COBS 14.3.2 Holding Collateral
Past version: effective from 21/10/2015 - 20/10/2015
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Before an Authorised Person holds Collateral from a Client it must disclose to that Client:
(a) the basis and any terms governing the way in which the Collateral will be held, including any rights which the Authorised Person may have to realise the Collateral;
(b) if applicable, that the Collateral will not be registered in that Client's own name;
(c) if applicable, that the Authorised Person proposes to return to the Client Collateral other than the original Collateral or original type of Collateral; and
(d) that in the event of the Authorised Firm's Failure:
(i) of an Abu Dhabi Global Market Firm, any excess Collateral will be sold and the resulting Client Money shall be distributed in accordance with the Client Money Distribution Rules; or
(ii) of a non-Abu Dhabi Global Market Firm, that Collateral will be subject to a regime which may differ from the regime applicable in the Abu Dhabi Global Market.
(e) Before an Authorised Person deposits Client's Collateral with a third party it must notify and obtain the agreement of the third party that:
(i) the Collateral does not belong to the Authorised Person and must therefore be held by the third party in a segregated Client Account in a name that clearly identifies it as belonging to the Authorised Person's Clients; and
(ii) the third party is not entitled to claim any lien or right of retention or sale over the Collateral except to cover the obligations owed to the third party arising on the segregated Client Account and no other account.
(f) An Authorised Person may permit Client's Collateral to be held by a third party only where it has reasonable grounds to believe that the third party is, and remains, suitable to hold that Collateral.
(g) An Authorised Person must be able to demonstrate to the Regulator's satisfaction the grounds upon which it considers the third party to be suitable to hold Client's Collateral.
(h) An Authorised Person must take reasonable steps to ensure that the Collateral is properly safeguarded.
(i) An Authorised Person must withdraw the Collateral from the third party where the Collateral is not being properly safeguarded unless the Client has indicated otherwise in writing.
(j) An Authorised Person holding Client's Collateral must send a statement every six months to the Client.
(k) An Authorised Person must reconcile the Client's Collateral in accordance with Rule 15.9.