DFSA and DIFC Latest Developments

The Dubai Financial Services Authority (DFSA) has published its 2016 Annual Report. The Report covers the activities that the DFSA has undertaken in 2016 as well as their strategic vision and initiatives.
The report covers:

  • Who the DFSA are, including their mission and values as well as introductory sections for each Board member
  • What the DFSA do including key DFSA-wide initiatives and 2016 initiatives within each of its divisions, from policy and strategy, supervision, markets, enforcement and international relations.
  • The DFSA’s business plan for 2017/2018 which covers delivery in executing the DFSA’s core function with professionalism and efficiency, sustainability in positively shaping the regulatory environment, organisation for the long term, and engagement in relating thoughtfully and actively with their key stakeholders

The DFSA issued a “Dear SEO” letter to all authorised firms regarding the recent announcements made by the UAE Government. This issue brings awareness to the UAE’s list of designated terrorist organisations and groups, which includes new designations specifically to address threats posed by Qatar-linked terrorism support networks.

The letter instructs SEOs in all DIFC companies to:

a) take certain action in relation to accounts, investments financial instruments, etc. held by individuals or entities appearing on the List
b) apply enhanced customer due diligence to any customers with dealings linked to six named Qatari banks; and 
c) undertake detailed reporting to the Central Bank

The DFSA have made updates across all relevant rulebooks in order to incorporate the financial service of “Operating a Crowd Funding Platform” into the DFSA’s regulatory framework. The changes will come into effect on 1st August 2017.

The amendments follow Consultation Paper (CP) No. 109 – Crowdfunding: SME Financing Through Lending and Consultation Paper (CP) No. 111 – Crowdfunding: SME Financing Through Investing, both which were covered in the January and February editions of the CCL Regulatory Update, respectively.

The DFSA have released two consultation papers:

Consultation Paper No 113 – Capital Requirements Review
The DFSA have released a consultation paper in order to bring the Prudential Investment Business (PIB) Module of the DFSA Rulebook in line with the standards of the Basel Committee for Banking Supervision. This paper is of particular interest to authorised firms who accept deposits, provide credit, deal in investments as Principal, deal in investments as Agent, deal as Principal (Matched Principal basis) or manage a profit sharing investment account. 
The consultation paper seeks to bring together the difference between the Basel III framework which expresses regulatory capital as a percentage of Risk Weighted Assets (RWA), and the PIB Module which sets the capital requirements in absolute figure terms. The Consultation Paper sets out a proposal to change the PIB Module which introduces the notion of RWAs in relation to capital requirements, capital component limits and buffers. This will align the DFSA regime with the Basel III framework. 
The objective is to help firms facilitate the calculation of capital charges by streamlining the process whilst allowing for direct comparability of capital metrics with firms in other jurisdictions which have implemented the Basel III framework. This will also include changes to adjustments to the provisions on the Capital Requirement and change to the provisions on the Capital Conservation Buffer.

Consultation Paper No 114 – Liquidity Requirements Review
The DFSA have released a consultation paper in order to amend the provisions on Liquidity Risk contained in the PIB Module of the DFSA Rulebook so as to align them with the standards published by the Basel Committee for Banking Supervision. This paper is of particular interest to authorised firms that accept deposits, manage a profit sharing investment account, provide credit or deal in Investments as Principal. The proposals, similar to Consultation Paper No 113, seek to implement the remaining elements of the Basel III liquidity framework in a manner appropriate to the DIFC.

The Fourth EU Money Laundering Directive (MLD4) came into force across Europe on the 26th June 2017. The legislative change aims to implement recommendations made by the Financial Action Task Force (FATF) and bring the EU to an equivalent standard. It is understood that EEA companies with a subsidiary or branch in the DIFC will be impacted because the firm must ensure that those offices or entities also comply with the requirements of the directive.
Consequently, all branches or subsidiaries which have parent companies established within the EEA, need to make sure that all standards from the MLD4 are sufficiently compliant. Firms are encouraged to conduct a gap analysis which is important to understand how these changes impact the way firms do business and to assess whether all systems and controls are fully aligned with the new regime. This includes greater focus on the risk based approach, wider definition of politically exposed persons, and clarity on the beneficial ownership definition.

If you require support with your gap analysis or have any questions regarding the potential impact of MLD4 on your firm, contact our DIFC-based team directly by clicking here.

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


ADGM and FSRA Latest Developments

The Abu Dhabi Global Market (ADGM) has implemented amendments to its legislative framework regarding changes and enhancements to fund structure and offerings. These changes include revisions to the Fund Rules and Companies’ Regulations which enable the establishment of private real estate investment trusts (REITs) in the ADGM and which safeguard the privacy of unitholders of ADGM-based funds. These changes are being made in order to align the ADGM with international best practice and provide a fair and well-regulated platform that meets the needs of the market.

The ADGM and the social impact firm, TechPreneur Africa have signed a memorandum of understanding to foster and support the growth and activities of FinTech in the Middle East and African regions. The CEO of the Financial Services Regulatory Authority (FSRA) in the ADGM said “The new partnership with TechPreneur Africa marks another achievement towards strengthening the connections between FinTech communities, and harnessing synergies in innovations and capabilities through global collaboration. The MEA region has tremendous demand and growth opportunities for financial services. We hope that through closer collaboration with like-minded FinTech hubs, we are able to leverage the strengths and expertise of our markets to more efficiently address the needs of the industry and support economic growth and development in the region. This new partnership will open up new avenues and create opportunities for FinTech firms in the Middle East and Africa looking to expand into each other’s markets.” African innovators can now apply to be part of the ADGM’s Regulatory laboratory to test FinTech innovations and prepare to serve the financial markets as regulated FinTech firms.

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


Middle East Regulatory Updates

Qatar has been accused of supporting terrorist groups which has triggered several Gulf Countries to cut diplomatic ties. The UAE, Saudi Arabia, Bahrain, Egypt, Yemen, the Maldives and Libya have all withdrawn their ambassadors. Saudi Arabia, the UAE and Bahrain gave all Qatari nationals two weeks to leave their territory and also banned their citizens from travelling to Qatar. The UAE Central Bank has released a circular demanding financial detail on accounts and transfers relating to 59 designated individuals and 12 entities which are alleged to be financiers of terrorism and have allegedly raised funds for al-Qaeda.

The Central Bank of Bahrain has created a FinTech Regulatory Sandbox in order to allow FinTech start-up companies to test and experiment with banking ideas and solutions. Similarly to the ADGM and other FinTech sandboxes, this will offer opportunities for businesses around the world to expand and thrive in Bahrain which hopes to strengthen their position as a FinTech and Financial Services hub in the GCC. The sandbox is open to existing licensees of the Central Bank of Bahrain and other local and foreign companies, and the tests will last for nine months with a maximum extension of three months.

The Oman Capital Market Authority has decided to issue a Sukuk regulation which stipulates:

  • Sukuks shall be regulated by the provisions of the Regulations issued by the Board of Directors of the Capital Market Authority
  • The Executive President of the Capital Market Authority (CMA) shall issue forms and directives to prescribe the implementation of the provisions of this Regulation.
  • This decision shall be published in the Official Gazette and shall come into force on the day following the date of publication.

All details regarding Sukuks regulation in Oman have been disclosed in this decision and clearly outlines the new regulation.

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

Financial Crime

The Public Funds Prosecution in Abu Dhabi in co-operation with the Criminal Investigation Department have foiled a criminal plot to steal over AED635 million from the account of a bank operating in the UAE. Using close detection of unusual movements and withdrawal of money from an account within the Central Bank, the Public Funds Prosecution in conjunction with the Criminal Investigation Department were able to freeze money that was illegally withdrawn. Upon further investigation, it was identified that amounts were being transferred to several branch companies of five major companies across different emirates within the country. 38 individuals have been arrested and both agencies have been coordinating with the Central Bank to recover the whole AED635 million.

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

International Developments

The Managing Director of the International Monetary Fund (IMF), Christine Lagarde had stressed the need for countries to intensify the fight against financing of terrorism as well as corruption and tax evasion. In Valencia, Christine made a speech which she delivered at the Financial Action Task Force plenary meeting. The speech described the combating of terrorist financing as a top policy priority and that as terrorism becomes more pervasive in societies across the world, it is a global responsibility to choke off financial flows - both large and small - that enable terrorists to inflict unspeakable suffering on individuals, families and communities.

As part of the 4th EU Money Laundering Directive, HM Treasury in the UK has implemented new regulations to make businesses more responsible in their checks of how money is being sourced and used. These regulations include the Criminal Finances Act which gives law enforcement further capability and power to recover the proceeds of crime, tackle money laundering, tax evasion and corruption and therefore ultimately the financing of terrorism. The overall aim is for businesses to now have to carry out detailed checks to ensure that money changing hands comes from a legitimate source and will not be used to fund terrorism.

In the UK, inquiries from overseas authorities investigating the trail of money sources flowing to the UK has risen by 12%. The UK’s Financial Conduct Authority has made tackling banks’ laundering of ill-gotten gains a priority and had pledged to start prosecuting financial institutions for “particularly serious or repeated” failures. The attraction of the London property market to overseas investors, and the sheer volume of financial transactions that take place every day in London, has meant it is a haven for money laundering schemes. Consequently, the steps to try and stem the flow of money from illegitimate sources has grown rapidly with the amount of money laundering inquiries.

The Danish government are taking steps to strengthen money laundering regulations and punishments for those involved in money laundering. The Business Minister for Denmark has reached an agreement with representatives from the governing coalition and the opposition to tighten money laundering laws. The plan also places a large responsibility on bank managers to stop money laundering, with Board members responsible for overseeing any companies which are caught breaching the law to also face punishment if they fail to intervene.

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

Enforcement Action

Barclays Bank in the UK and four former UK executives have been charged with fraud by the Serious Fraud Office over their actions in the 2008 financial crisis. The case involved the method by which the bank raised billions of pounds from Qatari investors aimed at enabling it to avoid a government bailout, being considered illegal. The four former executives have also been charged with conspiracy to commit fraud and providing unlawful financial assistance. The Financial Conduct Authority has also reopened its probe into the deal and is understood to be reviewing evidence which may mean that it will reconsider a £50million fine against Barclays.

American Insurance Group (AIG) has recently agreed to pay $148,698 to settle ‘apparent violations’ of Office of Foreign Assets Control (OFAC) sanctions against Iran, Sudan and Cuba. From 2007 to 2012, OFAC said that AIG engaged in a total of 555 transactions totalling approximately $396,530 in premiums and claims for the insurance of maritime shipments of various goods and materials destined for, or that transited through, Iran, Sudan, or Cuba and/or that involved blocked persons. In policies that contained exclusionary clauses, OFAC said that the clauses were sometimes ‘too narrow in their scope and application to be effective.’. This caused AIG to collect premiums and pay some claims for shipments to Iran, Sudan and Cuba. AIG self-disclosed the apparent violations, took remedial action and cooperated with OFAC’s investigation.

The Taipei Fubon Commercial Bank has been fined NT$1 million (US$33,200) for the failure to file reports on large cash transactions as required by the Money Laundering Control Act, the Financial Supervisory Commission (FSC) said Tuesday. This is the second occasion a local bank has been fined by the FSC over such violations following NT$1.8 million fine that was imposed on Chang Hwa Commercial Bank earlier this year. Chen Yen-yi, chief secretary of the FSC’s Banking Bureau has stated that, following the recent investigation by the FSC, Fubon was found to have failed to report 20 suspicious financial transactions carried out by their clients last year.
The regulation was drawn up to prevent cases such as the Mega Bank New York branch being fined US$180 million by the New York State Department of Financial Services in August last year.

Bank of New York Mellon Corporation (BNY Mellon) has been fined $3 million for ‘unsafe and unsound practices’ that led to the bank incorrectly stating its capital for more than three years, the US Federal Reserve Board (The Fed) announced. The Fed has claimed that BNY Mellon consolidated a portfolio of collateralized loan obligations onto its balance sheet in 2010. The Fed has stated that in 2010, BNY Mellon ‘incorrectly assigned the assets a zero-risk weighting, which was improper under the rules in place at the time.’

BNY Mellon’s ‘improper treatment’ of its portfolio has led to the bank understating its reported risk-weighted assets and overstating its risk-based capital ratios for almost 14 quarters.

The Fed noted that once the errors had been identified, BNY Mellon acted to correct its unsound practices and is now in compliance.

Fabiana Abdel-Malek, a former compliance officer in UBS AG’s London Branch has been charged with insider dealing by the Financial Conduct Authority (FCA). Ms. Abdel-Malek, 34, has been accused of five counts of insider trading along with Wali Choucair. Mr Choucair, 38, of London, by the FCA for trading on the information received from Ms Abdel-Malek between June 2013 and June 2014. The defendants allegedly made £1.8 million in profits by trading the shares of Elizabeth Arden Inc. and four other companies using insider information.

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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