3.1 Saudi Arabia Make Arrests in a Crackdown on Corruption 3.2 Central Bank of the UAE Releases Circular Regarding Saudi Arabia Corruption Arrests

Transcription

1 Regulatory Update ISSUED 11 th December 2017 Middle East Edition INDEX NOVEMBER DFSA AND DIFC LATEST DEVELOPMENTS DFSA Grants Sarwa Digital Wealth Ltd In-Principle Approval for Innovation Testing Licence DFSA Publishes Volume 14 of the DFSA in Action DFSA and ASIC Sign FinTech Agreement page 2 page 2 page ADGM AND FSRA LATEST DEVELOPMENTS ADGM Proposes New Remote Membership Framework Dual-Licensing Regime for Companies Operating in the Capital and the ADGM RAK Courts and ADGM Courts Sign Cooperation Agreement in Legal Matters Dispute Resolution Partnership Fostered by RAK ICC, ADGM Courts and ADGM Monetary Authority of Singapore and ADGM Foster Cooperation in Banking Supervision ADGM and Al Fardan Exchange LLC Collaborate to Foster the Development of FinTech page 3 page 3 page 4 page 4 page 4 page MIDDLE EAST REGULATORY UPDATES 3.1 Saudi Arabia Make Arrests in a Crackdown on Corruption 3.2 Central Bank of the UAE Releases Circular Regarding Saudi Arabia Corruption Arrests page 5 page INTERNATIONAL DEVELOPMENTS 4.1 EU Markets Agency Warns New Crypto Coins Could Prove Worthless page ENFORCEMENT ACTION Texas Bank Fined $2 Million in FinCEN Money Laundering Probe NY State Regulator Fines Credit Suisse $135 Million Over Forex Practices page 5 page FINANCIAL CRIME UPDATES British Shell Companies Linked to fifty-two Money Laundering Scandals Pakistani Bank Says US Regulator Seeks Fine of up to $630 Million FATF Updates Countries on List of Jurisdictions with Strategic Deficiencies page 6 page 6 page 6 CONTACTS NIGEL PASEA Managing Director NPasea@cclcompliance.com CLARE CURTIS Director CCurtis@cclcompliance.com

2 1.0 DFSA AND DIFC LATEST DEVELOPMENTS 1.1 DFSA Grants Sarwa Digital Wealth Ltd In-Principle Approval for Innovation Testing Licence The DFSA has granted its first In-principal Innovation Testing Licence (ITL) approval to a FinTech firm in the DIFC. Sarwa Digital Wealth Ltd is a firm that combines investment strategies with technology and therefore falls under the FinTech umbrella. The ITL allows FinTech firms who provide a financial service, to develop and test concepts that are technologically under the ITL permission, firms are able to conduct financial services in the DIFC within a regulatory testing environment rather than be constricted to a regulatory framework that may not accommodate the innovative element of their product. The licence is intended to promote growth and innovation in the sector, which is already attracting robo-advisors, crowdfunding platforms and digital wallets and payment services. CCL is in the process of assisting a number of firms with their ITL applications. If your firm is seeking support in gaining an ITL authorisation please contact Clare Curtis (CCurtis@cclcompliance.com) 1.2 DFSA Publishes Volume 14 of the DFSA in Action The DFSA has published Volume 14 of the DFSA in Action, an annual document which provides an in depth round up of the DFSA s main activities this year. The highlights of this year s publication include an overview of the Regulatory Summit in Feb 2017, the 3 rd Annual Supervision Outreach session and Lebanese Bank Day in the DIFC which both occurred in May 2017 and the FinTech Hive initiative which began in May Placing importance on the three themes that the DFSA has made integral to its Business Plan: Delivery, Sustainability and Engagement. The DFSA is committed to ensuring that delivery of its expertise and core functions remain professional and efficient and, as the scale of the regulated activities within the DIFC increases, the DFSA is committed to keeping its regulation of high quality. The DFSA s commitment to sustainability and engagement refers to the way it would like to enhance its organisational robustness and resilience for the long term, and build clear, efficient and scalable regulatory and non-regulatory processes. Its engagement relates to the communication and relationships with its key stakeholders, international and regional regulators and the broader industry and how these relationships can be strengthened and used to grow and engage local and regional authorities and regulators. Three expected DFSA publications that were discussed within the DFSA In Action were: 1. A publication on suitability and client classification by authorised firms. The DFSA focused on how firms classify clients, noting that there were areas that needed improvement such as: firms failed to adequately document the client assessment in respect of client knowledge and experience firms failed to record the sub-category of professional client classification assigned to clients a significant number of firms limit the application of DFSA suitability requirements based on a client classification but fail to provide a prior written warning to affected clients. 2. The DFSA completed a financial crime thematic review and the findings were discussed at the Supervision Outreach Session in May The review highlighted areas for improvement, specifically the quality of Business Anti-Money laundering Risk Assessments carried out and documented by authorised firms and their transaction monitoring frameworks. The final report will be published this month. Firms are reminded that business risk assessments should consider: its type of Customers and their activities the countries or geographic areas in which it does business its products, services and activity profiles its distribution channels and business partners the complexity and volume of its transactions

3 the development of new products and new business practices, including new delivery mechanisms, channels and partners. 3. The third publication referred to a survey the DFSA carried out with firms in the DIFC in order to better understand the risk arising from the use of cloud storage and to make better policy and decisions surrounding its use. The survey primarily examined the governance systems and controls used by authorised firms to maintain and secure data and information using cloud storage services. 1.3 DFSA and ASIC Sign FinTech Agreement The DFSA and Australian Securities and Investments Commission (ASIC) have entered an agreement which sets out a framework for cooperation on innovation on FinTech. It represents a commitment to provide a regulatory framework that promotes innovation in both markets. Both markets will share information on developments in innovation in their own markets and introduce a referral mechanism that enables the authorities to refer innovative businesses to their authorities. The move signifies a growing trend by the DFSA to build relationships and cooperation with other regulatory peers and encourage FinTech innovation which, along with RegTech, is becoming a large priority to regulators across the world. If you would like to discuss these updates in more detail, please contact Clare Curtis (CCurtis@cclcompliance.com) 2.0 ADGM AND FSRA LATEST DEVELOPMENTS 2.1 ADGM Proposes New Remote Membership Framework ADGM s Financial Services Regulatory Authority (FSRA) has issued a consultation paper regarding its proposal to introduce a new Remote Membership framework. The new framework would enable brokers located outside of ADGM to access exchanges and clearing houses located within ADGM. The objective of this proposal is to expand the pool of international investor participation, facilitate cross-border flows and increases liquidity for ADGM s capital market. Other key proposals of the consultation paper include: Relying on data feeds from ADGM-based exchanges, instead of reporting by Authorised Persons to monitor trading activities, as well as simplifying transaction reporting requirements within ADGM Clarification of the availability of, and constraints imposed by, the price stabilisation regime permitted by the Markets Rules (MKT) Introduction of changes to naming conventions to clarify distinctions between ADGM-based exchanges and clearing houses, compared to remote exchanges and clearing houses Other miscellaneous amendments that will provide greater clarity to operators and users of ADGM capital markets. The FSRA is inviting readers to send their comments on the consultation paper by 2 nd January Dual-Licensing Regime for Companies Operating in the Capital and the ADGM The ADGM and the Abu Dhabi Department of Economic Development (ADDED) have signed an agreement on mutual licence recognition between the two authorities. The agreement allows those eligible to hold both an ADGM commercial license and ADDED trade licence as long as they meet both licencing requirements for both jurisdictions. The agreement also allows ADGM registered entities to service their clients in the capital without the need of having an office presence in Abu Dhabi mainland.

4 The agreement signifies a move to ease business within Abu Dhabi both on the mainland and the ADGM and permits activities from a single office on the Al Maryah Island. The move also reflects an encouragement for a more competitive business environment in Abu Dhabi and to expand the activities of the private sector. 2.3 RAK Courts and ADGM Courts Sign Cooperation Agreement in Legal Matters Ras Al Khaimah Courts and ADGM Courts have signed an agreement to collaborate on efforts that will enhance both their legal and judicial services and together enhance the standards of the United Arab Emirates. The Memorandum of Understanding enables both courts to fall in line together to develop and implement effective procedures for judgements, decisions and orders. It also reflects a move to explore innovative and technological solutions together and to offer new ideas such as electronic court case management, electronic sharing of relevant and vital information and research, and to deliver improved court services to litigants and court users. 2.4 Dispute Resolution Partnership Fostered by RAK ICC, ADGM Courts and ADGM In order to improve and strengthen effective dispute resolution services within the UAE, Ras Al Khaimah International Corporate Centre (RAK ICC), ADGM Courts and the ADGM a partnership has been formed. Entities registered with RAK ICC will have relevant information and timely access to common law based dispute resolution services provided by ADGM and ADGM Courts. All authorities will commit to exchange information and ideas of relevance to business and investors and explore ideas that will be mutually beneficial to all jurisdictions. 2.5 Monetary Authority of Singapore and ADGM Foster Cooperation in Banking Supervision The ADGM and the Monetary Authority of Singapore (MAS) signed a Memorandum of Understanding (MoU) to strengthen cross-border operations of banking institutions. The agreement signifies a move to strengthen the objectives between both financial markets and develop stronger links, communication and ecosystems. As both markets seek to create further growth for the cross-border businesses the agreement serves as a commitment to innovation, opportunity and further expertise from both sides. 2.6 ADGM and Al Fardan Exchange LLC Collaborate to Foster the Development of FinTech ADGM and Al Fardan Exchange have entered into a partnership to develop and support the FinTech system in Abu Dhabi. Al Fardan Exchange is one of the UAE s oldest and most established names in the UAE remittance market and is hoping to bring its expertise to support and grow the FinTech market and deliver solutions for efficient money services. Potentially it is also hoping to collaborate with FinTech entrepreneurs and start-up firms in the ADGM s Regulatory Lab, whereby FinTech players are testing innovative solutions within a closely-supervised environment with its own set of regulations. The Lab helps to reduce the costs for FinTech players without compromising consumer protection and market integrity. ADGM Support CCL s office in the ADGM is ideally placed to support firms with their ADGM/FSRA requirements, including: Authorisation Compliance Officer/MLRO Outsourcing Compliance Advisory Documentation Training Further details can be found on our website: If you would like to discuss this in more detail, please contact Donatella Seidner (DSeidner@cclcompliance.com).

5 3.0 MIDDLE EAST REGULATORY UPDATES 3.1 Saudi Arabia Arrest Individuals in a Crackdown on Corruption Saudi Arabia has had a string of arrests in its crackdown on corruption amongst the country s elite. In total 201 people were originally detained, including 11 princes and 38 officials and businessmen. The action comes as part of the country s newly formed anti-corruption committee. 3.2 Central Bank of the UAE Releases Circular Regarding Saudi Arabia Corruption Arrests The UAE Central Bank has released a circular asking all banks, moneychangers, finance and investment companies operating in the UAE onshore, to search for any accounts, deposits, investments, or any other financial instruments and inform them of any credit facilities, safe deposit boxes, or any financial transfers executed through companies in the names listed within the circular. If you would like to discuss these updates in more detail, please contact: Clare Curtis (CCurtis@cclcompliance.com) 4.0 INTERNATIONAL DEVELOPMENTS 4.1 EU Markets Agency Warns New Crypto Coins Could Prove Worthless The European Securities and Markets Watchdog (ESMA) has stated that Initial Coin Offerings (ICOs) are unregulated, volatile, not transparent and technologically untested, and have issued a warning to all investors that buying these forms of cryptocurrency could lead to high or total loss of investment. ESMA stated that many of these coins or tokens do not have any value beyond the use in the service or product of many start-up companies pushing the form of currency and therefore many investors should watch out that their investments are not completely lost due to this volatile and little known new form of technology. If you would like to discuss these updates in more detail, please contact: Nigel Pasea (NPasea@cclcompliance.com) 5.0 ENFORCEMENT ACTION 5.1 Texas Bank Fined $2 Million in FinCEN Money Laundering Probe A Texas Bank - Lone Star National Bank - has been fined $2 million by the Financial Crimes Enforcement Network (FinCEN) due to its violation of the Bank Secrecy Act. Many of its failures were in its compliance and money laundering systems and controls whereby the financial institution had a customer in Mexico moving millions of dollars through the bank in an inconsistent manner. The transactions should have received greater scrutiny and there were failures in identifying and considering public information about the foreign bank owners alleged involvement in securities fraud. It also failed to verify the accuracy of assertions by the foreign bank with respect to source of funds, purpose of the account and expected activity. Its clear failures in due diligence and connections with its clients, as well as inconsistencies in its controls, mean that the bank was fined $2 million and is making efforts to remedy its poor practices. To that end, the bank has contracted consultants to conduct independent testing and customer due diligence.

6 5.2 NY State Regulator Fines Credit Suisse $135 Million Over Forex Practices Credit Suisse Group AG has agreed to pay $135 million to New York State Department of Financial Services to resolve a probe of misconduct in its foreign exchange business, in which the state s banking regulator said Credit Suisse Group AG had deceived customers to enhance its own profits. Traders at Credit Suisse shared information to manipulate currency prices and benchmark rates and took advantage of its electronic trading platform to trade ahead of known client orders. The failure to conduct its businesses in an honest manner between 2008 and 2015 led to the New York Financial Services regulator negotiating with the bank in order to reach a settlement to resolve the misconduct issues. If you would like a more detailed discussion on these or other enforcement actions, please contact: Clare Curtis (CCurtis@cclcompliance.com) 6.0 FINANCIAL CRIME UPDATES 6.1 British Shell Companies Linked to fifty-two Money Laundering Scandals According to Transparency International, (the campaign group against corruption) British shell companies have been linked to fifty-two money laundering scandals involving 80 billion pounds ($105 billion). With tax evasion and financial crime becoming more publicised and reported within international news, charities and government are becoming more interested in tackling illicit money flows. Transparency International found that around half of the 766 companies alleged to have been involved in money laundering schemes were based at just eight UK addresses. 6.2 Pakistani Bank Says US Regulator Seeks Fine of Up To $630 Million The New York State Department of Financial Services (DFS) is seeking to fine Habib Bank Ltd nearly $630 million for compliance deficiencies with state and federal laws at its only US branch. Habib Bank Ltd were reported to have compliance issues that date back to 2015, significant breakdowns were identified in the banks money laundering compliance. While Habib Bank Ltd had put together sincere and extensive remediation measures, DFS is still hoping to bring a civil monetary penalty of up to $ million. The bank has appealed the penalty and has also applied to shut it New York operations. 6.3 FATF Updates Countries on List of Jurisdictions with Strategic Deficiencies The Financial Action Task Force (FATF) have updated the list of jurisdictions with strategic deficiencies, adding three countries to those that have strategic deficiencies and removing one country which is no longer subject to the FATF s on-going global AML/CFT compliance process. The update comes after the November plenary which includes an ongoing review of the standards of countries across the world and identifying those that have deficiencies but who work with the FATF to develop an action plan to combat these shortcomings. The three countries who have seen to have deficiencies but who have written a high-level political commitment to identify and combat these problems are: Sri Lanka Trinidad & Tobago Tunisia Uganda is the only country which has been taken off the list and no longer subject to ongoing AML/CFT compliance processes due to the significant progress made, the FATF identified the problems originally back in February 2014.

7 If you would like to discuss these updates in more detail, please contact Clare Curtis

8 ABOUT CCL CCL has been providing a comprehensive range of regulatory compliance service to firms in the financial services industry since 1988, with offices in London, Dubai, Abu Dhabi and Mumbai. We combine a long history and extensive experience in financial services compliance with the expertise of a team of practitioners that includes former regulators, senior compliance professionals, lawyers and accountants. Consultancy Services & Support Compliance Advisory o Assurance Reviews o Compliance Remediation o Financial Crime Prevention o Corporate Governance o Risk Management o Prudential Rules & Regulatory Reporting Authorisation Outsourcing (Compliance Officer & MLRO) Documentation Regulatory Technology Prudential Rules & Regulatory Reporting Training Governance, Risk & Compliance AML & Financial Crime Prevention Finance Induction CISI Qualifications If you wish to discuss how CCL can assist you with any of the issues raised in this Regulatory Update, please contact us the details below: Tel: info@cclcompliance.com or write to us at: CCL Limited Level 2, Gate Village Building 7, (DIFC), Dubai, PO Box , United Arab Emirates This Regulatory Update provides information about the consultative documents and publications issued by various regulators which are still current, proposed changes to the Rules and Guidance set out in Handbooks, actual changes to Rules and Guidance that have occurred in the months leading up to the update and other matters of relevance to regulated firms. This Regulatory Update is intended to provide general summarised guidance only, and no action should be taken in reliance on it without specific reference to the regulators document referred to.