DFSA Latest Developments

Includes:

  • Amendments to the Prudential Returns Module
  • Amendments to the Application Forms and Notices Module
  • DFSA Investigates ABN AMRO for Regulatory Failings
  • TVM Capital Healthcare Partners Establish First DIFC QIF
Amendments to the Prudential Returns Module

The DFSA produced the fourth version of the Prudential Returns Module (PRU) and updated it as a result of the two recent legislative changes to the Prudential – Investment, Insurance Intermediation and Banking (PIB) Module and the Prudential – Insurance Business (PIN) Module of the DFSA Rulebook that came into effect on 21st August 2014 and on 1st January 2015.

The PRU is split into four sections: Instructional Guidelines for PIB Returns, PIB Forms, Instructional Guidelines for PIN Returns and PIN Forms.

The DFSA in cooperation with the Compliance Officers Networking Group (CONG) hosted an Outreach session on the new Prudential Reporting Forms on the 29th March 2015, and was primarily aimed for Finance Officers and Compliance Officers in Category 3 and 4 Firms. The key points were that:

All annual returns until the end of 2015 must be completed using the old forms;
All quarterly returns must be completed using the new forms, regardless of the firm’s financial year end;
Existing forms in addition to new forms being created;
An increase in the level of detail within the existing forms, differentiating from which services a Firm derived its fees, commissions and costs;
The wealth and asset management forms are more granular.
B230 is new and focuses only on dealing activity;
B240 replaces the B200. Note that the client classification by “domicile” field has changed to client classification by “country of residence”;
B270 is new and applies to insurance managers and insurance intermediaries. It now includes gross written premiums as well as details of number of claims and their value. There is also a new section where the firm holds insurance monies;
B280 staff counts include any services or support you get elsewhere in the group. The number of resources involved should be identified on behalf of the firm, otherwise the count for the whole of the function must be included e.g. if group back office function has 20 people and they are all possibly involved with the firm, the count should be 20;
B280 – if the Relationship Managers are only marketing and not advising, then they go into the “other” section;
B280 – if the Firm’s total client count, not just new clients during the reporting period;
The DFSA expects Firms to develop a consistent methodology for preparation of the ; and
B220 has a section on the marketing and selling of foreign funds – in time, this will replace the AFN CIR form.

Amendments to the Application Forms and Notices Module

During March 2015, the DFSA updated and amended the majority of forms found in the Application Forms and Notices Module (AFN). The following is a list of the forms that have been updated and amended:

AUT NOTES Applying for Authorisation - Notes for Applicants;
AUT CORE Applying for Authorisation - Core Information Form;
AUT IF Applying for Authorisation - Islamic Finance Business Supplement;
AUT PFS Public Fund Supplement;
AUT EFF Exempt Fund Form;
AUT QIFM QIF Domestic Fund Manager Form;
AUT QIF Qualified Investor Fund: Notification Form;
AUT EFM External Fund Manager Form;
AUT EXF External Fund: Notification Form;
AUT REP Applying for Authorisation as a Representative Office;
AUT CON Applications and Notifications Concerning a Change in Control;
AUT IND1 Applying for Authorisation - Authorised Individual Status;
AUT IND2 Application to Extend or Vary Authorised Individual Status;
AUT IND3 Application to Withdraw Authorised Individual Status;
AUT IND4 Applying to become the Principal Representative;
AUT IND5 Application for authorisation - Key Individual status;
AUT IND6 Application to extend or vary - Key Individual status;
AUT IND7 Application to withdraw - Key Individual status;
AUT CRA Applying for Authorisation as a Credit Rating Agency;
SUP2 Deleted – please use GEN1 Form;
SUP3 Application Cell Company – Insurance;
SUP4 Application to vary a Licence;
SUP5 Application to Add or Remove an Endorsement on a Licence to Carry on Financial Services with Retail Clients;
SUP6 Applying to withdraw a Licence;
GEN1 Request for a waiver or modification;
GEN2 Notification of appointment, resignation and termination of an Auditor;
CIR Notification of the Marketing and Selling of Funds;
AMI2 Deleted – please use GEN1 Form;
AMI3 Applications and Notifications Concerning a Change in Control;
REC1 Application for Recognised Member Status;
MKT1 Application for Prospectus Approval;
MKT2 Application for Admission of Securities to the Official List of Securities of the DFSA;
MKT3 Sponsor's Declaration;
MKT4 Deleted – please use GEN1 Form;
DNF1 Designated Non-Financial Businesses and Professions – Registration Form;
DNF2 Designated Non-Financial Business or Profession (DNFBP) – Changes to registration details;
AML Annual AML Return;
AUD1 Audit Principal Notification;
AUD2 Withdrawal of Audit Principal;
AUD3 Registration as a Registered Auditor;
AUD4 Registration as an Audit Principal;
AUD5 Application to withdraw a registration as a Registered Auditor; and
AUD6 Registered Auditor – Money Laundering Reporting Officer.

DFSA Investigates ABN AMRO for Regulatory Failings

The DFSA and the Dutch Central Bank are working together to investigate ABN AMRO’s Private bank in the DIFC.

Six employees have ceased working for the bank due to an internal investigation, finding that they had not complied with the Bank’s guidelines.

ABN AMRO had launched internal investigations into Dubai staff practices as a result of indications that internal guidelines were not being followed. However, the Dutch finance minister has denied that the investigation has found any evidence of fraud or money laundering has been committed.

TVM Capital Healthcare Partners Establish First DIFC QIF

The new Qualified Investor Funds regime (QIF) was introduced and implemented in the DIFC to provide a faster registration process where the DFSA aims to the complete the process within a period of 2 days.

QIFs, consisting of 50 or less Unitholders, can only be offered to Professional Clients with a minimum investment of $500,000 through Private Placement.

TVM Capital MENA, a healthcare investment company, was established in 2009 and is officially the first firm in the DIFC to be registered to the new QIF regime.

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:

  • ADGM Adopts Rules to Prevent Money Laundering and Terrorist Financing
  • Islamic Banks Show Interest in the Russian Market
ADGM Adopts Rules to Prevent Money Laundering and Terrorist Financing

Abu Dhabi Global Market (ADGM) intends to implement strict legislation to prevent money laundering and to combat terrorist financing in line with international standards.

Over the past 12 months ADGM has made significant progress with the development of the Registrar, the Financial Services Regulator and the Courts. ADGM is aiming to licence the first institutions to begin transacting from the ADGM within the year.

Earlier this year, the Board of ADGM committed to applying English common law on civil and commercial matters within the financial centre. This is the first for a country in the Middle East, but aims to follow the great success achieved by Hong Kong and Singapore.

Islamic Banks Show Interest in the Russian Market

Islamic banks have been showing an interest in the Russian market following the gradual departure of Western credit institutions. Al Baraka Bank (Saudi) and Al Shamal Bank (Sudan) are Islamic banks that have been seeking a Russian partner to enable them to legally operate in Russia.

As Russian laws do not allow Islamic banks to operate under Sharia rules, the establishment of branches in Russia has previously been difficult. However, with the large Muslim district present in Russia, and the continuing restrictions on Western institutions, Islamic Banking is gaining more public attraction.

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

International Developments

Includes:

  • UK’s FCA Releases Business Plan 2015/2016
UK’s FCA Releases Business Plan 2015/2016

Opposing the trend from previous years, the 2015/2016 business plan published by the UK’s Financial Conduct Authority (FCA) includes the Regulator’s Risk Outlook, which has historically been a stand-alone publication. As such, the granularity of the Risk Outlook is missing for 2015-2016.

The FCA has identified seven focus areas for the coming year, with the first four arousing significant interest from the Regulator:

The FCA continues to acknowledge that technological advances and solutions may reduce Firms’ capabilities to respond to the interests of consumers and compatible product types. The FCA is also concerned with the topical issue of cybercrime, which has gained considerable attention on both sides of the Atlantic;
The continuing theme of improving culture and controls within the wider industry is important, with the view to help enhance market integrity and reduce market manipulation; The FCA is concerned that Firms will be more likely to offer attractive products and services to new customers than existing;
The pension and retirement planning industry will receive some focus from the FCA in understanding whether products and distribution methods are aligned with fair customer outcomes;
Culture and lending practices in consumer credit business will continue to be scrutinised, particularly in the area of lending to young people, and whether realist affordability assessments are being carried out;
Unfair contracts continue to be an issue across all financial services, and the Regulator will consequently maintain its focus here; and
There will be enhanced focus on Firm’s financial crime controls. This is a new focus area for the FCA, but in light of recent astronomical fines from the US, it appears to be time for the FCA to sharpen its focus here

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

Financial Crime Updates

Includes:

  • Former Sri Lankan President Investigated for Hiding Over $2 billion in Dubai
  • Former Federal Agents Charged with Bitcoin Money Laundering and Wire Fraud
Former Sri Lankan President Investigated for Hiding Over $2 billion in Dubai

It is reported that over $10 billion of public funds have been hidden abroad by the former Sri Lankan President, Mahina Rajapaksa. More than $2 billion was identified by Sri Lankan investigators to have been transferred to various accounts in Dubai. The investigation into the missing funds was instigated by the current President, Maithripala Sirisena, who is being assisted by U.S. and Indian investigators

The administration of the former President is denying all accusations of corruption. If these allegations are true, it demonstrates why PEPs require more scrutiny than lower risk customers, and why source of funds and wealth is pivotal in the Customer Due Diligence (CDD) process.

Former Federal Agents Charged with Bitcoin Money Laundering and Wire Fraud

Two U.S. federal agents, Carl Force and Shaun Bridges, were assigned to a Task Force set out to investigate the illegal underground online black market called Silk Road. Silk Road was a marketplace that allowed users to conduct illegal transactions online using Bitcoins.

It is alleged that during this investigation, Force was responsible for establishing communications with a target of the investigation, Ross Ulbricht. However, a federal criminal complaint has been filed by the Internal Revenue Service-Criminal Investigation division, which accuses Force of developing additional online personas, without authorisation in order to engage in illegal activity which would benefit him financially. Force used those fake personas to steal from the government and from the targets, and misappropriated those funds to his own personal account. He has also been accused of selling information about the investigation against his target to the target himself. Furthermore, Force is also accused of establishing a digital currency exchange company, during his official post with the U.S. government, which froze customer’s accounts and transferred their funds to his own personal account.
The second federal agent in question, Bridges, is accused of misappropriating $800,000 worth of funds into his personal account after placing it into a digital currency exchange in Japan. Following the illegal wire transfer of the funds into his personal account in the US, he sought a $2.1 million seizure warrant for the accounts held in the same Japanese digital currency exchange.

Force is charged with wire fraud, theft of government property, money laundering and conflict of interest and Bridges is charged with wire fraud and money laundering.

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

Enforcement Action

Includes:

  • Bank of Beirut Fined for Misleading the FCA
  • US Fine Commerzbank for Money Laundering
Bank of Beirut Fined for Misleading the FCA

The UK subsidiary of Bank of Beirut has been fined £2.1 million and prohibited from opening accounts for new customers in deemed high-risk jurisdictions, for 126 days, after misleading the Financial Conduct Authority (FCA) over its financial crime controls.

The FCA also fined two employees following misleading information provided to address concerns about its financial crime systems and controls.

Anthony Wills, former Compliance Officer, and Michael Allin, Internal Auditor, have been fined £29,500 in total for their failure to deal with the regulator in a transparent and cooperative manner.

The Firm and the individuals have since cooperated with the FCA investigation and have qualified for a 30 percent reduction on their original fines.

US Fine Commerzbank for Money Laundering

Commerzbank, in New York, has been fined $1.45 billion for laundering money by facilitating transactions involving sanctioned countries such as Iran and Sudan. As a result, the bank has dismissed its Head of Regulatory Compliance in New York. The fine was levied by the U.S. Justice Department, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), and the Board of Governors of the Federal Reserve System.

The investigation started when a former banker at Commerzbank was arrested and found guilty for assisting a Japanese accounting firm, Olympus Corporation, in conducting a $1.7 billion fraud.

The bank was found to be changing identifying information of various wire transfers in order for their system to avoid flagging the suspicious transactions and alerting regulators, which was a similar to the findings against HSBC and BNP Paribas in their recent cases. The size of the fine continues to demonstrate the importance of sanctions regulations, particularly when transacting in U.S dollars.

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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