DFSA Latest Developments

Includes:

  • DFSA Updates
  • NNA Confirmed for the DIFC
DFSA Updates

1) The following forms have been updated and are available from the Dubai Financial Services Authority (DFSA) website here:

  • AUT CORE Applying for Authorisation – Core Information Form;
  • AUT AMS Applying for Authorisation – Asset Management supplement;
  • AUT STS Applying for Authorisation – Sales and Trading supplement;
  • AUT INS Applying for Authorisation – Insurance supplement;
  • SUP 5 Application to request an endorsement on the Licence of a new applicant firm or add or remove an endorsement on the Licence of an existing firm; and
  • MKT 1 Application for the Approval of a Prospectus and the Admission of Securities to the Official List.

Please note that updates to the AUT NOTES will follow at a later date.

2) The DFSA entered into an arrangement last month with the Society of Lloyd’s to establish a framework for co-operation. The agreement promotes an efficient and effective flow of information between the DFSA and the Society of Lloyd’s in relation to Lloyd’s syndicate service companies and other cover holders who operate in the Dubai International Financial Centre (DIFC).

The framework for co-operation recognises the mutual benefit of sharing information to endorse effective supervision of Lloyd’s cover holders. While the DFSA has the responsibility for the licensing and supervision of Lloyd’s cover holders in the DIFC, the Society of Lloyd’s has statutory and supervisory powers relating to Lloyd’s market participants who appoint the cover holders. Through a DIFC subsidiary (Lloyd’s Ltd) the Society of Lloyd’s will provide a number of services to those cover holders. This creates a common interest between the DFSA and Lloyd’s in seeking to ensure that these entities conduct their business properly and effectively.

3) The DFSA issued an SEO letter on Foreign Account Tax Compliance Act (FATCA) regulations last month. As well as reminding all foreign financial institutions of their reporting deadline (15th May 2016), the notification updated Firms on the Inter-Governmental Agreement between the UAE and the US which was ratified through UAE Federal Decree No. (9) of 2016. As such, Firms are reminded that additional data points will be collected for 2016 FATCA reporting (the FATCA reporting portal can be accessed via the DIFC client portal) and that Firms may wish to seek legal advice to determine compliance obligations with FATCA regulations – the Ministry of Finance unified FATCA guidance notes, available here, may also be of use in this regard.

NNA Confirmed for the DIFC

The Dubai Financial Services Authority has officially named Nasdaq Dubai as the National Numbering Agency (NNA) for financial institutions in the DIFC. This is further to Nasdaq Dubai’s request last year, which we covered in our December Edition of the Regulatory Update.


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

Includes:

  • UAE Regulator Expands Services of Licence
  • UAE Central Bank Actions
  • Heads of GCC Financial Market Authorities Committee Hold 14th Meeting
  • Qatar Central Bank Actions
  • Oman CMA Develops Rules for Auditors
  • Amendments to Oman AML and CTF Legislation
  • GCC Agreements
UAE Regulator Expands Services of Licence

The UAE Securities and Commodities Authority (SCA) has extended the scope of ‘financial consultation and financial analysis’ licences to include ‘financial planning’. The definition provided for financial planning “conducting comprehensive assessment of the current and future financial position of a person through the use of variables known in the present time in order to forecast the future cash flows to help the customer develop a detailed strategy or a financial plan associated with investment in securities, commodities or commodities contracts to achieve this customer’s financial goals” makes clear where the remits of the SCA and the Insurance Authority divide.

It is now understood that whilst an Insurance Authority licence allows for the distribution of insurance products, the SCA regulates for wealth management and ‘financial planning’ in the UAE.

Additional amendments to the SCA rules are:

  • SCA licenced financial advisors are to create and implement an internationally acceptable code of conduct for employees;
  • SCA licenced advice firms are to submit financial reports, approved by the board of directors, within 90 days of fiscal year end; and
  • SCA licenced advice firms must ensure that clients understand the risks of acting upon a financial plan or financial analysis
UAE Central Bank Action

1) The UAE Central Bank has ordered major banks to freeze the assets of individuals who were previously senior officials at International Petroleum Investment Company (IPIC). The UAE Central Bank has not disclosed year why the freeze order was given, all that is known is that the individuals in question (former CEO and MD) were replaced in their IPIC roles last year.

2) The UAE Central Bank is looking to establish a centralised sharia authority. The board of directors of the UAE regulatory body reviewed a proposal for this higher governing entity last month, the creation of which would promote a fair and uniform approach to product development and the powers of which would supersede those of any individual institutions’ sharia board. The centralised body also has the potential to act as a supervisory tool for all the sharia committees in the jurisdiction.

Heads of GCC Financial Market Authorities Committee Hold 14th Meeting

The 14th meeting of the Committee of Heads of GCC Financial Market Authorities took place last month. It saw the representatives’ continued review and discussion of strategies to achieve an integrated financial market and most pointedly, they proposed for the GCC Financial Market Integration Strategy working group to establish an independent GCC-based body to regulate the region’s financial markets. The committee suggested that this potentially over-arching regulator should have the authority to draft and review all aspects of a market’s regulatory framework, as well as directives set by the various working groups.

Qatar Central Bank Actions

1) Qatar Central Bank (QCB) has issued new rules for the insurance sector. Decision No. (1) of 2016 determines that the capital requirement of listed insurance companies must be above QAR 100,000,000 or that of a risk-based figure. For unlisted insurance companies, the amount will either be set by the QCB or will be that of a risk-based figure. The decision also depicts that branches of insurance companies will need a deposit of QAR 35,000,000.

The new regulations further stipulate the notification requirements that companies should make to the QCB as well as providing governance for areas such as senior ownership, group supervision and stop insurance business. The rules, which are in line with principles issued by the International Association of Insurance Supervisor, came into force last month.

2) New rules, affecting the amount of foreign currency banks in Qatar are able to hold, were distributed last month by the QCB. Banks have 12 months to meet the new requirements, which set the maximum limit for:

  • dollar open positions at 25% of capital and reserves;
  • non-dollar currency open positions at 5% of capital and reserves; and
  • combined currency open positions at 30% of capital and reserves.

The decision reflects growing concern over the risk of foreign currency open positions.

Oman CMA Develops Rules for Auditors

In a move that mirrors regulators around the globe, the Oman Capital Markets Authority (CMA) has issued new regulation which endeavours to ensure the independence of auditors.

Accordingly, audit firms are now permitted to provide just 3 non-audit services (audit-related services, taxation advisory services, investigation of matters arriving from auditor findings or observations) to their audit clients. This is in stark contrast to the 13 non-audit services previously allowed. The legislation also stipulates the fee threshold that a client can be charged for these services (no more than 25% of the average audit fee for the past 3 years).

It should be noted that these rules are applicable to audit firms’ relationships with audit clients only.

Amendments to Oman AML and CTF Legislation

Both the Shura and State Councils of Oman have approved amendments to the country’s Anti-Money Laundering and Financing of Terrorism Act. The changes allow for steeper fines and penalties, OMR 50,000 and/or 10 years imprisonment respectively (this can be doubled if a criminal organisation is involved in the activities). The drafting of the new legislation took into consideration comparable laws elsewhere in the region and international agreements that the country has committed to. If adopted, the amendment is expected to put Oman ahead of other countries in the Middle East in terms of its anti-money laundering (AML) and counter-terrorism financing (CTF) efforts.

GCC Agreements

1) Several Memorandums of Understanding (MoU) were signed between India and the Kingdom of Saudi Arabia last month. The agreements included provisions for counter-terrorism financing (such as intelligence sharing) as well as co-operating to promote investment and export trade relationships in both nations.

2) The UAE signed the Double Taxation Agreement with Jersey last month. The pact to avoid double taxation on income is important if trade and economic relations are to be reinforced between the two jurisdictions.

3) The Abu Dhabi Judicial Department and the Abu Dhabi Global Market Courts signed a MoU last month to promote judicial co-operation. The agreement particular emphasised the need for the reciprocal enforcement of judgements, decisions, orders and arbitration awards. The MoU also addressed developing a collaborative approach to the exchange of information, electronic services, education and communication.


Further information

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

International Developments

Includes:

  • Panama Papers
  • G20 Summit
  • AML and CTF Legislative Developments Around the Globe
  • SEBI Enhance Corporate Governance Regime
  • Bitcoin Exchange Licenced in the EU
  • UK Agreements with Offshore Jurisdictions
  • Funding Boosted for Failing ASIC
  • New FIU for the Isle of Man
  • Consequences for Banks of ‘De-Risking’ Remitters
  • Iran Sanction’s Developments
  • Japanese Lender Offer Islamic Financial Products
  • Bolivian Banking Sector Raising Standards
  • SWIFT Launch Programme for FATF Compliance
Panama Papers

Documents from the Panamanian law firm Mossack Fonseca were leaked to the International Consortium of Investigative Journalism (ICIJ) last month. They reveal the volume of accounts being used by countless high profile (including politically exposed persons) and high net worth individuals to hide assets and evade tax.

The ‘Panama Papers’, as they have come to be known, cover the period from 1977 to December 2015 and contain more than 11 million documents. In contrast to the cache published by WikiLeaks in 2013, the Panama Papers are several times bigger. They include information on 12 former/current world leaders, a further 128 politicians or public officials, 29 billionaires featured in Forbes’ Richest People on The Planet list and more than 200,000 companies, foundations and trusts. They show how the Panama branch of Mossack Fonseca repeatedly created shell companies for individuals to use as a means to hide their assets and how the law firm routinely set up fake holding foundations – falsely listing groups such as the Red Cross as their beneficiaries – in order to conceal the identity of those receiving funds from hundreds of these offshore companies.

The global reaction has been substantial. Many countries (UK, USA, Australia, Switzerland, Thailand and Trinidad and Tobago) have launched internal investigations through their financial regulators, or criminal investigations, looking at their locally implicated entities and individuals. The Prime Minister of Iceland resigned over the scandal and the organisation Americans for Financial Reform has campaigned for the Financial Crimes Enforcement Network to implement its proposed rules of last year pertaining to Securities and Exchange Commission (SEC) registered investment advisors. The rules would place anti-money laundering (AML) and suspicious activity reporting requirements on applicable institutions who manage USD 100,000,000 or more in assets (despite the US Investment Advisor Association claiming that SEC-registered investment advisors do not pose an AML risk as they cannot provide services for clients to by-pass regulations in order to enter the US financial system).

In the UK, a 19-point action plan Consultation Paper has been submitted. The proposals would amount to a significant overhaul of existing AML legislation, such as requiring owners of offshore companies to reveal themselves if they have bought property in the UK. The Consultation Paper also looks to grant new powers to enforcement bodies in the country which include:

  • arresting public officials for ‘illicit enrichment’ if they have had a significant but unexplained increase of assets;
  • issuing ‘Unexplained Wealth Orders’ to suspected launderers, obligating them to disclose the origin of their wealth; and
  • the Government designating businesses as being of ‘money laundering concern’, obligating the regulated financial sector to use ‘special measures’ when dealing with the businesses in the future.

Furthermore, the new rules suggest making the Joint Money Laundering Intelligence Taskforce a permanent venture from July 2016 (a united body of law enforcement agencies and banks under the National Crime Agency). Finally, the Consultation Paper proposes to implement new rules so as to regulate digital currency exchange firms within the AML framework.

G20 Summit

Convening shortly after the ‘Panama Papers’ leak, combatting international tax evasion was obviously high on the list of discussion points when G20 leaders met and reiterated the importance of countries implementing the Financial Action Task Force recommendations regarding transparency and beneficial ownership information.

The G20 nations are keen for a comprehensive ‘international blacklist’ of tax havens to be compiled, encompassing those jurisdictions that fail to comply with regulations. Tax and law enforcement agencies in 4 of the member countries (UK, Italy, Germany and France) and permanent invitee, Spain (collectively known as the G5), have already committed to exchanging information such as beneficial ownership registers.
Although groups such as the International Monetary Fund and Transparency International have encouraged this initiative, they question the usefulness of it when countries like the US are not involved and when the UK is the only G5 nation that has established a public register of beneficial owners.

AML and CTF Legislative Developments Around the Globe

1) Proposed changes to Australia’s anti-money laundering (AML) and counter-terrorism financing laws (CTF) have been well received by the country’s AML regulator, the Australian Transaction Reports and Analysis Centre (AUSTRAC). The aim is to bring intermediaries – such as accountants, lawyers, real estate agents and high-value item dealers – into the remit of the law.

Another recommendation is to conduct a risk assessment of pre-paid cards, a product that has been designated as a significant security/criminal threat. The assessment will look to identify a threshold for how much money should be permitted to be withdrawn or used per transaction. There is a total of 84 recommendations in the proposal, which also include affording greater powers to AUSTRAC.

2) The US Treasury Department’s Financial Crimes Enforcement Network proposed new rules for crowdfunding platforms last month, on which the public have 60 days to provide comments. In an effort to prevent money laundering, terrorist financing and other financial crimes, the regulations move for these portals to fall within the definition of ‘broker or dealer’ and to, therefore, become subject to the same anti-money laundering obligations (such as reporting, recordkeeping, record retention and the establishment of an AML programme).

3) New amendments to the Directive on the Prevention of Money Laundering and Terrorist Financing, by the Central Bank of Cyprus, have enhanced know-your-customer requirements. It seems credit institutions will now no longer be able to rely on third parties for all of their compliance checks but will need to verify customers by executing their own procedures, such as conducting face-to-face meetings. Failure to adhere to the amended directive could result in a three-month suspension period of bank account transactions.

4) The Guyana government has approved further amendments to the country’s Anti- Money Laundering and Countering the Financing of Terrorism Bill. New changes set severe penalties for employees of licenced financial firms, holding them potentially personally liable – to the tune of at least USD 5,000,000 and imprisonment of up to 3 years – for failing to ensure the originator information of all wire transfers.

The Bill is expected to pass the final stages of application without protest at the next National Assembly meeting this month.

5) In line with Financial Action Task Force recommendations, India and Thailand have both taken steps to classify tax related crimes (i.e. evasion/fraud) as predicative offences to money laundering, bringing them within the scope of the nations’ anti-money laundering laws and penalties.

6) The Economic and Financial Crimes Commission (EFCC) of Nigeria has rejected the country’s new Money Laundering (Prevention and Prohibition) Bill 2016 in a position paper presented to the National Assembly last month.

The reasons behind this were numerous. The EFCC expressed that passing the Bill at this present time would not only hinder the government’s anti-corruption objective but could also negatively impact the country’s recent Financial Action Task Force membership application. The group were also concerned about the potential risks associated with the discretionary powers that the Bill would grant the Attorney-General of the Federation.

In short, it was the opinion of the EFCC that any anti-money laundering shortages identified in existing legislation could be more efficiently addressed in an amendment, in lieu of drafting a new statute.

SEBI Enhance Corporate Governance Regime

The Securities and Exchange Board of India (SEBI) is pushing to improve corporate governance standards within public sector undertakings (PSUs) in the country. The regulator has asked for state-run firms to ensure their public shareholding is at 25% (as a minimum), that their board of directors comprises of at least one female director and that they comply with the guidance on the percentage of requisite independent directors (if the chairperson of the board is a non-executive director, at least one-third of the board need to be independent directors. In the case of a listed company not having a regular non-executive chairperson, at least half of the board members need to be independent directors).

Bitcoin Exchange Licenced in the EU

Last month, Bitstamp became the first Bitcoin exchange to receive a national licence in the EU. The licence was granted by Luxembourg and allows the institution to operate as a regulated organisation in all countries of the EU. It also provides customers with the same safeguards as other licenced financial institutions and comes into effect on the 1st July 2016. Bitstamp is one of only a few companies that can exchange Bitcoins for Euros, and vice versa, marking this moment as a milestone for the industry.

UK Agreements with Offshore Jurisdictions

1) An agreement has been made between the Cayman Islands and the UK which develops and hastens the system that is currently in place for UK enforcement agencies to access beneficial ownership information of the Cayman Islands.

The new process will eliminate the need for cumbersome and repeated requests for information by identifying all the companies a beneficial owner is associated with via a central technical platform. This system will also prevent clients from being tipped off to a potential investigation.

Cayman Finance, who has stated its support for these improvements, has clarified that this move is not the establishment of a public central register but that the process will still be appropriate for the jurisdiction. The enhancements will utilise the Cayman Island’s existing legal infrastructure and solidify the locale’s standing as a global financial hub.

2) Jersey is due to sign an agreement with the UK and other offshore dependencies, with regards to transparency. For Jersey, who has had a beneficial ownership register since 1989, the exchanging of information with UK agencies is not uncommon.

Funding Boosted for Failing ASIC

Australian banks, such as Commonwealth Bank, have been criticised in recent years for a string of consumer fraud allegations and claims of inter-bank lending rate manipulation. In response, the government has just announced plans to boost funding to the regulator Australian Securities and Investment Commissions (ASIC) as well as hiring a special prosecutor to investigate financial criminal activity.

The Australian government has made it clear that the additional AUD 121,000,000 of funding will be sought from banks and not tax payers. A permanent move for an industry-funded ASIC looks likely from mid-2017.

New FIU for the Isle of Man

In the hopes of raising awareness and effectively combatting corruption, money laundering and terrorist financing, the Isle of Man government has created a separate Financial Intelligence Unit (FIU) to analyse suspicious activity reports and assist with international criminal investigations. The group is a fissure off of the Isle of Man Constabulary Financial Crime Unit – who will still be responsible for investigating financial crime.

Consequences for Banks of ‘De-Risking’ Remitters

Following the Financial Action Task Force publications introducing the ‘risk-based approach’, as well as the introduction of New Zealand’s Money Laundering and Countering Financing of Terrorism Act of 2013, banks in the country have started closing, en masse, accounts with local money remitters. This blanket de-risking approach has been heavily criticised with the likes of the Reserve Bank stating that a case-by-case risk management stance should be the protocol.

Both KlickEx and E-Trans have consequently taken KiwiBank to court when the bank attempted to close their accounts too. Both businesses are awaiting decisions from the court. The only other money transfer operator in action in the country is Western Union.

Iran Sanction’s Developments

As the world’s economic sector is aware, in January of this year, jurisdictions around the globe began lifting sanctions on Iran following the nuclear deal agreement that was reached. In the US, this included eradicating banking, steel and shipping sanctions as they applied to non-US entities but bans remain imposed on US nationals.

To add further confusion to the situation and potentially scaring institutions from forming relationships with the previously rebuffed country, last month the US introduced the US Financial System Protection Act. This bill aims to prohibit the US dollar from being used to facilitate any trade transaction with Iran.

Japanese Lender Offer Islamic Financial Products

Bank of Tokyo-Mitsubishi UFJ is to become the first Japanese lender to offer sharia-compliant corporate financing by an overseas branch (as opposed to an entity incorporated aboard). The bank, which has established a branch in Dubai, is looking to offer Islamic financial products like deposits, loans and trade finance services.

The Mitsubishi UFJ financial group makes this move and forecasts that Islamic finance will account for 15% of its Middle East credit business over the next 3 years.

Bolivian Banking Sector Raising Standards

The Bolivian banking industry has proven its commitment to meeting international levels of anti-money laundering and counter-terrorism financing measures as the country’s Bank Association Compliance Commission has confirmed that all member banks are now using SWIFT’s know-your-customer registry. This is a recognised pre-requisite of correspondent banking rules and demonstrates further expansion in Latin America.

SWIFT Launch Programme for FATF Compliance

SWIFT is launching the new service ‘Payments Data Quality’ which will enable financial institutions to comply with Financial Action Task Force (FATF) Recommendation 16, that refers to the originator and beneficiary information of wire transfers.

It is anticipated that many jurisdictions will soon incorporate this recommendation into law, joining the likes of the EU Funds Transfer Regulation, adopted in 2015, or Singapore’s MAS Notice 626.

SWIFT’s web-based platform will provide:

  • A global overview of the quality of originator and beneficiary information in a firm’s payment messages, including where information is missing or incomplete; and
  • An analysis to identify potential risks of countries, counterparties or branches.


Further Information

If you would like to discuss these updates in more detail, please contact:
Nigel Pasea (NPasea@cclcompliance.com)

 

Financial Crime Update

Includes:

  • RCBC Scandal
RCBC Scandal

SWIFT has acknowledged that its software was altered on Bangladesh Bank’s computer (to hide the fraudulent trail) during the notable cyber theft involving Rizal Commercial Banking Corporation (RCBC) in the Philippines.

In an alert sent to users over its network last month, SWIFT shared that this was not an isolated incident and that attackers have been obtaining valid operator details which facilitates them in issuing fraudulent messages. SWIFT has subsequently released a software update to counter these identified security threats.


Further Information
If you would like a more detailed discussion on these updates, please contact:
Clare Curtis (CCurtis@cclcompliance.com)

Enforcement Action

Includes:

  • UAE Residents Penalised for Spoofing
  • Canadian Bank Fined for SAR Failures
  • Ban Order for Indian Company Acting Without Licence
UAE Residents Penalised for Spoofing

Two UAE residents have been cumulatively fined USD 2,690,000 in a US federal court last month following a complaint filed by the Commodity and Futures Trading Commission. This is in connection with allegations that the pair had been ‘spoofing’ (rapidly entering and cancelling orders to manipulate the market) in the gold and silver futures markets.

With the assistance of CME Group Inc. (who had previously suspended the two traders from its market last year), the Securities and Commodities Authority of the UAE and the Dubai Financial Service Authority, both men have also been permanently banned from trading.

Canadian Bank Fined for SAR Failures

The Financial Transactions and Reports Analysis Centre (FinTRAC) of Canada has fined a local bank CAD 1,100,000 for failing to make a suspicious activity report (SAR) with regards to the electronic transfer of funds to a foreign jurisdiction, the sum of which exceeded the notification threshold of CAD 10,000.

Controversially, the regulator has chosen not to name the reprimanded bank. FinTRAC claim that it is within its authority to refrain from doing so and that this conclusion was chosen as it meant the message could be relayed to the greater financial sector quickly, without having to wait on the outcome of a potential appeal process.

Ban Order for Indian Company Acting Without Licence

The Securities and Exchange Board of India has banned the business Orange Rich Financials (and its owner) from the securities market for 5 years. This was the outcome of findings that the company had violated legislation by providing investment advisory services without obtaining the obligatory certificate of registration from the regulator.


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

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