Financial Services Regulation Premier Banking & Wealth Management Conference Simon Gray 26 th October 2008 Royal Meridien, Abu Dhabi
Regulatory Landscape 2 Page 2
Dubai International Financial Centre (DIFC) Region Fills gap between Europe and Asia Integrity Transparency Efficiency 3 Page 3
Dubai in 1990 - DIFC District 4 Page 4
Dubai in 2010 - DIFC District 5 Page 5
Characteristics of the DIFC Onshore Onshore Capital Capital Market Market / / International International Standards Standards Designated Designated as as a a Financial Financial Free Free Zone Zone Foreign Foreign Currency Currency Denominated Denominated / / Zero Zero Tax Tax Rate* Rate* Civil Civil and and Commercial Commercial Laws Laws of of UAE UAE disapplied disapplied Tailor Tailor made made laws laws for for the the DIFC DIFC No No local local partner partner requirements requirements Page 6 Wholesale Wholesale centre centre for for Qualified Qualified Investors Investors (Retail (Retail from from July July 2008) 2008) * 50 Years and Renewable 6
Structure of the DIFC Dubai International Financial Centre DIFC Authority Dubai Financial Services Authority DIFC Judicial Authority Provide overall direction for the development and marketing of the DIFC Independent integrated Regulatory Authority with risk-based regulations on par with international standards Independent and final DIFC Court modeled on superior common law court. 7 Page 7
The DFSA Independent integrated Regulatory Authority (FSA Model) Statutory authority with guaranteed operational independence and funding Regulatory approach that is based on international standards, best practices and laws of the world s leading financial jurisdictions Page 8 The DFSA is the sole independent regulator of all financial and ancillary services conducted through the Dubai International Financial Centre, a purpose-built financial free zone in Dubai. The DFSA s regulatory mandate covers asset management, banking, securities, commodities futures trading, Islamic finance, insurance, an international equities exchange and an international commodities derivatives exchange. 8
DFSA s Vision and Mission Vision To be an internationally respected regulator and a role model for financial services regulation in the Middle East Mission To develop, administer and enforce world class regulation of financial services within the DIFC Regulatory Approach To be risk-based and to avoid unnecessary regulatory burden Page 9 Values To expect high standards of ethical conduct and integrity from the DFSA and its people To demonstrate professionalism, independence, efficiency, leadership and resolve in the discharge of our responsibilities To ensure administrative fairness, consultative process, accessibility, impartiality and accountability in the performance of our functions. 9
Page 10 DFSA - Key Objectives In performing its functions and exercising its powers, the DFSA pursues the following: fairness, transparency and efficiency in the financial services industry of the DIFC; foster and maintain confidence in the financial services industry in the DIFC; foster and maintain the financial stability of the financial services industry in the DIFC, including the reduction of systemic risk; 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; protect direct and indirect users and prospective users of the financial services industry in the DIFC; and promote public understanding of the regulation of the financial services industry in the DIFC. 10
DFSA - Rule Making and Policy DIFCA DIFC COURT DFSA DIFX DME Listing Rules Business Rules Employment Law Companies Law Personal Property Law Law of Security Real Property Law Data Protection Law Law on Application of Civil & Commercial Law Contract Law Insolvency Law Arbitration Law Law of Obligations Law of Damages & Remedies Law relating to Application of DIFC Laws Limited Liability Partnership Law General Partnership Law DIFC Court Law Real Estate Law Regulatory Law Markets Law Law Regulating Islamic Financial Business Trust Law Investment Trust Law Collective Investment Law Limited Partnership Law Rulebook Modules: General (GEN) Authorisation (AUT) Supervision (SUP) Enforcement (ENF) Conduct of Business (COB) Prudential Insurance (PIN) Prudential - Investment, Insurance Intermediation & Banking (PIB) Anti Money Laundering (AML) Islamic Financial Business (ISF) Collective Investment Rules (CIR) Ancillary Service Providers (ASP) Offered Securities Rules (OSR) Authorised Market Institution (AMI) Recognised Bodies & Recognised Members (REC) Glossary (GLO) Prudential Returns (PRU) Price Stabilisation (PRS) Takeover Rules (TKO) 11 Page 11
Practical Supervision 12 Page 12
Regulatory Tool Kit Wide Range of Tools Available Diagnostic Tools Monitoring tools Preventative tools Remedial tools 13 Page 13
Supervisory Tools Desk Based Review Prudential / EPRS Risk Assessment High / Medium / Low Inherent & Probability Variation of Scope of Licence Theme reviews eg. AML / CTF Event Driven Sub-prime debt crisis 14 Page 14
How we Supervise Business Regulatory Business Plan Senior Management Compliance Officer/ Money Laundering Reporting Officer GEN COB AML PIB SUP Firm Customers DFSA & Firm 15 Page 15
Event Based Supervision Change in auditor, accounting period, controller Public fund registration and withdrawal Private Fund Notification AML / STR Authorised Individuals status Review of Financial submission, AML report, COB report, Controllers report and SSB report 16 Page 16
Supervision of Islamic Finance Shari a System based approach No Central Shari a Board Enabling regulatory framework SSB determined via each Authorised Firm Holding out provision re Islamic Finance System approach designed to be ultra-flexible No regulatory arbitrage Islamic Windows and wholly Islamic Financial institutions Separate Prudential category five for wholly IFI AAOFI / IFSB Standards Active role in both AAOFI and IFSB Islamic Finance Advisory Council 17 Page 17
Convergence / Divergence Central Sharia Boards Sharia System Approach Practicalities Links with conventional ethical finance Proportionality Purification Initial and ongoing Limitation of investment universe? Cost of compliance Protectionism? 18 Page 18
Projects and Outreach Page 19 Projects EPRS (Electronic Prudential Reporting System), Review of Insurance Regime, Hedge Funds - Code of Conduct, Corporate Governance, Islamic Finance, Basel II Implementation, Trust Service Providers, FSAP Outreach 19
Hedge Fund Code of Practice Addresses operational and conduct of business issues for HFs; Is principles-based (flexibility); Does not address financial stability; Does not impose fixed obligations; Is in line with both the HFWG and AIMA work; and 9 principles. 20 Page 20
Hedge Fund Code of Practice Cont. Have or have access to appropriate skills and resources Implement a robust and flexible investment process Systems and controls to mitigate trading-related risks Adequate back office systems and controls Identify and manage portfolio risks Integrity, accuracy and timeliness of valuation.. Processes Conflicts and fair treatment - e.g. side letters Systems and controls re- market sensitive information Fund of Funds. 21 Page 21
Recent Developments Public Funds - open to Retail Clients Private Funds - only to Professional Clients Fund Administration - Restriction removed Delegation of Fund Administration - only to a firm in Zone 1 or Rec Jurisdiction if a Public Fund -No restriction for Private Funds No DFSA prior approval required for delegation of activities. 22 Page 22
Recent Developments Cont. Replace single property fund prohibition with disclosure regime Reduced base capital for custodians from $10 million to $4 million Supplementary Prospectuses on annual basis unless replacement prospectus 12 month end dates for Prospectuses (where units still on offer) Replace Shari a Board conflicts prohibition with a disclosure regime. 23 Page 23
Initiatives and Future Outlook Internationally accepted authority National and International Islamic accounting standards Standardisation and consolidation Regional Financial Centers Legal Implications Tax Issues Mutual Recognition 24 Page 24
Liaison with Islamic Finance Standard Setting Bodies AAOFI / IFSB Standards Active role in both AAOFI and IFSB Working Parties / Technical Committee Facilitating standardisation and consolidation Islamic Finance Advisory Council DIFC initiative 25 Page 25
Thank You For further information - www.dfsa.ae Telephone: 04 362 1500 (Supervision Department) 26 Page 26