The Dubai Financial Services Authority (DFSA) has restricted two individuals, David Barnett and Christopher Steer, following investigations into their conduct whilst working on the Commodity Murabaha Broking Desk of an Authorised Firm.
The Desk was involved in facilitating the purchase and supply of titles to metal commodities sourced from a number of suppliers, for use by the Desk’s clients in Murabaha transactions. However, between January 2014 and December 2015, the DFSA found that although the Desk had stopped purchasing required titles to metal commodities, both individuals did not source any suppliers but instead reused previously purchased titles that were no longer valid.
The Senior Executive Officer at the time, Mr Steer, was aware of what was occurring and did not take steps to stop the facilitation of Murabaha transactions.
The DFSA found that Mr Barnett and Mr Steer did not follow the core principles of the DFSA as they failed to act with integrity and have been deemed not fit and proper to perform the functions required. There was also a lack of competence by the SEO and he was also deemed not fit and proper to perform a Licensed Function.
The DFSA did not take any action against the firm that employed Mr Barnett and Mr Steer as it self-reported the misconduct to the DFSA after stopping the Desk’s activities in February 2016, and further cooperated with the DFSA’s investigation.
The DFSA has opened applications for its 2019 “Summer Cohort” - the application period for FinTech firms which would like to apply to enter the DFSA’s regulatory sandbox under the Innovation Testing Licence Programme (ITL).
The DFSA’s FinTech cohorts have been successful in the past with several firms from an ITL licence to a DFSA Category 4 firm licence.
Previously, the sandbox has attracted firms who have tested solutions within FinTech areas, such as testing the digitisation of Sukuk issuance using smart contracts, and the tokenisation of equities and debt. Firms who would like to explore FinTech licensing within the DIFC and with DFSA oversight are encouraged to apply.
CCL provide advice and support to firms both pre and post entering the DFSA regulatory sandbox. Contact us to find out more.
The DIFC has released two Consultation Papers: Consultation Paper No. 1 of 2019 – Intellectual Property Law and Consultation Paper No. 2 of 2019 - new Financial Collateral Regulations and Security Regulations.
Consultation Paper No 1 introduces a new law to govern the enforcement of intellectual property rights. The law covers patents, utility certificates, industrial designs and drawings, copyright, trademarks, trade names and trade secrets. The key aspects include:
- Recognition of the UAE registered trademarks, patents, utility certificates, industrial designs and drawings
- The rights afforded to each type of intellectual property rights and the limitations to such protection
- Determining ownership of patent and copyright in employment relations
- Creation of the office of the Commissioner of Intellectual Property, who is responsible for administering the proposed law, resolving disputes and imposing fines
- Sanctions and remedies for intellectual property infringement
- Jurisdiction of the Commissioner of Intellectual Property and the DIFC Court in infringement cases
Consultation No 2: Financial Collateral Regulations and Security Regulations includes:
- The separation of the Current Regulations into the ‘Proposed Financial Collateral Regulations’ and the ‘Proposed Security Regulations’
- The inclusion of money credited to an account (including a bank deposit account) as a qualifying asset for the purposes of a Financial Collateral Arrangement under the Proposed Financial Collateral Regulations
- The scope of the Proposed Financial Collateral Regulations to cover both Title Transfer Financial Collateral Arrangements and Security Interest Financial Collateral Arrangements
- The applicable provisions of DIFC laws pertaining to the determination of "control" for the purposes of the creation of a Financial Collateral Arrangement under the Proposed Financial Collateral Regulations
- The attachment (or creation) of a Financial Collateral Arrangement by reference to when the collateral-taker has achieved "control", rather than concurrently with the debtor having transfer authority with respect to the Financial Collateral
- Amendments to the fees payable for filing of financing statements by introducing a flat fee for filing Financing Statements and introducing new fees for amending Financing Statements under the Proposed Security Regulations
The DIFC has proposed a new Leasing Law and Regulations to introduce areas of protection and assurance to those entering into property leases in the DIFC. It intends to introduce an appropriate regulatory environment which fits in within common law regulations but also mirrors onshore Dubai practice.
The proposed regulations in Consultation Paper No. 3 include:
- Introducing general requirements for leases and general obligations for landlords and tenants
- Introducing a tenancy deposit scheme for residential leases which will be administered by the Registrar of Real Property
- Requiring residential landlords to produce condition reports in the format required by the Leasing Law by residential lessors
- Imposing a maximum limit on security deposits collected by residential landlords and further specific provisions for residential leases which relate to rent increases and renewals.
- Introducing clearer provisions relating to the termination of leases and the disposal of goods and chattels remaining at the property following termination or liquidation of a lease.
The Abu Dhabi Global Market (ADGM) Registration Authority has published a Consultation Paper regarding proposed amendments to the ADGM Employment Regulations.
The key proposals include:
- Introducing a temporary work permit regime which allows individuals who are seconded from other jurisdictions or outsourced from non-ADGM entities to officially work in the ADGM
- Facilitating the engagement of interns (with or without pay) by ADGM entities
- Permitting temporary freelancers to operate in Al Maryah Island, where the ADGM is located
- Adding provisions for ‘overtime’ and ‘overtime compensation’ for employees, excluding those in managerial or supervisory positions
- Introducing amendments to the provision related to the month of Ramadan working hours
- Introducing amendments to the provision relating to sick leave pay
- Introducing a one-way repatriation flight ticket entitlement to employees
- Adding protective provisions related to the employment of people between 15 and 18 years of age
- Adding a provision to confirm the application of the Federal Law Concerning the National and Reserve Service in ADGM
- Introducing amendments to the ‘Protection of Wages’ and ‘Hiring Employees’ sections of the ADGM Employment Regulations (Compensation and Awards Limits) Rules 2016
The Financial Services Regulatory Authority (FSRA) has implemented Anti-Money Laundering (AML) regulations that were introduced in Consultation Paper No.1 of 2019 “Proposed Revisions to the Anti-Money Laundering Regime in the ADGM”.
The changes include:
- Clarification of the status of the FSRA as the “Supervisory Authority” for the ADGM for the purposes of administering the Federal AML Legislation
- Clarification and revision of Beneficial Ownership to bring the definition in line with the Financial Action Task Force (FATF) recommendations
- Using the term “Designated Non-Financial Business and Professions (DNFBPs)” explicitly to include providers, where they are not financial institutions of certain services
- Giving the FSRA the power to register and supervise DNFBPs and suspend or withdraw their commercial licences, with the option of delegating its authority to the Registration Authority to undertake those actions
- Incorporating a specific requirement for Relevant Persons to undertake business risk assessments when a new business line is launched, or a new technology adopted and mitigate any identified risks
- Changing consideration of the risk factors to be assessed from guidance to requirement in rules for customer risk assessments
- Differentiating the criteria for financial institutions and DNFBPs that trigger the requirement to undertake Customer Due Diligence (CDD)
- Allowing Simplified CDD only for low-risk customers, rather than certain other customer categories
- Removing the existing requirement under standard CDD obligations to identify customers’ source of funds and of wealth, in order to bring CDD requirements in line with the FATF Recommendations
- Requiring Relevant Persons to submit the annual AML Return to the FSRA on an annual basis
- Including Non-Profit Organisations within the definition of Relevant Persons and establish proportionate requirements for them to maintain appropriate controls to protect their activities from being used for terrorist financing
The enhancements proposed by the ADGM are closely aligned with the UAE Federal AML legislation and recommendations from FATF. The UAE’s compliance with the FATF Recommendations will be evaluated by FATF around mid-2019.
The FSRA has fined Eshara Capital Ltd and its SEO, Alexander David Guy, $10,000 each, for breaching financial reporting and regulatory report requirements. The firm failed to send the FSRA the required audit reports and regulatory returns within specified timeframes. Reporting requirements allow the regulator to view material information concerning the activities and financial resources and failing to report these was considered to be a serious breach.
The Government of Oman will be introducing a Bankruptcy and Insolvency Law in 2019, which will allow companies to restructure and have an adaptation plan if they face financial difficulty. The proposed law is part of several new laws planned to boost Omani business environments and the investment climate in the country.
The law will set out the rights and responsibilities of the creditors and the settlement process which will be followed, as well as defining the roles of the parties involved in insolvency and bankruptcy. The existence of a process will also help provide plans for creditors should a bankruptcy be declared.
The law should provide support to investors and creditors when undertaking key decisions involving investments and lending.
The UK HM Revenue and Customs (HMRC) authority increased their fines by 91% between 2016/17 and 2018. This meant the total number of fines rose to £2.3m with the average fine going from £1,310 to £3,450.
The UK Home Office recently suggested that an average of £90 billion is laundered through the UK every year, requiring further action from regulatory bodies.
HMRC also made over 1,340 interventions into businesses suspected of money laundering between 2017 and 2018 and a total of 101 individuals have been convicted of money laundering since April 2010.
Danske Bank’s failure to implement adequate money laundering controls allowed large amounts of money laundering, leading the former Chief Executive, Thomas Borgen, to face charges.
The firm’s scandal involved 200 billion euros that went through suspicious bank accounts from 2007 to 2015.
Mr Borgen was preliminarily charged following a house search, but the nature of the charges has not yet been disclosed.
Following a proposed review of AML efforts in financial institutions, several large players in the Japanese financial services industry are making steps to strengthen their anti-money laundering systems and controls.
As an example, MUFG Bank is planning to terminate overseas remittances made at the counter of branch offices that bypass bank accounts. The Financial Services Agency will keep all financial institutions and other businesses informed of the need to urge foreign students and workers in Japan to close their bank accounts when leaving the country.
A FATF review into money laundering systems and controls last occurred in 2008 and concluded that measures could be taken by the government to strengthen controls. If the country receives another evaluation identifying serious weaknesses then FATF may impose restrictions which will affect international bank transactions, overseas settlements and remittances.
The FCA has fined Standard Chartered Bank (Standard Chartered) £102,163,200 for AML failings in two high risk areas of the company:
- UK Wholesale Bank Correspondent Banking business
- UAE Standard Chartered Branches
The regulator found serious failings in the bank’s own internal assessments of the adequacy of its AML controls, as well as its approach towards identifying and mitigating AML risks and escalating the risks.
Examples of failings included:
- Opening an account with 3 million AED in cash in a suitcase (over £500,000) with little evidence that the origin of the funds had been investigated
- Failing to collect sufficient information on a customer exporting a commercial product which could, potentially, have a military application. This product was exported to over 75 countries, including two jurisdictions where armed conflict was taking place or was likely to be taking place
- Not reviewing due diligence on a customer despite repeated red flags, such as a blocked transaction from another bank indicating a link to a sanctioned entity
The period of failings spanned 4 years from November 2010 to December 2014. The fine would have increased had the bank not made steps to remediate the failings and cooperate fully with the investigation.