CCL Regulatory Update: Middle East Edition - February 2017
MENA Publications, Written by Clare Curtis
13/03/2017

1.0 DFSA LATEST DEVELOPMENTS

1.1 DFSA Issue CP No. 110
1.2 DFSA Issue CP No. 111
1.3 Update to DFSA Forms
1.4 DFSA Hold Outreach Session on IFRS9
1.5 DFSA Sign MoU with ESMA

2.0 ADGM FSRA LATEST DEVELOPMENTS

2.1 ADGM Sign MoU with CBB
2.2 FSRA Sign IOSCO MMoU

3.0 MIDDLE EAST REGULATORY UPDATES

3.1 UAE Central Bank Propose New Rules for SME Lending
3.2 UAE Central Bank Clarify Stance on Virtual Currencies
3.3 CMA Approve New Corporate Governance Regulations
3.4 Saudi CMA Launch Nomu
3.5 Potential Market Dominance of Qatar Merger
3.6 First Female Chairperson Appointed by Saudi Stock Exchange

4.0 INTERNATIONAL DEVELOPMENTS

4.1 TI Issue Corruption Perceptions Index 2016
4.2 ESA Propose 4th AML Directive Promoting Rules
4.3 SEBI Approve Options Dealing

5.0 ENFORCEMENT ACTION

5.1 Saudi CMA Issue Fine Over IPO
5.2 FinCEN Issue Fine to Merchants Bank of California
5.3 FINMA Fine Coutts and Co. Ltd.
5.4 FinTRAC Fined Bank, Named
5.5 BMA Penalise Sun Life Financial Investments

1.0 DFSA LATEST DEVELOPMENTS

1.1 DFSA Issue CP No. 110

The Dubai Financial Services Authority (DFSA) has released Consultation Paper (CP) No. 110 – DFSA Fees. Concerned parties have until the 18th of March to provide comments on the proposed amendments, which the regulator states come as a result of reviewing its activities and cost recovery rates. Changes that this CP seeks to effect, include greater clarity on the DFSA’s ability to impose ad hoc supplementary fees, simplifying ‘method of payment’ provisions and other proposals to the fee schedule as follows:

Change of control – non-DIFC firm and DIFC firm –
notification
1,000
Change of control – DIFC firm – simple approval 3,000
Change of control – DIFC firm – complex approval 10,000
Complex Waiver/Modification 5,000
Withdrawal – simple 2,000
Withdrawal – complex 5,000
Opening a branch and/or a subsidiary in other
jurisdiction by a DIFC firm
50% of the basic application fee
Fee for correcting mistakes in applications and
regulatory returns
100
Fee for a repeat late submission of a prudential return or other mandatory report 4,000
Fee for a late submission of a mandatory report 1,000
Application for registration as an Audit Principal 500
Application for Recognised Members  3,500
Endorsement to offer financial services to
Retail Clients
20,000
Endorsement to act as Trade Repository 25,000
Licence modifications (FER 2.2.7) 10,000
Complex applications 2 x standard rate
Annual fee for Firm licenced to provide the Financial Services of Accepting Deposits or Providing Credit 100,000
Annual fee for Firm licenced to provide the Financial Service of Dealing in Investments as Principal 50,000
Annual fee for Firm licenced to provide the Financial Services of Effecting or Carrying Out Contracts of Insurance (excluding Captive Insurers, PCC or ISPV) 50,000
Annual fee for Firm licenced to provide the Financial Service of Insurance Management 40,000
Annual fee for Firm licenced to provide the Financial Service of Operating a Credit Rating Agency 15,000
Annual fee for Recognised Bodies 5,000
Annual fee for Recognised Members 2,500 
Annual fee for Registered Auditors Remove cap
Annual fee for DNFBPs  6,000
Additional annual fee per additional Financial Service on a Firm’s licence  1,000
Additional annual fee for Authorised Firms designated as global systemically important financial institutions (G-SIFIs) by the Financial Stability Board in a given year, provided they are licenced as Authorised Firms in Prudential Categories 1, 2 or 5 or are carrying out  100% of the basic annual fee specified in FER 3.2.1(2)(a)
Insurance Business in the DIFC  
Additional annual fee for Authorised Firms for which the DFSA acts as the consolidated prudential supervisor of a Financial Group or as a lead supervisor of a part of the Financial Group  100% of the basic annual fee
specified in FER 3.2.1(2)(a)

 1.2 DFSA Issue CP No. 111

The Dubai Financial Services Authority (DFSA) has released Consultation Paper (CP) No. 111 – Crowdfunding: SME Financing Through Investing. The CP is an extension of CP No. 109 (as discussed in the January edition of our Middle East Regulation Update). Although investment-based crowdfunding differs from loan-based crowdfunding by allowing companies to raise financing by selling stakes in their businesses, the fundamental requirements in CP No. 111 are fairly similar to those described in the previous proposal, as per the below:

  • A tailored regime specifically designed for those operating such a platform;
  • Appropriate systems and controls placed on the platform’s operations;
  • Operational transparency and adequate disclosure made to all participants – Issuers and investors – on the platform;
  • Suitable checks on the platform’s participants – Issuers and investors;
  • Appropriate safeguarding and segregation of Client Assets;
  • The development of business cessation plans; and
  • Allowing the transfer of securities between investors.

Resultantly, the DFSA is proposing to establish a new Financial Service of “Operating a Crowdfunding Platform” which will cover both operating a loan-based crowdfunding platform and an investment-based crowdfunding platform. The activity of the latter would involve:

  • the operation of an electronic platform that facilitates the bringing together of Persons who wish to obtain funding for a business or venture (Issuers) and persons who are willing to provide funding (investors), and results in the investor making an Investment with the Issuer; and
  • the operator performing administrative functions in relation to any Investment that results from operating the electronic platform.

In addition to the above core activities, the DFSA are also proposing to allow an operator of an investment-based crowdfunding platform to provide a facility that assists investors using the platform to dispose of their Investment.

By virtue of creating this new Financial Service, other defined Financial Services in the DFSA regime will not be applicable to these activities. These include, but are not limited to:

  • Arranging deals in investments – GEN 2.9; and
  • Operating an alternative trading system (ATS) – GEN 2.22.

1.3 Update to DFSA Forms

The Dubai Financial Services Authority (DFSA) has updated the following forms on its website:

  • AUT CORE;
  • SUP 4;
  • SUP 5;
  • DNF 1; and
  • DNF 2.

1.4 DFSA Hold Outreach Session on IFRS9

The Dubai Financial Services Authority (DFSA) hosted an outreach session last month on the new International Financial Reporting Standard 9 (IFRS9), which comes into effect on the 1st of January 2018.

Attendees were advised by peers who have already started the transition that, whilst the IFRS9 is certainly a “milestone in the world of financial reporting” with greater long-term forecasting abilities, implementation will take significant preparation and firms should therefore start considering the changes they need to make now, in order to become compliant with the requirements by the deadline.

1.5 DFSA Sign MoU with ESMA

The Dubai Financial Services Authority (DFSA) has signed a Memorandum of Understanding (MoU) with the European Securities and Markets Authority (ESMA), following its recent designation as a European Union equivalent central counterparty (CCP) – as per the January edition of our Middle East Regulatory Update. The parties have agreed to share information and cooperate with regards to CCP compliance.

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


2.0 ADGM FSRA LATEST DEVELOPMENTS

2.1 ADGM Sign MoU with CBB

The Abu Dhabi Global Market (ADGM) has signed a Memorandum of Understanding (MoU) with the Central Bank of Bahrain (CBB), agreeing to cooperate with regards to the supervision of financial institutions and to promote cross-border activities.

2.2 FSRA Sign IOSCO MMoU

The International Organisation of Securities Commissions (IOSCO) has assessed the Abu Dhabi Global Market’s Financial Services Regulatory Authority (FSRA) as fully compliant with the group’s international standards for cross-border cooperation. As such, the FSRA has become a signatory on the IOSCO Multilateral Memorandum of Understanding (MMoU), along with the other 111 financial market regulators around the globe, and alleviated its status as a credible participant in the industry.

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


3.0 MIDDLE EAST REGULATORY UPDATES

3.1 UAE Central Bank Propose New Rules for SME Lending

The UAE Central Bank has proposed new rules to promote lending to small and medium-sized enterprises (SMEs). The draft provisions attempt to counter a recent trend (of banks hiking fees or withdrawing lending altogether to SMEs, in an effort to limit the amount of risk they encounter in undertaking this type of financing) by obligating banks to have a dedicated SME lending unit. The regulations would also prohibit banks from imposing ‘unreasonable collateral requirements’ for lending to SMEs, as well as necessitating that the financial institutions establish a strategy, policies and targets for SME lending. Furthermore, under the draft rule, the regulator would expect banks to give an explanation for any incidences of their failing to meet targets or refraining from providing credit.
As a reward, the UAE Central Bank is also proposing that lenders could free-up capital by reducing associated SME risk-weighted asset retention requirements.

3.2 UAE Central Bank Clarify Stance on Virtual Currencies

Further to the January edition of our Middle East Regulatory Update, the Central Bank of the UAE has clarified, in a statement, that the ‘virtual currencies’ it prohibited in the new Regulatory Framework for Stored Values and Electronic Payment Systems does not include “any type of digital unit used as a medium of exchange, unit account, or a form of stored value” i.e. bitcoin, blockchain or currency exchange.

3.3 CMA Approve New Corporate Governance Regulations

The Saudi Capital Market Authority (CMA) has approved the new Corporate Governance Regulations which includes provision for:

  • conduct between listed companies’ shareholders and boards, as well as the conduct between these boards their and senior executives;
  • shareholders’ rights;
  • transparency;
  • board composition and meeting arrangements; and
  • board member rights.

The rules come into effect on the 31st of December 2017.

3.4 Saudi CMA Launch Nomu

Further to the July and September editions of our Middle East Regulatory Update, the Saudi Capital Market Authority (CMA) has launched its parallel market, Nomu. The new bourse has opened with listings for 9 of the 77 Saudi companies that applied. CMA has further revealed that “various categories of foreign investors” will be able to access the new exchange before the same opportunity is offered by the Tadawul.

3.5 Potential Market Dominance of Qatar Merger

A proposed three-way merger in Qatar would see the formation of the largest Islamic bank in the country and the fourth largest in the GCC. The joining of Masraf Al Rayan, Barwa Bank and the International Bank of Qatar would establish an entity with QAR 173 billion in total assets and a market share of 14%

3.6 First Female Chairperson Appointed by Saudi Stock Exchange

The Saudi Stock Exchange has appointed its first female chairperson. Ms. Sarah Al Suhaimi will concurrently maintain her existing role as the chief executive of NCB Capital during this critical time as the Tadawul looks to list Aramco and issue its own shares. Ms. Al Suhaimi’s appointment makes her “the first woman to chair a major government financial institution” in the Kingdom of Saudi Arabia, echoing the accreditations she received when taking her NCB Capital position.

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


4.0 INTERNATIONAL DEVELOPMENTS

4.1 TI Issue Corruption Perceptions Index 2016

Transparency International (TI) has issued its Corruption Perceptions Index 2016. UAE ranked 24th globally and came out top for the MENA region whilst Bahrain and Kuwait were perceived to have the highest levels of corruption in the Middle East with rankings of 70th and 74th, respectively. Overall, Denmark and New Zealand were ranked as least corrupt with a score of 90, whilst Somalia came in at the opposite end of the spectrum in bottom positon with a score of 10. The latest Corruptions Perceptions Index can be found here.

4.2 ESA Propose 4th AML Directive Promoting Rules

The European Supervisory Authorities (ESA) – a group of three financial regulators – recently released a proposal which the organisation has said will support implementation of the European Union’s 4th Anti-Money Laundering Directive (4th AMLD) and promote money laundering combating measures.

ESA propose that payment providers who process transactions totalling over EUR 3,000,000 per annum should appoint a liaison officer – to be known as a Central Contact Point (CCP) – who will act as the go-between for the firm and any relevant authorities.

Although some member states already obligate organisations to employ an individual for such a role, there is no standardised process. This therefore creates the gap that ESA’s paper is seeking to fill. Under the draft regulations, the CCP would be responsible for, amongst other things, reporting anti-money laundering breaches and implementing 4th AMLD compliant policies.

4.3 SEBI Approve Options Dealing

The Securities and Exchange Board of India (SEBI) has approved amendments to the Securities Contract (Regulations) Act, permitting commodity markets to deal in options. The industry welcomes this integration that it has sought for some time.

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


5.0 ENFORCEMENT ACTION

5.1 Saudi CMA Issue Fine over IPO

The Saudi Capital Market Authority (CMA) has issued fines, prison sentences and operational bans in relation to the misconduct that was identified to have occurred at the time of the IPO of building contracting company, MMG. Deloitte & Touche Bakr Abulhhair & Co. has been prohibited from providing any legal accounting in the Kingdom until 1st June 2017 whilst MMG’s former chairman has been fined SAR 1.62 billion and sentenced to 5 years in prison, as well as being banned from working in listed companies for 10 years. Similar sanctions have been dealt to other senior executive and board members of the company.

5.2 FinCEN Issue Fine to Merchants Bank of California

The Financial Crimes Enforcement Network (FinCEN) has fined Merchants Bank of California USD 7,000,000 when it was revealed that executives had pressured compliance staff into processing suspicious transactions and forgoing due diligence on high-risk customers. It was ruled that the compliance function did not have the necessary authority to maintain an effective anti-money laundering programme and that these arrangements were in place for some time.

5.3 FINMA Fine Coutts and Co. Ltd.

The Swiss Financial Market Supervisory Authority (FINMA) has fined Coutts and Co. Ltd. USD 6,570,000 in relation to suspicious transactions – which it permitted to go through its accounts – that had originated from 1MDB accounts. The regulator has stated that the bank breached anti-money laundering rules and that the penalty will ensure that the firm rescinds the profits it made from the illicit transactions that it turned a blind eye to.

5.4 FinTRAC Fined Bank, Named

Further to the April edition of our Middle East Regulatory Update, it has been revealed that Manulife Bank of Canada was the institution fined by the Financial Transactions and Reports Analysis Centre (FinTRAC) for violating anti-money laundering rules. The regulator has conceded that its decision to withhold the name of the bank initially may not have been in-keeping with the public’s expectations of ‘openness and transparency’ and has therefore advised that its penalty policies will be reviewed.

5.5 BMA Penalise Sun Life Financial Investments

The Bermuda Monetary Authority (BMA) has fined Sun Life Financial Investments (SLFI) BMD 1,500,000 for breaches of anti-money laundering and counter-terrorism financing laws which were identified following an on-site review and were the result of lax systems and controls. SLFI has two years to bring its files up to standard and will be assessed, by an independent third party, to assure the regulator that it has remedied the violations and is in compliance with all of its regulatory requirements. Until then, SLFI is also prohibited from:

  • accepting or looking for any new investment business;
  • processing any redemptions or withdrawals from existing accounts and policies; and
  • accepting any new payments into existing policies and accounts.

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