DFSA and DIFC Latest Developments

The DFSA has issued a statement to clarify that they do not currently regulate cryptocurrencies or license any firms to undertake such activities. Any investors who are offered to invest into any cryptocurrencies through what is known as ‘Initial Coin Offering’, ‘Initial Token Offering’ or ‘Token Sale’ should be aware that these online tokens and coins have very complicated structures. The support and technology behind them is complex, each have their own risks, and the fact they are online and therefore on a ‘cross-border basis’, makes them incredibly high-risk investments. The DFSA urges all potential investors to exercise caution and undertake due diligence to understand the risks involved.

The DFSA has published Discussion Paper 3 regarding Recovery and Resolution Framework for Financial Institutions in the DIFC. The objective of the latest discussion paper is to invite parties to provide views and comments on the potential framework the DFSA is considering, whereby a suitable recovery and resolution framework for financial institutions in the DIFC is implemented. The Discussion Paper was born out of the lack of preparedness and difficulties many financial institutions encountered during the financial crisis of 2008, as well as identifying the need for a robust and suitable recovery and resolution regime.  This includes strengthening the DFSA’s current supervisory powers in early intervention and crisis preparedness, and would also mean introducing new “self-contained functions and powers”. Firms are advised to provide suggestions and opinions on the Discussion Paper to the DFSA up until 25th November 2017.

The DFSA and Lebanon's Capital Market's Authority have signed a Memorandum of Understanding (MoU). The objective of this partnership is to increase the share of regulatory knowledge and cooperation among regulatory and supervisory issues. Through information sharing the hope is that Lebanese financial institutions will enter into the DIFC market. DFSA CEO, Ian Johnston, stated that the MoU "affirms the success of our relationship with the Lebanese authorities and recognises the joint oversight of brokerage firms, investment banks and other non-banking financial institutions in the two jurisdictions." The MoU reflects the furthering interests and relation between the two jurisdictions and their financial institutions. 

The DFSA has released a Consultation Paper explaining changes to DFSA rulebooks. The following changes are: 

  • Within the GEN module the exclusion for 2.7.4 has been made clearer to avoid confusion: currently firms are placing reliance on the Dealing in Investments as Principal exclusions to avoid being authorised for this financial service. Firms are reminded that the exclusion for 2.7.4 is not intended to be available for firms “who hold themselves out to other potential counterparties as engaging in such a business or as being willing to enter into transactions”. Firms should evaluate their financial services thoroughly in order to be authorised correctly.
  • The MKT chapter of the Rulebook has been updated to match the EU legislation regarding allowing financial statements for those planning to issue debt to be of a certain age if unaudited. The EU rules now allow financial statements to be up to 18 months old without condition, if the debt in question is issued only to professional investors. The DFSA has thus aligned their regime with the EU regime and as this affects professional investors only there is no significant risk involved.
  • PRS: Currently the Price Stabilisation Rules in the PRS module’s definition of Eligible Securities does not include Shares that represent Unitholder interests in a Listed Fund. This has caused difficulties as firms have not felt able to take price stabilisation measures. In order to combat this difficulty, the DFSA has added “Shares that represent Unitholder interests in a Listed Fund to the category of securities for which Price Stabilisation measures can be taken”.
  • Another DFSA proposed change is to the FER module for firms who are Providing Trust Services but are not acting as trustee in respect of at least one express trust. Firms will face application and annual fees of $15,000. This now makes the aforementioned fees comparable to other Category 4 firms.

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 ADGM has launched an electronic prudential reporting system in order to better address the financial reporting needs within the market. CoreFiling will allow a more efficient system to support financial regulations and create data that will allow a more comprehensive platform. The e-reporting system also supports different reporting formats in order to allow firms to submit their returns on time and easily and meet all regulatory obligations. The system is one step in many that the FSRA is undertaking to enhance its framework.

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

Middle East Regulatory Updates

Three of the world’s largest banks are looking to be regulated within Saudi Arabia. Citibank, Credit Suisse and Goldman Sachs are all in discussions regarding gaining a banking license. Citibank has not been working within the Kingdom of Saudi Arabia for more than 10 years and is seeking to reintroduce itself and its services, while Credit Suisse and Goldman Sachs seek to be regulated to conduct share sales and trading. The moves to be regulated come as the Kingdom prepares to sell a 5% stake in state owned Saudi Aramco and banks are, therefore, seeking a larger share of the country’s financial industry.

An increasing amount of countries within the GCC are researching and making inquiries towards adopting Bitcoin into their financial systems and services. Bahrain is the most recent country to make steps towards integrating Bitcoin and has revealed a plan towards installing a regulatory sandbox in the country. The Bahrain regulator, the Central Bank of Bahrain are keen on adopting Bitcoin as a new currency within the region and are using Singapore as a model for their FinTech ecosystem. All private sector digital currency related projects will occur within this regulatory sandbox, with the objective of fuelling experimentation and, in turn, FinTech within a regulatory and financial service setting. The Saudi Arabian Monetary Authority (SAMA) is also undertaking a pilot project to issue cryptocurrency with the idea that this will be issued to banks to stay up to date with latest FinTech technologies. Once the project has concluded, SAMA may seek to expand the cryptocurrency introduction if it is deemed positive and viable.

Saudi Arabia’s share market supervisory body, the Capital Market Authority (CMA) has loosened its rules for licensing asset management and other investment firms. The changes include the steps taken to obtain a “management activity” license being relaxed in order to boost the number of asset managers in the country, whilst also increasing investments. In addition, the rules for investment companies have also been relaxed. These come as part of Vision 2030 which is a plan to diversify the Saudi economy beyond oil. The lighter approach towards licensing for asset management and other investment firms includes:

  • The minimum net assets required for an investment company have now fallen from 50 million riyals to 10 million riyals.
  • For “management activities” the minimum net assets has fallen from 50 million riyals to 20 million riyals.
  • The permitted activities for management activities has also expanded with “managing non-real estate investment funds” and “managing the portfolios of small but experienced investors” being added to the list.
  • There has also been a broadening of the certification requirements and work experience required to be considered a “specialised investor” in private equity funds and private placements

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

International Developments

France’s financial services regulator, the Autorité des marchés financiers (AMF), has stated that as part of a five year financial programme, cryptocurrency may be regulated. Like many other countries globally, the AMF regards cryptocurrency as a potential key player in the future of investing. While the president of the AMF, Robert Ophèle, acknowledged the risks that come hand in hand with cryptocurrencies at the moment - such as money laundering or terrorist financing - he also agreed that there may be more legitimate needs for cash transfers and that cryptocurrencies could meet the needs for a faster and cost-free way of transferring money globally. Currently the AMF is analysing the legal framework of Initial Coin Offerings (ICOs). However, they are keen to move quickly on their position and provide guidance at least to investors and companies interested in dealing in token offering-based activities.

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

Enforcement Action

The US Federal Reserve (The Fed) has fined HSBC $175 million for “unsafe and unsound practices” in its foreign exchange business. HSBC failed to detect and address its traders from misusing confidential customer information and for telling its competitors about their own trading positions. The Fed has ordered HSBC to improve its systems and controls and compliance concerning their foreign exchange trading. HSBC has also been asked to carry out “an enhanced written internal audit programme” in light of the breaches.

The U.S Commodity Futures Trading Commission and the U.S Attorney in Charlotte, USA have fined Bank of America $5 million for breaches in its trading practices. The fine comes in two separate $2.5million fines from both the regulator and the Charlotte US Attorney, and concerns three traders who eavesdropped on calls at the bank to learn in advance about certain trades involving other financial institutions. Merrill Lynch, who was acquired by Bank of America in 2009 and also named within the settlements failed to detect the activity of the traders and also violated regulations by failing to maintain records of trades. Both the breaches and fines have led Bank of America to fully study its systems and controls within this department and develop and implement suitable improvements to its compliance monitoring.

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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