DFSA Latest Developments


  • DFSA Release Consultation Paper No. 106
  • DFSA Release Consultation Paper No. 107
  • DFSA Hosts Annual Supervision Outreach Session
  • DFSA Sign MoU with Cyber Protection Body
DFSA Release Consultation Paper No. 106

The Dubai Financial Services Authority (DFSA) has released Consultation Paper No. 106 for which interested parties have until the 21st of August 2016 to provide comment. The changes in the paper pertain to intermediation activities in the Dubai International Financial Centre, namely providing ‘arranging’ services, operating as a Representative Office or undertaking Financial Promotions. The paper looks to enhance regulation in these areas, with a view to providing greater clarity and guidance and thus removing the identified gaps and overlaps of the current framework (affecting GEN, COB, REP, GLO and PIB Rulebook modules). Consequently, some amendments have also been proposed to rules relating to ‘Advising on Credit’ and ‘Providing Custody’, in so far as they facilitate the changes required to the aforementioned activities.

In relation to ‘arranging and advising’, the DFSA considered the risks that the different intermediation activities posed – in light of the relevant financial instrument or financial sector – and propose the following changes:
• To separate the Financial Service of ‘Arranging Credit’ from that of ‘Arranging Deals in Investments’
• To separate the Financial Service of ‘Advising on Credit’ from that of ‘Advising on Financial Products’
• To create a new combined Financial Service of ‘Arranging and Advising on Credit’
• Confirm, by way of Guidance, the need for a Firm to hold an Insurance Intermediation Licence (IIL) or Insurance Management Licence (IML) if it is acting as an Insurance Agent of an insurer dealing with Long Term Investments (LTIs). If the insurer is a buyer of LTIs, the Firm will need an IIL. If the insurer is a seller of LTIs, the Firm will be able to operate under either an IIL or an IML.
• With regards to exclusions
- Remove that which excludes ‘arrangements that constitute marketing’ in the definitions of ‘Insurance Intermediation’ or ‘Arranging Deals in Investments’
- Clarify that which excludes activities of a Person who is party to a transaction from being defined as ‘arranging’ and include a similar exclusion under the new Financial Service of ‘Arranging and Advising on Credit’
- Clarify that which excludes ‘mere communication channel providers’ from being arrangers and include a similar exclusion under the new Financial Service of ‘Arranging and Advising on Credit’
• Clarify, by way of Guidance, the difference between ‘arranging’ and ‘acting as agent’
• Clarify, by way of Guidance, the difference between ‘Arranging Custody’ and ‘Providing Custody’
• To remove the application of Client Assets provisions for Firms ‘Arranging Custody’

In relation to Representative Offices, the DFSA considered any overlap of the permitted activities of a Representative Office with the Financial Services that cover ‘arranging’ and ‘advising’ activities and propose the following changes:

  • Create an obligation on the Principal Representative to make an annual declaration of compliance
  • Clarify, by way of Guidance, the scope of a Representative Office licence

In relation to Financial Promotions, the DFSA considered the extent to which a Representative Office and a non-DFSA regulated person can conduct Financial Promotions and proposes the following changes:

  • Restrict the promotional activities of a Representative Office in or from the DIFC to those relating to the financial services and financial products of its head office or a member of its Group
  • Confirm and clarify, by elevating current Guidance to Rule level, the limitations of a Person – who is not regulated by the DFSA and does not have a place of business in the DIFC – making exempt Financial Promotions

The DFSA has suggested a six-month transitional period for Firms that may need to change their licences, in light of the proposals above relating to ‘arranging’ and ‘advising’ activities. Representative Offices and Persons carrying out Financial Promotions should look closely at their businesses to ensure they are performing within the scope of permitted services, following the clarifications made in this Consultation Paper.

DFSA Release Consultation Paper No. 107

The Dubai Financial Services Authority (DFSA) has released Consultation Paper No. 107 for which interested parties have until the 21st of August 2016 to provide comment. The changes have been necessitated by amendments to Federal Law No. 4 of 2002 and Cabinet Resolution No. 38 of 2014, as well as the 2012 publication of the Financial Action Task Force Recommendations. The paper looks to make extensive changes to anti-money laundering (AML) and counter-terrorism financing (CTF) regulations (affecting the AML and GLO Rulebook modules, as well Regulatory Law 2004).

With regards to the AML Rulebook, the DFSA has proposed the following changes:

• In relation to Chapter 2
- Update with the new federal legislation and explain how federal and Dubai International Finance Centre regimes are applied by the DFSA

• In relation to Chapter 3
- Include reference to the newly introduced concept of ‘unlawful organisations’ which is defined as “an organisation, the establishment or activities of which have been declared to be criminal under Federal AML Legislation”
- Remove reference to Prescribed Low-Risk Customers, as an automatic low-risk customer rating will no longer be accepted (thus requiring Firms to undertake full risk-based assessments)
- Update the definition of a PEP to differentiate between ‘domestic’, ‘foreign’ or ‘international’
- Include new federal legislation

• In relation to Chapter 4
- Clarifying that, with regards to the risk-based approach, proportionality is to be applied to the risk mitigating measures as opposed to the review of risks

• In relation to Chapter 6
- Amend so as to prohibit Firms from having any dealings with Shell Banks
- Include more detailed provisions for the types of anonymous accounts which Firms must not establish or maintain (and move from Chapter 9)
- Include Guidance that Firms should consider the risk of tax crimes when assessing customers. (This should also be considered in relation to Chapter 10 which requires Firms to put in place systems and controls in order to comply with international agreements to which the UAE is a party. Firms may have international obligations for customers who are subject to reporting requirements.)

• In relation to Chapter 7
- Include further Guidance on how Firms can go about understanding a customer’s source of wealth and funds
- Reflect the threshold introduced by federal legislation of 5% when identifying partners and shareholders of legal persons as part of customer due diligence (bearing in mind this is separate to the required identification of beneficial owners as part of conducting a customer risk assessment)
- Clarify that beneficial owners must always be ‘identified’ as part of the simplified due diligence process but Firms may decide, as part of the risk-based approach, not to ‘verify’ those identities

• In relation to Chapter 8
- Clarify that, when relying on a third party for customer due diligence (CDD), a Firm is expected to obtain from them just the relevant CDD information. Third parties need only provide the underlying certified documents upon request (Firms must ensure that these are readily available, though)
- Provide Guidance as to how Firms can demonstrate that the third party they rely on for CDD is equivalently regulated

• In relation to Chapter 10
- Remove the application exclusion so this chapter is now applicable to a Designated Non-Financial Business or Profession (DNFBP) that is a dealer in precious metals, stones or saleable items of a price equal or greater than USD 15,000
- Clarify that the obligation to obtain and make appropriate use of relevant resolutions and sanctions is an on-going one

• In relation to Chapter 11
- Remove the application exclusion so this chapter is now applicable to DNFBPs that are dealers in precious metals, stones or saleable items of a price equal or greater than USD 15,000
- Allow for the Money Laundering Reporting Officer (MLRO) of a Registered Auditor to be resident outside of the UAE

• In relation to Chapter 12
- Include Guidance pertaining to a Firm’s additional obligation to establish plans for the training and qualification of employees in all aspects relating to money laundering, in coordination with the UAE Anti-Money Laundering Suspicious Cases Unit (AMLSCU)

• In relation to Chapter 13
- Remove the application exclusion so this chapter is now applicable to DNFBPs that are dealers in precious metals, stones or saleable items of a price equal or greater than USD 15,000
- Clarify that the role of the MLRO, upon receipt of a suspicious activity report, is to ‘inquire’ and, if deemed necessary, report to the AMLSCU who will ‘investigate’
- Inform, by way of Guidance, the DFSAs position when it comes to freezing funds or assets

• In relation to Chapter 14
- Remove the discretionary element for record keeping and clarify that all records, in accordance with the AML Rulebook provisions, must be maintained
- Include Guidance pertaining to a Firm’s additional obligation to prepare semi-annual reports on their compliance with federal legislation

• In relation to Chapter 15
- Amend registration and notification requirements for DNFBPs to include ownership details/changes like shareholders’ names and percentage holding
- Clarify, by way of Guidance, how the DFSA will assess if a business or profession in the DIFC is a DNFBP

Firms should be particularly mindful of how the aforementioned changes will affect their AML policies and onboarding procedures. You should expect to update your Customer Risk Assessments to include tax crime risks and remove any elements which permitted an automatic low-risk customer rating for Prescribed Low-Risk Customers. CDD manuals should also be revised, ensuring they capture the need to identify shareholders and partners who hold 5% or more of a legal person, as well as the need to always identify beneficial owners, even at a simplified CDD level. DNFBPs should also be vigilant that they are adhering to all chapters in the AML module that they may have previously been exempt from and that they now have systems in place to monitor any changes in ownership details. All Firms will need to update their reporting and training plans to include additional federal requirements (separate to DFSA requirements), as well as ensuring that their systems and controls for on-going monitoring considers changes to relevant resolutions and sanctions.

DFSA Hosts Annual Supervision Outreach Session

On 30th May 2016, the Dubai Financial Services Authority (DFSA) held its annual Outreach session which consisted of one morning session and six afternoon sessions. CCL attended the majority of sessions and have summarised the key points of the sessions below:

1) Outreach - Morning Session
The morning session opened with Ian Johnston, DFSA’s Chief Executive, providing a keynote speech. Mr. Johnston highlighted the following points as part of his keynote:

  • There are currently 418 Authorised Firms, 16 Registered Auditors and 108 Designated Non-Financial Business Professions (DNFBP) that are licensed or registered by the DFSA;
  • The DFSA has recently spent more time working with regional regulatory bodies than global regulatory bodies which ties in with its latest business plan;
  • Firms can expect consultation papers on financial crime and client classification later in 2016; and
  • The DFSA will also be focusing on the crowd funding industry as it continues to grow as a result of expanding Fin Tech.

Shortly after Mr. Johnston addressed the audience, Andrew Haddow – member of the Compliance Officers Networking Group (CONG) Committee – discussed the CONG and its purpose. He explained that the CONG was established 9 years ago with the aim of providing compliance staff, within the DIFC, an opportunity to network and share thoughts and opinions on evolving compliance and anti-money laundering (AML) matters with their peers. It also aims to provide the compliance community with the opportunity to bring forth suggestions and recommendations to the DFSA through the CONG committee. The CONG began with 30 members and has since grown to over 150 members. There is no charge associated with CONG membership and support and administration is managed by CCL.

Membership to the CONG is exclusively available for compliance staff of DFSA regulated firms. If you would like to be added to the CONG’s email distribution list then please send a membership request to CONG@cclcompliance.com.

Bryan Stirewalt, the Managing Director of Supervision at the DFSA, provided some key messages on the subject of supervision and informed attendees that the DFSA will soon be undertaking thematic reviews on client classification (which will include suitability), as well as another thematic review on how Firms address the important issue of financial crime.

Peter Smith, Head of Policy and Strategy at the DFSA, provided insight into the policy setting framework of the DFSA and stated that the 3 drivers of changes that occur to the rulebook are as follows:

  • Changes in international standards;
  • Existing policies that do not work well, including ambiguous regulations; and
  • The need to engage new issues, products and industries as they arise.

Mr. Smith informed the audience that the proposed changes, with respect to insurance activities (CP 103) and online forms (CP 105), were soon to be enacted into the DFSA rulebook. Firms were also advised that they could expect to receive future consultations on Arranging, Representative Offices, Financial Promotions, AML (CPs 106 & 107, released in June) and crowd funding. In 2017, the DFSA Policy Department will be focusing on the Basel rules (in particular the Net Stable Funding Ratio and Leverage Ratio - ‘hard’ requirement), Over-the-Counter (OTC) derivatives and Fund platforms.

Sara Kalbane spoke on the recently introduced Client Asset Endorsement regime, which applies to Firms holding or controlling client assets. Ms. Kalabane provided an overview of the types of Firms that should be contemplating whether to apply for an endorsement, a summary of the endorsement process, as well as reminding Firms that the deadline for submitting their application for endorsement was 2nd October 2016.

Stephen Glynn, Head of Enforcement at the DFSA, together with Peter Brady, CONG Committee Member, hosted a Q&A session in which Mr. Brady put forward questions to Mr. Glynn in relation to the processes of the DFSA Enforcement division. Some of the key take-home points of the Q&A were as follows:
• Throughout 2015, the Enforcement Team opened 20 investigations, of which 15 have been concluded to date. Some of the conclusions of those investigations were as follows:
- 7 resulted in regulatory decisions (Decision Notices);
- 4 resulted in private warnings;
- 2 resulted in Enforceable Undertakings; and
- 1 resulted in no further action.

• The total value of fines imposed in 2015 was $9,341,000. The majority of fines imposed came as a result of AML failures and in one instance a fine was imposed for obstruction of investigation and for providing misleading information to the DFSA; and

• Mr. Glynn provided some tips on how Compliance Officers can avoid enforcement action:
- Know your business/understand your business model;
- Know your obligations;
- Integrate compliance with governance;
- Share responsibilities with the Board/elevate concerns;
- Maintain audit trails; and
- Report concerns to DFSA

Following the Q&A, Mark Leven and Sara Galadari – both of whom are senior managers within the supervision department – highlighted the findings from the recent thematic review on trade finance activities within the Dubai International Financial Centre (DIFC). From the 56 Firms who have involvement in trade finance activities, 17 Firms took part in the thematic review. Mr. Leven and Ms. Galadari concluded from the review the importance of identifying red flags when undertaking trade finance activity and stressed the importance of training, risk assessments and customer due diligence (including ongoing). Examples of red flags were provided as follows:

  • Unusual customer behaviour (relationship managers are key to identifying this);
  • Dual-use goods (can goods be used for military purpose?);
  • Under/over invoicing (check external sources to ensure prices are not inflated);
  • Unusual payment instructions (are any third parties involved? Any last minute changes to instructions?); and
  • Shipping (are there any unusual processes involved with the shipping?).

After the Outreach morning session and following lunch, a number of smaller Outreach-Breakout sessions began. Each session was specific to different industry types. We have summarised some of the key Outreach-Breakout sessions below.

2) Outreach - DFSA Trading Room Controls Thematic Review
In 2015, the DFSA conducted a review of trading room controls for Firms dealing in investments as principal. The review focused on controls around trading room limits, market risk, error accounts, cancel and amends and transaction surveillance. The DFSA shared its expectations and findings as a result of the review in May this year which were as follows:
• Limits
The DFSA expects Firms to have a limit framework in place that applies appropriate limits on positions and transactions, includes procedures for frequent monitoring, breach escalation and senior management reporting, as well as periodic reviews on the appropriateness of set limits. The review found that many Firms, especially those dealing in investments on a matched principal basis, were not setting limits at all.

• Market Risk
The DFSA expects real-time or near real-time market risk monitoring, valuations from independent sources, and intra-day and end-day senior management reporting. The DFSA found that little or no real-time monitoring or reporting was being conducted by Firms.

• Error Account and Cancel & Amends
The DFSA expects Firms to have systems in place to monitor both error accounts and cancel & amends, as well as procedures for senior management escalation and reporting. The DFSA found that approximately 50% of Firms did not have error accounts and were not generating cancel and amends reports. Most Firms lacked formal criteria to identify when errors or cancel & amends activity should be escalated.

• Transaction Surveillance
The DFSA expects Firms to have a framework to identify dealing activity risks, ensure independent transaction surveillance, as well as procedures for senior management escalation and reporting. The DFSA found that approximately 50% of Firms did not perform surveillance.

As a result of the thematic review, the DFSA has emphasised that Firms should know their risks and not underestimate them. Seemingly low risk dealing activities can present large risks without having the appropriate controls in place and it is the Firm’s responsibility to ensure its trading position-taking, credit extension and operational activities do not expose it to losses that could threaten the Firm’s viability. Institutions must remember that risk management is ultimately the responsibility of a Firm’s senior management and governing body, who must determine the Firm’s tolerance for risk and set controls to manage such risk.

3) Outreach - Prudential Supervision
The DFSA highlighted what it believes are the key risks that Boards, Finance Officers and Risk Officers should be considering, as follows:
• Credit Risk:
- Asset Quality;
- Non-performing loans & provisioning (bad/doubtful debts); and
- Asset concentration.

• Profitability Risk:
- Profitability drivers.

• Liquidity Risk:
- Systems and Controls(i.e. Funding Strategy, Monitoring, Stress Testing and Contingency Planning); and
- Funding maturities and concentrations.

• Capital Adequacy:
- Quality and composition of capital; and
- Internal Capital. Adequacy Assessment Process (including stress testing).

• Operational Risk:
- Outsourcing; and
- Cyber-security.

• Interest rate risk in the banking book.

Liquidity risk and the DFSA’s qualitative and quantitative requirements were discussed in detail. The calculation of the Liquid Coverage Ratio was explained, as well as the application for a Global Liquidity Concession for branches. The DFSA stated that, to date, all applications for a Global Liquidity Concession have been rejected due to not satisfactorily fulfilling the requirements of A9.1 of the PIB Rulebook to DFSA standards.

With regards to qualitative risk, the following areas were highlighted as being the most important controls in relation to managing liquidity risk:

  • Policies and procedures;
  • Liquidity limits;
  • Stress testing;
  • Contingency planning;
  • Business continuity planning; and
  • Funds transfer policy.

The DFSA will next be updating its prudential requirements in either 2017 or 2018.

4) Outreach - Thematic Supervision Emerging Trends
The DFSA provided a breakdown of Firms under its Thematic Supervision, as follows:

  • Arrangers & Advisors – 44%
  • Representative Offices – 31%
  • Asset Management – 15%
  • Brokerage – 2%
  • Fund Distributor – 1%
  • Others – 7%

The DFSA also identified a number of emerging issues.

The first was corporate governance. The DFSA noted that, in the year 2015, the Basel Committee on Banking Supervision, the Organisation for Economic Co-operation and Development (OECD) and the International Association of Insurance Supervisors all issued and published updated corporate governance principles. As such, the DFSA has observed corporate governance as a major issue in the centre. The areas of concern being:

  • Accountability;
  • Lack of policies and procedures to manage conflicts of interest;
  • Lack of disclosures;
  • Lack of internal controls;
  • Lack of tone from the top;
  • Lack of effective challenge;
  • Group dynamics – operations and reporting (in case of branches); and
    Weakness in the remuneration structures.

Going forward, we can expect an increased focus on corporate governance from the DFSA.

The second emerging trend identified by the DFSA was supervision, how are the Firms under Thematic Supervision supervised? The DFSA explained that, in addition to its risk assessment visits, it uses – as part of its risk-based approach to supervision – bespoke tools like conducting initial client file reviews for the authorised Firm that is under the pool of supervision and conducts Senior Management meetings in the middle of the risk assessment cycle to understand the business model and business strategy. However, while conducting the initial client file reviews, the DFSA concluded that the client files had inconsistency in client classification, risk rating and lack of due diligence documents.

Some of the other common emerging issues identified were:

  • Outsourcing of mandated positions. The DFSA expects Authorised Firms who are outsourcing the mandated position to ensure that the Authorised Individuals (AIs) are competent and have the capacity to take up such positions. All AIs are responsible for answering any regulatory query raised by the DFSA;
  • Reliance on other group entities or third parties to conduct certain activities;
  • Failure to read guidelines in relation to PIB Rules/the Electronic Prudential Reporting System (EPRS);
  • Monitoring of compliance with capital adequacy requirements, by the Finance Officer (FO). The DFSA expects the FO to be on top of financial reporting and not relying on staff in the finance department;
  • Compliance and AML Manuals are generic and not specific to the business model and risks of the Firm;
  • Missing data in application form and missing supporting documentation;
    Authorised Firms’ failure to adhere to DFSA temporary cover rules (that is that all Authorised Firms are required to fill in the open positions after 12 weeks); and
  • DFSA Public register is not updated with any changes to the Firm’s details i.e. change in address, telephone number and other such contact details.

The DFSA discussed how Representative Offices in the centre account for 15% of Authorised Firms and 31% of Thematic Supervision Firms. They are deemed to be low risk and require less oversight and, although a Representative Office is less intrusive, the DFSA highlighted some areas of concern:

  • Breaches to the Representative Office Rule 4.5 (Representative Offices are failing to disclose regulatory status in the marketing materials);
  • Failing to act within the scope of the Representative Office license; and
  • Difficulties understanding obligation of a Principal Representative, as defined by the DFSA (the Representative Office often ended up engaging actively with Group clients and helping Group clients to complete contracts).

The DFSA updated attendees on the Systems and Analysis Team, who manage the requests received via the Supervised Contact Form, maintain and develop internal IT systems, create various reports and statistics, administer the EPRS and ensure that the DFSA Public Register is kept up to date. The monitoring of the EPRS system helps the DFSA to identify the Firms who have not submitted their EPRS Return, the Firms that are in breach, any EPRS returns that have been submitted incorrectly, any significant differences from previously submitted returns and any significant differences from peer submissions. Normally the EPRS administration takes place 2-3 weeks before the quarter-end and the DFSA advised that it expects all Firms to commence input as soon as possible. In case the EPRS input is delegated, the DFSA expects Firms to ensure the person handling the EPRS understands the systems and processes to file the returns.

Apart from creating Management Information Systems, the DFSA advised that the Systems and Analysis Team has been working on updating the EPRS (Oracle’s Hyperion) and in future Firms can expect a new and improved version which hopes to make the experience better and will fix issues such as page numbering and printing errors. The new Oracle’s Hyperion is expected to be implemented in Q1 2017 and the DFSA plans to make some of the forms available for submission online. The forms which are expected to go online in Phase 1 are:

  • Annual Anti-Money Laundering Return;
  • Application forms for Qualified Investor Funds;
  • Representative Office applications;
  • Applications for Advisors and Arrangers; and
  • Self-Certifications.

Finally, the DFSA highlighted additional future areas of focus. Namely:

  • Client classification thematic review;
  • Arranging and representative consultation;
  • AML/financial crime; and
  • Further refinement of regulatory framework.

5) Outreach - Wealth Managers
The DFSA is expecting to conduct thematic reviews this year on:

  • Client classification – to ensure that Firms are classifying their clients in line with their internal procedures and risk appetite; and
  • Financial crime – to review the appropriateness of the Firm’s risk-based approach, on-going customer due diligence and quality of suspicious activity reports (if any).

The DFSA has seen increased interest in DIFC funds and has indicated that Firms should not shy away from applying for the financials services of Managing Assets and Managing a Collective Investment Fund.

Further, the DFSA detailed the recent policy initiatives that have an impact on Wealth Managers, namely:

  • CP102 Property Funds and Money Market Funds – Specific to Property Funds were changes to the rules in relation to Borrowing, Custody, Valuation and Affected Persons Transactions;
  • CP102 Property Funds and Money Market Funds - Specific to Money Market Funds were changes to the definition of Money Market Funds and the requirements and disclosures relevant to Constant NAV (CNAV) versus Variable NAV; and
  • CP104 Miscellaneous Amendments – The CIR Annual Return moves to a calendar year submission with a return due date of 31st January each year.

The first submission due date is 31st January 2017.

With respect to Private Banking, the DFSA outlined a number of areas where it feels that controls could be enhanced, as follows:

  • The Firm should have procedures in place to outline what Relationship Managers can do in other jurisdictions outside of the DIFC and UAE (Cross-Border Activity);
  • OECD has a number of guides to identify tax evasion risk. The DFSA expects to see evidence that Firms have considered tax evasion at the client take-on stage;
  • Expect formal SLA’s to be in place even if with a group company; and
  • Where Firms provide hold mail services, they will need to have policies and procedures in place to document how this is managed and ensure that relationship managers are not be involved in the process.

Product governance is an area where the DFSA is not overly zealous as the DIFC is seen mostly as a distribution centre. However, it expects Firms to have:

  • Approved product lists;
  • List of approved marketing materials; and
  • Independent review of both of the above by compliance, audit etc.

Where Firms are required to complete an Internal Risk Assessment Process and/or ICAAP they:

  • Should align them with the rules provided in Pillar 2 of Basel II;
    Can combine them in the same document if this is suitable for the Firm’s business;
  • Should use explanations of abbreviations used (include a glossary if possible) as this helps the DFSA during its review; and
  • Must ensure that projections are not unrealistic.

6) Outreach - Trading Room Activities

The DFSA conducted a thematic review of trading room controls and has highlighted the following findings:

  • Firms that are Trading as Principal should have limits in place, even for Matched Principal, as there is still risk involved;
  • There was little or no real time and intra-day monitoring in place among the Firms that were reviewed;
  • Error Accounts must be maintained, as more than half of the Firms reviewed didn’t have them. There should also be a documented process for how escalations are made to senior management;
  • Currently there little or no monitoring of cancelled and amended transactions. Proper monitoring and escalation processes need to be in place;
  • There needs to be a process for review (not just by Compliance team) of transaction surveillance and also escalation procedures to senior management;
  • Operational and conduct risk remains in the DIFC even if the trade is booked in a different jurisdiction. Firms cannot fully pass risk to other booking centres; and
  • Training materials for traders should be provided which incorporates marketing and the use of social media.
DFSA Sign MoU with Cyber Protection Body

The Dubai Financial Services Authority (DFSA) has signed a Memorandum of Understanding (MoU) with the Telecommunications Authority’s (TRA) Computer Emergency Readiness Team (CERT), for support with managing its associated cyber-risks.

The TRA will provide awareness and education to Firms about online threats, consult with relevant authorities and protect the DFSA’s own systems against attacks. CERT will provide research, analysis and assessment services.

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

Middle East Regulatory Updates
  • New Market Maker Fund Introduced to Bahrain Bourse
  • Saudi Arabia Updates
  • UAE Updates
  • Oman Updates
  • Qatar Updates

New Market Maker Fund Introduced to Bahrain Bourse

The new Bahrain Liquidity Fund has been launched on the Bahrain Bourse as an approved market maker. The USD 100,000,000 fund will provide two-way quotes on most of the listed stocks and, by offering a ‘reasonable spread’, hopes to encourage investors to actively trade them. Thus, the fund should improve the liquidity issues that the market has been facing till now.

Saudi Arabia Updates

1) The Saudi Capital Markets Authority (CMA) has issued its final amendments to its Investment Funds Regulations. The new provisions aim to, among other things, regulate the conduct between funds/fund managers and investors. For example, the frequency of periodic reports by fund managers to unit holders has been increased and the new rules also detail how unit holders can vote on certain actions that are to be executed by the fund manager. Further, the changes outline procedures for approving the establishment of public funds and set independency criteria for custodians – in relation to the fund manager. The amended legislation came into effect on the 11th June and the regulator expects the new rules to diversify the investment landscape and increase institutional commitment.

2) The CMA is extending the products it offers to foreign investors. Amendments to regulations have proposed to include reference to ‘securities’ and allow these investors to buy exchange-listed debt instruments. The changes also look to remove the limits imposed on foreign investors with regards to the amount of stocks they can buy and reduce thresholds relating to the amount of assets that Qualified Foreign Financial Institutions must have under management, to qualify as investors. The CMA hope this will attract more investment and money to the market.

UAE Updates

1) The board of the UAE Securities and Commodities Authority has approved draft regulations which would licence companies to set up and execute clearing transactions without being on securities exchanges. The law would also separate the functions of clearing and settlement.

2) The UAE Central Bank and the Ministry of Finance (MoF) signed a Memorandum of Understanding last month, establishing a strategic partnership, promoting co-operative work practices and committing to sharing fiscal data, as per the MoF’s policies regarding its relationships with government entities in the UAE. The supportive framework that the corporations agreed upon will benefit both organisations on an on-going basis.

Oman Updates

1) The Gulf Bond and Sukuk Association (GBSA) has, with the support of Bank Dhofar, launched a new working group in Oman. The working group will help to develop the Oman economy by acting as a valuable resource to authorities and facilitating discussions with key market participants. This comes off the back of, and in support of, Oman Capital Market Authority’s recently issued Sukuk Regulations. Implemented in April, the sukuk statute provided a much needed framework to regulate the financial product, including rules for forming trustee structures or LLC special purpose vehicles in order to issue sukuks. The articles also granted issuers the freedom to choose whether or not to have a sukuk rated and to select a sharia supervisory board to approve sukuk structures.

2) Further to the April edition of our Middle East Regulatory Update, Oman has recently issued its newly adopted and amended law on anti-money laundering and counter-terrorism financing. Changes in the law – which was originally reviewed by the National Committee for Combatting Money Laundering and Terrorism Financing and incorporates findings from the country’s 2010 Mutual Joint Evaluation Report with the Financial Action Task Force – include governance on risk assessment, due diligence, beneficial ownership identification, PEPs, sanctions and correspondence banking relationships. Furthermore, the legislation has strengthened the position of Oman’s Financial Intelligence Unit, granting it financial and administrative independence and legal authority.

Qatar Updates

1) The Qatar government has introduced a bill which seeks to regulate consultancy services, in line with provisions of Cabinet Decision No. 54 of 2014. The draft legislation specifies fees for the registration and renewal of consultancy services.

2) Seven Memorandum of Understandings were signed between Qatar and India last month, one of which was an agreement to share information between the countries’ Financial Intelligence Units in order to bolster anti-money laundering and counter-terrorism financing efforts. The regions also committed to looking at future joint investment ventures, as well as establishing a committee for reviewing matters of mutual interest.

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

International Developments


  • FinCEN Blacklist North Korea
  • Latvia Amends Banking Law
  • Taiwan Moves to Criminalise Terrorist Financing
  • New BSP Department Addresses Cyber Risk to AML Regime
  • MAS Concentrates Resources with new AML Department
  • Barbados Conduct Preliminary Evaluation Before CFATF Assessment
  • Penultimate US State Legislates Money Transfer Industry
FinCEN Blacklist North Korea

The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has designated North Korea as a jurisdiction of primary money laundering concern. The decision, which enacts the North Korea Sanctions and Policy Enhancement Act, prohibits US financial institutions from opening or maintaining correspondent accounts with firms in the republic or from processing their transactions (including via third country banks’ US correspondent accounts).

Latvia Amends Banking Law

Amendments to Latvia’s Credit Institution Law were passed last month. Financial companies will now be liable to pay up to 10% of their annual turnover (not net revenue) or EUR 5,000,000 (whichever is higher) for violations to anti-money laundering regulations or international/national sanctions. In addition, individuals such as bank managers or employees responsible for the prevention of money laundering can now be held personally accountable and also fined EUR 5,000,000 by the Financial and Capital Market Commission if they are found to have failed to take sufficient preventative measures against these crimes.

Taiwan Moves to Criminalise Terrorist Financing

A draft law has been approved in Taiwan which criminalises financing terrorist organisations and carries a sentence of up to seven years in prison and a fine of up to USD 310,350. The Taiwanese Cabinet also proposes to establish a committee who will determine sanctioned individuals/entities, causing funding to these persons to be a punishable activity too.

New BSP Department Addresses Cyber Risk to Anti-Money Laundering Regime

The Philippines Central Bank (BSP) has established a dedicated cyber-security department as part of its increasing efforts to combat money laundering. As well as setting up this team to develop security policies, boost banks’ defences and carry out surveillance and monitoring, the BSP has also turned its attention to the remittance industry, indicating a need to create regulations for virtual currencies, the use of which has doubled in the country since this time last year.

MAS Concentrates Resources with new AML Department

The Monetary Authority of Singapore (MAS) plans to establish a dedicated anti-money laundering (AML) department to manage the growing risk faced by jurisdictions across the globe. The specialist office will centralise focus and functions that have previously been shared by various departments of the central bank. The new department is charged with increasing the level of AML supervision and aims to be operational by August 1st 2016.

Barbados Conduct Preliminary Evaluation Before CFATF Assessment

In anticipation of the assessment to be carried out in December by the Caribbean Financial Action Task Force (CFATF), Barbados is currently undertaking a mutual evaluation of its anti-money laundering (AML) and counter-terrorism financing (CTF) regime. As instructed by the CFATF, the evaluation will enable the country to identify, assess and mitigate its AML and CTF risks ahead of the international body’s visit and, by adopting a World Bank tool to do so, Barbados will have the continued ability to assess and improve its framework moving forward.

Penultimate US State Legislates Money Transfer Industry

As one of only two states left in the US without legislation for the money transfer industry, South Carolina’s Senate passed an anti-money laundering bill last month which looks to establish a regulatory system for the remittance sector and end the potentially unrestricted transfer of billions of dollars to international terrorist groups.

The South Carolina Anti-Money Laundering Act will obligate businesses in the state that issue money orders to be licenced. These firms will also need to be bonded, insured and, in accordance with the drafted legislation, act cooperatively by sharing records, if requested to do so by state investigators.

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


Financial Crime


  • FATF Hold June Plenary Meeting
  • Financial Crime on the Rise
  • Tools Developed to Identify In-House Financial Crime
FATF Hold June Plenary Meeting

In its most recent plenary meeting, the Financial Action Task Force (FATF) has commended Iran’s commitment to following its Action Plan which was devised to address the country’s strategic anti-money laundering (AML) and counter-terrorism financing (CTF) deficiencies. Although keeping Iran on its list of high-risk countries, the supervisory body has suspended its counter-measure directive for 12 months. FATF members are asked instead to apply proportionate and enhanced due diligence in dealings with the jurisdiction. Myanmar and Papua New Guinea were also recognised for the progress they have made with their AML and CTF regimes, no longer being subject to FATF’s on-going compliance process.

Financial Crime on the Rise

1) The Hong Kong Securities and Futures Commission reported a 91% increase in the number of anti-money laundering breaches this financial year end (223). This could be accredited to the regulator focusing its attention on this area and the money laundering risk assessment it conducted for the securities sector. As expected, the fines issued for AML offences has shown an increase of 58% to USD 11,200,000.

2) Following a monitoring exercise on institutions that have previously settled misconduct charges with the New York State Department of Financial Services, the regulator has identified further incidences of recent non-compliance. In some cases, severe enough to lead to potential enforcement action.

3) The Australian Transaction Reports and Analysis Centre has reported a significant rise in the number of suspicious activity reports it has received in recent years. This has been attributed to a growth in new information technologies and mirrors an increase in reported cybercrime. Growing exposure to a progressively more complex financial landscape also facilitates the commitment of these offences.

Tools Developed to Identify In-House Financial Crime

Nasdaq Inc. has appropriated AI systems, that were originally developed to identify terrorists and sex traffickers, in order to test them as tools for tracking the perpetrators of white-collar financial crime. By analysing the trade activity of employees in the industry against the content of their corporate social media and emails accounts, incidences of insider trading, market manipulation and fraud, for example, are expected to be identified earlier. The information collected could also be used to create personal profiles of traders.

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


Enforcement Action


  • SEC Fine Firm for SAR Failings
  • BSP Revoke Licence of Remittance Firm Involved in RCBC Scandal
  • ASIC Accuses the National Bank of Market Manipulation
  • Big Four Auditing Firms’ Services Banned in Saudi
  • Nordea Bank Investigated for AML Failings by Multiple Financial Regulators
  • Forex Trader Looses $23 million of Fraudulently Obtained Investment Capital
  • Financiers of PKK Sentenced by Danish Appeal Court
  • Seychelles Man Found Guilty of Money Laundering
SEC Fine Firm for SAR Failings

Albert Fried & Company has been fined USD 300,000 by the US Securities and Exchange Commission (SEC) for breaching regulations relating to activity monitoring. It was discovered that the firm had failed to follow up, raised red flags or file suspicious activity reports (SARs) on the activity of its customers for over 5 years, potentially permitting hordes of illicit funds to enter the financial system.

BSP Revoke Licence of Remittance Firm Involved in RCBC Scandal

The Philippine Central Bank (BSP) has revoked the licence of remittance Company Philrem Service Corporation, in relation to its part in the USD 81,000,000 Bangladesh Central Bank heist. The company was used to transfer funds belonging to the bank – and which were held in an account at the Federal Reserve Bank of New York – to the Manila branch of RCBC. BSP worked with the country’s anti-money laundering council who believed that Philrem deliberately masked the transactions, acting as a cleaning house for the illicit monies.

ASIC Accuses the National Bank of Market Manipulation

The Australian Securities and Investments Commission has alleged that the National Bank of Australia manipulated the bank bill swap reference rate between June 2010 and December 2012. As such, the regulator has filed for legal proceedings to impose penalties and an undertaking to implement a compliance programme. The bank has denied attempting to maximise its profits/minimise its losses by misreporting the benchmark.

Big Four Auditing Firm’s Services Banned in Saudi

The Saudi Capital Market Authority (CMA) imposed a second ban on the local office of accountancy firm Deloitte and Touche, following the conclusion of its case into the firm’s role in MMG’s violations. MMG were accused of misreporting the share value of its company at the time of its IPO. Accordingly, Deloitte has been found to have breached rules pertaining to accumulated losses and has been prohibited from providing audit services to CMA listed or licenced companies for 2 years, plus a fine of SAR 300,000.

Nordea Bank Investigated for AML Failings by Multiple Financial Regulators

The Danish Financial Supervisory Authority (FSA) has referred Nordea Bank AB to police following its investigation which revealed multiple deficiencies with the firm’s anti-money laundering (AML) controls. At present, the FSA does not have the authority to issue fines.
The Swedish entity of Nordea Bank has already been fined USD 6,000,000 by its local FSA for similar AML failings.

Forex Trader Looses $23 million of Fraudulently Obtained Investment Capital

An investigation by a US Immigration and Customs Enforcement’s Homeland Security Investigations task force has revealed that a New York resident, Ms. Haena Park, fraudulently gained the custom of over 20 investors by misrepresenting her expertise and results in forex trading. Ms. Park lost the majority of the USD 23,000,000 she raised from the deceived investors, falsifying the statements she sent them in an attempt to hide the activity and repaying existing ‘clients’ with funds obtained from new investors.

The extent of the financial detriment suffered by these individuals is severe and Ms. Park could be sentenced to up to 30 years imprisonment and a fine totalling twice the gross gain/loss of the offences.

Financiers of PKK Sentenced by Danish Appeal Court

Two men were given conditional jail sentences when the Danish Appeal Court upheld a ruling that found them guilty of sending at least USD 5,100,000 to the Kurdistan Worker’s Party (PKK) – a Turkish group designated as a terrorist organisation by both the EU and US – through a Kurdish television channel based in Denmark between 2009 and 2012. The ‘conditional’ verdict was attributed to the date of the offences and the fact that one of the defendants is 75 years old.

Seychelles Man Found Guilty of Money Laundering

A man has been charged in the Seychelles under the Proceeds of Crime Act and the Anti-Money Laundering Act. This is in connection with USD 456,000 of assets which he has been found to have accrued through illicit means. The defendant, Mr. Alphonse, has been fined USD 3,854 in addition to having the assets seized.

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

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