DFSA Annual Outreach Session. Wednesday, 3 May 2017

Transcription

1 DFSA Annual Outreach Session Wednesday, 3 May 2017

2 Key Note Speech Ian Johnston Chief Executive, DFSA

3 Opening Introduction From DIFC Authority Jacques Visser Chief Legal Officer, DIFC Authority

4 Opening Remarks From CONG Adriana Beer CONG Member

5 Supervision Key Messages Bryan Stirewalt Managing Director, Supervision

6 Global Macroeconomic Trends Elections are a roller coaster for markets Pendulum swinging back to deregulation Globalisation seems to be under threat from the West Interest rates possibly moving up Fiscal policy being discussed for the first time in years

7 Global Compliance Trends Regulatory focus on organisational culture Digitalisation and cyber security are primary risks Combating financial crime still an emphasis, but derisking is gaining needed attention Common Reporting Standards now in place FinTech and Regtech are the new black, helping

8 Authorise Regulated Entities Supervision Core Activities Core Activities Manage People Monitor and Supervise Regulated Entities Manage Systems Perimeter Risks Manage Stakeholders Manage Projects C o m m u n i c a t e

9 Supervision Focus Delivery Steering Corporate Behaviour Ensuring Products and Services are Suitable for Clients Ensuring Depositors and Insured Persons are Protected Combating Financial Crime

10 Basel Committee, IAIS, IFIAR, IFSB, IOSCO Supervision Focus Engagement UAE Regulators Central Bank, AMLSCU, SCA, Insurance Authority Regional Regulators DIFC Stakeholders Global Standard-Setters

11 Supervision Focus Sustainability Obtain the right people from the market Train the people we have on the critical issues at hand Maintain a positive work environment for everyone Emphasising Risk-based supervision; Consistency;

12 Current Department Structure Director, Authorisations Director, Prudential Risk Director, Conduct of Business Risk Director, Thematic Supervision and Infrastructure Associate Director, Audit and Accounting Lower Impact Firms Higher Impact Firms Higher Impact Firms with a Large Balance Sheet Deposit Takers, Insurers and Insurance Intermediation Higher Impact Firms without large balance sheet Financial Crime Unit Lower Impact Firms MIS and Supervision Processes Registered Auditors

13 Revised Department Structure Director, Authorisations Director, Prudential Risk Director, Conduct of Business Risk Director, Supervision Policy, Operational Risk and FinTech Associate Director, Audit and Accounting Lower Impact Firms Higher Impact Firms Higher Impact Firms with a Large Balance Sheet Deposit Takers, Insurers and Insurance Intermediation All Firms, except those assigned to Prudential Risk Financial Crime Unit Operational Risk, and Cybersecurity FinTech Supervision MIS Registered Auditors Supervision Audit Trail

14 Why the need for change? Emphasise supervision policy and consistency Digitalisation and online processes Emphasise operational risk, including cybersecurity Focus specifically on FinTech initiatives Non-traditional firms need a non-traditional approach Build on successes of thematic supervision techniques Centralise MIS and data management

15 Thank You

16 DFSA Policy Update Peter Smith Managing Director, Policy & Strategy

17 Plans for 2017 Completed changes from: Arranging, Rep Offices and Financial Promotions (CP106) AML (CP107) Complete first stage of work on FinTech Crowdfunding: Lending (CP109) and Investments (CP111) Innovation testing (CP112) Complete work on fees (CP110) Basel rules Net Stable Funding Ratio Updates to capital rules Funds Open/closed ended vehicles

18 and into 2018 Resolution and client assets Review regime for compliance responsibility and role of Compliance Officers Suitability of investment advice Over-the-Counter (OTC) derivatives Rules on internal audit Further Basel changes: large exposures, etc.

19 Thank You

20 An overview of DFSA s Risk-Based Supervision Framework and Risk Tolerance Serdar Güner Director, Supervision

21 Agenda How do we monitor and supervise? DFSA s Risk Assessment Framework What are the trends/issues logged across the regulated community? What is in our Supervisory Toolbox? Some take aways: Our Focus going forward

22 Monitor and Supervise Monitor and Supervise Off-Site Supervision Activities Risk Assessments Returns Complaints On-Site Supervision Management Meetings

23 Risk-Assessment Framework Risk Assessments IMPACT PEPs Revenue/Capital Employees/Clients Client Assets/Insurance Monies Types of Clients Financial Services PROBABILITY Corporate Governance Financial AML/ CTF Conduct of Business Operational

24 What are the Trends? Category 2014 Full Year 2015 Full Year 2016 Full Year 2017 to date Conduct of Business Risks to clients and markets AML/CTF and Financial Crime Corporate Governance, Strategy and Business Model Financial and Operational Risks Grand Total

25 No Action Observations DFSA Possible Remedial Actions RMP: Risk Mitigation Plan Items Article 49: impose conditions or restrictions on the Firm s licence Article 50: withdraw authorisation in relation to one or more Financial Services Article 51: withdraw the Firm s licence Article 52:Suspension Article 75: imposing restrictions or prohibitions

26 Take aways What is DFSA s tolerance for various risk groups? What are the focus areas going forward? Corporate Governance Conduct Suitability AML Operational Risk

27 Thank You

28 OECD-common reporting standards Nilesh Ashar, Partner, Taxation- KPMG

29 The Executive Council (TEC) Dubai Introduction to Common Reporting Standards and tax residency DFSA Annual Supervision Outreach Session KPMG Lower Gulf Limited Speaker: Nilesh Ashar, Tax Partner, KPMG 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative 29 ( KPMG International ), a Swiss entity. All rights reserved.

30 Agenda The Executive Council (TEC) Dubai Introduction to CRS and its applicability to DIFC entities Guidance on tax residencies 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 30

31 The Executive Council (TEC) Dubai Introduction to CRS AEOI at a glance How does FATCA and CRS work? Global participation Key similarities / differences between FATCA and CRS Potential CRS entity classifications DIFC entities 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative 31 ( KPMG International ), a Swiss entity. All rights reserved.

32 AEOI at a glance Global financial crisis triggered focus on information exchange. FATCA rules, forced global financial institutions to start reporting details on their US clients. The Executive Council (TEC) Dubai There are many forms of AEOI, but the biggest is FATCA followed by the UK/CDOT regime. The Common Reporting Standard (CRS) is an OECD initiative, to expand the rules of FATCA to all countries. FATCA and CRS rules differ from country to country. Legislations are still pending enactment / issuance. Compliance will touch most functions within a FI, like Tax, Legal, Regulatory, IT, AML and others. Signed FATCA Model 1 IGA with the US on 17 June 15. Signed CRS MCAA on 21 April 2017 second wave adopter. CRS is effectively a global version of FATCA, requiring financial institutions to report information on: accounts held by tax residents of reportable jurisdictions; and certain entities 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative 32 ( KPMG International ), a Swiss entity. All rights reserved.

33 The Executive Council (TEC) Dubai Key difference between FATCA and CRS CRS requires banks to report the tax residency of an account holder 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 33

34 How does FATCA and CRS The Executive Council (TEC) Dubai work? 1 FATCA Model 1 IGA reporting US Account Holder 1 UAE Financial Institution 1 2 CRS Leveraging on Model 1 IGA implementation to develop standardised automatic exchange in a multilateral context UK Account Holder 2 UAE Ministry of Finance 2 1 U.S. IRS UAE Account Holder 2 UK HMRC 1 US Account Holder 1 UK Financial Institution Exchange may be reciprocal or non-reciprocal 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 34

35 CRS commitments Global participation The Executive Council (TEC) Dubai Jurisdictions undertaking first exchange UAE signed agreement on mutual assistance in tax matters on 21 April countries FATCA 101* countries CRS by 2017 (Onboarding by January 1, 2016) Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom Jurisdictions undertaking first exchange by 2018 (Onboarding by January 1, 2017) Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Bahrain, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Dominica, Ghana, Grenada, Hong 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative 35 ( KPMG International ), a Swiss entity. All rights reserved.

36 Key similarities / differences The Executive Council (TEC) Dubai between FATCA and CRS Similar framework means work is grouped in common themes: Entity classification / definitions Onboarding Preexisting customers / remediation Governance Important differences between FATCA and CRS, will require modifications to existing FATCA compliance programs No Withholding Individuals Residence (not including citizenship) Reporting Entities Look-through Passive NFEs and identify its Controlling Persons No thresholds Residence address test for Due diligence of pre-existing entity accounts < $250k pre-existing accounts Low risk FIs and products General exclusion for country specific low-risk reporting financial institutions and accounts 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 36

37 Potential CRS entity The Executive Council (TEC) Dubai classifications DIFC An Islamic Financial Institution Financial services Potential CRS entity classification: entities Financial institution Arranging Credit or Deals in Investments; and Insurance Intermediation Potential CRS entity classification: NFE Category 4 Category 5 Category 1 Accepting Deposits and Providing Credit Potential CRS entity classification: Financial institution Managing a CIF and managing assets Potential CRS entity classification: Financial institution Category 3C Financial services undertaken in DIFC Category 2 Dealing in Investments as Principal Potential CRS entity classification: Financial institution Providing custody Potential CRS entity classification: Financial institution Category 3B Category 3A Dealing in Investments as Principal and dealing as agent Potential CRS entity classification: Financial institution or NFE 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 37

38 Potential CRS entity The Executive Council (TEC) Dubai classifications DIFC entities Non-financial services 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 38

39 The Executive Council (TEC) Dubai Guidance on tax residencies Tax residency points to consider UAE tax residency Tax residency - illustrations 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 39

40 The Executive Council (TEC) Dubai Tax residency points to consider Determine and monitor the tax residency status of the individual or entity based on management and control and / or incorporation Tax residency of an individual or entity is not fixed Multiple tax residencies are possible in the same year Different tax residencies in subsequent years 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

41 UAE tax residency The Executive Council (TEC) Dubai "Resident Person" in the UAE means: An individual: Any UAE National; or An individual who is a resident in UAE with: An entity: a valid Emirates ID and a valid Residency Visa An entity which is incorporated, UAE tax registered, residency managed certificate and requirements: controlled Resident within in the territory UAE for of more the UAE. than 180 days Report from the General Directorate of Residency and Foreigners Affairs Other documents like bank statements, lease contracts KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative 41 ( KPMG International ), a Swiss entity. All rights reserved.

42 Tax residency The Executive Council (TEC) Dubai illustrations - Individuals Until 2012, India: Indian citizen - PAN Post 2012, UK: became British citizen - UTR Currently UAE resident In the current year, where is this individual tax resident? 2018: Returns to India for 183 days Spends the minimum required days in UK as per the statutory residence test Still maintains UAE residence visa and Emirates ID In 2018, where is this individual tax resident? 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 42

43 Tax residency The Executive Council (TEC) Dubai illustrations - Entities Incorporated in the UAE Three board members are UK resident and two are UAE residents: Meetings take place in the UAE In the current year, where is this entity tax resident? Incorporated in the UAE Three board members are UK resident and two are UAE residents: Meetings take place, at all times, in the UK In the current year, where is this entity tax resident? 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 43

44 With limited time left, what should The Executive Council (TEC) Dubai financial institutions focus on?! 1 Mobilization and Governance 4 Remediation Due date: As soon as possible Due date: Q2 2017!! 2 Impact Assessment and gap analysis Due date: As soon as possible 3 Implement new customer onboarding Due date: 01 January Reporting Due date: 30 June KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 44

45 .and what should account The Executive Council (TEC) Dubai holders focus on?! 1 Identify the CRS entity classification! Due date: As soon as possible 2 Identify the tax residency status Due date: As soon as possible Financial Institution Active NFE Passive NFE Please refer to previous slide. Certification requirements FATCA CRS Collection of Forms W-8 or W-9 Self-certify the classification. Self-certify the classification and identify the controlling persons of the entity. Collection of selfcertification that includes all jurisdictions of residence and TINs 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 45

46 The Executive Council (TEC) Dubai Q & A 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 46

47 The Executive Council (TEC) Dubai Head of Tax KPMG UAE Nilesh Ashar kpmg.com/socialmedia kpmg.com/app Level 17, Saba Tower 1 Jumeirah Lakes Towers Sheikh Zayed Road, Dubai P.O. Box United Arab Emirates M: (0) E: nashar@kpmg.com` The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative 47 ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

48 The Executive Council (TEC) Dubai Panel Discussion Moderator: Peter Brady, CONG Raven GroomBaker, CONG Member David Cafferty, CONG Member Chris Cameron, Associate Director, Supervision 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 48

49 A Salutary Illustration Disgorgement Nil Nil Dealing with Clients Case 1 Case 2 USD 1,000,000 Dealing with Clients USD 1,500,000 Seriousness Business Risk Assessment Customer Risk Assessment Customer Identification CDD & EDD - Source of Wealth & Funds Periodic Reviews Transaction Monitoring Governance Oversight Policies & Procedures Systems & Controls Mitigating Factors - USD 200,000 Treating customers as Clients Client Classification Client Agreements Key Information Suitability Assessments Governance Dealing with the DFSA Deliberate false & misleading obstruction Aggravating Factors USD 1,500,000 USD 5,500,000 + USD 1,000,000 Factors Immediately reported contraventions Conducted internal investigation and audit Co-operative with DFSA and proactively remediated deficiencies Adjustment None Deterrence adjustment Discount 20% discount Total = USD 640,000 - USD 160,000 Concealed offending conduct Failed to co-operate with the regulator Court action Senior Management inaction Failure to respond to the regulator s concerns 20% discount Total = USD 8,400,000 + USD 1,000,000 - USD 2,100,000

50 DIFC Funds & Fund Managers Fund Managers 31 QIFs DIFC Funds External Fund Managers 1 Exempt Funds 9 Public Funds 4

51 Types of Funds Established Private Equity Infrastructu re Hedg e Fund REIT / Property Umbre lla / PCC DIFC Fund s Islami c Activel y Manag ed Equity Trade Finan ce Leasi ng Special Situati on Fixed Incom e

52 DFSA FinTech A Cyber-Security Checklist Contact us and then speak to us: Fintech@dfsa.ae DFSA Fintech Implementation Group DFSA working closely with DIFCA Crowdfunding Loan-based & Equity-based New Rules Expected (following recent CP s) Innovation Testing Licence (ITL) Guidance to be Implemented (following recent CP) Dynamic Fintech Developments across Global Regulators Break-out Group 3 ( p.m.) at DFSA Offices Authorisations / Forms On-Line / Fintech (75 minutes in all)

53 DFSA Cyber Approach Cyber Guidance for DFSA Firms DFSA Cyber Response Team Cyber Advisory Panel

54 Thank You