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Status: You are viewing the version of the handbook as on 2005-06-30.

COB 5.8 Customers introduced to clearing firms by introducing brokers and overseas introducing brokers

Application

COB 5.8.1G

This section should be considered by a firm that, in the course of carrying on designated investment business, acts as a clearing firm to which an introducingbroker or an overseas introducing broker introduces a transaction for its customer.

Purpose

COB 5.8.2G

Principle 1 (Integrity) requires a firm to conduct its business with integrity and Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section supports and clarifies these requirements in respect of the relationship that exists between a clearing firm and a customer for whom the clearing firm executes and clears business, when the business has been introduced by a third party.

Clearing firms and introducing brokers and overseas introducing brokers

COB 5.8.3G

A clearing firm to which an overseas introducing broker has introduced a transaction on behalf of its customer should ensure that the customer is aware of the nature of the services that the clearing firm will be providing to that customer and that only these services, but not those of the overseas introducing broker, will be regulated under the Act.

COB 5.8.4G

As a matter of good practice, and preferably before accepting orders, a clearing firm should enter into a written contract with the introducingbroker or overseas introducing broker specifying that the clearing firm will be responsible for all dealing and settlement obligations to the customer. The contract should also specify that the introducingbroker or overseas introducing broker will act as agent for the customer in introducing transactions and will be responsible for advising the customer or managing his assets (or both).

COB 5.8.5G

A clearing firm should, by appropriate disclosures, ensure that the customer is aware of the nature of the services to be provided to him by the clearing firm.

COB 5.8.6G

When a clearing firm knows or suspects that the activities of an introducingbroker or an overseas introducing broker are or may be damaging to its customers, it should take reasonable steps to address the situation and, as far as possible, to protect its customers' interests.

COB 5.8.7G

When a clearing firm operates an omnibus account for an overseas introducing broker (that is, an account operated in the name of the overseas introducing broker for more than one underlying client) a clearing firm should:

  1. (1)

    establish that the overseas introducing broker is authorised in his own country;

  2. (2)

    where there is no formal regulatory regime in the overseas introducing broker's own country, take reasonable steps to establish that the overseas introducing broker is legally empowered to undertake the proposed business to be transacted; and

  3. (3)

    have regard to the requirements of UK law on money laundering and financial crime.