Authority’s Board of Directors' Resolution No. (05/R) of 2020 Concerning Suitability and Appropriateness Standards

§Preamble

Authority’s Board of Directors’ Decision No. (05 /Chairman) of 2020 Concerning Suitability and Appropriateness

Standards The Chairman of Securities and Commodities Authority Having considered-The Federal Law No. (4) of 2000 concerning the Emirates Securities and Commodities Authority and Market, as amended; -The Cabinet Resolution No. (13) of 2000 concerning the Regulations as to the Functioning of the Securities and Commodities Authority, as amended; -The Cabinet Resolution No. (14/8 W) of 2017 concerning the Restructuring of the Securities and Commodities Authority’s Board of Directors; -And based on the approval of the Authority’s Board of Directors at its twelfth meeting of the sixthten, convened on 15/12/2019,

Has Decided:

§Article 1 — Definitions [1]

The following phrases and words shall have the meanings ascribed thereto, unless the context requires otherwise:

Authority: Securities and Commodities Authority Market: The Securities market licensed in the State by the Authority. Licensed Entity: The entity that conducts any of the financial activities or services licensed by the Authority.

Suitability and Appropriateness Standards The information that the Licensing Entity shall obtain and satisfy from each client- excluding the Qualified Investor - before performing any dealings therewith according to the provisions of this Decision.

Qualified Investor: A natural or legal person that is capable of managing its own investments by itself according to the conditions mentioned below, unless it wishes to be a normal investor.

First: A corporate person that meets any of the following conditions: 1.The federal government, local governments and governmental entities, institutions and authorities or companies fully owned by any of them. 2.The foreign governments, and its entities, institutions and authorities or companies fully owned by any of them.

3.International bodies and organizations.

4.Entities licensed by the Authority or by a similar regulatory authority. 5.A corporate person that meets, at the date of its last financial statements, at least two of the following requirements(:

A- Having total assets of AED (75) million.

B- Generating net annual revenues of AED (150) million.

C- Having net owner equity or paid capital of minimum AED (7) million Second: A natural person accredited by the Authority or by a similar regulatory authority to perform any of the functions related to the financial activities or services.

Third: A natural person that meets the following conditions:

1. His net equity, with exception of his main house, is valued at AED (4) million.

2. His annual income is not less than (1) million Dirhams annually.

3. Declaring that he has adequate knowledge and experience in the field of the investment and its risks, or represented by an entity licensed by the Authority, without prejudice to the terms of its licensing.

Financial Products: Securities or foreign Securities

Financial Complex Product : A financial product that has difficult-to-evaluate characteristics, conditions and risks that are not understood by the retail investor.

Implementation :Implementation of sales and purchases of Financial Products or a Financial Complex Product.

Recommendation: Granting the investor an opinion regarding investing in Financial Products or Financial Complex Products by buying or disposing of them.

§Article 2 — Application Scope

This Decision shall be applied to all entities licensed by the Authority.

First Chapter: Suitability Standards

§Article 3 — The Licensed Entity that recommends or implements a Financial Complex

Product to a client shall satisfy the following Suitability Standards for the client:

1.The extent of client experience, which is measured based on the following: a.Types of the financial services or activities or the investments relating to the financial products, which the client is aware therewith.

b.The nature, size and frequency of client transactions for financial services or activities, or investments relating to financial products.

c.Education level, current and previous profession.

2.The client’s financial position and financial ability, which are measured through the following:

a.The source and amount of the client’s regular income and expenses. b.Client's assets, properties and investments.

c.The client regular financial obligations.

d.The extent of the client's ability to bear losses and risks, and their types, and their maximum.

3.The client’s investment objectives, which is measured based on the following: a.The investment options, which are related to the financial products preferred by the client.

b.Investment goals or purposes related to financial products in terms of period and value.

Suitability Report

§Article 4

The Licensed Entity shall prepare the client’s Suitability Report and include the following data:

1.An evidence of the client’s knowledge and awareness of the necessity to provide the Licensed Entity with up-to-date, accurate and correct information and to coordinate and arrange information in a manner that guarantees its accuracy and correctness, and the understanding of the questions addressed to the client.

2.An evidence of performing a correct and reliable assessment regarding the client’s knowledge, experience and ability to bear risks and losses.

3.Statement of the mechanisms and tools used in assessment and its suitability.

4. A detailed statement on the recommendation submitted to the client or the standards that the Licensed Entity depends thereon to consider the Financial Product that the client wants to invest therein as a complex product, indicating the nature, characteristics and risks of that Financial Product.

5.A statement of the reason behind the suitability or non-suitability of the recommendation or the Financial Product to the client, indicting the method of meeting the goals and the client position towards the risks and the client’s ability to bear the risks and losses.

6.An evidence of the periodical updating and revision of the standards relating to the client’s suitability and recommendation or characteristics, conditions and risks of the Financial Complex Product submitted thereto based on that standards and the method of performing that.

Licensed Entity Obligations

§Article 5

Licensed Entity shall:

1.Taking the necessary procedures and measures to ensure that the information received from the client is correct, complete and updated, and that the recommendation or the Financial Complex Product is suitable to the client and does not conflict with the result of measuring its suitability.

2.Refraining from submitting any recommendation or implementing any Financial Complex Product to the client in the event of not receiving sufficient information therefrom, which is necessary to assess its suitability according to the provisions of this Decision, provided that the client shall be notified with this matter.

3.Providing the client with sufficient information necessary to assess features, costs and risks of the Financial Product, indicating any potential risks that its interests may face.

4.Notifying the client regarding the suitability or non-suitability of the investment or the Financial Complex Product thereto, along with the extent of meeting the suitability standards. This notice shall be retained.

5.Complying with the client’s orders in the event of its insistence on the investment or implementing on the Financial Complex Product in spite of notifying the client with non-suitability. An evidence on the client insistence on that matter shall be retained.

6.Obtaining an annual undertaking from the client regarding not changing its data, updating any of those data if they are changed. In all cases, the report must be updated every three years. All undertakings and updates must be retained.

7.Retaining the suitability reports of the clients and providing the Authority with the same upon its request.

8.Updating the internal procedures in a manner ensuring the compliance with suitability standards.

Second Chapter: Appropriateness Standards

§Article 6

The Licensed Entity, which role is limited to implementation - excluding the implementation on Financial Complex Product - without providing recommendation to the client, shall satisfy the following appropriateness standards for the client:

1.The client’s knowledge and awareness of the financial services or activities or the investments relating to the Financial Products.

2.The nature, size and frequency of client transactions for financial services or

activities, or investments relating to Financial Products.

3.Education level, current and previous profession.

4.Appropriateness of the Financial Products, subject of dealing, with the client in light of the obtained data from the client.

5.Appropriateness of the financial markets that the client targets investment therein in light of the obtained data from the client.

Appropriateness Report

§Article 7

The Licensed Entity shall prepare the Appropriateness Report and include the following data:

1.The financial products or services to be implemented for the client. 2.Result of the appropriateness assessment.

3.Statement of the reason behind appropriateness or non-appropriateness of implementation for the client.

Licensed Entity Obligations

§Article 8

Licensed Entity shall:

1.Exercise due diligence for increasing the level of the client understanding of the financial service or activity or Financial Product through providing the necessary information to the client.

2.Notifying the client regarding the appropriateness or non-appropriateness of the Implementation thereto, along with the extent of meeting the appropriateness standards. This notice shall be retained.

3.Refraining from implementation for the client in the event of not receiving sufficient information therefrom, which is necessary to assess its appropriateness according to the provisions of this Decision, provided that the client shall be notified with this matter.

4.Complying with the client’s orders in the event of its insistence on implementation in spite of notifying the client with non-appropriateness of the implementation. An evidence on the client insistence on that matter shall be retained.

5.Retaining the appropriateness reports of the clients and providing the Authority with the same upon its request.

6.Updating the internal procedures in a manner ensuring the compliance with appropriateness standards.

Penalties

§Article 9

The penalties mentioned in the decisions issued by the Authority shall be applied on whoever breaches the provisions stipulated in this Decision.

Decision Effect

§Article 10

This Decision shall be published in the Official Gazette and come into effect 30 days from the date of its publication.

Eng. Sultan bin Saeed Al Mansoori Chairman of the Board of Directors Issued in Abu Dhabi on 02/02/2020 A.D

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• [1] - Paragraph first/5 of the definition of a qualified investor has been modified according to the Authority’s Chairman’s Board Decision No. 9 of 2020 published in the Official Gazette on 31/3/2020