their experience, expertise, business and means and the differing degree of information which it may be appropriate to give to such clients or customers;
            (iii) the differing degree of risk involved in different kinds of investment or transaction; and
            (iv) the general principle that clients or customers of Authorised Firms should take responsibility for their own decisions;
            (F) the promotion of understanding of the objectives of the QFC amongst users and prospective users of the QFC and other interested Persons;
            (G) ensuring the Regulatory Authority is run with a view to:
            (i) it operating at all times in accordance with best international standards for financial and business centres of a similar kind; and
            (ii) establishing and maintaining the QFC as a leading financial and business centre in the Middle East; and
            (H) minimising the extent to which the business carried on by a Person carrying on Regulated Activities can be used for the purposes of or in connection with Financial Crime.

            In considering this objective, the Regulatory Authority shall have regard to the desirability of Authorised Firms having appropriate systems, controls and procedures to detect and prevent the incidence of Financial Crime.

            Principles of Good Regulation (as determined under Article 13 of the QFC Financial Services Regulations)

            In exercising its functions and powers under the QFC Law and these Regulations, the Regulatory Authority shall have regard to:

            (1) the need to use its resources in the most efficient and economic way;
            (2) the desirability of facilitating innovation and fostering the international competitiveness of the QFC;
            (3) the desirability of fostering competition between those who are subject to regulation by the Regulatory Authority;
            (4) the principle that the Regulatory Authority should exercise its powers and functions in a fair and transparent manner;
            (5) the need to comply with such generally accepted principles of good governance as it is reasonable to regard as applicable to it;
            (6) the need to balance the burdens and restrictions on firms with the benefit of regulation; and
            (7) the need to act in accordance with all laws and Regulations to which it is subject.

            1 See the Interpretation and Application Rulebook (INAP) for the legal definitions of each category of customer.

          • Appendix 2 Draft Conduct of Business Rulebook (COND) Incorporating Provisions for the Regulation of Retail Activities and Retail Insurance Business

            Chapter 1 Introduction to COND

            1.1.1 Overview of COND

            The following notes provide an overview of this rulebook.

            Note 1 General application of chapters in COND

            Chapter 2 (Obligations of all authorised firms) and chapter 3 (Financial promotions) contain the rules of widest application in COND. The rules in these chapters apply to an authorised firm conducting any kind of regulated activity in or from the QFC.

            Chapter 4 (Conduct of investment business) applies to an authorised firm conducting investment business in or from the QFC. Investment business covers 8 different regulated activities carried on in relation to the specified products contained in the term relevant investment. Insurance mediation business in relation to most kinds of long term insurance contracts is a subset of investment business and is, therefore, covered by this chapter (see note 5).

            Chapter 5 (Conduct of non-investment insurance mediation business) applies to an authorised firm advising on and selling non-investment insurance contracts. This chapter applies to insurance intermediaries and insurers marketing and selling their own contracts directly.

            Chapter 6 (Conduct of insurance business) covers certain aspects of the way in which insurers carry on non-investment insurance contracts, namely effecting insurance contracts in execution-only transactions, cancellations by retail customers and claims handling.

            Note 2 Categories of client

            The following terms are used to describe different categories of client in COND:

            •   market counterparty
            •   customer
            •   business customer
            •   commercial customer
            •   retail customer.

            Each term is used in COND as it is defined in the Glossary to the Interpretation and Application Rulebook (INAP). The interrelated definitions of client and customer need to be understood when reading COND. Table 1.1.1 indicates the relationship between the different categories of client.

            The regulatory protections in COND are built up in layers according to the vulnerability of the type of client in question. Chapters of COND are generally arranged in the following way:
            •   rules that authorised firms must follow when doing business with clients;
            •   rules that authorised firms must follow when doing business with customers; then
            •   additional rules that authorised firms must follow when doing business with retail customers.

            Table 1.1.1 Client categories



            Note 3 Regulated activities

            As far as possible COND applies rules directly to regulated activities (see FSR, art 23). As an authorised firm will be aware from the terms of its authorisation the regulated activities it is authorised to carry on, it will usually be apparent which areas of COND apply to it. For example, a reference to 'providing advice on investments' refers to the regulated activity of advising on investments.

            Note 4 Types of business in COND

            Chapters 2 and 3 apply to all types of business conducted by an authorised firm. By contrast, the application of chapters 4, 5 and 6 to an authorised firm depends on the types of business it conducts. These chapters apply only to the following types of business:

            •   chapter 4 — investment business
            •   chapter 5 — non-investment insurance mediation business
            •   chapter 6 — insurance business.

            Under the Financial Services Regulations (the FSR), the business of an authorised firm consists of groups of regulated activities conducted in relation to certain specified products (see FSR, sch 3, pt 3). For example, investment business is defined as carrying on a range of regulated activities (including arranging deals, advising and dealing as principal or agent) in relation to a group of specified products collectively referred to as relevant investments. Relevant investments include the following products (but see note 5 in relation to long term insurance contracts):

            shares, debt instruments, warrants, securities receipts, units in a collective investment fund, options, futures, contracts for differences, long term insurance contracts, and rights in investments relating to any of these products.

            Two kinds of specified products, deposits and credit facilities, do not fall into any of the types of business dealt with in chapters 4, 5 and 6. In carrying on business relating to deposits and credit facilities, an authorised firm is, therefore, subject to chapter 2 (General obligations of all authorised firms) and chapter 3 (Financial promotions), but not chapters 4, 5 or 6.

            The relationship between the 3 types of business covered by chapters 4, 5 and 6, regulated activities and specified products is illustrated in table 1.1.2. From the table, it can be seen that, for example, investment business (covered by chapter 4) applies to the following regulated activities that are carried out in relation to relevant investments:

            •   4 dealing in investments
            •   5 arranging deals in investments
            •   8 providing custody services
            •   9 arranging provision of custody services
            •   10 managing investments
            •   11 advising on investments
            •   12 operating a collective investment fund

            It can be seen that investment business (chapter 4) does not apply to the other regulated activities at all and does not apply to any regulated activity that is conducted in relation to specified products that are not relevant investments.

            In the table, a dash ('-') indicates that a type of business does not apply at all to the relevant regulated activity. For example, investment business does not apply to the regulated activity of deposit taking.

            Table 1.1.2 Types of business, regulated activities and specified products

              types of business
            investment business non-investment insurance mediation business insurance business
            Regulated activities 1 deposit taking - - -
            2 effecting a contract of insurance - - all contracts of insurance
            3 carrying out a contract of insurance - - all contracts of insurance
            4 dealing in investments all relevant investments non-investment contracts of insurance -
            5 arranging deals in investments all relevant investments non-investment contracts of insurance -
            6 providing credit facilities - - -
            7 arranging the provision of credit facilities - - -
            8 providing custody services all relevant investments - -
            9 arranging provision of custody services all relevant investments - -
            10 managing investments all relevant investments - -
            11 advising on investments all relevant investments non-investment contracts of insurance -
            12 operating a collective investment fund all relevant investments - -

            Note 5 Definition of relevant investment under COND

            Under the FSR, sch 3, pt 3, relevant insurance contracts are either general insurance contracts or long term insurance contracts. General insurance contracts are divided into 18 categories and long term insurance into 7 categories. Under the INAP definition of relevant investment all long term insurance contracts are relevant investments.

            COND takes a slightly different approach. For COND, not all long term insurance contracts are treated as relevant investments. Only long term insurance contracts that contain an investment or savings component are treated as relevant investments for COND.

            Pure protection contracts other than long term care insurance contracts do not meet this requirement and are, therefore, grouped with general insurance contracts in the defined term non-investment insurance contracts.

            The approach taken in COND is summarised in table 1.1.3. For COND, only those long term insurance contracts included in the non-shaded parts in table 1.1.3 are to be treated as relevant investments in relation to conducting investment business and are called life policies.

            Table 1.1.3 Treatment of contracts of insurance

            Chapter 2 Obligations of all authorised firms (COND 2)

            Parts 2.1 and 2.2 contain proposals designed to ensure the integrity of the protection that customers, and in particular retail customers, receive under the conduct of business regime. The first relates to the language that information required under COND is provided to the customer in, while the second proposal covers the issue of intermediaries who are not authorised firms. In particular, the proposals are:

            •   that all information required to be provided to a retail customer must be given in a language that the customer can understand; and
            •   rules relating to when authorised firms can enter into agreements with intermediaries who are not authorised firms, as well as their ongoing responsibility for all acts or omissions of these intermediaries.

            Part 2.1 Application and language of disclosure (COND 2.1)

            2.1.1 Application—ch 2

            This chapter applies to all authorised firms carrying on regulated activities in or from the QFC.
            2.1.2 Language of disclosure information

            An authorised firm must ensure that all information required by COND to be provided to a retail customer is provided in a language that the customer can understand.

            Part 2.2 Persons acting on behalf of authorised firms (COND 2.2)

            2.2.1 Person acting for authorised firms—general rule
            (1) An authorised firm conducting investment business or insurance mediation business in relation to non-investment insurance contracts must not allow a person to perform a customer facing function for it in or from the QFC unless the person is—
            (a) an employee of the firm who is an approved individual; or
            (b) an approved representative of the firm.

            Note Approved representative is defined in r 2.2.3.
            (2) An authorised firm must not allow a person to act as its intermediary in the State outside the QFC unless—
            (a) the person is a non-QFC intermediary of the firm; and
            (b) it is lawful for the person to act as its intermediary in the State outside the QFC.

            Note Non-QFC intermediary is defined in r 2.2.5.
            2.2.2 Employee—definition

            Note INAP defines an employee as 'an individual—
            (a) who is employed or appointed by a person in connection with that person's business, whether under a contract of service or for services or otherwise; or
            (b) whose services, under an arrangement between that person and a third party, are placed at the disposal and under the control of that person'.
            2.2.3 Approved representative—definition
            (1) A person is an approved representative of an authorised firm if—
            (a) the person is an approved individual who is not an employee of the firm; and
            (b) the person is authorised under a contract with the firm to carry out a customer facing function for the firm in or from the QFC; and
            (c) the firm has agreed in the contract to accept responsibility for every act or omission of the person in carrying out (or purporting to carry out) a customer facing function for the firm.
            (2) A contract mentioned in subrule (1) is an approved representative contract.
            (3) An authorised firm must not enter into an approved representative contract with a person if the person is a party to an approved representative contract in force with another authorised firm.
            2.2.4 Aprroved representative—liability of authorised firm

            An authorised firm is liable for every act or omission of an approved representative of the firm in carrying out (or purporting to carry out) a customer facing function for the firm to the same extent as it would be liable if the act or omission were that of the firm itself.
            2.2.5 Non-QFC intermediary—definition
            (1) A person is a non-QFC intermediary of an authorised firm if—
            (a) the person is authorised under a 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 contract to accept responsibility for every act or omission of the person in acting (or purporting to act) as an intermediary for the firm in the State outside the QFC.
            (2) An authorised firm must not enter into a non-QFC intermediary contract with a person unless—
            (a) it is lawful for the person 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.
            (3) A contract mentioned in subrule (1) is a non-QFC intermediary contract.
            2.2.6 Non-QFC intermediary—liability of authorised firm etc
            (1) An authorised firm must ensure that every non-QFC intermediary of the firm, when acting as an intermediary for the firm in the State outside the QFC, complies with—
            (a) every law, rule or regulation of the State applying to it; and
            (b) the requirements of COND that would apply to it if—
            (i) it were the firm; and
            (ii) it were acting in or from the QFC.
            (2) An authorised firm is liable for every act or omission of a non-QFC intermediary of the firm in acting (or purporting to act) as an intermediary for the firm in the State outside the QFC to the same extent as it would be liable if—
            (a) the act or omission were that of the firm itself; and
            (b) the firm were acting in or from the QFC.
            (3) This rule does not imply that a non-QFC intermediary of an authorised firm is carrying on business in or from the QFC in acting as an intermediary for the firm.
            2.2.7 Approved representative and non-QFC—handling client money

            An authorised firm must take reasonable steps to ensure that client money received by an appointed representative or non-QFC intermediary of the firm is paid into a client bank account of the firm as soon as possible and, in any event, within 1 business day after the day it is received.
            2.2.8 Approved representative and non-QFC intermediary—recordkeeping

            An authorised firm must keep a copy of each approved representative contract and non-QFC intermediary contract into which it enters for at least 6 years after the day the contract ends.

            Part 2.3 Client classification (COND 2.3)

            Part 2.3 contains no significant changes to those in the current COND. The position of this part at the very front of the rulebook reflects the fact that client classification is the first obligation of any authorised firm on meeting any client. The rules allow retail customers to opt up to business customer status if they fulfil certain criteria based on investment expertise and personal wealth. The rules also deal with the treatment of agents acting on behalf of customers, who are as the customer, subject to any agreement otherwise between the agent and the firm.

            2.3.1 Client classification—general obligation
            (1) Before conducting business with or for a client, an authorised firm must take reasonable steps to establish whether that client is, and to classify the client as—
            (a) a retail customer; or
            (b) a business customer; or
            (c) a market counterparty; or
            (d) in relation to insurance business or insurance mediation business—a commercial customer.
            (2) If it is not clear to an authorised firm whether a particular client is a retail customer or business customer (or, in relation to insurance business or insurance mediation business, a commercial customer), the firm must classify the client as a retail customer.
            (3) If an authorised firm is dealing with a client who is an individual in relation to a contract of insurance that would cover the client in both a private and business capacity, the firm must classify the client as a retail customer.
            (4) If an authorised firm takes reasonable steps to classify a client as required by, and in accordance with, this chapter, and treats the client in accordance with the classification, the firm does not breach any other provision of COND or any provision of ASET so far as the breach arises only from inappropriate classification of the client.
            2.3.2 Client classification—opting up
            (1) If a client would apart from this rule be required to be classified as a retail customer, an authorised firm may, in relation to all regulated activities or particular regulated activities, classify the client as a business customer if subrules (2) and (3) are complied with.
            (2) The authorised firm may classify the client as a business customer only if—
            (a) the client
            (i) is an employee of an authorised firm or regulated financial institution; or
            (ii) has at least US$1 million in liquid assets (i.e. cash, securities or other financial instruments) and has provided the authorised firm with written confirmation of this fact; or
            (b) the firm is satisfied, after careful assessment in accordance with subrule (4), that the client has sufficient knowledge, experience and understanding of relevant financial markets to justify being dealt with by the firm without the benefit of the protections the regulatory system provides for retail customers; or
            (c) the client is a private trust or other similar arrangement in which each of the persons entitled to the ultimate beneficial interest in the trust or arrangement could be classified by the firm as a business customer under paragraph (a) or (b) if the person were a client.
            (3) The authorised firm may classify the client as a business customer only if—
            (a) the firm has given the client a written notice that explains—
            (i) the basis on which the authorised firm is proposing to classify the client as a business customer; and
            (ii) the protections provided by the regulatory system that the client will lose if classified as a business customer; and
            (b) the firm has given the client sufficient time after receiving the notice to consider the implications of being classified as a business customer; and
            (c) the client has agreed in writing to being classified as a business customer.
            (4) In assessing for subrule (2) (b) whether the client has sufficient knowledge, experience and understanding of relevant financial markets, the authorised firm must have regard to all of the following:
            (a) the client's knowledge and understanding of relevant financial markets and the risks involved in participating in them;
            (b) the length of time that the client has been active in the financial markets, the frequency of dealings in them and the extent to which the client has relied on the firm's advice in the dealings;
            (c) whether the client has been employed, or otherwise professionally involved, in the financial markets and for how long;
            (d) the size and nature of transactions that have been undertaken by or for the client in the financial markets;
            (e) the reliance the client will place on the independent advice or judgment of another authorised firm or regulated financial institution in relation to the regulated activities to which the proposed classification relates.
            (5) Without limiting subrule (3) (a), the written notice given to the client must—
            (a) tell the client about the provisions of COND that will not apply to the client because of the classification of the client as a business customer; and
            (b) tell the client about the provisions of COND that can be modified in their application to the client as a business customer.
            2.3.3 Client classification—customers' agents
            (1) This rule applies if an authorised firm is aware that a person with or for whom it is conducting investment business (the agent) is acting as agent for another person (the underlying customer) in relation to the business.
            (2) The agent (and not the underlying customer) is taken, for the purposes of the requirements of COND and ASET, to be the client of the authorised firm in relation to the business, if—
            (a) the agent is another eligible third party or designated bank; or
            (b) the avoidance of duties that the firm would otherwise have to the underlying customer is not the main purpose of the arrangements between the parties.
            (3) Subrule (2) does not apply if the authorised firm has agreed with the agent in writing to treat the underlying customer as its client for the purposes of the requirements of COND and ASET.
            (4) However, if an agreement mentioned in subrule (2) applies in relation to 2 or more underlying customers for whom the agent is acting, the authorised firm may discharge any requirement of COND or ASET in relation to the underlying customers by discharging the requirement in relation to the agent and telling the agent that the requirement is being satisfied in relation to each underlying customer.
            (5) Subsection (4) does not apply in relation to the following documents, and the following provisions must be complied with separately in relation to each underlying customer:
            (a) statements under rule 4.3.1 (c) (Retail investment advice—general requirements);
            (b) confirmation notes under rule 4.4.1 (Confirmation notes—provision requirement);
            (c) periodic statements under rule 4.4.7 (Periodic statements—provision requirement).
            (6) To the extent that subrule (2) does not apply because of subrules (3) to (5), the underlying customer and not the agent is, for the purposes of the requirements in COND and ASET, the client of the authorised firm in relation to the investment business.
            (7) To remove any doubt, this rule does not affect the liability of an authorised firm under rule 2.2.4 (Approved representative—liability of authorised firm) or rule 2.2.6 (Non-QFC intermediary—liability of authorised firm etc).

            Guidance

            Authorised firms are reminded that rule 2.3.3 does not relieve them of any obligation under the AML Regulations relating to the underlying customer.
            2.3.4 Client classification—systems and controls

            An authorised firm's systems and controls must include appropriate checks verifying—
            (a) any client classification that it makes under this part; and
            (b) the continuing appropriateness of the classification, if the firm conducts business for the client on an ongoing basis.
            2.3.5 Client classification—recordkeeping
            (1) An authorised firm must make a record of each client classification made under this part.
            (2) The record must include sufficient information to support the classification.
            (3) The record must also include information about the checks that were made to verify the classification as required by rule 2.3.4.
            (4) The authorised firm must keep the record for at least 6 years after the day the firm ceases to conduct business with or for the client.

            Part 2.4 Reliance on others and exclusion or restriction of liability (COND 2.4)

            Part 2.4 extends the existing material in COND on the above matters by restricting a firm's ability to exclude or restrict its liability under the general law of obligations outside the regulatory system.
            2.4.1 Reliance on information provided by others
            (1) An authorised firm is taken to comply with a provision of COND that requires it to obtain information if it can show that—
            (a) it relied on information provided to it in writing by another person; and
            (b) it was reasonable for it to rely on the information.
            (2) For subrule (1) (b), it is reasonable for the authorised firm to rely on the information if—
            (a) it believes on reasonable grounds that the person who provided the information was competent to provide it; and
            (b) it was not aware, and ought not reasonably to have been aware, of anything that would give it reasonable grounds to question the accuracy of the information.
            2.4.2 Reliance on others to give information to customers

            If a provision of COND requires an authorised firm to give information to a customer, the firm must give the information directly to the customer and not to another person, unless it has a written instruction from the customer requiring or allowing it to give the information to the other person.
            2.4.3 Excluding or restricting liability
            (1) An authorised firm must not, in any written or oral communication in relation to regulated activities carried on with or for a customer
            (a) seek to exclude or restrict any duty or liability it may have to the customer under the regulatory system; or
            (b) rely on any exclusion or restriction of any duty or liability it may have to the customer under the regulatory system.
            (2) An authorised firm must not, in any written or oral communication in relation to regulated activities carried on with or for a retail customer
            (a) seek to exclude or restrict any duty or liability that it has to the retail customer otherwise than under the regulatory system, unless it is reasonable to do so; or
            (b) rely on any exclusion or restriction of any duty or liability that it has to the retail customer otherwise than under the regulatory system, unless it is reasonable to do so.

            Part 2.5 Conflicts, material interests and inducements (COND 2.5)

            Part 2.5 reorganises and strengthens the current material in COND on these matters. It also proposes shifting the current material on inducements and soft dollar agreements into chapter 2, giving it general application to all authorised firms rather than only those conducting investment business. This removes the need to duplicate this material in relation to non-investment insurance mediation business. The key proposals in this part are:

            •   increased steps that can be taken to manage conflicts of interest or material interests, as well as greater clarity over what needs to be disclosed to a client;
            •   restrictions in connection with packaged products (life policies and units in a collective investment fund) that protects retail customers from being charged commissions based on unnecessary transactions or other means to inflate commissions; and
            •   a requirement that holdings or the provision of credit between a product provider and another firm (unless in the same group) are carried out on a commercial basis and at arms length and do not impact on the advice provided to a retail customer regarding a packaged product.

            Division 2.5.1 Conflicts and material interests

            2.5.1 Conflicts and material interests—identifying and managing
            (1) An authorised firm must establish systems and controls to identify and manage actual and potential conflicts of interest and material interests.
            (2) The systems and controls must ensure that the authorised firm's clients are not treated unfairly or prejudiced because of any conflict of interest or material interest.
            (3) An authorised firm must manage a conflict of interest or material interest by taking 1 or more of the following steps:
            (a) establishing and maintaining an effective Chinese wall;
            (b) relying on a written policy of independence that requires an employee to disregard conflicts of interest and material interests when advising a client or exercising discretion;
            (c) separately supervising employees whose main functions involve carrying out activities for, or providing services to, clients whose interests may conflict with those of the firm;
            (d) removing any direct link between the remuneration of employees mainly engaged in an activity and the remuneration of, or revenues generated by, different employees mainly engaged in another activity, if a conflict of interest may arise in relation to the activities;
            (e) establishing measures to prevent or limit any person from exercising inappropriate influence over how an employee carries out services or activities;
            (f) establishing measures to prevent or control the simultaneous or sequential involvement of an employee in separate services or activities if the involvement may impair the proper management of conflicts of interest;
            (g) taking alternative or additional steps necessary and appropriate to manage the conflict of interest or material interest.
            2.5.2 Conflicts and material interests—decline to act or disclose and notify
            (1) An authorised firm must decline to act for a client if it has a conflict of interest or material interest and cannot manage the conflict of interest or material interest using a step mentioned in rule 2.5.1 (3).
            (2) Before an authorised firm advises a client about a transaction or before it deals in investments for a client, the firm must—
            (a) disclose any conflict of interest or material interest that it knows about; and
            (b) notify the client of the steps it has taken to manage the conflict of interest or material interest in accordance with rule 2.5.1 (3); and
            (c) take reasonable steps to ensure that the client does not object to the firm's management of the conflict of interest or material interest.
            (3) For subrule (2), if the client is a customer, a disclosure and notification may be made in the authorised firm's terms of business for the customer.
            2.5.3 Conflicts and material interests—effect of Chinese wall

            For a provision of COND that applies to an authorised firm only to the extent that it has knowledge of something, the firm is not taken to have knowledge if none of the relevant individuals involved on its behalf has knowledge of the thing because of a Chinese wall.

            Division 2.5.2 Inducements

            2.5.4 Inducements—all businesses
            (1) An authorised firm must ensure that neither it, nor any of its employees
            (a) offers, gives, solicits or accepts any inducement; or
            (b) directs or refers any actual or potential business to another person on its own initiative or on the instructions of an associate;
            if this is likely to conflict to a material extent with any duty that it owes to its customers.
            (2) An authorised firm's systems and controls must include policies and procedures to ensure compliance with subrule (1).
            (3) An authorised firm must ensure that all its employees are provided with details of the firm's current policy and procedures regarding gifts, referrals and inducements.
            2.5.5 Inducements—packaged products
            (1) This rule applies to an authorised firm if the firm is required to disclose commissions (or their equivalent) in accordance with part 4.2 (Investment business—initial client contact) to a retail customer in relation to the sale of a packaged product.
            (2) The authorised firm must not enter into, and must take reasonable steps to ensure that no person acting on its behalf enters into any of the following arrangements with another person in relation to a packaged product:
            (a) volume overrides, if commission paid in relation to several transactions is more than a simple multiple of the commission payable in relation to a single transaction of the same kind;
            (b) an arrangement to pay commission that is increased in excess of the amount disclosed to the customer, unless the increase is attributable to an increase in the premiums or contributions payable by the customer;
            (c) an agreement to indemnify the payment of commission on terms that would or might give an additional financial benefit to the recipient if the commission became repayable;
            (d) an arrangement to pay commission otherwise than to the authorised firm responsible for a sale, unless—
            (i) the authorised firm responsible for the sale has passed on its right to receive the commission to the recipient; or
            (ii) the recipient is another authorised firm that has given advice on investments to the customer after the sale; or
            (iii) the recipient is another authorised firm and the commission is paid after the sale of a packaged product by the first authorised firm in response to a direct offer financial promotion communicated by that authorised firm to a retail customer of the recipient authorised firm.
            2.5.6 Inducements—financial assistance by product providers
            (1) This rule applies in relation to an authorised firm (a relevant firm) that holds itself out as advising on investments to retail customers in relation to packaged products.
            (2) A product provider must not acquire a direct or indirect holding in the capital or voting power of a relevant firm, or provide credit to a relevant firm, unless—
            (a) the product provider and the relevant firm are in the same immediate group; or
            (b) for the provision of credit—the credit provided is for commission owing from the relevant firm to the product provider under an indemnity commission clawback arrangement; or
            (c) all the conditions mentioned in subrule (5) are satisfied.
            (3) A product provider must take reasonable steps to ensure that its associates do not do anything that would result in it contravening subrule (2).
            (4) A relevant firm must not do anything that would result in a product provider contravening subrule (2).
            (5) For subrule (2), the following conditions must be satisfied:
            (a) the holding is acquired, or credit is provided, on commercial terms, that is, terms objectively comparable to terms on which an independent person unconnected to a product provider would, taking into account all relevant circumstances, be willing to acquire the holding or provide credit;
            (b) the relevant firm has reliable written evidence that paragraph (a) is satisfied;
            (c) there are no arrangements, in relation to the holding or provision of credit, relating to the channelling of business from the relevant firm to the product provider;
            (d) the product provider cannot, and none of its associates can, because of the holding or provision of credit, exercise any influence over the advice given by the relevant firm in relation to packaged products.
            (6) For this rule, any holding of, or credit provided by, a product provider's associate is taken to be held by, or provided by, the product provider.
            2.5.7 Soft dollar agreements etc—inducement exemption
            (1) This rule applies if, in the course of conducting investment business, an authorised firm pays for goods or services received by the firm or an associate under a soft dollar agreement or bundled brokerage arrangement using commissions generated by the execution of transactions on behalf of customers for whom it acts.
            (2) Payment for, or receipt of, the goods or services is not an inducement that breaches rule 2.5.4 (1) (Inducements—all businesses) if—
            (a) the goods or services are directly relevant to, and can reasonably expect to be used to assist in, the provision to the authorised firm's customer s of any of the following:
            (i) investment management services;
            (ii) advice on dealing in, or the value of, any relevant investment;
            (iii) custody services relating to relevant investments belonging to, or managed for, customers;
            (iv) services relating to the valuation or performance measurement of portfolios; and
            (b) the goods and services do not take the form of, or include, cash or any other direct financial benefit; and
            (c) the firm has undertaken a thorough assessment of the goods and services it receives under the agreement or arrangement mentioned in subrule (1) to ensure that it provides value for money to the firm's customer s, including, for a bundled brokerage arrangement, taking reasonable steps to ensure that—
            (i) the services provided by a broker who is a party to the arrangement are competitive, with no comparative price disadvantage, and take into account the interests of the firm's customers; and
            (ii) if a broker who is a party to the arrangement acts as principal—commission paid under the arrangement will be sufficient to cover the value of the goods or services to be received and the costs of execution; and
            (d) the firm has made adequate prior and periodic disclosure under rule 2.5.8 and rule 2.5.9 (Soft dollar agreements etc—periodic disclosure).
            2.5.8 Soft dollar agreements etc—prior disclosure
            (1) This rule applies if—
            (a) an authorised firm, or a member of its group, has a soft dollar agreement or bundled brokerage arrangement with another person; and
            (b) the firm is proposing to enter into a transaction for a customer.
            (2) Before the authorised firm enters into the transaction, the firm must tell the customer in writing about—
            (a) the existence of the soft dollar agreement or bundled brokerage arrangement; and
            (b) the authorised firm's or, if relevant, its group's policy, relating to soft dollar arrangements and bundled brokerage arrangements.

            Note Rule 2.5.8 (2) can be satisfied by providing the relevant information in the firm's terms of business given to the customer (see r 4.2.5).
            2.5.9 Soft dollar agreements etc—periodic disclosure
            (1) This rule applies if—
            (a) an authorised firm, or a member of its group, has a soft dollar agreement or bundled brokerage arrangement with another person; and
            (b) the firm conducts transactions for a customer.
            (2) The authorised firm must—
            (a) provide, at least annually, to the customer the following information covering the period since the firm last reported to the customer or, if a previous report has not been made to the customer, since the authorised firm first conducted transactions for the customer:
            (i) the percentage, of the total commission paid under the soft dollar agreement or bundled brokerage arrangement, that is paid by or at the direction of the firm or other members of its group;
            (ii) the value, on a cost price basis, and expressed as a percentage of the total commission paid by or at the direction of the firm or other members of its group, of goods and services received by the firm under the agreement or arrangement;
            (iii) a summary of the goods and services received by the firm under the agreement or arrangement;
            (iv) a list of the brokers that are parties to the agreement or arrangement;
            (v) the total commission paid from the portfolio of the customer; and
            (b) at least annually, explain to the customer
            (i) details of the firm's policy or, if relevant, its group's policy, relating to soft dollar agreements or bundled brokerage arrangements for the forthcoming period, which must not exceed 1 year; or
            (ii) state that its, or, if relevant, its group's policy has not changed; and
            (c) if a material change is made in the firm's policy relating to soft dollar agreements or bundled brokerage arrangements—the firm must explain the change to the customer; and
            (d) if the goods and services received by the firm under the agreement or arrangement are expected to assist only in the conduct of investment business with or for some customers and the customer is not one of those customers—explain this to the customer.
            2.5.10 Inducements—recordkeeping
            (1) An authorised firm must—
            (a) make records of each assessment it undertakes to ensure compliance with rule 2.5.4 (1) (Inducements—all businesses); and
            (b) keep the records for at least 6 years after the day the assessment is completed.
            (2) An authorised firm must—
            (a) make records of—
            (i) the terms of each soft dollar agreement or bundled brokerage arrangement to which it or an associate is a party; and
            (ii) each assessment it undertakes under rule 2.5.7 (2) (c) (Soft dollar agreements etc—inducement exemption) in relation to a soft dollar agreement or bundled brokerage arrangement; and
            (iii) each disclosure made by it under rule 2.5.8 (Soft dollar agreements etc—prior disclosure) and rule 2.5.9 (Soft dollar agreements etc—periodic disclosure) in relation to a soft dollar agreement or bundled brokerage arrangement; and
            (iv) each payment of commission, and the nature of all goods or services, received by it or an associate under a soft dollar agreement or bundled brokerage arrangement; and
            (b) keep the records in relation to an agreement or arrangement for at least 6 years after the day that it ends.

            Part 2.6 Customer complaints (COND 2.6)

            Part 2.6 builds on existing material in COND on customer complaints. In particular, it introduces a requirement on firms to establish procedures to ensure a timely and fair response to complaints received from retail customers, as well as appropriate escalation mechanisms for the customer.
            2.6.1 Customer complaints—internal procedures
            (1) An authorised firm (A) must establish and operate appropriate and effective written internal complaint-handling procedures to ensure that—
            (a) complaints, whether oral or written, made by customers in relation to its conduct of regulated activities, are dealt with fairly, efficiently, and with due diligence and consideration; and
            (b) complaints that it receives from customers about the conduct of regulated activities by another authorised firm (B) are referred to B, if A markets (or has marketed) B's financial services or A's financial services are marketed by B.
            (2) The internal complaint-handling procedures must provide for all of the following:
            (a) receiving complaints;
            (b) responding to complaints;
            (c) meeting any service standards in relation to complaints received in accordance with this part.
            (d) referring complaints to other authorised firms;
            (e) the appropriate investigation of each complaint by a person of sufficient competence who was not directly involved in the act or omission alleged in the complaint;
            (f) the person responsible for responding to a complaint having authority to settle the complaint (including offering redress if appropriate) or having ready access to someone who has the necessary authority;
            (g) responses to a complaint adequately addressing the subject matter of the complaint and, if the complaint is upheld, offering appropriate redress;
            (h) telling complainants in writing about their right to go to the [Ombudsman Scheme] if relevant.
            (3) An authorised firm must—
            (a) publish details of its internal complaint-handling procedures; and
            (b) on request, give a copy of the published details to a customer; and
            (c) give a copy of these published details automatically to a customer when it receives a complaint from the customer (unless the complaint is resolved by close of business on the next business day); and
            (d) display in each of its sales offices to which customers have access a notice indicating that it is covered by the [Ombudsman Scheme].
            2.6.2 Customer complaints—customer redress
            (1) This rule applies if—
            (a) an authorised firm receives a complaint from a customer about the conduct of its regulated activities; and
            (b) having considered the complaint, the firm decides that redress is appropriate.
            (2) The authorised firm must—
            (a) provide the customer with fair compensation, financial or otherwise, for any acts or omissions for which it was responsible; and
            (b) give effect to any offer of redress accepted by the customer.
            2.6.3 Customer complaints—service standards for retail customers
            (1) This rule applies if—
            (a) an authorised firm receives a complaint from a retail customer about the conduct of its regulated activities; and
            (b) the complaint either—
            (i) relates to an activity of the firm to which the [Ombudsman Scheme] applies; or
            (ii) involves an allegation that the complainant suffered, or may suffer, financial loss, material distress or material inconvenience; and
            (c) the complaint has not been resolved by close of business on the business day after the day it is received.
            (2) Within 5 business days after the day the complaint is received, the authorised firm must give the complainant a written acknowledgement (see subrule (5)).
            (3) Within 4 weeks after the day the complaint is received, the authorised firm must give the complainant either—
            (a) a final response (see subrule (6)); or
            (b) a written response explaining why it has not been able to resolve the complaint and indicating when it will contact the complainant again about the complaint.
            (4) Within 8 weeks after the day the complaint is received, the authorised firm must give the complainant either—
            (a) a final response (see subrule (6); or
            (b) a written response that—
            (i) explains that the firm has not been able to make a final response, gives reasons for the further delay and indicates when it expects to provide a final response; and
            (ii) tells the complainant that the complainant may refer the complaint to the [Ombudsman Scheme] if the complainant is dissatisfied with the delay; and
            (iii) encloses a copy of the [Ombudsman Scheme's] explanatory leaflet.
            (5) The acknowledgement mentioned in subrule (2)—
            (a) must give the name or job title of the individual handling the complaint for the authorised firm; and
            (b) must give details of the firm's internal complaint-handling procedures; and
            (c) may be combined with a final response if the firm can provide the response within 5 business days after the day the complaint is received.
            (6) The final response mentioned in subrules (3), (4) and (5) must—
            (a) do 1 of the following:
            (i) accept the complaint and, if appropriate, offer redress;
            (ii) offer redress without accepting the complaint;
            (iii) reject the complaint and give reasons for rejecting it; and
            (b) tell the complainant that the complainant may refer the complaint to the [Ombudsman Scheme] if the complainant is dissatisfied with the final response; and
            (c) enclose a copy of the [Ombudsman Scheme's] explanatory leaflet.
            (7) The authorised firm need not comply with subrule (3) or (4) if—
            (a) before the end of the period mentioned in the subrule, the complainant has accepted, in writing, the firm's response; and
            (b) the response had told the complainant that the complainant may refer the complaint to the [Ombudsman Scheme] if the complainant is dissatisfied with the response.
            (8) For this rule, if the authorised firm receives the complaint on a day other than a business day, or on a business day after close of business, the complaint is taken to have been received by the firm on the next business day.
            2.6.4 Customer complaints—referring complaints to other firms
            (1) If an authorised firm is satisfied on reasonable grounds that another authorised firm may be solely, jointly or partly responsible for the act or omission alleged in a complaint made by a customer, it may refer all or part of the complaint to the other firm.
            (2) However, the authorised firm must—
            (a) make any referral to the other authorised firm promptly, but no later that 5 business days after the day it became satisfied that the other authorised firm may be solely, jointly or partly responsible for the fault alleged in the complaint; and
            (b) make a referral using a durable medium; and
            (c) tell the complainant in writing, in the final response or otherwise, about the referral and include the other firm's contact details; and
            (d) unless it is satisfied that the other firm may be solely responsible for the act or omission alleged in the complaint, continue to comply with the requirements of COND in relation to the complaint.
            (3) If an authorised firm receives a complaint referred to it under subrule (1), the complaint is taken for COND:
            (a) to have been made directly to the firm by the customer; and
            (b) to have been received by it when the referral was received.
            2.6.5 Customer complaints—recordkeeping
            (1) An authorised firm must make records of every complaint it receives from a customer and how it is handled.
            (2) The records must include all of the following:
            (a) if the complaint is in writing—the complaint;
            (b) if the complaint is oral—details about the nature of the complaint;
            (c) the name of the complainant;
            (d) the name of the individual who investigated the complaint;
            (e) any correspondence between the firm and the complainant, including details of any redress offered by the firm;
            (f) if applicable, the steps the firm has taken to remedy a recurring or systemic problem revealed by the complaint.
            (3) The records must be kept for at least 6 years after the day the complaint is received.
            2.6.6 Cooperation with [Ombudsman]

            An authorised firm must cooperate fully with the [Ombudsman] in the handling of complaints against it.

            Part 2.7 Restitution orders (COND 2.7)

            Part 2.7 provides a remedy for clients who are private persons by allowing them to apply to the court for a restitution order against a person if they have suffered loss or damage as a result of such non compliance (see Article 65 of the FSR).
            2.7.1 Restitution orders for contravention of relevant requirements
            (1) A private person may apply to the Court for a restitution order if the person suffers loss or damage as a result of a contravention by an authorised firm of a relevant requirement in relation to regulated activities.

            Note This rule is made under FSR, art 65.
            (2) In this rule:

            private person means—
            (a) an individual, except when acting in the course of carrying on any regulated activity; or
            (b) any other person, except when acting in the course of carrying on business of any kind.

            Part 2.8 General recordkeeping obligation (COND 2.8)

            Part 2.8 does not significantly amend the current requirements in COND regarding record keeping. It is important to stress that the recordkeeping requirements throughout COND are very important. They are designed to ensure that if an allegation arises of a breach of COND there is evidence available to prove or disprove that allegation.
            2.8.1 General recordkeeping obligation
            (1) An authorised firm must make the records necessary—
            (a) to enable it to comply with—
            (i) COND; and
            (ii) the other provisions of the law applying to it in the QFC; and
            (b) to demonstrate at any time whether compliance has been achieved.
            (2) An authorised firm must keep records made for subrule (1) in the QFC for at least 6 years after they are made.

            Chapter 3 Financial promotions (COND 3)

            Chapter 3 expands on the material on financial communications currently contained in chapter 3 of COND. It also proposes a new defined term, 'financial promotions', which better reflects the purpose of this material than the term 'financial communications' as found in the FSR. Information that an authorised firm is required to provide or disclose to a customer under QFC requirements, including product disclosure requirements, would be distinguished from financial promotions. Advertising and promotional material is quite distinct from statutory disclosure material, and it is useful to highlight this distinction, while facilitating the drafting of specific requirements tailored to each type of material.

            Part 3.1 Financial promotions—general (COND 3.1)

            This part essentially carries across the existing material in COND on 'financial communications' and augments it with some new material applicable to financial promotions made to both business customers and retail customers (but not to market counterparties).

            Proposed new rules include:

            •   limits on how a financial promotion can be included when communicating information to a customer, including disclosure information;
            •   controls on how persons other than an authorised firm can make financial promotions on behalf of the firm;
            •   a requirement for senior management to review financial promotions and confirm thy comply with COND; and
            •   some additional general requirements, such as making clear that a client's capital is at risk, if this is the case.
            3.1.1 Application—ch 3
            (1) Chapter 3 applies to all authorised firms carrying on regulated activities in or from the QFC.
            (2) Part 3.2 (Financial promotions—all customers) and part 3.4 (Financial promotions—miscellaneous) apply to an authorised firm if it makes or approves a financial promotion to a customer.
            (3) Part 3.3 (Financial promotions—retail customers) applies, in addition to part 3.2 and part 3.4, to an authorised firm if it makes or approves a financial promotion that is addressed to, or disseminated in such a way that it is likely to be received by, a retail customer.

            Note The definition of customer in INAP includes business customer, commercial customer (in relation to insurance business and insurance mediation business) and retail customer.
            (4) It is intended that the provisions of this chapter apply to an authorised firm in a way that is appropriate and proportionate, taking into account, for example, the means used for communicating the financial promotion, and the information that the financial promotion is intended to convey to the customer.

            Part 3.2 Financial promotions—all customers (COND 3.2)

            3.2.1 Financial promotions—compliance confirmation

            Before an authorised firm makes or approves a financial promotion, the firm must ensure that a senior manager with appropriate expertise and authority—
            (a) reviews the financial promotion; and
            (b) confirms in writing that it complies with this chapter.
            3.2.2 Financial promotions—making and approving
            (1) An authorised firm must not allow a person to make a financial promotion for it in or from the QFC unless—
            (a) the financial promotion has been reviewed, and confirmed to comply with this chapter, under rule 3.2.1; and
            (b) the person is—
            (i) an employee of the firm who is an approved individual; or
            (ii) an approved representative of the firm; or
            (iii) another authorised firm; or
            (iv) a QFC licensed firm; and
            (c) if the person is a QFC licensed firm—the authorised firm has approved the content of the financial promotion for the FSR, article 81.
            (2) An authorised firm must not allow a person to make a financial promotion for it in the State outside the QFC unless—
            (a) the financial promotion has been reviewed, and confirmed to comply with this chapter, under rule 3.2.1; and
            (b) the person is a non-QFC intermediary of the firm.
            (3) An authorised firm must take all reasonable steps to ensure that—
            (a) a person (other than a person mentioned in subrule (1) (b)), does not make (or purport to make) a financial promotion for it in or from the QFC; and
            (b) a person (other than a non-QFC intermediary of the firm) does not make (or purport to make) a financial promotion for it in the State outside the QFC.
            3.2.3 Financial promotions—content
            (1) If an authorised firm makes or approves a financial promotion, it must ensure that—
            (a) the financial promotion is clear, fair and not misleading; and
            (b) the promotional purpose of the financial promotion is clearly identifiable; and
            (c) the financial promotion does not omit anything that causes the financial promotion not to be clear, fair and not misleading; and
            (d) the accuracy of all material statements of fact in the financial promotion can be substantiated; and
            (e) if the financial promotion includes a material statement of fact—that it is sufficiently up to date to ensure the financial promotion does not breach paragraph (a); and
            (f) if the financial promotion is in relation to a regulated activity or specified product that places a customer's capital at risk—it makes this clear; and
            (g) if the financial promotion is in relation to a regulated activity or specified product with a complex charging structure or in relation to which the authorised firm will receive 2 or more elements of remuneration —the financial promotion contains sufficient information taking into account the needs of the recipients; and
            (h) the financial promotion does not mention an approval or authorisation of the Regulatory Authority that has not been given in writing by the Regulatory Authority.
            (2) If an authorised firm makes or approves a written financial promotion, the firm must ensure that the financial promotion contains the following information:
            (a) the name of the authorised firm making the financial promotion;
            (b) either the address of the authorised firm making the financial promotion or a contact point from which the address is available;
            (c) the date of issue and, if applicable, the expiry date of the financial promotion;
            (d) a statement of the intended audience of the financial promotion and, if applicable, that the financial promotion is directed solely at persons who are not retail customers;
            (e) the regulatory status of the authorised firm making the financial promotion in a form required by GENE.

            Note See GENE, r 3.1.
            3.2.4 Financial promotions—additional content requirements

            An authorised firm must ensure a financial promotion made for it by another person contains the names of the firm and the other person.
            3.2.5 Financial promotions—included in other communications etc

            If an authorised firm communicates information to a customer (whether in a document required by COND or otherwise), the firm must not include or embed a financial promotion in the communication in a way that obscures—
            (a) the objectives or purpose of the communication; or
            (b) the nature or purpose of the financial promotion.
            3.2.6 Financial promotions—withdrawal

            If an authorised firm becomes aware that a financial promotion does not comply or no longer complies with this chapter, the firm must ensure that the financial promotion is withdrawn as soon as practicable by either—
            (a) ceasing to make the financial promotion and telling any person that the firm knows to be relying on it that the promotion is withdrawn; or
            (b) withdrawing its approval and telling any person that the firm knows to be relying on it that the promotion is withdrawn.

            Part 3.3 Financial promotions—retail customers (COND 3.3)

            Part 3.3 introduces into COND an extra layer of protection specifically for retail customers. These proposals are designed to ensure financial promotions use comparisons, simulations, projections and so forth in a way that is objective, transparent and not misleading, as well as placing certain limits and disclosure obligations on financial promotions containing direct offers. Finally, this part introduces restrictions and controls on non-written financial promotions, including cold calls. The key proposals include:

            •   expanding on the general principle guiding the presentation of financial promotions tailored for retail customers;
            •   principles to be followed when including comparisons and past, simulated and future performance indicators in a financial promotion. These are fairly high level principles that aim to ensure such inclusions do not misrepresent or otherwise distort a financial promotion;
            •   requirements covering financial promotions targeted at retail customers containing a direct offer. In particular, these rules restrict such financial promotions to lower risk investment products and cross-references to those parts of the COND disclosure regime that need to be embedded in the financial promotion; and
            •   rules governing non-written financial promotions, when cold calls are permissible and when a cold call can include an offer or invitation.

            Note for pt 3.3 For the application of COND 3.3, see r 3.1.1 (3).
            3.3.1 Retail financial promotions—presentation

            Before an authorised firm makes or approves a financial promotion, it must ensure that the financial promotion
            (a) is accurate and, in particular, does not emphasise any potential benefits of a specified product without also giving a fair and prominent indication of any relevant risks; and
            (b) is sufficient for the needs of, and presented in a way that is likely to be understood by, the average member of the group to whom it is addressed or by whom it is likely to be received; and
            (c) does not disguise, diminish or obscure important items, statements or warnings.
            3.3.2 Retail financial promotions—comparisons

            If an authorised firm makes or approves a financial promotion that contains a comparison or contrast, it must ensure that—
            (a) the comparison is meaningful and presented in an objective and balanced way; and
            (b) the sources of the information used for the comparison are stated; and
            (c) the key facts and assumptions used to make the comparison are included.
            3.3.3 Retail financial promotions—past performance
            (1) If an authorised firm makes or approves a financial promotion that includes or refers to past performance of a regulated activity or specified product, it must ensure that—
            (a) the performance information is not the most prominent feature of the financial promotion; and
            (b) the performance information—
            (i) covers at least the last 5 years or the entire period for which the regulated activity or specified product has been offered but—never less than 3 consecutive years; and
            (ii) is based on complete 12-month periods; and
            (c) the reference period, basis and the source of the performance information are clearly stated; and
            (d) the financial promotion contains a prominent warning that the performance information refers to the past and that past performance is not a reliable indicator of future performance; and
            (e) if the performance information is based on gross performance—the financial promotion discloses the effect of commissions, fees or other charges on the past performance.
            (2) If the past performance is of a packaged product other than a unit-linked life policy, the authorised firm must ensure that the performance information is given on—
            (a) an offer-to-bid basis (which should be stated), if there is an actual return or comparison of performance with other investments; or
            (b) an offer-to-offer, bid-to-bid or offer-to-bid basis (which should be stated), if there is a comparison of performance with an index or with movements in the price of units; or
            (c) a single-pricing basis (which should be stated) with allowance for charges.
            (3) If the pricing policy of the packaged product mentioned in subrule (2) has changed, the authorised firm must ensure that the prices used include the adjustments necessary to remove any distortions resulting from the pricing method.
            3.3.4 Retail financial promotions—simulated past performance

            If an authorised firm makes or approves a financial promotion that includes or refers to simulated past performance of a regulated activity or specified product, it must ensure that—
            (a) the simulated past performance relates to an investment or financial index; and
            (b) the simulated past performance is based on the actual past performance of 1 or more investments or financial indices that are the same as, or underlie, the investment or financial index; and
            (c) in relation to the actual past performance, rules 3.3.3 (1) (b), (c) and (e), (2) and (3) is complied with; and
            (d) the financial promotion contains a prominent warning that the performance information refers to simulated past performance and that this is not a reliable indicator of future performance.
            3.3.5 Retail financial promotions—future performance forecasts
            (1) If an authorised firm makes or approves a financial promotion that includes or refers to a forecast of the future performance of a regulated activity or specified product, it must ensure that—
            (a) the forecast is not based on, and does not refer to, simulated past performance; and
            (b) the forecast is based on reasonable assumptions supported by objective data; and
            (c) if the forecast is based on gross performance—the financial promotion discloses the effect of commissions, fees or other charges on the forecast; and
            (d) the financial promotion contains a prominent warning that forecasts are not a reliable indicator of future performance.
            (2) If an authorised firm makes or approves a financial promotion that includes or refers to a forecast of the future performance of a life policy, it must ensure—
            (a) the forecast complies with the requirements of division 4.3.2 (Packaged products—additional disclosure) relating to projections; and
            (b) if the forecast is a projection made in accordance with rule 4.3.18 (Life policies—projection calculation rules)—the firm must ensure that the financial promotion
            (i) clearly indicates that the projection is for illustrative purposes only; and
            (ii) includes wording to the effect that retail customers will be individually assessed by the firm before any advice on investments is provided.
            3.3.6 Retail financial promotions—direct offers and invitations
            (1) An authorised firm making or approving a financial promotion must ensure the promotion complies with subrule (2), (3) or (4), as appropriate, if the financial promotion includes—
            (a) an offer to enter into an agreement relating to a regulated activity or specified product with any person who responds to the financial promotion; or
            (b) an invitation to any person who responds to the financial promotion to make an offer to enter into an agreement relating to a regulated activity or specified product.
            (2) If the financial promotion relates to investment business, the authorised firm must ensure that it includes—
            (a) the information required by part 4.2 (Investment business—initial client contact); and
            (b) if the investment business relates to a packaged product—the product disclosure information required by division 4.3.2 (Packaged products—additional disclosure).
            (3) If the financial promotion relates to a life policy, the authorised firm must ensure that it includes—
            (a) the information required by subrule (2); and
            (b) a statement about the benefits (if any) that are fixed amounts, and what the amounts are; and
            (c) a statement about the benefits that are not fixed amounts.
            (4) If the financial promotion relates to a non-investment insurance contract, the authorised firm must ensure that it includes—
            (a) information required by part 5.2 (Non-investment insurance—initial client contact); and
            (b) information required by rule 5. 4.1 (1) and (2) (Non-investment insurance product disclosure—requirement).

            Guidance

            To enable a retail customer to make an informed assessment of the regulated activity or specified product promoted by the financial promotion, the authorised firm may wish to include in the financial promotion a statement that the recipient should seek advice if the recipient has any doubt about the suitability of what is being promoted.
            3.3.7 Retail financial promotions—non-written promotions

            If an authorised firm makes a cold call or another financial promotion that is not in writing to a particular retail customer outside the firm's premises, it must ensure that the individual making the financial promotion
            (a) only does so at an appropriate time of the day; and
            (b) at the outset of the communication does each of the following:
            (i) identifies himself or herself and the authorised firm;
            (ii) makes clear the purpose of the communication;
            (iii) clarifies whether the customer would like to continue with or end the communication; and
            (c) ends the communication when the customer asks that it be ended; and
            (d) gives a contact point to the customer if an appointment is arranged for the customer.
            3.3.8 Cold calls—general rule

            An authorised firm must not make a cold call to a retail customer unless—
            (a) the cold call relates only to non-investment contracts of insurance; or
            (b) the firm has an existing relationship with the customer and the customer has agreed in writing to receive cold calls from the firm; or
            (c) another person has referred the customer's contact details to the firm for the firm to contact the customer and the customer has agreed in writing to the referral.
            3.3.9 Cold calls—offers and invitations
            (1) This rule applies if an authorised firm makes a cold call to a retail customer.
            (2) During the cold call with the retail customer, the authorised firm must not—
            (a) offer to enter into a relevant agreement with the customer; or
            (b) invite the customer to make an offer to enter into a relevant agreement with the firm; or
            (c) accept any offer by the customer to enter into a relevant agreement with the firm.
            (3) In this rule:

            relevant agreement means an agreement relating to a regulated activity in relation to a specified product, other than a non-investment contract of insurance.
            3.3.10 Cold calls—continued dealing with customer
            (1) If an authorised firm makes a cold call to a retail customer in relation to a relevant agreement and the customer expresses an interest during the cold call in entering into the agreement with the firm, the firm may only continue to deal with the customer in relation to the agreement in accordance with either of the following paragraphs:
            (a) the firm may give the customer a written financial promotion containing an offer or invitation to enter into the agreement in accordance with rule 3.13 (Retail financial promotions—direct offers and invitations); or
            (b) the firm may deal with the customer in accordance with part 4.2 (Investment business—initial client contact) on the basis that the cold call is the firm's first contact with the customer for the purpose of conducting investment business.
            (2) If an authorised firm makes a cold call to a retail customer in relation to a non-investment insurance contract and the customer expresses an interest during the cold call in entering into the contract with the firm, the firm may only continue to deal with the customer in relation to the contract in accordance with either of the following paragraphs:
            (a) the firm may give the customer a written financial promotion containing an offer or invitation to enter into the contract in accordance with rule 3.3.6 (Retail financial promotions—direct offers and invitations); or
            (b) the firm may deal with the customer in accordance with part 5.2 (Non-investment insurance—initial client contact) on the basis that the cold call is the firm's first contact with the customer for the purpose of conducting non-investment insurance mediation business.
            (3) In this rule:

            relevant agreement means an agreement relating to a regulated activity in relation to a specified product, other than a non-investment contract of insurance.

            Part 3.4 Financial promotions—miscellaneous (COND 3.4)

            This part carries across the existing requirements relating to record keeping to be found in COND, as well as some new recordkeeping requirements reflecting the proposals in this chapter.
            3.4.1 Financial promotions—recordkeeping
            (1) An authorised firm must keep records of each financial promotion that it makes or approves.
            (2) The record must include the following:
            (a) the name of each senior manager who reviewed the financial promotion and confirmed in writing that it complied with this chapter;
            (b) a copy of each written confirmation by a senior manager;
            (c) the date the financial promotion was made or approved;
            (d) the medium in or for which the financial promotion was made or approved;
            (e) if applicable, the evidence supporting any material statements of fact in the financial promotion;
            (f) if applicable, details of any withdrawal of the financial promotion;
            (g) if the financial promotion was in writing—a copy of the financial promotion;
            (h) if the financial promotion was a cold call or another financial promotion that was not in writing—details of the financial promotion and its outcome, including sufficient details to demonstrate that this chapter was complied with in relation to the financial promotion.

            Guidance

            Details recorded for rule 3.4.1 (2) (h) should include the following:
            (a) whether, during the communication, the retail customer asked that the communication be ended or that the customer not be contacted again;
            (b) whether the firm continued to deal with the customer under rule 3.3.10 (1) (a) or (b) or (2) (a) or (b).
            (3) The authorised firm must keep the records for at least 6 years after the financial promotion is no longer made.
            (4) This rule is additional to any other provision of COND that requires records to be made or kept.

            Chapter 4 Conduct of investment business (COND 4)

            Part 4.1 Investment business—general (COND 4.1)

            4.1.1 Application—ch4
            (1) Chapter 4 applies to all authorised firms conducting investment business in or from the QFC.

            Note For the purposes of COND, investment business in relation to a relevant investment does not include a long term insurance contract unless that contract is a life policy (see INAP defs investment business and relevant investment).
            (2) However, the operator of a collective investment fund who is carrying on the regulated activity of operating a collective investment fund need only comply with the following provisions of Chapter 4:
            (a) division 4.5.2 (Personal account transactions);
            (b) division 4.5.3 (Dealing and managing);

            Note Under the INAP definition of business customer, a collective investment fund is a business customer.

            Part 4.2 Investment business—initial client contact (COND 4.2)

            This part contains new material covering initial contact between an authorised firm and a retail customer. It aims to ensure that retail customers are provided with basic information regarding the authorised firm and the products and services that it offers. The QFC Regulatory Authority believes that the disclosure regime should be based on the idea that a retail customer can take away minimum basic information from shopping around different authorised firms and use it to compare firms, products and services.

            Division 4.2.1 Information on the firm—retail customers

            This division requires a firm to provide an Initial Disclosure Document ("IDD"), which covers such matters as the firm's contact details and regulatory status, the range of investments or services it offers plus appropriate warnings as to the risks involved in them, the extent to which it is tied to any particular product providers, the basis of the firm's remuneration, and the firm's complaint handling procedures.

            In appropriate circumstances however, the information may be provided orally in person or in an abbreviated form over the telephone, or may be incorporated into the firm's terms of business.
            4.2.1 Initial disclosure document—general requirement
            (1) When an authorised firm first makes contact with a retail customer for the purpose of conducting investment business, the firm must give the customer an initial disclosure document.
            (2) This rule is subject to rule 4.2.2.

            Division 4.2.2 Initial disclosure document—exemptions

            (1) Rule 4.2.1 (1) does not apply in relation to the first contact between a retail customer and an authorised firm for the purpose of conducting of investment business if—
            (a) all the information required by this part to be given to a retail customer has been given by the firm to the customer on a previous occasion, and that information is still accurate and likely to be appropriate for the customer; or
            (b) the initial contact is made by telephone; or

            Note Rule 4.2.4 applies to initial contact by telephone.
            (c) in relation to a life policy—the customer contacts the firm for a quote and at the time the quote is provided the quotation cannot be accepted and a contract formed without the firm obtaining further information from the customer; or
            (d) the firm gives the information required by rule 4.2.3 to the customer in its terms of business for the customer and the terms of business are given in reasonable time before the firm conducts or agrees to conduct investment business with or for the customer.
            (2) Rule 4.2.1 (1) also does not apply if—
            (a) the authorised firm is not advising the retail customer on relevant investments; and
            (b) the firm gives the information required to be included in the initial disclosure document to the customer orally; and
            (c) 1 or more of the following applies:
            (i) the customer asks for the information to be given orally;
            (ii) the customer requires the firm to provide immediate cover;
            (iii) the firm wishes to enter into an execution-only transaction (apart from a contingent liability transaction) with the customer, prior written disclosure would delay the transaction, and the customer agrees to be given the information orally; and
            (d) the firm gives the information to the customer in either an initial disclosure document or another disclosure document, as appropriate, immediately after the contract resulting from the contact between the customer and the firm is finalised.
            4.2.3 Initial disclosure document—content
            (1) An authorised firm must ensure that the initial disclosure document that the firm gives a retail customer contains the information that the firm reasonably considers will be, or is likely to be, appropriate for the customer having regard to the investment business that the firm may conduct.
            (2) Without limiting subrule (1), the initial disclosure document must contain the following information:
            (a) the name and business address of the authorised firm;
            (b) the firm's regulatory status in a form required by GENE;

            Note See GENE, r 3.1.
            (c) the name or position of employees and any approved representative with whom the retail customer may have contact;
            (d) the statement prepared by it in accordance with rule 4.3.7 (2) (Retail investment advice—statement of independence);
            (e) the investment business offered by the firm to the customer;
            (f) whether the firm charges on the basis of fees or commissions, or a combination of fees and commissions;
            (g) the fees or likely commissions (or both) that the customer would be charged for the investment business being offered by the firm to the customer;
            (h) guidance on, and appropriate warnings of, the material risks associated with—
            (i) the investment business being offered by the firm to the customer; and
            (ii) any investment strategy followed by the firm;
            (i) the availability of the firm's internal complaint-handling procedures and how a complaint may be made to the firm;
            (j) the availability of the [Ombudsman Scheme].
            (2) An authorised firm must ensure that the information included in an initial disclosure document for a retail customer is up to date.
            4.2.4 Initial contact by telephone
            (1) If an authorised firm's first contact with a retail customer is by telephone, the firm must, on initially making contact with the customer, give the customer the following information:
            (a) the firm's name and, if the call is initiated by or for the firm, the commercial purpose of the call;
            (b) whether the firm will provide the customer with advice on investments;
            (c) if the firm will provide the customer with advice on packaged products
            (i) whether the firm offers packaged products from the whole market, a limited number of product providers or a single product provider; and
            (ii) that the customer can ask for a statement of the range of packaged products offered by the firm;
            (d) whether the firm offers a fee-based service, a commission-based service, a service based on a combination of fees and commissions, or a combination of these 3 types of services, and the consequences for the customer of choosing each option offered;
            (e) that the information given under paragraphs (a) to (d) will be confirmed in writing as soon as practicable after the end of the call.
            (2) An authorised firm may only finalise a contract for the purchase or sale of a packaged product during its initial telephone contact with a retail customer if it is an execution-only transaction (other than in relation to a contingent liability transaction).
            (3) If an authorised firm finalises a contract for an execution-only transaction during its initial telephone contact with a retail customer, the firm must give the customer the product disclosure document required by division 4.3.2 (Packaged products additional disclosure as soon as practicable after the contract is finalised.

            Division 4.2.2 Terms of business—all customers

            This division outlines the requirement for a terms of business, which must be provided to both retail and business customers. This requirement already exists in the current COND. Unlike the IDD, it is a contractual document outlining the terms on which the firm will conduct investment business for the customer. It is possible for the IDD to be incorporated into the terms of business if initial contact moves into the contract phase. The proposed requirements do add one new section providing further protection to retail customers by:
            •   ensuring adequate notification to a retail customer of changes in the terms of business provided to the customer (if this is allowed for in the contract); and
            •   restricting increases in fees or commissions for the provision of services in relation to packaged products that exceed the figure indicated in the terms of business, unless agreed to by the customer.
            4.2.5 Terms of business—general requirements
            (1) Before an authorised firm conducts investment business with or for a customer, it must—
            (a) give the customer its terms of business for the customer; and
            (b) if the customer is a retail customer— ensure that the customer signs or otherwise agrees in writing to the terms of business, including the particular rate or amount that the firm will charge the customer for its services.
            (2) This rule does not apply if—
            (a) the investment business is carried on after termination of the terms of business and the authorised firm is acting only for the purposes of fulfilling any obligations still outstanding under the terms of business; or
            (b) the authorised firm is entering into an execution-only transaction (apart from a contingent liability transaction) with or for a customer.
            4.2.6 Terms of business—content
            (1) An authorised firm must ensure that its terms of business for a customer contains, in adequate detail, the basis on which it will conduct investment business with or for the customer.

            Guidance

            If an authorised firm proposes to manage relevant investments in an account or portfolio for a retail customer on a discretionary basis under the terms of a discretionary management agreement, the terms of business must set out the terms of the discretionary management agreement.
            (2) Without limiting subrule (1), the authorised firm must ensure that the terms of business contains the information required by—
            (a) schedule 1 (Minimum content of terms of business), part S1.1 (Minimum information required for all investment business); and
            (b) if the terms of business cover the firm acting as investment manager for the customer—schedule 1, part S1.2 (Minimum information required for investment management).
            (3) However, the authorised firm is not required to include information in the terms of business if the information is, by its nature, unavailable when the terms of business are given to the customer.
            (4) If information mentioned in subrule (3) becomes available after the terms of business are given to the customer, the authorised firm must give the information to the customer as soon as practicable after it becomes available to the firm.
            4.2.7 Terms of business—multiple documents

            An authorised firm's terms of business for a customer may consist of 1 or more documents if it is made clear to the customer that collectively they make up the terms of business.
            4.2.8 Terms of business—amendment of terms of business
            (1) If the terms of business of an authorised firm for a customer allow the firm to amend the terms of business without the customer's agreement, the firm must not conduct business with or for the customer on the basis of an amendment of the terms of business unless the firm has given the customer written notice of the amendment—
            (a) at least 10 business days before the amendment is to take effect; or
            (b) if it is impractical to give that notice—as early as is practicable.
            (2) Despite subrule (1), if an authorised firm has started to provide a retail customer with services in relation to packaged products after giving the customer its terms of business, the firm must not (at least until it has finished providing the services)—
            (a) increase the rate or amount of the fees it is charging the retail customer for the services; or
            (b) keep any commission for the services that exceeds the maximum amount or rate disclosed in the terms of business;
            unless the firm has given the retail customer an appropriate amendment of the terms of business and the customer has agreed to the amendment in a durable medium.
            (3) However, the authorised firm is not required to give the retail customer an amendment of the terms of business if—
            (a) the maximum rates or amounts disclosed in the terms of business already in force for the customer only apply to policies of the example term or policyholder's age given in the firm's initial disclosure document to the customer, or to policies with shorter terms; and
            (b) the firm arranges a policy for a term longer than the example term and the increase in the commission that the firm arranges to keep over the maximum disclosed in the initial disclosure document is not more than an amount that is directly proportional to the increased term of the policy.

            Division 4.2.3 Initial client contact miscellaneous

            4.2.9 Initial client contact—recordkeeping
            (1) An authorised firm must—
            (a) keep a copy of each of the initial disclosure documents that it gives to retail customers for 6 years after the day it is last given to a retail customer; and
            (b) keep a record of the version of the initial disclosure document that it gives to each retail customer, and the day it is given to the customer, for 6 years after the day it is given to the customer.
            (2) An authorised firm must keep a copy of a terms of business that it gives to a customer, and of each amendment of the terms of business, for at least 6 years after the day the firm ceases to conduct business with or for the customer under the terms of business.

            Part 4.3 Investment services—retail customers (COND 4.3)

            Part 4.3 comprises revised material from chapter 10 of the current COND on retail investment services, in particular 'know your customer' and suitability and risk assessment requirements, as well as entirely new material on product disclosure requirements for packaged products. The material from the current COND is somewhat reorganised, for example, combining the suitability and risk understanding analysis, as well as augmented by several new proposals, notably when advising on packaged products. The aim of this approach is to maintain a 'depolarised' regime, but refocus the rules on ensuring clarity on whether an authorised firm is independent or not, and if not, the nature of the arrangements that prevent it from being deemed independent.

            Division 4.3.1 Retail investment services

            This division revises material from the current COND, although it adds the following new requirements:
            •   a new rule drilling down further the information an authorised firm must obtain about a retail customer;
            •   a requirement to provide a combined statement to a retail customer on the results of the suitability assessment (the retail customer's needs) and understanding of risk, including an explanation of why a recommended transaction suits the needs of the customer and any possible disadvantages of the transaction; and
            •   replacing the current requirements regarding the scope of products that an authorised firm is recommending on with a requirement restricting when an authorised firm can hold itself out as independent, as well as maintaining a statement to this effect which is to be disclosed to retail customers when appropriate (such as in the IDD).
            4.3.1 Retail investment advice—general requirements

            If an authorised firm gives advice on relevant investments to a retail customer, it must—
            (a) take reasonable steps to ensure that it has sufficient personal and financial information about the customer to give the advice (see rule 4.3.3); and
            (b) take reasonable steps to ensure that the advice is suitable for the customer (see rule 4.3.4); and
            (c) give the customer a statement of why the firm considers the advice to be suitable for the customer (see rule 4.3.5).
            4.3.2 Retail investment management—general requirements
            (1) This rule applies if an authorised firm manages, or is proposing to manage, relevant investments in an account or portfolio for a retail customer on a discretionary basis under the terms of a discretionary management agreement.

            Note The terms of the discretionary management agreement must be set out in the terms of business given to the retail customer, see r 4.2.6 (Terms of business—content).
            (2) Before the authorised firm makes a discretionary investment management decision for the retail customer, it must—
            (a) take reasonable steps to ensure that it has sufficient personal and financial information about the customer to make the decision (see rule 4.3.3); and
            (b) take reasonable steps to ensure that the decision is suitable for the customer (see rule 4.3.4).
            (3) The authorised firm must also take reasonable steps to ensure that the retail customer's portfolio or account remains suitable, having regard to the information the firm has about the customer (see rule 4.3.3).
            4.3.3 Retail investment services—know your customer
            (1) For rule 4.3.1 (a) (Retail investment advice—general requirements) and 4.3.2 (2) (a) and (3) (Retail investment management—general requirements), the information obtained by an authorised firm about a retail customer must, to the extent appropriate to the nature of the customer, the nature and extent of the service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved, include all of the following:
            (a) the customer's financial situation;
            (b) the customer's investment objectives and risk tolerance;
            (c) the customer's knowledge of and experience in the relevant investment field;
            (d) the nature, volume and frequency of the customer's transactions in the investment field and the period over which they have been carried out;
            (e) the customer's level of education and profession or relevant former profession.
            (2) If the authorised firm asks the retail customer for personal or financial information about the customer and the customer fails to give it to the firm, the firm must warn the customer in writing that failure to give the information to the firm may adversely affect the quality of the service provided by it to the customer.
            (3) An authorised firm must take reasonable steps to ensure that the information it has about a retail customer is accurate, complete and up-to-date.
            4.3.4 Retail investment services—suitability and risk
            (1) For rule 4.3.1 (b) (Retail investment advice—general requirements) and 4.3.2 (2) (b) (Retail investment management—general requirements), an authorised firm must ensure that the service it provides for a retail customer is suitable for the customer having regard to—
            (a) the information held by the firm; and
            (b) any requirement of, or any other relevant facts about, the customer of which the firm is, or ought reasonably to be, aware.
            (2) If, with the retail customer's agreement, the authorised firm has pooled the customer's funds with the funds of others to take common discretionary management decisions, the firm must take reasonable steps to ensure that a discretionary decision is suitable for the fund, having regard to the stated investment objectives of the fund.
            4.3.5 Retail investment services—disclosure of suitability assessment

            For rule 4.3.1 (c) (Retail investment advice—general requirements), the statement given by an authorised firm to a retail customer must include the following information:
            (a) the customer's demands and needs;
            (b) an explanation of why the firm has concluded that the advice is suitable for the customer having regard to the information provided by the customer;
            (c) an explanation of any possible disadvantages that the advice might have for the customer, including the nature of the risks involved.
            4.3.6 Retail investment advice—independence
            (1) This rule applies if an authorised firm is advising on investments to a particular retail customer in relation to packaged products.
            (2) The authorised firm must not hold itself out as acting independently unless it—
            (a) is not party to any arrangements with particular product providers that prevent it from giving advice on packaged products from the whole market (or the whole of the relevant sector of the market); and
            (b) gives the advice on packaged products from a sufficiently large range of product providers to enable it to give the advice on the basis of a fair analysis of the market; and
            (c) offers the retail customer the opportunity of paying a fee for giving the advice.

            Guidance

            Rule 4.3.6 (2) (c) means that an authorised firm wishing to hold itself out as independent will need to give retail customers a purely fee-based option for paying for its services. The fee may be offered on a contingent basis so that it does not become payable if the retail customer does not buy a product. An authorised firm offering a fee-based service may, in addition, provide the retail customer with other payment options, for example, by commission.
            (3) If the authorised firm is advising on investments to the retail customer in relation to a packaged product produced by another person, it must not—
            (a) hold itself out as the producer of the packaged product; or
            (b) do or say, or fail to do or say, anything that might reasonably lead the customer to be mistaken about the identity of the producer of the packaged product.
            (4) The authorised firm must take reasonable steps to ensure that none of its officers—
            (a) is likely to be influenced by the structure of his or her remuneration to give unsuitable advice on investments to the retail customer; or
            (b) refers the retail customer to another person in circumstances that would amount to the provision of an inducement.
            4.3.7 Retail investment advice—statement of independence
            (1) This rule applies if an authorised firm gives advice to retail customers in relation to packaged products.
            (2) The authorised firm must prepare, and keep up to date, a written statement setting out—
            (a) whether or not it is acting independently; and
            (b) details of any arrangements with particular product providers that prevent it from giving advice on packaged products from the whole market (or the whole of the relevant sector of the market); and
            (c) the range of product providers on whose packaged products it gives advice, including—
            (i) the identity of the product providers whose packaged products the firm may sell; and
            (ii) a list of the categories of their products the firm may sell.
            (3) The authorised firm must include a copy of the statement under subrule (2) in its initial disclosure document for a retail customer (see rule 4.2.3 (2) (d)).
            (4) If the authorised firm gives advice to a retail customer in relation to packaged products, the firm must either—
            (a) draw the customer's attention to the statement under subrule (2) of independence included in the firm's initial disclosure document for the customer; or
            (b) give the customer another copy of the statement.
            4.3.8 Retail investment services—charges
            (1) An authorised firm must ensure that its charges to a retail customer are not excessive.
            (2) If an authorised firm's charges for advising on or managing a retail customer's assets depend on the value of relevant investments that are not readily realisable investments, the valuation of the relevant investments must be based on the price likely to be agreed between a willing buyer and a willing seller who are dealing at arm's-length and who are both in possession of all freely available information about the relevant investments.
            4.3.9 Retail investment services—recordkeeping
            (1) An authorised firm must make and keep the following records for at least 6 years after the day it gives advice on investments to a retail customer:
            (a) a record of the personal and financial information that it has about the customer, including the information that it has obtained in accordance with rule 4.13 (Retail investment services—know your customer); and
            (b) if the firm gave the customer a statement under rule 4.3.1 (c) (Retail investment advice—general requirements)—a copy of the statement; and
            (c) a record of the steps taken by the firm to ensure that the service it provides for the customer is suitable for the customer as required by rule 4.3.5 (Retail investment services—disclosure of suitability assessment).
            (2) However, the authorised firm need not keep the records if the firm gives advice to the retail customer in relation to a transaction and the customer does not proceed with the transaction or any part of it.
            (3) The authorised firm must keep a statement under rule 4.3.7 (2) (Retail investment advice—statement of independence) for 6 years after the day it is replaced by a more up-to-date statement.

            Division 4.3.2 Packaged products—additional disclosure

            This division contains new requirements relating to the disclosure of product information in relation to packaged products (life policies and units in a collective investment fund). It is proposed that retail customers be provided with a Product Disclosure Document (PDD) in relation to packaged products.

            The key requirements include:
            •   a requirement to prepare a PDD if the authorised firm is a product provider, and otherwise provide a PDD if they are arranging, advising or dealing in relation to a packaged product;
            •   a rule placing the onus for ensuring the content and form of a PDD complies with COND on the authorised firm providing the PDD to a retail customer. An authorised firm can satisfy this requirement by providing a document equivalent to a PDD produced in another jurisdiction, as long as it satisfies itself that the requirements in that jurisdiction are substantially equivalent to those in COND;
            •   a requirement that an authorised firm that provides, but does not produce a PDD, must ensure its name, address and a specified warning are displayed on the PDD. We envisage this could be achieved simply by adding a sticker or wrapper to the PDD;
            •   several high level principles guiding the form of the PDD, e.g. it must be produced to the same quality as the accompanying financial promotions;
            •   generic content requirements (such as name, description of product, and sufficient information about the risks and benefits of the product) to allow the retail customer to make an informed decision;
            •   a section with specific requirements for a life policy PDD, which are in conformity with the relevant sections of the EU directive on life insurance, with a few modifications added to personalise the PDD to a retail customer;
            •   an illustration of the final surrender value;
            •   a simple table showing the effects of charges and expenses;
            •   a requirement for an authorised firm to chose an appropriate rate of return, although this may not be more than 7 per cent. This figure represents the medium to medium-high upper limit in other jurisdictions. It was decided to require only one projection, as there is evidence that a lower rate is often perceived to be a guaranteed return; and
            •   a requirement to have the assumptions and methodology underpinning a projection prepared and approved by the approved actuary of the firm producing the PDD.
            4.3.10 Product disclosure document—preparation

            An authorised firm must prepare a product disclosure document for each packaged product it produces.
            4.3.11 Product disclosure document—provision requirement
            (1) An authorised firm (the selling firm) must not sell, or arrange for the sale, of a packaged product to a retail customer unless it has given the customer, not later than a reasonable time before the customer becomes contractually bound in relation to the packaged product
            (a) a product disclosure document for the packaged product; or
            (b) if the packaged product was produced by another authorised firm—a product disclosure document that complies with subrule (2);
            (c) if the packaged product was produced by a person in a jurisdiction outside the QFC—disclosure documentation that complies with subrule (3).
            (2) If the packaged product was produced by another authorised firm, the product disclosure document given to the retail customer under subrule (1) (b)—
            (a) must be the product disclosure document prepared by the other authorised firm; but
            (b) must prominently display each of the following:
            (i) the name of the selling firm;
            (ii) either the address of the selling firm or a contact point from which the address is available;
            (iii) the selling firm's regulatory status in a form required by GENE.

            Note See GENE, r 3.1.
            (3) If the packaged product was produced by a person in a jurisdiction outside the QFC, the disclosure documentation given to the retail customer under subrule (1) (c) complies with this subrule if—
            (a) the selling firm is satisfied on reasonable grounds that—
            (i) the disclosure documentation was prepared by the person in accordance with the requirements of the law of the other jurisdiction; and
            (ii) those requirements are broadly equivalent to the requirements of this division; and
            (b) the disclosure documentation prominently displays—
            (i) the information mentioned in subrule (2) (b) (i) to (iii); and
            (ii) if the packaged product is a life policy
            (A) an explanation of any difference between the cancellation period in relation to the policy and that prescribed by COND;
            (B) a warning that the claims handling procedures under the policy may differ from those prescribed by COND.
            (4) If a life policy sold by an authorised firm to a retail customer is varied, and, because of the variation, the customer has a right to cancel the life policy under rule 6.3.2 (Variations of life polices—right to cancel), the firm must—
            (a) update the document that it gave the customer under subrule (1) in relation to the life policy to reflect the variation; and
            (b) give a copy of the updated document to the customer.
            (5) This rule is subject to rule 4.3.12 (Product disclosure document—provision requirement exemption).

            Guidance
            (1) An authorised firm may comply with rule 4.3.11 (2) (b) or (3) (b) by including the required information in a sticker or wrapper attached to the product disclosure document or disclosure documentation.
            (2) The purpose of rule 4.3.11 (3) is to allow an authorised firm to give disclosure documentation that meets the disclosure objectives of a product disclosure document, even if the form or content is different in matters of detail from that required by this division. For example, an authorised firm could provide a disclosure document that uses a projection or illustration prepared in accordance with rules prescribed by an overseas regulator, if these ensure a fair projection based on objective and reasonable assumptions.
            4.3.12 Product disclosure document—provision requirement exemptions
            (1) Rule 4.3.11 (Product disclosure documentation—provision requirement) does not apply in relation to the sale of a packaged product by an authorised firm to a retail customer if—
            (a) the sale takes place during the firm's first contact with the customer; and
            (b) the contact takes place by telephone; and
            (c) rule 4.2.4 (Initial contact by telephone) is complied with in relation to the contact.
            (2) Rule 4.3.11 also does not apply in relation to the sale of a packaged product by an authorised firm to a retail customer if—
            (a) the customer is buying the packaged product without advice in response to a financial promotion containing an offer or invitation; and
            (b) the financial promotion is made in accordance with rule 3.3.6 (Retail financial promotions—direct offers and invitations).
            4.3.13 Product disclosure document—form

            An authorised firm must ensure that a product disclosure document given by it to a retail customer for a packaged product
            (a) is produced and presented to at least the same quality and standard as the sales or marketing material used by it to promote the packaged product; and
            (b) is separate from any other material given to the customer; and
            (c) displays the product provider's brand at least as prominently as any other brand displayed; and
            (d) does not disguise, diminish or obscure important items, statements or warnings.
            4.3.14 Product disclosure document—content
            (1) An authorised firm must ensure that a product disclosure document prepared by it for a packaged product includes each of the following:
            (a) the firm's name;
            (b) either the address of the firm or a contact point from which the address is available;
            (c) the firm's regulatory status in a form required by GENE;

            Note See GENE, r 3.1.
            (d) the following statement prominently displayed:

            'The Qatar Financial Centre Regulatory Authority is the independent financial services regulator for the Qatar Financial Centre. It requires us, [authorised firm's name], to give you this important information to help you to decide whether this [product name] is right for you. You should read this document carefully so that you understand what you are buying, and then keep it safely for future reference.';
            (e) a description, appropriate for the packaged product's complexity, of its nature, its particular characteristics, how it works, and any limitations or minimum standards that apply;
            (f) enough information about the material benefits and risks of buying the product for a retail customer to be able to make an informed decision about whether to buy;
            (g) the availability of the firm's internal complaint-handling procedures and how a complaint may be made to the firm;
            (h) the availability of the [Ombudsman Scheme];
            (i) whether there is a right to cancel and, if there is a right to cancel, the consequences of exercising this right, and enough details to enable the right to be exercised by a retail customer.
            (2) An authorised firm must not, in a product disclosure document prepared by it, do or say (or fail to do or say) anything that might reasonably lead a retail customer to be mistaken about the product provider's identity.
            4.3.15 Life policies—additional content

            An authorised firm must ensure that a product disclosure document prepared by it for a life policy includes the following:
            (a) a definition of each benefit and option;
            (b) the terms of the contract;
            (c) details of how the contract may be terminated;
            (d) how and when premiums are payable;
            (e) details of how bonuses are calculated and distributed, including the following information:
            (i) how profits that are allocated for the payment of bonuses are distributed;
            (ii) whether increased benefits resulting from bonuses are payable (subject to any adjustments) even if the contract is terminated early by either party to the contract;
            (iii) if bonuses increase benefits—whether increases are likely to be made each year or only when the policy amounts become payable to the policyholder;
            (iv) the basis on which bonuses are distributed to policyholders;
            (v) whether policies share equitably in the allocation of all the profits of the long-term fund, or only certain elements of the profits;
            (f) an illustration prepared in accordance with rule 4.3.16;
            (g) a table, prepared in accordance with rule 4.3.17 (Life policies—effect of charges and expenses table), illustrating the effect of charges and expenses on the policy;
            (h) information on premiums for each benefit, including, if appropriate, both main benefits and supplementary benefits;
            (i) if the policy is a unit-linked policy—a definition of the units to which benefits are linked and the nature of the underlying assets.
            4.3.16 Life policies—illustrations

            For rule 4.3.15 (f), the illustration must indicate how the main terms of the life policy apply to the retail customer and contain a projection of the final surrender value of the policy calculated in accordance with rule 4.3.18 (Life policies—projection calculation rules).
            4.3.17 Life policies—effect of charges and expenses table
            (1) For rule 4.3.15 (g), the table illustrating the effect of charges and expenses on the policy must include the contents of table 4.3.17.

            Table 4.3.17 Effects of charges and expenses

            WARNING — if you cash in early you could get back less than you have paid in
            This table illustrates what you would get back from your investment if it grew at 7% a year. These figures are not guaranteed and are only intended to demonstrate the effect of charges and expenses on your investment.
            At the end of year Total paid in to date Effect of charges and expenses to date What you would get back if your investment grew at 7% a year
            QR QR QR QR
            1      
            2      
            3      
            4      
            5      
            10      
            15      
            (2) In completing the table, the authorised firm must—
            (a) include figures for—
            (i) the first 5 years of the life policy; and
            (ii) the 10th and every subsequent 5th year of the policy's term; and
            (iii) the final year of the policy, or for a whole-life policy or a single premium life policy with no fixed term, an appropriate end date for the policy; and
            (b) in the 'Total paid in to date' column, include cumulative totals of premiums paid; and
            (c) in the 'What you would get back' column, include projections of surrender values for the policy calculated in accordance with rules 4.3.18 (Life policies—projection calculation rules); and
            (d) in the 'Effect of charges and expenses to date' column, include the amounts calculated by deducting the amounts shown in the 'What you would get back' column from the total value of premiums accumulated at the rate of return selected by the firm for rule 4.3.18; and
            (e) if the retail customer is entitled to exercise, and has chosen or expressed the intention to exercise, the right to make partial surrenders—include a column headed 'Withdrawals' showing the cumulative total of the withdrawals.
            (3) If the rate of return selected by the authorised firm for rule 4.3.18 is less than 7%, the firm must amend the headings in the table to reflect the lower rate of return.
            (4) The authorised firm must include a statement at the bottom of the table expressing the effect of charges and expenses on the life policy in terms of a reduction in the rate of return.
            4.3.18 Life policies—projection calculation rules
            (1) For rule 4.3.16 (Life policies—illustrations) and rule 4.3.17 (2) (c) (Life policies—effect of charges and expenses table), any projection of the surrender value of a life policy used in an illustration or an effect of charges and expenses table must be calculated in accordance with a methodology and set of assumptions prepared and approved by the approved actuary of the insurer preparing the product disclosure document.
            (2) In preparing the methodology and assumptions mentioned in subrule (1), the approved actuary must have regard to relevant professional standards and any requirements of this division.
            (3) A projection must be specific to the retail customer and be calculated on the basis of the customer's age and sex, the amount assured, the premium and other factors material to the life policy.
            (4) However, if a projection is calculated for the purposes of a financial promotion (including a direct offer or invitation financial promotion) or in relation to a single premium life policy, it must be calculated on the basis of factors that represent the average member of the group to whom it is directed or by whom it is likely to be received.
            (5) The rate of return used in the calculation of the projection must be the rate of return that the authorised firm reasonably expects the life policy to achieve, but must, in any event, be no more than 7%.
            4.3.19 Life policies—recordkeeping
            (1) An authorised firm must ensure that a copy of a product disclosure document given by it to a retail customer in relation to a life policy is made and kept at least 6 years, unless the customer does not take out the policy.
            (2) An authorised firm must ensure that a copy of any other disclosure documentation given by it to a retail customer in relation to a life policy is made and kept at least 6 years, unless the customer does not take out the policy.
            (3) An authorised firm must ensure that a record of the methodology and set of assumptions prepared and approved by the approved actuary for rule 4.3.18 (1) for the firm is made and kept for at least 6 years after the day the methodology or set of assumptions is replaced by a new methodology or set of assumptions.

            Part 4.4 Investment business—post-contractual obligations (COND 4.4)

            Division 4.4.1 Reporting to customers

            This division carries over without material changes existing obligations from the current COND.

            The required content of confirmation notes and periodic statements is set out in schedules 2 and 3 of these rules.
            4.4.1 Confirmation notes—provision requirement
            (1) If an authorised 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 4.4.5 (Confirmation notes—provision requirement exemption).
            4.4.2 Confirmation notes—omission of information
            (1) If—
            (a) a person fails to give an authorised 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 authorised 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, as appropriate.
            (2) If the authorised firm gets the information later, the firm must promptly give the information to the customer.
            4.4.3 Confirmation notes—when transaction taken to be executed
            (1) If an authorised 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 following business day.
            (2) If an authorised 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 an authorised firm aggregates and then subsequently allocates a customer order with an own account order or with another customer order, the transaction is taken to be executed at the time of allocation under rule 4.5.11 (Aggregation of customer orders—allocation).
            4.4.4 Confirmation notes—content

            A confirmation note for a transaction must include the information about the transaction required by schedule 2.
            4.4.5 Confirmation notes—provision requirement exemption
            (1) An authorised firm is not required to give a confirmation note to a customer for a transaction if—
            (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; or
            (b) an arrangement is in place for the customer to make a series of payments for the purchase of units in a collective investment fund; or
            (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;
            (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; or
            (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 authorised firm relies on subrule (1) (a) or (c) in relation to the transaction, the firm must give the customer a periodic statement under rule 4.4.7 (Periodic statements—provision requirement) 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.
            4.4.6 Confirmation notes—recordkeeping

            An authorised 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.
            4.4.7 Periodic statements—provision requirement
            (1) If an authorised 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 4.4.8, give the customer a written statement (a periodic statement).
            (2) The periodic statement must include the information required by—
            (a) schedule 3 (Content of periodic statements), part S3.1 (Periodic statements—general content requirements); and
            (b) if during the period covered by the periodic statement the authorised firm acted as an investment manager for the customer—schedule 3, part S3.2 (Periodic statements—investment management); and
            (c) if the periodic statement covers a contingent liability transaction schedule 3, part S3.3 (Periodic statements—contingent liability transactions); and
            (d) if the periodic statement covers a transaction relating to a structured capital at risk investment—schedule 3, part S3.4 (Periodic statements—structured capital at risk investments).
            (3) This rule is subject to rule 4.4.9 (Periodic statements—provision requirement exemption).
            4.4.8 Periodic statements—intervals

            An authorised firm must give a customer a periodic statement at intervals no longer than—
            (a) 6-monthly; or
            (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 alternative intervals with the firm—the agreed interval or annually, whichever is shorter.
            4.4.9 Periodic statements—provision requirement exemption

            An authorised firm need not give a customer a periodic statement if it would duplicate information already given, or to be given promptly, by another person.
            4.4.10 Periodic statements—recordkeeping

            An authorised 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.

            Division 4.4.2 Cancelling relevant investment contracts—retail customers

            This division introduces new rules, as the current COND has no specific requirements relating to 'cooling off' periods. The proposed rules provide:
            •   retail customers with rights to cancel relevant investments (other than life policies, which are dealt with in chapter 6) for 14 days;
            •   for when the start of the cancellation period is to begin;
            •   an obligation to disclose to a retail customer their cancellation rights;
            •   the effects of a cancellation, including the termination of the contract and how to deal with any shortfalls that may need to be addressed upon cancellation; and
            •   when a variation to a life policy provides for a right to cancel as well
            4.4.11 Relevant investment contracts—right to cancel

            If a retail customer buys a relevant investment, other than a life policy, as a result of advice by an authorised firm to the customer, the customer has a right to cancel the relevant investment.

            Note Division 6.3.1 deals with cancelling life policies.

            Guidance

            An authorised firm may voluntarily provide additional cancellation rights, or rights exercisable during a longer period than allowed under this division, but, if it does so, these should be on terms similar to those in this division.
            4.4.12 Relevant investment contracts—when cancellation rights can be exercised
            (1) A retail customer may exercise a cancellation right under this division in relation to a relevant investment, other than a life policy, made by an authorised firm with or for the customer only during the cancellation period for the investment.
            (2) For a relevant investment, other than a life policy, the cancellation period—
            (a) starts on the later of the following:
            (i) the day the authorised firm gives the retail customer the statement required by rule 4.3.1 (c) (Retail investment advice—general requirements) for the policy;
            (ii) the day the authorised firm gives the retail customer a product disclosure document required by any of the following rules:
            (A) rule 4.2.4 (3) (Initial contact by telephone);
            (B) rule 4.3.11 (Product disclosure document—provision requirement)
            (iii) if the authorised firm is required to give the retail customer a confirmation note by rule 4.4.1 (Confirmation notes—provision requirement) 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.
            4.4.13 Relevant investment contracts—exercising cancellation right
            (1) This rule applies if a retail customer has a right under this division to cancel a relevant investment, other than a life policy, made by an authorised firm with or for the customer.
            (2) The retail customer may exercise the cancellation right by giving notice of the exercise of the right to the authorised firm in a durable medium.
            (3) Without limiting subrule (2), if the retail customer exercises the right in accordance with information given to the customer by the authorised 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 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 notice to the authorised firm at the address given to the customer by the firm for the exercise of the right and the notice is in a durable form accessible to the firm, the notice is taken to have been given to the firm when it is sent to the firm at that address.
            4.4.14 Relevant investment contracts—consequences of cancellation
            (1) This rule applies if a retail customer exercises a right under this division to cancel a relevant investment, other than a life policy, made by an authorised 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 authorised 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.
            (5) The retail customer must, if required by the authorised firm, 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) 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) only applies if the authorised firm complied with the disclosure obligations under COND 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 by the retail customer under subrule (5) must be paid to the authorised firm without delay and no later than 30 days after the day the customer receives written notice from the firm requiring payment of the amount.
            (9) Any amounts payable under this rule are simple contract debts and may be set off against each other.
            4.4.15 Relevant investment contracts cancellation—recordkeeping
            (1) An authorised firm must make appropriate records about the exercise of rights to cancel under this division.
            (2) The records must be kept for at least 6 years after the day the right is exercised.

            Part 4.5 Other investment related activities (COND 4.5)

            Part 4.5 carries over, with minimal changes, a number of rules contained in the current COND covering other investment activities relating either to business separate from the normal retail process or to internal dealing processes which may impact upon customers, in particular investment research, personal account transactions and dealing and managing.

            Division 4.5.1 Investment research and investment recommendations

            4.5.1 Investment research—conflicts of interest and impartiality
            (1) This rule applies if—
            (a) an authorised 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 the prospects of the subject matter of the research.
            (2) The authorised 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 it ceases to have effect;
            (c) take reasonable steps to ensure that it and its employees comply with the policy;
            (d) make a written copy of the policy available to any person on request;
            (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 relates; and
            (b) manage effectively conflicts of interest and material interests, to the extent that they arise or might arise within the authorised firm, in relation to at least 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 authorised firm;
            (v) the persons who may comment on draft investment research before publication, and the process 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; and
            (vii) what information or disclosures are appropriate to include in investment research (taking appropriate account of matters required by law); and
            (c) clearly indicate the extent to which the firm's policy relies on Chinese walls or other information barriers.
            4.5.2 Investment research recommendations—basic requirements
            (1) An authorised firm must—
            (a) take reasonable care to ensure that a research recommendation that is produced or disseminated by it in relation to relevant investments is presented fairly and is not misleading; and
            (b) disclose any conflicts of interest or material interests that the firm has in relation to the relevant investments.
            (2) An authorised firm must, in a research recommendation produced by it—
            (a) 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) include the firm's regulatory status in a form required by GENE.

            Note See GENE, r 3.1.
            (3) Subrule (2) may be complied with in relation to a non-written research recommendation by referring to a place where the disclosures can be easily accessed by the public, for example, the authorised firm's website.
            (4) An authorised firm must, for any research recommendation produced or disseminated by it, take reasonable care to ensure that—
            (a) facts in a research recommendation are clearly distinguished from interpretations, estimates, opinions and other types of non-factual information; and
            (b) its sources for a research recommendation are reliable or, if there is any doubt about whether a source is reliable, this is clearly indicated; and
            (c) all projections, forecast and price targets in a research recommendation are clearly labelled as such and the material assumptions made in producing or using them are indicated; and
            (d) the substance of a research recommendation can be substantiated as reasonable at the Regulatory Authority's request.
            (5) The requirements of subrule (4) do not apply in relation to a non-written research recommendation if they would be disproportionate in relation to the length of the research recommendation.
            4.5.3 Investment research recommendations—additional requirements

            An authorised firm must comply with the additional requirements mentioned in schedule 4 that apply to it.
            4.5.4 Investment research recommendations—recordkeeping
            (1) An authorised 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.

            Division 4.5.2 Personal account transactions

            4.5.5 Personal account transaction—systems and controls
            (1) An authorised firm must establish and maintain systems and controls to ensure that—
            (a) a personal account transaction undertaken by any of its employees or agents does not conflict with the firm's duties to its customers under the regulatory system; and
            (b) it receives prompt notification of each personal account transaction entered into by any of its employees or agents or is otherwise able to identify it, and makes a record of it; and
            (c) an employee or agent who is prevented from entering into a transaction for the employee's or agent's own account does not (except in the proper course of the employee's or agent's employment or authority) arrange for another person to enter into such transaction, or communicate any opinion to another person, if the employee or agent knows or reasonably ought to know that the other person will, as a result, be likely to enter into such a transaction or arrange for another person to do so.
            (2) Subrule (1) does not apply in relation to an employee or agent if the authorised firm has taken reasonable steps to decide that the employee or agent will not be involved to any material extent in, or have access to information about, the firm's investment business.
            (3) The systems and controls established and maintained by the authorised firm under subrule (1) must include—
            (a) drawing the restrictions on personal account transactions, and any general permissions to execute personal account transactions, to the attention of relevant employees or agents by written notice; and
            (b) making compliance with the systems and procedures a term of each relevant employee's or agent's employment contract, contract for service, or other employment or appointment arrangement; and
            (c) keeping a restricted list of relevant investments in relation to which the firm may have inside information and ensuring that only relevant employees and agents have access to the list; and
            (d) ensuring that a relevant person may not undertake personal account transactions in relation to relevant investments on the restricted list unless—
            (i) the transaction is for the purposes of realising the cash value of a holding or position undertaken to meet an obligation of the relevant person not related to the firm's business; and
            (ii) the firm has given its express written permission for the transaction.
            4.5.6 Personal account transaction—recordkeeping
            (1) An authorised firm must make records of the following:
            (a) notifications received under rule 4.5.5 (1) (b);
            (b) any restrictions on personal account transactions that it has in place from time to time;
            (c) the basis on which the firm makes a decision under rule 4.5.5 (2) that an employee or agent will not be involved to any material extent in, or have access to information about, the firm's investment business;
            (d) any permission it gives an employee or agent to execute a personal account transaction in accordance with systems and controls it establishes and maintains under rule 4.5.5 (3).
            (2) The authorised firm must keep the records for at least—
            (a) for records of a notification mentioned in subrule (1) (a)—6 years after the day the notification is received; and
            (b) for records of a restriction mentioned in subrule (1) (b)—6 years after the day the restriction is lifted; and
            (c) for records of a decision mentioned in subrule (1) (c) in relation to an or agent—6 years after the day the employee or agent ceases to be employed or retained by the firm; and
            (d) for records of a permission mentioned in subrule (1) (d)—6 years after the day the permission is given.

            Division 4.5.3 Dealing and managing

            4.5.7 Dealing and managing—best execution
            (1) If an authorised firm agrees, or decides in the exercise of its discretion, to execute any transaction with or for a customer in relation to a relevant investment, it must provide best execution.
            (2) However, the authorised firm need not provide best execution if—
            (a) it only arranges the transaction for the customer; or
            (b) the market in the relevant investment is insufficient to allow for meaningful price comparison; or
            (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 a transaction and has undertaken to provide best execution.
            (3) To provide best execution for the transaction, the authorised firm must—
            (a) 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) 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 authorised firm must—
            (a) calculate the best execution price before any previously disclosed charges that might be payable; and
            (b) not take a mark-up or mark-down; and
            (c) 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 comparison—execute the customer order at the best price available if this is in the best interest of the customer.
            4.5.8 Dealing and managing—timely execution
            (1) If an authorised firm agrees, or decides in 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 authorised firm has taken reasonable steps to ensure that postponing the execution of a transaction for the existing customer order is in the best interests of the customer.

            Guidance

            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 authorised 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.
            4.5.9 Dealing and managing—recordkeeping
            (1) An authorised 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 transactions for own account orders.
            (2) Subrule (1) (c) and (d) do not apply to the authorised firm if it is only arranging a transaction for a customer.
            (3) The records must, as a minimum, record the information required by schedule 5.
            (4) The authorised 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 are executed.
            4.5.10 Dealing and managing—aggregation of customer orders An authorised firm may aggregate a transaction for a customer order for a customer with transactions for customer orders for other customers or for own account orders if—
            (a) the firm believes on reasonable grounds that it is unlikely that the aggregation will operate to disadvantage the customer or any of the other customers whose transactions are to be aggregated; and
            (b) the firm has disclosed orally or in writing to the customer that the transaction for the customer order may be aggregated and that the effect of aggregation may sometimes operate to the customer's disadvantage; and
            (c) the firm has made a record of the intended basis of allocation and the identity of each customer before the transactions are aggregated; and
            (d) the firm has in place a written policy on aggregation and allocation that is consistently applied and includes a process that will be adopted if only part of the aggregated order has been filled.
            4.5.11 Aggregation of customer orders—allocation
            (1) This rule applies if—
            (a) an authorised firm aggregates a transaction for a customer order for a customer with transactions for customer orders for other customers or for own account orders; and
            (b) part or all of the aggregated order is filled.
            (2) The authorised firm must promptly allocate the relevant investment involved in the aggregated order in accordance with rule 4.5.12 (1) (Aggregation of customer orders—fair allocation etc).

            Note See r 4.5.12 for the requirements to be satisfied for prompt allocation.
            4.5.12 Aggregation of customer orders—prompt allocation

            For rule 4.5.11, to allocate a relevant investment promptly an authorised firm must—
            (a) 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—allocate the relevant investment within 5 business days.
            4.5.13 Aggregation of customer orders—fair allocation etc
            (1) For rule 4.5.11 (Aggregation of customer orders—allocation), an authorised firm must—
            (a) allocate relevant investments in accordance with the intended basis of allocation recorded under rule 4.5.10 (c) (Dealing and managing—aggregation of customer orders); and
            (b) 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 customer orders and own account orders—give priority to satisfying customer orders if all the orders cannot be satisfied, unless it 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 authorised firm must make a record of—
            (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; and
            (e) if applicable, the agreement of each business customer or market counterparty for rule 4.5.12 (b) (Aggregation of customer orders—prompt allocation).
            (3) The authorised firm must keep the records for at least 6 years after the day the relevant investments are aggregated.
            4.5.14 Dealing and managing—customer order priority
            (1) An authorised firm must execute transactions for existing customer orders and own account orders in relation to relevant investments fairly and in proper turn.
            (2) The authorised firm does not breach subrule (1) by executing an own account order 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; or
            (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
            (a) 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 authorised firm must take care to ensure that customer orders that are advanced because of the postponement are also treated fairly.
            4.5.15 Dealing and managing—excessive dealing and switching
            (1) An authorised firm must not—
            (a) in the exercise of its discretion, execute a transaction in relation to a relevant investment for a customer; or
            (b) advise a customer to enter into a transaction in relation to a relevant investment; or
            (c) advise a retail customer to switch within a packaged product or between packaged products 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 a packaged product or between packaged products for a retail customer;
            with such a frequency, or in such amounts, that the transactions may be regarded as excessive.
            (2) In complying with subrule (1), the authorised 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.
            4.5.16 Dealing and managing—non-market price transactions
            (1) An authorised 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 authorised 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 a designated exchange.
            4.5.17 Dealing and managing—realising retail customer's assets

            An authorised firm must not realise a retail customer's assets unless it is legally entitled to realise the assets and has either—
            (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; and
            (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 5 Conduct of non-investment insurance mediation business (COND 5)

            Chapter 5 applies to all authorised firms advising on and selling non-investment insurance contracts. It is important to stress that the definition of insurance mediation business includes both insurance intermediaries and insurers marketing and selling their own contracts directly.

            The six parts of this chapter replace Part 3 of the current COND, although much of this material is carried across. It is proposed however that chapter 5 only apply in respect of insurance mediation business relating to non-investment insurance contracts. This is somewhat different from existing COND where Part 3 covers all insurance business.

            Chapter 5 applies a lighter touch than the requirements in chapter 4 as non-investment insurance contracts carry a lower level of risk than investment products. The QFC Regulatory Authority believes it is also important that retail customers should be able to complete the entire process of taking advice on and then buying a non-investment insurance contract during the course of one telephone conversation, with disclosure being made orally in the first instance and then in writing after the end of the call.

            Part 5.1 Non-investment insurance—general (COND 5.1)

            5.1.1 Application—5

            This chapter applies to all authorised firms conducting insurance mediation business in relation to non-investment insurance contracts in or from the QFC.

            Part 5.2 Non-investment insurance—initial client contact (COND 5.2)

            Part 5.2 carries across some existing COND requirements, particularly those relating to status disclosure, but includes further proposals aimed at ensuring consistency within 'newCOND', although streamlining these for the purposes of non-investment insurance business. In particular, the proposed rules relate to:
            •   further clarification on what constitutes a fair analysis of the market;
            •   a requirement for authorised firms to make a brief disclosure concerning the scope of their advice and their fee structure;
            •   more limited disclosure requirements if authorised firms are dealing with customers over the telephone, provided that they follow this up by sending more detailed written disclosure;
            •   exemptions on these disclosure requirements where authorised firms are merely renewing or amending an existing contract if the disclosure they have already made is up to date;
            •   a requirement to provide, if requested by a client, further disclosure from the authorised firm in respect of the commissions, payments and other benefits that it receives from arranging contracts on behalf of that client; and
            •   where an authorised firm is merely referring a client to another firm it is required to disclose any fees it receives from that referral and whether or not the other firm is a member of the same group.
            5.2.1 Providing information about firm—whose agent?

            When an authorised firm first makes contact with a customer for the purpose of conducting insurance mediation business in relation to non-investment insurance contracts, the firm must disclose whether it acts—
            (a) for an insurer or any other person; or
            (b) independently for the customer.
            5.2.2 Status disclosure—requirement
            (1) An authorised firm must not finalise a non-investment insurance contract with or for a customer unless the firm has disclosed the information required by rule 5.2.3 to the customer.
            (2) This rule is subject to rule 5.2.6 (Status disclosure—initial contact by telephone) and rule 5.2.7 (Status disclosure—exemption).
            5.2.3 Status disclosure—content

            For rule 5.2.2 (Status disclosure—requirement), an authorised firm must disclose the following information:
            (a) the firm's name and address;
            (b) the firm's regulatory status in a form required by GENE;

            Note See GENE, r 3.1.
            (c) unless the firm is an insurer, details of any direct or indirect holdings that the firm has that represent more than 10% of the voting rights or capital in an insurer;
            (d) unless the firm is an insurer, details of any direct or indirect holdings that an insurer or its parent entity has that represent more than 10% of the voting rights or capital in the firm;
            (e) whether the firm has given, or will give, information or advice about the non-investment insurance contract offered to the customer on the basis of—
            (i) a fair analysis of the market; or
            (ii) non-investment insurance contracts available from a limited number of insurers; or
            (iii) non-investment insurance contracts available from a single insurer;
            (f) if the non-investment insurance contract has not been selected on the basis of a fair analysis of the market—that the customer can ask for a copy of the list of the insurers the firm selects from or deals with in relation to contracts of the type offered;
            (g) details of the amount of any fees charged in relation to the non-investment insurance contract or, if an actual fee cannot be given, how the customer can calculate the total amount;
            (h) the availability of the firm's internal complaint-handling procedures and how a complaint may be made to the firm;
            (i) the availability of the [Ombudsman Scheme].
            5.2.4 Status disclosure—scope of advice
            (1) An authorised firm must not hold itself out as giving information or advice to a customer about a non-investment insurance contract on the basis of a fair analysis of the market unless—
            (a) it has considered a sufficiently large number of non-investment insurance contracts available in the relevant sector or sectors of the market; and
            (b) the consideration is based on criteria that reflect adequate knowledge of non-investment insurance contracts available in the relevant sector or sectors of the market.
            (2) If an authorised firm gives information or advice to a customer about a non-investment insurance contract on the basis of non-investment insurance contracts available from a limited number of insurers or a single insurer, the firm must—
            (a) disclose whether it is contractually obliged to conduct insurance mediation business this way; and
            (b) keep a list of the insurers it selects from or deals with for each type of non-investment insurance contract it deals with; and
            (c) give a copy of the list to a customer in a durable medium on request.
            5.2.5 Status disclosure—form
            (1) An authorised firm must disclose the information required by rule 5.2.3 (Status disclosure—content) in writing.
            (2) However, the authorised firm may give the information orally to the customer before the customer enters into the non-investment insurance contract if—
            (a) the customer asks the firm to give the information orally; or
            (b) the customer requires immediate cover.
            (3) If subrule (2) applies, the authorised firm must give the information to the customer in writing promptly after the customer enters into the non-investment insurance contract.
            5.2.6 Status disclosure—initial contact by telephone
            (1) This rule applies if—
            (a) an authorised firm's initial contact with a customer is by telephone; and
            (b) the customer wishes to finalise a non-investment insurance contract during the telephone call; and
            (c) the customer gives explicit agreement to finalising the contract on the basis of limited disclosure.
            (2) The authorised firm may finalise the non-investment insurance contract with or for the customer without complying with rule 5.2.2 (Status disclosure—requirement) if, during the call, the following information is given to the customer:
            (a) the firm's name;
            (b) if the call is initiated by the firm—the commercial purpose of the call;
            (c) the name of the person in contact with the customer and the person's link with the firm; and
            (d) that other information is available on request and the nature of that information.
            (3) If the authorised firm finalises the non-investment insurance contract with or for the customer under subrule (2), the firm must give the information mentioned in rule 5.2.3 (Status disclosure—content) to the customer in writing promptly after the telephone call.
            5.2.7 Status disclosure—exemption

            Rule 5.2.2 (Status disclosure—requirement) does not apply in relation to any insurance mediation business conducted by an authorised firm for a customer in the course of renewing or amending a non-investment insurance contract, if the information required by this part has already been given to the customer in relation to the initial contract and is still accurate and up-to-date.

            Guidance

            For certain types of general insurance contracts, it is customary for a retail customer to seek quick quotes that the customer can compare. In these circumstances, it is not necessary for an authorised firm to give the status disclosure information when the quick quote is provided if the quote cannot be accepted (and a contract cannot be formed) without the firm obtaining further information from the customer.
            5.2.8 Status disclosure—additional disclosure on request

            An authorised firm must, on a customer's request, disclose to the customer
            (a) all commissions and other economic benefits accruing to the firm, or any member of the same group, from any business transacted for the customer; and
            (b) any payment that it receives for providing to, or securing for, its customer any additional insurance-related services.

            Guidance

            Rule 5.2.8 does not apply to premiums, but does apply to fees (including any fees that an authorised firm charges if it receives no commission from an insurer in relation to a contract of insurance).
            5.2.9 Giving information about firm—merely introducing

            (1) This rule applies if contact by an authorised firm with a customer is limited to introducing the customer to another authorised firm.
            (2) The authorised firm making the introduction must give the customer the following information about itself in good time before making the introduction:
            (a) the firm's name and address;
            (b) the firm's regulatory status in a form required by GENE;

            Note See GENE, r 3.1.
            (c) details of fees (if any) that the customer will be charged for the service being provided;
            (d) whether the firm is a member of the same group as the authorised firm to whom the introduction is to be made.

            Part 5.3 Non-investment insurance—advice to retail customers (COND 5.3)

            Part 5.3 covers authorised firms providing advice on non-investment insurance contracts for retail customers. The process is similar to that for investments — know your customer, assessment of suitability, and disclosure of that assessment — but slightly different criteria are involved to reflect the different nature of the product. Only minor amendments have been made to the existing requirements in COND on this material.
            5.3.1 Non-investment insurance advice—general requirements
            (1) If an authorised firm gives advice on a non-investment insurance contract to a retail customer, it must—
            (a) take reasonable steps to ensure that it has sufficient personal and financial information about the customer to give the advice (see rule 5.3.2); and
            (b) take reasonable steps to ensure that the advice is suitable for the customer's demands and needs (see rule 5.3.3); and
            (c) give the customer a statement of why the firm considers the advice to be suitable for the customer (see rule 5.3.4).
            (2) An authorised firm may advise on a non-investment insurance contract that does not meet all of the retail customer's demands and needs if—
            (a) there is no non-investment insurance contract within the firm's scope, as disclosed to the customer in accordance with rule 5.2.3 (e) (Status disclosure—content), that meets all of the customer's demands and needs; and
            (b) the firm identifies to the customer, when the advice is made, the demands and needs that are not met by the contract that it advises.
            (3) If an authorised firm is instructed by a retail customer to obtain insurance that is contrary to the advice that the firm has given to the customer, the firm must obtain written confirmation of the customer's instructions before arranging or buying the insurance.
            5.3.2 Non-investment insurance advice—know your customer
            (1) For rule 5.3.1 (1) (a) (Non-investment advice—general requirements), an authorised firm must—
            (a) obtain from a retail customer the information about the customer's personal and financial circumstances and objectives that might reasonably be expected to be relevant; and
            (b) explain to the customer the customer's duty to disclose all circumstances material to the non-investment insurance contract and the consequences of any failure to make a disclosure, both before the insurance starts and throughout the term of the contract.
            (2) If the authorised firm is aware that the retail customer's existing insurance cover is likely to significantly affect the suitability of any advice that the firm might make, the firm must either—
            (a) not give advice to the customer until details of the insurance cover are made available to the firm; or
            (b) if it gives advice—make clear to the customer that it may not be suitable because the firm has not taken into account full details of the customer's existing insurance cover.
            5.3.3 Non-investment insurance advice—suitability and risk
            (1) For rule 5.3.1 (1) (b) (Non-investment insurance advice—general requirements), an authorised firm must ensure that the advice it gives to a retail customer is suitable for the customer having regard to—
            (a) the information held by the firm; and
            (b) any requirement of, or any other relevant facts about, the customer of which the firm is aware or ought reasonably to be aware.
            (2) In assessing whether a non-investment insurance contract is suitable to meet a retail customer's demands and needs, an authorised firm must take into account at least the following matters:
            (a) whether the level of cover is sufficient for the risks that the customer wishes to insure;
            (b) the cost of the contract, if this is relevant to the customer's demands and needs; and
            (c) the relevance of any exclusions, excesses, limitations or conditions in the contract.
            5.3.4 Non-investment insurance advice—provision of suitability assessment
            (1) For rule 5.3.1 (1) (c) (Non-investment insurance advice—general requirements), the statement given by an authorised firm to a retail customer must include the following information:
            (a) the customer's demands and needs;
            (b) whether or not the firm has recommended a non-investment insurance contract; and
            (c) if applicable, an explanation of the reasons for recommending that contract.
            (2) The authorised firm must give the statement to the retail customer in writing before finalising the non-investment insurance contract with or for the customer.
            (3) However, the authorised firm may give the information required by subrule (1) to the retail customer orally if—
            (a) the customer asks the firm to give the information orally; or
            (b) the customer requires immediate cover.
            (4) If subrule (3) applies, the authorised firm must give the statement mentioned in subrule (1) to the retail customer in writing promptly after the non-investment insurance contract is finalised.
            (5) Also, if the non-investment insurance contract is finalised during a telephone call with the retail customer, the authorised firm
            (a) may give the information required by subrule (1) to the customer orally during the call; but
            (b) must give the statement mentioned in that subrule to the customer in writing promptly after the call.
            5.3.5 Non-investment insurance advice—recordkeeping
            (1) If an authorised firm gives advice to a retail customer about a non-investment insurance contract, the firm must make a record of the advice and keep it for at least 6 years after the day it gives the advice.
            (2) However, the authorised firm need not keep the record if the retail customer does not enter into a non-investment insurance contract after being given the advice.
            (3) An authorised firm must keep a copy of each written statement given to a retail customer under rule 5.3.4 for at least 6 years after the day it is given to the customer.

            Part 5.4 Non-investment insurance—product disclosure (COND 5.4)

            Part 5.4 introduces new rules on product disclosure for non-investment insurance contracts. It augments the high level principle currently in COND that requires an authorised firm to provide adequate information to allow a customer to make an informed decision about a proposed policy. Unlike the requirements for packaged products under chapter 4, there is no requirement for a Product Disclosure Document per se, although there is a rule ensuring the required information is either in a separate document or prominently placed if embedded in another document. The proposed disclosure requirements are not onerous, being either generic (the firm's name, regulatory status etc) or relating to key areas of the proposed policy (significant features of the cover, significant exclusions etc.). The key rules proposed are:
            •   requirement for certain information to be provided before a contract is finalised;
            •   when this material can be provided orally; and
            •   a requirement to provide the policy document and further information on claims handling and cancellation rights on concluding a contract.

            5.4.1 Non-investment insurance product disclosure—requirement
            (1) An authorised firm must, in good time before finalising a non-investment insurance contract with or for a customer, give to the customer sufficient information to enable the customer to make an informed decision about the contract being proposed.
            (2) If the customer is a retail customer
            (a) the information must include the information required by rule 5.4.3 (Non-investment product disclosure—content); and
            (b) the authorised firm must draw the customer's attention to the importance of reading this information, and in particular the information on significant or unusual exclusions or limitations.
            (3) If an authorised firm finalises a non-investment insurance contract with or for a customer, the firm must, immediately after finalising the contract, give the customer, in a durable medium—
            (a) a policy document containing all the terms of the contract; and
            (b) information about the claims-handling process; and
            (c) information about whether there is a right to cancel and, if there is a right to cancel, the consequences of exercising the right, and enough details to enable the right to be exercised by a customer.
            (4) If information required by another part of this chapter to be given to a customer duplicates information required to be given to the customer by this part, the information need not be given twice.
            (5) However, subrule (4) is subject to rule 5.4.2 (4).
            (6) To remove any doubt, this rule applies in relation to the initial finalisation of a non-investment insurance contract and the finalisation of each renewal of the contract.
            5.4.2 Non-investment insurance product disclosure—form
            (1) An authorised firm must give the information required by rule 5.4.1 (1) and (2) to a customer in writing.
            (2) However, the authorised firm may give the information orally to the customer before the customer enters into the non-investment insurance contract if—
            (a) the customer asks the firm to give the information orally; or
            (b) the customer requires immediate cover.
            (3) If subrule (2) applies, the authorised firm must give the information to the customer in writing promptly after the customer enters into the non-investment insurance contract.
            (4) If an authorised firm gives information required by rule 5.4.1 (1) and (2) to a customer in writing, the information must be—
            (a) set out in a separate document; or
            (b) set out in a prominent place in another document, separate from the other content of that document and clearly identifiable as key information that the customer should read.
            5.4.3 Non-investment insurance product disclosure—content

            For rule 5.4.1 (2) (a) (Non-investment insurance product disclosure—requirement), the information given by an authorised firm to a retail customer must include the following information:
            (a) the name of the proposed insurer;
            (b) the type of insurance and cover proposed;
            (c) significant features and benefits of the proposed cover;
            (d) significant or unusual exclusions or limitations of the proposed cover;
            (e) if the information is being given to the customer in writing—where the exclusions or limitations mentioned in paragraph (d) are located in the policy document;

            Note See r 5.4.1 (3) for the requirement to give a customer a policy document.
            (f) the term of the proposed contract;
            (g) if the proposed contract is for a term of longer than 1 year—a statement, if relevant, that the customer may need to review and update the cover periodically to ensure it remains adequate;
            (h) a telephone number or address to which a claim may be notified under the proposed contract;
            (i) the total amount of the premium for the proposed contract or, if the premium cannot be stated, how the customer can calculate the total amount;
            (j) if the proposed contract is for a term of longer than 1 year—details of the period for which the premium is valid, whether it will be reviewed at certain times or at the end of certain periods and, if so, when it will be reviewed;
            (k) fees and administrative charges (if any) payable by the customer in addition to the premium;
            (l) if the proposed contract is connected with the purchase of other goods and services—
            (i) the premium for the proposed contract, separate from all other prices in relation to the other goods or services, if an additional price is charged; and
            (ii) whether purchase of the proposed contract is a requirement of purchasing the other goods or services;
            (m) the total price to be paid by the customer for the proposed contract or, if an exact amount cannot be stated, how the customer can calculate the total amount;
            (n) the availability of the firm's internal complaint-handling procedures and how a complaint may be made to the firm;
            (o) the availability of the [Ombudsman Scheme];
            (p) whether there is a right to cancel and, if there is a right to cancel, the consequences of exercising the right, and enough details to enable the right to be exercised by a customer;
            (q) if the non-investment insurance contract is to be effected by a person other than an authorised firm
            (i) and COND would provide for a cancellation period in relation to that contract—an explanation of any difference between the cancellation period applying in relation to the contract, and that provided by COND;
            (ii) a warning to the effect that the claims handling procedures under the contract may differ from those provided by COND for a non-investment insurance contract effected by an authorised firm.
            (r) a statement that the information mentioned in paragraphs (a) to (p) does not contain the full terms of the non-investment insurance contract, which can be found in the policy document.

            Part 5.5 Non-investment insurance—post-contractual obligations (COND 5.5)

            Part 5.5 groups together, for the sake of simplicity, two post-contractual obligations: renewals and mid-term changes, and claims handling. These rework current requirements in COND, while adding some additional material relating to retail customers. In particular, proposed new rules deal with:
            •   renewal notice requirements, which for retail customers must be at least 21 days before the expiry of the policy (certain very short policies are excluded);
            •   specifying limited information that should be provided to a retail customer, as well as exemptions to this requirement; and
            •   the duties of insurance intermediaries with regard to claims handling. It covers high level issues surrounding conflicts of interest and certain disclosure requirements on this, as well as a rule ensuring the timely forwarding notification to an insurer if the intermediary does not have authority to deal with the claim.
            5.5.1 Non-investment insurance—renewals
            (1) This rule applies if an authorised firm has finalised a non-investment insurance contract with or for a customer.
            (2) The authorised firm must give the customer adequate advance notice of the end of the term of the contract to allow the customer sufficient time to consider whether continuing cover is required.
            (3) Subrule (2) does not apply to the non-investment insurance contract if—
            (a) the contract is for a term of less than 1 month; or
            (b) the contract terms provide for automatic renewal; or
            (c) the authorised firm has reason to believe that the customer does not wish to renew the policy or renew the policy through the firm; or
            (d) the authorised firm has told the customer that it does not wish to act for the customer on renewal; or
            (e) the customer has already been told that the insurer will not invite renewal; or
            (f) the customer asks for an extension of the contract for a term of less than the term of the original contract.
            (4) If the customer is a retail customer, adequate notice is not less than 21 days before the day the term of the policy ends.
            (5) If the customer is a retail customer, the authorised firm must do 1 of the following before the start of the 21-day period mentioned in subrule (4):
            (a) if the firm is willing to invite renewal of the policy—take reasonable steps to give the customer information about renewal terms in a durable medium in accordance with subrule (6);
            (b) if the insurer is not willing to invite renewal—take reasonable steps to tell the customer;
            (c) tell the customer that the firm no longer deals with the insurer.
            (6) For subrule (5), the authorised firm must give the following information to the retail customer:
            (a) a statement of any changes to the terms of the policy;
            (b) an explanation of the changes, if necessary;
            (c) the total amount of the premium for the policy or, if the premium cannot be stated, how the customer can calculate the total amount;
            (d) whether there is a right to cancel and, if there is a right to cancel, the consequences of exercising this right, and enough details to enable the right to be exercised by a customer;
            (e) a prominent statement of the customer's right to ask for a new policy document.
            5.5.2 Non-investment insurance—mid-term changes
            (1) This rule applies if—
            (a) an authorised firm has finalised a non-investment insurance contract with or for a customer; and
            (b) during the term of the contract either—
            (i) the terms of the contract change (or are proposed to change); or
            (ii) the premium or any other amount payable by the customer under the contract changes (or is proposed to change) otherwise than because of the operation of a formula previously disclosed to the customer.
            (2) The authorised firm must tell the customer about the change (or proposed change) in a durable medium.
            (3) The authorised firm must take reasonable steps to comply with subrule (2) in good time before the change takes effect.
            (4) If the customer is a retail customer and the change relates to the terms of the contract, the authorised firm must explain, in a durable medium, any implications of the change when telling the customer about the change.
            (5) If the change is being made at the customer's request, the customer is a retail customer and it is impracticable to explain the implications of the change in a durable medium before the change takes effect, the authorised firm must take reasonable steps to give the explanation orally to the customer before the change takes effect.
            (6) If the change is being made at the customer's request, the authorised firm must pay any amount owing to the customer under the policy to the customer without delay.
            5.5.3 Non-investment insurance—claims handling by insurance intermediaries
            (1) An authorised firm must act with appropriate care, skill and diligence in acting for a client in relation to a claim on a non-investment insurance contract.
            (2) An authorised firm must not, in relation to a claim on a non-investment insurance contract
            (a) put itself in a position where its own interest, or its duty to any person for whom it acts, conflicts with its duty to any client, unless—
            (i) it made proper disclosure to the client of all information needed to put the client in a position where the client can give informed agreement to the arrangement; and
            (ii) it has obtained the prior informed agreement of the client;
            (b) decline to act for the person or client unless, in the particular circumstances of the case, disclosure and informed agreement are insufficient to reconcile the conflict.
            (3) If an authorised firm acts for an insurer and not a client in relation to a claim on a non-investment insurance contract that it arranged, the firm must tell the client that in relation to the claim, it is acting on behalf of the insurer, and not the client.

            Guidance

            Rule 5.5.3 (3) would apply, for example, if an authorised firm has delegated authority for claims handling and deals with a claim in relation to a contract that it sold to a client, but is not acting for the client in relation to the claim.
            (4) If an authorised firm is notified of a claim on a non-investment insurance contract that it arranged, and the insurer has not given it authority to deal with the claim, the firm must—
            (a) forward the notification to the insurer promptly; or
            (b) tell the client immediately that it cannot deal with the notification.

            Part 5.6 Non-investment insurance—miscellaneous (COND 5.6)

            This final part introduces rules on excessive charges and ensuring retail customers under a group policy receive the product disclosure information required by the other parts of this chapter.
            5.6.1 Non-investment insurance—excessive charges

            An authorised firm must ensure that its charges to a retail customer made in relation to the conduct of insurance mediation business in relation to a non-investment insurance contract are not excessive.
            5.6.2 Non-investment insurance—communication with joint policyholders

            If a contract of insurance is effected jointly, the information required by any rule of this chapter may be given only to the client named first in the contract.
            5.6.3 Non-investment insurance—group policies
            (1) This rules applies if an authorised firm finalises a non-investment insurance contract with or for a customer under which persons other than the customer can become policyholders (a group policy).
            (2) The authorised firm must, promptly after finalising the contract—
            (a) give the customer a policy document for the contract that contains the terms of the contract; and
            (b) tell the customer that the customer should tell each other policyholder that a copy of the policy document is available from the customer on request.
            (3) If the customer is a retail customer or a person who can become a policyholder could be a retail customer, the authorised firm must also, promptly after finalising the contract—
            (a) give the customer a policy summary for the contract containing the information mentioned in rule 5.4.3 (Non-investment insurance product disclosure—content); and
            (b) tell the customer that the customer should give a copy of the policy summary to each other policyholder who could be a retail customer; and
            (c) if the contract replaces a previous group policy—tell the customer that the customer should also tell each other policyholder who could be a retail customer about any changes to the information in the policy summary.

            Chapter 6 Conduct of insurance business (COND 6)

            Chapter 6 only applies to authorised firms conducting insurance business and covers certain aspects of the way insurers "carry on" non-investment insurance contracts, namely cancellations by retail customers and handling claims. It is worth re-emphasising that insurers who advise and sell their own insurance contracts will be conducting insurance mediation business and will be required to meet requirements in either chapter 4 or 5, depending on the type of insurance being sold.

            Part 6.1 Insurance business—general (COND 6.1)

            6.1.1 Application—ch 6

            This chapter applies to all authorised firms conducting insurance business in or from the QFC.

            Part 6.2 Effecting insurance contracts‐execution-only—transactions (COND 6.2)

            6.2.1 Application of ch 4 and ch 5—execution-only insurance transactions
            (1) If an authorised firm effects a life policy in an execution-only transaction, the firm must comply with the provisions of chapter 4 (Conduct of investment business) that apply in relation to execution-only transactions relating to life policies conducted by authorised firms conducting investment business.
            (2) If an authorised firm effects a non-investment contract of insurance in an execution-only transaction, the firm must comply with the provisions of chapter 5 (Conduct of non-investment insurance mediation business) that apply in relation to execution-only transactions relating to non-investment contracts of insurance conducted by authorised firms conducting insurance mediation business.

            Part 6.3 Cancelling insurance contracts—retail customers (COND 6.3)

            Part 6.3 introduces new rules on cancellation which give retail customers a cooling off period for insurance contracts. The key requirements introduced by the proposed rules are:
            •   a cooling off period of 14 days for general insurance contracts and 30 days for all other insurance contracts;
            •   an exemption for very short policies from these cancellation requirements;
            •   when the start date for the cancellation period is determined;
            •   a requirement on the authorised firm to disclose these rights to its retail customers; and
            •   the effects of cancellation are also specified, including the termination of the contract and dealing with any shortfalls in terms of premiums paid that may result.

            Division 6.3.1 Cancelling life polices

            6.3.1 New life policies—right to cancel

            A retail customer has a right to cancel a new life policy effected by an authorised firm that is an insurer.

            Guidance

            An authorised firm may voluntarily provide additional cancellation rights, or rights exercisable during a longer period than allowed under this division, but, if it does so, these should be on terms similar to those in this division.
            6.3.2 Variations of life policies—right to cancel
            (1) A retail customer has a right to cancel an existing life policy effected by an authorised firm that is an insurer if the policy is varied and the variation has the effect of—
            (a) increasing regular premiums or payments, or a single premium or payment, by more than 25% on the original premium or payment (or the previous highest agreed premium or payment); or
            (b) introducing fresh policy terms; or
            (c) imposing on the customer additional or increased obligations under the policy; or
            (d) reducing, or otherwise materially altering, the customer's benefits under the policy.
            (2) This rule does not apply to the variation of a life policy if—
            (a) the variation is the result of a pre-selected option; or
            (b) the variation arises out of the settlement of a claim for damages or compensation connected with a previous contract.
            6.3.3 Life policies—when cancellation right can be exercised
            (1) A retail customer may exercise a cancellation right under this division in relation to a life policy effected by an authorised firm with the customer only during the cancellation period for the investment.
            (2) For a new life policy, the cancellation period—
            (a) starts on the later of the following:
            (i) if the authorised firm gives advice to the retail customer in relation to the life policy—the day the firm gives the customer the statement required by rule 4.3.1 (c) (Retail investment advice—general requirements) for the policy;
            (ii) the day the authorised firm gives the retail customer a product disclosure document or disclosure documentation required by any of the following rules:
            (A) rule 4.2.4 (3) (Initial contact by telephone);
            (B) rule 4.3.11 (Product disclosure document—provision requirement);
            (iii) if the authorised firm is required to give the retail customer a confirmation note by rule 4.4.1 (Confirmation notes—provision requirement) in relation to the policy—the day the firm gives the confirmation note to the customer;
            (b) ends at the end of 30 days after that day.
            (3) For an existing life policy that is varied, the cancellation period—
            (a) starts on the later of the following:
            (i) the day the authorised firm tells the retail customer that the variation has taken effect;
            (ii) the day the authorised firm gives the retail customer a written copy of the variation;
            (iii) the day the authorised firm gives the retail customer the product disclosure document or disclosure documentation required by rule 4.3.11 (Product disclosure document—provision requirement)for the variation;
            (b) ends at the end of the 30 days after that day.
            6.3.4 Life policies—exercising cancellation right
            (1) This rule applies if a retail customer has a right under this division to cancel a life policy effected by an authorised firm with the customer.
            (2) The retail customer may exercise the cancellation right by giving notice of the exercise of the right to the authorised firm in a durable medium.
            (3) Without limiting subrule (2), if the retail customer exercises the right in accordance with information given to the customer by the authorised 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 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 notice to the authorised firm at the address given to the customer by the firm for the exercise of the right and the notice is in a durable form accessible to the firm, the notice is taken to have been given to the firm when it is sent to the firm at that address.
            6.3.5 Life policies—consequences of cancellation
            (1) This rule applies if a retail customer exercises a right under this division to cancel a life policy effected by an authorised firm with the customer.
            (2) The life policy is terminated.
            (3) The authorised firm must pay the retail customer an amount equal to the total of the amounts paid by the customer in relation to the life policy.
            (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.
            (5) The retail customer must, if required by the authorised firm, pay the firm an amount of no more than the total of—
            (a) the value of the services the firm actually provided to the customer in relation to the life policy; and
            (b) amounts received, and the value of property or services received, by the customer in relation to the life policy; and
            (c) 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) only applies if the authorised firm can demonstrate that the retail customer was under rule 4.3.11 (Product disclosure document—provision requirement), given details of the amount that the customer may be required to pay if the customer cancelled the contract.
            (7) However, subrule (5) (c) does not apply in relation to a contract established on a regular or recurring premium or payment basis.
            (8) An amount payable by the retail customer under subrule (5) must be paid to the authorised firm without delay and no later than 30 days after the day the customer receives written notice from the firm requiring payment of the amount.
            (9) Any amounts payable under this rule are simple contract debts and may be set off against each other.

            Division 6.3.2 Cancelling non-investment insurance contracts

            6.3.6 Non-investment insurance contracts—right to cancel
            (1) A retail customer has a right to cancel a non-investment insurance contract effected by an authorised firm that is an insurer.
            (2) This rule does not apply to the following contracts:
            (a) a non-investment insurance contract that provides cover for less than 1 month;
            (b) a non-investment insurance contract that has been fully performed by both parties at the retail customer's express request before the customer purports to exercise the right to cancel; and
            (c) a non-investment insurance contract that is a pure protection contract with a term of 6 months or less.
            (3) To remove any doubt, a retail customer has a right to cancel a non-investment insurance contract when the contract is initially entered into and on each renewal of the contract.

            Guidance
            1 An authorised firm may voluntarily provide additional cancellation rights, or rights exercisable during a longer period than allowed under this division, but, if it does so, these should be on terms similar to those in this division.
            2 For rule 6.3.6 (2) (b)—
            (a) a contract is not fully completed only because an event has happened that allows a claim to be made under the contract; and
            (b) a contract is fully completed if a claim has been made that leads to the contract being terminated.
            3 Cancellation under this part applies only during the initial period of cover. It does not refer to mid-term cancellation that an authorised firm may choose to offer its customers.
            4 The cancellation rights described in this part apply to all renewals and not just those where there have been significant changes.
            5 If rule 6.3.6 (2) applies and there is no cancellation right, the authorised firm should draw the retail customer's attention to this under rule 5.4.1 (2) (b).
            6.3.7 Non-investment insurance contracts—when cancellation right can be exercised
            (1) A retail customer may exercise a cancellation right under this part in relation to a non-investment insurance contract only during the cancellation period for the contract.
            (2) For a non-investment insurance contract that is a pure protection contract, the cancellation period—
            (a) starts on the day the authorised firm gives the retail customer the policy document and information required by rule 5.4.1 (3) (Non-investment insurance product disclosure—requirement) in a durable medium; and
            (b) ends at the end of 30 days after that day.
            (3) For a non-investment insurance contract that is a general insurance contract, the cancellation period—
            (a) starts on the day the authorised firm gives the retail customer the policy document and information required by rule 5.4.1 (3) in a durable medium; and
            (b) ends at the end of 14 days after that day.
            (4) If a non-investment insurance contract is a mixed contract, that is, it has elements of both a pure protection contract and a general insurance contract, subrule (2) applies to the contract and subrule (3) does not apply to the contract.
            6.3.8 Non-investment insurance contracts—exercising cancellation right
            (1) This rule applies if a retail customer has a right under this part to cancel a non-investment insurance contract effected by an authorised firm.
            (2) The retail customer may exercise the cancellation right by giving notice of the exercise of the right to—
            (a) the authorised firm; or
            (b) an approved representative of the firm; or
            (c) any agent of the firm with authority to accept notice for the firm.
            (3) Without limiting subrule (2), if the retail customer exercises the right in accordance with information given to the customer in accordance with rule 5.4.1 (3) (c) (Non-investment insurance product disclosure—requirement), the customer is taken to have complied with the subrule.
            (4) The notice may be given orally.
            (5) 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 the notice and the surrounding circumstances.
            (6) The notice need not give reasons for the exercise of the right.
            (7) If the retail customer exercises the cancellation right by sending notice to the authorised firm at the address given to the customer by the firm for the exercise of the right and the notice is in a durable form accessible to the firm, the notice is taken to have been given to the firm when it is sent to the firm at that address.
            6.3.9 Non-investment insurance contracts—consequences of cancellation
            (1) This rule applies if a retail customer exercises a right under this part to cancel a non-investment insurance contract effected by an authorised firm.
            (2) The insurance contract is terminated.
            (3) The authorised firm must pay to the retail customer an amount equal to the total of the amounts paid by the customer for the insurance contract.
            (4) The amount must be paid to the retail customer without delay and not later than 30 days after the day the cancellation right is exercised.
            (5) If the insurance contract is a general insurance contract, the retail customer must, if required by the authorised firm, pay the firm an amount of no more than the total of—
            (a) the value of the services the firm actually provided to the customer in relation to the insurance contract; and
            (b) amounts received, and the value of property or services received, by the customer in relation to the insurance contract.
            (6) However, the authorised firm may only require the retail customer to pay an amount under subrule (5) if—
            (a) the performance of the insurance contract started before the end of the cancellation period at the customer's request; and
            (b) the firm can demonstrate that the customer was, under rule 5.4.1 (Non-investment insurance product disclosure—requirement), given details of the amount that the customer may be required to pay if the customer cancelled the contract.
            (7) The authorised firm must not require the retail customer to pay an amount under subrule (5) that could be taken to be a penalty or that exceeds an amount calculated as follows:

            AC + CC

            where:

            AC is the total of the costs (other than costs for the cover provided under the insurance policy) actually incurred by the firm in relation to the insurance policy.

            CC is the cost to the firm of the cover actually provided to the customer under the insurance policy.

            Guidance
            1 The amount calculated under subrule (7) may include—
            (a) an amount for the cover provided; and
            (b) a proportion of the commission paid to another authorised firm sufficient to cover that firm's costs; and
            (c) a proportion of any fees charged by the authorised firm that, when totalled with any commission to be repaid, would be sufficient to cover the firm's costs.
            2 The Regulatory Authority would expect the proportion of the insurance contract's exposure that relates to the time on risk to be a proportional apportionment. But, if there is material unevenness in the incidence of risk, the insurer could employ a more accurate method, which may result in a lower or higher charge to the retail customer.
            (8) An amount that the authorised firm requires the retail customer to pay under subrule (5) must not take into account or include an amount received, or the value of any property or services received, by the customer in relation to a claim under the insurance policy.
            (9) An amount payable by the retail customer under subrule (5) must be paid to the authorised firm without delay and no later than 30 days after the day the customer receives written notice from the firm requiring payment of the amount.
            (10) Any amounts payable under this rule are simple contract debts and may be set off against each other.

            Division 6.3.3 Cancelling insurance contracts—recordkeeping

            6.3.10 Insurance contract cancellation—recordkeeping
            (1) An authorised firm must make appropriate records about the exercise of a right to cancel under division 6.3.1 (Cancelling life polices) or division 6.3.2 (Cancelling non-investment insurance contracts).
            (2) The records must be kept for at least 6 years after the day the right is exercised.

            Part 6.4 Claims handling (COND 6.4)

            Part 6.4 provides some high level requirements regarding performance standards for handling claims, particularly for retail customers. The proposed rules do not prescribe these standards, but instead require the insurer to:
            •   respond promptly to a claim, either by providing specified information (i.e. that the claim is rejected as outside the scope of the policy, or the action the insurer will take) or by notifying the retail customer that other parties will be looking at the claim (unless this involves an investigation and the disclosure of this information could jeopardise the investigation);
            •   keep the retail customer informed of the progress of the claim;
            •   notify as soon as practicable the outcome of the claim (fully rejects, partially rejects, accepts or some compromise offer) and explain why (unless it fully excepts); and
            •   settle the claim promptly.

            6.4.1 Claims handling—general requirements
            (1) If an authorised firm handles insurance claims, it must handle claims fairly and promptly and keep the client informed of progress.
            (2) If an authorised firm effects an insurance contract with or for a client, it must give the client reasonable guidance in pursuing a claim under the policy.
            (3) If an authorised firm cannot deal with any part of a claim under an insurance contract it effected with or for a client, it must tell the client in writing.
            (4) An authorised firm that is an insurer must not—
            (a) unreasonably reject a claim made by a client; nor
            (b) except if there is evidence of fraud, refuse to meet a claim made by a retail customer on any of the following grounds:
            (i) non-disclosure of a fact material to the risk that the customer could not reasonably be expected to have disclosed;
            (ii) misrepresentation of a fact material to the risk, unless the misrepresentation is negligent;
            (iii) for a general insurance contract—breach of warranty or condition, unless the circumstances of the claim are connected with the breach;
            (iv) for a non-investment insurance contract that is a pure protection contract—breach of warranty, unless the circumstances of the claim are connected with the breach and—
            (A) for a life of another contract—the warranty relates to a statement of fact about the life to be assured and that statement would have been grounds for rejection of a claim by the firm under paragraph (b) (i) or (ii) if it had been made by the life to be assured under an own life contract; or
            (B) the warranty is material to the risk and was drawn to the attention of the customer before the conclusion of the contract.
            6.4.2 Claims handling—claims by retail customers
            (1) An authorised firm that is an insurer must respond promptly to a notification of a claim by a retail customer.

            Guidance
            Notification of a claim is a demand of the insurer to pay or provide a benefit insured under the policy. An inquiry that precedes such a demand, for example, about whether a particular loss is covered, and therefore whether a claim could be made under the terms of the policy, is not notification of a claim.
            (2) If the claim relates to a risk that is clearly outside the scope of the policy, the authorised firm's response to the retail customer must tell the customer this.
            (3) If the claim does not relate to a risk that is clearly outside the scope of the policy, the authorised firm's response to the retail customer must—
            (a) tell the customer about the action that will be taken by the firm in response to the claim, and when the action will be taken; and
            (b) if the firm has appointed, or is to appoint, another person to contact the customer for the firm—include the following information, if known, for each person appointed or to be appointed:
            (i) the person's name (unless the person trades under the firm's name);
            (ii) the person's function;
            (iii) the work the person is to carry out in relation to the claim.
            (4) However, the authorised firm need not include the information mentioned in subrule (3) (b) in the response if—
            (a) the purpose of the appointment is to investigate the validity of the claim; and
            (b) including the information would limit or prevent the effective investigation of the claim or any part of it.
            (5) The authorised firm's response must—
            (a) be in a durable medium, unless the notification by the retail customer was made orally and the firm does not require the customer to complete a claim form; and
            (b) provide the customer with a claim form, if the firm requires a claim form to be completed.
            (6) The authorised firm must keep the retail customer reasonably informed about the progress of the claim.

            Guidance
            1 If the investigation of a claim is likely to be protracted, the authorised firm should give periodic progress or status reports, when appropriate, to the retail customer, including giving the customer any relevant update about the information given under rule 6.4.2 (3) (b).
            2 The authorised firm should also respond without excessive delay to any reasonable request by the retail customer for information.
            (7) The authorised firm must tell the retail customer as soon as practicable whether it—
            (a) rejects all of the customer's claim; or
            (b) rejects the customer's claim but, without prejudice to the rejection, makes an offer in compromise; or
            (c) accepts all or part of the customer's claim.
            (8) If the authorised firm rejects the claim, but without prejudice to the rejection makes an offer in compromise, it must tell the retail customer the terms of the offer as soon as practicable.
            (9) If the authorised firm accepts all or part of the retail customer's claim, it must tell the customer as soon as practicable whether—
            (a) for the parts it accepts—it agrees to provide the amount, property or service claimed by the customer in full; or
            (b) it makes some other offer in compromise and, if so, the terms of its offer.
            (10) Unless the authorised firm accepts the retail customer's claim in full, the firm must—
            (a) explain why it rejects all or part of the customer's claim or makes a compromise offer, specifying any relevant term of the policy; and
            (b) offer the customer the choice of receiving the information mentioned in paragraph (a) in a durable medium.
            (11) The authorised firm must, in relation to each part of the claim that it accepts, tell the retail customer whether the claim will be settled by paying the customer, by paying another person to provide goods or services, or by providing goods or services.
            (12) If a claim, or a part of a claim, by a retail customer is to be settled, the authorised firm must settle the claim by the customer promptly.

            Guidance
            Settlement terms are agreed when the authorised firm accepts the retail customer's claim and the customer accepts the firm's offer of settlement.
            6.4.3 Claims handling—long term care insurance contracts
            (1) If an authorised firm that is an insurer receives a claim under a long term care insurance contract, it must respond promptly by providing the policyholder, or the person acting for the policyholder, with—
            (a) a claim form, if it requires a claim form to be completed;
            (b) a summary of its claims-handling procedures; and
            (c) appropriate information about the medical criteria that must be met and any waiting period that applies under the terms of the policy.
            (2) As soon as practicable after receiving the claim, the authorised firm must tell the policyholder, or the person acting for the policyholder—
            (a) for each part of the claim it accepts—whether the claim will be settled by paying the policyholder, paying another person to provide goods or services, or providing goods and services; and
            (b) for each part of the claim it rejects—why the claim has been rejected and whether any future rights to claim exist.
            6.4.4 Claims handling—recordkeeping
            (1) An authorised firm that is an insurer must make a record of the following information in relation to each claim made against a policy issued by it or handled by it:
            (a) details of the claim;
            (b) the date the claim was settled or rejected;
            (c) details of settlement or rejection, including information relevant to the basis for the settlement or rejection.
            (2) The authorised firm must keep the record for at least 3 years after the day the claim is settled or rejected.
            There are no material changes to the appendices other than stylistic changes and cross-referencing amendments.

            Schedule 1 Minimum content of terms of business

            (see r 4.2.6)

            Part S1.1 Minimum information required for all investment business

            S1.1 Commencement

            When and how the terms of business are to come into force.

            S1.2 Regulatory status

            The authorised firm's regulatory status in a form required by GENE.

            Note See GENE, r 3.1.

            S1.3 Services

            The services the authorised firm will provide.

            S1.4 Fees and commissions

            The authorised firm's payment terms, including, if appropriate—

            (a) how the fees are calculated; and
            (b) how fees are to be paid and collected; and
            (c) how frequently fees are to be paid; and
            (d) whether any other payment is receivable by the firm (or to its knowledge by any of its associates) instead of fees in relation to any transaction executed by the firm with or for the customer.

            S1.5 Conflicts of interest

            How conflicts of interest and material interests will be dealt with by the authorised firm.

            S1.6 Soft dollar agreements etc

            The existence of any soft dollar agreements or bundled brokerage arrangements and the authorised firm's or, if relevant, its group's policy relating to either type of arrangement.

            S1.7 Complaints

            Information about—

            (a) the authorised firm's internal complaint-handling procedures, including information on how a complaint may be made to the firm; and
            (b) the availability of the Ombudsman Scheme.

            S1.8 Best execution

            If the duty to provide best execution under rule 4.5.7 (Dealing and managing—best execution) need not be, and is not to be, provided by the authorised firm for the customer, a statement that—

            (a) the firm need not provide best execution for the customer; or
            (b) the circumstances in which the firm will not provide best execution.

            S1.9 Investment objectives

            The customer's investment objectives.

            S1.10 Restrictions

            Whether there are any investment restrictions and, if so, the investment restrictions, including, for example, any restrictions relating to the types of relevant investments to be invested in and the types of markets in which transactions may be made.

            S1.11 Instructions

            The arrangements for the customer giving instructions to the authorised firm and for the firm acknowledging them.

            S1.12 Accounting

            The arrangements for accounting to the customer for any transaction executed with or for the customer.

            S1.13 Acting as principal

            Whether the authorised firm may act as principal in a transaction with the customer.

            S1.14 Stock lending

            If the customer is a retail customer, whether or not the authorised firm may undertake stock lending with or for the customer and, if so—

            (a) the assets to be lent; and
            (b) the type and value of relevant collateral from the customer; and
            (c) the method and amount of payment owing to the customer in the lending.

            S1.15 Termination and cancellation

            (1) The termination method and the consequences of termination.
            (2) Whether there is a right to cancel and, if there is a right to cancel, the consequences of exercising this right, and enough details to enable the right to be exercised by a retail customer.

            Part S1.2 Minimum information required for investment management

            S1.16 Portfolio composition and initial value

            The initial composition and value of the portfolio to be managed and the on-going composition of the portfolio.

            S1.17 Discretion

            The extent of the authorised firm's discretion and whether there are any restrictions or limits.

            S1.18 Valuation

            The basis on which the assets being managed are to be valued.

            S1.19 Underwriting

            Whether the authorised firm may commit the customer to any obligation to underwrite or sub-underwrite any issue or offer of securities and, if so, any restrictions or limits of the extent of the underwriting.

            S1.20 Borrowing

            Whether the authorised firm may borrow on the customer's behalf and, if so, the circumstances in which it may borrow, the limits on borrowing and the circumstances (if any) in which the limits can be exceeded.

            Schedule 2 Content of confirmation notes

            (see r 4.4.4)

            S2.1 Confirmation notes—general content requirements

            Every confirmation note for a transaction by an authorised 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;

            Note See GENE, r 3.1.
            (c) if the firm executed the transaction as principal or agent—that fact;
            (d) the customer's name or other designation and account number;
            (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, fees, taxes or duties, 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 and, if there is a right to cancel, the consequences of exercising this right, and enough details to enable the 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 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 arising out of 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
            (ii) the strike price of the option (for a currency option, the rate of exchange will be the same as the strike price) and, if applicable, the total consideration from or to the customer.

            S2.3 Confirmation notes—additional information for collective investment funds

            A confirmation note relating to a transaction in units in a collective investment fund for a customer must also include the following information:

            (a) if the authorised 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 fund 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 charges (other than charges mentioned in subparagraph (i)) made by the firm to the customer in relation to the transaction and, unless the charges to the customer are made on the same basis, the basis on which the amount of the charges was decided;
            (d) whether the price at which the transaction has been executed is on a historic price or forward price basis.

            Schedule 3 Content of periodic statements

            (see r 4.4.7)

            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 must also be shown.

            S3.3 Confirmations

            If the authorised firm relies on rule 4.4.5 (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 4.4.5 (2).

            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 authorised firm for the portfolio during the period covered by the periodic statement.

            S3.9 Charges

            If not previously advised in writing, a statement of the total charges of the authorised firm and its associates during the period covered by the periodic statement, expressed as an amount rather than as a percentage.

            S3.10 Remuneration

            A statement of the amount (or, if provision of this information is not practicable, the basis) of any remuneration received during the period covered by the periodic statement by the authorised 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 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 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.

            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 the period covered by the periodic statement or a statement that the information has been separately disclosed in writing in earlier statements or confirmations to the customer.

            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 exercise price for the contract.

            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 they were on the close date of the period covered by the periodic statement.

            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 by 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

            (see r 4.5.3)

            S4.1 Investment research recommendations—additional requirements

            (1) An authorised 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; and
            (b) adequately summarises any basis of valuation or methodology used—
            (i) to evaluate a security, a derivative or issuer of securities; or
            (ii) to set a price target for a security or derivative; and
            (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 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 coverage policy previously announced; and
            (e) indicates 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 the date of the earlier research recommendation.
            (3) If the requirements of subrule (1) (a), (b) or (c) would be disproportionate in relation to the length of the research recommendation, the authorised firm may, instead of complying with the requirements, make clear and prominent reference in the research recommendation to the place where the required information can be directly and easily accessed by the public (for example, by a hyperlink to the information on an appropriate internet site of the firm) if there has been no change in the methodology or basis of valuation used.
            (4) The requirements of subrule (1) (a) do not apply in relation to a non-written research recommendation to the extent that they would be disproportionate in relation to the length of the research recommendation.

            S4.2 Investment research recommendation—general standards for disclosure of interests etc

            (1) An authorised 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, in particular any significant financial interest in a relevant investment that is the subject of the research recommendation, or a significant conflict of interest in relation to an issuer of relevant securities; 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 remuneration is tied to investment banking transactions performed by the firm or any affiliated company.
            (2) If the authorised 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 entity 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 entity 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 access to the substance of the research recommendation before its dissemination, other than persons whose only access to the 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 in relation to the length of the research recommendation, the authorised firm may, instead of complying with the requirements of the subrules, make clear and prominent reference in the research recommendation to the place where the required disclosures can be directly and easily accessed by the public (for example, by a hyperlink to the information on an appropriate internet site of the firm).
            (4) The requirements of subrules (1) and (2) do not apply in relation to a non-written research recommendation to the extent that they are disproportionate in relation to the length of the research recommendation.

            S4.3 Investment research for recommendations—additional requirements for disclosure of interests

            (1) This rule applies in relation to a research recommendation produced by an authorised firm.
            (2) The authorised 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 relevant issuer, including at least—
            (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 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 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 relating to 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.
            (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 authorised firm must disclose, in general terms, in the research recommendation the effective organisational and administrative arrangements set up within the firm to prevent and deal with conflicts of interest in relation to research recommendations, including information barriers.
            (5) If a person working for the authorised 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 authorised firm must publish the following information on a quarterly basis, and must disclose it in its research recommendation:
            (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 these categories issued by issuers to which the firm supplied material investment banking services during the last 12 months.
            (7) If the disclosures required by subrules (2) to (6) would be disproportionate in relation to the length of the research recommendation, the authorised firm may, instead of complying with the requirements of the subrules, make clear and prominent reference in the research recommendation to the place where the required information can be directly and easily accessed by the public (for example, by a hyperlink to the information on an appropriate internet site of the firm).
            (8) The requirements of subrules (2) to (6) do not apply in relation to a non-written research recommendation to the extent that they are disproportionate in relation to the length of the research recommendation.

            S4.4 Investment research recommendations—identity of disseminators of recommendations

            If an authorised firm disseminates a research recommendation produced by a third party, the authorised 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 authorised firm, the firm must ensure that—
            (a) the disseminated material clearly describes the change in detail; and
            (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 requirements of S4.3 (Investment research recommendation—additional requirements for disclosure of interests) are complied with by the firm, to the extent of the substantial 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 may be 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.
            (3) If an authorised 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; and
            (b) identifies the source research recommendation; and
            (c) identifies where (to the extent that they are publicly available) the third party's disclosures relating to the source research recommendation can be directly and easily accessed by the public (for example, by a hyperlink to the information on an appropriate internet site of the firm).

            Schedule 5 Recordkeeping—dealing and managing

            (see r 4.5.9 (3))

            S5.1 Minimum records of customer orders

            (1) An authorised 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
            2 in 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 identity 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)
            6 whether the customer order is for a purchase or sale
            7 any other instruction received by the firm from the customer about the carrying out of the customer order
            2 firm executes a customer order
            1 the customer's name or other means of identification and account number
            2 the name of the counterparty, if known to the firm
            3 the date and time of the transaction, if available
            4 the identity 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 authorised 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 a separate record relating to the time of the decision to deal, and the time of execution of the customer order or passing the to the other person, if the transaction record contains a note or other indication that these happened contemporaneously.

            Schedule 6 Conduct of business—flowcharts

            The following flowcharts are intended to give a general outline of the most common forms of transaction between authorised firms and customers.

            The vertical arrows on the left represent a timeline and connect significant milestones (indicated by black and white text boxes) during the course of a transaction, such as initial contact, agreeing to give advice and executing a transaction.

            The horizontal lines illustrate exchanges of information between the authorised firm and the customer. Arrows pointing right indicate information being supplied by the customer to the firm; arrows pointing left indicate information being supplied by the firm to the customer.

            The telephone symbol indicates information being exchanged over the telephone. The paper symbol indicates information being exchanged in a durable medium.

            The boxes containing text on the right indicate requirements placed upon authorised firms by the rules in COND. Where the box is shaded this indicates that the requirement only relates to transactions involving retail customers.

            Please note that the flowcharts are provided for guidance only. They do not comprehensively cover the rules in COND and only the rules themselves may be regarded as authoritative.

            S6.1 Execution-only transactions

            (1) Executing non-advised transaction not involving a packaged product for a business customer

            (2) Executing non-advised transaction not involving a packaged product on the telephone for a retail customer

            (3) Executing non-advised transaction involving a packaged product on the telephone for a retail customer

            S6.2 Giving investment advice

            (1) Authorised firm provides investment advice to business customer

            (2) Authorised firm provides investment advice to retail customer

            (3) Authorised firm provides investment advice to retail customer in relation to a packaged product

            (4) Authorised firm provides investment advice to retail customer in relation to a packaged product where the initial contact is made by the retail customer by telephone.

            S6.3 Non-advised transactions in response to financial promotions

            (1) Retail customer buys a relevant investment other than a packaged product without advice in response to a financial promotion containing an offer or invitation.

            (2) Retail customer buys a life policy without advice in response to a financial promotion containing an offer or invitation.

            (3) Retail customer buys a non-investment contract of insurance without advice in response to a financial promotion containing an offer or invitation.

            S6.4 Providing discretionary investment management services

            (1) Authorised firm provides discretionary investment management service to retail customer

            S6.5 Selling non-investment insurance to commercial customers

            (1) Authorised firm sells a non-investment insurance contract on an execution-only basis to a commercial customer over the telephone


            (2) Authorised firm sells a non-investment insurance contract on an execution-only basis to a commercial customer over the telephone

            NB Exactly the same as the execution-only transaction


            S6.6 Selling non-investment insurance to retail customers

            (1) Authorised firm sells a non-investment insurance contract on an execution-only basis to a retail customer over the telephone


            (2) Authorised firm advises on and sells a non-investment insurance contract to a retail customer over the telephone


            S6.7 Cold Calls

            (1) Authorised firm makes cold call to retail customer


            (A) If the financial promotion relates to a specified product other than a non-investment contract of insurance.

            EITHER: Authorised firm proceeds in accordance with part 4.2 on basis that cold call is firm's first contact with customer for purposes of conducting investment business.



            OR: Authorised firm gives customer written financial promotion containing an offer or invitation to enter into relevant agreement in accordance with rule 3.3.6.

            (B) If the financial promotion relates to a non-investment contract of insurance:

            EITHER: Authorised firm proceeds in accordance with part 5.2 on basis that cold call is firm's first contact with customer for purposes of conducting non-investment insurance mediation business.



            OR: Authorised firm gives customer written financial promotion containing an offer or invitation to enter into relevant agreement in accordance with rule 3.3.6(4).

          • Appendix 3 Proposed Amendments of Other Rulebooks

            PROPOSED AMENDMENTS OF CONTROLS RULEBOOK (CTRL)

            Amend Rule 1.1.1 of CTRL as follows:

            Delete:

            1.1.1 This rulebook (CTRL) applies to every Authorised Firm in respect of the conduct of Regulated Activities in or from the QFC.

            Insert:

            1.1.1
            (1) This rulebook (CTRL), other than rule 4.6A, applies to every Authorised Firm in relation to the conduct of Regulated Activities in or from the QFC.
            (2) Rule 4.6A (Professional indemnity insurance requirements for Insurance Mediation Business) applies only to Authorised Firms conducting Insurance Mediation Business.

            Insert after section 4.6 Risk Management and Risk Control

            4.6A Professional indemnity insurance requirements for Insurance Mediation Business

            4.6A.1 This section applies to an Authorised Firm carrying on Insurance Mediation Business, unless:
            (A) the Authorised Firm is an Insurer; or
            (B) another Authorised Firm provides a guarantee for it in accordance with Rule 4.6A.2.
            4.6A.2
            (1) An Authorised Firm may not provide a guarantee for another Authorised Firm Rule 4.6A.1 (B) unless it has net tangible assets of more than US $10 million.
            (2) If the Authorised Firm to whom the guarantee is to be provided is a member of a Group in which there is an Authorised Firm with net tangible assets of more than US $10 million, an Authorised Firm that is not a member of the Group must not provide a guarantee for Rule 4.6A.1 (B).
            (3) If an Authorised Firm provides a guarantee for Rule 4.6A.1 (B), the guarantee must be—
            (A) in writing; and
            (B) on terms at least equal to those required by Rule 4.6A.4 in relation to a contract of professional indemnity insurance; and
            (C) cover all claims that might arise as a result of a breach by the Authorised Firm of its duties under the Regulatory System or civil law.
            GuidanceThe INAP definition of Insurance Mediation Business is any of several activities carried on 'in relation to a Contract of Insurance' which includes a contract of reinsurance. This section, therefore, applies to a reinsurance intermediary in the same way as it applies to any other insurance intermediary.
            4.6A.3 An Authorised Firm must take out and maintain professional indemnity insurance that is at least equal to the requirements of this section from—
            (A) an Insurer authorised to transact professional indemnity insurance in the QFC; or
            (B) a Person of equivalent status in:
            (i) a Zone 1 country; or
            (ii) any other Jurisdiction as specified by the Regulatory Authority.

            Terms to be incorporated in the insurance

            4.6A.4 The contract of professional indemnity insurance must incorporate terms that make provision for—
            (A) cover in relation to claims for which an Authorised Firm may be liable as a result of the conduct of itself, its Employees and its agents; and
            (B) the minimum limits of indemnity per year set out in Rule 4.6A.5; and
            (C) an excess as set out in Rules 4.6A.6, 4.6A.7 and 4.6A.8; and
            (D) appropriate cover in relation to legal defence costs; and
            (E) continuous cover in relation to claims arising from work carried out from the date on which the Authorised Firm was given authorisation for the Insurance Mediation Business concerned; and
            (F) cover in respect of awards made against the Authorised Firm under the [Ombudsman Scheme].

            Guidance

            An Authorised Firm is responsible for the conduct of all of its Employees and agents (within the scope of their appointment). The firm's Employees include, but are not limited to, its partners, Directors, individuals that are self-employed or operating under a contract hire agreement and any other individual that is employed in connection with its business.

            Minimum limits of indemnity

            4.6A.5 The minimum limits of indemnity are for Rule 4.6A.4(B)—
            (A) for a single claim—US $500,000; and
            (B) in aggregate, US $1 million or, if higher, 10% of annual income up to US $ 15 million.

            Excess

            4.6A.6 In this section, client assets includes a document only if it has value, or is capable of having value, in itself (such as a bearer instrument).
            4.6A.7 For an Authorised Firm which does not hold Client Money or other client assets, the excess must not be more than the higher of—
            (A) US $5,000; and
            (B) 1.5% of annual income.
            4.6A.8 For an Authorised Firm that holds Client Money or other client assets, the excess must not be more than the higher of—
            (1) US $10,000; and
            (2) 3% of annual income.

            Policies covering more than one firm

            4.6A.9 If a policy provides cover to more than a single Authorised Firm
            (A) the limits of indemnity must be calculated on the combined annual income of all the firms named in the policy; and
            (B) each firm named in the policy must have the benefit of the relevant minimum limits of indemnity.

            PROPOSED AMENDMENTS OF GENERAL RULEBOOK (GENE)

            After 4.2.3 insert:

            4.2.4 This section (Provision of Notifications) applies to a notification that is allowed or required to be given to the Regulatory Authority under a provision of the Regulations or Rulebooks (whether the word 'notify', 'advise', 'inform', tell' or some other word is used).

            PROPOSED AMENDMENTS OF INDIVIDUALS RULEBOOK (INDI)

            Amend Rule 2.3.1 of INDI as follows.

            Delete:

            2.3.1 Every Authorised Firm must have at least one individual registered to carry on the following functions:
            (A) Senior Executive Function;
            (B) Compliance Oversight Function;
            (C) Finance Function; and
            (D) Money Laundering Reporting Function.
            Insert:
            (1) Every Authorised Firm must have at least 1 individual registered to carry on the following functions:
            (A) Senior Executive Function;
            (B) Compliance Oversight Function;
            (C) Finance Function;
            (D) Money Laundering Reporting Function.
            (2) Every Insurer must, as well as having at least 1 individual registered to carry on the functions mentioned in subrule (1), have a member of its Senior Management registered to carry on the Risk Management Function.

            Note See CTRL, r 4.4.4 (2).

            PROPOSED AMENDMENTS OF PRUDENTIAL-INSURANCE RULEBOOK (PINS)

            Insert after section 1.4 (Submission of Prudential Returns) the following section:

            1.5 Restrictions on Insurance Business

            1.5.1 An Insurer must not carry on, in or from the QFC, both Long Term Insurance Business and General Insurance Business unless the General Insurance Business is restricted to Categories 1 (accident) and 2 (sickness).
            1.5.2 An Insurer that is a Protected Cell Company must ensure that, when it carries on Insurance Business, the business is attributable to a particular Cell of the Insurer.
            1.5.3 An Insurer must not carry on any activity other than Insurance Business unless it is an activity in direct connection with or for the purposes of such business.
            1.5.4 For this Rule, Managing Investments is not an activity in connection with or for the purposes of Insurance Business.
            Guidance
            1. The following activities will normally be considered in direct connection with or for the purposes of Insurance Business carried on by an Insurer:
            a. investing, reinvesting or trading, as investor or rabb ul maal and for the Insurer's own account, that of its Subsidiary, its Holding Company or any Subsidiary of its Holding Company but not any other party, in Shares, Debt Instruments, investment accounts, Units in Collective Investment Funds, certificates of mudaraba, certificates of musharaka or other forms of investments that are intended to earn profit or return for the investor;
            b. rendering other services related to Insurance Business operations including actuarial, risk assessment, loss prevention, safety engineering, data processing, accounting, claims handling, loss assessment, appraisal and collection services;
            c. acting as agent for another insurer in relation to Contracts of Insurance in which both insurers participate;
            d. establishing Subsidiaries or Associates engaged or organised to engage exclusively in 1 or more of the businesses specified above;
            e. Insurance Mediation Business.
            2. The Regulatory Authority may give individual guidance on other business activities that may be taken to be in direct connection with Insurance Business.

            Amend the Guidance for Rule 8.7.14 as follows:

            Remove 'Long Term Insurance Liabilities' and replace with 'Insurance Liabilities'.

            Amend Rule 9.3.1(3) as follows:

            Remove 'Approved Auditor' and replace with 'Approved Actuary'.

            Amend Rule 10.1.2 (B) as follows:

            Remove 'the Insurer's Cellular Eligible Capital' and replace with 'the Insurer's Eligible Capital'.

            PROPOSED AMENDMENTS OF INTERPRETATION AND APPLICATION RULEBOOK (INAP)

            Amend 1.4 as follows:

            Delete

            1.4.1 In the Rulebooks words and expressions of which the initial letters are capitalised and which appear in italics have the meanings given to them in the Glossary in chapter 3. According to the context in which such words and expressions are used in the Rulebook, the parts of speech used may differ from those which appear in the Glossary. In those cases, the definitions in the Glossary will apply mutatis mutandis.

            Insert

            1.4.1 In the rulebooks terms that appear in italics (whether or not the initial letters are capitalised) have the meanings given to them by the glossary in chapter 3. If a term is defined in the glossary, other parts of speech and grammatical forms of the term have corresponding meanings.

            Insert after 1.5:

            1.6 Notes in rulebooks

            1.6.1 A note included in a rulebook is explanatory and is not part of the rulebook.

            Amend the glossary by inserting the following definitions:

            approved representative Of an authorised firm, has the meaning given by COND, rule 2.5 (1).
            approved representative contract Has the meaning given by COND, rule 2.5 (2).
            cold call A financial promotion made during a personal visit, telephone conversation or other interactive dialogue that—
            (a) was not initiated by the recipient of the financial promotion; and
            (b) does not take place in response to an express request from the recipient of the financial promotion.
            financial promotion A communication made using any medium (for example, brochures, telephone calls, the internet, emails and presentations) if the purpose or effect of the communication is—
            (a) to promote or advertise—
            (i) specified products; or
            (ii) any regulated activity (or any activity that would be a regulated activity if it was conducted in or from the QFC); or
            (b) to invite or induce any person
            (i) to enter into an agreement with any person in relation to a specified product; or
            (ii) to engage in any regulated activity (or an activity that would be a regulated activity if it was carried on in or from the QFC).
            initial disclosure document Of an authorised firm for a retail customer, a statement in writing or printable format containing the information required by COND, rule 4.4.
            investment business
            (1) The business of—
            (a) arranging deals in relevant investments;
            (b) dealing in relevant investments as principal;
            (c) dealing in relevant investments as agent;
            (d) advising on relevant investments;
            (e) managing investments;
            (f) providing custody services;
            (g) arranging the provision of custody services;
            (h) operating a collective investment fund.
            (2) For the application of this definition to COND, a relevant investment does not include a long term insurance contract unless the contract is a life policy.
            jurisdiction Includes—
            (a) country or territory; and
            (b) the QFC or a similar jurisdiction.
            life policy A long term insurance contract other than a reinsurance contract or a pure protection contract but including a long term care insurance contract.
            material interest In relation to a transaction, any interest of a material nature, other than disclosable commission on the transaction.
            non-QFC intermediary Of an authorised firm, has the meaning given by COND, rule 2.7 (1).
            non-QFC intermediary contract Has the meaning given by COND, rule 2.7 (3).
            packaged product
            (a) a life policy; or
            (b) a unit in a collective investment fund.
            product disclosure document For a packaged product produced by an authorised firm, a statement in writing or printable format that is prepared by the firm for the product in accordance with COND, division 4.3.2 (Packaged products—additional disclosure).
            product provider An authorised firm that is—
            (a) an insurer conducting long term insurance business; or
            (b) the operator of a collective investment fund.
            regulatory system The arrangements for regulating an authorised firm in or under regulations or rules
            related A person (the second person) is related to another person (the first person) if—
            (a) the second person is a subsidiary, associate or holding company of the first person; or
            (b) the second person is a subsidiary or associate of the holding company of the first person; or
            (c) the second person is a director or officer of the first person or of a person related to the first person because of paragraph (a) or (b); or
            (d) the second person is the spouse or minor child of a natural person mentioned in paragraph (c); or
            (e) the second person is a company that is a subsidiary of or subject to significant influence by or from a natural person mentioned in paragraph (c) or (d).
            relevant investment
            (1) For COND, any of the following specified products:
            (a) a share;
            (b) a debt instrument;
            (c) a warrant;
            (d) a securities receipt;
            (e) a unit in a collective investment fund;
            (f) an option;
            (g) a future;
            (h) a contract for differences;
            (i) a life policy;
            (j) rights in investments a specified product mentioned in paragraphs (a) to (i).
            (2) For any other rulebook, any of the following specified products:
            (a) a share;
            (b) a debt instrument;
            (c) a warrant;
            (d) a securities receipt;
            (e) a unit in a collective investment fund;
            (f) an option;
            (g) a future;
            (h) a contract for differences;
            (i) a long term insurance contract;
            (j) rights in investments a specified product mentioned in paragraphs (a) to (i).
            terms of business Of an authorised firm for a customer, a statement in writing or printable format of the terms on which the firm will conduct investment business with or for the customer.

        • QFCRA CP No.2007/2 – The Regulation of Collective Investment Funds operating in or from the Qatar Financial Centre

          The QFCRA today published the proposed rules for the regulation of collective investment funds operating in or from the Qatar Financial Centre (QFC).

          The proposed rules (COLL) incorporate amendments made following the earlier round of consultation in addition to other changes of a technical or operational nature.

          Comments on the proposed rules are invited, to be received by the QFCRA, no later than 13 June 2007. It is proposed that the rules will come into force on 15 July 2007.

          Key changes are listed below.

          Foreign funds

          •   The formal recognition regime provided for in the consultation draft of COLL has been removed and replaced with a regulatory regime that places a number of requirements on authorised firms advising on and arranging deals in units in foreign funds.

          Private placement exemption

          •   A "private placement exemption" has been introduced into COLL in respect of funds that: (i) are available only to qualified investors; and (ii) have not more than 100 such investors.
          •   Such private placement funds will benefit from the following exemptions:
          •   They will not be required to have an independent entity performing the oversight function.
          •   The operator itself will have prime responsibility for the property safekeeping function otherwise performed by the independent entity and may delegate or outsource this, as appropriate.
          •   They will not be subject to the borrowing and investment restrictions of COLL (although this will not prevent them from imposing any restrictions as a contractual matter).

          Borrowing restriction

          •   The borrowing limit for qualified investor funds, other than private placement funds, has been increased from 20% to 100% of the fund's net asset value. The QFCRA retains discretion to set another percentage which it may decide either generally for certain types of fund or in any particular case.

          Requirements for the operator of a QFC fund

          •   An operator of a QFC fund is permitted to delegate any of its functions to non-QFC entities (other than to the independent entity, or a related person, of that fund) but without lessening their legal obligations or accountability for those functions.

          Requirements for the independent entity of a QFC fund

          •   Under COLL, the independent entity function of a QFC fund may be undertaken either by an authorised firm or a non-QFC entity, in either case appointed by the operator. If it is a non-QFC entity, the operator must have regard to various factors in coming to the view that it is appropriate to appoint that person as such, including the overseas legal and regulatory regimes to which the independent entity is subject, and the recourse available against that entity. The QFCRA will have the ability to veto that appointment or require the operator to remove the independent entity.

          Closed-ended investment companies

          •   Closed-ended investment companies (including property companies) will be excluded from the COLL regime. Instead, these entities will be regulated under the offered securities regime proposed to be put in place later in 2007. In the meantime closed-ended investment companies will be governed by the Companies Regulations. However, the QFCRA has the power to declare that such companies (or other entities) shall be subject to the COLL regime, if it considers that to do so is desirable to protect the interests of participants or the QFC financial system.

          22 May 2007

          Please click here for the Clean copy of the Proposed Rules Published for Comment under Article 15(4) of the Financial Services Regulations

          Please click here for the Version Highlighting Significant Changes Since Consultation Draft QFCRA CP No.2 – Proposed Rules Published for Comment under Article 15(4) of the Financial Services Regulations

          Comments on the proposed rules are invited, to be received by the QFCRA, no later than 13 June 2007. It is proposed that the rules will come into force on 15 July 2007.

        • QFCRA CP No. 2007/03 – The Regulation of Retail Activities and Retail Insurance Business permitted to be conducted in or from the Qatar Financial Centre

          The QFCRA today published the proposed rules relating to the conduct of retail business in or from the Qatar Financial Centre (QFC) and the protection of retail customers.

          The rules have a particular emphasis on insurance business, although the proposed regime is intended to be the framework for any regulated activities conducted by firms authorised to do so by the QFCRA.

          The proposed rules incorporate amendments made following the earlier round of consultation in addition to other changes of a technical or operational nature.

          Comments on the proposed rules are invited, to be received by the QFCRA, no later than 18 June 2007. It is proposed that the rules will come into force on 1 July 2007.

          Changes from the earlier consultation draft include:

          Approved representatives

          •   The new rules limit the use of approved representatives or non-QFC intermediaries to insurance related business, rather than all investment business.

          Volume overrides

          •   The new rules allow volume override commissions and indemnified commissions, if these occur between persons in the same group.

          Cold calls

          •   The rules on cold calls have been amended to allow cold calling to be made in relation to packaged products, although the procedures and limits around cold calling remain untouched.

          Non-QFC insurers

          •   The rules relating to the disclosure requirements for non-QFC insurance products have been amended to include a generic warning that the providers of these products are not licensed or regulated by the QFCRA.
          •   A new rule has been included that any such offer of non-QFC insurance products must also comply with any other applicable Qatar laws.

          Projections for life policies

          •   The rules relating to the projections used for the product disclosure documents for life policies have been amended to allow the inclusion of at least two projections, one using a lower rate (under 5%) and another using an upper rate (under 9%).

          Terms of business for deposit taking business

          •   The rules have been amended to reinstate a requirement existing in the current Conduct of Business (COND) rulebook for business customers to receive terms of business statements in relation to deposit taking business. The new rules provide greater clarity to the existing requirements by setting out a minimal content for the terms of business statement.

          Consumer dispute resolution scheme

          •   The new rules include general provisions for complaints to be resolved by an independent consumer dispute resolution process.

          Please click here for the Clean copy of the Proposed Rules Published for Comment under Article 15(4) of the Financial Services Regulations.

          Please click here for the Version Highlighting Significant Changes Since Consultation Draft QFCRA CP No.2007/02 — Proposed Rules Published for Comment under Article 15(4) of the Financial Services Regulations.

          29 May 2007

          Comments on the proposed rules are invited, to be received by the QFCRA, no later than 18 June 2007. It is proposed that the rules will come into force on 1 July 2007.

      • 2006

        • QFCRA CP No. 1 QFCRA CP No. 1 – Prudential Regulation of Insurers Conducting Insurance Business in or from the Qatar Financial Centre

          Preamble

          This Consultation Paper invites comments on the proposed prudential regime for insurers conducting insurance business in or from the Qatar Financial Centre (QFC), in particular, the QFC Regulatory Authority's draft Prudential - Insurance Rulebook (PINS), attached as Appendix 3 to this paper.

          The proposed rules will be made under Article 15 of the QFC Financial Services Regulations 2005, which provides the QFC Regulatory Authority with the power to make rules as it deems necessary or appropriate to facilitate the pursuit, achievement and furtherance of its regulatory objectives.

          Prior to making rules, the Regulatory Authority must publish the draft rules on its website inviting public comment. Comments are invited in relation to any aspect of the proposals in this paper, on both the concepts and the detailed drafting of the proposed rules. These are attached in Appendices 3 (the draft PINS), 4 (amendments to the Controls Rulebook), 5 (amendments to the Individuals Rulebook) and 6 (amendments to the Interpretation and Application Rulebook). You are welcome to comment on all of the matters, or only those that are of specific interest or concern to you.

          Anyone wishing to submit comments should provide details of the organisation he or she represents. The names of the commentators and the content of their submissions may be published on the QFC Regulatory Authority website and in other documents to be published by the QFC Regulatory Authority. If you wish your name or any part of your submission to be withheld from publication please indicate this, together with your reasons, when you make your submission. The QFC Regulatory Authority will then decide whether or not to publish the name or material. In doing so, the QFC Regulatory Authority will have regard, in particular, to issues of commercial sensitivity and whether the justification for publication is outweighed by confidentially concerns.

          Any comments should be submitted to:

          Matthew Hampton
          Associate Director, Financial Sector Development and Policy
          QFC Regulatory Authority
          PO Box 22989
          Doha, Qatar

          Or emailed to: m.hampton@qfcra.com

          All comments must be received by 23 June 2006.

          • Introduction

            1. Insurance and reinsurance business of all categories are activities that may be conducted in or from the QFC as Regulated Activities under the QFC Law.1 The QFC Financial Services Regulations 2005 (FSR) provides further detail on the specific classes of general insurance business and long term insurance business that can be conducted in or from the QFC (see Appendix 1). Direct insurance, reinsurance, retail, wholesale, takaful, and captive insurance business are all catered for. There are three legal forms that an insurer could operate in: a QFC incorporated entity; a cell of a Protected Cell Company incorporated in the QFC; or a non-QFC incorporated entity (a branch).
            2. The QFC Authority and QFC Regulatory Authority however have power to impose limitations or conditions in relation to particular activities, licences and authorisations. Also, in common with many jurisdictions, under existing QFC legislation an insurer is generally not allowed to conduct both general insurance business and long term insurance business.2 It is also important to stress that whether a particular QFC entity is authorised to conduct one or more categories or types of business, and the form of the entity, will depend on the particular authorisation granted.
            3. The QFC Regulatory Authority is now proposing a set of rules that would govern the prudential supervision of all insurers conducting insurance business in or from the QFC. The proposed rules include rules of general application for all insurers, as well as specific rules that apply to specific categories of insurance business, specific insurance markets or specific legal forms that an insurer could assume. These draft rules are attached in appendices 3, 4, 5 and 6.

            1 See Schedule 3 of the QFC Law.

            2 See Conduct of Business Rulebook (COND) Rule 14.2.1.

          • Consultation process

            4. The purpose of this consultation paper is threefold:
            •    to identify, at a high level, the key issues that have guided the development of the proposed regime or otherwise indirectly impacted on the regime;
            •    to outline the core proposals for the prudential regime for insurers authorised to conduct insurance business in or from the QFC; and
            •    finally, to invite comment from interested parties on the proposed regime and rules, as well as a number of more targeted questions that the QFC Regulatory Authority is seeking to receive feedback on.
            5. All submissions will be carefully reviewed by the QFC Regulatory Authority, which may adopt in whole or in part the proposals, or amend them, including in light of comments received. These proposals and the final rules are subject to review and approval by the newly constituted Board of the QFC Regulatory Authority.

          • Current regulatory framework

            6. As a Regulated Activity under QFC Law, the carrying out or effecting (hereon referred to as conducting) of insurance business is already subject to legislation governing the licensing, authorisation and conduct of Regulated Activities, including regulations made under the QFC Law and associated rules issued by the QFC Regulatory Authority. The areas addressed in those rules include the conduct of authorised firms, internal control systems and oversight, individuals performing specific functions within the firm, Islamic finance and anti-money laundering requirements. The specific QFC Regulatory Authority rulebooks are:
            •  General Rulebook (GENE)
            •  Principles Rulebook (PRIN)
            •  Controls Rulebook (CTRL)
            •  Individuals Rulebook (INDI)
            •  Anti Money Laundering Rulebook (AMLR)
            •  Conduct of Business Rulebook (COND)
            •  Assets Rulebook (ASET)
            •  Islamic Rulebook (ISFI)
            •  Prudential - Investment, Insurance Mediation and Banking (PIIB)
            •  Interpretation and Application Rulebook (INAP)
            7. While these rulebooks are an important part of the insurance regulatory regime, there is no specific prudential regime in place for insurers. To meet this gap, the QFC Regulatory Authority is proposing a prudential regime for insurers that would, like the prudential requirements for investment, insurance mediation and banking (PIIB), sit in a single rulebook, which is provisionally entitled Prudential - Insurance (PINS) and which is attached in Appendix 3. The proposed prudential regime would also amend the Controls Rulebook (CTRL), Individuals Rulebook (INDI) and the Interpretation and Application Rulebook (INAP). These proposed amendments are attached in Appendices 4, 5 and 6 respectively.

          • Retail activities

            8. Retail insurance activities are provided for under the QFC Law, although, pursuant to Article 24 of the FSR, the QFC Regulatory Authority may only authorise insurers to conduct insurance activities with or for retail customers after it has put in place measures to ensure appropriate customer protections commensurate with the needs of such customers. The QFC Regulatory Authority is addressing appropriate retail measures as a separate exercise and will be consulting with interested parties on these. Meanwhile, we invite you to make any preliminary comments on what sort of customer protections you believe are appropriate in a retail insurance context.

            1. What consumer protections are appropriate for retail customers?

          • Other insurance law

            9. A separate but related matter is insurance law. There is at present no specific insurance law covering the position of insurers and insureds and other counterparties, or a common law body of precedents established. At this stage, such matters would be addressed on the basis of the contracts between the parties and the governing law expressed to apply governing those contracts. While authorised insurers will be subject to QFC legislation covering contract regulations, the proposed choice of law regulations, the companies regulations and the insolvency regulations as applicable, other jurisdictions also have specific insurance law, often to make changes to common law and to provide additional consumer protection. The QFC Regulatory Authority is separately addressing whether additional insurance rules and regulations, including in relation to insurance contracts of authorised insurers, should be put in place. This is particularly in respect of any retail activities.

            2. What are your views on the need for a specific QFC insurance law in addition to the regulatory and prudential regime, to apply to the activities and contracts of authorised insurers?

          • Objectives of the proposed prudential framework

            10. Under the FSR, the QFC Regulatory Authority is required to exercise its functions and powers in accordance with the Regulatory Objectives, and having regard to the Principles of Good Regulation. These are set out in Appendix 2.
            11. In addition to those matters, in addressing the specific requirements to include in the proposed prudential regime for insurers, the QFC Regulatory Authority has been concerned:
            (i) that ultimate responsibility for the prudent management of an insurer continues to rest with the governing body of the insurer;
            (ii) that the governance and risk management components of the regime are appropriate;
            (iii) to set capital adequacy requirements at an appropriate level;
            (iv) to set capital requirements that are responsive to the risk profile of individual insurers and are appropriate given the nature, size and complexity of their business;
            (v) to reflect best international standards, including the Insurance Core Principles (ICP) and other Principles of the International Association of Insurance Supervisors (IAIS); and
            (vi) to avoid unnecessary black letter law and unduly prescriptive requirements.
            12. In meeting these objectives, the QFC Regulatory Authority has been mindful of the need to ensure any proposed prudential regulatory framework is in line with key international standards and markets. Rather than creating a 'bespoke' regime, the QFC Regulatory Authority has considered the regimes applicable in other world markets, including the United Kingdom, the European Union, Australia, and several regional jurisdictions, in designing the proposed prudential regime.
            13. The QFC Regulatory Authority has also undertaken an assessment of the proposed regime against those of the IAIS ICP that relate to prudential principles (ICP 18 to 23). The result of this self-assessment is that the proposed regime is broadly compliant with those principles. Some aspects, such as solvency ratios, will be addressed in the QFC Regulatory Authority's supervisory rulebooks, while the proposed prudential rulebook places less emphasis on prescriptive detail regarding the content of an insurer's risk management policy than does the IAIS ICP.

          • Treatment of branch operations in the QFC

            14. The QFC Regulatory Authority has closely examined the issue of the appropriate prudential requirements to apply to insurers conducting insurance business in or from the QFC through branch operations. In a number of jurisdictions, including Australia, the UK and Canada, the approach has been to apply prudential requirements to these branch operations as if they were a separate legal entity in that jurisdiction. These jurisdictions have generally sought to ring fence the branch operations by requiring them to meet some variation of the minimum capital requirements applying to insurers incorporated in the jurisdiction, usually by holding specified classes of assets within the jurisdiction in a manner analogous to the capital requirements applying to locally incorporated insurers. An alternative approach is to instead rely on the supervision of the home regulator to ensure an appropriate degree of capitalisation is maintained for the insurer's on-shore and off-shore operations.
            15. One of the policy rationale for applying a variation of capital requirements to branch operations is to cover the exposure of local liabilities in the event the insurer becomes insolvent in the jurisdiction of its home regulator. To make this protection effective requires two conditions to be met. The first is the ability to ring fence those statutory assets the regulatory regime requires the branch to hold within that jurisdiction. More fundamentally, to be effective in the event of the insurer becoming insolvent, this approach must establish a statutory link between these assets and the branch liabilities and a priority over other non-branch liabilities. This also necessitates assets being situated in the jurisdiction where the statutory priority can apply. In respect of QFC insurers however those assets will not ordinarily be in the QFC. This makes a statutory priority problematic, as any such priority will not necessarily apply in the jurisdiction in which those assets are situated.
            16. Having considered the different approaches, the QFC Regulatory Authority has taken the view that, at least for the near future, only insurers who are sufficiently capitalised in the jurisdiction of their home regulator will be authorised to conduct branch operations in the QFC. The QFC branch operations of the insurer could then be waived, in accordance with the requirements of Article 16 of the FSR (waiver or modification of rules), from the proposed capital requirements contained in the draft prudential rulebook on the basis that the home regulator supervises the QFC assets and liabilities of the branch operations, and subject to any other appropriate conditions. Alternatively, the rules could provide for a separate regime for branches. The draft rules are currently based on the waiver approach.
            17. It is important to stress that the insurer would still be required to meet the other proposed requirements of the prudential regime, for example those relating to risk management policies, for its QFC branch operations. Furthermore, authorisation to operate as a branch in the QFC would remain at the discretion of the QFC Regulatory Authority, and would be judged on a case by case basis.

          • Treatment of regional and local insurers seeking authorisation in the QFC

            18. The QFC Regulatory Authority is mindful of its objectives in relation to meeting best international standards in the context of encouraging the development of the financial sector in Qatar and the region more generally. While the QFC Regulatory Authority would encourage local and regional firms to seek authorisation to conduct insurance business in or from the QFC, it is also aware that the proposed prudential regime places greater demands on an insurer, including its systems, policies and controls, than some regional and local insurers may be currently used to.
            19. It is of fundamental importance to the QFC Regulatory Authority that its regulatory framework meets international best practice, and it therefore has no intention to relax the standards for any insurer regardless of where it is located. That said, the QFC Regulatory Authority is aware that it may be unrealistic to expect those local or regional insurers who may seek authorisation in the QFC to be in a position to immediately comply with all the proposed requirements.
            20. The QFC Regulatory Authority is therefore examining ways to facilitate the authorisation of insurers who are substantially in compliance with QFC requirements, and whose controllers and management are committed to attaining the required high standards, but who may require short-term relief in order to become fully compliant. Options could include temporary conditions on the insurer's authorisation requiring higher levels of capital and/or limitations on the business that the insurer can conduct until the insurer is fully compliant, with time limits specified by the QFC Regulatory Authority.
            21. It is important to stress the QFC Regulatory Authority would only grant such relief where it is satisfied that the risks to the QFC's regulatory objectives are properly contained and mitigated, and where the insurer had demonstrated its capacity and willingness to become fully compliant with the QFC regulatory regime for insurers within a strictly defined and limited timeframe.

            3. Do you have any views on the QFC Regulatory Authority's approach to branches and local and regional insurers?

            In particular, do you have any views on:
            a. the level of standards required by the proposed rules; and
            b. the extent to which the proposed rules meet our Regulatory Objectives in the context of regional and local insurers.

          • Key proposals

            22. Rather than provide a detailed outline of each rule of the proposed prudential framework, the following discussion highlights the core proposals at a thematic level and provides a policy context for their inclusion or for the particular form that the proposal has taken. It is therefore essential that persons interested in or affected by the proposed rules carefully consider the detailed rules in Appendices 3, 4, 5 and 6 themselves as well as the matters set out in this paper.

            Governance

            23. The solvency and management of an insurer is the responsibility of its governing body. In particular it is incumbent on the governing body to have arrangements in place to ensure effective governance and risk management, and that the culture of the entity reflects the principles of sound governance and risk management in substance as well as form. The proposals that follow aim to provide for this. The QFC Regulatory Authority is aware that in other jurisdictions incorporation of specific corporate governance standards in relation to insurers into mandatory rules is being considered. The QFC Regulatory Authority will be monitoring developments in this area with a view to possible amendments to its rules applying generally to authorised firms and specifically to insurers.

            Risk management

            24. Capital requirements form only one part of any comprehensive supervisory regime for insurers. Solvency margins based on minimum capital requirements on their own can provide illusory comfort. Because many of the key risks facing insurers, such as insurance risk (including inadequate or inappropriate underwriting, claims management, product design and pricing), legal risks and operational risks, are less amenable to quantification than, for example credit risk, supervisors have come to place increasing emphasis on a range of non-quantitative risk management tools. Experience, including failures of financial institutions and insurers, has demonstrated the importance of robust risk management systems, active supervision, and the role of market discipline including adequate disclosure. In the terminology of Basel II, this has seen an increasing emphasis amongst supervisors on pillar's II and III.
            25. The Controls Rulebook already requires an insurer to establish and review its risk management policy. This policy must, amongst other things, identify and assess the risks that relate to the insurer's activities, processes and systems. The QFC Regulatory Authority believes that these require some augmentation in order to sufficiently address the often difficult to quantify risks that characterise insurance business. In particular, it is proposed that:

            1. All insurers must:
            a. appoint a member of senior management to the Risk Management Function;
            b. address in its risk management policy the following risks: credit risk, balance sheet and market risk; reserving risk; insurance risk; reinsurance risk; operation risk; group risk; concentration risk; and strategic and tactical risks;
            c. maintain a written Risk Management Strategy, a high level strategic document that describes the key elements of an insurer's risk management policy, including its risk appetite, systems, procedures, management responsibilities, and controls and reinsurance management strategy; and
            d. ensure the governing body of the insurer approves this document, at least annually and more frequently if the insurer's risk management policy has materially changed, in regard to which the governing body is satisfied that:
            i. the Risk Management Strategy accurately describes the insurer's risk management policy; and
            ii. the insurer's risk management policy adequately address the material risks facing the insurer (including those identified above), having regard to such factors as the nature, scale and complexity of the insurer's operations.

            Capital

            26. The amount of capital available to an insurer is fundamental to its financial strength. It provides a buffer against losses that have not been anticipated and, in the event of problems, enables the insurer to continue operating while those problems are addressed or resolved. In this way, the maintenance of adequate capital resources can engender confidence on the part of policyholders, creditors and the market more generally in the financial soundness and stability of the insurer.
            27. In determining an appropriate regime for capital adequacy, the QFC Regulatory Authority has carefully considered the position in other jurisdictions, having particularly regard to jurisdictions such as Australia, the United Kingdom and regional centres, the IAIS Core Principles, as well as the viewpoints expressed in other fora on what constitutes current best practice. Having reviewed these, the QFC Regulatory Authority is proposing a capital adequacy model that provides a robust, flexible, risk sensitive capital regime while avoiding unrealistic or excessively costly requirements. The QFC Regulatory Authority believes the proposals below are pitched at the mainstream of international best practice rather than imposing cutting edge or untested requirements. In particularly, the QFC Regulatory Authority is proposing that:

            2. All insurers must at all times hold capital at least equal to their Minimum Capital Requirement, calculated as the highest of the following figures:
            a. the insurer's Base Capital Requirement; or
            b. the insurer's Risk Based Capital Requirement.

            Base Capital Requirement

            28. The QFC Regulatory Authority is proposing a minimum level of capital, called the base capital, below which no insurer will be authorised in the QFC. More specifically, it is proposed that:

            3. For direct insurers, base capital will be set at US$10 million, while the figure for reinsurers will be set at US$20 million. Captive insurers will have lower base capital requirements depending on the extent of third party exposure on their books.

            Risk Based Capital Requirement

            29. Insurance supervisors are shifting towards more sophisticated approaches to measuring risk, allowing capital requirements to be increasingly sensitive to the risk profile of individual insurers. In terms of regulatory approaches to determining capital requirements, there has been a distinct shift away from fixed-ratio to risk-based capital (RBC) approaches, and, somewhat tentatively, scenario-based and probabilistic modelling.
            30. A further development is the increasing prominence of internal risk models, which offer the advantage of combining all relevant operations of an insurer (e.g. underwriting, investment, pricing, assets, liabilities, etc) into an integrated model which provides an insight into future operations and capital requirements. Internal models can also be useful for evaluating alternative business strategies and also focus on major risk scenarios, including what might happen if more than one thing goes wrong. They therefore hold the potential to provide a better fit between the regulatory capital and economic capital required by individual insurers.
            31. While the use of internal models, especially more complex probabilistic and scenario-based modelling, have been recommended in various fora, are already used by many larger insurers, and are allowed in some jurisdictions, it should be recognised that the more sophisticated approaches for calculating solvency and capital levels are still in a developmental phase. The benchmark that most regulators and the IAIS are moving towards is variations on the RBC approach. The QFC Regulatory Authority is therefore proposing that:

            4. An insurers Risk Based Capital Requirement can be calculated using either:
            a. the standardised RBC model contained in the draft prudential rulebook; or
            b. if the insurer has been approved to do so by the QFC Regulatory Authority, the insurer's own internal model; or
            c. a combination, if approved by the QFC Regulatory Authority, of the insurer's internal model and components of the standardised RBC model.

            Standardised RBC model

            32. In deciding upon a suitable standardised RBC model, the QFC Regulatory Authority has been guided by the need to adopt well established approaches with a proven track record, even if these lack some theoretical sophistication. The chosen method also needed to balance the objectives of prudence and robustness with low compliance costs and the resources of the QFC Regulator Authority itself.
            33. While there is no uniformly accepted categorisation or prioritisation of the risks facing insurers, there are commonalities across many of the categorisations that exist, with most distinguishing two main categories: insurance risk and investment risk. These can then be further broken down into a number of risk factors. For example, investment risk can be divided into credit risk, market risk, concentration risk and off-balance sheet risk components, while insurance risk can be further divided into premium risk and technical provision risk components.
            34. Attempts by regulators to quantify other risks where only weak proxies can be established do not appear to have been particularly successful and the QFC Regulatory Authority has decided to make no attempt to include such risk factors, for example operational risk. Both the risks and the proxies used should be kept as simple as possible, should be easily calculated, and make intuitive sense. The QFC Regulatory Authority is therefore proposing that:

            5. The RBC model would calculate the Risk Based Capital Requirement as the total of the Insurance Risk Requirement and Investment Risk Requirement, both of which are formed by summing a number of risk charge components as identified above.
            35. The theoretical basis for applying specific weighted charges against risk proxies that underpin the specified solvency objective in most regulatory models is not always clear. RBC models, unlike scenario-based and probabilistic modelling, usually set a solvency objective and then undertake an empirical analysis through the examination of historical data or by 'road testing' the capital charges on 'live' insurers. The QFC Regulatory Authority is clearly not in a position to do this as there is no empirical data on the QFC to draw upon, and the QFC Regulatory Authority is aware that the proposed weighted risk charges in the attached draft rulebook in Appendix 3 have an element of subjectivity.

            4. The QFC Regulatory Authority is particularly interested in hearing the views of interested parties on the appropriateness of the weightings in the RBC model in the current draft rulebook.

            Internal Models

            36. While providing a standardised RBC model, the QFC Regulatory Authority believes it worthwhile to facilitate the growing use of internal models within the insurance sector for the reasons already stated in the previous section. The QFC Regulatory Authority is therefore proposing that:

            6. An insurer may seek approval from the QFC Regulatory Authority to use an internal model to calculate all or certain specified components of its Risk Based Capital Requirement. Approval to do so would depend on:
            a. the QFC Regulatory Authority being satisfied that the insurer's internal model:
            i. operates within a risk management environment that is conceptually sound and supported by adequate resources;
            ii. addresses all material risks to which the insurer could be reasonably expected to be exposed and is commensurate with the relative importance of those risks, based on the insurer's business mix;
            iii. is closely integrated into the day-to-day management process of the insurer;
            iv. is supported by appropriate audit and compliance procedures; and
            v. is subject to adequate processes established by the insurer to validate the accuracy of the Risk Based Capital Requirement, or components of the Risk Based Capital Requirement, as determined by the internal model, as well as for monitoring and assessing its ongoing performance; and
            b the insurer's home regulator, or if the insurer is part of a group, the group's home regulator (i.e. the regulator of the insurer in the jurisdiction the insurer is incorporated, or in the case of a group, the parent), having approved the internal model for calculating similar risk based capital requirements to those that apply in the QFC.

            Eligible capital

            37. In assessing the adequacy of an insurer's capital resources, consideration should be paid not only to the types of events or problems that it might encounter, but also the quality of the support provided by various types of capital instruments. Key issues include the extent to which each capital instrument meets the characteristics of permanency, ability to absorb losses, freedom from fixed costs, and whether it ranks behind the claims of all other creditors.

            The Basel tiered approach is clearly gaining favour amongst insurance supervisors. The highest quality capital, Tier 1 capital, meets the above characteristics in the affirmative, while Tier 2 capital (itself divided into upper and lower Tier 2) includes other capital instruments that fall short of the quality of Tier 1 but still contribute to the financial strength of an insurer. The QFC Regulatory Authority has accepted the Basel methodology and is proposing that:

            7. Every insurer must hold capital equal to its Minimum Capital Requirement that meets eligibility criteria based upon a standard Basel-type methodology of tiered capital.

            Specific requirements for long term insurance business, and the position of policy holders generally in an insolvency of an insurer

            38. Because of the often long-term nature of insurance liabilities for these categories of insurance business, it is important that the capital structure and assets are well matched against a realistic assessment of these liabilities. To help in meeting these requirements, many supervisors require these liabilities to be identified, matched and held against specified assets. The simplest way of achieving this is by requiring insurers to segregate the insurance liabilities and matching assets of various categories of long term insurance business. The QFC Regulatory Authority is therefore proposing that:

            8. All insurers conducting long term insurance business in or from the QFC must establish and maintain one or more long term insurance funds and attribute all long term insurance contracts (including the associated liabilities, assets, revenues and expenditures) to such funds.
            39. The QFC Regulatory Authority is aware that the proposed long term insurance fund provisions are mechanisms for organising long term insurance business rather than constituting statutory funds where a statutory priority applies to give policyholders a priority over other creditors in the event of the insolvency of an insurer. Statutory priority would be problematic where significant assets will be outside the QFC jurisdiction.
            40. To provide statutory priority in relation to specific funds also raises the issue of priority generally of policyholder liabilities over other non-policyholder creditors. Jurisdictions vary in providing or not providing such priority. In respect of the QFC, in the banking sector, depositors do not have a statutory priority over other creditors. A question is whether policy holders generally, in relation to QFC incorporated insurers, should have a priority over other creditors. At present, the proposals do not provide such a priority. We also refer to our comments in paragraphs 14 to 17 above in relation to branches.
            5. Do you:
            a. consider a statutory priority should exist in favour of policyholders over other creditors, either for long term funds or generally;
            b. would that priority apply over all creditors including secured creditors, or apply only to other unsecured creditors; and
            c. given that significant assets will be situated outside of the QFC, how would any such priority apply in practice?

            Specific requirements for takaful entities

            41. Takaful entities provide insurance products and services that are compliant with the rules and requirements of Shari'a by avoiding ghara (uncertainty), riba (interest) and other prohibitions. While the prudential regime applying to conventional insurers can equally be applied to takaful entities, the need to design takaful products in line with the principles of compensation and shared responsibility amongst the community, requires some tailored prudential requirements. The QFC Regulatory Authority is therefore proposing that:

            9. Takaful entities must meet all the general requirements of the prudential regime, as well as requirements specific to takaful entities, such as the establishment and maintenance of takaful funds, segregation of takaful business into these takaful funds, requirements relating to capital, such as loans from shareholder funds, and the distribution of any surplus or deficit in a takaful fund.
            42. The Investment Risk Requirement in the standardised RBC model for the most part targets conventional asset classes.

            6. Do you think there is a need to have separate calculations in the Investment Risk Requirement that applies specific risk weightings to Islamic investment products such as Ijarah ?

            Specific requirements for Protected Cell Companies

            43. The concept of the Protected Cell Company (PCC) is a recent innovation that has attracted interest in the insurance sector, especially within the captive insurance market. The PCC concept remains untested in a court of law, and while the QFC Companies legislation includes provisions for PCCs, the QFC Regulatory Authority is not at this stage persuaded that the use of PCCs to conduct insurance activities generally is appropriate. The QFC Regulatory Authority is therefore inclined that if PCCs are to be authorised insurers, they be limited to captive insurers who can demonstrate limited third party exposure, and in any event that will be subject to decision on a case by case basis. The QFC Regulatory Authority is proposing that to the extent PCCs can be authorised as insurers in the QFC:

            10. The prudential regime will apply to each cell of a PCC authorised to conduct insurance business in or from the QFC as if that cell were an insurer. It is further proposed that a non-cellular base capital requirement of $50,000 be applied to ensure the PCC itself has sufficient financial resources.

            Role of actuaries

            44. According to the IAIS, the 'role of the actuary, both within the insurance companies and in the position of the supervisor, is critical to the maintenance of financially sound insurance companies'.3 In growing recognition of this, the statutory role of actuaries has expanded over recent years, and in a number of jurisdictions general insurers are now required to obtain actuarial advice.
            45. A common regulatory model for actuarial involvement is the 'approved actuary' system, where the actuary is someone with individual official responsibilities or a defined role set out in insurance regulation, particularly reporting or certification responsibilities, to both the insurer and the supervisor. Having considered the issues, the QFC Regulatory Authority is of the view that all insurers should be required to draw upon some actuarial expertise, although the extent of this would be dependent on the nature of the insurance business conducted by the insurer. The QFC Regulatory Authority is therefore proposing that:

            11. All insurers will be required to draw upon actuarial expertise as follows:
            a. Insurers conducting long term insurance business or general insurance business that typically lasts more than one year, or where the insured event that gives rise to a claim is often settled one or more years after the date of the occurrence of that event, will be required to appoint a person registered to perform the Actuarial Function. The key responsibility of this person is to prepare on an annual basis a Financial Condition Report on the insurer.
            b. Insurers conducting general insurance business that typically lasts one year or less and where the insured event giving rise to a claim would occur within the timeframe of the contract, will be required to commission an independent actuarial report at least once every three years, prepared by a Reporting Actuary. The governing body of these insurers must also assess each year whether an actuarial report should be commissioned.
            46. The proposed Financial Condition Report and independent actuarial report are both required to address a number of specific topics. These are outlined in chapter 9 of the draft prudential rulebook (attached in Appendix 3). The QFC Regulatory Authority is aware that the professional training of actuaries is different across jurisdictions, possibly impacting on their willingness to opinion all the matters proposed for inclusion in the actuarial reports.

            7. Do you believe that all actuaries will be willing to offer an opinion on all the items included in the Financial Condition Report and independent actuarial report, or alternatively whether an actuary could rely on other expert opinions to meet those matters they may feel unqualified to comment on, for example the appropriateness of the discount rates used by an insurer?

            Criteria for individuals wishing to act as either Approved or Reporting Actuaries

            47. Because of the critical role played by actuaries, the QFC Regulatory Authority is proposing to place special criteria upon those individuals who wish to act in either the Approved Actuary or Reporting Actuary roles in order to ensure their independence, education, skill and experience. In particular, the QFC Regulatory Authority is proposing that:

            12. An individual seeking to perform either the Approved Actuary or Reporting Actuary role must meet the following specific criteria:
            a. he must not be carrying on the Controlled Functions of Senior Executive Function, Executive Governance Function or Non-Executive Governance Function of the insurer, or of a related body corporate (except when that related body corporate is a subsidiary of the insurer);
            b. he must not be an approved auditor (under Article 85(1) of the QFC Companies Regulations or Article 37 of the Limited Liability Partnerships Regulations) for the insurer, nor an employee or director of an entity of which that auditor is an employee or director nor a partner of that auditor;
            c. he must have the appropriate formal qualifications and is a member of a recognised professional body; and
            d. he must have a minimum of 5 years relevant experience in the provision of actuarial services to insurers, either in the QFC or in other jurisdictions, that has been sufficiently recent to ensure that he is familiar with current issues in the provision of actuarial services to insurers.

            Transfer of business and insurers in run-off

            48. No insurance supervisor seeks to completely remove the possibility of an insurer failing. It is therefore important to have a framework for the orderly restructuring and/or exit of insurers, either through the transfer of insurance business, or through run-off. The QFC Regulatory Authority is therefore proposing:

            13. To have in place rules governing the transfer of insurance business and the run-off of insurance business for insurers authorised in the QFC.

            3 IAIS (2002), 'The Use of Actuaries as Part of a Supervisory Model', www.iais.org.

          • Other matters

            49. The QFC Regulatory Authority encourages all interested parties to provide comments on any matters contained in this paper or the attached draft rulebook, or on anything else you consider relevant. In addition, the QFC Regulatory Authority is especially interested in receiving views on the following matters:

            8. Do you believe the proposed prudential regime meets best international standards?

            9. Do you believe the proposals will impact on the attractiveness of the QFC to high quality insurers and those dealing with them?

            10. Do you believe any of the requirements may be unnecessarily onerous or bureaucratic?

            11. Are there any other matters relevant to the prudential regulation, or conduct, of insurers you wish to comment on?

          • Summary of Questions

            1. What consumer protections are appropriate for retail customers?

            2. What are your views on the need for a specific QFC insurance law in addition to the regulatory and prudential regime, to apply to the activities and contracts of authorised insurers?

            3. Do you have any views on the QFC Regulatory Authority's approach to branches and local and regional insurers?

            In particular, do you have any views on:
            a. the level of standards required by the proposed rules; and
            b. the extent to which the proposed rules meet our Regulatory Objectives in the context of regional and local insurers.

            4. The QFC Regulatory Authority is particularly interested in hearing the views of interested parties on the appropriateness of the weightings in the RBC model in the current draft rulebook.

            5. Do you:

            a. consider a statutory priority should exist in favour of policyholders over other creditors, either for long term funds or generally;
            b. would that priority apply over all creditors including secured creditors, or apply only to other unsecured creditors; and
            c. given that significant assets will be situated outside of the QFC, how would any such priority apply in practice?

            6. Do you think there is a need to have separate calculations in the Investment Risk Requirement that applies specific risk weightings to Islamic investment products such as Ijarah ?

            7. Do you believe that all actuaries will be willing to opinion all the items included in the Financial Condition Report and independent actuarial report, or alternatively whether an actuary could rely on other expert opinions to meet those matters they may feel unqualified to comment on, for example the appropriateness of the discount rates used by an insurer?

            8. Do you believe the proposed prudential regime meets best international standards?

            9. Do you believe the proposals will impact on the attractiveness of the QFC to high quality insurers and those dealing with them?

            10. Do you believe any of the requirements may be unnecessarily onerous or bureaucratic?

            11. Are there any other matters relevant to the prudential regulation, or conduct, of insurers you wish to comment on?

          • Appendix 1 — Contracts of insurance allowed under the Financial Services Regulations

            Listed below are the categories of general insurance business and long term insurance business that are deemed Specified Activities under Part 2 of Schedule 3 of the FSR and therefore Regulated Activities under the QFC Law and subject to regulation by the QFC Regulatory Authority. For further clarification of each category, Part 2, Schedule 3 of the FSR should be reviewed as it provides a more detailed description of each category of insurance.

            General Insurance Business

            General Insurance Category 1: Accident

            General Insurance Category 2: Sickness

            General Insurance Category 3: Land vehicles

            General Insurance Category 4: Railway rolling stock

            General Insurance Category 5: Aircraft

            General Insurance Category 6: Ships

            General Insurance Category 7: Goods in transit

            General Insurance Category 8: Fire and natural forces

            General Insurance Category 9: Damage to property

            General Insurance Category 10: Motor vehicle liability

            General Insurance Category 11: Aircraft liability

            General Insurance Category 12: Liability of ships

            General Insurance Category 13: General liability

            General Insurance Category 14: Credit

            General Insurance Category 15: Suretyship

            General Insurance Category 16: Miscellaneous financial loss

            General Insurance Category 17: Legal expenses

            General Insurance Category 18: Assistance

            Long Term Insurance Business

            Long Term Insurance Category 1: Life and annuity

            Long Term Insurance Category 2: Marriage and birth

            Long Term Insurance Category 3: Linked long term

            Long Term Insurance Category 4: Permanent health

            Long Term Insurance Category 5: Tontines

            Long Term Insurance Category 6: Capital redemption contracts

            Long Term Insurance Category 7: Pension fund management

          • Appendix 2 — Regulatory Objectives (as determined under Article 12 of the QFC Financial Services Regulations)

            The objectives of the Regulatory Authority are:

            (A) the promotion and maintenance of efficiency, transparency and the integrity of the QFC;
            (B) the promotion and maintenance of confidence in the QFC of users and prospective users of the QFC;
            (C) the maintenance of the financial stability of the QFC, including the reduction of systemic risk relating to the QFC;
            (D) the prevention, detection and restraint of conduct which causes or may cause damage to the reputation of the QFC, through appropriate means including the imposition of fines and other sanctions;
            (E) the provision of appropriate protection to those licensed to carry on business at the QFC and their clients or customers;

            In considering what constitutes appropriate protection, the Regulatory Authority shall take into account:
            (i) the financial integrity of Authorised Firms through appropriate financial resources requirements complemented by a robust system of internal controls;
            (ii) the differing degrees of protection which may be appropriate for clients or customers of Authorised Firms as a result of their experience, expertise, business and means and the differing degree of information which it may be appropriate to give to such clients or customers;
            (iii) the differing degree of risk involved in different kinds of investment or transaction; and
            (iv) the general principle that clients or customers of Authorised Firms should take responsibility for their own decisions;
            (F) the promotion of understanding of the objectives of the QFC amongst users and prospective users of the QFC and other interested Persons;
            (G) ensuring the Regulatory Authority is run with a view to:
            (i) it operating at all times in accordance with best international standards for financial and business centres of a similar kind; and
            (ii) establishing and maintaining the QFC as a leading financial and business centre in the Middle East; and
            (H) minimising the extent to which the business carried on by a Person carrying on Regulated Activities can be used for the purposes of or in connection with Financial Crime.

            In considering this objective, the Regulatory Authority shall have regard to the desirability of Authorised Firms having appropriate systems, controls and procedures to detect and prevent the incidence of Financial Crime.

            Principles of Good Regulation (as determined under Article 13 of the QFC Financial Services Regulations)

            In exercising its functions and powers under the QFC Law and these Regulations, the Regulatory Authority shall have regard to:

            (1) the need to use its resources in the most efficient and economic way;
            (2) the desirability of facilitating innovation and fostering the international competitiveness of the QFC;
            (3) the desirability of fostering competition between those who are subject to regulation by the Regulatory Authority;
            (4) the principle that the Regulatory Authority should exercise its powers and functions in a fair and transparent manner;
            (5) the need to comply with such generally accepted principles of good governance as it is reasonable to regard as applicable to it;
            (6) the need to balance the burdens and restrictions on firms with the benefit of regulation; and
            (7) the need to act in accordance with all laws and Regulations to which it is subject.

          • Appendix 3 — Prudential – Insurance Rulebook (PINS)

            This version of the Prudential - Insurance Rulebook is in draft form and has been made available as a consultation document for comment. The content of this draft is subject to change and may differ from the final version. The final form of the rulebook is the definitive version and you may not rely on this document either as a statement of the law or regulatory requirements or as an indication of policy.

            Background to this Rulebook

            1. The Prudential - Insurance Rulebook (PINS) sets out the Regulatory Authority's prudential requirements for all Insurers. QFC legislation allows the following legal entities to seek authorisation as an Insurer: a QFC body corporate; a non-QFC incorporated Insurer (a Branch); or a Protected Cell Company. Insurance Business includes direct insurance, reinsurance, captive insurance and takaful (including re-takaful) for all Categories of General Insurance Business and Long Term Insurance Business.
            2. This rulebook sets out the detailed financial resources and prudential standards which the Regulatory Authority applies to Insurers. The Rules and guidance in this rulebook will assist the Regulatory Authority to meet its objective of providing appropriate protection to those authorised to carry out Insurance Business in the QFC and their policyholders. This rulebook does so by setting a Minimum Capital Requirement and other risk management standards thereby mitigating the possibility that Insurers will be unable to meet their liabilities and commitments to policyholders.
            3. Insurers may be subject to conditions on their authorisation that limit which Categories of Insurance Business or types of business they can Conduct in or from the QFC.
            4. Under COND Rule 14.2.1 an Insurer must not carry on, in or from the QFC, both Long Term Insurance Business and General Insurance Business unless the General Insurance Business is in PINS Category 1.

            1 General Requirements

            1.1 Application

            1.1.1 This rulebook (PINS) applies to every Insurer except where otherwise provided.
            1.1.2 For the purposes of PINS, except where otherwise provided, the Conducting of Insurance Business includes Effecting a Contract of Insurance or Carrying out a Contract of Insurance or both.
            1.1.3 For the purposes of PINS, the defined term Takaful Entity will be used where the requirements apply to both Islamic Financial Institutions and Insurers operating an Islamic Window.

            Guidance

            1. The Regulatory Authority may modify or waive the operation of certain Rules or specified parts of such Rules in appropriate circumstances. The Regulatory Authority is more likely to consider such modifications or waivers in the case of those Insurers operating in the QFC through a Branch. Rules and guidance on applying for a waiver or modification are contained in GENE chapter 7.
            2. Failure by an Insurer to comply with any Rule in the rulebook that applies to the Insurer may be a contravention of a Relevant Requirement. If the Regulatory Authority considers an Insurer has contravened a Relevant Requirement, it may impose upon the Insurer a range of disciplinary and enforcement actions as provided for under Part 9 of the FSR.

            1.2 Financial Resources

            1.2.1 An Insurer must:
            (A) have and maintain at all times financial resources of the kinds and amounts specified in, and calculated in accordance with the Rules in this rulebook; and
            (B) ensure that it maintains financial resources in addition to the requirement in (A) which are adequate in relation to the nature, size and complexity of its business to ensure that there is no significant risk that its liabilities cannot be met as they fall due.

            Guidance

            For the purposes of Rule 1.2.1, the Insurer's Governing Body should assess whether the minimum financial resources which are required by the Regulatory Authority as set out in this rulebook are adequate in relation to the Insurer's specific business. Additional financial resources should be maintained by the Insurer where its Governing Body has considered that the required minimum financial resources do not adequately reflect the nature and risks of the Insurer's business.

            1.3 Governing Body Certification

            1.3.1 The Governing Body of an Insurer must, whenever requested to do so by the Regulatory Authority, confirm or otherwise in writing the Governing Body's view regarding:
            (A) the Insurer's compliance with any relevant Rule or requirement to which the Insurer is subject to under QFC law;
            (B) any prudential returns or any other statement or return being true and correct and not false or misleading; or
            (C) any other matter the Regulatory Authority specifies in the request.

            1.4 Submission of Prudential Returns

            1.4.1
            (1) An Insurer must comply with the prudential reporting requirements set out in Appendix 4 which apply to it.
            (2) The Regulatory Authority may impose additional reporting requirements on an Insurer.
            1.4.2 An Insurer must prepare and submit its prudential returns in accordance with the Rules in section A4.1 and the instructions in each return.
            1.4.3 An Insurer must submit all prudential returns in accordance with the reporting provisions of GENE chapter 5.
            1.4.4
            (1) All prudential returns must be signed by two officers of an Insurer who are either Directors or Persons previously approved in writing by the Regulatory Authority for this purpose.
            (2) In addition, all annual prudential returns must be certified as true and correct and not false or misleading by the Governing Body of a QFC-incorporated Insurer, or in the case of a Branch, the Senior Management.
            (3) The Regulatory Authority may require the Governing Body of a Branch to certify to the Regulatory Authority rather than the Senior Management for the purposes of (2).
            1.4.5 If the Regulatory Authority notifies an Insurer, or the Insurer itself forms the view, that a prudential return that has been submitted to the Regulatory Authority appears to be inaccurate or incomplete, the Insurer must consider the matter and correct it if applicable within such periods as required by the Regulatory Authority, or otherwise within a reasonable period of the date of notification, and re-submit the relevant parts of the return.

            Annual

            1.4.6 An Insurer must submit to the Regulatory Authority any annual returns required by Appendix 4 within four months of the Insurer's financial year end.

            Biannual

            1.4.7
            (1) An Insurer must submit to the Regulatory Authority bi-annual returns required by Appendix 4, within one month of the end of each standard bi-annual period.
            (2) In (1), the standard bi-annual periods are the six month period ending on 30 June and 31 December of each year.

            Quarterly

            1.4.8
            (1) An Insurer must submit to the Regulatory Authority quarterly returns required by Appendix 4 within one month of the end of each standard quarter.
            (2) In (1), the standard quarters are the three month periods ending on 31 March, 30 June, 30 September and 31 December of each year.

            Guidance

            If an Insurer's financial year end does not align with the standard quarters and standard bi-annual periods, the Insurer may wish to contact the Regulatory Authority to discuss alternative reporting periods.

            2 Insurer's Risk Management

            2.1 Application and Purpose

            2.1.1 This chapter applies to every Insurer.
            Guidance
            1. CTRL Rule 4.4.1 requires an Insurer to establish and regularly review its risk management policy which must be appropriate in light of the nature, scale and complexity of its business.
            2. CTRL Rule 4.4.2(A) requires an Insurer to identify those risks relating to the Insurer's activities, processes and systems.
            3. The purpose of this chapter is to:
            a. identify those risks that must be specifically addressed in an Insurer's risk management policy for the purposes of CTRL Rule 4.4.2(A); and
            b. set out requirements for an Insurer to document its risk management policy through the establishment and maintenance of a Risk Management Strategy in accordance with section 2.3.
            4. The governance, management and solvency of an Insurer remains the responsibility of the Governing Body. The Governing Body should have in place effective governance and management arrangements within the Insurer.

            2.2 Risks to be addressed in an Insurer's Risk Management Policy

            2.2.1 An Insurer must address, at a minimum, the following risks in its risk management policy:
            (A) credit risk;
            (B) balance sheet and market risk;
            (C) reserving risk;
            (D) insurance risk;
            (E) reinsurance risk;
            (F) operation risk;
            (G) group risk;
            (H) concentration risk, including risk type, counterparty, geographical, and industry concentration risks which may arise as a result of any of the above-listed risk categories; and
            (I) strategic and tactical risks that arise out of the Insurer's business plan.
            Guidance
            1. Appendix 1 contains guidance for Insurers in respect of risk management for these material risks.
            2. The business plan in Rule 2.2.1(I) is required under CTRL section 4.8.

            2.3 Insurer's Risk Management Strategy

            Guidance
            1. The Risk Management Strategy is a high level, strategic document intended to describe the key elements of an Insurer's risk management policy, including the risk appetite, policies, procedures, management responsibilities and controls and any other matters required by Rule 2.3.3.
            2. An Insurer's Risk Management Strategy will reflect the Insurer's risk management policy, which in turn should be appropriate to the nature, scale and complexity of its business.
            2.3.1 An Insurer must maintain a written Risk Management Strategy in accordance with the requirements in Rule 2.3.3.
            2.3.2 An Insurer Conducting Insurance Business who is in the legal form of a Protected Cell Company must ensure that each Cell maintained by the Insurer maintains a Risk Management Strategy that relates to that Cell and which also addresses the risks affecting the Protected Cell Company as a whole that have a bearing on that Cell.
            2.3.3 An Insurer must ensure that at a minimum, subject to relevance, its Risk Management Strategy:
            (A) outlines the risk governance relationship between the Governing Body, Governing Body committees and Senior Management;
            (B) describes the process for identifying and assessing risks;
            (C) describes the process for establishing mitigation and control mechanisms for individual risks;
            (D) describes the process for monitoring and reporting risk issues (including communication and escalation mechanisms);
            (E) describes the processes for ensuring the Insurer's reinsurance arrangements are being prudently and soundly managed, and, at a minimum;
            (i) defines and documents the Insurer's objectives and strategy for reinsurance management and control, reflecting the Insurer's appetite for risk;
            (ii) describes the systems for the selection of reinsurance brokers and other reinsurance advisers;
            (iii) describes the systems for selecting and monitoring reinsurance programmes;
            (iv) clearly defines managerial responsibilities and controls;
            (v) describes clear methodologies for determining all aspects of a reinsurance programme, including:
            (a) identification and management of aggregations of risk exposure;
            (b) selection of maximum probable loss factors;
            (c) selection of realistic disaster scenarios, return periods and geographical aggregation areas; and
            (d) identification and management of vertical and horizontal coverage of the reinsurance programme;
            (vi) provides a summary of the process for ensuring accurate and complete reinsurance documentation is put in place;
            (vii) describes the selection of participants on reinsurance contracts, including consideration of diversification and credit worthiness;
            (viii) describes the processes for monitoring the creditworthiness of participants selected for reinsurance contracts;
            (ix) describes the systems for identifying credit exposures (actual and potential) to individual reinsurers or Groups of connected reinsurers on programmes that are already in place; and
            (x) describes the processes for entering into any limited risk transfer arrangement;
            (F) describes the approach to ensuring relevant staff have an awareness of risk issues and instilling an appropriate risk culture, including the level of accessibility of the Risk Management Strategy;
            (G) identifies those persons in Senior Management and their positions in the Insurer (or insurance Group) with responsibility for the risk management policy, and set out their roles and responsibilities;
            (H) describes the process by which the risk management policy (including the Risk Management Strategy) is reviewed, and outlines the broad coverage for these reviews;
            (I) provides an overview of the mechanisms in place for monitoring and ensuring continual compliance with the Minimum Capital Requirement;
            (J) provides an overview of the processes and controls in place for ensuring compliance with all other prudential requirements;
            (K) if the Insurer is part of a QFC or global corporate Group, or is a Branch:
            (i) includes a summary of the Group policy objectives and strategies;
            (ii) states whether the local Risk Management Strategy is derived wholly or partially from the Group risk management arrangements;
            (iii) summarises the linkages and significant differences between the local Risk Management Strategy and Group risk management arrangements including relevant local business and other conditions;
            (iv) outlines the process for monitoring by, or reporting to, the Parent Entity or head office as well as summarising the key procedures, the frequency of reporting, and the approach to reviews must be provided;
            (v) where any element of an Insurer's risk management policy is controlled by another entity in the Group, or by head office, describes how this arrangement works; and
            (vi) where an Insurer:
            (a) is part of a global insurance Group where the head office or ultimate Holding Company is outside of the QFC; or
            (b) is a Branch,
            includes a summary of the home regulator's supervisory arrangements regarding risk management; and
            (L) covers both the QFC operations and the risks arising from the overseas operations, or operations in the State otherwise than in or from the QFC, of the Insurer that could materially impact on the QFC operations of the Insurer.

            2.4 Approval by Governing Body

            2.4.1
            (1) An Insurer must ensure that its Risk Management Strategy is approved by the Governing Body of the Insurer and in regard to which the Governing Body of the Insurer is satisfied that:
            (A) it describes the key elements of the Insurer's risk management policy; and
            (B) the risk management policy described in the Risk Management Strategy is appropriate and provides reasonable assurance that all material risks facing the Insurer, including as a minimum those identified in Rule 2.2.1, are being prudently and soundly managed having regard to such factors as the nature, size and complexity of the Insurer's operations.
            (2) An Insurer must ensure its Governing Body approves the Risk Management Strategy whenever the Insurer's risk management policies have been materially altered, but in any event no less than on an annual basis.

            2.5 Notification

            2.5.1 An Insurer must inform the Regulatory Authority immediately if there is a likelihood of a problem arising with its reinsurance arrangements that is likely to materially detract from its current or future capacity to meet its obligations, and discuss with the Regulatory Authority its plans to redress this situation.

            Guidance

            Problems that might trigger such a situation could include the insolvency of a reinsurer with a significant share in the Insurer's programme, discovery of exposures without current reinsurance coverage, or exhaustion of reinsurance covers through multiple losses.

            3 Minimum Capital Requirement

            3.1 Application and Purpose

            3.1.1 This chapter applies to every Insurer.
            3.1.2 In addition, the Rules of this chapter apply to the following classes of Insurer as follows:
            (A) for an Insurer Conducting Long Term Insurance Business the requirements of this chapter apply to every Long Term Insurance Fund that the Insurer maintains as if each Long Term Insurance Fund were a single Insurer;
            (B) for an Insurer who is in the legal form of a Protected Cell Company, the requirements of this chapter apply to every Cell that the Insurer maintains as if each Cell were a single Insurer; and
            (C) for a Takaful Entity the requirements of this chapter apply to every Takaful Fund established and maintained by the Takaful Entity as if each Takaful Fund were a single Insurer.
            Guidance
            1. The amount of capital is fundamental to the financial strength of an Insurer. It provides a buffer against losses that have not been anticipated and, in the event of problems, enables the Insurer to continue operating while those problems are addressed or resolved. In this way, the maintenance of adequate financial resources can engender confidence on the part of policyholders, creditors and the market more generally in the financial soundness and stability of the Insurer. An Insurer's financial resources must be adequate for the nature, size and complexity of its business.
            2. The purpose of this chapter is to require all Insurers to meet at all times a Minimum Capital Requirement that is responsive to the risk profile of each Insurer and is calculated in accordance with the Rules of this chapter.
            3. An Insurer's Minimum Capital Requirement is the highest of either the applicable Base Capital (a set figure, for example $US10 million for all direct Insurers), or the figure calculated using either the Regulatory Authority's standardised risk based capital model, the Insurer's Internal Model if approved to do so by the Regulatory Authority, or a combination of the Regulatory Authority's model and the Insurer's Internal Model if so approved by the Regulatory Authority.

            3.2 General Requirement

            3.2.1 Every Insurer must at all times have Eligible Capital equal to or higher than the amount of its Minimum Capital Requirement as determined by Rule 3.3.1.
            3.2.2 For the purposes of Rule 1.2.1 and Rule 3.2.1, the Governing Body of an Insurer must ensure suitable systems and controls are in place to allow it to identify, manage and monitor the risks associated with the Insurer's business activities to ensure the Insurer holds capital commensurate with its overall risk profile.

            Guidance

            Rules for determining Eligible Capital are contained in chapter 4.

            3.2.3 For the purposes of Rule 3.2.2, the systems and controls must include an analysis of:
            (A) realistic scenarios which are relevant to the circumstances of the Insurer; and
            (B) the effects of those scenarios, if they occurred, on the Insurers ability to meet its Minimum Capital Requirement, and on its financial resources more generally.

            Guidance

            Appendix 2 provides guidance on the nature and type of stress and scenario testing that Insurer should be undertaking to support its view that it has adequate financial resources to meet its obligations.

            3.2.4 An Insurer's systems and controls for the purposes of Rule 3.2.2 must allow the Insurer to demonstrate to the Regulatory Authority, if at any time it is asked to do so by the Regulatory Authority:
            the Insurer's compliance with Rule 3.2.1; and
            the Insurer's compliance with Rule 1.2.1.

            Guidance

            Because an Insurer is required to maintain adequate financial resources at all times, its systems and controls need to enable the Governing Body to determine and monitor the capital requirements of the Insurer and the financial resources it has available, and to identify occurrences where the financial resources fall short of the capital requirements of the Insurer or may fall short in the future.

            3.3 Minimum Capital Requirement

            3.3.1
            (1) An Insurer's Minimum Capital Requirement is the highest of:
            (A) the applicable Base Capital Requirement as determined by Rule 3.4.1 and 3.4.2; or
            (B) the Risk Based Capital Requirement.
            (2) An Insurer must calculate its Risk Based Capital Requirement in accordance with Rule 3.5.1

            Guidance

            If the Regulatory Authority considers that a higher capital requirement is appropriate for a particular Insurer, the Regulatory Authority may impose higher requirements by the imposition of a condition on the relevant Insurer's Authorisation under Article 31 of the FSR.

            3.4 Base Capital Requirement

            3.4.1 The table below sets out the Base Capital Requirement for all Insurers other than Captives.

            Type of Insurer Base Capital
            Direct Insurer
            Reinsurer
            US $10 million
            US $20 million
            3.4.2 The table below sets out the Base Capital Requirement for all classes of Captives.

            Type of Insurer Base Capital
            Class 1 Captive Insurer
            Class 2 Captive Insurer
            Class 3 Captive Insurer
            US $150 thousand
            US $ 1 million
            US $ 10 million

            3.5 Risk Based Capital Requirement

            3.5.1 An Insurer's Risk Based Capital Requirement is:
            (A) the total of
            (i) the Investment Risk Requirement; and
            (ii) Insurance Risk Requirement; or
            (B) if the Insurer has been approved to do so by the Regulatory Authority under Rule 3.9.1, the figure calculated using the Insurer's Internal Model instead of in accordance with Rule 3.5.1(A); or
            (C) if the Insurer has been approved to do so by the Regulatory Authority under Rule 3.9.2, the figure calculated by combining the Insurer's Internal Model and those components of the Investment Risk Requirement and Insurance Risk Requirement as specified in accordance with Rule 3.9.2(2).

            3.6 Investment Risk Requirement

            Guidance

            Imposing a capital charge for the Investment Risk Requirement is in response to the risk of an adverse movement in the value of an Insurer's assets and/or off-balance sheet exposures. The methodology for determining each of the components of the Investment Risk Requirement is set out in Appendix 3.

            3.6.1 An Insurer must calculate its Investment Risk Requirement as the sum of the following components:
            (A) credit risk component;
            (B) volatility risk component;
            (C) off-balance sheet asset risk component;
            (D) off-balance sheet liability risk component; and
            (E) concentration risk component
            in accordance with the Rules contained in Appendix 3.

            3.7 Applicability of Investment Risk Requirement to Assets of the Insurer

            3.7.1 An Insurer must calculate its Investment Risk Requirement in respect of every asset that is owned by the Insurer and that is available to meet the liabilities of the Insurer.

            3.8 Insurance Risk Requirement

            Guidance

            Imposing a capital charge for the Insurance Risk Requirement is in response to the risk that the true value of an Insurer's net Insurance Liabilities may be greater than the value determined under chapter 8. The methodology for each of the components determining the Insurance Risk Requirement is set out in Appendix 3.

            3.8.1 An Insurer must calculate its Insurance Risk Requirement as the sum of the:
            (A) premium risk component;
            (B) technical provision risk component; and
            (C) long term insurance risk component
            in accordance with the Rules contained in Appendix 3.

            3.9 Internal Modelling

            Guidance

            A majority of insurance companies around the world use internal models for assessing their capital requirements. From an internal perspective, risk models provide an opportunity for the management to identify and measure risks. It is also possible to quantify the minimum level of capital corresponding to a given risk appetite, which in turn guides capital allocation/management. Risk models offer the advantage of combining all relevant operations of an insurance company (e.g. underwriting, investment, pricing, assets, and liabilities) into an integrated model which provides an insight into future operations and capital requirements. They can also be useful for evaluating alternative business strategies and also focus on major risk scenarios, including what might happen if more than one thing goes wrong. If the model is well developed, a company would have sufficient information for assessing its major risk areas and allocate resources accordingly.

            3.9.1 An Insurer may, if it has obtained written approval from the Regulatory Authority, use its own Internal Model in order to calculate its Risk Based Capital Requirement.
            3.9.2
            (1) An Insurer may, if it has obtained written approval from the Regulatory Authority to do so, use its own Internal Model to replace certain specified components of the Investment Risk Requirement and Insurance Risk Requirement.,
            (2) An Insurer must continue to use those components of the Investment Risk Requirement and Insurance Risk Requirement not covered by the Insurer's Internal Model as per (1), when calculating its Risk Based Capital Requirement as required by Rule 3.5.1.
            3.9.3 The Regulatory Authority will only consider approving the use of an Internal Model if the following criteria are met:
            (A) the Regulatory Authority is satisfied that the Insurer's Internal Model:
            (i) operates within a risk management environment that is conceptually sound and supported by adequate resources;
            (ii) addresses all material risks to which the Insurer could be reasonably expected to be exposed and is commensurate with the relative importance of those risks, based on the Insurer's business mix;
            (iii) is closely integrated into the day-to-day management process of the Insurer;
            (iv) is supported by appropriate audit and compliance procedures;
            (v) is subject to adequate processes established by the Insurer to validate the accuracy of the Risk Based Capital Requirement, or components of the Risk Based Capital Requirement, as determined by the Internal Model, as well as for monitoring and assessing its ongoing performance; and
            (B) the Insurer's home regulator, or if the Insurer is part of a Group, the Group's home regulator, has approved the Internal Model for calculating a risk based statutory capital requirement equivalent to the Risk Based Capital Requirement.

            3.10 Failure to Comply with this Chapter

            3.10.1 If an Insurer believes that it may not be in compliance with this chapter or Rule 1.2.1, or may not comply in the future with this chapter or Rule 1.2.1, the Insurer must:
            (A) immediately provide the Regulatory Authority with a written statement of:
            (i) the reasons for the Insurer's belief that it may not be in compliance or may not continue to comply; and
            (ii) the action that the Insurer is taking to avoid non-compliance; and
            (B) not make any distribution to shareholders or members of the Insurer, whether by way of dividends or otherwise, without the written permission of the Regulatory Authority.
            3.10.2 An Insurer that does not comply with this chapter or Rule 1.2.1 must:
            (A) immediately notify the Regulatory Authority in writing;
            (B) cease effecting Contracts of Insurance in or from the QFC until the Regulatory Authority has given it written permission to recommence effecting Contracts of Insurance;
            (C) not make any distribution to shareholders or members of the Insurer, whether by way of dividends or otherwise, without the written permission of the Regulatory Authority; and
            (D) not pay any interest or principal as specified in Rule 4.4.3(1)(B)(i).

            Guidance

            In dealing with non-compliance, or possible non-compliance, with this chapter, the Regulatory Authority's primary concern will be the interests of policyholders, both existing and prospective. It recognises that there will be circumstances in which a problem may be resolved quickly, for example by support from a parent company, without jeopardising the interests of policyholders. In such circumstances, it will be in the interests of all parties for there to be minimum disruption to the Insurer's business. The Regulatory Authority's normal approach will be to seek to work cooperatively with firms to deal with any problems. There will, however, be other circumstances in which it is necessary to take firm action to avoid exposing further policyholders to the risk of the Insurer's failure, and the Regulatory Authority's will not hesitate to take disciplinary action if it deems this necessary.

            4 Eligible Capital

            4.1 Application and Purpose

            4.1.1 This chapter applies to every Insurer.
            4.1.2 In addition, the Rules of this chapter apply to the following classes of Insurer as follows:
            (A) for an Insurer Conducting Long Term Insurance Business the requirements of this chapter apply to every Long Term Insurance Fund that the Insurer maintains as if each Long Term Insurance Fund were a single Insurer;
            (B) for an Insurer who is in the legal form of a Protected Cell Company, the requirements of this chapter apply to every Cell that the Insurer maintains as if each Cell were a single Insurer; and
            (C) for a Takaful Entity the requirements of this chapter apply to every Takaful Fund established and maintained by the Takaful Entity as if each Takaful Fund were a single Insurer.

            Guidance

            1. In assessing the adequacy of an Insurer's financial resources, attention must be paid not only to the types of events or problems that it might encounter, but also the quality of the support provided by various types of capital instruments.
            2. The purpose of this chapter is to identify those capital instruments that can be included as Eligible Capital to meet the Insurer's Minimum Capital Requirement. In determining the rules governing whether a capital instrument is adequate for supervisory purposes, the Regulatory Authority has identified the following relevant matters, namely the extent to which each instrument:
            a. provides a permanent and unrestricted commitment of funds;
            b. is freely available to absorb losses from business activities;
            c. does not impose any unavoidable servicing charges against earnings; and
            d. ranks behind the claims of policyholders and other creditors in the event of the winding-up of the Insurer.

            4.2 Calculation of Eligible Capital

            4.2.1
            (1) An Insurer must calculate its Eligible Capital in accordance with the table in Rule 4.2.3 and the provisions in sections 4.3 through to 4.7.
            (2) A √ in the table in Rule 4.2.3 denotes that the item is included in the calculation of an Insurer's Eligible Capital, whereas an X denotes that the item is not included.

            Guidance

            The Regulatory Authority may recognise forms of capital instruments in addition to those set out in the table in Rule 4.2.3 for inclusion in an Insurer's Eligible Capital where those instruments comply with accepted international standards.

            4.2.2
            (1) When calculating Eligible Capital under Rule 4.2.3, an Insurer that is required to establish or maintain one or more Long Term Insurance Funds as required under the provisions in section 5.3, must only include those capital instruments and equity reserves of the Insurer that have been attributed to each Long Term Insurance Fund by the Insurer in accordance with Rule 5.3.1.
            (2) When calculating Eligible Capital under Rule 4.2.3, a Takaful Entity that is required to establish or maintain a Takaful Fund as required by Rule 6.2.1, must only include those capital instruments and equity reserves of the Takaful Entity that have been attributed to the Takaful Fund by the Takaful Entity in accordance with Rule 6.3.1.
            4.2.3 The following table sets out the Eligible Capital calculation table:

              Takaful
            Entity
            All other
            Insurers
            (A) Tier One Capital:
            Permanent Share Capital
            Audited reserves
            Share premium account
            Externally verified interim net profits
            Fund for future appropriations
            Outstanding loans from Owners' Equity to Takaful Fund X
            (B) Deductions from Tier One Capital:
            Investments in own Shares
            Intangible assets
            Interim net losses
            (C) Tier One Capital after deductions = A-B
            (D) Upper Tier Two Capital:
            Perpetual qualifying hybrid capital instruments
            Owners' Equity in a Takaful Entity X
            Fixed dividend ordinary Shares
            (E) Lower Tier Two Capital
            Subordinated debt
            Fixed term preference Shares
            (F) Total Tier One Capital plus Tier Two Capital = C+D+E
            (G) Deductions from Total of Tier One and Two Capital:
            Investments in subsidiaries and Associates
            Connected lending of a capital nature
            Inadmissible assets
            Amount in any Zakah fund X
            (H) Total Tier One Capital plus Tier Two Capital after deductions = F-G = Total Eligible Capital

            4.3 Components of Capital: Tier One

            4.3.1 For the purposes of the items under line (A) Tier One Capital in the table in Rule 4.2.3:
            (A) Permanent Share Capital means ordinary paid-up Share capital, or equivalent however called, which meets the following conditions:
            (i) it is fully paid up;
            (ii) any dividends in relation to it are non-cumulative;
            (iii) it is available to absorb losses on a going concern basis;
            (iv) it ranks for repayment upon winding up or insolvency after all other debts and liabilities;
            (v) it is undated;
            (vi) the proceeds of an issue of Permanent Share Capital is immediately and fully available to the Insurer;
            (vii) the Insurer is not obliged to pay any dividends on the Shares (except in the form of Shares that themselves comply with this Rule);
            (viii) the Insurer does not have any other obligation or commitment to transfer any economic benefit in relation to that Permanent Share Capital; and
            (ix) dividends and other charges on the Shares can only be paid out of accumulated realised profits.
            (B) audited reserves are audited accumulated profits retained by the Insurer after deduction of tax and dividends, and other reserves created by appropriations of Share premiums and similar realised appropriations;
            (C) audited reserves also include capital contributions if those contributions:
            (i) meet the requirements of Rule 4.3.1(A); and
            (ii) the Insurer has notified the Regulatory Authority at least one month before the inclusion of the capital contributions of its intention to include them;
            (D) share premium account records the difference between the nominal value of Shares issued and the fair value of the consideration received;
            (E) externally verified interim net profits are interim profits verified by an Insurer's external auditor net of tax, anticipated dividends or other appropriations;
            (F) fund for future appropriations means the fund comprising all funds the allocation of which either to policyholders or to shareholders has not been determined by the end of the financial year, or the balance sheet items under international accounting standards which in aggregate represent as nearly as possible that fund;
            (H) intangible assets include goodwill, capitalised development costs, brand names, trademarks and similar rights and licences; and
            (I) cumulative losses and other negative reserves must be deducted from Tier One Capital.

            Guidance

            The Regulatory Authority may request an Insurer to provide it with a copy of its external auditor's opinion referred to in Rule 4.3.1(E) on whether the interim profits are reasonably stated.

            4.4 Components of Capital: Tier Two

            Guidance

            1. Tier Two Capital consists of instruments that, to varying degrees, fall short of the quality of Tier One Capital but nonetheless contribute to the overall strength of an Insurer. Such instruments include some forms of hybrid capital instruments that have the characteristics of both equity and debt, that is they are structured like debt, but exhibit some of the loss absorption and funding flexibility features of equity.
            2. Tier Two Capital is divided into upper Tier Two Capital and Lower Tier Two Capital. A major distinction between upper and Lower Tier Two Capital is that only perpetual instruments may be included in upper Tier Two Capital whereas dated instruments are included in Lower Tier Two Capital.

            Perpetual Qualifying Hybrid Capital Instruments

            4.4.1 An Insurer may only include perpetual qualifying hybrid capital instruments as part of its upper Tier Two Capital if:
            (A) they are unsecured, subordinated and fully paid-up;
            (B) they are perpetual; and
            (C) they are available to absorb losses on a going concern basis.

            Guidance

            A perpetual cumulative preference share is an example of a capital instrument that would meet the criteria of Rule 4.4.1.

            Owners' Equity in a Takaful Entity

            4.4.2 A Takaful Entity can only include Owners' Equity as part of its eligible Tier Two Capital if:
            (A) it has not already been included as Tier 1 Capital as an outstanding free loan from the Owners' Equity to the Takaful Fund; and
            (B) under the constitutional documents of the Takaful Entity or the terms of the insurance contract or both, participation in the surpluses and loses of the Insurance Business is limited to the policyholders of the Insurer; and
            (C) the Owners' Equity is available for loan to the Takaful Fund of the Insurer.

            Subordinated Debt

            4.4.3
            (1) An Insurer must not include subordinated debt as part of its Eligible Capital unless it meets the following conditions:
            (A) the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;
            (B) no interest or principal may be payable:
            (i) at a time when the Insurer is in breach of its Minimum Capital Requirement; or
            (ii) if the payment would mean that the Insurer would be in breach of the Rules in this rulebook;
            (C) the only events of default must be non-payment of any interest or principal under the debt agreement or the winding-up of the Insurer;
            (D) the remedies available to the subordinated creditor in the event of non-payment in respect of the subordinated debt must be limited to petitioning for the winding up of the Insurer or proving for the debt and claiming in the liquidation of the Insurer;
            (E) any events of default and any remedy described in (D) must not prejudice the matters in (A) and (B);
            (F) in addition to the requirements about repayment in (A) and (B), the subordinated debt must not become due and payable before its stated final maturity date except on an event of default complying with (C);
            (G) the agreement and the debt are governed by the laws of a jurisdiction acceptable to the Regulatory Authority;
            (H) to the fullest extent permitted under the Rules of the relevant jurisdictions, creditors must waive their right to set off amounts they owe the Insurer against subordinated amounts owed to them by the Insurer;
            (I) the terms of the subordinated debt must be set out in a written agreement or instrument that contains terms that provide for the conditions set in (A) to (H);
            (J) the debt must be unsecured and fully paid up; and
            (K) the Insurer has notified the Regulatory Authority in writing that it intends to include subordinated debt as part of its Eligible Capital and the Regulatory Authority has not advised the Insurer in writing within thirty days of the date of the notification that the subordinated debt must not form part of its Eligible Capital.
            (2) An Insurer must not include subordinated debt issue with step-ups in the first five years following the date of issue in its Eligible Capital.
            (3) An Insurer may include subordinated debt in its Lower Tier Two Capital only if:
            (A) it has an Original Maturity of at least five years or is subject to five years' notice of repayment; and
            (B) payment of interest or principal is permitted only if after such payment the Insurer's Eligible Capital would be greater than the amount required by Rule 3.2.1.
            4.4.4 For the purposes of calculating the amount of subordinated debt that may be included in its Eligible Capital, an Insurer must amortise the principal amount on a straight-line basis by 20% per annum in its final four years to maturity.

            4.5 External Opinion on Tier Two Capital

            4.5.1
            (1) An Insurer must obtain a written external legal opinion stating that the requirements in section 4.4 for any Tier Two Capital have been met in relation to any instrument that the Insurer is proposing to include as Eligible Capital.
            (2) An Insurer must provide copies of the opinions referred to in (1) to the Regulatory Authority if requested by the Regulatory Authority to do so.

            4.6 Deductions from Total of Tier One and Tier Two Capital

            Investments in subsidiaries and Associates

            4.6.1 An Insurer must deduct investments in Subsidiaries and Associates from the total of Tier One and Tier Two Capital.

            Connected Lending of a Capital Nature

            4.6.2 An Insurer must deduct connected lending of a capital nature from the total of Tier One and Tier Two Capital.

            Guidance

            The Regulatory Authority regards connected lending of a capital nature to be any lending to a Company in the same Group as the Insurer for activities which that Company would find hard to finance from another source, and is typically on a long term basis. Unless there is a genuine ability for the funds to be repaid within a short time, it is generally considered that the loan is of a capital nature.

            Inadmissible Assets

            4.6.3 For the purposes of the table in Rule 4.2.3 inadmissible assets are:
            (A) tangible fixed assets, including inventories, plant and equipment and vehicles;
            (B) deferred acquisition costs;
            (C) deferred tax assets;
            (D) deficiencies of net assets in Subsidiaries;
            (E) debts and other loans owed to the Insurer by policyholders and intermediaries, where they are more than 90 days overdue;
            (F) any investment by a Subsidiary of the Insurer in the Insurer's own Shares; and
            (G) holdings of other investments which are not Readily Realisable Investments.

            Guidance

            The above assets have been identified as inadmissible assets because:

            a. a sufficiently objective and verifiable basis of valuation does not exist;
            b. their realisability cannot be relied upon with sufficient confidence;
            c. their nature presents unacceptable custody risks; or
            d. the holding of these may give rise to significant liabilities or onerous duties.

            Amount in any Zakah fund

            4.6.4 A Takaful Entity must deduct any amount held in any Zakah fund from the total of Tier One and Tier Two Capital.

            4.7 Limits on the use of Different Forms of capital

            Guidance

            The table in Rule 4.2.3 describes the following terms that are used in this section:

            a. 'Tier One Capital' is equal to line A in the table;
            b. 'Tier One Capital (net of deductions)' is equal to line C in the table;
            c. 'Tier Two Capital' means the sum of line D and line E in the table; and
            d 'Lower Two Tier Capital' is equal to line E in the table.
            4.7.1 A capital instrument is not eligible for inclusion in Tier Two Capital to the extent that its inclusion will result in the aggregate amount of Tier Two Capital exceeding 100% of eligible Tier One Capital (net of deductions).
            4.7.2 A capital instrument is not eligible for inclusion in Tier Two Capital to the extent that its inclusion will result in the aggregate amount of Lower Tier Two Capital exceeding 50% of eligible Tier One Capital (net of deductions).

            4.8 Notification

            4.8.1 An Insurer must report to the Regulatory Authority all dividends and other distributions to shareholders within 15 business days following the declaration of the dividend or distribution.

            5 Additional Requirements for Long Term Insurance Business

            5.1 Application and Purpose

            5.1.1 This chapter applies to all Insurers Conducting:
            (A) Long Term Insurance Business; or
            (B) General Insurance Business attributed to PINS Category 1 under Rule 5.3.2(2).

            Guidance

            This chapter sets out additional requirements in respect of Long Term Insurance Business.

            5.2 Establishment of Long Term Insurance Funds

            5.2.1 An Insurer that is not a Protected Cell Company Conducting Long Term Insurance Business must either:
            (A) establish and maintain one or more Long Term Insurance Funds; or
            (B) notify the Regulatory Authority in writing that the Insurer is deemed to constitute a single Long Term Insurance Fund.

            5.2.2 An Insurer that is a Protected Cell Company Conducting, through a Cell, Long Term Insurance Business, must either:

            (A) establish and maintain, in respect of that Cell, one or more Long Term Insurance Funds; or
            (B) notify the Regulatory Authority in writing that the Cell is deemed to constitute a single Long Term Insurance Fund.

            Guidance

            COND 14.2.1(2) requires that the Insurance Business of an Insurer that is a Protected Cell Company can only be carried out through its Cells.

            5.2.3
            (1) A Branch that is subject to a regulatory requirement in another jurisdiction to arrange its affairs in a manner that is equivalent or substantially equivalent to the maintenance of a Long Term Insurance Fund required by this section, may make a written application to the Regulatory Authority for that arrangement of its affairs to be deemed for the purposes of these Rules to constitute a Long Term Insurance Fund.
            (2) If the Regulatory Authority approves that application, it must inform the Branch in writing, and must state in its notice to the Branch the manner in which the arrangement will be deemed for the purpose of these Rules to constitute a Long Term Insurance Fund.
            5.2.4 An Insurer, or a Cell of an Insurer, that is deemed in accordance with Rule 5.2.1(B) or Rule 5.2.2(B) to constitute a single Long Term Insurance Fund, shall be treated for all purposes relating to these Rules as though the Insurer had established a Long Term Insurance Fund to which all of the assets and liabilities of the Insurer or of the Cell are attributed.

            5.3 Attribution of Contracts to a Long Term Insurance Fund

            5.3.1 An Insurer must attribute all Long Term Insurance Business that it Conducts to a Long Term Insurance Fund.
            5.3.2
            (1) Except as allowed for in (2), an Insurer may not attribute General Insurance Contracts to a Long Term Insurance Fund.
            (2) An Insurer may attribute Contracts of Insurance in PINS Category 1 to a Long Term Insurance Fund.

            5.4 Segregation of Assets and Liabilities

            5.4.1 An Insurer that is required under Rules 5.2.1 or 5.2.2 to establish and maintain one or more Long Term Insurance Funds, or has attributed Contracts of Insurance in PINS Category 1 to a Long Term Insurance Fund under Rule 5.3.2(2), must:
            (A) identify separately in its books and records the assets, liabilities, revenues and expenses attributable to that business; and
            (B) ensure those assets, liabilities, revenues and expenses are recorded separately and accounted for as a Long Term Insurance Fund.
            5.4.2 An Insurer must record all assets, liabilities, revenues and expenses in respect of a Contract of Insurance that is attributed to a Long Term Insurance Fund as assets, liabilities, revenues and expenses of that Long Term Insurance Fund.
            5.4.3 An Insurer may at any time attribute any of its assets to a Long Term Insurance Fund that were not previously attributed to such a Long Term Insurance Fund.

            Guidance

            A transaction described in Rule 5.4.3 is sometimes described as a transfer of capital into the Long Term Insurance Fund.

            5.4.4 All revenues and expenses arising by way of earnings, revaluation or other change to the assets and liabilities of a Long Term Insurance Fund must be recorded as revenues and expenses, or movements in capital, of that Long Term Insurance Fund.
            5.4.5 An Insurer which is required to maintain a Long Term Insurance Fund must maintain adequate accounting and other records to identify the contracts and the assets, liabilities, revenues and expenses attributable to the Long Term Insurance Fund.

            5.5 Limitation on use of Assets in Long Term Insurance Fund

            5.5.1 An Insurer must ensure that, except as provided in this section, assets that are attributable to a Long Term Insurance Fund are applied only for the purposes of the business attributed to the Long Term Insurance Fund.
            5.5.2 An Insurer must ensure assets attributable to a Long Term Insurance Fund are not transferred so as to be available for other purposes of the Insurer except:
            (A) where the transfer constitutes appropriation of a surplus determined in accordance with Rule 9.5.3(G), provided that the transfer is performed within four months of the Reference Date of the actuarial investigation (the Financial Condition Report) referred to in that Rule;
            (B) where the transfer constitutes a payment of dividend or return of capital, in accordance with Rule 5.5.4;
            (C) where the transfer is made in exchange for other assets at fair value;
            (D) where the transfer constitutes reimbursement of expenditure borne on behalf of the Long Term Insurance Fund, and in respect of expenses attributable to the Long Term Insurance Fund; or
            (E) where the transfer constitutes reattribution of assets attributed to the Long Term Insurance Fund in error.
            5.5.3 An Insurer must not make any distribution by way of dividend, or return of capital assets attributable to a Long Term Insurance Fund, if by doing so that would result in a breach of chapter 5.
            5.5.4 An Insurer or a Cell that is deemed to constitute a single Long Term Insurance Fund may only make a dividend or return of capital where the dividend or return of capital constitutes appropriation of a surplus determined in accordance with Rule 9.5.3(G), and:
            (A) if the payment is made within four months of the Reference Date of the actuarial investigation (the Financial Condition Report) determining that surplus, the payment does not cause the total aggregate amount of the dividends or returns of capital made by the Insurer or the Cell since that Reference Date to exceed the amount of that surplus; or
            (B) if the payment is made more than four months after the Reference Date of the actuarial investigation (the Financial Condition Report) determining that surplus, the payment does not cause the total aggregate amount of the dividends or returns of capital made by the Insurer or the Cell since that Reference Date to exceed 50 per cent of the amount of that surplus.
            5.5.5 An Insurer must not lend or otherwise make available for use for any other purposes of the Insurer or any purposes of any party Related to the Insurer assets attributable to a Long Term Insurance Fund.
            5.5.6 An Insurer may not enter into any arrangement, whether or not described as a contract of reinsurance, whereby a Long Term Insurance Fund of the Insurer stands in the same relation to the Insurer as though the Insurer were the reinsurer in a contract of reinsurance in which the Long Term Insurance Fund is the cedant.

            Guidance

            Rule 5.5.6 operates to prohibit reinsurance between Long Term Insurance Funds of the same Insurer, as well as arrangements of the nature of internal contracts of reinsurance where the cession transaction is attributed to a Long Term Insurance Fund but the corresponding reinsurance acceptance transaction is not.

            6 Additional Requirements for Takaful Entities

            6.1 Application and Purpose

            6.1.1 This chapter applies to any Insurer that has an endorsed Authorisation under ISFI Rule 2.3.1 authorising it to Conduct Islamic Financial Business:
            (A) as an Islamic Financial Institution; or
            (B) by operating an Islamic Window
            and this Islamic Financial Business is the Conducting of Insurance Business.
            6.1.2
            (1) The requirements of this chapter only apply to that portion of Insurance Business Conducted by a Takaful Entity that constitutes Islamic Financial Business.
            (2) For the purposes of PINS, the defined term Takaful Business will be used to refer to that Insurance Business that meets the criteria in (1).

            Guidance

            1. A Takaful Entity is required to comply with the requirements in the ISFI Rulebook and any other relevant regulatory requirements.
            2. For the purposes of applying the requirements in this chapter, the following definitions from the INAP Rulebook are important:
            a. Islamic Financial Institution means an Authorised Firm whose entire business operations are conducted in accordance with Shari'a;
            b. Islamic Window is an Authorised Firm which conducts Islamic Financial Business as part of its business operations; and
            c. Islamic Financial Business is the business of carrying on one or more Regulated Activities in accordance with Shari'a.
            3. The purpose of this chapter is to outline additional requirements applying to Takaful Entities. A Takaful Entity must also comply with all other requirements in PINS relevant to the Takaful Business it Conducts.

            6.2 Establishment of Takaful Funds

            6.2.1 A Takaful Entity must establish and maintain one or more Takaful Funds for its Takaful Business.

            6.3 Attribution of Contracts to a Takaful Fund

            6.3.1 A Takaful Entity must attribute all Takaful Business that it Conducts to one or more Takaful Funds established and maintained under Rule 6.2.1.

            6.4 Segregation of Takaful Funds

            6.4.1 A Takaful Entity must:
            (A) maintain separate books of account in respect of each Takaful Fund it maintains; and
            (B) maintain any additional books of account required by this chapter for its Takaful Business.
            6.4.2 A Takaful Entity must maintain such accounting and other records as are necessary for:
            (A) identifying the assets representing the Takaful Fund(s) established and maintained by it under Rule 6.2.1 for each Category of Takaful Business that it carries out;
            (B) identifying the liabilities attributed to Takaful Fund(s) established and maintained by it under Rule 6.2.1 for each Category of Takaful Business that it carries out; and
            (C) complying with the requirements of Rule 8.4.2(A).
            6.4.3 A Takaful Entity's assets allocated to a particular Takaful Fund must only be applied, apart from the exceptions provided for in Rule 6.4.4, for the purposes of the Takaful Fund to which it is attributed as required by Rule 6.3.1 and must not be made available for any other purpose of the Takaful Entity.
            6.4.4
            (1) Rule 6.4.3 does not preclude the reimbursement of expenditures borne by the shareholders (in the same or the preceding financial year) in discharging liabilities wholly or partly attributable to a Takaful Fund(s).
            (2) Rule 6.4.3 does not apply to the payment of management fees by the Takaful Fund(s) to the takaful manager even where the manager is the shareholder provided that the Shari'a Supervisory Board has approved those fees.
            (3) Rule 6.4.3 does not prevent a Takaful Entity from exchanging, at fair market value, Takaful Business assets of any Takaful Fund for other assets of the Insurer including assets held by another Takaful Fund or the shareholder.
            6.4.5 A Takaful Entity must have adequate arrangements for ensuring that transactions involving assets of the Takaful Entity (other than transactions outside its control) do not operate unfairly between one or more of the Takaful Funds and the shareholder assets of the Takaful Entity or, in the case where the Takaful Entity has more than one 'identified fund', between those funds.

            6.5 Capital Requirements for Takaful Funds

            Guidance

            1. Under Rule 3.1.2(C), a Takaful Entity must ensure that each Takaful Fund(s) it maintains meets the Minimum Capital Requirement as if each Takaful Fund were a separate Insurer.
            2. Under Rule 4.1.2(C), a Takaful Entity must calculate the Eligible Capital available to each Takaful Fund as if each Takaful Fund were a separate Insurer.
            6.5.1 Should the Eligible Capital of a Takaful Fund fail to meet or exceed its Minimum Capital Requirement, the Eligible Capital available must, be increased by way of a free loan from the shareholder fund of the Takaful Entity on terms that comply with the requirements of Rule 6.5.4 and Rule 6.5.5.
            6.5.2 In cases where Rule 6.5.3 applies, the Eligible Capital calculations must also be applied to the shareholder fund to ensure that the Eligible Capital of the shareholder fund is sufficient to meet the shortfall in the Minimum Capital Requirement of the Takaful Fund.
            6.5.3 For the purpose of calculating the Eligible Capital of the shareholder fund, the following items in the Owners' Equity must be deducted from the figure calculated under the requirements of chapter 4:
            (A) any assets of the Takaful Fund(s), notably outstanding loans included under Tier 1 Capital of the Takaful Fund(s), provided from the Owners' Equity; and
            (B) any Owners' Equity that does not, under the constitutional documents of the Takaful Entity or the terms of insurance contracts or both, participate in the surpluses and deficits of the Takaful Entity's Takaful Business.
            6.5.4 Where a Takaful Fund has been established and maintained by a Takaful Entity and the Takaful Business attributed to this Takaful Fund is Long Term Insurance Business, the free loan referred to in Rule 6.5.1 may be provided by another Takaful Fund of the same Takaful Entity and the Takaful Business attributed to this Takaful Fund is also Long Term Insurance Business, where:
            (A) the lending Takaful Fund has assets surplus to those required to meet its own Minimum Capital Requirement;
            (B) the free loan must not result in the lending Takaful Fund failing to meet its own Minimum Capital Requirement at the time of making the loan and there is reasonable grounds to believe that it will continue to do so in the future;
            (C) the making of such a loan does not adversely affect the reasonable expectations of the policyholders of the lending Takaful Fund;
            (D) the actuary appointed under INDI Rule 2.1.12 has approved the making of such a loan having considered all circumstances of the Takaful Fund; and
            (E) no repayments of any shareholder free loans can be made by a borrowing Takaful Fund where amounts are outstanding in respect of any free loans from another Takaful Fund.
            6.5.5
            (1) A Takaful Entity must gain the written consent of the Regulatory Authority prior to providing a free loan to a Takaful Fund for the purposes of meeting the Takaful Fund's required Minimum Capital Requirement.
            (2) In considering such requests, the Regulatory Authority requires, as a minimum, that the Takaful Entity undertake to include a specific note in the financial statements of the Takaful Entity explaining the circumstances of the arrangement and the implications for shareholders. This requirement also applies where loans originate from one Takaful Fund where the Takaful Business attributed to this Takaful Fund is Long Term Insurance Business to cover a shortfall in another Takaful Fund where the Takaful Business attributed to this Takaful Fund is also Long Term Insurance Business.
            6.5.6 A Takaful Entity may exclude from its shareholder fund liabilities any amounts borrowed from the Takaful Fund so long as the following conditions are met:
            (A) the loans are free loans, established in accordance with Islamic principles, and the Shari'a Supervisory Board approves the terms and conditions of those loans;
            (B) the loans rank for repayment upon winding up of the company only ahead of the ordinary shares of the company and, for the avoidance of doubt, must be subordinated to all participants and other creditor obligations of the Takaful Fund;
            (C) where loans have been made to a Takaful Fund(s) and those loans have not been counted as a liability of the relevant Takaful Fund(s) then an equivalent amount must be deducted from the shareholder capital resources of the company; and
            (D) where loans have been made to a Takaful Fund(s) those loans can only be repaid out of future surpluses of the relevant Takaful Fund(s).
            6.5.7 A Takaful Entity must not, except as provided under Rule 6.5.4, make any loans from a Takaful Fund it maintains to another Takaful Fund or to any other party, including but not limited to:
            (A) the takaful operator (the shareholder fund);
            (B) a person in a Controlled Function;
            (C) a participant (policyholder); and
            (D) a Controller or Person with Close Links to the Takaful Entity.
            6.5.8 A Takaful Entity must not write any new Takaful Business should any Takaful Fund it maintains fail to meet its Minimum Capital Requirement, until such time as the Takaful Fund is in compliance with its Minimum Capital Requirement.

            6.6 Distribution of a Surplus or Funding a Deficit in a Takaful Fund

            Guidance

            1. Takaful Entities by definition are co-operative in nature and as such participants (policyholders) are entitled to a return of any surpluses of the Takaful Funds operated by the Takaful Entity.
            2. A Takaful Entity is also required, under ISFI Rule 3.1.3, to disclose in its financial statements all matters set out in AAOIFI 12 and 13, which includes among other matters the basis for treating insurance deficits and surpluses in a Takaful Fund(s).
            6.6.1
            (1) Every Takaful Entity must have a written policy, or subject to Rule 6.6.2, policies, for determining the surplus or deficit arising from its Takaful Business, the basis of distributing that surplus or deficit between the participants and the shareholders, and the method of transferring any surplus or deficit to the participants.
            (2) The policy or policies must comply with all relevant AAOFI standards including Financial Accounting Standard No. 13 "Disclosure of Bases for Determining and Allocating Surplus or Deficit in Islamic Insurance Companies'.
            (3) Each policy must be approved by the Takaful Entity's Shari'a Supervisory Board.
            6.6.2 More than one policy may be developed where the Takaful Entity offers different Categories of Takaful Business.
            6.6.3
            (1) A Takaful Entity must provide a copy of the policy referred to in Rule 6.6.1 to the Regulatory Authority immediately following its approval by the Takaful Entity's Shari'a Supervisory Board.
            (2) A Takaful Entity must not amend the policy once it has been provided to the Regulatory Authority without the approval of the Shari'a Supervisory Board and the Regulatory Authority. A revised copy of the policy must be provided to the Regulatory Authority immediately following that approval.
            (3) A Takaful Entity must ensure that a copy of each policy approved under Rule 6.6.1 or Rule 6.6.3(2) forms part of each and every insurance policy sold by the Takaful Entity.

            Guidance

            In considering whether to approve any changes to a policy under Rule 6.6.3(2), the Regulatory Authority will consider the impact of the proposed amendments on existing policyholders of the Takaful Entity affected by the proposed amendments.

            6.6.4
            (1) On an annul basis, every Takaful Entity must determine any surplus or deficit arising on each separate Takaful Fund.
            (2) A Takaful Entity must not distribute a surplus or deficit from a Takaful Fund it has established and maintains where the Takaful Business attributed to this Takaful Fund is Long Term Insurance Business until the value of this surplus or deficit has been determined in accordance with Rule 9.5.3.
            (3) Any distribution must be performed within four months of the Reference Date of the actuarial investigation referred to in (2).
            6.6.5 A Takaful Entity must report to the Regulatory Authority all distributions of profit or surplus (however called or described) to policyholders within 15 business days of the date of declaration of the distribution.
            6.6.6 No Takaful Entity is permitted to make any distributions to participants, regardless of the rules governing the Takaful Entity, if either the Takaful Fund(s) do not, or through the payment of the distribution, would not meet its Minimum Capital Requirement.

            7 Additional Requirements for Protected Cell Companies

            7.1 Application and Purpose

            7.1.1 This chapter applies to all Insurers that are Protected Cell Companies.

            Guidance

            1. The Regulatory Authority will examine each application for authorisation to Conduct Insurance Business from a Protected Cell Company on a case by case basis. The Regulatory Authority is of the view that if any Protected Cell Companies are authorised, they will generally be restricted to establishing Cells Conducting Insurance Business as a Class 1 Captive Insurer.
            2. Under the requirements of the SUPV Rulebook [currently being drafted], an Insurer that is a Protected Cell Company must apply to the Regulatory Authority for approval prior to the setting up of a Cell.
            3. This chapter sets out additional Rules and guidance on how the Base Capital Requirement and Eligible Capital requirements apply to an Insurer who is a Protected Cell Company.

            7.2 General Requirement

            7.2.1 An Insurer that is a Protected Cell Company must at all times hold Eligible Capital equal to or higher than its Non-Cellular Base Capital Requirement.
            7.2.2 The Non-Cellular Base Capital Requirement is US$ 50,000.

            7.3 Eligible Capital for Protected Cell Companies

            7.3.1 Subject to Rule 7.3.2, the Non-Cellular Eligible Capital of an Insurer is to be calculated in accordance with the requirements in Rule 4.2.3.
            7.3.2 All Cell Shares and any capital instruments or equity reserves of the Insurer that are attributable to a Cell must be excluded from the Non-Cellular Eligible Capital.

            7.4 Capital Adjustment to Eligible Capital

            7.4.1 Where an Insurer that is a Protected Cell Company is organised such that Non-Cellular Assets may be used lawfully to meet Cellular Liabilities of a Cell and the Regulatory Authority has approved such use, the Insurer may determine a non-cellular capital adjustment in respect of that Cell's Eligible Capital.

            Guidance

            The purpose of the non-cellular capital adjustment is to permit an Insurer to allocate all or part of its Non-Cellular Eligible Capital to support the Eligible Capital of its Cells. The adjustment is limited to the amount of Non-Cellular Eligible Capital that could be made available to meet Cellular Liabilities.

            7.4.2 The amount of the non-cellular capital adjustment in respect of a Cell is an amount selected by the Insurer, subject to the following constraints:
            (A) the non-cellular capital adjustment in respect of a Cell must not be negative;
            (B) the non-cellular capital adjustment in respect of a Cell must not exceed the amount that could be made available to meet the liabilities of that Cell in the event of insolvency of the Insurer, after taking into consideration all other potential calls on the Insurer's Non-Cellular Eligible Capital; and
            (C) the sum of the non-cellular capital adjustments in respect of all Cells must not exceed the amount that could be made available to meet the Cellular Liabilities in the event of insolvency of the Insurer, after taking into consideration all other potential calls on the Insurer's Non-Cellular Eligible Capital.

            8 Measurement of Assets and Liabilities of Insurers

            8.1 Application and Purpose

            8.1.1 This chapter applies to every Insurer.

            Guidance

            1. This chapter establishes a set of principles for the consistent measurement of the assets and liabilities of an Insurer for the purposes of reporting under this Rulebook and for determining compliance with chapters 3 and 4.
            2. This chapter is not intended to establish a basis of accounting for general purpose financial statements of Insurers. This chapter does not prevent Insurers from adopting measurements of assets and liabilities that might be considered excessively prudent if adopted in the Insurer's general purpose financial statements. Insurers are not however expected to mislead the Regulatory Authority as to the financial position or financial performance of the Insurer.

            8.2 General Provisions

            8.2.1 An Insurer may measure the value of an asset at less than the value determined in accordance with this chapter.
            8.2.2 An Insurer may measure the value of a liability at more than the value determined in accordance with this chapter.
            8.2.3 An Insurer may use approximate methods to measure an asset or a liability, where the result obtained by the use of that approximate method would not be materially different from the result obtained by applying a measurement method prescribed in this chapter.
            8.2.4 Notwithstanding any other provision of this chapter, the Regulatory Authority may, by written notice, direct an Insurer to measure an asset or a liability in accordance with principles specified by the Regulatory Authority in that written notice.

            Guidance

            Rule 8.2.4 may be used where the Regulatory Authority has any concerns over any asset, or class of assets, for example reinsurance assets that may be limited risk transfer arrangements, being counted as an asset at full value.

            8.3 Classification of Insurance Business

            8.3.1 An Insurer must, in its own records, classify all Contracts of Insurance carried out by it as Insurer and all reinsurance contracts entered into by it as cedant, according to the Category to which the Contracts of Insurance relate.
            8.3.2 Where a Contract of Insurance relates to more than one Category, the Insurer must record separately the portions of the Contract of Insurance that relate to each Category, except that immaterial portions need not be separately recorded.

            Guidance

            1. The Categories of Contracts of Insurance are set out in Paragraph 3 of Part 2 of Schedule 3 to the FSR.
            2. A portion of a Contract of Insurance, insuring a risk of a Category other than the principal Category to which the contract relates, will not normally be regarded as material if the interest that it insures is both related and subsidiary to the principal interest or interests insured under the contract, and constitutes less than ten per cent of the Gross Written Premium under the contract.

            8.4 Basic Principles of Recognition and Measurement

            8.4.1 An Insurer must, except where this chapter provides otherwise, recognise its assets and liabilities in accordance with a basis of accounting set out in Rule 8.4.2, and the values attributed to those assets and liabilities must be measured in accordance with that basis of accounting.

            Guidance

            The exceptions provided in this chapter relate to the following:

            a. specific Rules in respect of certain assets and liabilities, intended to achieve a regulatory objective not achieved by application of either or both of the bases of accounting set out in Rule 8.4.2;
            b. assets and liabilities that are not dealt with in either or both of the bases of accounting set out in Rule 8.4.2; and
            c. the overriding power of the Regulatory Authority, set out in Rule 8.2.4, to require an Insurer to adopt a particular measurement for a specific asset or liability.
            8.4.2 An Insurer must adopt one of the following as the basis of its accounting:
            (A) in the case of a Takaful Entity, the standards of the AAOIFI; or
            (B) in any other case:
            (i) IFRS;
            (ii) UK GAAP or US GAAP; or
            (iii) any other accounting standards or principles prescribed in Rules made by the Regulatory Authority.
            8.4.3 Where the valuation of an asset or liability is dependent upon the adoption of assumptions or the adoption of a calculation method, any change in the assumptions or methods adopted must be reflected immediately in the value attributed to the asset or liability concerned. The recognition of the effects of changes in assumptions or methods may not be deferred to future reporting periods.
            8.4.4 The Regulatory Authority may also specify actuarial principles to be used by an Insurer in measuring assets and liabilities.

            8.5 Discount Rates

            8.5.1 For the purposes of determining the net present value of expected future payments in accordance with Rule 8.6.10 and Rule 8.7.12, an Insurer must use as a discount rate the gross redemption yield, as at the Solvency Reference Date, of a portfolio of Grade 1 rated sovereign risk Debt Instrument with a similar expected payment profile to the liability being measured.
            8.5.2 For the purposes of determining the net present value of expected future receipts in accordance with Rule 8.6.11 and Rule 8.7.13, an Insurer must use as a discount rate the gross redemption yield, as at the Solvency Reference Date, of a portfolio of Grade 1 rated sovereign risk Debt Instrument with a similar expected payment profile to the asset being measured.

            Guidance

            1. Grade 1 ratings are defined in the table in Rule A3.1.1.
            2. Where an Insurer's Insurance Business includes more than one Category, the Insurer will normally be expected to establish payment profiles separately for each material Category.
            3. Where the expected payment profile of assets or liabilities cannot be matched—for example, because the duration is too long—the Insurer should assume a discount rate regarded as consistent with the intention of this section.

            8.6 Recognition and Measurement of Insurance Assets and Liabilities in Respect of General Insurance Business

            8.6.1 This section applies to assets and liabilities in respect of General Insurance Business.
            8.6.2 Premiums in respect of direct insurance contracts, facultative reinsurance contracts and non-proportional treaty reinsurance contracts entered into by an Insurer as Insurer must be treated as receivable from the date of entering into the Contract of Insurance.
            8.6.3 Premiums in respect of proportional treaty reinsurance contracts entered into by an Insurer as Insurer must be treated as receivable in accordance with the pattern of the cedant entering into the underlying insurance contracts.
            8.6.4 Premiums in respect of facultative reinsurance contracts and non-proportional treaty contracts entered into by an Insurer as cedant must be treated as payable from the date of entering into the reinsurance contract.
            8.6.5 Premiums in respect of proportional treaty reinsurance contracts entered into by an Insurer as cedant must be treated as payable in accordance with the pattern of carrying out the underlying Contract of Insurance.
            8.6.6 An Insurer must treat expenses incurred in respect of Contracts of Insurance Conducted by the Insurer as payable at the time the contracts are carried out.
            8.6.7 An Insurer must treat as a liability, the Premium Liability, which is the value of future claim payments and associated direct and indirect settlement costs, arising from future events insured under policies that are in force as at the Solvency Reference Date.

            Guidance

            The liability referred to in Rule 8.6.7 is commonly represented by Insurers as two separate provisions, the unearned premium provision and the premium deficiency provision. The sum of the two provisions is sometimes referred to as the unexpired risk reserve, though this term is also sometimes used to describe the premium deficiency provision alone.

            8.6.8 An Insurer must treat as a liability the value of future claims payments and associated direct and indirect settlement costs, arising from insured events that have occurred as at the Solvency Reference Date.

            Guidance

            The liability referred to in Rule 8.6.8 is commonly referred to as the liability for outstanding claims. Some Insurers represent this liability as three separate provisions, being the liability in respect of reported claims, the liability in respect of claims incurred but not reported, and the liability in respect of settlement costs, also known as loss adjustment expenses.

            8.6.9 An Insurer must treat as an asset the value of reinsurance and other recoveries expected to be received in respect of claims referred to in Rule 8.6.7 and Rule 8.6.8.
            8.6.10 Where this section requires an Insurer to recognise as a liability the value of expected future payments, that liability must be measured as the net present value of those expected future payments.
            8.6.11 Where this section requires an Insurer to recognise as an asset the value of expected future receipts, that asset must be measured as the net present value of those expected future receipts.

            8.7 Recognition and Measurement of Assets and Liabilities in Respect of Long Term Insurance Business

            8.7.1 This section applies to assets and liabilities in respect of Long Term Insurance Contracts.
            8.7.2 Premiums in respect of direct insurance contracts, facultative reinsurance contracts and non-proportional treaty reinsurance contracts entered into by an Insurer as Insurer must be treated as receivable from the date of entering into the Contract of Insurance.
            8.7.3 Premiums in respect of proportional treaty reinsurance contracts entered into by an Insurer as Insurer must be treated as receivable in accordance with the pattern of the cedant entering into the underlying insurance contracts.
            8.7.4 Premiums in respect of facultative reinsurance contracts and non-proportional treaty contracts entered into by an Insurer as cedant must be treated as payable from the date of entering into the reinsurance contract.
            8.7.5 Premiums in respect of proportional treaty reinsurance contracts entered into by an Insurer as cedant must be treated as payable in accordance with the pattern of carrying out the underlying insurance contracts.
            8.7.6 Premiums in respect of reinsurance contracts entered into by an Insurer as Insurer must be treated as receivable from the date on which the premium on the underlying Contract of Insurance is due and receivable by the cedant.
            8.7.7 Premiums in respect of reinsurance contracts entered into by an Insurer as cedant must be treated as payable from the date on which the premium on the underlying insurance contract is due and receivable by the cedant.
            8.7.8 Expenses incurred in respect of Contracts of Insurance entered into by an Insurer must be treated as payable:
            (A) in the case of expenses directly related to the premiums in respect of the contract, at the same time as the premium is treated as receivable; and
            (B) in the case of expenses not directly related to the premiums in respect of the contract, at the time the contract is effected.
            8.7.9 An Insurer must treat as a liability the amount of Policy Benefits that are due for payment on or before the Solvency Reference Date.
            8.7.10 An Insurer must treat as a liability the net value of future Policy Benefits under policies that are in force as at the Solvency Reference Date, taking into account all prospective liabilities as determined by the policy conditions for each existing contract, and taking credit for premiums payable after the Solvency Reference Date.
            8.7.11 In measuring the liability referred to in Rule 8.7.10, the Insurer must:
            (A) use actuarial principles;
            (B) make proper provision for all liabilities on prudent assumptions that include appropriate margins for adverse deviation of the relevant factors; and
            (C) take specifically into account:
            (i) all guaranteed Policy Benefits, including guaranteed surrender values;
            (ii) vested, declared or allotted bonuses to which policy holders are already either collectively or individually contractually entitled;
            (iii) all options available to the policy holder under the terms of the contract;
            (iv) discretionary charges and deductions from Policy Benefits, in so far as they do not exceed the reasonable expectations of policy holders;
            (v) expenses, including commissions; and
            (vi) any rights under contracts of reinsurance in respect of Long Term Insurance Business.
            8.7.12 Where this section requires an Insurer to recognise as a liability the value of expected future payments, that liability must be measured as the net present value of those expected future payments.
            8.7.13 Where this section requires an Insurer to recognise as an asset the value of expected future receipts, that asset must be measured as the net present value of those expected future receipts.
            8.7.14 Rule 8.7.10 does not require an Insurer to obtain a valuation by an actuary or actuaries performing the Actuarial Function of the liability referred to in that Rule, at a Solvency Reference Date other than the Insurer's annual reporting date.

            Guidance

            An Insurer Conducting Long Term Insurance Business is required to provide a Financial Condition Report on its Long Term Insurance Liabilities, prepared by an actuary or actuaries who are performing the Actuarial Function. The relevant provisions are set out in sections 9.3 and 9.5.

            9 Actuaries

            9.1 Application and Purpose

            9.1.1 This chapter applies to every Insurer.
            9.1.2 For the purposes of PINS, an Approved Individual registered by the Regulatory Authority to perform the Actuarial Function is referred to as the Approved Actuary.

            Guidance

            1. The Regulatory Authority believes it is fundamental that the Directors and Senior Management of an Insurer are provided with impartial actuarial advice in relation to the Insurer's financial condition and Insurance Liabilities. This advice is designed to assist the Directors and Senior Management in carrying out their responsibility for the sound and prudent management of the Insurer.
            2. The frequency and scope of this actuarial advice is calibrated to the level of uncertainty inherent to specific Categories of Insurance Business. The INDI rulebook sets out requirements relating to the Actuarial Function. INDI Rule 2.1.12 and 2.1.13 requires Insurers Conducting Long Term Insurance Business, or material levels of General Insurance Business in PINS Category 1 or PINS Category 4, to appoint one or more individuals registered to perform the Actuarial Function.
            3. The purpose of this chapter is to outline:
            a. the key reporting requirements to be performed by the Approved Actuary and Reporting Actuary; and
            b. the criteria to be met by an individual performing the duties of the Reporting Actuary.

            9.2 General Provisions

            9.2.1 An Insurer must ensure that any actuary referred to in INDI Rules 2.1.12. or 2.1.13 (the Approved Actuary), or Rule 9.4.2 or Rule 9.4.3 (the Reporting Actuary), has access to all relevant data, information, reports and staff of the Insurer (and must take all reasonable steps to ensure access to contractors of the Insurer) that the actuary or actuaries reasonably believe are necessary to fulfil their responsibilities.

            9.3 Reporting Requirements Performed by the Actuarial Function

            Guidance

            The primary role of Actuarial Function is to provide advice on the valuation of an Insurer's Insurance Liabilities and to provide an impartial assessment of the overall financial condition of the Insurer.

            9.3.1
            (1) The Approved Actuary must, on an annual basis, undertake an investigation to enable the preparation of the Financial Condition Report as required by section 9.5.
            (2) The Financial Condition Report must be prepared and signed by the Approved Actuary.
            (3) The day on which the Approved Auditor signs in (2) is the Reference Date for the purposes of dating the Financial Condition Report.
            9.3.2 The Approved Actuary must provide the Financial Condition Report to the Insurer within such time as to give the Governing Body of the Insurer a reasonable opportunity to:
            (A) consider and use the Financial Condition Report in preparing the Insurers annual returns; and
            (B) provide the Financial Condition Report to the Regulatory Authority on or before the day that the Insurer's annual returns are required to be given to the Regulatory Authority in accordance with the Rules contained in this Rulebook.

            Guidance

            The Financial Condition Report should form an important input into the decision-making by the Governing Body and Senior Management in respect of the operations of the Insurer.

            9.3.3 The Regulatory Authority may, in writing, specify that:
            (A) a Financial Condition Report must be prepared more frequently for a particular Insurer than required by Rule 9.3.1(1) if the Regulatory Authority considers it necessary or desirable to obtain the Financial Condition Report more frequently for the purposes of the prudential supervision of that Insurer; or
            (B) the Approved Actuary must undertake a special purpose review of matters specified by the Regulatory Authority relating to the Insurer's operations, risk management or financial affairs, and prepare a report in respect of that review. The review must be completed in accordance with the relevant international actuarial standards.
            (C) The cost of the special purpose review will be borne by the Insurer. The report must be submitted by the Approved Actuary simultaneously to the Regulatory Authority and the Insurer within three months of the review being commissioned, unless the Regulatory Authority grants an extension of time in writing.

            9.4 Actuarial Reporting Requirements for General Insurance Business

            9.4.1
            (1) All Insurers Conducting General Insurance Business must consider annually the need to commission an independent actuarial report.
            (2) An Insurer Conducting General Insurance Business subject to the requirement of INDI Rule 2.1.13, must ensure it meets the requirements of sections 9.4, 9.6 and 9.7 for that portion of its General Insurance Business not subject to the actuarial investigation required by Rule 9.3.1(1).
            9.4.2 If the Governing Body of a General Insurer resolves to obtain an independent actuarial report, a copy of this report, prepared and signed by the Reporting Actuary, must be provided to the Regulatory Authority.
            9.4.3
            (1) An Insurer referred to in Rule 9.4.1 must obtain an independent actuarial report prepared and signed by the Reporting Actuary at least once in every three-year period.
            (2) The Regulatory Authority may at any time, if it believes it is necessary to do so, require an Insurer referred to in Rule 9.4.1 to obtain, at the Insurer's expense, an actuarial report on the Insurer's business, or any specific component of the Insurer's business.
            (3) The Regulatory Authority may chose a Reporting Actuary to provide the report if is not satisfied with the candidate chosen by the Insurer for the purposes of (2).

            9.5 Financial Condition Report

            9.5.1 The Financial Condition Report must provide an objective assessment of the overall financial condition of:
            (A) each Long Term Insurance Fund established by the Insurer; or
            (B) that General Insurance Business that falls within the meaning of INDI Rule 2.1.13.
            9.5.2 In preparing the Financial Condition Report, the Approved Actuary must have regard to the relevant professional standards.
            9.5.3 An Insurer must ensure that, subject to relevance, a Financial Condition Report addresses, at a minimum, the following matters:
            (A) business overview;
            (B) assessment of the Insurer's recent experience and profitability, including at least the experience during the year ending on the valuation date;
            (C) assessment of the value of those Insurance Liabilities that fall within the meaning of Rule 8.7.9 and Rule 8.7.10;
            (D) assessment of the value of those Insurance Liabilities that fall within the meaning of Rule 8.6.7 and Rule 8.6.8 to the extent these are carried out by an Insurer that INDI Rule 2.1.13 applies to;
            (E) assessment of the adequacy of past estimates for these Insurance Liabilities, especially where there has been a change in the assumptions or in valuation method from that adopted at the previous valuation;
            (F) an explanation, in regard of the liability valuations, of:
            (i) the assumptions used in the valuation process;
            (ii) the adequacy and appropriateness of data made available to the Approved Actuary by the Insurer;
            (iii) the procedures undertaken by the Approved Actuary to assess the reliability of the data;
            (iv) the model or models used by the Approved Actuary;
            (v) the approach taken to estimate the variability of the estimate; and
            (vi) the sensitivity analyses undertaken;
            (G) a determination of the value of surplus in each Long Term Insurance Fund established by the Insurer (as required prior to any distribution of such surplus in accordance with Rule 5.5.2 and Rule 5.5.4);
            (H) a determination of the value of any surplus or deficit in each Takaful Fund a Takaful Entity has established and maintains where the Takaful Business attributed to this Takaful Fund is Long Term Insurance Business (as required prior to any distribution of such surplus in accordance with Rule 6.6.4(2));
            (I) assessment of asset and liability management, including the Insurer's investment strategy;
            (J) assessment of current and future capital adequacy and a discussion of the Insurer's approach to capital management;
            (K) assessment of pricing, including adequacy of premiums;
            (L) assessment of the suitability and adequacy of reinsurance arrangements including, documentation of reinsurance arrangements and the existence and impact of any limited risk transfer arrangements; and
            (M) assessment of the suitability and adequacy of the Insurer's risk management policy.
            9.5.4 The Approved Actuary must consider the future implications and outlook for each of the matters listed in Rule 9.5.3. Where these implications are adverse, the Approved Actuary must propose recommendations designed to address the issues.
            9.5.5 For a Branch, the Financial Condition Report must be prepared in respect of the QFC operations, but with consideration given to the financial position of the head office.

            9.6 Independent Actuarial Report

            9.6.1 The independent actuarial report referred to in section 9.4 must provide details, in respect of each Category of General Insurance Business (other than that General Insurance Business that falls under INDI Rule 2.1.13), of:
            (A) recent trends in the business of the Insurer;
            (B) the Reporting Actuary's estimate of the value of the Insurance Liabilities and assets arising in respect of those liabilities, determined in accordance with chapter 8;
            (C) where there has been a change in the assumptions or in valuation method from that adopted at the previous valuation, the effect of these changes on the Insurance Liabilities and assets arising in respect of those liabilities, as at the reporting date;
            (D) the adequacy and appropriateness of data made available to the Reporting Actuary by the Insurer;
            (E) procedures undertaken by the Reporting Actuary to assess the reliability of the data;
            (F) the model or models used by the Reporting Actuary;
            (G) the assumptions used by the Reporting Actuary in the valuation process including, without limitation, assumptions made as to inflation and discount rates, future expense rates and, where relevant, future investment income;
            (H) the approach taken to estimate the variability of the estimate; and
            (I) the nature and findings of sensitivity analyses undertaken.

            9.7 Criteria for Reporting Actuary

            9.7.1 The report referred to in section 9.4 must be must be prepared and signed by the Reporting Actuary.
            9.7.2 An individual can only act in the role of Reporting Actuary if he also meets the following additional criteria:
            (A) he is not carrying on the Controlled Functions of Senior Executive Function, Executive Governance Function or Non-Executive Governance Function of the Insurer, or of a Related body corporate (except when that Related body corporate is a Subsidiary of the Insurer);
            (B) is neither an approved auditor (under Article 85(1) of the QFC Companies Regulations or Article 37 of the Limited Liability Partnerships Regulations) for the Insurer, nor an employee or director of an entity of which that auditor is an employee or director nor a partner of that auditor;
            (C) he has appropriate formal qualifications and is a member of a recognised professional body; and
            (D) he has a minimum of 5 years relevant experience in the provision of actuarial services to Insurers, either in the QFC or in other jurisdictions, that has been sufficiently recent to ensure that he is familiar with current issues in the provision of actuarial services to Insurers.

            Guidance

            The above criteria are designed to ensure the independence, education, skill and experience of any individual performing the duties of the Reporting Actuary.

            10 Consolidated Supervision

            10.1 Application and Purpose

            10.1.1 This chapter applies to every Insurer.

            Guidance

            1. An Insurer is exposed to risks through the relationships that it has with other insurance and non-insurance companies.
            2. The purpose of this chapter is to require an Insurer to provide the Regulatory Authority periodically with information relating to the structure and financial position of any Group of which it is a member, to assess significant related party transactions, and to notify certain transactions.
            3. An Insurer is subject to separate reporting requirements in respect of changes in its Controllers. Those requirements are set out in GENE. It may be also be required to provide reports in respect of any Close Links it possesses.
            10.1.2 In this chapter, the term 'surplus' means:
            (A) in the case of an Insurer that is not a Protected Cell Company, the Insurer's Eligible Capital; and
            (B) in the case of an Insurer that is a Protected Cell Company, the Insurer's Cellular Eligible Capital in respect of the Cell to which the transaction relates, where the transaction relates to a Cell, and otherwise the Insurer's Non-Cellular Eligible Capital.
            10.1.3 In this chapter, a series of connected transactions between an Insurer and a Related party, or between an Insurer and parties who are Related to each other, is deemed to constitute a single transaction.

            10.2 Group Financial Resources

            10.2.1 The Regulatory Authority may, by written notice, require an Insurer to provide the Regulatory Authority with a statement of the consolidated financial position of any Group of which the Insurer is a member, made up as at a date specified by the Regulatory Authority in that notice and in accordance with principles stated by the Regulatory Authority in the notice.
            10.2.2 An Insurer receiving a notice under Rule 10.2.1 shall have three months to comply with the notice, unless the Regulatory Authority is satisfied that a shorter period is required and specifies that period in the notice.

            Guidance

            An Insurer will normally be permitted to comply with a notice given under Rule 10.2.1 by presenting a copy of a statement, relating to the Group specified in the notice, made up in compliance with an equivalent or substantially equivalent regulatory requirement to which the Insurer or a Subsidiary or Associate of the Insurer is subject in a jurisdiction other than the QFC. If that statement is not in English, the Insurer will be required to provide a certified translation of the statement into English.

            10.2.3 If the Regulatory Authority considers the financial position of a Group or sub-Group may have a materially adverse impact on an Insurer that forms part of this Group or sub-Group, the Regulatory Authority may, in addition to any other powers it has, take action under the Article 31 of the FSR to protect the interests of the Insurers policyholders or the Financial System.

            10.3 Transactions within a Group

            10.3.1 This section applies to all Insurers in respect of all transactions that are material.

            Guidance

            A single transaction or series of connected transactions that constitute a sale, purchase, exchange, loan or extension of credit, investment or guarantee involving one-half of one percent (0.5%) or less of surplus as at the end of the reporting period immediately preceding the effective date of the transaction will not normally be considered material for the purposes of this section.

            10.3.2 An Insurer must ensure that transactions it enters into with Related entities comply with the following conditions:
            (A) be entered into on an 'arms length' basis;
            (B) the terms of the transactions must be fair and reasonable; and
            (C) the books, accounts and records of the Insurer must clearly and accurately disclose the nature and details of the transactions including any accounting information necessary to support the fairness and reasonableness of the terms and conditions of the transactions.

            10.4 Significant Transactions other than Group Transactions

            10.4.1 A QFC incorporated Insurer must not enter into a transaction of the type described in this Rule unless the Governing Body of the Insurer is satisfied following reasonable enquiry that the transaction does not adversely affect the interests of policyholders. The transactions to be considered are:
            (A) a sale, purchase, exchange, loan or extension of credit, guarantee or investment where the amount of the transaction, as at the end of the reporting period immediately preceding the transaction, equals or exceeds three per cent of the Insurer's surplus;
            (B) a loan or extension of credit to any Person who is not Related to the Insurer, where the Insurer makes the loan or extension of credit with the agreement or understanding that the proceeds of the transaction, in whole or in substantial part, are to be used to make loans or extensions of credit to purchase assets of, or to make investments in, any Related party of the Insurer making the loans or extensions of credit, where the amount of the transaction, as at the end of the reporting period immediately preceding the transaction, equals or exceeds three per cent of the Insurer's surplus;
            (C) a reinsurance agreement or modification to a reinsurance agreement in which the reinsurance premium or a change in the Insurer liabilities equals or exceeds five per cent of the Insurer's surplus;
            (D) a reinsurance agreement or modification to a reinsurance agreement involving the transfer of assets from an Insurer to a Person not Related to the Insurer, if an agreement or understanding exists between the Insurer and that Person that any portion of the assets will be transferred to one or more other Persons Related to the Insurer and the reinsurance premium or a change in the Insurers liabilities equals or exceeds five per cent of the Insurer's surplus; and
            (E) any management agreement, service contract or cost-sharing arrangement.

            11 Transfer of Insurance Business

            11.1 Application and Purpose

            11.1.1 This chapter applies to every Insurer.

            Guidance

            1. A transfer of insurance business, or Relevant Scheme, is the transfer of all the rights and obligations associated with this business from one insurer (the transferor) to another insurer (the transferee). When the transfer is complete, the transferee insurer is augmented by the assets and liabilities (and all future and past incidents attaching to those assets and liabilities) of the transferor insurer so that the policyholders and reinsurers continue to be subject to the same terms and conditions as those originally agreed. A transferor may transfer all its insurance business, or only some (such as a class or classes of insurance business).
            2. Transfers of insurance business can be undertaken for a variety of reasons, including restructuring (for example, exiting a line of business), assisting an Insurer in financial difficulty, and protecting policyholders. A Relevant Scheme does not refer to the ceding (reinsuring) some or all of its policyholder liabilities to another insurer (reinsurer).
            3. To provide for the possibility of either a transfer of insurance business into the QFC, or a transfer of insurance business out of the QFC, the terms insurer and insurance business are not to be taken as defined terms unless identified as such by being capitalised and in italics.
            4. The purpose of this chapter is to set out requirements for a Relevant Scheme, as provided for under FSR Articles 97 and 98, governing:
            a. the form and content of a Scheme Report; and
            b. the form, content and timing of the publicity regarding the proposed transfer.

            11.2 Scheme Report

            11.2.1
            (1) The Scheme Report prepared in accordance with Article 97 of the FSR, must be in written form and include the following matters:
            (A) a rationale for the proposed Relevant Scheme;
            (B) the terms of the agreement or deed under which the proposed transfer is to be carried out;
            (C) the categories of insurance business to be transferred;
            (D) the amount of technical provisions, premiums, claims incurred and details of assets to be transferred; and
            (E) particulars of any other arrangements necessary to give effect to the proposed Relevant Scheme.
            (2) The Scheme Report must also include a written actuarial report on the Relevant Scheme confirming that:
            (A) there will be no materially adverse consequences from the proposed transfer to the policyholders of either the transferor or transferee insurer; and
            (B) the transferor and/or transferee insurer continue to meet, if applicable, their Minimum Capital Requirement after taking the proposed transfer into account.
            (3) The Scheme Report must also include a summary of the Relevant Scheme which contains, at a minimum, the following advice for affected policyholders:
            (A) that the insurer proposes to transfer the policyholder's policy or policies to another insurer, on or after a specified date;
            (B) of the full name and contact details of the other insurer;
            (C) of the effect of the transfer (this explanation may be brief and may, for example, explain that from the date of the transfer all rights and liabilities under the policies will be transferred to the other insurer, so that premiums will have to be paid to, and claims will have to be lodged with, that insurer);
            (D) of any action the policyholder will need to take before or as a result of the transfer (for example, any changes in arrangements relating to paying premiums or lodging claims);
            (E) how the Relevant Scheme compares with possible alternatives;
            (F) if the policyholder does not need to take any action before or as a result of the transfer, advises the policyholder accordingly;
            (G) compensation offered to policyholders for any loss of rights or expectations; and
            (H) how the policyholder can obtain further information and inspect relevant documents as may be available for public inspection.

            11.3 Notification of Proposed Transfer

            11.3.1
            (1) Whichever party to the Relevant Scheme is an Insurer must ensure the notification requirements in Rule 11.3.2 are met.
            (2) If both parties to the Relevant Scheme are Insurers, the transferor must ensure the following notification requirements are met.
            11.3.2
            (1) The Insurer must provide a notice of intention regarding the proposed transfer, which must include, at a minimum, details on the place or places, dates, which must not be for a period less than 30 days, and times that an affected policyholder may obtain a copy of the Relevant Scheme and any associated documentation.
            (2) The Insurer must publish the notice of intention in two national papers in the State approved by the Regulatory Authority (one being in English and one in Arabic).
            11.3.3 The Insurer must provide the summary of the Scheme Report referred to in Rule 11.2.1(3), to every policyholder resident in the State who is affected by the Relevant Scheme.

            12 Insurers in Run-off

            12.1 Application and Purpose

            12.1.1 This chapter applies to:
            (A) every QFC incorporated Insurer; and
            (B) every Branch in respect of its QFC Insurance Business operations.
            12.1.2 In this chapter:
            (A) an Insurer in run-off means an Insurer that has ceased to effect Contracts of Insurance in respect of the whole of its Insurance Business (or, in the case of a Branch, the whole of its QFC Insurance Business), and a Cell in run-off, a Takaful Fund in run-off and a Long Term Insurance Fund in run-off are construed accordingly; and
            (B) going into run-off or placing Insurance Business into run-off means ceasing to effect Contracts of Insurance, and placing a Cell, Takaful Fund or a Long Term Insurance Fund into run-off are construed accordingly.

            Guidance

            The purpose of this chapter is to set out prudential provisions applying to Insurers that cease to effect Insurance Business, either wholly or in respect of a particular Category. The provisions are also applicable to Cells, Takaful Funds and Long Term Insurance Funds, but do not (because of the effect of Rule 12.1.2) apply to non-QFC Insurance Business of a Branch

            12.1.3 For the purposes of this chapter, in determining whether an Insurer is effecting Contracts of Insurance, or has ceased to effect Contracts of Insurance, including Contracts of Insurance effected through a Cell, Takaful Fund or a Long Term Insurance Fund, Contracts of Insurance effected under a term of an existing Contract of Insurance must be ignored.

            Guidance

            The effect of Rule 12.1.3 is to disregard, for the purposes of determining whether the chapter applies, Contracts of Insurance that are carried out by the Insurer, as a consequence of a term of an existing Contract of Insurance. A contract will normally only be regarded as being effected under a term of an existing contract if the Insurer does not have discretion to decline to effect the new contract, or if it would be unreasonable for the Insurer, having regard to the interests of the policyholder, to decline to effect it.

            12.2 Insurers Ceasing to Effect Contracts of Insurance in a Category

            12.2.1 This section applies to an Insurer that ceases or decides to cease to effect new or renew Contracts of Insurance:
            (A) in a Category in which the Insurer has previously effected Insurance Business; or
            (B) in respect of a Cell, Takaful Fund or a Long Term Insurance Fund, in a Category in which the Insurer has previously effected Insurance Business through that Cell, Takaful Fund or Long Term Insurance Fund.
            12.2.2 An Insurer to which this section applies must, within 28 days of a decision to cease to effect new Contracts of Insurance in a Category, notify the Regulatory Authority of its decision, in a written notice specifying the following details:
            (A) the effective date of the decision to cease effecting Contracts of Insurance;
            (B) the Category to which the decision relates; and
            (C) where relevant, the Cell, Takaful Fund or Long Term Insurance Fund to which the decision relates.
            12.2.3 An Insurer which has provided a notice to the Regulatory Authority in accordance with Rule 12.2.2 must not effect any Contracts of Insurance in that Category without the written permission of the Regulatory Authority. Where the notice referred to in Rule 12.2.2 relates to a Cell, Takaful Fund or Long Term Insurance Fund of the Insurer, the restriction set out in this Rule applies only to that Cell, Takaful Fund or Long Term Insurance Fund.

            12.3 Run-off Plans

            12.3.1 This section applies to:
            (A) Insurers that go into, or are in run-off, or that maintain Cells, Takaful Fund or Long Term Insurance Funds that are in run-off;
            (B) Insurers that make a decision to go into run-off or to place a Cell, Takaful Fund or Long Term Insurance Fund into run-off; and
            (C) Insurers whose authorisation to effect Contracts of Insurance in respect of their entire Insurance Business or in respect of the entire business of a Cell, Takaful Fund or Long Term Insurance Fund is withdrawn by the Regulatory Authority.
            12.3.2 If an Insurer takes a decision to go into run-off or to place a Cell, Takaful Fund or a Long Term Insurance Fund into run-off, the Insurer must, at the same time as the notice referred to in Rule 12.2.2, provide the Regulatory Authority with a written run-off plan in respect of the Insurance Business being placed into run-off.
            12.3.3 If the Regulatory Authority withdraws an Insurer's authorisation to effect Contracts of Insurance in respect of the Insurer's entire Insurance Business or the entire Insurance Business of a Cell, Takaful Fund or Long Term Insurance Fund, the Insurer must, within 28 days of the written notice of withdrawal of authorisation (or, if later, the period specified in that notice), provide the Regulatory Authority with a written run-off plan in respect of that Insurance Business.
            12.3.4 A run-off plan provided to the Regulatory Authority in accordance with this section must cover the period until all liabilities to policyholders relating to the Insurance Business in run-off are met and must include:
            (A) an explanation of how, or to what extent, all liabilities to policyholders will be met in full as they fall due;
            (B) an explanation of how, or to what extent, the Insurer will maintain its compliance with the requirements of PINS until such time as all liabilities to policyholders are met;
            (C) a description, appropriate to the scale and complexity of the Insurer's business, of the Insurer's business strategy;
            (D) financial projections showing, in a form appropriate to the scale and complexity of the Insurer's operations, the forecast financial position of the Insurer as at the end of each reporting period during the period to which the run-off plan relates;
            (E) an assessment of the sensitivity of the financial position of the Insurer to stress arising from realistic scenarios relevant to the circumstances of the Insurer;
            (F) planned run-off reinsurance protections and the extent to which the planned reinsurance protections match the run-off realistic scenarios;
            (G) claims handling and reserving strategy; and
            (H) cost of the management of the run-off.
            12.3.5 Where an Insurer's Insurance Business in run-off relates to a Cell, Takaful Fund or a Long Term Insurance Fund of that Insurer, the run-off plan must deal with the matters set out in Rule 12.3.4 so far as they relate to that Cell, Takaful Fund or Long Term Insurance Fund.
            12.3.6 An Insurer that has provided a written run-off plan to the Regulatory Authority must monitor the matters contained in the run-off plan and must notify the Regulatory Authority promptly and in writing of any significant departure from the run-off plan.

            Guidance

            An Insurer should decide whether a matter constitutes a significant departure from a run-off plan, having regard to the nature and size of the matter and its materiality relative to the size and complexity of the Insurer and, where relevant, the size and complexity of the Cell, Takaful Fund or Long Term Insurance Fund concerned. The following matters will normally be considered as representing a significant departure from a run-off plan:

            a. significant revision of the Insurer's strategy for managing risks, and in particular its strategy for the use of reinsurance;
            b. a significant deterioration in the Insurer's claims experience, financial position or solvency position (the amount by which the Insurer's Eligible Capital, determined in accordance with the provisions of chapter 4 relevant to that Insurer, exceed the Insurers Minimum Capital Requirement as calculated by the provisions in chapter 3);
            c. any other transaction or circumstance that is likely to have a material effect upon the Insurer's solvency position.
            12.3.7 Where an Insurer has notified a matter to the Regulatory Authority in accordance with Rule 12.3.6, the Regulatory Authority may by notice in writing require the Insurer to provide an amended run-off plan. The Insurer must provide an amended run-off plan within 28 days of receipt of the notice, unless the notice specifies a longer period.

            12.4 Provisions in respect of Contracts Relating to Insurance Business in Run-off

            12.4.1 This section applies only to an Insurer that:
            (A) is in run-off as regards its entire Insurance Business or the entire Insurance Business of a Cell, Takaful Fund or Long Term Insurance Fund;
            (B) has provided a notice to the Regulatory Authority in accordance with Rule 12.2.2 in respect of its entire Insurance Business or the entire Insurance Business of a Cell, Takaful Fund or Long Term Insurance Fund; or;
            (C) has received a written notice from the Regulatory Authority withdrawing the Insurer's permission to effect Contracts of Insurance in respect of its entire Insurance Business or the entire Insurance Business of a Cell, Takaful Fund or Long Term Insurance Fund.
            12.4.2 An Insurer to which this section applies must inform the Regulatory Authority in writing of the existence and principal features of any contract which it enters into in respect of its Insurance Business in run-off, including Insurance Business carried out through a Cell, Takaful Fund or a Long Term Insurance Fund that is in run-off, or that is in existence at the time the Insurer places that Insurance Business into run-off, and that is of any of the following types:
            (A) contracts, other than Contracts of Insurance effected by the Insurer prior to going into run-off, with parties that are Related to the Insurer;
            (B) contracts relating to the management of the Insurance Business in run-off, and any other contracts with the same counterparty or parties Related to that counterparty; or
            (C) contracts for reinsurance of the Insurance Business that is in run-off, and any other contracts with the same counterparty or parties Related to that counterparty.
            12.4.3 The Regulatory Authority may by written notice require an Insurer to provide additional information as specified in that notice in respect of any contract notified to the Regulatory Authority in accordance with Rule 12.4.2.

            12.5 Limitations on Distributions by QFC Incorporated Insurers in Run-off

            12.5.1
            (1) An Insurer incorporated in the QFC must not make any distribution to shareholders or members of the Insurer, whether by way of dividends or otherwise, or any payment of management fees (other than fees payable under a contract notified to the Regulatory Authority in accordance with Rule 12.4.2), without the written consent of the Regulatory Authority.
            (2) Any such distribution or return of capital or payment of management fees must be made within the period, if any, specified in the written notice of consent given by the Regulatory Authority.

            App1 Risk Management Policy

            Guidance

            Rule 2.2.1 identifies a number of material risks that an Insurer must address in its risk management policy, and the following guidance material provides greater detail on what the Regulatory Authority would expect to see in an Insurer's risk management policy for addressing these risks. It has been prepared to assist the Directors and Senior Managers of Insurers, their auditors, Approved Actuaries, and others concerned in applying those Rules. The Regulatory Authority recognises that the exact content of each Insurer's risk management policy will be determined by what is appropriate in light of the nature, scale and complexity of the Insurer's business.

            Credit risk

            Introduction

            1. Credit risk is the risk of default by borrowers and transactional counterparties as well as the loss of value of assets due to deterioration in credit quality. Exposure to credit risk results from financial transactions with securities issuers, debtors, borrowers, brokers, policyholders, reinsurers and guarantors.

            Credit exposures

            2. Credit exposures can increase the risk profile of an Insurer and adversely affect financial viability. A credit exposure includes both on-balance sheet and off-balance sheet exposures (including guarantees, derivative financial instruments and performance-related obligations) to single counterparties and groups of related counterparties. The Regulatory Authority envisages that actual and potential credit exposures to reinsurers arising from current or possible future claims, and other exposures, would be managed as part of the process of credit risk management.
            3. In relation to credit exposures, the Regulatory Authority envisages that the risk management policy would incorporate the following elements:
            a. a mandate setting out the acceptable range, quality and diversification of credit exposures, including those to reinsurers (e.g. reinsurance recoveries), brokers and policyholders (e.g. premium receivables) and investments. This may be integrated with a more general investment mandate;
            b. limits for credit exposures to:
            (i) single counterparties and groups of related counterparties;
            (ii) intra-group asset exposures (to subsidiaries and related entities);
            (iii) single industries; and
            (iv) single geographical locations
            (v) at both an individual and consolidated level;
            c. a process for approving changes in the credit mandate and changes in limit structures;
            d. a process for approving requests for temporary increases in limits and a process to ensure excesses are brought within the pre-approved limits within a set timeframe;
            e. a process for reviewing and, if necessary, reducing or cancelling exposures to a particular counterparty where it is known to be experiencing problems;
            f. a process to monitor and control credit exposures against pre-approved limits;
            g. a process to review credit exposures (at least annually, but more frequently in cases where there is evidence of a deterioration in credit quality);
            h. a management information system that is capable of aggregating exposures to any one counterparty (or group of related counterparties), asset class, industry or region in a timely manner; and
            i. a process of reporting to the Governing Body and Senior Management:
            (i) any breaches of limits; and
            (ii) large exposures (an exposure to an asset or counterparty (including related entities) of greater than 10 per cent of the Insurer's capital base would generally be regarded here as a large exposure) and other credit risk concentrations.

            Balance sheet and market risk

            Introduction

            4. Balance sheet and market risk includes, but is not limited to, investment and asset-liability management risk and the risks associated with liquidity management and the use of derivatives. Due to the nature of an Insurer's business, there is a close relationship between investment risk and asset liability mismatch risk.

            Investment risk and asset-liability mismatch risk

            5. Investment risk refers to the possibility of an adverse movement in the value of an Insurer's assets, including off-balance-sheet exposures. Investment risk derives from a number of sources, including market risk (e.g. equity, interest rate and foreign exchange risk), credit risk and investment concentration risk. Related to this is asset-liability mismatch risk.
            6. Asset-liability mismatch risk is the risk of adverse movements in the relative value of assets and liabilities due to changes in general market factors, such as interest rates, inflation and, where relevant, foreign exchange rates. Assets and liabilities are considered to be well matched if their changes in value in response to market movements are highly correlated. If assets and liabilities are not well matched, the possibility of a reduction in asset value that is not offset by a reduction in liability value, or an increase in liability value that is not offset by an increase in asset value, becomes significant.
            7. The expected payment profile of an Insurer's liability portfolios is a crucial element of asset/liability management, as it determines the exposure of the portfolios' value to interest rates. Property business, such as household insurance, is typically short-term. Liability business, such as public liability, is typically long-term. The interest rate sensitivity of assets and liabilities is broadly determined by the timing of cash flows, although that will not always be the case (e.g. in the case of floating-rate notes or options). Timing of cash flows also affects the level of liquidity risk.
            8. The systemic part of market risk is included under asset-liability risk. Market risk also includes non-systemic or specific risk, which principally arises in the process of implementing the investment strategy.
            9. In relation to investment risk, the risk management policy would typically include the following elements:
            a. the investment objective;
            b. formulation of an investment strategy, including allowable asset classes, strategic asset allocation, asset allocation ranges, benchmarks, risk limits and target currency exposures and ranges. The investment strategy would typically be formulated taking account of the investment objective, the Insurer's capital position, the term and currency profile of its expected liabilities, liquidity requirements and the expected returns, volatilities and correlations of asset classes;
            c. a process for how individual asset classes will be managed, including which of these tasks are done internally and which are outsourced to investment managers;
            d. responsibilities of individuals and committees (e.g. investment committee, asset-liability committee) for deciding and implementing the investment strategy, and for monitoring and controlling investment risk, including reporting lines, decision-making powers and delegations;
            e. a process for selection of investment managers who are qualified and competent to carry out their assigned task, direct investments (including direct lending) and pooled investment vehicles;
            f. limits and other restrictions on the actions of investment managers, whether internal or outsourced, and the means by which compliance with those limits is monitored;
            g. modelling and stress-testing of the impact of the current and alternative investment strategies on financial outcomes and asset-liability mismatch;
            h. processes for:
            (i) ensuring the continuing appropriateness of the investment strategy, including timing and nature of strategy reviews;
            (ii) ensuring the continuing appropriateness of the investment implementation process, including timing and nature of reviews of investment managers and manager configuration;
            (iii) monitoring compliance with the investment strategy; and
            (iv) putting into place contingency plans to mitigate the effects of deteriorating investment conditions;
            i. segregation of duties (which may also be covered by the operational risk management policy); and
            j. performance monitoring and its role in the oversight and control of the investment process.

            Liquidity

            10. The Regulatory Authority expects an Insurer to have sufficient liquidity to meet all cash outflow commitments to policyholders (and other creditors) as and when they fall due. The nature of insurance activities means that the timing and amount of cash outflows are uncertain. This uncertainty may affect the ability of an Insurer to meet its obligations to policyholders or may require Insurers to incur additional costs through, for example, raising additional funds at a premium on the market or through the sale of assets.
            11. Typically, in relation to liquidity, the risk management policy would include:
            a. consideration of the level of mismatch between expected asset and liability cash flows under normal and stressed operating conditions;
            b. the liquidity and realisability of assets;
            c. commitments to meet insurance and other liabilities;
            d. the uncertainty of incidence, timing and magnitude of Insurance Liabilities;
            e. the level of liquid assets needed to be held by the Insurer; and
            f. other sources of funding including reinsurance, borrowing capacity, lines of credit and the availability of intra-group funding.

            Derivatives

            12. Derivative transactions are financial contracts in instruments such as forwards, futures, swaps, options and other similar transactions.
            13. An Insurer's risk management policy for derivatives would typically incorporate the following elements:
            a. the Insurer's objectives and policies in using derivatives;
            b. the risk tolerances of the Insurer and a limit framework consistent with those risk tolerances;
            c. appropriate lines of authority and responsibility for transacting derivatives, including trading limits; and
            d. consideration of worst case scenarios and sensitivity analysis and reporting of that analysis.

            Reserving risk

            14. Reserving risk is the risk that Insurance Liabilities recorded by the Insurer, net of reinsurance and other recoveries in respect of those liabilities, will be inadequate to meet the net amount payable when the Insurance Liabilities crystallise. Insurance Liabilities include the liability for claims incurred up to the reporting date, as well as the Premium Liability. In the case of General Insurance Business, reinsurance recoveries anticipated in respect of those liabilities are generally recognised as a separate asset. In the case of Long Term Insurance Business, Insurance Liabilities include also the net value of future Policy Benefits and the effects of reinsurance arrangements are taken into account when these are estimated.
            15. An Insurer's risk management policy should therefore include a process for ongoing review and appraisal of the Insurance Liability valuation framework (i.e. assumptions made, reinsurance recoveries estimated etc). In conducting this review, consideration should be given to emerging pricing and claim payment trends.
            16. An Insurer should maintain appropriate systems, controls and procedures to ensure that the provision for Insurance Liabilities is, at all times, sufficient to cover any liabilities that have been incurred, or are yet to be incurred on Contracts of Insurance accepted by the Insurer, as far as can be reasonably estimated.
            17. Appropriate methods should be applied in estimating the provision for Insurance Liabilities, including provisions in respect of individual notified incurred claims. In determining a provision estimation method, managers may consider using alternative approaches before selecting those which may be regarded as most appropriate to the nature of the business.
            18. Appropriate methods should be applied in estimating the amount of the asset in respect of reinsurance recoveries that are expected to arise on crystallisation of the gross Insurance Liabilities. The manner of estimating those assets should be consistent with the manner estimating the gross liabilities, except where there is a sound justification for doing otherwise.
            19. Suitable systems and controls should be put in place to ensure that the selected approaches are applied accurately and on a consistent basis.
            20. Procedures should be in place to review and monitor, on a regular basis, the out-turn of provisions made in previous years for Insurance Liabilities, both gross and net of reinsurance recoveries.
            21. Aside from the actuarial advice an Insurer is required to obtain under chapter 9, an Insurer should consider the use of actuaries or other appropriately qualified and experienced loss reserving specialists to estimate Insurance Liabilities periodically through the year. The Insurer should in any case undertake periodic testing of its reserving processes and the level of its reserves, including continual reassessment of assumptions used, and testing the sensitivity of the valuation of Insurance Liabilities to stress arising from realistic scenarios relevant to the circumstances of the Insurer. Whether in-house or outside experts are used, appropriate procedures should be in place to ensure that the specialist selected possesses the appropriate level of skill and experience and has available the necessary information to carry out the estimation required.
            22. Suitable controls should be in place to ensure that the data used in determining the Insurance Liabilities are extracted from the underlying records accurately and to the necessary level of detail. The level of detail should be sufficient to ensure that the data available to managers in their assessment of Insurance Liabilities covers the whole of its liabilities and exposures under insurance contracts.
            23. Scenario testing should cover a period of several years into the future, particularly in the case of an Insurer carrying on Long Term Insurance Business.

            Insurance and reinsurance risk

            Introduction

            24. Insurance risk is the risk that inadequate or inappropriate underwriting, claims management, product design and pricing will expose an Insurer to financial loss and the consequent inability to meet its liabilities.

            Product design

            25. Product design involves the introduction of a new product or the enhancement or variation of an existing product.
            26. In relation to product design and approvals, an Insurer's risk management policy would typically cover the product classes and types of risks in which the Insurer chooses to engage.
            27. In this regard, the risk management policy would typically include the following elements:
            a. setting a business case for new or enhanced products;
            b. market testing and analysis;
            c. cost/benefit analysis;
            d. risk identification and assessment;
            e. requirements for limiting risk through, for example, diversification, exclusions and reinsurance (including confirmation that either the existing reinsurance will provide protection or new reinsurance protection is being provided);
            f. processes to ensure that policy documentation is adequately drafted to give legal effect to the proposed level of coverage under the product;
            g. an implementation plan for the product, including milestones;
            h. clearly defined and appropriate levels of delegation for approval of all material aspects of product design;
            i. post-implementation review; and
            j. methods for monitoring compliance with product design policies and procedures.

            Pricing

            28. The pricing of an insurance product involves the estimation of claims costs and other business costs arising from the product and the estimation of investment income arising from the investment of the premium income attaching to the product. Pricing risk may occur where the claims, costs or investment returns arising from the sale of a product are inaccurately estimated.
            29. An Insurer could consider incorporating ongoing actuarial review and involvement in the pricing process and, where relevant, undertaking specific independent reviews of pricing for schemes and larger or more complex risks.
            30. In relation to pricing, the Insurer could consider including in the risk management policy the following elements:
            a. clearly defined and appropriate levels of delegation for approval of all material aspects of pricing;
            b. risk identification and assessment;
            c. a process for the reflection of emerging experience in price adjustments;
            d. profit and loss analysis including monitoring the effect of price movements on the bottom line;
            e. price discounting authorities;
            f. a process for the Insurer's product pricing to respond to competitive and other external environmental pressures;
            g. a process for and the ability to monitor deviations of actual price from the technical underwriting pricing; and
            h. methods for monitoring compliance with pricing policies and procedures for proposed pricing variations.

            Underwriting

            31. Underwriting is the process by which an Insurer determines whether or not to accept a risk and, if accepted, the terms and conditions to be applied and the level of premium to be charged. Weaknesses in the underwriting process and in the types and levels of controls and systems can expose an Insurer to the risk of operational losses which may threaten the long-term viability of the Insurer.
            32. In relation to underwriting, the risk management policy would typically include the following elements:
            a. a statement of the Insurer's willingness and capacity to accept risk;
            b. the nature of Insurance Business that the Insurer is to underwrite including:
            (i) the classes of insurance to be underwritten;
            (ii) the geographical areas in which these classes will be underwritten;
            (iii) the types of risks that may be underwritten and those that are to be excluded; and
            (iv) the criteria for the use of reinsurance in the different classes of Insurance Business to be underwritten;
            c. details of the formal risk assessment process in the underwriting of insurance including:
            (i) the criteria used for risk assessment;
            (ii) the method(s) for monitoring emerging experience; and
            (iii) the method(s) by which the emerging experience is taken into consideration in the underwriting process;
            d. the process for setting approval authorities and the definitive limits to those authorities (including controls surrounding delegations given to intermediaries of the Insurer);
            e. risk and aggregate concentration limits; and
            f. methods for monitoring compliance with underwriting policies and procedures such as:
            (i) internal audit (where it is established that the internal audit unit has the appropriate skills and experience to perform such activities);
            (ii) reviews by area heads or portfolio management;
            (iii) peer review of policies underwritten (including details of the staff responsible for undertaking the peer review, the frequency of such reviews and the reporting arrangements for the results);
            (iv) assessments of brokers' procedures and systems to ensure the quality of information provided to the Insurer is of a suitable standard; and
            (v) in the case of reinsurers, audits of ceding companies to ensure that reinsurance assumed is in accordance with treaties in place.

            Claims management

            33. Claims settlement is the process by which insurance companies fulfil their contractual obligations to policyholders. In the management of the claims handling process, the following procedures would be triggered when a loss occurs and claims notification is made to the Insurer:
            a. verifying the contractual obligation of the policy to pay the claim;
            b. making an assessment of the claims liability quantum, including loss adjustment expenses; and
            c. ensuring the claims settlement process is handled promptly and efficiently within the terms of the policy.
            34. Weaknesses in the controls and systems surrounding the claims management process can expose an Insurer to additional or increased losses which may impact upon its capital position.
            35. In relation to claims management, the Regulatory Authority envisages that the risk management policy would include the following elements:
            a. clearly defined and appropriate levels of delegations of authority;
            b. claims settlement procedures, including loss estimation and investigation procedures;
            c. criteria for accepting or rejecting claims;
            d. dispute resolution procedures; and
            e. methods for monitoring compliance with claims management processes and procedures such as:
            (i) internal audit (where it is established that the internal audit unit has the appropriate skills and experience to perform such activities);
            (ii) reviews by area heads or portfolio management;
            (iii) peer review (including details of the staff responsible for undertaking the peer review, the frequency of such reviews and the reporting arrangements for the results);
            (iv) assessments of brokers' procedures and systems to ensure the quality of information provided to the Insurer is of a suitable standard; and
            (v) in the case of reinsurers, audits of ceding companies to ensure that the value of claims paid is in accordance with treaties in place.

            Operational risk

            Introduction

            36. Operational risk is the risk of financial loss resulting from inadequate or failed internal processes, people and systems or from external events. An Insurer may determine a definition of operational risk appropriate to the nature, size and complexity of its activities and operating environment. The Regulatory Authority envisages that this definition of operational risk would be clearly understood throughout the Insurer in order to effectively identify and manage this risk.
            37. The management of operational risk would typically include (but is not limited to) the risks associated with outsourcing, business continuity, inadequate human resources, internal and external fraud, project management, underwriting and claims, business processes and the introduction of new products.

            Outsourcing

            38. Financial firms frequently decide to outsource aspects of their operations to other parties, Related or not. Outsourcing can bring significant benefits to a firm in terms of efficiency, cost reduction and risk management. However, both the process of implementing outsourcing arrangements and the outsourcing relationship itself may expose a firm to additional risk. It is therefore important that firms take care to supervise the conduct of activities that are outsourced. CTRL Rule 5.2.1 requires an Authorised Firm to inform the Regulatory Authority prior to entering any Material Outsourcing arrangement.
            39. The activities of outsource contractors have the ability to undermine the risk management activities of Insurers. Insurers should take particular care if outsourcing activities such as underwriting and claims management, where inappropriate performance of the functions can expose the Insurer to serious financial loss, for example through acceptance of inappropriate insurance risks, mis-pricing, failure to obtain appropriate reinsurance cover, or failure to detect invalid claims. These considerations apply to such arrangements as binding authorities and other agencies appointed by Insurers.
            40. In negotiating a contract with an outsource contractor or in assessing an existing agreement, an Insurer should give consideration to matters relevant to risk management, including the following:
            a. setting and monitoring of 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. reporting requirements imposed on the outsource contractors (including both content and frequency of reports);
            f. the ability of the Insurer and its Risk Management Functions (for example, internal auditors), and its external auditors, to obtain access to the outsource contractors and their records;
            g. protection of intellectual property rights;
            h. protection of customer and firm confidentiality;
            i. the adequacy of any guarantees, indemnities or insurance cover that the outsource contractor agrees to put in place;
            j. the ability of the outsource contractor to provide continuity of business; and
            k. arrangements for change to the outsource contract or termination of the contract.\
            41. Insurers should take care to manage the risk that the sound and prudent management of the Insurer's business may be compromised by conflicting incentives in the outsource agreement. In particular, Insurers should consider whether the remuneration structure creates any perverse incentives. For example, an outsource contractor with underwriting authority may have an incentive to accept poorer quality business if remuneration is based on commission (especially if bonuses are given for volume) and remuneration is not affected by the performance of the insurance contracts accepted.
            42. Intra-group outsourcing may be perceived as subject to lower risks than using outsource contractors from outside a Group. However it is not risk-free and an Insurer must still assess the associated risks and make appropriate arrangements for their management.

            Business continuity

            43. Disruptions in an Insurer's business can lead to unexpected losses of both a financial and non-financial nature (e.g. data, premises, reputation etc). Disruptions may occur as a result of events such as power failure, denial of access to premises or work areas, systems failure (computers, data, building equipment), fire, fraud and loss of key staff.
            44. An Insurer's risk management system in respect of business continuity planning risk will normally be expected to include at least the following policies and procedures:
            a. processes for identifying:
            (i) events that may 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 business continuity plan (BCP) describing:
            (i.) procedures to be followed if business continuity problems arise;
            (ii) detailed procedures for enacting the BCP, including manual processes, the activation of an off-site recovery site (if needed) and the person(s) responsible for activating the BCP;
            (iii) a communications strategy and contact information for relevant staff, suppliers, regulators, market authorities (including exchanges), major clients, the media and other key people;
            (iv) a schedule of critical systems covered by the BCP and the timeframe for restoring these systems;
            (v) the pre-assigned responsibilities of staff and procedures for training staff on all aspects of the BCP; and
            (vi) procedures for regular testing and review of the BCP; and
            c. procedures for backing up important data on a regular basis and storing the information off site.

            Human resources

            45. In relation to human resources, the risk management policy may include the following elements or such elements as the Insurer deems relevant to its circumstances:
            a. risk identification and assessment of the Insurer's human resource needs; and
            b. monitoring and supervision of staff.

            Fraud

            46. The Regulatory Authority envisages that the risk management policy would address fraud risk. Fraud risk relates to the risk associated with intentional acts, undertaken with the objective of personal benefit, to tamper with or manipulate the financial or operational aspects of the business.
            47. Fraudulent activity can arise from internal sources (e.g. premium redirection) or external sources (e.g. fictitious claims) and exposes the Insurer to risk of financial loss if not managed appropriately.
            48. In relation to fraud, the risk management policy would typically include (but is not limited to) the following elements:
            a. risk identification and assessment;
            b. internal controls and mitigation strategies;
            c. segregation of duties at both an operational level and in relation to functional reporting lines;
            d. financial accounting controls; and
            e. staff training and awareness.

            Project management

            49. An Insurer could consider addressing project management risk in its risk management policy. Project management risk is the risk that projects will not achieve the desired objectives or will have a negative impact on resource levels of the Insurer.
            50. In relation to project management, the risk management policy would typically include (but is not limited to) the following elements:
            a. a formal project methodology for the promulgation of project initiatives including:
            (i) setting a business case for the project;
            (ii) cost/benefit analysis;
            (iii) risk identification and assessment; and
            (iv) stakeholder sign-offs;
            b. clearly defined and appropriate levels of delegations of authority;
            c. ongoing monitoring of project objectives and timeframes; and
            d. post-implementation review.

            Group risk

            51. Group membership may be a source of both strength and weakness to an Insurer. The purpose of requiring an Insurer to include Group risk in its risk management policy is to ensure that the Insurer takes proper account of the risks related to the Insurer's membership of a Group.
            52. The Senior Management of an Insurer remain responsible for its regulatory compliance, including in any areas that are delegated or outsourced to other Group members.
            53. The overall governance, high-level controls and reporting lines within the Group should be clear so far as they affect the Insurer. An Insurer should not, for example, be subject to material control or influence from other Group members that is exercised through informal or undocumented channels.
            54 Reliance upon functions performed at a Group level (for example, Group risk management, capital planning, liquidity and compliance) should be subject to approval and monitoring by Senior Management of the Insurer.
            55. Where an Insurer relies upon functions that are performed at a Group level the protocols for the performance of those functions should be clear.
            56. Senior Management should establish and maintain systems and controls to identify and monitor the effect on the Insurer of its relationship with other members of the Group and the activities of other members of its Group. These systems and controls should include procedures to monitor the following matters:
            a. changes in relationships between Group members;
            b. changes in the activities of Group members;
            c. conflicts of interest arising within the Group; and
            d. events in the Group, particularly those that may affect the Insurer's own regulatory compliance (for example, failures of control or compliance in other Group members).
            57 The Insurer should have in place procedures to insulate the Insurer, so far as practicable, from potentially adverse effects of Group activities (for example, transfer pricing or fronting) or Group events that may expose the Insurer to risk. Such procedures could include requirements for transactions with Group members to be at arm's length, and for maintenance of Chinese walls, and development of contingency plans.
            58. Senior Management should take reasonable steps to ensure that:
            a. relevant Group members are aware of the Insurer's Group risk management and reporting obligations;
            b. Group capital and Group risk reporting requirements are complied with; and
            c. information in respect of the Group provided to the Regulatory Authority is of appropriate quality.
            59. If the Insurer is part of a QFC or global corporate Group or operates as a Branch, the Insurer's Risk Management Strategy should also:
            a. include, if applicable, a summary of the Group policy objectives and strategies relating to reinsurance;
            b. summarise the linkages between the local and Group reinsurance arrangements;
            c. where any element of an Insurer's reinsurance management policy is controlled by another entity in the corporate Group, or by head office, include details of all such arrangements, including claims settlement procedures where the Parent Entity or head office purchases reinsurance on a global Group basis; and
            d. detail any arrangements relating to the existence of, and accessibility to, intra-group reinsurance arrangements.

            App2 Capital

            Stress and Scenario Testing

            Guidance

            1. Stress and scenario testing seeks to anticipate possible losses or risks that might occur or become manifest. In applying them an Insurer needs to decide how far forward to forecast and may want to consider the following factors:
            a. how quickly it would be able to identify events or changes in circumstances that might lead to a loss occurring or risk crystallising; and
            b. after the event or circumstance has been identified, how quickly and effectively the Insurer could act to prevent or mitigate any resulting loss occurring or risk crystallising and to reduce its exposure to any further adverse event or change in circumstance.
            2. For example, the time horizon over which stress and scenario testing would need to be carried out for the risks arising from the holding of investments would depend upon:
            a. the extent to which there is a regular, open and transparent market in those assets, which would allow fluctuations in the value of the investment to be more readily and quickly identified; and
            b. the extent to which the market in those assets is liquid (and would remain liquid in the changed circumstances contemplated in the stress or scenario test) which would allow the Insurer, if needed, to sell its holding so as to prevent or reduce its exposure to future price fluctuations.
            3. Insurers should focus on those scenarios and combinations of scenarios that are considered reasonably likely to occur. For this purpose other risks and losses include business risk, i.e. the potential impact of changes in business plans, future activities, and the business or economic environment.
            4. In identifying what realistic combinations of losses or risks might occur or crystallise, an Insurer should take into account scenarios in which expected correlations occur and where they might break down.
            5. In identifying scenarios and assessing their impact, an Insurer should take into account how changes in circumstances might impact upon:
            a. the nature, scale and mix of future activities; and
            b. the behaviour of Counterparties, and of the Insurer itself, including the exercise of choices (including Options embedded in Financial Instruments or Contracts of Insurance).
            6. In determining whether it would have adequate financial resources in the event of each identified adverse scenario, an Insurer should:
            a. only include financial resources that could reasonably be relied upon as being available in the circumstances of the identified scenario; and
            b. consider any legal or other restriction on the purposes for which financial resources may be used, including any restriction on the transfer to the QFC of assets held overseas.

            App3 Risk Based Capital Requirement

            Guidance

            The purpose of this appendix is to outline the calculations an Insurer must make for each component of the Investment Risk Requirement and Insurance Risk Requirement as specified under Rule 3.6.1 and Rule 3.8.1 respectively.

            A3.1 Counterparty Grades

            A3.1.1 An Insurer must use the following table whenever the Rules in PINS require an Insurer to determine a particular counterparty Grade.

            Grade Standard & Poor's Moody's AM Best Fitch
            1 AAA Aaa A++ AAA
            2 AA+
            AA
            AA-
            Aa1
            Aa2
            Aa3
            A+ AA+
            AA
            AA-
            3 A+
            A
            A-
            A1
            A2
            A3
            A A+
            A
            A-
            4 BBB+
            BBB
            BBB-
            Baa1
            Baa2
            Baa3
            A- BBB+
            BBB
            BBB-
            5 BB+ to B- Ba1 to B3 B++ to C+ BB+ to B-
            6 CCC+ and below Caa and below C and below CCC and below

            A3.2 Credit Risk Component

            Guidance

            1. Credit risk is the risk incurred whenever an Insurer is exposed to loss if another party fails to perform its financial obligations to the Insurer, including failing to perform them in a timely manner. Credit risk includes a reinsurer failing to fulfil its financial obligation to repay an Insurer upon submission of a claim.
            2. The purpose of the credit risk component is to require an Insurer to hold capital against this risk. The basic calculation for this component, set out in Rule A3.2.1, is modified by additional provisions that permit an Insurer to take account of reduced credit risk, for example where an asset is covered by guarantees or collateral.
            A3.2.1 An Insurer must calculate its credit risk component as the sum of the amounts obtained by multiplying the value of each asset of the Insurer, graded according to the counterparty Grade of the asset, by the percentage applicable to that asset, as set out in the tables (A) and (B) contained in this Rule and subject to the provisions of Rule A3.2.2, A3.2.3 and A3.2.4.
            (A) Assets that are Invested Assets

            Asset %
            (a) Grade 1 Sovereign Bonds 0.0
            (b) All other Grade 1 bonds 0.4
            (c) Grade 2 bonds 1.4
            (d) Grade 3 bonds 2.0
            (e) Grade 4 bonds 3.5
            (f) Grade 5 bonds 10.0
            (g) Grade 6 bonds 20.0
            (h) Secured loans — performing 2.0
            (i) Secured loans — Non-Performing 14.0
            (j) • Loans to directors of the Insurer or to directors of Related parties, or to the dependent relatives of such directors
            • Unsecured loans to employees (except loans of less than $1,000)
            • Assets under a fixed or floating charge
            100.0
            (k) Other bonds and loans 50.0
            (B) Assets that are not Invested Assets

            Asset %
            (a) Reinsurance assets due from reinsurers with a counterparty rating of Grade 1 0.5
            (b) Reinsurance assets due from reinsurers with a counterparty rating of Grade 2 1.2
            (c) Reinsurance assets due from reinsurers with a counterparty rating of Grade 3 1.9
            (d) Reinsurance assets due from reinsurers with a counterparty rating of Grade 4 4.7
            (e) Reinsurance assets due from reinsurers with a counterparty rating of Grade 5 9.6
            (f) Reinsurance assets due from reinsurers with a counterparty rating of Grade 6 100.0
            (g) Other assets 3.0
            A3.2.2
            (1) Assets that have been explicitly, unconditionally and irrevocably guaranteed for their remaining term to maturity by a guarantor with a counterparty rating in Grades 1, 2 or 3 who is not a Related party to the Insurer may be assigned the credit risk charge that would apply to a debt instrument issued from the guarantor.
            (2) Where an Insurer holds collateral against an asset, and this collateral takes the form of a charge, mortgage or other security interest in, or over, cash, or any debt security whose issuer has a counterparty rating of Grades 1, 2 or 3, the Insurer may apply the credit risk charge relevant to the collateral (instead of applying the credit risk charge that would otherwise apply to the asset).
            (3) The provisions in (1) and (2) above apply only to so much of the asset that is covered by the guarantee or the collateral.
            A3.2.3
            (1) Subject to Rule A3.2.3(2), assets of the Insurer that are under a fixed or floating charge, mortgage or other security are subject to a credit risk charge of 100%, to the extent of the indebtedness secured on those assets. This would replace the credit risk charge that would otherwise apply to the secured assets.
            (2) Where the security supports an Insurer's Insurance Liabilities, the credit risk charge of 100% is applicable only to the amount by which the market value of the charged assets exceeds the Insurer's supported liabilities.
            A3.2.4 An Insurer does not need to include an amount in its credit risk for any assets excluded from Eligible Capital by reason of Rules 4.3.1(I), 4.6.3, and 4.6.4.

            A3.3 Volatility Risk Component

            Guidance

            Volatility risk is the risk of an adverse movement in the value of an Insurer's Invested Assets which is not offset by a corresponding movement in the value of liabilities. The purpose of the volatility risk component is to require an Insurer to hold capital to cover the risk of deteriorations in the values of Invested Assets. Invested Assets that are linked to liabilities of Investment Linked Insurance contracts are exempted from the calculation, since there is a direct correlation between the values of the assets and the values of the liabilities to which they are linked.

            A3.3.1 An Insurer must calculate its volatility risk component as the sum of the amounts obtained by multiplying the value of each Invested Asset of the Insurer with the percentage applicable to that asset, as set out in the following table.

            Asset %
            (a) All bonds up to 1 year to maturity 1.0
            (b) Bonds between 1 and 2 years to maturity 2.0
            (c) Bonds between 2 and 5 years to maturity 4.0
            (d) Bonds between 5 and 10 years to maturity 6.0
            (e) All other bonds 8.0
            (f) Equity investments* 15.0
            (g) Preference shares 6.0
            (h) Land and buildings 18.0
            *Notes: Item (f) includes equity shares, participations in collective investment schemes (whether or not the underlying investments are themselves equity investments), participations in joint ventures, and certificates of Mudaraba and Musharaka.
            A3.3.2 No amount must be included in the calculation of the volatility risk component in respect of investments that are linked to liabilities of Investment Linked Insurance contracts.

            A3.4 Off-balance Sheet Asset Risk Component

            Guidance

            An Insurer may be exposed to various investment risks through transactions or dealings other than those reflected in its balance sheet. The purpose of the off-balance sheet asset risk component is to require an Insurer to hold capital to cover the risk of default and deterioration in value of exposures that the Insurer has because it is party to a derivative contract.

            A3.4.1 An Insurer must calculate an off-balance sheet asset risk component, if the Insurer is, as of the Solvency Reference Date, a party to a derivative contract, including a forward, future, swap, option or other similar contract, but not:
            (A) a put option serving as a guarantee;
            (B) a foreign exchange contract which has an original maturity of 14 calendar days or less; or
            (C) an instrument traded on a futures or options exchange which is subject to daily mark-to-market and margin payments.
            A3.4.2 An Insurer must calculate its off-balance sheet asset component as the sum of the amounts obtained by applying the calculations set out in Rule A3.4.3 in respect of each derivative contract entered into by the Insurer that meets the description in Rule A3.4.1.
            A3.4.3 To calculate the amount of the off-balance sheet asset component, the asset equivalent value of each derivative, as determined in Rule A3.4.4 is multiplied by the credit risk component as determined in Rule A3.2.1 and the volatility risk component as determined in Rule A3.3.1, as though the asset equivalent value were a debt obligation due from the derivative counterparty.
            A3.4.4
            (1) The asset equivalent value is the current mark-to-market exposure of the derivative (where positive) and a potential exposure add-on.
            (2) The potential exposure add-on is determined by multiplying the notional principal amount of the derivative by the following table, according to the nature and residual maturity of the derivative.

            Residual maturity Interest rate contracts Foreign exchange & gold contracts Equity contracts Precious metal contracts (except gold) Other contracts
            Less than 1 year Nil 1.0% 6.0% 7.0% 10.0%
            1 year to less than 5 years 0.5% 5.0% 8.0% 7.0% 12.0%
            5 years or more 1.5% 7.5% 10.0% 8% 15.0%

            A3.5 Off-balance Sheet Liability Risk Component

            Guidance

            1. An Insurer may be exposed to various investment risks through transactions or dealings other than those reflected in its balance sheet. The purpose of the off-balance sheet liability risk component is to require an Insurer to hold capital to cover the risk that it will be required to perform on a guarantee, letter of credit of other credit substitute that it has entered into should the guaranteed party default or fail to deliver. Although such items are not liabilities of the Insurer as at the Solvency Reference Date they have the capacity to crystallise as liabilities at a subsequent date and therefore to affect the Insurer's capital position.
            2. Credit substitutes do not include Contracts of Insurance for credit and surety insurance business.
            A3.5.1
            (1) An Insurer must calculate its off-balance sheet liability risk component by applying, to the face value of any credit substitute it has issued, including letters of credit, guarantees and put options serving as guarantees, the credit risk component as determined in Rule A3.2.1 and the volatility risk component as determined in Rule A3.3.1, that would be applied to the obligation or asset over which the credit substitute has been written.
            (2) Where the credit substitute is supported by collateral or a guarantee, the provisions of Rule A3.2.2(1) and A3.2.2(2) may be applied by the Insurer.

            A3.6 Concentration Risk Component

            Guidance

            An Insurer may be exposed to risk arising from an excessive exposure to a particular asset (including reinsurance recoveries). The purpose of the concentration risk component is to require an Insurer to hold capital to cover the sensitivity that it has to default or volatility in respect of assets and exposures to single counterparties or groupings of connected counterparties, or single properties. The additional capital requirement applies to investment exposures, including off-balance sheet exposures, and amounts outstanding under finite risk reinsurance contracts in respect of Long Term Insurance Business. It is calculated on the basis of the Insurer's total exposure to the counterparty, grouping of connected counterparties or property, and operates on a sliding scale depending on the size and counterparty Grade of that exposure relative to the Insurer's Eligible Capital. The total amount of the concentration risk component in respect of any asset is limited to 100% of the value of the asset, and certain assets that are left out of account in calculating an Insurer's Eligible Capital are excluded from the calculation.

            A3.6.1 An Insurer must calculate a concentration risk component if the Insurer has, as at the Solvency Reference Date, an investment exposure to a single counterparty or (taken in the aggregate) to a grouping of two or more counterparties who are Related to each other, or to a single property, that exceeds 10% of the Insurer's Eligible Capital.
            A3.6.2 For the purposes of the calculation referred to in Rule A3.6.1:
            (A) 'investment exposure' means the aggregate value of all equity, bond or other investments in or in respect of the counterparty or grouping of Related counterparties or property in question, together with off-balance sheet exposures to the same counterparty or grouping of Related counterparties or property that the Insurer has because it has issued guarantees, letters of credit or other credit substitutes (other than insurance contracts), or because it has entered into derivative contracts, and any amounts referred to in Rule A3.9.5 in respect of that counterparty or grouping of Related counterparties, but excluding any assets excluded from Eligible Capital by reason of Rules 4.3.1(I), 4.6.3, and 4.6.4.;
            (B) where an Insurer's investment exposure is to a group of Related counterparties, the concentration risk component must be calculated on the basis of the lowest counterparty Grade of a counterparty in this grouping;
            (C) Grade 1 rated Governments and Government agencies are not counterparties; and
            (D) property should be categorised as a counterparty Grade of 4-6 when determining which formula to use in Rule A3.6.3.
            A3.6.3 An Insurer must calculate its concentration risk component as the sum of the amounts obtained by applying to each investment exposure that exceeds 10% of the Insurer's Eligible Capital the relevant formula for the counterparty Grade as set out in the following table, subject to Rule A3.6.4.

            Exposure expressed as a percentage of Eligible Capital Counterparty Grade*   Formula to determine concentration risk component
            Over 10 up to 25 1–3

            4–6
            0%

            20%


            of the amount by which the investment exposure exceeds 10% of Eligible Capital, up to a limit equivalent to 3% of Eligible Capital.
            Over 25 up to 50 1–3



            4–6
            20%



            3%
            of the amount by which the investment exposure exceeds 25% of Eligible Capital, up to a limit equivalent to 5% of Eligible Capital.

            of the Eligible Capital, plus 40% of the amount by which the investment exposure exceeds 25% of Eligible Capital, up to a limit in total equivalent to 13% of Eligible Capital.
            Over 50 up to 75 1–3




            4–6
            5%




            13%
            of the Eligible Capital, plus 40% of the amount by which the investment exposure exceeds 50% of Eligible Capital, up to a limit in total equivalent to 15% of Eligible Capital.

            of the amount of Eligible Capital, plus 60% of the amount by which the investment exposure exceeds 50% of Eligible Capital, up to a limit in total equivalent to 28% if Eligible Capital.
            Over 75 up to 100 1–3




            4–6
            15%




            28%
            of the amount of Eligible Capital, plus 60% of the amount by which the investment exposure exceeds 75% of Eligible Capital, up to a limit in total equivalent to 28% if Eligible Capital.

            of the amount of Eligible Capital, plus 80% of the amount by which the investment exposure exceeds 75% of Eligible Capital, up to a limit in total equivalent to 48% of Eligible Capital.
            Over 100 1–3



            4–6
            28%



            48%
            of the amount of Eligible Capital, plus 80% of the amount by which the investment exposure exceeds 100% of Eligible Capital.

            of the amount of Eligible Capital, plus 100% of the amount by which the investment exposure exceeds 100% of Eligible Capital.
            A3.6.4 If the amount included in the concentration risk component in respect of an investment exposure, aggregated with the sum of the amounts included in the credit risk component, volatility risk component and off-balance sheet asset risk component in respect of the assets and off-balance sheet exposures comprising that investment exposure, exceeds 100% of that investment exposure, the concentration risk component in respect of that investment exposure must be reduced so that the total of the four components in respect of that investment exposure is equal to 100% of that investment exposure.

            A3.7 Premium Risk Component

            Guidance

            An Insurer may be exposed to the risk that the cost of claims in respect of General Insurance Business will exceed the cost implicit in the premiums being charged. The purpose of the premium risk component is to require an Insurer to hold capital against this risk in accordance with the calculations set out in Rule A3.7.1. The basic calculation model set out in Rule A3.7.1 applies different factors to the premium in respect of each PINS Category, based on the different perceived risk of variability associated with each. The model is modified by additional provisions dealing with certain classes of business with each PINS Category. This section also restricts the extent to which reinsurance may be taken into account when calculating the premium risk component.

            A3.7.1 An Insurer's premium risk component is calculated as the sum of the amounts obtained by multiplying the base premium that falls within each PINS Category (each PINS Category being comprised of one or more Categories of Business), by the percentage factor set out in the table below.

            PINS Category Percentage factor
              Direct insurance Reinsurance: facultative proportional Reinsurance: facultative non-proportional Reinsurance: treaty proportional Reinsurance: treaty non-proportional
            PINS Category 1 18 18 19.5 21 23.5
            PINS Category 2 12 12 13.5 15 16.5
            PINS Category 3 17 17 18.5 20 21.5
            PINS Category 4 25 25 26.5 28 29.5
            A3.7.2 For the purposes of this section, and subject to Rule A3.7.5, the Insurer's base premium means the higher of the following two amounts:
            (A) the amount of the Insurer's Net Written Premium during the reference period; or
            (B) 50% of the amount of the Insurer's Gross Written Premium during the reference period.
            A3.7.3 In Rule A3.7.2, the reference period means the reporting period ending next before the Solvency Reference Date, except where the Insurer's forecast Net Written Premium, according to its business plan, for the reporting period next after that reporting period, is higher, in which case the reference period will be the second of the two reporting periods and the Net Written Premium and Gross Written Premium used for the purposes of Rule A3.7.2 must be the forecast Net Written Premium and Gross Written Premium for that second reporting period.
            A3.7.4 Where an Insurer underwrites Contracts of Insurance in PINS Category 1, and those contracts constitute Long Term Insurance Contracts, the Insurer must not calculate a written premium component in respect of those contracts but must instead calculate a long term insurance risk component as set out in Rule A3.9.1.
            A3.7.5 The Regulatory Authority may, on written application by an Insurer carrying on business in PINS Category 1, give consent in writing to the use of percentages other than those stated in the table in Rule A3.7.1, if the Regulatory Authority is satisfied that adequate mortality and morbidity information exists in respect of that business, to provide a reasonable basis for reliance on actuarial principles. The percentages that may be used must be those stated in the notice giving consent, but may not be lower than 12% in the case of direct insurance and proportional reinsurance, and 18% in the case of non-proportional or facultative reinsurance.
            A3.7.6
            (1) Where the Insurer's estimated net retention as at the Solvency Reference Date in respect of a property catastrophe exceeds the sum of the amounts calculated in accordance with Rule A3.7.1 in respect of those Categories of Insurance Business identified below in (2), before taking account of this rule, the sum of those amounts must be replaced by the Insurer's estimated net retention in respect of a property catastrophe when calculating the premium risk component.
            (2) Rule A3.7.6(1) applies to the following two Categories of Insurance Business in PINS Category 3:
            (A) General Insurance Category 8: Fire and natural forces; and
            (B) General Insurance Category 9: Damage to property.
            A3.7.7 For the purposes of Rule A3.7.6(1), the Insurer's net retention means the sum of claims expected to be paid, associated direct and indirect settlement costs and reinstatement premiums expected to be paid in respect of reinsurance recoveries resulting from those claims, less the sum of reinstatement premiums expected to be received and reinsurance and other recoveries expected to be received resulting from those claims, in the event of a property catastrophe representing a return period of not less than 100 years.
            A3.7.8 Where an Insurer enters, as Insurer or cedant, into a General Insurance Contract of longer than twelve months' duration, the premium or reinsurance premium on that contract must not be included fully in the calculation of base premium in the reporting period in which the contract was effected, but must be apportioned over the duration of the contract by allocating to each reporting period a fraction of the premium proportionate to the fraction of the contract period that falls into that reporting period, or on a different basis approved in writing by the Regulatory Authority.
            A3.7.9 Where an Insurer enters as reinsurer into a finite risk reinsurance contract in respect of General Insurance Business, the premium risk component in respect of that contract, regardless of the PINS Category it relates to, must be 4% of the base premium on the contract.

            A3.8 Technical Provision Risk Component

            Guidance

            An Insurer may be exposed to risk that the cost of claims in respect of General Insurance Business will exceed the amounts recorded as liabilities in the Insurer's balance sheet. The purpose of the technical provision risk component is to require an Insurer to hold capital against this risk in accordance with the calculations set out in Rule A3.7.1. This calculation only applies to liabilities in respect of outstanding claims (Premium Liabilities being addressed in the premium risk component in section A3.7).

            A3.8.1 An Insurer's technical provision component is calculated as the sum of the amounts obtained by multiplying the Insurer's base claims reserve that falls within each PINS Category (each PINS Category being comprised of one or more Categories of Insurance Business), by the percentage factor set out in the table below.

            PINS Category Percentage factor
              Direct insurance Reinsurance: facultative proportional Reinsurance: facultative non-proportional Reinsurance: treaty proportional Reinsurance: treaty non-proportional
            PINS Category 1 22 22 24 23 25
            PINS Category 2 10 10 12 11 13
            PINS Category 3 14 14 16 15 17
            PINS Category 4 17 17 19 18 20
            A3.8.2 For the purposes of Rule A3.8.1, the Insurer's base claims reserve means the higher of the following two amounts:
            (A) the amount of the Insurer's provision for Gross Outstanding Claims, less the amount of reinsurance and other recoveries expected to be received in respect of that liability; or
            (B) 50% of the amount of the Insurer's provision for Gross Outstanding Claims.
            A3.8.3 Where an Insurer underwrites Contracts of Insurance in PINS Category 1, and those contracts constitute Long Term Insurance Contracts, the Insurer must not calculate a technical provision component in respect of those contracts but must instead calculate a long term insurance risk component as set out in Rule A3.9.1.
            A3.8.4 The Regulatory Authority may, on written application by an Insurer Conducting Insurance Business in PINS Category 2, give consent in writing to the use of percentages other than those stated in the table in Rule A3.8.1, if the Regulatory Authority is satisfied that adequate mortality and morbidity information exists in respect of that business, to provide a reasonable basis for reliance on actuarial principles. The percentages that may be used must be those stated in the notice giving consent, but may not be lower than 5%.
            A3.8.5 Where an Insurer enters as reinsurer into a finite risk reinsurance contract in respect of General Insurance Business, the technical provision risk component in respect of that contract, regardless of the PINS Category it relates to, must be 6% of the claims reserve on the contract.

            A3.9 Long Term Insurance Risk Component

            Guidance

            The purpose of the long term insurance risk component is to require an Insurer to set aside capital to address the risk that the net present value of future Policy Benefits will vary from the amounts recorded as Long Term Insurance Liabilities in the Insurer's balance sheet.

            A3.9.1 An Insurer must calculate its long term insurance risk component as the sum of the amounts specified in Rule A3.9.3.
            A3.9.2 In Rule A3.9.3:
            (A) contracts of finite risk reinsurance must be excluded from the calculations in Rule A3.9.3 as they are addressed by Rule A3.9.4;
            (B) 'provisions in respect of Long Term Insurance Business' means the amount of Long Term Insurance Liability in respect of the contracts concerned, except that the amount may not be less than 85% of the liability determined without taking reinsurance into account; and
            (C) 'capital at risk' means the aggregate amount of sums assured on Long Term Insurance Contracts issued by an Insurer, minus the aggregate amount of provisions in respect of those contracts. Where the contract is an annuity, the sum assured must be taken to be the present value of the annuity payments. The capital at risk must be determined separately for each contract, and where the capital at risk calculated for a contract is less than zero, the capital at risk for that contract must be taken as zero.
            A3.9.3 The long term insurance risk component is calculated as the sum of the following six amounts, so far only as they relate to the Long Term Insurance Business of the Insurer:
            (A) 2% of the amount of the Insurer's Net Written Premium;
            (B) 3% of the amount of provisions in respect of Long Term Insurance Business that is annuity and pensions business and is not Investment Linked Insurance;
            (C) 1.25% of the amount of provisions in respect of Long Term Insurance Business that is Investment Linked Insurance, where the contracts are subject to a capital guarantee;
            (D) 0.5% of the amount of provisions in respect of Long Term Insurance Business that is Investment Linked Insurance, where the contracts are not subject to a capital guarantee;
            (E) 0.5% of the amount of provisions in respect of Long Term Insurance Business other than business described in Rules (B), (C), and (D); and
            (F) the amount obtained by applying to the aggregate amount of capital at risk in respect of Long Term Insurance Contracts the formulae set out in the following table:

              Amount of capital at risk expressed in dollars Formula to determine the amount referred to in (F)
            (a) less than $500 million 0.20% of the