DFSA and DIFC Latest Developments

Two cooperation agreements have been signed between the Dubai Financial Services Authority (DFSA), the Hong Kong Monetary Authority (HKMA) and Hong Kong’s Insurance Authority (IA). These agreements symbolise cooperation between Dubai and Hong Kong on financial technology (FinTech) innovation. The agreements are intended to share information and referrals of innovative businesses.

In August 2017, the DFSA signed an agreement with the Hong Kong Securities and Futures Commission and so the latest new move means the DFSA now has agreements in place with all 3 counterparts in Hong Kong.

The agreements are intended to make the UAE an even stronger hub for innovation and financial technology across the globe. 

On the 10th December 2017, the DFSA sent a letter regarding the “Restructuring of DFSA Supervision Division” to all Authorised Firm SEOs and Principle Representatives. This letter explained the restructuring of the Supervision Department of the DFSA effective from the 1st January 2018. The primary objective of the restructure was “to effectively and efficiently deploy the resources the Supervision Department have. They have enhanced our risk-based supervisory approach to be best suited to the ever-changing nature and complexity of the activity and risk profiles of firms operating in or from the DIFC”.

The DFSA has identified three key areas of focus for its attention; Prudential Risks, Conduct of Business Risks and Operational Risks. There will be a team responsible for each of those risk areas, which means that most firms will not have a dedicated Relationship Manager but instead these will be reserved for larger firms who have heightened complexity or require special supervisory oversight. This also means there will be fewer vertical risk assessments and more frequent horizontal risk assessments such as thematic reviews.

From the 1st January 2018 firms are reminded that they are required to communicate with the DFSA through the Supervised Firm Contact Form on the DFSA website. If firms previously had a Relationship Manager they are asked to still use the Contact Form and this will be directed to their Relationship Manager. A copy of the letter is available on the DFSA website.

A ‘Dear SEO’ letter was sent on the 26th December 2017 regarding the European Union (EU) Legal Entity Identifier Requirement. This directly links to the Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) which came into effect on the 3rd January 2018 in the European Union. From this date, “EU firms are required to have obtained Legal Entity Identifiers (LEIs) from their non-EU clients before providing services to them, if the proposed services would trigger reporting obligations in respect of transactions carried out on behalf of those clients”.

Firms are encouraged to familiarise themselves with the LEI requirements and if in doubt as to whether the LEI obligation applies to a firm, to contact their EU counterparty or seek legal advice. A copy of the letter is available on the DFSA website.

The CIR Notification of the Marketing and Selling of Funds form has been amended by the DFSA and the new form is available on the DFSA website. This form is applicable to Authorised Firms which, during the preceding calendar year of 2017, have undertaken marketing, selling or any other Transaction in respect of a Unit of any Domestic Fund or Foreign Fund. These Firms are reminded that this needs to completed and submitted by 31st January 2018.

Further information

If you have any questions or concerns regarding DIFC and DFSA developments, please contact Clare Curtis (CCurtis@cclcompliance.com )


ADGM and FSRA Latest Developments

The Abu Dhabi Global Market (ADGM) has established an Office of Data Protection to carry out the administration for the ADGM’s data protection regime. The regime seeks to create a balance between an individual’s rights to privacy and the needs of organisations to utilise data for the purposes of conducting their business.

Along with the new office, the ADGM has released a data protection microsite which provides updated and new information, guidance and tools on data protection that will assist both ADGM companies and individuals.

The microsite includes data protection guidance notes, a self-assessment questionnaire, FAQs and information on data protection rights as an individual.

The office will provide further guidance to the ADGM throughout this year and provide information on planned amendments to enhance the ADGM Data Protection Regulations 2015 regime.

CNBC, the business and news network has unveiled plans for a Middle East Headquarters in Abu Dhabi. The network will be working from a studio within the ADGM through the first quarter of 2018.

The presence of CNBC in the ADGM underpins the financial centre’s intention of growing its business and financial development and being a top global hub.

The ADGM has signed a Memorandum of Understanding (MoU) with Daman, the UAE’s leading health insurer to promote the development of an insurance-related FinTech ecosystem.

The agreement enabled ADGM and Daman to collaborate closely on “initiatives that serve to support entrepreneurs, start-ups and technology firms which are active in the InsurTech environment”. The teams will concentrate specifically on projects that develop and apply technology directly to insurance and insurance management.

Further information

If you have any questions or concerns regarding ADGM and FSRA developments and requirements, please contact Donatella Seidner (DSeidner@cclcompliance.com)

Middle East Regulatory Updates

EU finance ministers have blacklisted 17 countries for refusing to co-operate with its crackdown on tax havens and the UAE has been included on the list.

Beyond being named, countries currently face few consequences from being blacklisted. Some EU funding legislation does include reference to the blacklist and the bloc’s finance ministers will discuss specific countermeasures throughout 2018.

The UAE has issued a statement expressing its disappointment over the country's unfortunate inclusion in recent EU list of non-cooperative tax jurisdictions, reiterating that the UAE remains "fully committed to maintaining international standards."

The UAE's Undersecretary of the Ministry of Finance, Younis Haji Al Khouri, said: "The UAE has worked to meet the European Union's requirements in terms of exchanging tax-related information."

He added: "We have committed to a reform process which will be finalised by October 2018, and we are absolutely confident this will ensure the UAE is swiftly removed from the list. We look forward to moving into the next phase of cooperation with our EU partners on the important issue of tax regulation."

The UAE government's official statement noted that, "since early 2017, the UAE has worked transparently with our European Union counterparts to ensure that we meet the criteria laid down by European Union Member States”.

In January 2018, the EU proposed the removal of the UAE and 7 other countries from the blacklist. The proposed removal was discussed at an EU ambassador meeting and, if confirmed, will be moved to a grey list which includes those who have committed to change their rules on tax transparency and cooperation. EU officials welcomed the decision and stated that having “fewer on the list means more countries have committed to changes”.

Further information

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


International Developments

The Monetary Authority of Singapore (MAS) has provided further clarity on the regulation of digital tokens, continuing from their August announcement that they would be regulating tokens.

The authority clarified that offers or issues of the digital tokens may be subject to the Securities and Futures Act (SFA) if they constitute capital markets products defined under the SFA and include “any securities, futures contracts, contacts or arrangements for the purposes of foreign exchange trading, contracts or arrangements for the purposes of leveraged foreign exchange trading, and such other products as MAS may prescribe as capital markets products”.

Depending on the type of licences they hold, issuers of tokens may be subject to AML/CFT requirements and issuers are encouraged to seek legal counsel to find out whether they fall under existing laws and regulations. 

The new guide by MAS is encouraging for other technologies and players in the digital token space, for example crowdfunding platforms that seek to provide a market place for ICO projects and token issuers.

An event sponsored by the UK’s Financial Conduct Authority (FCA) and the Bank of England has been successful in testing technology which reads regulatory rules and can automate regulatory reporting.

Participants in the innovation event, TechSprint, were able to design a system that allowed the FCA Handbook to be turned into a “language” that machines could effectively read and identify the data needed for reporting such as prudential reporting, and subsequently aggregate this information.

Ideally, the plan is to create a system which would turn rules and regulatory information into a language that a system could ultimately pull from a firms’ system automatically.

The results of TechSprint will be published and will summarise both the development of a business case and next steps, which will open the doors to potentially straight forward and efficient reporting processing and huge steps in technological innovation.

UK banking trade body, UK Finance, has stated that financial firms within the UK who are unable to demonstrate that their stocks and bonds products are being sold to the right customers will face possible regulatory action if they are not properly analysing client suitability.

Wealth managers and other third parties who sell products on behalf of banks must also make sure they understand which of their customers fall within the clearly defined “target markets”.

The requirements are being introduced on 3rd January 2018 under MiFID II and intend to make a change in how products are designed and sold to ensure that pressure to hike up sales does not translate into products being sold to customers who do not understand or are unable to manage the risks they pose.

Further information

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

Enforcement Updates

The UK regulator, the FCA has fined the insurance broker Bluefin Insurance Services £4,023,800 for breach of FCA Principle 3: Management and Control and FCA Principle 7: Communication with Clients.

The main concern was the conflict of interest caused by the broker being owned by AXA, an insurance company, with AXA’s products among those that the brokers could recommend to clients. The FCA said “senior management promoted a culture that focused on compliance with Bluefin’s business strategies, rather than responding to customers individual demands and needs and ensuring that customers were in a position to make fully informed decisions”.

The firm marketed itself as “truly independent” and failed to manage the inherent conflict in its business strategy.

As well as the conflict of interest, the FCA also recorded several instances of detriment to customers that had arisen and would have gone unnoticed and not dealt with had the FCA not stepped in.

The FCA stated that this was a case of poor culture, with brokers encouraged to support the firm’s own strategy at the expense of doing the right thing for customers.

Further information

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

Financial Crime Updates

Amsterdam Trade Bank (ATB), the subsidiary of Russia’s Alfa Bank was searched as part of an investigation into potential money laundering. The suspicions arose when the Bank was noticed to be withholding information on “unusual transactions” made by clients and failing to do adequate background checks on its clients.

While the 2014 management team of ATB had attempted to focus its concentrations on compliance and risk management and bringing these in line with best practices, the failures are linked back to an older client portfolio and the bank is fully cooperating in the investigation.

The Australian anti-money laundering regulator, AUSTRAC has brought one hundred new allegations against the Commonwealth Bank(CBA), including alleged links to the financing of terrorism.

Several of the accusations include failure to detect that a customer on a terrorist watch list was moving funds through its accounts, as well as failure to detect transfers linked to high risk jurisdictions and conflict zones such as Lebanon. The allegations are now the newest allegations for Commonwealth Bank on top of the 53,506 threshold transaction reporting failures, 91 suspicious matter reporting failures, 52 customer due diligence failure and failure to comply with its Intelligent Deposit Machine (IDM) risk assessment.

The investigation symbolises a weakness in many financial firms who have been found to have inadequate understanding of AML/CTF risk. It stresses the importance of strong systems and controls and training in firms.

Further information

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

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