article 11 of the difc regulatory law (difc law no. 1 of ... annual report 2004.pdf · article 11...
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Article 11 of the DIFC Regulatory Law (DIFC Law No. 1 of 2004) requires the Dubai Financial Services Authority (DFSA) to provide the President, His Highness Sheikh Mohammed bin Rashid Al Maktoum, with a written report on the exercise of its powers, performance of its functions and financial activities. The report is to be prepared and provided as soon as reasonably practical in each financial year, and to relate to the previous financial year. This is the first such report, relating to the financial year ending on 31 December 2004.
The DFSA was formally established as an independent legal entity on 13 September 2004. However, it was operating on a ‘shadow’ basis prior to that time, and in the interests of providing fuller information, some parts of this report refer to events which took place during that earlier period.
Log on to www.dfsa.ae for more information about the DFSA.
© Dubai Financial Services Authority, September 2005. The Dubai Financial Services Authority (DFSA) is the body established under Dubai Law No. 9 of 2004 in respect of the Dubai International Financial Centre (DIFC) as the independent regulator of financial services and related activities conducted in or from the Centre.
The DFSA is the integrated regulator of all financial and ancillary services conducted in or from the Dubai International Financial Centre (DIFC), a
purpose-built financial free zone in Dubai, one of the United Arab Emirates. The DFSA is created by statute and is an independent entity within the
DIFC.
KEY MILESTONES IN 2004
On 13 September 2004, the Ruler of Dubai, His Highness Sheikh Maktoum bin Rashid al Maktoum, enacted the Dubai Law creating the Dubai International Financial Centre (DIFC) and the Dubai Financial Services Authority (DFSA) as an independent entity within the Centre.
13 DIFC laws have been passed creating the legal infrastructure for the DIFC. Of these, four are administered by the DFSA.
The DFSA has made a Rulebook covering all the main areas of financial and related ancillary services carried on in or from the DIFC.
Seven financial services firms and three ancillary services providers have been licensed and registered, respectively, to operate in the DIFC.
CONTENTS
Pages
Statement by the Chairman 1-2
Statement by the Acting Chief Executive 3
Outlook for 2005 4
Who we are 5
Creating the DIFC - the legal framework 6-8
The Board of Directors of the DFSA 9-12
Governance and Ethics 13-15
The DFSA Governance Model 16
The DFSA Senior Management 17
What we do 18
Objectives and principles 19-20
DIFC legislation in summary 21-23
The DFSA legislation in detail 24-31
The DFSA Rulebook 32-34
Financial and Ancillary Services 35-36
Data Protection 37-38
Risk based regulation 39
Organisation of the DFSA 40
Authorisation 41-44
Supervision 45-47
Markets 48-49
Enforcement 50-52
Financial Markets Tribunal and Regulatory Appeals Committee 53-54
Relationship with other regulators 55
Operating review 56-59
Appendices
Appendix 1 - Committees of the Board 63-64
Appendix 2 - DFSA Financial statements for the period
from 16 February 2002 to 31 December 2004 65-79
Appendix 3 - Legislation relevant to the DIFC 81-82
Appendix 4 - Enforcement actions 83
Appendix 5 - Publications issued in 2004 84-86
Appendix 6 - Glossary 87
It is my great pleasure to present the Annual Report of the Dubai Financial Services Authority (DFSA) in the first year of our official operations.
The jurisdiction we regulate, the Dubai International Financial Centre (DIFC), has been designed to fill a major gap in the world’s financial markets, and to create a financial centre through which the wealth of the region can be mobilised for the prosperity of its people. Independent regulation to the highest world standards has always been a critical part of this concept.
The DFSA is a fully independent, unitary regulatory authority, whose powers and independence are enshrined in law. Our role is to authorise and supervise the conduct of financial and ancillary services undertaken by institutions who wish to operate from the DIFC - and to enforce the standards that are required. We use principle-based laws which are designed to be flexible enough to accommodate changing market conditions and issues and our aim, over time, is to be recognised as one of the highest quality regulators in the world.
Two and a half years ago, the entire concept of the Dubai International Financial Centre was a dream. Today, it is a reality. We have come a long way in a short time driven by the vision and commitment of our President, His Highness Sheikh Mohammed bin Rashid Al Maktoum.
The legal creation of the DIFC and the DFSA required an amendment to the UAE Constitution, only the second amendment to the Constitution since it was made in 1971. New laws at Federal and Dubai levels were needed to enable the establishment of the DIFC and to disapply certain UAE Federal civil and commercial laws inside the DIFC boundaries. This paved the way for the enactment of a full set of new civil and commercial laws drafted by the DFSA, not only to regulate the conduct of financial and ancillary services within the Centre, but also to govern all the operations of the Centre.
In writing the laws that provide the legal and regulatory framework of the DIFC, we have strived to adopt the highest international standards in order to provide confidence, familiarity and certainty. We have selected the best laws from around the world as our model, and crafted our legislation to fit the unique needs of the Centre. We have not had to make and mend within the confines of existing legacy systems, and the result is a framework that is specially designed for its purpose and context.
The image that many firms have of the Middle East is of a region where the regulatory virtues of integrity, transparency and efficiency are in short supply. They perhaps underestimate the changes that have taken place in several regional countries recently. But we are clear that we expect the highest international standards both from ourselves and from the institutions that operate from the DIFC, and it is our job to ensure that those standards are met and maintained. We believe that investors require the
STATEMENT BY THE CHAIRMAN DR HABIB AL MULLA
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confidence that such standards provide, and if we can create that confidence it will enhance the reputation of the whole region.
An important feature of our work has been the creation of a legal framework based on Anglo-Saxon law and jurisprudence. For the first time, the world’s major banks and other financial institutions will be able to conduct business in the region within a familiar legal framework, offering both certainty and flexibility. This legal strength is a critical aspect for the success of the DIFC, and it has been welcomed around the world as a great leap forward for the future of financial services in the region.
The DIFC has moved fast to begin operations. On 13 September 2004, His Highness Sheikh Maktoum bin Rashid Al Maktoum, the Ruler of Dubai, brought the Centre into being by enacting the final legislation to create our legal framework and independent regulatory system.
This was the first step in a long journey. We believe that more and more institutions will choose to take advantage of the rewards that follow from locating within a Centre that offers massive potential for business growth, conducted within a regulatory framework that provides confidence, certainty, and international-grade regulation. It is our responsibility to ensure that business conducted in or from the Centre meets the high standards that are essential to its future growth. If we succeed, the DIFC can act as an engine to power the region’s economic development - just as Wall Street, the City of London, Frankfurt, Tokyo and Hong Kong have contributed greatly to the growth of the US, European and Asian economies.
We could not have achieved as much without the expertise and dedication of all our staff. They have faced some major difficulties during the year and have come through them with a commitment and professionalism that gives me great confidence in our future.
We have an opportunity to change the financial landscape of the region and beyond, and we are all excited to be a part of it.
Dr. Habib Al Mulla Chairman
STATEMENT BY THE ACTING CHIEF EXECUTIVE DAVID E KING
Creating a completely new financial services regulator has been an exciting challenge for the DFSA since its inception in 2002. In just two years the organisation has grown from a bold idea through to a fully-fledged regulator, operating under a clear and succinct legislative framework.
In this time the DFSA has drafted an entire legal and regulatory system specifically for the DIFC. The legislation is extremely robust and we are confident that it has both the strength and flexibility that a modern financial centre demands.
Importantly, the DIFC is primarily a wholesale centre rather than a retail one. This yields real benefits to firms in the freedom that it brings. On the other hand, there are some areas in which our regime will undoubtedly be seen as demanding, and for this we make no apologies. One is money laundering and terrorist financing, where our regime goes even further than that provided by UAE criminal law and the standards set in many of the established financial centres around the world.
We believe that we have created a balance appropriate to the Centre in which we operate. So firms will enjoy an operating environment in which they can create a real and vibrant capital market that will channel investment into the region, act as a motor of economic growth and, in time, make a real difference to the lives of many people.
International institutions will have peace of mind knowing that when they locate in the DIFC, the regulations they will operate under are clear, of world quality and familiar to them, because they are based on the best practices of London, Wall Street and other major centres. The DFSA will ensure that the highest international standards of conduct are applied and maintained by firms and individuals within the Centre.
We have also played our part in creating a wholly independent court system for the DIFC, which will hear and resolve civil and commercial disputes arising out of DIFC operations. The framework under which the Court will operate is a cornerstone of the standards the DFSA has strived to introduce within the Centre, in order to provide the legal certainty and confidence that is necessary for a modern international financial centre.
Building on the foundations laid by former Chief Executive Phillip Thorpe and former Chairman of the DFSA Regulatory Council (now the Board of Directors of the DFSA), Ian Hay Davison, the DFSA is now operational and fulfilling its role as a world class financial regulator. To achieve this, we have recruited a team of highly-qualified regulators with experience in major markets across four continents as well as the region. The product of their professionalism and dedication is a world class legal and regulatory structure forming an excellent basis on which to build a financial services city.
It is an exciting time to become part of the financial markets and the global economy, and we look forward to the continuing development of the DFSA, the DIFC and the Middle East region.
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Outlook for 2005
Developing the legal and regulatory structures that underpin the DIFC has been a very significant achievement delivered in a short timeframe, and the DFSA is proud of the role it has played in this process. As the vision of the DIFC now turns into a tangible, working reality, founded upon internationally recognised best practice standards, the page of regional history also turns as the world’s first new financial centre of the 21st century is born in the Emirate of Dubai and major international financial and related businesses from around the globe, covering a broad spectrum of businesses, seek to establish in the Centre.
Forecasting the future growth and development of the DIFC and the role of the DFSA as its fully independent regulator, is difficult to predict with any precision, but we are greatly encouraged by the number of firms that have sought to establish in the Centre to date and by their enthusiasm to be part of this unique operation, which is so much a hallmark of the culture of Dubai.
We are therefore confident that the DFSA can look forward to continuing to maintain the high standards that it set out to achieve, not only in all its own dealings, but in the regulated community for which it will be responsible.
David E King Acting Chief Executive
The Dubai Financial Services Authority (DFSA) is the independent regulator of financial and ancillary services conducted in or from the Dubai International Financial Centre (DIFC).
The DIFC is a purpose-built financial free zone in the United Arab Emirates. It has been established as part of the goal to position Dubai as a recognised hub for institutional finance, and as the regional gateway for capital and investment in the Middle East.
The DFSA licenses, authorises and registers businesses and individuals who wish to conduct these services in or from the Centre, supervises their activities and will enforce the law where necessary.
DIFC organisations
In addition to the DFSA, there are several organisations which with the DFSA provide the institutional infrastructure for the DIFC.
DIFC Authority (DIFCA)
The commercial arm of the DIFC, dedicated to helping businesses set up in the Centre. The DIFCA also administers a number of laws that apply within the DIFC.
Dubai International Financial Exchange (DIFX)
A subsidiary of the DIFCA, charged with establishing a liquid and transparent market, trading equities, debt instruments and derivatives, and located in the DIFC.
DIFC Registrar of Companies (ROC)
The body responsible for incorporating or registering all the companies that will operate within the DIFC.
DIFC Court
An independent Court, with unlimited civil and commercial jurisdiction, for the resolution of various matters arising from within the DIFC.
WHO WE ARE
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CREATING THE DIFC-THE LEGAL FRAMEWORK
Creating the DIFC and the DFSA has required the creation of a unique legal and regulatory framework, made possible through a synthesis of Federal and Dubai Law. Putting this framework in place has been the primary focus of DFSA staff from its beginnings in 2002 until 2004 and onwards into 2005.
The steps have been:
1. An amendment to the UAE Constitution.
2. Enactment of Federal Law No. 8 of 2004 regarding Financial Free Zones in the United Arab Emirates.
3. Enactment of Federal Decree No. 35 of 2004 establishing the DIFC as a financial free zone in Dubai, accompanied by two Cabinet resolutions.
4. Enactment of Dubai Law No. 9 of 2004 - The Law establishing the Dubai International Financial Centre.
5. Enactment of Dubai Law No. 12 of 2004 - The Law establishing the Judicial Authority at Dubai International Financial Centre.
UAE Constitutional Amendment : 16 December 2003
Article 121 of the UAE Constitution, which deals with the division of powers between Federal and Emirati governments, was amended to allow the Federal Government to enact a Financial Free Zone Law. This in turn allows any Emirati Government to create its own Financial Free Zone.
Federal Law No. 8 of 2004 : 27 March 2004
Federal Law No. 8 of 2004 regarding The Financial Free Zones in the United Arab Emirates (the Financial Free Zone Law), was gazetted on 27 March 2004.
This law allows a Financial Free Zone to be established in any Emirate of the UAE, by Federal Decree. Importantly, it exempts Financial Free Zones from all federal civil and commercial law within the UAE, although UAE criminal law still applies. This law enabled the DIFC, once it was established, to create its own specific legal and regulatory framework for all civil and commercial matters.
Federal Decree No. 35 of 2004 : 27 June 2004
A Federal Decree which specifically established the DIFC as a Financial Free Zone in the Emirate of Dubai.
Resolutions
1. A resolution of the Federal Cabinet prescribed the geographical area and location of the DIFC in the heart of Dubai. It is an area of approximately 110 acres located beside Sheikh Zayed Road, and is marked by the DIFC headquarters ‘Gate’ building.
2. To allow for construction and a smooth transition for occupants, a further resolution of the Federal Cabinet permits DIFC participants to operate outside these physical boundaries for the first four years of the DIFC’s operation.
Dubai Law No. 9 of 2004 : 13 September 2004
‘The Law In Respect Of the Dubai International Financial Centre’ is a Dubai law that recognises the formal structure and administrative independence of the DIFC. It was enacted by the Ruler of Dubai, His Highness Sheikh Maktoum bin Rashid Al Maktoum, on 13 September 2004. This Law establishes the various bodies, including the DFSA, that are necessary for the DIFC’s day-to-day operation.
The Dubai Law enables the Ruler of Dubai to appoint the President of the DIFC. His Highness Sheikh Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and UAE Defence Minister, is the President of the DIFC.
The Law allows the President to recommend to the Ruler enactment of the laws that are applicable within the DIFC, and for rules and regulations to be made by the DFSA and the DIFCA. The Dubai Law also allows for the creation of other bodies and provides exemptions from rules or regulations otherwise applicable in the Emirate of Dubai.
It is the Dubai Law which guarantees the independence of the DFSA. It provides that the DFSA is accountable only to the President, and shall carry out its functions without interference from any of the other DIFC bodies. The DFSA is supervised by a Board of Directors whose members are appointed for fixed terms and may only be dismissed for cause. The DFSA Board has exclusive authority to appoint and remove members of the DFSA executive.
Dubai Law No.12 of 2004 : 29 December 2004
‘The Law Establishing the Judicial Authority at the DIFC’ provides for the independent administration of justice in the DIFC by establishing the DIFC Court and prescribing its jurisdiction. The Judicial Authority Law was signed on 29 December 2004 by the Ruler of Dubai His Highness Sheikh Maktoum bin Rashid Al Makhtoum, creating the Court of First Instance and the Court of Appeal.
The DIFC Courts Law (DIFC Law No.10 of 2004), which was also signed on 29 December 2004, followed the enactment of the Judicial Authority Law. It provides the
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administrative and procedural framework for the operation of the DIFC Court, which is similar to that of a British common law superior court.
In summary, these two laws provide that the DIFC Court, which consists of the Court of First Instance and the Court of Appeal, has unlimited civil and commercial jurisdiction similar to that of a British common law superior court and court of appeal.
In general, the laws provide that the Court of First Instance has jurisdiction to hear any civil or commercial case or dispute arising within or connected to the DIFC or any other matter as provided for in other DIFC laws. In addition to its appellate jurisdiction, the Court of Appeal has jurisdiction to hear cases referred to it to determine the interpretation of any article of the Centre’s Laws.
THE BOARD OF DIRECTORS OF THE DFSA
Dr Habib Al Mulla LLB from UAE University,1984; LLM from Harvard Law School,1987; Ph.D. from
Cambridge University, 1993; Fellow of the Chartered Institute of Arbitrators. Dr Al Mulla is the Chairman
of the DFSA, Managing Partner of Habib Al Mulla & Company; Member, UAE Federal National Council
(since 2002); Director, Institute of Advanced Legal and Judicial Studies (since 2000); Vice Chairman,
Board of Trustees of Dubai International Arbitration Centre (2004), former Chairman of the U.A.E.
Jurists Association (1994 – 1996); Member, Lawyers and Auditors Advisory Board of the Department
of Economic Development; Economic Treaties and E-Commerce Committee of the Dubai Chamber
of Commerce & Industry, Panel of Experts of the Broadcasting and Publications Standards Tribunal of
TECOM; Board of Trustees of e-TQM college; Advisory Board of the Business School, the American
University in Dubai; China International Economic & Trade Arbitration Commission; Dubai Chamber of
Commerce & Industry and Abu Dhabi Centre for Commercial Conciliation & Arbitration; London Court
of International Arbitration, Korean Commercial Arbitration Board, American Arbitration Association and
International Bar Association. Founding member of the Arab Law Firms Association, Arab Licensing and
Technology Transfer Society.
The Hon Apurv Bagri is the Managing Director of the Metdist Group of companies. He is the immediate
past Chairman of the International Wrought Copper Council which represents the global copper fabricating
industry, a member of the South Asia Committee of IFSL (formerly British Invisibles) and a member of the
Board of the Indo-British Partnership. He is a Governor of London Business School and Chairman of its
Asia Board and a member of the Governing Council of the City University, London. He is also a member
of the Corporation, University College School; a member of the Advisory and Management Boards of
the Royal Parks; a trustee of the Royal Parks Foundation; a commissioner of the Crown Estate Paving
Commission; and a trustee of Asia House. He is a member of the NSPCC Stop Organised Abuse Board,
and of the CEO Forum of the Race Equality and Diversity Awareness Task Force. He is the Chairman of
TiE Inc, a global non-profit organisation that promotes entrepreneurship and wealth creation. Mr Bagri is
an honours graduate in Business Administration from the Cass Business School in London.
The members of the Board are:
• Dr Habib Al Mulla
• The Hon Apurv Bagri
• Michael Blair QC
• Robert L Clarke
• Lord David Currie
• Saeb Eigner
• Robert Owen
• Abdullah M Saleh
• Dr J Andrew Spindler
• Georg Wittich
• David E King
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Michael Blair QC specialises in financial services law and practice, having joined his Chambers in 2000.
For 13 years before that he held successive senior positions in regulation in the City of London, most
recently as General Counsel to the Board of the Financial Services Authority. From 2000 to 2002 he was
the Chairman of the three recognised self-regulating organisations for the UK financial services industry,
IMRO, PIA and SFA. He served on the Bar Council for 10 years, latterly as Treasurer from 1994 to 1998.
He is a Member of the Competition Appeal Tribunal, a Director of the Financial Services Compensation
Scheme, and the President of the Guernsey Financial Services Tribunal. He was given the award of Queen’s
Counsel (honoris causa) in 1996.
Robert L Clarke has extensive experience in banking laws and regulations and bank supervision, both
in the United States and internationally. Mr Clarke founded the Financial Services Section at Bracewell
& Patterson, LLP in 1973. He was appointed by President Ronald Reagan as US Comptroller of the
Currency and at the end of his first term was reappointed by President George H W Bush. He served
as Comptroller from 1985 – 1992 and during his tenure the agency supervised about 5,000 nationally
chartered commercial banks. In March 1992 he rejoined Bracewell & Patterson, LLP as Senior Partner
and Head of its financial services practice. Mr Clarke has served as a consultant to the World Bank and as
Senior Advisor to the President of the National Bank of Poland, as well as advisor to a number of countries
on their bank supervisory operations. Mr Clarke has an LLB from Harvard Law School; Bachelor of
Economics from Rice University.
Lord David Currie has wide ranging experience in financial services, public administration and the
education sector. In addition to serving on the Board of the DFSA he is Chairman (since August 2002) of
Ofcom, the new converged UK regulator for electronic communications, and also Dean (since 2001) of
City University’s Cass Business School in the City of London. He was previously Deputy Dean at London
Business School and a non-executive director of the Abbey National, as well as serving on the Board of
Ofgem, the UK energy regulator, and a variety of other Government bodies. His academic research is in
the area of regulation. In his earlier career he worked in financial services, and he has extensive consulting
experience at Board level with major financial institutions.
Saeb Eigner (MBA, MSc), is a Governor of London Business School. He has been elected Chairman of
its Alumni Board and is the Founding and Serving Chairman of its Middle East Regional Advisory Board.
He is the Founder and CEO of Lonworld, a private finance, property and investment company. Formerly,
he was a Senior Manager at ANZ Grindlays Bank plc in London, heading the Middle East and Indian Sub-
Continent division of the Private Bank. He is a member of the Chartered Institute of Bankers and holds a
Masters Degree in Business Administration and a Masters Degree in Management from London Business
School, where he completed the International Executive Masters Programme. He is the co-author of the
book “Sand to Silicon” published by Profile Books in London in September 2003. He lives with his family
in London.
Robert Owen has wide-ranging regulatory experience, with particular exposure to the Asia Pacific region.
He established the Securities & Futures Commission (SFC) in Hong Kong and was appointed its Executive
Chairman in 1989. Prior to this Mr Owen was Director, Investment Banking, Lloyds Bank Group and
Chairman and Chief Executive, Lloyds Merchant Bank. Earlier, he was a Director of Morgan Grenfell and
Co. and served in the UK Treasury and Foreign Office. Since leaving the SFC, Mr Owen has been Deputy
Chairman of Nomura Asia Holdings Ltd. and Senior Adviser to Nomura International (Hong Kong) Ltd.;
Member of the Council and Regulatory Board of Lloyd’s of London; Chairman of Crosby Ltd.; Chairman
of the International Securities Consultancy Ltd. and Director of Sunday Communications Ltd, European
Capital Co Ltd and various other companies and investment funds. He is also a Director of Singapore
Exchange Ltd and of Citibank (Hong Kong) Ltd. Mr Owen was educated at Oxford University.
Abdullah M Saleh is the Chairman of the National Bank of Dubai, having been one of its founders in 1963,
and its Managing Director from 1982 until his retirement in January 2004. Mr Saleh is a former Adviser on
financial matters to the Late Ruler of Dubai, HH Sheikh Rashid Bin Said Al Maktoum. Mr Saleh served as an
Arbitrator on the Paris-based High Board of the Euro-Arab Arbitration Centre, from 1988 to 2000. He is
a Board member of the Dubai Chamber of Commerce and Industry (DCCI), and a member of the DCCI
Arbitration Committee. He has been a member of the Board of Qatar Fuel Additives Company (QAFAC)
since 1990 and has been Chairman of International Octane Limited (IOL) also since 1990. In 1979 he
became a founder member of the Board of Dubai Cable Company (DUCAB) and served as a Chairman
until 2001 - he continues to serve as a member of the Board of Directors representing the Government of
Dubai. He is a Director and major shareholder of Dubai Transport Company LLC (DUTCO) the holding
company of the Dutco Group of Companies. He has been Chairman of MARSH-INSCO (insurance
brokers) since 1976. He was educated in Sharjah and London, and attended the Institute of Bankers after
completing his academic studies.
Dr J Andrew Spindler is the Executive Director of the Financial Services Volunteer Corps (FSVC), a not-
for-profit organisation based in New York City whose mission is to help build sound banking and financial
systems in transition and developing countries. Prior to his appointment in 1993 Dr Spindler served as a
Senior Vice President at the Federal Reserve Bank of New York, where he headed the Banking Studies and
Analysis Function and the Payments System Studies staff. While at the New York Fed, he helped develop
the risk-based capital framework that has been adopted by bank supervisory authorities in most of the
world’s financial centres. He also served as the New York Fed’s representative on the Basle Committee
on Banking Supervision. Prior to joining the New York Fed as a Vice President in 1985, Dr Spindler held
several international lending and strategic planning positions at the Continental Illinois Bank. Dr. Spindler
has a PhD and MPA from Princeton University’s Woodrow Wilson School of Public and International
Affairs, and a Bachelor’s Degree in International Politics from Harvard College.
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Georg Wittich has extensive experience of the financial markets and regulatory issues from a European
perspective. He has held the position of President of the Bundesaufsichtsamt für den Wertpapierhandel
(Federal Securities Supervisory Office) in Frankfurt (1994 – 2002) and Chairman of the Forum of
European Securities Commissions (1998 – 2002). Prior to this Mr Wittich held various senior posts in
the Federal Ministry of Finance in Germany in the area of international finance and securities markets, and
he was Financial Counsellor at the German Embassy in Tokyo (1983 – 1987). Mr Wittich graduated with
law degrees from the Universities of Kiel and Hamburg, and undertook additional studies at the Ecole
Nationale d’ Administration in Paris.
David E King (Acting Chief Executive, DFSA) FCCA MBA, joined the DFSA in February 2003 as the
Managing Director, Supervision. After qualifying as an accountant, Mr King spent a number of years
working in senior financial positions in the United Kingdom and the Middle East, during which time he also
completed an MBA at Cranfield University in the UK. Between 1989 and 2001, he was Chief Executive of
the London Metal Exchange (LME) based in the City of London. Under David’s stewardship the Exchange’s
turnover increased tenfold to $3 trillion p.a. and its global market share increased to 90%. During this time
David was heavily involved in all regulatory issues and developing and implementing strategy, restructured
and relocated the Exchange, developed new products and introduced new technology. He was also
a Director of the London Clearing House and the Futures and Options Association, both of which he
helped restructure, and was a member of the Bank of England’s City Euro Group. Mr King’s regulatory
experience stretches back to 1988, when he piloted the LME through to becoming the UK’s first
Recognised Investment Exchange under the then fledgling Financial Services Act. During the next decade
he was heavily involved in dealings with regulatory authorities and other government agencies in the UK,
Continental Europe, the US and other major international financial services jurisdictions.
Georg Wittich
David E. King
GOVERNANCE AND ETHICS
The DFSA is supervised by a Board of Directors and managed by an Executive. The Regulatory Law provides that the powers and functions of the Board are to:
• ensure that the DFSA exercises its statutory powers and performs its statutory functions in accordance with its objectives;
• make policies relating to the regulation of financial services and related activities;
• make provision for the consideration of, adjudication on and the application of penalties in relation to disciplinary and other matters;
• review the performance of the Chief Executive;
• give the Chief Executive directions;
• arrange for the DFSA to enter into co-operation arrangements with other regulators.
• review draft laws and recommend them to the President;
• review and make Rules;
• review and issue standards and codes of practice; and
• make submissions to the President in relation to legislative matters outside the scope of its own legislative powers.
The Board is required under the Regulatory Law to appoint a Regulatory Appeals Committee and a Financial Markets Tribunal. The functions of these bodies are outlined on page 53-54.
In exercising its general oversight of the DFSA’s operations, the Board’s role includes:
• making strategic decisions affecting the future operation of the DFSA;
• setting appropriate policies to manage risks to the DFSA’s operations and the achievement of its objectives, and seeking regular assurance that internal controls are managing risks in accordance with these policies;
• maintaining a sound system of financial control; and
• providing an accountability mechanism for decisions of committees of the Board, through periodic reporting.
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In accordance with principles of good corporate governance, all directors are expected to bring an independent judgement to bear on issues of strategy, performance, resources, standards of conduct and key appointments.
In addition to the committees required by statute, the Board has established four committees to assist it in discharging its functions. These are the Legislative Committee, Governance and Nomination Committee, Finance and Audit Committee, and the Remuneration Committee. The memberships of the Board’s committees, with a brief summary of each committee’s functions, are set out in Appendix 1.
The Board will be further developing its governance arrangements over the next year, drawing on best practice of other jurisdictions.
DFSA Code of Values and Ethics
As part of its commitment to regulate to the highest international standards, the DFSA has adopted a Code of Values and Ethics to guide its own operations.
The Code sets appropriate international best practice standards in relation to the use of information, conflicts of interest, and the giving and receiving of gifts and benefits. It is designed to complement the conflict of interest provisions in the Regulatory Law. Under the Code, DFSA Board members and staff are required to:
• declare on an annual basis their financial interests and those of their close associates;
• provide notification of any conflicts of interest or of any situation which may be perceived as a conflict of interest;
• provide notification of gifts or benefits received in the course of carrying out their responsibilities.
The Code includes procedures for the management of perceived conflicts and perceived potential conflicts relating to close relationships between the staff of the DFSA and of other DIFC agencies.
The Code sets out core values and ethics that the DFSA Board Members and staff are expected to meet. These include:
• ethical and honest behaviour
• prudence, care and diligence in the carrying out of our duties
• treatment of others with impartiality, fairness, respect and courtesy
• compliance with laws and with lawful and reasonable directions
• maintenance of confidentiality
• disclosure and avoidance of conflicts of interest (real or perceived)
• impartiality and professionalism in our decision making
• no discrimination or harassment in the workplace or in the community
• no improper use of information, or of position, in order to gain a benefit for themselves or for others
• no activity that does not uphold the values, ethics or reputation of the DFSA
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THE DFSA GOVERNANCE MODEL
The Board of Directors of the DFSA
• Dr Habib Al Mulla (Chairman)
• Hon Apurv Bagri
• Michael Blair QC
• Robert Clarke
• Lord David Currie
• Saeb Eigner
• Robert Owen
• Abdullah M Saleh
• Dr J Andrew Spindler
• Georg Wittich
• David King (Acting Chief Executive)
Legislative Committee
Governance and Nomination Committee
Finance and Audit Committee
Remuneration Committee
Regulatory Appeals Committee
Financial Markets Tribunal
DFSA Executive David E King (Acting Chief Executive)
Authorisation Supervision Markets EnforcementOffice of General
Counsel
THE DFSA SENIOR MANAGEMENT
David E King - Acting Chief Executive (See biography on page 12)
As General Counsel for the DFSA, Joyce is responsible for the delivery of advice on all legal issues affecting
the organisation. She received her Law Degree from the University of Alberta in 1973 and was called
to the bar in British Columbia, Canada in 1974. After two years as a prosecutor with the Canadian
Department of Justice, Joyce practised criminal law for three years. In 1981 she joined the office of the
Attorney General of British Columbia, and over the next nine years acted as Counsel and Senior Solicitor
to various administrative tribunals, including the Securities Commission. Joyce was appointed Queen’s
Counsel in 1988. She was Vice Chair of the British Columbia Securities Commission for almost 14 years
until December 2003, and was active in the Canadian Securities Administrators, Council of Securities
Regulators of the Americas, North American Securities Administrators Association and International
Organization of Securities Commissions (IOSCO).
As Managing Director, Enforcement, Jamie oversees all DFSA enforcement activities. Early in his career, Jamie
was engaged as a Federal Prosecutor with the Office of the Commonwealth Director of Public Prosecutions.
At its inception in 1991 Jamie then took up a position with the Australian Securities Commission. In 1998
the ASC was reformed to become ASIC, the Australian Securities and Investments Commission, and Jamie
became Director, Enforcement, responsible for all enforcement activities undertaken by ASIC across four
states of Australia. Jamie received an Advance Australia Award on Australia Day 1998 for his work with
ASIC. Jamie has a Master of Laws, Bachelor of Laws (Honours), Graduate Diploma in Legal Practices, and
Graduate Certificate in Business Management. He is a Barrister and Solicitor of the Supreme Court of
Victoria and a Solicitor of the Supreme Court of Queensland and the High Court of Australia.
As Managing Director, Authorisation, Jane oversees all DFSA authorisation activities. Jane’s experience
includes senior positions at the Securities and Investments Board (SIB), London, Morgan Stanley and, most
recently, a non-executive role at the UK Financial Services Authority. At the SIB, Jane played a major role
in the convergence of prudential standards for international banks and investment firms as a member
of the Basel, IOSCO and Brussels committees. Later, in a supervision role at the SIB, Jane oversaw
the negotiation of nine Memoranda of Understanding with other major regulators. At Morgan Stanley,
Jane was an Executive Director in the Private Wealth Management Business Unit and also worked in
Controllers. She led the team which obtained authorisation for Morgan Stanley to establish a bank and
was responsible for wide range of projects to improve risk management and control. Jane’s education and
qualifications include a BA degree in History (Trinity College, Washington DC), an MSc in Finance and
Accounting (LSE) and an MBA (INSEAD, France).
Joyce Maykut QC – General Counsel
Jamie Orchard – Managing Director, Enforcement and Acting Managing Director, Markets
Jane Coakley – Managing Director, Authorisation (from February 2005)
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WHAT WE DO
The DFSA administers the Regulatory Law, which is the cornerstone of the regulatory regime. The Law establishes the constitution of the DFSA and enables the creation of the regulatory framework within which entities may be licensed, authorised, registered and supervised by the DFSA.
Under the Law, the DFSA has the power to enforce the rules that apply to all regulated participants within the DIFC.
The DFSA also administers the Markets Law. This law governs the activities and conduct of financial and market participants especially those participating in the DIFC International Financial Exchange (DIFX), and any other exchanges which may be established in the DIFC.
The DFSA administers further legislation including the Law Regulating Islamic Financial Business, and the Data Protection Law which relates to the treatment of personal information throughout the DIFC.
The DFSA also strives to detect and prevent money laundering activities within the DIFC, and seeks to work closely with the UAE Central Bank in this vital area.
The DFSA expects to gain responsibilities in other areas as the ongoing needs of the DIFC and the entities established within it are identified.
OBJECTIVES AND PRINCIPLES
The DFSA operates under objectives and principles that are set out in the Regulatory Law. They are reproduced here in full.
Objectives
In performing its functions and exercising its powers, the DFSA shall pursue the following objectives:
a. to foster and maintain fairness, transparency and efficiency in the financial services industry (namely, the financial services and related activities carried on) in the DIFC;
b. to foster and maintain confidence in the financial services industry in the DIFC;
c. to foster and maintain the financial stability of the financial services industry in the DIFC, including the reduction of systemic risk;
d. to prevent, detect and restrain conduct that causes or may cause damage to the reputation of the DIFC or the financial services industry in the DIFC, through appropriate means including the imposition of sanctions;
e. to protect direct and indirect users and prospective users of the financial services industry in the DIFC;
f. to promote public understanding of the regulation of the financial services industry in the DIFC; and
g. to pursue any other objectives as the President may from time to time set under DIFC Law.
Guiding principles
In exercising its powers and performing its functions, the DFSA shall take into consideration the following guiding principles, being the desirability of:
a. pursuing the objectives of the DIFC as set out under Dubai Law in so far as it is appropriate and proper for the DFSA to do so;
b. fostering the development of the DIFC as an internationally respected financial centre;
c. co-operating with and providing assistance to regulatory authorities in the United Arab Emirates and other jurisdictions;
d. minimising the adverse effects of the activities of the DFSA on competition in the financial services industry;
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e. using its resources in the most efficient way;
f. ensuring the cost of regulation is proportionate to its benefit;
g. exercising its powers and performing its functions in a transparent manner; and
h. complying with relevant generally accepted principles of good governance.
DIFC LEGISLATION IN SUMMARY
The creation of the DIFC legislative framework has been the main focus of the year’s activity in the DFSA. This section summarises the DIFC laws passed or in development. It includes, for completeness, laws which are not the responsibility of the DFSA. In many cases, however, such laws have had substantial input from DFSA staff.
Laws administered by the DFSA (enacted)
The following laws were enacted and came into force on 16 September 2004.
Regulatory Law - DIFC Law No. 1 of 2004
Data Protection Law - DIFC Law No. 9 of 2004
Markets Law - DIFC Law No. 12 of 2004
Law Regulating Islamic Financial Business - DIFC Law No. 13 of 2004
These laws are discussed in detail in the next section.
Laws administered by the DFSA (in development)
Collective Investment Law
Creates a legal framework for the regulation of collective investment funds.
Trust Law
Creates a legal framework for the establishment of trusts in the DIFC and the regulation of trust managers.
Laws administered by the DIFCA (enacted)
The following laws were enacted and came into force on 16 September 2004.
Companies Law – DIFC Law No. 2 of 2004
Enables incorporation and registration of companies within the DIFC.
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Law On The Application Of Civil And Commercial Laws – DIFC Law No. 3 of 2004
Governs the general operation of laws, including civil laws, and allows for the application of international laws where DIFC laws are not yet enacted.
Law On The Application Of DIFC Laws – DIFC Law No. 4 of 2004
Provides for freedom of contract and the choice of governing law for participants within the DIFC.
Limited Liability Partnership Law - DIFC Law No. 5 of 2004
Provides for the incorporation of limited liability partnerships and the creation of corporate capacity.
Contract Law – DIFC Law No. 6 of 2004
Governs contractual relationships within the DIFC.
Insolvency Law - DIFC Law No. 7 of 2004
Provides for the proper administration of companies in the event of financial difficulty.
Arbitration Law – DIFC Law No. 8 of 2004
Introduces an international standard of arbitration for parties to resolve their commercial differences.
General Partnership Law – DIFC Law No. 11 of 2004
Enables partnerships to be registered within the DIFC and recognises foreign partnerships.
The following law was enacted and came into force on 29 December.
Courts Law – DIFC Law No. 10 of 2004
Establishes independent courts of unlimited civil and commercial jurisdiction.
Other Laws (in development)
Employment Law
Sets minimum standards for the employment of individuals within the DIFC.
Law Of Security
Creates a legal framework for the creation and registration of security interests and attached rights and obligations.
Personal Property Law
Creates a legal framework for the creation and registration of personal property interests and attached rights and obligations.
Real Property Law
Provides a legal framework, including a Land Registry, for all transactions relating to the transfer or creation of an interest in DIFC land.
Law Of Damages And Remedies
Law Of Implied Terms
Law Of Obligations
These three laws will provide a comprehensive civil and commercial legal framework covering those matters for which a specific law has not been enacted, but for which legal certainty is required to enable businesses and regulated participants to function properly. They will address the rights and liabilities between persons in any civil or commercial matter, including obligations, damages and remedies.
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This section summarises the laws for which the DFSA is responsible, and which are in force.
REGULATORY LAW
The Regulatory Law is the most important piece of legislation governing the regulation of financial and related activities in the DIFC. The Law sets out what activities are to be regulated in the DIFC. It identifies the function of the DFSA as a financial services regulator, and sets out how the DFSA performs its regulatory functions, along with the key objectives and principles by which it must perform those functions. The Law also sets out the powers which the DFSA exercises over institutions permitted to undertake financial services in the DIFC, and the power of the DFSA to make rules which enable it to carry out its ongoing regulatory functions in relation to authorised institutions and authorised individuals. It makes provision for the registration of ancillary service providers, and the recognition of foreign exchanges and clearing houses. The Law also sets out structural provisions relating to the DFSA and permits the creation of various dispute resolution mechanisms, as well as setting out the investigation and enforcement powers of the DFSA.
The structure of the DFSA
The DFSA is a body established under Dubai Law. It must act in an independent manner, notwithstanding that it is an agency of the Government of Dubai. The DFSA must exercise its powers and functions in pursuit of its objectives, while taking into consideration the guiding principles, which are set out on page 19-20.
The core elements of the DFSA’s structure are the Board of Directors (formerly the Regulatory Council), the Regulatory Appeals Committee, the Financial Markets Tribunal, the Chief Executive and members of his staff. Other committees may be appointed.
The DFSA must provide the President with an annual report on its activities, and the President may appoint an independent person to report on any aspect of the efficiency and effectiveness of the DFSA. Requirements are imposed as to accounts, budgeting, audit, and other internal operations of the DFSA. The DFSA is given power to prescribe fees, and there is an obligation on the President to provide the DFSA with the financial resources it needs.
The DFSA can be sued in its own name, but the DFSA, its officers, employees or agents cannot be held liable for their conduct if it is carried on consistently with the purpose and within the powers of the DFSA, unless it can be shown that those officers, employees or agents have acted in bad faith.
THE DFSA LEGISLATION IN DETAIL
The Board of Directors of the DFSA
The Regulatory Law sets out the structure of the Board, and how its members may be appointed and dismissed by the President. The Board has power to appoint the Chief Executive. Board members and the Chief Executive are appointed for fixed terms and can only be dismissed for cause.
Rules
The Law sets out the powers of the DFSA to make rules, the obligation to consult on draft rules, and the circumstances in which the DFSA may waive or modify the rules.
Regulatory Appeals Committee
The Law requires the Board to establish the Regulatory Appeals Committee (RAC) and gives the RAC jurisdiction to hear appeals from specified DFSA decisions. It gives the RAC power to make rules of procedure, and sets out the enforcement powers which can be exercised in the event of a failure to comply with any judgment of the RAC.
The Financial Markets Tribunal
The Law also requires the Board to establish the Financial Markets Tribunal (FMT). The Chief Executive may commence proceedings before the FMT if there has been a breach of the Law or other legislation administered by the DFSA. The FMT has powers including those to fine, censure, order restitution or compensation or, prohibit a person from holding office in any body corporate operating in the DIFC. The Law gives the FMT power to make rules of procedure, and sets out how judgments may be enforced.
The Chief Executive of the DFSA
The Chief Executive is primarily responsible for exercising the executive power of the DFSA, subject to the supervision of the Board.
Conflicts of Interest and Use of Information
The Law sets out how conflicts of interests and confidential information which is received by the DFSA in the course of carrying out its function, must be managed. It defines when information is confidential and the limited circumstances in which it can be disclosed.
Other Regulators
The DFSA may exercise powers on behalf of other regulators, or delegate powers to them.
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Licences, Authorisation and Registration
No entity may carry on a financial service in or from the DIFC unless it has a licence from the DFSA, as an Authorised Firm or Authorised Market Institution. There are exceptions for Recognised Bodies and Recognised Members. (These concepts allow entities regulated in other jurisdictions to be involved with DIFC financial markets.) Financial services are defined in Rules. No entity may carry on an ancillary service in the DIFC unless it is registered with the DFSA; ancillary services are defined in the rules.
The DFSA also makes rules prescribing the roles for which individuals in Authorised Firms themselves have to be authorised.
The Law sets out the processes for applying for a licence, applying conditions or restrictions, varying or withdrawing a licence, and similar provisions relating to individual authorisation. There are rights of appeal to the RAC. There are less detailed provisions on the registration of Ancillary Service Providers; these and the provisions for recognition are found in the rules.
The DFSA maintains a public register of those entities granted the various forms of authority. It is also given powers over them for up to two years after the withdrawal of that authority.
General Regulation of Financial Services
The DFSA has power to make rules relating to the change in control of an Authorised Firm or Authorised Market Institution or to withdraw the licence of an Authorised Firm or an Authorised Market Institution where the controller is not acceptable to the DFSA.
It provides that a contract entered into by an entity carrying on a financial service in breach of the financial services prohibition is unenforceable by it.
The Law sets out who is obliged to provide the DFSA with information relating to actual or potential breaches of any of the legislation administered by the DFSA, and the manner in which such disclosures must be made.
The DFSA drafts rules for anti money laundering measures to be adhered to by Authorised Firms, Authorised Market Institutions, Ancillary Service Providers and Authorised Individuals. These laws supplement but do not replace Federal Law No. 4 of 2002, the Penal Code of the UAE and other Federal Laws of the UAE relating to money laundering.
Powers of Supervision and Investigation
The Law sets out the general powers of supervision and investigation which the DFSA may exercise. In general these apply only to regulated firms (Authorised Firms, Authorised Market Institutions and Ancillary Service Providers).
The DFSA can obtain information from regulated firms or officers, employees or agents of such firms. These powers can be exercised within or outside the DIFC. It may enter premises during normal business hours to inspect or copy information, and may require firms or individuals to produce written reports on matters prescribed in the Law. It may in certain circumstances impose restrictions on business, or on dealings in property.
The DFSA has the power to conduct investigations where the Chief Executive has reason to suspect that legislation administered by the DFSA is being or may have been contravened, and provisions are made for such investigations. The Law also deals with issues of liability, self-incrimination, obstruction and privilege. The DFSA may seek injunctions or search warrants from the Court in prescribed circumstances.
Contraventions and Fines
The Law prescribes what constitutes a contravention of legislation administered by the DFSA, and makes provision for fines.
Enforcement
The DFSA may require an Authorised Market Institution or Authorised Firm to appoint a DFSA approved or nominated individual as a business manager on terms prescribed by the DFSA. It may accept enforceable undertakings, and impose limited fines or censure by administrative notice, or revoke licences, subject to appeal to the RAC. It may seek injunctions or orders from the Court, and apply to the Court for the winding up of a company which is an Authorised Firm, Authorised Market Institution, or which another entity or individual which is carrying on financial services in breach of the prohibition.
The DFSA may also apply to the Court to initiate civil proceedings and intervene in Court proceedings initiated by others.
Auditors
The Law makes provision for the audit of Authorised Firms and Authorised Market Institutions. Auditors of DIFC incorporated firms must be registered with the DFSA, which must make Rules prescribing the requirements for registration. The Law sets requirements for the appointment of auditors, their duties and powers, for co-operation with them, and for dealing with resignations. It also gives auditors a ‘whistle blowing’ obligation towards the DFSA.
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Control of Financial Services Transfers
The Law makes provision for the transfer of financial services business between firms (as distinct from a takeover of a firm). It allows application to be made for a Court order sanctioning a scheme, and provides that there must be a scheme report made by an expert acceptable to the DFSA. It also prescribes the notice that must be given to interested parties. Exemptions are possible in cases of urgency.
MARKETS LAW
The Markets Law describes how Authorised Market Institutions (defined in the Regulatory Law) are to be supervised and also details the process for offering and listing securities. This Law describes the behaviour which amounts to market misconduct and also describes the defences to and punishment of such behaviour.
Rule-Making
The Law sets out the rule-making powers and duties of the DFSA Board.
Supervision of Authorised Market Institutions (AMIs)
The Law empowers the DFSA to give directions to AMIs, for example, to suspend transactions on the market or in particular investments, or to take other actions to ensure an orderly market. There is a right of appeal to the Regulatory Appeals Committee. The DFSA also requires an AMI to have default rules. A further provision provides immunity to an AMI or its employees for their acts or omissions in pursuit of the AMI’s regulatory functions, provided they act in good faith.
Offer of Securities
The Law deals with offers of securities. It defines two classes of offer : ‘exempt offers’ and ‘prospectus offers’. An exempt offer must be made: to professional investors; as part of a takeover; or by a recognised government. These classes may be extended by rules. Any other offer must be made as a prospectus offer. The prospectus must be filed with the DFSA and the offer must meet requirements set out in the Offered Securities Rules. The DFSA may issue a Stop Order if an offer of securities contravenes the Law or the Offered Securities Rules; an appeal can be made to the Regulatory Appeals Committee.
Listings
The Law sets out the requirements for admission to the Register of Listed Securities, and the powers to refuse listing, suspend listing, or delist.
Corporate Governance
A Reporting Entity is, subject to certain exemptions, any body that has had securities admitted to the Register of Listed Securities, filed a prospectus with the Authorised Market Institution, or merges with or acquires another Reporting Entity. A Reporting Entity and its governing body must comply with corporate governance principles which include, in summary:
• clear and appropriate division of responsibility amongst senior management and the governing body;
• a member of the governing body must discharge his duties in good faith, and act honestly and in the best interests of shareholders;
• controllers should exercise rights of control in good faith and must not abuse or oppress minority or foreign shareholders;
• the governing body must present an accurate assessment of the entity’s position when making disclosures to the market;
• the governing body must establish formal and transparent arrangements or financial reporting and corporate governance.
Disclosure
A Reporting Entity must make disclosures to the market in accordance with the Offered Securities Rules. Where disclosure cannot be made immediately, for reasons of confidentiality, the entity must file a confidential report with the DFSA, which may direct disclosure or permit a delay.
A Reporting Entity must also file with the DFSA an annual report and audited annual financial statements, and unaudited semi-annual financial statements. It must allow holders of its securities to vote at its meetings by proxy.
The Law also requires disclosures by a director, senior manager or other person ‘connected’ to a Reporting Entity when they have a financial interest in the Reporting Entity. A report must be filed with the DFSA, which will make information public in accordance with the Offered Securities Rules. Other disclosures of ‘material interests’ must also be made.
The requirements can be varied where an offer is made in another jurisdiction which has substantially similar disclosure requirements.
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Takeovers
The DFSA may make Takeover Rules relating to any takeover of a Reporting Entity. No person may acquire or control 25% or more of the voting shares in a Reporting Entity, or increase an existing 25% holding, except in accordance with these Rules. (There is one very limited exception.)
Those involved in a takeover must also observe a set of takeover principles set out in the Law.
Prevention of Market Misconduct
There is a wide-ranging set of provisions dealing with market misconduct. They prohibit conduct which includes: fraud, creating a misleading impression of trading activity, misleading or untrue statements, or deceptive statements. The Law forbids misleading or deceptive statements or omissions in prospectuses, dishonest conduct, insider dealing and the provision of insider information. There are defined defences, including the existence of effective Chinese Walls. A person who suffers loss or damage as a result of market misconduct may have a right of suit.
Contraventions and Proceedings
The Law empowers the Court or the Financial Markets Tribunal, on the application of the DFSA, to make a set of orders restricting or requiring conduct in the market, for example, an order that a disclosure be made to the market, or an order prohibiting a person from serving as a company director. It also allows either body to issue a Certification of Contravention, which can be used in prescribed circumstances as evidence of a contravention of relevant provisions.
Financial Markets Tribunal
The Law gives additional jurisdiction to the Financial Markets Tribunal to deal with matters covered by this Law or rules made under it, and prescribes the manner in which the Tribunal may hear and determine proceedings.
Miscellaneous
The Law sets out powers to waive or modify provisions of the Law or rules, to levy fees, and to require the filing of material with the DFSA.
LAW REGULATING ISLAMIC FINANCIAL BUSINESS
The Law sets out the framework which applies to institutions that conduct, or seek to conduct, financial services in accordance with Shari’a (Islamic law). An Authorised
Firm or Authorised Market Institution must not hold itself out as conducting Islamic financial business unless it has an endorsement on its licence, granted by the DFSA, authorising it to conduct such business as either an Islamic financial institution or an Islamic window. An Islamic financial institution is one whose entire operations are conducted in accordance with Shari’a principles; an Islamic window conducts Islamic business as part of an operation which also conducts conventional business. The process for seeking endorsement is set out.
An Authorised Firm with an endorsed licence must appoint a Shari’a Supervisory Board. The Board of the DFSA is required to make rules prescribing the appointment, formation, conduct and operation of a Shari’a Supervisory Board.
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THE DFSA RULEBOOK
Rules made by the Board of the DFSA dealing with financial or ancillary services business are contained in the DFSA Rulebook.
The Rulebook is made up of topic-area modules, such as Authorisation, Supervision and Enforcement. Each module specifies its scope and to whom it applies, and contains all the relevant rules. These rules are made under the Regulatory Law 2004, the Markets Law 2004 and the Law Regulating Islamic Financial Business 2004. Guidance is also supplied and is intended to be read in conjunction with the rules. It is not binding and does not create a ‘safe harbour’ affording protection from action for any breach of an underlying Rule.
The first set of modules was made on 16 September 2004. Amendments were made on 1 October 2004, mainly dealing with captive insurers. A further set of modules, dealing with markets matters, was made on 6 December 2004.
The content of the DFSA Rulebook modules is summarised briefly here:
General (GEN)
Prescribes the financial services for which a licence is required, and the core principles. It also contains provisions in respect of accounting and auditing, fees and management systems and controls.
Authorisation (AUT)
Sets out the requirements for firms wishing to be licensed as an Authorised Firm, and individuals seeking to work as an Authorised Individual.
Supervision (SUP)
Outlines the way the DFSA supervises Authorised Firms and others, and contains details of the specific tools utilised by the DFSA.
Enforcement (ENF)
Sets out the procedures the DFSA follows in performing its enforcement function.
Conduct Of Business (COB)
Provides for the manner in which financial services business is carried on, in or from the DIFC and includes the types of customer a firm may deal with.
Prudential - Insurance Business (PIN)
Sets out the prudential requirements for Authorised Firms conducting insurance business.
Prudential - Investment, Insurance Intermediation and Banking Business (PIB)
Sets out the prudential requirements for Authorised Firms conducting investment, insurance intermediation and banking business.
Anti Money Laundering (AML)
Provides a framework designed to prevent, detect and combat money laundering within the DIFC.
Islamic Financial Business (ISF)
Sets out the requirements for an Authorised Firm undertaking Islamic financial business.
Ancillary Service Providers (ASP)
Sets out the rules for applying to be registered as an Ancillary Service Provider, and the rules with which an Ancillary Service Provider must comply.
Prescribed Forms And Notices (PFN)
Contains the forms that are referred to in the Rulebook modules.
Glossary (GLO)
Lists the defined terms used in the Rulebook.
Other rules
Data Protection Rules (DAT)
The DFSA Board has a separate rule-making power under the Data Protection Law 2004. The DAT module contains rules made under this Law. The rules contained in it were made and came into force on 16 September 2004.
Rules in development
Recognition (REC)
Will contain rules in relation to Recognised Bodies and Recognised Members.
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Offered Securities Rules (OSR)
Will contain rules in relation to offers of securities, listing of securities and takeovers.
Authorised Market Institutions (AMI)
Will contain rules in relation to the requirements for entities applying to be licensed as an Authorised Market Institutions.
Collective Investment Funds (CIF)
Will contain rules in relation to the regulation and establishment of collective investment funds.
Takeovers (TKO)
Will contain rules regulating takeovers within the DIFC.
Price Stabilisation (PRS)
Will contain rules that provide a statutory safe harbour from an offence of market manipulation of securities in limited circumstances.
Alternative Trading Systems (ATS)
Will contain rules that provide for the regulation of alternative trading systems in the DIFC.
FINANCIAL AND ANCILLARY SERVICES
The Regulatory Law prohibits any person from carrying on a financial service in or from the DIFC without being authorised by the DFSA to do so. The DFSA is given power to define financial services in rules. The relevant rules are in chapter 2 of the General Module (GEN) of the DFSA Rulebook. The financial services are defined as follows:
• Accepting Deposits
• Providing Credit
• Providing Money Services
• Dealing in Investments as Principal
• Dealing in Investments as Agent
• Arranging Credit or Deals in Investments
• Managing Assets
• Advising on Financial Products or Credit
• Operating a Collective Investment Fund
• Providing Custody
• Arranging Custody
• Effecting Contracts of Insurance
• Carrying out Contracts of Insurance
• Operating an Exchange
• Operating a Clearing House
• Insurance Broking
• Insurance Management
• Managing a Profit Sharing Investment Account
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The Regulatory Law similarly prohibits any person from carrying on an ancillary service without being registered by the DFSA. Ancillary services are defined in chapter 2 of the Ancillary Services Providers Module (ASP) of the DFSA Rulebook, and are as follows:
• Providing Legal Services
• Providing Accountancy Services
• Providing Market Information Services
• Operating a Local Services Office
• Operating a Management Office
• Providing Compliance Services
Prospective applicants intending to operate in the DIFC are advised to read the definitions carefully to determine whether they need to be authorised or registered.
DATA PROTECTION
The Data Protection Law governs how personal information is to be processed, managed and protected within the DIFC, and under what conditions it may be transferred outside the DIFC. ‘Sensitive’ personal information is subject to stronger protections. The Law also prescribes rights for the person who is the subject of the information being processed. These include rights to information about the data collected and its use, rights of access to the data, rights to seek rectification of data, and rights to object to its use. The Board of the DFSA has a regulation-making power, and the DFSA may give permits allowing certain uses or transfers which would otherwise be forbidden. The DFSA also has powers of enforcement and mediation.
Personal data must be processed fairly, lawfully and securely, for specified and legitimate purposes. It must be accurate, proportionate to the purpose for which it is processed and not held longer than necessary in a form which allows individuals to be identified. Personal data may only be processed if the subject has given consent or a permit is issued by the DFSA for a legitimate purpose.
There are stronger restrictions on the processing of ‘sensitive’ personal data, for example data relating to an individual’s racial or ethnic origin, political opinions or health. These restrictions can be overridden if permission is given by the DFSA.
Personal data can only be transferred outside the DIFC if adequate protection is available in the recipient jurisdiction, or on certain other conditions including the subject’s consent or the issue of a permit by the DFSA.
Data subjects must be given information about the processing of data relating to them.
A data subject has the right of access to the data held about him, the right to information about its use, and the right to seek rectification, erasure or blocking of data whose processing does not comply with the Law. The data subject may also object to the processing of data on reasonable grounds.
Notifications to the DFSA
A Data Controller, namely a person who determines the purposes and means of processing personal data, must establish and maintain a record of all automatic personal data processing. The DFSA may make regulations about these records, and what notifications need to be made to the DFSA.
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Remedies, Liabilities and Sanctions
The DFSA has the power to issue directions to Data Controllers who contravene the Law or Regulations made under it. Directions may be appealed to the Court. The DFSA may also mediate between data subjects and Data Controllers in disputes.
The DFSA administers the Data Protection Law, which governs all persons operating in the DIFC, including the agencies charged with the task of administration and regulation of the DIFC. The enforcement of the Law rests with the Enforcement Department, which is developing practices and procedures for the proper operation of a Data Protection Registry. As the DFSA is also subject to that Law, appropriate internal Chinese Wall arrangements are being established to separate the regulator from the regulated.
RISK BASED REGULATION
The DFSA is a risk-based regulator. It assesses the risks to the achievement of its objectives, and sets priorities for the use of its resources to mitigate those risks. This principle applies when dealing with individual firms, between firms of a similar type, and between sectors.
The DFSA adopts a continuous risk management cycle comprising the identification, assessment, prioritisation and mitigation of risks. Risks may arise from areas within the firm including business, operations, internal controls and compliance arrangements. General risk factors are also included in the risk management process, including external factors that apply either to particular sectors of the regulated community or to the entire community.
Systematic assessment of risk will thus also allow the DFSA to identify common issues between firms, for example a pattern of weak corporate governance in firms of a certain type, and to undertake thematic work in response.
The DFSA also undertakes market monitoring and research in order to identify, assess and address any developments either within or outside the DIFC which may pose a risk to the centre or a particular section of the DIFC community.
This philosophy applies to all parts of the DFSA, and all its dealings with firms, whether these relate to authorisation, supervision or enforcement.
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The DFSA has been structured along functional rather than sectoral lines.
The Authorisation Department is responsible for considering applications to conduct financial or ancillary services in the DIFC. It also considers applications for individuals to be authorised to carry out certain roles in financial services firms, and for changes in the control of such firms.
The Supervision Department is responsible for supervising firms conducting financial or ancillary services. It leads policy development in the areas for which it is responsible, and assists the Authorisation Department where required.
The Markets Department was created during 2004 in response to the volume and complexity of the work required to create a regime under which financial markets may operate in the DIFC. It is responsible for policy in this area, and for the supervision of market institutions once they are authorised.
The Enforcement Department is responsible for taking action against financial and ancillary services firms that do not meet the high standards required in the DIFC. It may also take action against individuals in such firms. In certain circumstances it may take action against other persons, for example in cases of market misconduct. The Department is also responsible for the administration of the Data Protection regulations.
The Office of General Counsel provides legal advice to the other Departments, and is also responsible for developing and maintaining the laws and the DFSA rules for which the DFSA is responsible, and for consulting with the DIFCA on other DIFC legislation.
ORGANISATION OF THE DFSA
AUTHORISATION
The Authorisation Department of the DFSA acts as the independent ’gatekeeper’ to the DIFC for those firms wishing to conduct financial services and related ancillary services in or from the DIFC.
An applicant’s formal relationship with the DFSA begins with the Authorisation Department, which processes and assesses a firm’s application, considers its risk assessment with respect to the DFSA objectives in accordance with the DFSA supervisory risk assessment framework, and makes recommendations to the DFSA Chief Executive as to an application’s proposed determination. Through contact with applicants and potential applicants, the Department also plays a key role in identifying firms operating at the ’perimeter’ of the DFSA’s definitions of financial services and ancillary services.
The Authorisation Department considers applications from proposed Authorised Firms, Authorised Individuals, Ancillary Service Providers and Authorised Market Institutions. Although the DFSA became formally operational on 13 September 2004, the Department has been operational since December 2002, as a number of applicants and potential applicants had made various submissions with a view to seeking authorisation from or shortly after the DFSA’s operational date.
As at 31 December 2004, the DFSA had granted licences to seven Authorised Firms (two of which come into effect from 1 January and 1 February 2005 respectively), approved 66 Authorised Individuals within those firms, and registered three Ancillary Service Providers.
The Department has acted as the primary point of contact for application-related enquiries on all aspects of the DFSA rules and laws. Enquiries come from various sources including potential applicants themselves and advisers to applicants, the DIFCA (who are involved in the general promotion of the DIFC), as well as other interested parties. The Department seeks to provide constructive feedback to all enquiries, whilst at the same time encouraging applicants to familiarise themselves with the DFSA rules.
Details regarding the number and names of applications remain confidential, although all approvals (licences and registrations), are subsequently published via the public register section of the DFSA website, at www.dfsa.ae. The information made available through the public register will be enhanced in 2005 once a current systems project is implemented. The Authorisation Department works closely with the DIFCA, particularly concerning prospective applicants to the DFSA arising from the DIFCA’s promotion of the DIFC. Once an application has been submitted to the DFSA it remains strictly confidential between the applicant and the DFSA, although applicants still retain an ongoing relationship with the DIFCA concerning non-regulatory matters such as premises requirements, visa processing, and other related matters.
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The Department has implemented internal processes which ensure that all applicants are treated consistently and fairly, whilst delivering the highest regulatory standards that conform to international best practices. This serves to ensure all Authorised Firms are fit and proper at the point of authorisation, and appear likely to remain so.
An applicant must demonstrate to the satisfaction of the Authorisation Department that it understands its detailed obligations as outlined in the relevant DFSA rules. This is particularly important as, once an applicant becomes an Authorised Firm, any rule breaches will become a supervisory matter and potentially subject to enforcement or disciplinary action, together with the attendant publicity that this may entail.
The process of reviewing an applicant seeking to be licensed as an Authorised Firm requires the initial submission of application forms which describe the nature of the financial services and products involved, and information about the firm itself. The authorisation process then tests whether the proposed implementation of a firm’s business plan will be in compliance with the relevant aspects of the DFSA Rulebook. The assessment of all aspects of a firm’s operations in the DIFC, including its staff, shareholders, compliance and anti money laundering procedures, internal systems and controls, financial resources and governance structure are drawn together under the ‘fit and proper test’, which seeks to form a single view as to whether a firm should be licensed, licensed with conditions or restrictions, or rejected.
Similarly, Authorised Individuals must also be fit and proper and are subject to their own ‘fit and proper test’, which takes into account the nature of the role (defined as a Licensed Function) that they propose to perform as employees of an Authorised Firm. Specific requirements in the Authorisation rules are specified depending on the Licensed Functions involved, such as minimum levels of relevant experience or the possession of relevant qualifications for staff with certain client facing roles. The Authorisation Department expects firms to be able to demonstrate that they have undertaken their own due diligence on individuals, and has implemented means with which to deploy third-party checks, independent of the firm and its proposed Authorised Individuals.
Ancillary Service Providers (ASPs) are subject to a lighter regime and a simplified application process, principally because ASP registration does not permit the carrying on of any financial services. Whilst the application process is designed to be simple and expeditious, the Department may need on occasion to conduct a more extensive review where this is considered appropriate.
Applications by potential Authorised Market Institutions (investment exchanges or clearing houses) are expected to be less frequent than other types of applicant. The DFSA has been in discussions with various parties with a view to receiving applications by such applicants. Such applicants will be considered by the DFSA Markets Department in close consultation with the Authorisation Department.
The Authorisation Department seeks to process complete applications as quickly as possible. Where an application is materially incomplete (for example, where specific financial services have not been set forth, an application fee has not been paid, or compliance procedures have not been submitted), the firm will be notified of the key missing components and priority will be afforded to other, complete applications. For well-prepared applicants who are familiar with all of the DFSA’s rules that will be applicable to them and have submitted comprehensive applications, the Department aims to process applications within two months and will monitor its performance against this target on an ongoing basis, taking into account firms’ response times and the complexity of any issues that arise.
Once a firm is authorised (or an Ancillary Service Provider is registered) responsibility for the firm’s compliance with the DFSA rules passes to the Supervision Department. During the authorisation process, Authorisation staff will seek to ensure that the DFSA Supervision officers are introduced to the firm’s senior management, and that the Supervision Department is apprised of all relevant matters, in order to facilitate the smooth handover of responsibility from Authorisation to Supervision.
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Firms authorised in 2004
Licensed
The GCC Energy Fund Managers Ltd. 17 Sept 04
Julius Baer (Middle East) Ltd. 20 Sept 04
Standard Chartered Bank 20 Sept 04
Franklin Templeton Investments Management Ltd. 30 Nov 04
Ansbacher & Co. Ltd. 01 Dec 04
Credit Suisse w.e.f. 01 Jan 05
Mellon Global Investments Ltd. w.e.f 01 Feb 05
Ancillary Service Providers registered in 2004
Registered
JLT Risk Solutions Limited 27 Sep 04
Total Solutions Europe BV 29 Sep 04
AIG Memsa Inc 22 Dec 04
SUPERVISION
The responsibilities of the DFSA Supervision Department mirror those of supervisors in any financial services regulator from an established jurisdiction. The Department is responsible for maintaining the ongoing relationship with Authorised Firms and Ancillary Service Providers, and assessing the risks they may pose to the DFSA objectives. The Department has access to a range of supervisory tools that may be deployed to identify, monitor, prevent or remedy risks. These are detailed in the Supervision module (SUP) of the DFSA Rulebook.
In anticipation of supervising the full spectrum of financial services firms, the Department is staffed by individuals capable of providing the appropriate sectoral coverage. The DFSA has internationally experienced staff with relevant industry and regulatory experience covering all aspects of the financial services industry. There is a good balance between staff members who have worked for long periods and at senior levels with other global regulators and those whose experience has been primarily in the industry.
The development of ongoing relationships with authorised and registered entities will necessarily occupy a greater proportion of the Department’s time as the DFSA authorises more firms. However, in the period before the DIFC became formally operational, Supervision staff have been actively involved in a variety of different areas contributing to the structural formation of the DFSA including contributing to the development of laws and rules. The content of these has been outlined above, and full details are available on the DFSA’s website. However, some merit fuller coverage here.
The Prudential - Investment, Insurance Intermediation and Banking Business (PIB), Prudential - Insurance Business (PIN) and Prescribed Forms and Notices (PFN) modules contain the very substantive prudential framework for Authorised Firms. With PIB, the DFSA has developed an integrated, risk-based, approach to the prudential risks presented by banks and other non-insurance firms. The insurance prudential regime, contained in PIN, is also risk-based.
The Supervision module (SUP) sets out the DFSA’s supervisory philosophy and processes, and is supported by a set of internal procedures and guidelines which have been drafted by Supervision staff.
As explained elsewhere, the DFSA is a risk-based regulator. It is the Supervision Department which has led development of the risk assessment framework referred to earlier in this Report, including explaining it in a form capable of being understood by external stakeholders. The risk framework has been made sufficiently flexible, practical and straightforward to enable its application across all firms in all industry sectors.
The SUP module contains high level details of the risk framework. It also sets out the DFSA supervisory philosophy and how the DFSA intends interacting with Authorised Firms. The DFSA seeks to maintain a strong and open relationship with firms, and places the onus on senior management to ensure compliance with DFSA’s regulatory
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requirements. Wherever possible, the DFSA will take account of the level and sophistication of any overseas regulation of the wider group of which the Authorised Firm is part in determining the extent and emphasis of its own supervisory efforts.
The Supervision Department has been responsible for developing the framework for the audit of Authorised Firms and Authorised Market Institutions. This has involved the creation of a registration scheme for auditors of DFSA-incorporated firms in these classes.
Because of the DIFC’s geographical location and the growth of Islamic finance, the DFSA has developed a risk-based model for the supervision of this area. Islamic finance is growing at a rapid pace across global financial markets, with innovative products ranging from banking and investment products to sophisticated capital market products. In recognition of the growth and demand for Islamic finance the DFSA has drawn upon both international regulatory standards, such as those constructed by the Basel Committee of Banking Supervision, and established Islamic standards such as those of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB), to create an efficient, competitive but flexible risk based regulatory model. The model prescribes the systems and controls within which Islamic firms must operate, including matters such as the appointment of a Shari’a Supervisory Board, conduct of business and prudential matters. The model accommodates wholly Islamic financial institutions (that is, those whose entire business operations are held out as being in compliance with Shari’a) as well as Islamic windows.
The prevention of money laundering and terrorist financing is of paramount importance to the DIFC. In this regard, the DFSA has developed and introduced state-of-the-art anti money laundering (AML) and counter terrorist financing (CTF) regulations enabling thorough supervision of its regulated community including Authorised Firms, Authorised Individuals, Ancillary Service Providers and Authorised Market Institutions. DFSA rules and guidance mirror the latest international standards including the Financial Action Task Force (FATF) revised recommendations. The DFSA has endorsed other principles and standards set by the Basel Committee on Banking Supervision and the Wolfsberg Principles. The DIFC’s AML and CTF regimes interface with federal criminal laws such as Federal Law No. 4 of 2002 (‘Criminalisation of Money Laundering’) which continues to apply in the DIFC. During the year discussions have been held with the UAE Central Bank and the national Financial Intelligence Unit in order to foster and clarify relationships. Going forward, the DFSA will place special emphasis on firms’ understanding of their AML obligations and the systems and controls they have in place to mitigate this significant risk.
The Supervision Department has also devoted considerable effort in assisting the relationship management team in the DIFCA and the DFSA’s own Authorisation Department in meeting prospective applicants and enabling them to understand the DIFC legislation. The Supervision Department has participated in various regional and international seminars explaining the role of supervisors and highlighting to firms and other stakeholders the DFSA approach to dealing with firms and senior management, their parents and other overseas regulators. The Supervision Department has also played a role in developing relationships with other regulators dealt with elsewhere in this report.
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The Markets Department has overall responsibility for the regulation of securities and other markets in the DIFC.
The Markets Department takes the lead in pursuing the DFSA’s regulatory objectives in respect of capital market activities which includes primary and secondary market activity. The specific areas of activity for which the Department is responsible are:
• supervision of exchanges and clearing houses;
• recognition of persons providing certain financial services from foreign locations;
• processes by which securities can be offered;
• monitoring of company announcements and disclosures by listed companies and other persons subject to such requirements;
• monitoring of activity in the markets for market misconduct;
• takeovers of listed companies.
This responsibility incorporates interaction with a large variety of entities, some of which are directly regulated or recognised by the DFSA and others that are not. It can include interaction with licensed firms such as Authorised Market Institutions and Authorised Firms, registered entities such as Ancillary Services Providers and unlicensed entities such as issuers and offerors of securities in addition to interaction with numerous other types of third parties.
Regulated or recognised entities may be physically located in or outside of the DIFC. Where the person is already regulated by another DFSA department, the Markets Department will ensure any interaction with the entity is co-ordinated using a consistent and equitable approach to regulation by the DFSA.
The Markets Department has over the past 12 months implemented a rule-based framework for regulation in its areas of responsibility.
In particular, the Markets Department published Consultation Paper 12 which sought comments in respect of three proposed modules of the DFSA Rulebook: Offered Securities (OSR), Authorised Market Institutions (AMI) and Recognised Bodies (REC).
In addition to creating the rule-based framework, steps have been taken by the Markets Department toward creating appropriate regulatory arrangements for information sharing and other regulatory co-ordination between the DFSA and foreign regulatory authorities.
MARKETS
The Markets Department has also begun to undertake assessments of surveillance systems which it intends to use as part of the processes by which it will fulfil its responsibilities in respect of market conduct.
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The DFSA expects regulated DIFC participants to evidence a strong compliance culture, and to recognise that it is in the interests of the financial services industry for them to meet or exceed the required standards. When these standards are not met, a matter may be referred to the Enforcement Department.
The Enforcement Department adopts the following approach:
Being Pro-active
In keeping with the DFSA’s risk-based approach to regulation, the Enforcement Department acts pro-actively and focuses on reducing the risk of non-compliance wherever possible.
Acting Swiftly
In exercising its enforcement powers, the Enforcement Department acts fairly, openly and accountably. When it detects conduct that may threaten the integrity of the DIFC, it acts swiftly and decisively to stop the conduct, minimise the effects and prevent similar conduct recurring.
Ensuring Fairness and Transparency
The Enforcement Department takes enforcement action only when it is necessary to ensure that the DIFC is operating fairly, transparently and in a way that promotes the confidence of the financial services industry and its customers. It provides procedural fairness and gives due respect to the rights of those with whom it deals. It upholds principles such as legal privilege and, where information is compulsorily given to the DFSA, protection against self-incrimination in criminal matters.
Keeping the Public Informed
The Enforcement Department will generally publish the outcomes of enforcement action. This public accountability helps maintain the integrity of the DIFC by deterring contraventions of the law or other misconduct, and ensures the fair and transparent discharge of the DFSA’s enforcement powers. The Enforcement Department will not generally publicise the commencement of investigations, or provide information on their progress.
Ongoing Regional and International Co-operation
The Enforcement Department works closely with other regulators to ensure the effective exchange of information, mutual assistance and adherence to the highest common standards.
ENFORCEMENT
Exercise of Enforcement Powers
The Enforcement Department conducts investigations into suspected contraventions of the legislation administered by the DFSA, and may exercise powers to conduct inspections, compulsorily obtain books and records, or require individuals to participate in interviews under oath or affirmation. The DFSA will refer any conduct which could constitute a breach of criminal law to the relevant local, Federal or international authority.
In general, the DFSA uses its enforcement powers only to the extent necessary to achieve its objectives, and in a way that ensures the legitimate activities of participants in the DIFC continue freely.
The Enforcement Department may take the following actions as the result of its investigations:
• Commence proceedings before the Financial Markets Tribunal.
• Initiate proceedings in the DIFC Court, seeking (for example) injunctions or orders for winding up or for the appointment of receivers.
• Initiate administrative proceedings relating to a licence, authorisation or registration. This may include imposing conditions on a licence, withdrawing authorisation or registration, or suspending an Authorised Individual.
• Accept an enforceable undertaking for a person and/or firm, stating that the party will undertake certain actions in order to resolve an issue. The DIFC Court may enforce this undertaking in the event of a breach of its terms.
Initiatives in the past year
The Enforcement Department has developed the appropriate legislative and administrative frameworks for its operations. These include:
• the drafting of the Enforcement Module (ENF) of the DFSA Rulebook;
• implementation of an internal Enforcement Manual to govern all practices and procedures of the Enforcement Department;
• constituting an Enforcement Decisions Committee comprising senior DFSA staff to monitor the initiation, progress and conclusion of investigations, and to ensure that they are conducted in an objective, efficient and impartial manner.
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The Enforcement Department seeks to adopt world-leading practices in the handling of sensitive information gathered for the purposes of investigations. These practices will ensure that:
• firms and individuals may be assured that any information and documents provided to the DFSA will be maintained with utmost security and confidence; and
• integrity of evidence is maintained for any necessary enforcement action.
To this end the Enforcement Department is implementing a state-of-the-art evidence management system, including:
• document handling procedures designed to minimise and restrict the physical handling of materials only to circumstances when absolutely necessary;
• an Evidence Management Facility for the receipt and secure storage of evidential materials;
• document scanning technology to record all potential evidence into electronic image format;
• investigation management software to record and catalogue all evidential material and to permit forensic analysis without need to disturb original evidence, and which will facilitate the creation of electronic briefs and, in appropriate matters, electronic case presentation in the DIFC Court.
The Enforcement Department is also developing close relationships with other enforcement agencies with whom it will need to co-operate in the investigation and enforcement process. This includes enforcement agencies of not only Dubai but also of the UAE more generally and beyond.
The Enforcement Department will also continue to pursue an educational and awareness role. Within the past year, officers of the Department have given presentations in local and international fora. This included acting as the local host of a market enforcement conference conducted in Dubai in June 2004 under the auspices of the Emirates Securities and Commodities Authority (ESCA), the Financial Services Volunteer Corps and the US Securities and Exchange Commission.
During the year the DFSA also undertook its first formal enforcement action, against a firm which made misleading statements about its position within the DIFC. More information is given on page 83.
Financial Markets TribunalThe Financial Markets Tribunal (FMT) is intended to serve as a convenient, swift and objective determinant of contraventions and disputes arising in the DIFC.
The FMT is created by the Regulatory Law to hear and determine proceedings brought by:
• the DFSA, alleging a breach of a law or rules administered by it; and
• parties in a commercial dispute who may bring commercial proceedings under the Markets Law or rules.
The FMT is empowered to establish its own rules of procedure. It is also empowered to make a broad range of orders designed to address the needs of the DFSA and financial services participants in the DIFC.
These orders include:
• imposition of fines and censures
• compensation and restitution orders
• accounts of profits and injunctions
• orders restricting conduct, requiring trading to cease or requiring disclosure
• declarations as to unacceptable circumstances in a takeover
• orders giving relief to minorities
• findings as to liability in commercial disputes
A party who wishes to appeal a decision of the FMT may apply to the DIFC Court.
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Regulatory Appeals CommitteeThe Regulatory Appeals Committee (RAC) is a committee of the DFSA Board that hears appeals from administrative decisions made by the DFSA and operates to ensure procedural fairness, objectivity and transparency in the decision-making process of the DFSA. It is established under Part 2 of the Regulatory Law.
The RAC hears and determines appeals against those types of decisions listed in Article 27 of the Regulatory Law. An appeal must be brought within 30 days of the decision, but may also be brought within a further period if approval to do so is obtained from the RAC.
The Regulatory Law allows the RAC to stay a decision pending appeal, and sets out the manner in which the RAC will operate to hear and determine the appeal. At the conclusion of an appeal, the RAC may determine the action that the DFSA should take, and may remit the original decision to the DFSA with directions.
RELATIONSHIPS WITH OTHER REGULATORS
The DFSA attaches high importance to establishing strong co-operative relationships with other regulators. This is of particular importance for a new financial centre, aiming to attract leading international firms most of which will also be subject to financial services regulation in other jurisdictions. The DFSA aims to have a world-class regulatory framework, which meets the standards of major international bodies. Wherever possible, therefore, it will participate actively in the work of such bodies, both to contribute to international developments and to ensure that its own knowledge and skills remain at the cutting edge.
Within the UAE, the principal financial services regulators are the Central Bank, the Ministry of Economy and Planning (for insurance), and the Emirates Securities and Commodities Authority (ESCA). In addition to its role as a regulator of the banking and investment sectors, the Central Bank is responsible for enforcement of the federal criminal law dealing with money laundering and terrorist financing, an area of particular importance to the DFSA. The DFSA has therefore initiated discussions with the Central Bank on two Memoranda of Understanding (MoUs). One of these will deal with co-operation in financial services regulation and the other with the specific area of money laundering and terrorist financing. The MoU on co-operation in financial services regulation is expected to serve as a template for similar MoUs with the Ministry and with ESCA.
The DFSA has also initiated discussions on MoUs with a number of other financial services regulators in leading jurisdictions, focusing initially on the principal home jurisdictions of financial services applicants seeking to operate in the DIFC. The DFSA’s aim is to ensure that, at the authorisation stage, there is a proper basis on which to exchange information which will allow it to assess the risks associated with an applicant. Once a firm is authorised, the DFSA expects there to be a two-way flow of information, and wishes to establish an agreed division of responsibilities between itself and other regulators. Should investigation or enforcement action become necessary, there will again need to be a flow of information, and possibly co-operation in the investigation.
During 2004, the DFSA became a full member of the International Association of Insurance Supervisors (IAIS), the international standards-setting body for insurance. The DFSA is represented on the IAIS’s Emerging Markets Committee and its Education Subcommittee, the Reinsurance Subcommittee, and the Insurance Fraud Subcommittee. The DFSA also became an Associate Member of the Islamic Financial Services Board (IFSB), and an Observer member of the Accounting and Auditing Standards Organization for Islamic Financial Institutions (AAOIFI).
The DFSA became an Associate Member of the International Organization of Securities Commissions (IOSCO) in the early part of 2005.
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Staff
During 2004 the DFSA continued seeking and recruiting experienced regulatory staff to its key areas of operation. Total staff of the DFSA grew from 28 at the end of 2003 to 38 at the end of 2004. The breakdown of staff by functional areas is as follows:
Authorisation 7
Supervision 9
Markets 2
Enforcement 5
Office of General Counsel 7
Finance/IT/HR/Other core services 8
During the year the DFSA instituted a programme to recruit UAE Nationals as Management Associates, to work with well experienced regulatory staff within the various functional areas of the DFSA. These recruits are provided a structured training and mentoring programme over a 24 month period, in each of the functional areas of the DFSA. Two esteemed judges of the Dubai Courts joined the DFSA under this program and are gaining valuable experience in international legal and regulatory matters.
Technology
The DFSA has developed its information technology infrastructure needs based on best practices followed by international regulators, ensuring regulatory information is handled efficiently and securely. The new system will become operational once the DFSA moves to the Gate Building in early 2005.
During the year, a project team was established to identify organisation-wide needs for an electronic data management and retrieval system and to develop the user requirement specifications. On completion of this phase, the DFSA appointed a leading software developer to scope the technical specifications and build the system. This system will be built in accelerated phases and once completed, will provide the regulatory staff with a robust system ensuring efficiency and guaranteeing the security of regulatory information.
A new DFSA website was designed and launched in the second half of 2004 to provide comprehensive information on the DFSA, its regulatory process and the laws and rules it administers.
OPERATING REVIEW
Finance
Until the establishment of the DFSA as an independent entity on 13 September 2004, it operated as an autonomous arm of the DIFC. As an independent Regulatory Authority, the DFSA is funded by the Government of Dubai. The financial statements presented in Appendix 2 cover the entire period from 16 February 2002 (the earliest point at which expenditure relating to financial services regulation can be separately identified) until 31 December 2004.
The annual budget of the DFSA is approved by the DFSA Board and submitted to His Highness Sheikh Mohammed bin Rashid Al Maktoum, President of the DIFC for his consideration, in accordance with the Regulatory Law and in order for funding to be granted in accordance with Dubai Law No.9 2004. A reporting routine has been instituted for reporting actual expenditure to the Board at its regular meetings. Actual expenditure is controlled within the approved budget and any significant variances are identified and reported to the Board. During 2004, re-forecasts of the budget were carried out in April and October, so as to reflect the actual expenditure.
Income
The income of the DFSA is generated from its licensing and registration activities, which commenced in September 2004, and annual fees for 2004. During the period September to December 2004, the income from licensing, registration and annual fees was US$ 493,296. During this period the DFSA received 16 applications from firms and granted 7 licences and received 8 applications from Ancillary Service Providers of which 3 were registered.
Expenditure
The DFSA’s expenditure from 13 September 2004 to 31 December 2004 was US$ 3,149,146. This is made up of US$ 652,082 for the DFSA Board, and US$ 2,497,064 for the DFSA Executive. The major items of expenditure were:
DFSA Board USD
Board Remuneration 473,954
Travel Related Expenses 114,514
Other Expenses 63,614
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DFSA Executive
Employment Cost 1,862,216
Recruitment Cost 199,136
General Administration Expenses 435,712
The financial statements also include as pre-operating expenditure, expenses for the period 16 February 2002 to 12 September 2004. These are broken down as follows:
USD
Staff costs 8,129
Council remuneration 1,558
Recruitment 1,342
Legal and Professional 4,302
Office administration 881
Other 1,670
=====
17,882
Capital Expenditure USD
Computer Hardware 208,664
Furniture & Office Equipment 169,214
Leasehold Improvements 69,263
During 2004 no attempt was made to allocate expenditure between functional areas as the staff were undertaking cross functional responsibilities to ensure that available resources were utilised in the most efficient and cost effective manner.
Industry Liaison
During 2004, the DFSA conducted many industry liaison meetings to achieve its objective of promoting public understanding of the regulation of financial services in the DIFC. Liaison meetings were conducted in the UAE as well as internationally and these meetings were well received by the attendees. Presentations made by DFSA staff covered areas such as the structure of the DFSA, regulatory processes, the authorisation process, laws and rules of the DFSA, and prudential rules relating to regulated activities.
The DFSA also published a number of booklets intended to inform current and potential DIFC participants about its regime.
A number of Consultation Papers were also issued seeking the views and recommendations of industry participants to assist the DFSA in the development of laws and rules.
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APPENDICES
APPENDIX 1
The DFSA Board has established five committees to assist it in its work. One of them, the Regulatory Appeals Committee, is mandated by the Regulatory Law. The membership of the committees and a summary of their functions are set out below. Some committees include members who are not members of the Board, while the Chairman of the DFSA Board is an ex-officio member of all Board Committees except the Finance and Audit Committee and the Regulatory Appeals Committee.
Legislative Committee
Michael Blair QC – Chairman
Robert L Clarke
David E King
Joyce Maykut QC
Ermanno Pascutto
Georg Wittich
The primary function of the Legislative Committee is to assist the Board in discharging its policy-making function and legislative function, including the development of legislation related to the regulation of financial services and related ancillary activities conducted in or from the DIFC.
Finance and Audit Committee
Abdullah M Saleh - Chairman
The Hon Apurv Bagri
Douglas Dowie
Saeb Eigner
Dr J Andrew Spindler
The primary function of the Finance and Audit committee is to assist the Board in fulfilling its oversight responsibilities for the financial reporting process, the system of internal control over financial reporting, the audit process and the processes for identifying, evaluating and managing the DFSA’s principal risks impacting financial reporting.
Governance and Nomination Committee
Saeb Eigner - Chairman
The Hon Apurv Bagri
Lord David Currie
Dr J Andrew Spindler
Committees of the Board
63
The primary function of the Governance and Nomination Committee is to assist the Board in fulfilling its supervisory responsibilities in respect of the operations of the Board and its management, to identify individuals qualified to become Board members and to develop and recommend to the Board a set of corporate governance principles.
Regulatory Appeals Committee
Robert Owen – Chairman
Michael Blair QC
Robert L Clarke
Georg Wittich
John Holmes
The Regulatory Appeals Committee is established under Part 2 of the Regulatory Law 2004. It hears appeals from regulatory decisions made by the DFSA, and operates to ensure procedural fairness, objectivity and transparency in the decision making processes of the DFSA. Although it is established under the Regulatory Law, it has been given extended jurisdiction to hear appeals against certain types of decision made by the DFSA under other legislation.
Remuneration Committee
Dr J Andrew Spindler - Chairman
The Hon Apurv Bagri
Lord David Currie
Saeb Eigner
Robert Owen
The primary function of the Remuneration Committee is to assist the Board in fulfilling its responsibilities relating to all aspects of human resources at the DFSA, including performance, compensation and succession.
APPENDIX 2
Pages
Report of the Chairman 66
Independent auditors’ report 67
Balance sheet 68
Statement of income and expenditure 69
Statement of cash flow 70
Accounting policies 71-72
Notes to the financial statements 73-79
Financial Statements For the period from 16 February 2002 to 31 December 2004
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REPORT OF THE CHAIRMAN
These financial statements cover the period from 16 February 2002, until the end of the financial year, 31 December 2004.
Our financial performance during this initial period of operation reflects our endeavours to recruit competent and experienced staff, implement leading edge systems and provide a working environment which enables staff to operate effectively. In achieving these objectives we have exercised careful financial prudence and wherever possible avoided expenditure that does not contribute to the achievement of DFSA’s core objectives. Many of the costs incurred in the initial phase of our development have been devoted to laying the foundation for the longer term structure and success of the DFSA.
Income during the period has come from two sources. The first is fees from the various licensing and registration activities. Although the structure of fees reflects the general pattern of regulatory costs, they have been set at a level which is expected not to be a disincentive for firms wishing to establish regulated business activities in the DIFC. The balance of our income is a Dubai Government grant which covers the shortfall in income over expenditure.
Naturally, much of our expenditure for this period has been in respect of the cost of hiring and retaining experienced regulatory staff from well regulated jurisdictions around the world. Regulation is still a relatively young industry across the world and experienced regulatory staff are highly sought after, particularly by the firms that they regulate. We believe that we have successfully addressed our needs through a combination of offering a competitive remuneration package and providing an environment in which staff can function effectively. Also, we have not compromised on bringing together some of the best talent available from around the world to serve as members of the DFSA Board in order to create the vital backbone for the governance of the DFSA. The other item of significant expenditure has been in respect of capital expenditure for the purchase of furniture, office and computer equipment.
During this period we commenced a major software development project to provide a robust system to ensure the efficiency of our regulatory functions. This system as well as the technology infrastructure being developed for the DFSA will guarantee the security of regulatory information.
I would like to commend all the staff of the DFSA for their hard work and dedication in meeting the challenges of establishing a new regulatory regime during this time and for their commitment to our future.
Finally, I would like to thank the DFSA Board for their invaluable advice and support in pursuing the vision of our President, His Highness Sheikh Mohammed bin Rashid Al Maktoum, to make Dubai a major international financial centre, based on the highest standards of independent regulation.
PricewaterhouseCoopersEmirates Towers OfficesLevel 40 P.O. Box 11987, DubaiUnited Arab EmiratesTelephone +971 (4) 3043100Facsimile +971 (4) 3304100e-mail: [email protected]
Independent auditors’ report
to the Dubai Financial Services Authority Board
We have audited the accompanying balance sheet of the Dubai Financial Services Authority (“DFSA”) as at 31 December 2004 and the related statements of income and expenditure and cash flows for the period from 16 February 2002 to 31 December 2004. These financial statements are the responsibility of DFSA’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements have been prepared in all material respects in accordance with the accounting policies set out on pages 71 and 72 of the financial statements.
PricewaterhouseCoopers
28th August 2005
PricewaterhouseCoopers is registered as practicing accountants with the DFSA.
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Balance sheet at 31 December 2004
Notes 2004AED’000
2004US$’000
Non-current assets
Property, plant and equipment 2 971 264
Current assets
Prepayments and other receivables 3 1,085 296
Cash and bank balances 4 2,025 551
Government account 5 1,037 283
4,147 1,130
Current liabilities
Accounts payable and accruals 6 (3,963) (1,079)
(3,963) (1,079)
Net current assets 184 51
Total assets 1,155 315
Non-current liabilities
Provision for employees’ end of service benefits 7 (1,155) (315)
The financial statements were approved by the DFSA Board on July 27, 2005.
Signed on behalf of the DSFA Board
Dr. Habib Al Mulla ..........................................................
Chairman 28th August 2005
The accounting policies on pages 71 and 72 and the notes on pages 73 to 79 form an integral part of these
financial statements.
Statement of income and expenditure for the period
from 16 February 2002 to 31 December 2004
Notes 16 February 2002
to 31 December 2004
AED’000
16 February 2002
to 31 December 2004
US$’000
General and administration expenses 8 (9,164) (2,497)
DFSA Board expenses 10 (2,393) (652)
Total expenses for the operating period (11,557) (3,149)
Fee income 11 1,810 493
Deficit for the operating period before government grant (9,747) (2,656)
Pre-operating expenditure 12 (65,628) (17,882)
Deficit for the period beforegovernment grant (75,375) (20,538)
Government grant 75,375 20,538
Surplus/deficit for the period
The accounting policies on pages 71 and 72 and the notes on pages 73 to 79 form an integral part of these
financial statements
69
Statement of cash flows for the period
from 16 February 2002 to 31 December 2004
Notes 16 February 2002to 31 December 2004
AED’000
16 February 2002to 31 December 2004
US$’000
Operating activitiesSurplus/ deficit for the period
Adjustments for items not involving the movement of funds :
Depreciation 2 670 184
Provision for employees’ end of service benefits 7 1,388 378
Government grant not funded during the year 5 (1,037) (283)
Operating cash flows before payment of employees’ end of service benefits and move--ments in working capital 1,021 279
Payment of employees’ end of service benefits 7 (233) (63)
Changes in working capital :
Prepayments and other receivables 3 (1,085) (296)
Accounts payable and accruals 6 3,963 1,079
Net cash provided by operating activities 3,666 999
Investing activities :
Purchase of property, plant and equipment 2 (1,641) (448)
Cash used by investing activities (1,641) (448)
Cash and cash equivalents, end of the period 4 2,025 551
The accounting policies on pages 71 and 72 and the notes on pages 73 to 79 form an integral part of these
financial statements
Accounting policies
The significant accounting policies adopted in the preparation of these financial statements are as follows:
Basis of preparation
The financial statements have been prepared under the historical cost convention.
In the income and expenditure account, expenses have been presented before income since the prime objective of the DFSA is to carry out certain statutory and regulatory functions rather than operate as a profit making organisation.
The functional currency of the DFSA, being the currency in which it generates and expends a majority of its cash, is UAE Dirhams. For presentation purposes, these financial statements have also been translated into US Dollars at the fixed rate of exchange of 1 US Dollar = AED 3.67.
Fee income
Application fees, which are non refundable, are recognised as income when received. Annual fees are recognised as income on a straight line basis over the period to which they relate.
Government funding
The funding required to be provided by the Government of Dubai to the DFSA under the terms of Dubai Law No. 9 of 2004 is treated as a government grant and reflected as income in the income and expenditure account. Any unpaid grant at the year-end is classified as a current asset.
Employee benefits
A provision is made for the estimated liability for annual leave costs as a result of services rendered by eligible employees up to the balance sheet date. This provision is included in other liabilities.
Provision is made for the full amount of end of service benefits due to the non UAE nationals, in accordance with the UAE Labour Law, for their periods of service up to the balance sheet date. This provision is included in non-current liabilities. Pension contributions in respect of UAE Nationals under a defined contribution scheme are recognised as an expense in the period to which they relate.
71
Personal tax reimbursable to non-executive DFSA Board members is shown as an expense with any amount not paid at the year-end being included in accruals.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method, at rates calculated to reduce the cost of assets to their estimated residual values over their expected useful lives as follows:
Leasehold improvements 5 years
Furniture and fittings 3 years
Office equipment 3 years
Computer equipment 3 years
Gains and losses on disposal of fixed assets are determined by reference to their carrying amounts and are taken into account in determining surplus/deficit. Repairs and renewals are charged to the statement of income and expenditure when the expense is incurred.
Fees receivable
Fees receivable are carried at anticipated realisable value. Specific provision is made for debts considered doubtful for recovery. Bad debts are written off during the period in which they are identified.
Notes to the financial statements for the period from 16 February 2002 to 31 December 2004
1. Legal status and activities
The Dubai Financial Services Authority (DFSA), was established by Dubai Law No 9 of 2004 on 13 September 2004 as an independent regulatory authority responsible for the regulation of financial and related activities at the Dubai International Financial Centre (DIFC). Prior to its formal establishment as aforesaid, certain preparatory activities were being carried out by and on behalf of the DFSA since 16 February 2002. The period from 16 February 2002 to 12 September 2004 has been referred to in these financial statements as the pre-operating period.
In accordance with Dubai Law No. 9 of 2004, the DFSA is and will continue to be independently funded by the Government of Dubai to enable it to exercise its powers and perform its functions.
2. Property, plant and equipment
Leaseholdimprovements
AED’000
Furnitureand fittings
AED’000
Officeequipment
AED’000
Computerequipment
AED’000
Total
AED’000
Cost
Additions 254 372 249 766 1,641
At 31 December 2004 254 372 249 766 1,641
Depreciation
Charge for the period 93 196 140 241 670
At 31 December 2004 93 196 140 241 670
Net book amount
At 31 December 2004 161 176 109 525 971
Depreciation charge for the period includes AED 518,000 relating to the pre-operating period.
73
Notes to the financial statements for the period from 16 February 2002 to 31 December 2004 (continued)
2. Property, plant and equipment (continued)
Leaseholdimprovements
US$’000
Furnitureand fittings
US$’000
Officeequipment
US$’000
Computerequipment
US$’000
Total
US$’000
Cost
Additions 69 102 68 209 448
At 31 December 2004 69 102 68 209 448
Depreciation
Charge for the period 25 54 39 66 184
At 31 December 2004 25 54 39 66 184
Net book value
At 31 December 2004 44 48 29 143 264
Depreciation charge for the period includes $ 142,000 relating to the pre-operating period.
2004AED’000
2004US$’000
3. Prepayments and other receivables
Prepayments 859 234
Other receivables 226 62
1,085 296
4. Cash and cash equivalents
Cash and bank balances 2,025 551
Cash and bank balances comprise current account balances, held with a bank licensed in the UAE.
5. Government account
2004AED’000
2004US$’000
Deficit for the period 75,375 20,538
Financing provided by the Government (74,338) (20,255)
1,037 283
The balance as at 31 December 2004 represents the financing to be received from the Government at the period end. During the period, funding for the day-to-day operations of the DFSA was provided on behalf of the Government through another Government body.
Notes to the financial statements for the period from 16 February 2002 to 31 December 2004 (continued)
75
Notes to the financial statements for the period from 16 February 2002 to 31 December 2004 (continued)
6. Accounts payable and accruals
2004AED’000
2004US$’000
Accounts payable 636 173
Prepaid fees 361 98
Employee related accruals 317 86
Other accruals 2,649 722
3,963 1,079
7. Provision for employees’ end of service benefits
2004AED’000
2004US$’000
Provision made during the period 1,388 378
Payments during the period (233) (63)
At the end of the period 1,155 315
The provision made during the period includes AED 1,025,000 (US$ 279,000) in respect of the pre-operating period.
8. General and administration expenses
13 September 2004
to 31December 2004
AED’000
13 September 2004
to 31December 2004
US$’000
Staff costs (Note 9) 6,835 1,862
Travel 302 82
Office rent 182 50
Marketing 378 103
Depreciation (Note 2) 152 42
Recruitment costs 731 199
Other expenses 584 159
9,164 2,497
9. Staff costs
13 September 2004
to 31December 2004
AED’000
13 September 2004
to 31December 2004
US$’000
Salaries 4,414 1,203
Other benefits 2,058 560
Employees’ end of service benefits (Note 7) 363 99
6,835 1,862
Notes to the financial statements for the period from 16 February 2002 to 31 December 2004 (continued)
77
10. DFSA Board expenses
13 September 2004
to 31 December 2004
AED’000
13 September 2004
to 31 December 2004
US$’000
Retainer of Board members 1,136 310
Attendance fees 603 164
Travel 420 114
Other costs 234 64
2,393 652
11. Fee income
13 September 2004
to 31 December 2004
AED’000
13 September 2004
to 31 December 2004
US$’000
Application fee 1,710 466
Annual fee 100 27
1,810 493
Notes to the financial statements for the period from 16 February 2002 to 31 December 2004 (continued)
12. Pre-operating expenditure
16 February 2002
to 12 September 2004
AED’000
16 February 2002
to 12 September 2004
US$’000
Staff costs 29,832 8,129
Council remuneration 5,718 1,558
Recruitment 4,926 1,342
Legal and Professional 15,787 4,302
Office administration 3,233 881
Other 6,132 1,670
65,628 17,882
Legal and professional costs incurred during the pre-operating phase included certain common expenses incurred on behalf of both the Dubai International Financial Centre Authority (DIFCA) and the DFSA. These expenses have been allocated between the two entities with the mutual consent of the management of the DIFCA and the DFSA.
Notes to the financial statements for the period from 16 February 2002 to 31 December 2004 (continued)
79
Federal Law
• Article 121 of the UAE Constitution
• Federal Law No. 8 of 2004
• Federal Decree No. 35 of 2004
Dubai Law
• Dubai Law No. 9 of 2004 : The Law In Respect Of the Dubai International Financial Centre
• Dubai Law No.12 of 2004 : The Law Establishing the Judicial Authority at the Dubai International Financial Centre
DIFC Laws
• Regulatory Law
• Data Protection Law
• Markets Law
• Law Regulating Islamic Financial Business
• Companies Law
• Law on the Application of Civil And Commercial Laws
• Law on the Application of DIFC Laws
• Limited Liability Partnership Law
• Contract Law
• Insolvency Law
• Arbitration Law
• General Partnership Law
• The DIFC Courts Law
APPENDIX 3
Legislation relevant to the DIFC
81
Rules
• General (GEN)
• Authorisation (AUT)
• Supervision (SUP)
• Enforcement (ENF)
• Conduct Of Business (COB)
• Prudential - Insurance Business (PIN)
• Prudential - Investment, Insurance Intermediation and Banking Business (PIB)
• Anti Money Laundering (AML)
• Islamic Financial Business (ISF)
• Ancillary Service Providers (ASP)
• Prescribed Forms And Notices (PFN)
• Glossary (GLO)
• Data Protection Rules (DAT)
Undertaking Obtained
The Enforcement Department obtained a written undertaking on 16 December, 2004 from a firm operating out of Jersey (Channel Islands) that had made an application to operate as an Ancillary Service Provider within the DIFC. The undertaking corrects a false and misleading statement made by the firm on its website and in advertising material that it had ’established a representative office in the Dubai International Financial Centre’ when in fact no such office was created. The written undertaking was obtained within 24 hours of the matter coming to the attention of the DFSA and ensured a retraction of the original statement and the correction of the firm’s website. This is the first official enforcement action of the DFSA.
APPENDIX 4
Enforcement Actions
83
APPENDIX 5
A New Regulator for a New Financial Centre (the DFSA corporate brochure)
Authorisation - Your Questions Answered
Ancillary Service Providers - Your Questions Answered
Fees in the DIFC
DIFC Laws
Regulatory Law
Data Protection Law
Markets Law
Law Regulating Islamic Financial Business
DFSA Rulebook
General (GEN)
Authorisation (AUT)
Supervision (SUP)
Enforcement (ENF)
Conduct of Business (COB)
Prudential - Insurance Business (PIN)
Prudential - Investment, Insurance Intermediation and Banking Business (PIB)
Anti Money Laundering (AML)
Islamic Financial Business (ISF)
Ancillary Service Providers (ASP)
Prescribed Forms and Notices (PFN)
Glossary (GLO)
Publications issued in 2004
Other Rules
Data Protection Rules (DAT)
Consultation papers
The Authorised Market Institution Recognition and Offered Securities Modules of the DFSA Rulebook - Consultation Paper No. 12
Law Regulating Islamic Financial Business - Consultation Paper No. 11
Principles for Authorised Firms and Individuals - Consultation Paper No. 10
Prudential Rules for Insurers - Consultation Paper No. 9
Regulatory Law - Consultation Paper No. 8
Application of DIFC Laws - Consultation Paper No. 7
Personal Property Law - Consultation Paper No. 6
Law of Security - Consultation Paper No. 5
Insolvency Law - Consultation Paper No. 4
Contract Law - Consultation Paper No. 3
Companies Law - Consultation Paper No. 2
Regulatory Law - Consultation Paper No. 1
Media releases
H.H. Sheikh Maktoum Bin Rashid Al Maktoum enacts two new Laws creating the Judicial Authority and the establishment of the DIFC Court System – 27 December 2004
DFSA registers American International Group Inc. Subsidary as Ancillary Service Provider - 22 December 2004
DFSA grants licence to Mellon Global Investments - 22 December 2004
Credit Suisse receives licence to operate in the DIFC - 7 December 2004
DFSA licenses Franklin Templeton and Ansbacher to operate in the DIFC - 1 December 2004
85
DFSA calls for comment on draft rules for Offered Securities - 8 November 2004
DFSA showcases world’s first 21st century regulator - 12 October 2004
Two esteemed Dubai Judges join the DFSA - 28 September 2004
DFSA Regulatory Council welcomes new heavyweights - 27 September 2004
The Dubai International Financial Centre (DIFC) is open for business - 20 September 2004
Today the first world-class financial centre in Middle East opens for business in Dubai - 9 September 2004
Ruler of Dubai signs new Law to set up the Dubai International Financial Centre - 17 September 2004
Dubai breaks new ground in Middle East finance as Crown Prince guarantees legal independence of regulator - 23 July 2004
Statement of the DFSA Regulatory Council - 6 July 2004
DFSA joins International Association of Insurance Supervisors - 16 June 2004
DFSA calls for comment on Islamic Finance legislation - 10 June 2004
DIFC welcome Federal ‘Financial Free Zone’ Law - 1 April 2004
New DIFC Laws and Rules now available on DFSA Website - 12 January 2004
APPENDIX 6
AAOIFI Accounting and Auditing Organization for Islamic Financial Institutions
AMI Authorised Market InstitutionAML Anti Money LaunderingASP Ancillary Service ProvidersDERC Dubai Ethics Resource CentreDFSA Dubai Financial Services AuthorityDIFC Dubai International Financial CentreDIFCA DIFC AuthorityDIFX Dubai International Financial ExchangeESCA Emirates Securities and Commodities AuthorityFMT Financial Markets TribunalIAIS International Association of Insurance SupervisorsIFSB Islamic Financial Services BoardIOSCO International Organisation of Securities CommissionsMoU Memorandum of UnderstandingRAC Regulatory Appeals CommitteeROC DIFC Registrar of CompaniesUAE United Arab Emirates
Glossary
87
General Enquiries: [email protected] Website: www.dfsa.ae Telephone: + 971 (0)4 362 1500