DFSA Latest Developments


  • DFSA Takes Action Against Former Licensed Directors
  • DFSA Fines Deutsche Bank AG for Failings
  • DFSA Publish Q&A on New Client Classification Regime
  • Annual Anti-Money Laundering Return – DFSA Analysis and Guidance
  • DFSA Sign MoU with Indonesian Regulator
  • DIFC Forms Insurance Association
DFSA Takes Action Against Former Licensed Directors

On the 26th February DFSA issued its decision notice regarding two former Directors of First Capital of Switzerland Investment Bank Limited (FCSIB). Details of this decision notice can be found on the DFSA website

DFSA Fines Deutsche Bank AG for Failings

Deutsche Bank AG (DIFC Branch) (“DBDIFC”) has been fined $8.4 million and ordered to manage and oversee the business in a sound and prudent manner, ensure independent compliance arrangements are in place, and to always deal with the regulator in an open and cooperative manner.

Between 1st January 2011 and 22nd January 2014, DBDIFC were not honest regarding the activities of its Private Wealth Management division (“PWM”).

DBDIFC had told the DFSA that they only refer and introduce customers to other entities of its Group. However, they had actually been Advising and Arranging for customers from within DBDIFC. The relevance of this issue is that referring and introducing clients does not require the on-boarding of Clients, whereas arranging and advising activity does.

The DFSA issued two notices under Article 80 of the Regulatory Law for DBDIFC to produce documents and information relating to PWM. However, DBDIFC did not comply in response to both notices.

DBDIFC were aware of PWM’s activities, evidenced by several e-mail correspondences between senior managers and the Compliance team suggesting concerns over the inadequacy of PWM’s compliance procedures and their non-compliant operations.

Customers were not being on-boarded as clients of DBDIFC and e-mails between PWM and their Clients confirmed that Arranging and Advising services were frequently and systematically provided without any steps taken to classify them, conduct CDD, maintain an AML framework, enter into Client agreements or follow suitability and AML obligations as required by the COB rules.

DBDIFC’s Compliance team continued to deny the Arranging and Advising activities to the DFSA insisting that referrals and introductions are PWM’s sole activities.

During the investigation, other breaches were uncovered by the DFSA, finding that certain individuals within Senior Management and Regional Management, who collectively were ultimately responsible for DBDIFC’s governance, failed to ensure that DBDIFC’s governance structure, systems and controls, and compliance arrangements were appropriate in light of DBDIFC’s business model.

355 out of 360 active Clients from the Corporate Banking and Securities and Global Transaction Banking divisions, and all 583 PWM Clients, were provided Financial Services without being on-boarded as Clients. Were it not for DBDIFC agreeing to an early settlement, a 20 per cent discount under DFSA’s policy for early settlement would not have applied and the fine would have been $10,500,000.

DFSA Publish Q&A on New Client Classification Regime

The DFSA published a Q&A document posing questions and answers on the framework of the new Client Classification regime under Chapter 2 of COB Module. The questions and answers are intended to assist Authorised Firms when classifying a Client to enter into an appropriate Client Agreement.
The document also provides a diagram tree which helps identify the exact steps that must be taken to ensure correct Classification has been made.

The Q&A document can be found on the DFSA website.

Annual Anti-Money Laundering Return – DFSA Analysis and Guidance

The DFSA conducted a review of 279 AML returns submitted in 2014, with 233 from Authorised Firms and 46 from Desginated Non-Financial Businesses or Professions (DNFBP). They reported their findings with an Analysis and Guidance document published on the DFSA website.

The key findings regarding AML Returns were:

1. Senior Management and Sign off: As well as failing to identify all senior management, many Firms failed to obtain the signed acknowledgement on the contents of the AML Return by all members of senior management.

2. Assessment of Business AML Risk: Some Firms have not undertaken specific assessment of the AML risks inherent to the nature, size and complexity of their activities leaving Section D1 blank.

3. Assessment of Customer AML Risk: Although most Firms have shown good practice, there were still issues with some Firms. Some failed to document reasoning behind the assigned customer risk rating, relied solely on customer’s country risk and took blanket approaches by assigning all customers as standard or high risk regardless of individual risk elements.

4. Customer Due Diligence: There was a lack of differentiation between the different levels of CDD required vs. customer risk. Concerns were also found on ongoing CDD such as transaction monitoring, with some Firms conducting Client CDD during on-boarding only or on an ad-hoc basis when a notification of a change is made e.g. change of address. Finally, when relying on third party CDD, Firm’s must make sure they are meeting DFSA requirements and the nature of the third party monitoring is understood.

5. Reliance and Outsourcing: Many Firms misunderstood the difference between relying on third parties for elements of its CDD and using third party information vendors or screening software’s. Firms must ensure that answers are applied in the context of Rule 8.1.1(3) of the AML Module regarding this section.

6. Suspicious Activity Report (SAR): 54 internal notifications were made with 50 being externally lodged by MLRO’s. The DFSA expected internal notifications to be significantly higher than external SAR’s therefore, it is important to ensure that the threshold of suspicion is low to promote the importance of internal notification.

In submitting the Annual AML Return, it is important for Firms to ensure that all questions are answered carefully and completely.

DFSA Sign MoU with Indonesian Regulator

The DFSA entered into a Memorandum of Understanding with the Financial Services Authority of Indonesia, Otoritas Jasa Keuangan (OJK).

The DFSA are looking to form links with other ASEAN counterparts since their first Memorandum of Understanding was signed with Thailand in 2006. As Indonesia is the world’s most populous Islamic market, the DIFC found that a relationship with Otoritas Jasa Keuangan would be beneficial to enhance the further development and regulatory impact on the Islamic finance sector in the DIFC.

DIFC Forms Insurance Association

As a result of the growth seen in the reinsurance market in the DIFC, a non-profit Association has been formed to represent its interests. Insurance firms in the DIFC are now able to apply for corporate membership to join the association. A General Meeting will be held to elect a Board for the Association.

This Association will provide sector-specific feedback that could lead to more relevant regulations for the Insurance sector within the DIFC.

Further information
If you would like to discuss these latest developments in more detail, please contact:
Clare Curtis (CCurtis@cclcompliance.com)

Middle East Regulatory Updates


  • Oman CMA Introduces Corporate Governance Draft
  • GCC Reduce Credit to SMEs
Oman CMA Releases Draft Code of Corporate Governance

The Omani Capital Markets Authority drafted a new code of Corporate Governance to enhance transparency, fairness, and accountability of listed and their boards.

The Corporate Governance code introduces the mandatory change of external auditors every three years, strengthened Personal Account Dealing rules, the mandatory appointment of Compliance Officers and the formation of a Remuneration Committee.

Currently, Compliance Officer roles are mandatory for entities regulated by the Central Bank of Oman. However, following the introduction of this amending code, Compliance Officers shall be appointed as an executive position in all public joint stock companies. Also, the board secretary of a publically listed company will be required to have a legal background.
The new code of Corporate Governance is expected to be mandatory for all firms before the end of 2015.

GCC Reduce Credit to SMEs

The impact of plunging oil prices appears to have tightened credit to small business across the GCC. There continues to be generous lending to large corporates, but the smaller companies, which pose a greater credit risk are suffering from a more difficult credit supply.

In addition to the impact of lower oil prices, the increased AML requirements by local regulators and the heavy threat of US sanctions on banks seem to be reducing the risk appetite of GCC banks in dealing with small companies. As the compliance cost is getting higher, the returns from small-time lending does not offer sufficient returns.

Further information
If you would like to discuss these updates in more detail, please contact:
Christopher Hobbs (CHobbs@cclcompliance.com)

International Developments


  • HSBC Considers Moving Headquarters out of London


HSBC Considers Moving Headquarters out of London

HSBC is reviewing its option to move its headquarters out of the UK and back to Hong Kong. As Europe’s biggest bank, this option may diminish London’s reputation as a global hub for finance and investment.

This review comes after increasing taxes and regulations being imposed on British banks post-2008 financial crisis. However, no comment was made by HSBC and the UK government on this option.

The bank has also revealed that it will consider moving its business and personal banking operations from London to Birmignham in the UK, the home of HSBC’s retired brand, “The Midland Bank”.

Further information
If you would like to discuss this update in more detail, please contact:
Nigel Pasea (NPasea@cclcompliance.com)

Financial Crime Updates


  • Ernst & Young Agree Settlement over Lehman Auditing
Ernst & Young Agree Settlement over Lehman Auditing

Ernst & Young have agreed to pay a $10 million settlement for accounting fraud, following a New York lawsuit against the firm, who were accused of assisting Lehman Brothers Holdings Inc. to deceive investors by hiding debts from their balance sheet.

Ernst & Young were the external auditors of Lehman Brothers prior to their collapse in 2008 and have been blamed for many of the losses incurred by investors because of the inaccurate balance sheets produced. As a result, they have already agreed to pay $99 million in damages to investors in a class action settlement approved a year ago. Almost all of the $10 million fine will go to Lehman investors, who suffered as a result of the collapse.

Further information
If you would like a more detailed discussion on this update, please contact:
Clare Curtis (CCurtis@cclcompliance.com)

Enforcement Action


  • Deutsche Bank Fined by US and UK Regulators
  • UK FCA Fines Merrill Lynch International for Transaction Reporting Failures
Deutsche Bank Fined by US and UK Regulators

Deutsche Bank are accused of hampering the investigation of US and UK authorities into Libor manipulation. This resulted in a total fine of $2.5 billion as well as regulatory direction to terminate the employment of seven employees.

US regulators were accountable for a $2.12 billion fine and the UK FCA imposed a $340 million penalty for its role in fixing Libor rates from 2003 to 2010. This penalty is the biggest for Libor manipulation in an ongoing investigation, which has also seen Barclays and UBS fined.

UK FCA Fines Merrill Lynch International for Transaction Reporting Failures

The Financial Conduct Authority in the UK (FCA) fined Merrill Lynch International (MLI) £13,285,900 for incorrectly reporting over 30 million transactions and failing to report over 120,000 transactions between November 2007 and 2014. This is a record fine for failures in transaction reporting. This fine comes after a private warning issued in 2002 and a fine of £150,000 in 2006.

Due to an early settlement agreement, MLI received a 30% discount, otherwise the fine would have been £18,979,876.

It is important for Compliance functions to ensure that transactions are monitored and reported accurately to perform effective surveillance for insider trading and market manipulation.

Further information
If you would like a more detailed discussion on these or other enforcement actions, please contact:
Clare Curtis (CCurtis@cclcompliance.com)

Share this