In October 2017, the DFSA released Consultation Paper No.115 - Enhancing Our Funds Regime. Following the consultation period, amendments were made to the Collective Investment Rules, Markets Rules, Islamic Finance Rules, Fees Module and Glossary Module.
Changes came into force on the 18th December 2018 and coincide with the enactment of the DIFC Companies Law 2018.
The new provisions include:
- incorporating into the Funds regime, the new distinction between Public Company and Private Company, introduced by the Companies Law.
- removing the current limits on the number of investors which a DIFC Fund can have. Currently only a Public Fund is able to have more than 100 investors (including retail), with an Exempt Fund being limited to 100 or fewer investors and a Qualified Investor Fund (“QIF”) being limited to 50 or fewer investors.
- introducing a new class of specialist funds for Exchange-Traded Funds (“ETFs”). These are open-ended Funds, the Units of which are listed and traded on exchanges. Their introduction will give greater choice of Funds available to investors from the DIFC, with Fund Managers also having a greater choice of Funds they could offer
- enabling an Investment Company’s established Fund to be managed by its sole Corporate Director licensed as a Fund Manager to manage only that Fund and no other.
The DFSA released three Consultation Papers in December 2018:
Consultation Paper No.121 Proposals for Fund Platforms
CPNo.121 proposes to permit Fund Managers to use Fund Platforms in the DIFC as a method of managing multiple Funds under the current Funds Regime.
Rather than allowing a Fund Manager to operate Umbrella Funds with multiple Sub Funds which use the Umbrella Funds’ infrastructure, it is proposed that firms will be able to use a Fund Platform to manage multiple stand-alone Funds using the Incorporated Cell Company (ICC) structure. This will mean that the Fund Platform will be the ICC, and the Fund Manager manages stand-alone funds that have been set up as Incorporated Cells.
Firms are encouraged to read the consultation paper for further information on the proposed changes.
The deadline for comments on the changes is 18th January 2019.
Consultation Paper No. 122 Miscellaneous Changes
The DFSA seeks public consultation on its proposals to make a variety of amendments to their policy framework, as expressed through its rules. This includes changes to:
- COB regarding Crowdfunding Platforms, including the prohibition of retail clients funding their accounts using a credit card and disclosure requirement changes.
- PIB regarding update to EPRS forms such as the introduction of new forms, amendments to the existing ones and withdrawal of EPRS forms that are deemed obsolete.
- GEN regarding demonstrating competence and expertise through a proposed continuity professional development (CPD) requirement of 15 hours structured activity per year.
- Recognised Jurisdiction Notice regarding the DFSA recognising certain Alternative Investment Funds (AIFs).
Firms are encouraged to read the consultation paper for further information on the proposed changes.
Consultation Paper No. 124 Property Crowdfunding
The DFSA is proposing enhancing its current regime regarding crowdfunding platforms, to include rules and regulations around the financing for assets such as property.
Property Investment Crowdfunding allows multiple investors to pool funds and purchase a property. Typically, the investors are investing in an apartment or house via a special purpose vehicle – SPV - that holds title to the property.
Those interested in Property Crowdfunding Platforms are encouraged to read the Consultation Paper, the deadline for providing comments is 13th January 2019.
The ADGM launched an e-KYC (Know Your Customer) project in March 2018 and have finished their first testing phase of the platform. The project aimed to enhance KYC checks within the UAE while also creating a standard across financial institutions.
The ADGM shared highlights and benefits from the project as follows:
- Members can successfully share and validate KYC documentations and data updates about the client on the prototype in a secure environment, supported by blockchain technology.
- Data quality and compliance standards can be assured with respect to applicable KYC requirements. Clear guidelines and pre-requisites will have to be identified for any member that qualifies as a contributor of KYC records.
- Individual clients can be empowered to decide how their personal data can be shared in the utility, placing the data in line with data protection requirements.
- As the model (i) operates on the basis of incentive fees offered to data contributors, (ii) shares the success fees with the operator of KYC utility, and (iii) charges fees on data consumers, it would be considered highly sustainable.
- An ownership structure of the KYC utility that assures safe custody of customer information and operates on a non-profit mandate will foster trust across stakeholder group.
The ADGM issued two consultation papers in December.
Consultation Paper No.8 of 2018 – Proposed Late Filing Penalty Guide – Annual Accounts
CP No.8 of 2018 refers to the ADGM and Registration Authority’s (RA) plan to set policy and procedures regarding the late filings of annual accounts under ADGM Companies Regulations.
The proposed changes include a proportionate approach to fines for overdue accounts whereby the longer the submission is overdue the higher the penalty. The proposed policy and procedure will clearly set out where firms will be fined due to overdue filings, how much the fine will be and how fines must be paid or appealed.
Consultation Paper No.9 of 2018 - Proposed Late Renewal Penalty Guide – Commercial Licences
Similarly, CP No.9 of 2018 refers to the ADGM and RA’s plan to issue policy and procedures of the late renewal of ADGM commercial licences. In a similar case, the ADGM plans to impose fines depending on how expired the commercial licence is before renewal. The policy and procedures will set out when fines will be issued for late renewals, how much the fines will be and how the fines must be paid and appealed.
The ADGM has signed a Memorandum of Understanding (MoU) with the UAE Ministry of Economy. The MoU not only represents an intention to facilitate sharing of information but also has intentions to help align the UAE’s auditing standards with international best practices.
In November, CCL were honoured to be invited to curate a panel and present at the Central Bank of the UAE's 2019 Strategy Retreat. Chaired by CCL Director, Clare Curtis, our session focused on the opportunities and challenges presented by the ever evolving FinTech sector with presentations by industry insiders and advisors including CCL Managing Consultant, Lewis Knell.
The topics covered within the session included the components of an effective FinTech Ecosystem (5 pillars; Regulations, Talent, Capital, Market Demand and Technology), Regulation v Innovation, Legal Issues facing the FinTech system and RegTech solutions.
The panel and presentations were well received by the Governor of the Central Bank, H. E. Mubarak Rashed Khamis Al Mansoori. Following the session, the audience made up of the Senior Management of the Central Bank, demonstrated a large appetite to innovation in financial services in the form of FinTech, subject to the right systems and controls being in place, especially towards consumer protections.
CCL welcomes the opportunity to advise financial institutions and monetary authorities on the ever evolving FinTech and RegTech landscapes.
The UAE has released Federal Decree No. (20) of 2018 on anti-money laundering and combating the financing of terrorism to bring the legal framework in line with Financial Action Task Force (FATF) requirements.
Firms are recommended to read through the full law, but highlights include:
- The establishment of an independent “Financial Information Unit” within the Central Bank to receive and investigate all reports
- The establishment of a committee titled “The National Committee to Counter Money Laundering, Combatting the Financing of Terrorism and Financing of Illegal Organisations".
- Updated definitions of money laundering, financing terrorism and, illegal organisations
- The powers surrounding information orders of funds and the freezing of funds
- Updated penalties surrounding AML and CFT
Firms are advised to update their AML policies and procedures accordingly.
The Oman financial regulator, the Capital Market Authority (CMA) has suspended KPMG from working on new auditing projects for 1 year, after finding “major financial and accounting irregularities at some listed companies”. The regulator felt it needed to step in to protect investors and to implement disciplinary measures.
The UAE Central Bank and Saudi Arabian Monetary Authority (SAMA) are in the early stages of forming a cross-border digital currency. It is planned that the proposed currency be used within the monetary authorities and thus not open to retail consumers. Both monetary authorities are still carrying out studies as to the potential framework and implementation.
From April 2019, the FCA will be regulating claims management companies (CMCs)which provide advice and services in respect to compensation, repayment and other claims. The FCA decided to bring CMCs under regulation after it was noted many customers use them and would further benefit from regulatory supervision in this industry.
The European Securities and Markets Authority (ESMA) has renewed the limitations and restrictions around marketing, distributing and sale of contracts for difference (CFDs) to retail clients from 1st February 2018 until 31st April 2019.
The renewal of the restriction comes after increasing concern for CFD offered investor protection.
The FCA has banned and fined a former non-executive director (NED) £20,000 for failing to act with integrity.
Angela Burns, a former NED for two mutual societies, did not provide the correct conflict of interest disclosures when soliciting a NED position and consulting work from an investment manager while discussing this investment manager with both mutual societies.
The FCA stated that Ms Burns “placed herself in a position where her duty as a non-executive director may have conflicted with concurrent opportunities she was pursuing” and this was not disclosed.
Santander has been fined £32m by the FCA for failing to process funds worth more than £183m to the beneficiaries of customers who had passed away.
The firm failed to alert the FCA of the issues once they were discovered and took longer than necessary to rectify. Areas the FCA highlighted as issues included:
- The inability to identify all the funds the bank held of customers who had passed away
- Failure to follow up with representatives of deceased customers
- Ineffective monitoring of open cases
- Funds not being identified and transferred to beneficiaries
The bank has worked to transfer the necessary funds and compensated customers and they also plan to review and improve their probate and bereavement processes.
The French regulator, the Autorité des Marchés Financiers (ACPR) has fined Banque Postale €50,000,000 after the discovery of cash transfers to and from people identified as being involved in terrorism.
The bank failed to put in place measures to check whether people were subject to asset freezes before allowing them to use a service the bank provides whereby customers can make fast cash transfers without having an account at the bank.
The Reserve Bank of India (RBI) has fined Indian Bank 10 million rupees for the violation of cyber security controls. The violations were based on regulatory compliance deficiencies and failure of the bank to adhere to RBI guidelines and directions.